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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, 1999
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
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PRIME HOSPITALITY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
700 Route 46 East, 07004
Fairfield, New Jersey (address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 882-1010
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Par Value $.01 Per Share, Common Stock New York Stock Exchange
9 1/4% First Mortgage Notes Due 2006 New York Stock Exchange
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 20, 2000 based on the last sale price as reported by the
National Quotation Bureau, Inc. On that date was approximately $405,360,283.
The Registrant had 47,689,445 shares of Common Stock outstanding as of
March 20, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 2000 annual meeting of
shareholders are incorporated by reference into Part III of this report.
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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 accounting principles generally accepted in the
United States 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, operator, manager and franchisor of hotels, with
205 hotels in operation containing 27,029 rooms located in 32 states (the
"Portfolio") as of March 20, 2000. Prime controls two hotel brands --
AmeriSuites (R) and Wellesley Inn & Suites (R) -- as well as a portfolio of
upscale, full-service hotels operated under franchise agreements with national
hotel chains. As of March 20, 2000, the Company owned and operated 149 hotels
(the "Owned Hotels"), operated 28 hotels under lease agreements with real estate
investment trusts (the "Leased Hotels"), managed 17 hotels for third parties
(the "Managed Hotels"), and franchised 11 hotels which it does not operate (the
"Franchised Hotels"). Included in the Portfolio are 31 AmeriSuites hotels owned
by third parties which are operated pursuant to franchise agreements, 20 of
which are operated by Prime under lease or management agreements. Prime's
portfolio consists primarily of new, well- maintained hotels, with an average
age of approximately 7 years.
The Company's strategy is to develop its proprietary AmeriSuites and
Wellesley Inn & Suites brands primarily through franchising. The Company
currently has 99 AmeriSuites and 66 Wellesley Inn & Suites in operation, with
31 of these AmeriSuites operated under franchise agreements. Through the
development of its proprietary brands, the Company is transforming itself from
an owner/operator into a franchisor and manager and has positioned itself to
generate additional revenues with minimal capital investment. The Company
currently has 57 executed franchise agreements for new AmeriSuites to be built
with 16 applications pending. In 2000, the first two franchisee constructed
AmeriSuites were opened. The previous franchise agreements on opened hotels were
generated pursuant to asset sales.
Prime's strategy is also focused on growing the operating profits of
its Portfolio. With over 200 hotels in operation, Prime believes it possesses
the hotel management expertise to maximize the profitability and value of its
hotel assets.
On November 1, 1999, the Company converted 38 of its 43 extended-stay
HomeGate hotels into its limited-service Wellesley Inn & Suites brand. In
2000, the Company sold the remaining five HomeGate hotels and the Company's
rights to the HomeGate brand name. The conversion changed the hotels' customer
base from extended-stay to transient. The Company believes this will enhance the
value of its existing hotels, create efficiencies by adding critical mass to the
chain and improve its franchising prospects for the Wellesley Inn & Suites
brand.
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Over the past three years, Prime has achieved rapid growth in the
Portfolio, from 15,479 rooms at March 1, 1997 to 27,029 rooms at March 20, 2000.
Prime's focus on brand development has resulted in the growth of the number of
hotels operated under Prime's proprietary brands from 68 hotels at February 28,
1997 to 165 hotels during the same period. At the same time, the Company's
EBITDA has grown at a compound annual rate of 19.0%, from $125.0 million in 1997
to $177.0 million in 1999, while recurring net income has grown at a compound
annual rate of 16.6%, from $40.0 million to $54.4 million over the same period.
Prime's hotels serve three major lodging industry segments: the
all-suites segment, under Prime's AmeriSuites brand; the limited-service
segment, primarily under Prime's Wellesley Inn & Suites brand and the
full-service segment, under major national franchises.
All-Suites: There are 99 all-suite hotels in operation under the
AmeriSuites brand name. Prime owns and operates 68 of these hotels and
franchises the operation of the remaining 31 hotels, 20 of which are operated by
Prime. There are also nine AmeriSuites currently under construction, with an
additional 50 AmeriSuites to be developed pursuant to franchise agreements.
AmeriSuites are upscale, all-suite hotels containing approximately 128 suites
and are located in 30 states. The hotels are situated, primarily, near suburban
commercial centers, corporate office parks and other travel destinations, with
close proximity to dining, shopping and entertainment amenities. In 1999,
AmeriSuites contributed approximately $87.7 million, or 51.3%, of the Company's
Hotel EBITDA.
Limited-Service: Prime operates 75 limited-service hotels, 66 under
the Wellesley Inn & Suites brand. The Company owns and operates all of the
Wellesley Inn & Suites, which compete primarily in the mid-price segment. The
Wellesley Inn & Suites are located in 21 states primarily in the Southeast,
Northeast and Southwest. The remaining nine limited-service hotels consist of
six Managed Hotels and three Owned Hotels and are operated under franchise
agreements with national chains. Prime plans to convert the three owned
limited-service hotels to the Wellesley Inn & Suites brand. In 1999, the
Company's limited-service hotels contributed approximately $41.9 million, or
24.6%, of the Company's Hotel EBITDA.
Full-Service: Prime operates 31 full-service hotels, twelve of which
are owned, primarily in the upscale segment with food and beverage service and
banquet facilities under franchise agreements with national hotel brands such as
Hilton, Radisson, Sheraton, Crowne Plaza, Holiday Inn and Ramada. The hotels are
located primarily in the Northeast. In 1999, the Company's full- service hotels
contributed approximately $41.2 million, or 24.1%, of the Company's Hotel
EBITDA.
ASSET DIVESTITURES
The Company has also undertaken a strategic initiative to dispose of
hotel real estate and to utilize proceeds to repurchase stock, retire debt or
invest in the growth of its brands. During 1999, the Company sold eight
AmeriSuites for $80.2 million in proceeds and certain other assets for an
additional $6.5 million in cash proceeds. The Company retained the franchise
rights on all the sold AmeriSuites under franchise agreements with terms ranging
from 10 to 20 years. In addition to AmeriSuites sales, the Company will be
looking to sell selected Wellesley and full-service hotels in the future.
The combination of cash flow from operations and proceeds from asset
sales in 1999
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provided the funds to lower the Company's leverage and reduce the shares
outstanding. During 1999, the Company repurchased 5.8 million shares of its
common stock at an average price of $9.34 per share and reduced its debt from
$597.8 million at December 31, 1998 to $549.0 million at December 31, 1999. In
October 1999, the Company initiated a new stock buyback program and amended its
bank covenants to provide for an additional $100 million of share repurchases to
be funded by 50% of asset sale proceeds. Under this program, through March 20,
2000 the Company has repurchased $9.9 million of its stock ($3.0 million in 1999
and $6.9 million in 2000).
RECENT EVENTS
Subsequent to year end, the Company sold the Frenchman's Reef
Marriott Resort in St. Thomas U.S.V.I. for $73.0 million, the remaining five
HomeGate hotels and the Company's rights to the HomeGate brand name for $17.7
million and an additional AmeriSuites for $10.8 million. The Company utilized
the proceeds to retire or transfer $57.4 million of debt encumbering the hotels
with the remainder available for the repurchase of the Company's common stock
and/or the retirement of debt.
In March 2000, the Company signed an agreement with Sholodge, Inc.
("Sholodge") to acquire its leasehold interests in 27 Sumner Suites hotels for
net consideration of $2.0 million. Pursuant to the agreement, the Company will
convert these hotels to its AmeriSuites brand and will operate the hotels under
lease agreements with Hospitality Properities Trust ("HPT") and
Sholodge. The Company will also purchase two land sites from Sholodge to develop
two additional AmeriSuites hotels. The transaction is expected to close in
mid-April and is subject to certain due diligence items and approval by HPT.
Under the agreement, a subsidiary of Prime will assume Sholodge's
interest in an existing lease for 20 hotels with HPT, subject to HPT's consent,
and enter into new lease agreements on the seven remaining hotels. As part of
the transaction, Prime will also purchase land from Sholodge in Mt. Laurel, NJ
and in Sterling, VA, near Dulles Airport. An affiliate of Sholodge will then
construct AmeriSuites hotels on these sites.
The hotels are located in 12 states, primarily in the Southeast,
Midwest and Southwest regions of the country. The hotels were all recently
constructed by Sholodge, with an average age of 2.8 years. Sholodge has prior
experience developing AmeriSuites hotels as 15 current AmeriSuites hotels were
constructed by Sholodge. The Company will operate the hotels as Sumner Suites
until the conversion process is complete.
INDUSTRY OVERVIEW
In 1999, industry-wide percentage growth in supply exceeded
industry-wide percentage growth in room demand (4.2% versus 3.3%), continuing a
trend that began in 1997. This resulted in a slight decline in overall occupancy
levels from 63.8% in 1998 to 63.3% in 1999. 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 4.0% from $78.15 in 1998 to $81.27 in 1999,
resulting in a REVPAR increase of 3.1%. 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
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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 which 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
----------- ----------- ------
1997 V. 1998 V. 1999 V. 1997 V. 1998 V. 1999 V. 1997 V. 1998 V. 1999 V.
1996 1997 1998 1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States..................... 3.4% 4.0% 4.2% 2.5% 3.1% 3.3% 5.3% 3.6% 3.1%
BY REGION:
Middle Atlantic................... 1.7 2.3 2.9 2.5 3.1 2.2 9.6 7.3 4.0
South Atlantic.................... 3.4 4.3 4.6 2.4 2.8 3.8 4.7 2.7 3.1
West South Central................ 4.9 5.1 5.4 4.0 5.2 3.1 4.3 4.5 0.3
BY SERVICE (PRICE LEVEL):
Upscale........................... 4.0 5.0 4.8 3.7 4.2 3.6 4.7 2.9 1.3
Mid-Price......................... 4.6 6.2 5.8 3.5 4.7 4.5 4.9 3.4 2.9
</TABLE>
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PRIME'S LODGING OPERATIONS
The following table sets forth information with respect to the
Portfolio as of March 20, 2000:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED FRANCHISED TOTAL
----- ------ ------- ---------- -----
(1) (2) (3) (4) (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 68 8,786 19 2,403 1 128 11 1,404 99 12,721
LIMITED-SERVICE:
Comfort Inn & Suites 2 179 2 179
Days Inn 1 113 1 113
Howard Johnson 3 337 2 285 5 622
Ramada Limited 1 119 1 119
Wellesley Inn & Suites 66 7,475 66 7,475
----- ------- ----- ------ ----- -------
Total Limited-Service 69 7,812 6 696 75 8,508
FULL-SERVICE:
Country Inn & Suites 2 210 2 210
Comfort Inn 1 162 1 162
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
Quality Inn 1 106 1 106
Radisson 3 627 3 627
Ramada 5 823 3 444 3 552 11 1,819
Sheraton 1 240 2 349 1 347 4 936
----- ------- --- ------ ----- ------ ----- -------
Total Full-Service 12 2,435 9 1,464 10 1,901 31 5,800
Total 149 19,033 28 3,867 17 2,725 11 1,404 205 27,029
===== ======= === ====== ===== ====== === ====== ===== =======
</TABLE>
(1) The Owned Hotels represent those hotels in which the Company owns
significant economic interests. The Company owns the land and building on
all but 11 hotels which 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 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 franchise fees.
(3) Of the 17 Managed Hotels, the Company operates one AmeriSuites hotel which
also provides Prime with franchise fees.
(4) Franchised Hotels are hotels operated by third parties under AmeriSuites
franchise agreements.
(5) In addition to the above, as of March 2000, Prime has two
AmeriSuites comprising 275 rooms under construction, while franchisees are
constructing an additional seven AmeriSuites comprising 935 rooms.
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The following table sets forth the location of the Portfolio as of
March 20, 2000:
<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 6 780 1 117 1 128 8 1,025
Arkansas 1 130 1 130
California 1 128 3 306 2 256 6 690
Colorado 5 662 5 662
Connecticut 4 492 2 305 6 797
Florida 27 3,074 4 431 31 3,505
Georgia 10 1,246 1 189 11 1,435
Idaho 1 128 1 128
Illinois 5 649 3 380 8 1,029
Indiana 2 260 1 126 3 386
Kansas 3 374 1 126 4 500
Kentucky 2 251 2 251
Louisiana 1 128 1 128
Maine 1 130 1 130
Maryland 1 137 1 128 2 265
Massachusetts 1 158 1 158
Michigan 3 394 3 394
Minnesota 1 125 1 128 5 604 7 857
Nevada 1 125 3 552 4 677
New Jersey 16 2,604 4 648 6 1,423 26 4,675
New Mexico 2 237 1 128 3 365
New York 8 932 8 932
North Carolina 5 648 1 75 6 723
Ohio 4 460 3 379 7 839
Oklahoma 3 384 3 384
Oregon 1 137 1 161 2 298
Pennsylvania 4 632 4 632
South Carolina 4 455 4 455
Tennessee 4 503 2 256 6 759
Texas 19 2,356 5 638 24 2,994
Virginia 4 444 1 126 5 570
----- ------ --- ------ --- ------ ---- ------ ----- ------
Total 149 19,033 28 3,867 17 2,725 11 1,404 205 27,029
===== ====== === ====== === ====== ==== ====== ===== ======
</TABLE>
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The following table sets forth for the five years ended December 31,
1999 operating data for the hotels in the Portfolio as of December 31, 1999.
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"), and the five HomeGate hotels
sold in 2000 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>
1995....... 51 6,557 76 10,433
1996....... 59 7,581 88 11,906
1997....... 91 11,710 125 16,735
1998....... 129 16,618 165 21,913
1999....... 150 19,161 203 26,779
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1995....... 68.7% $61.94 $42.54 70.0% $66.36 $46.44
1996....... 68.7 67.85 46.63 70.9 72.39 51.30
1997....... 67.6 73.31 49.55 69.3 77.18 53.49
1998....... 64.8 76.49 49.55 66.5 80.13 53.28
1999....... 63.5 77.05 48.89 65.1 80.00 52.07
</TABLE>
AMERISUITES
The Company currently has 99 AmeriSuites in operation and there are
nine AmeriSuites hotels under construction. Prime also has an additional 50
executed AmeriSuites franchise agreements and has 16 applications pending for
additional hotels. Prime also intends to add 29 hotels to the AmeriSuites brand
through its proposed transaction with Sholodge, Inc. (See "Recent Events").
While the majority of the current AmeriSuites hotels were 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 upscale and mid-price brands such
as Courtyard by Marriott, Hilton Garden Inns and Holiday Inn. The average age of
the AmeriSuites hotels as of March 20, 2000 was approximately 3.4 years. 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, 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 size and quality of the guest suites which contain
approximately 420 square feet, approximately 25% larger than a standard hotel
room. The suites offer distinct living, sleeping and kitchen areas with
microwave, refrigerators, in-room coffee makers, ironing boards and hair dryers.
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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, speaker phones and other amenities. The
typical 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 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 1999, the
REVPAR contribution from the central reservation system for AmeriSuites hotels
was approximately 32% of revenues.
The following table sets forth for the five years ended December 31,
1999 operating data for the owned AmeriSuites hotels in the Portfolio as of
December 31, 1999. Operating data for the hotels built during the period are
presented from the dates such hotels commenced operations.
<TABLE>
<CAPTION>
OWNED TOTAL
----- -----
HOTELS ROOMS HOTELS ROOMS
------ ----- ------ -----
<S> <C> <C> <C> <C>
1995....... 10 1,208 19 2,320
1996....... 18 2,232 31 3,793
1997....... 41 5,254 59 7,455
1998....... 58 7,515 78 10,046
1999....... 69 8,914 97 12,471
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1995....... 67.7% $67.27 $45.52 67.2% $65.45 $43.98
1996....... 63.5 73.95 46.98 66.4 72.13 47.90
1997....... 63.0 75.87 47.76 65.2 75.79 49.41
1998....... 64.9 81.85 53.09 65.9 81.01 53.38
1999....... 65.1 82.21 53.51 66.4 81.28 53.98
</TABLE>
WELLESLEY INN & SUITES
The Company's limited-service hotels consist primarily of 66
Wellesley Inn & Suites, all of which are owned and operated by the Company. The
brand is comprised of 28 original Wellesley Inns and 38 Wellesley Inn & Suites
which, in addition to Wellesley Inn features, also contain suite rooms. The
Company intends to develop this brand primarily through franchisees and believes
that conversion opportunities from other brands exist in this segment.
Wellesley Inn & Suites are positioned in the mid-price segment of
the industry and compete with other chains such as Hampton Inn & Suites, La
Quinta Inn & Suites, Holiday Inn Express and Comfort Inn & Suites. The average
age of the chain's hotels is 6.2 years. The target customer is the transient
business traveler, although approximately 25% of the customers stay on an
extended basis.
Of the Company's 28 original Wellesley Inns, 15 are located in
Florida and the remainder in the Middle Atlantic and Northeast United States.
The prototypical Wellesley Inn has approximately 100 rooms and is distinguished
by its classic stucco exterior, spacious lobby and
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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 Florida, where the population has grown rapidly,
the Company has built a geographically concentrated group of Wellesley Inns,
thereby developing strong regional brand name recognition.
The Company's 38 new Wellesley Inn & Suites were formed from the
conversion of 38 former HomeGate hotels in November 1999. Wellesley Inn & Suites
are located primarily in the Southwest, Midwest and Southeast. The typical
Wellesley Inn & Suites consists of approximately 110 to 130 rooms. In addition
to the amenities of a typical Wellesley Inn, the Wellesley Inn & Suites hotels
offer suite accomodations in approximately half of the guest rooms. The suites
contain approximately 450 square feet offering separate living, sleeping and
eating areas. The suite rooms also contain kitchenettes with stove tops,
refrigerators and microwaves.
The Wellesley Inn & Suites utilize the same reservation system,
developed by REZsolutions, Inc., used by AmeriSuites. The system contributed
approximately 21% of revenues in 1999.
The following table sets forth for the five years ended December 31,
1999 operating data for Wellesley Inns as of December 31, 1999. Due to the
conversion of the 38 hotels into Wellesley Inn & Suites in November 1999,
operating data has been presented for the 28 comparable hotels as well as the
total. 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>
COMPARABLE TOTAL
---------- -----
HOTELS ROOMS HOTELS ROOMS
------ ----- ------ -----
<S> <C> <C> <C> <C>
1995....... 28 2,807 28 2,807
1996....... 28 2,807 28 2,807
1997....... 28 2,807 36 3,824
1998....... 28 2,807 57 6,411
1999....... 28 2,807 66 7,475
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1995....... 75.3% $52.11 $39.25 75.3% $52.11 $39.25
1996....... 73.8 53.80 39.72 73.8 53.80 39.72
1997....... 73.6 58.29 42.87 71.3 56.88 40.56
1998....... 70.8 61.13 43.26 62.6 56.75 35.52
1999....... 71.0 60.90 43.26 59.8 59.15 35.38
</TABLE>
The Company's other limited-service hotels consist of nine hotels
operated under franchise agreements, six of which are managed for third parties.
The Company plans to convert the three Owned Hotels to its Wellesley Inn &
Suites brand. 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 31 full-service hotels primarily in the upscale
segment with food and beverage service and banquet facilities under franchise
agreements with Hilton, Radisson, Sheraton,
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Crowne Plaza, Holiday Inn and Ramada. The full-service hotels are concentrated
in the Northeast. The Company owns 12 of these hotels, operates nine hotels
under lease agreements with REITs and manages 10 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 owned and operated one resort hotel, the 504-room Marriott's
Frenchman's Reef Hotel in St. Thomas, U.S. Virgin Islands, which was sold in
March 2000.
In the future, the Company intends to divest certain of its remaining 12
owned full-service hotels. Prime intends to capitalize on its ability to
effectively manage hotels in this segment. While Prime does not intend to
acquire full-service hotels, it does plan to invest capital to pursue management
opportunities.
The following table sets forth for the five years ended December 31, 1999
operating data for the full-service hotels in the Company's portfolio as of
December 31, 1999. For purposes of showing operating trends, the results of the
Frenchman's Reef, which was sold in March 2000, 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 three 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
------ ----- ------ -----
<C> <C> <C> <C> <C>
1995....... 11 2,285 25 4,764
1996....... 11 2,285 25 4,764
1997....... 12 2,435 26 4,914
1998....... 12 2,435 26 4,914
1999....... 12 2,435 31 5,800
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1995....... 61.8% $75.83 $46.89 68.0% $78.56 $53.44
1996....... 67.4 83.94 56.54 71.9 85.86 61.75
1997....... 71.6 92.28 66.02 73.7 93.22 68.69
1998....... 70.7 101.95 72.03 72.7 101.77 74.00
1999....... 70.8 106.02 75.06 70.8 102.76 72.79
</TABLE>
10
<PAGE> 12
BRAND INFRASTRUCTURE
As Prime continues to evolve into a franchisor, it has undertaken a number of
brand initiatives. These include the following:
Brand Advertising - Prime increased its national brand advertising expenditures
by 47% from 1998 to $4.1 million in 1999 and plans to further increase brand
advertising expenditures by 30%-35% in 2000. The program has expanded to include
national publications such as USA Today and Sports Illustrated, radio promotions
in key markets and a sponsorship of a race car on the NASCAR circuit.
Central Reservation System - Prime and REZsolutions, its central reservation
system operator, are making several enhancements to the central reservation
system. Utilizing fiber optic technology, the Company implemented a seamless
two-way interface between the hotels and the reservation system which provides
for instant inventory updates for customer and agents. Other initiatives in
process include an easy access booking screen for travel agents and an improved
customer database.
National Accounts - The number of national companies listing AmeriSuites and
Wellesley Inn & Suites as preferred hotel providers increased in 1999 by 50%
over the prior year. Prime now has over 200 national accounts which include
leading companies throughout the country.
High Speed Internet Access - In November, the Company signed an agreement with
CAIS Internet to provide high speed internet access to all the hotels. Customers
will be able to instantly access the internet in their rooms through their
laptops. Prime expects to begin installation in April 2000 and be completed by
the summer of 2000.
Rewards Programs - During 1999, the Company increased its AmeriSuites and
Wellesley club membership by 88% to approximately 52,000 members. Frequent
customers can currently earn rewards such as a free night's stay or an American
Express gift certificate. As Prime expands its brands, it will also be expanding
its reward offerings. Prime intends to team up with major travel and retail
partners to upgrade this program.
E-Commerce - Recognizing the potential impact that the internet can have on
hotel bookings, Prime increased the presence of its brands on the web this year.
Customers can now book hotel rooms not only through its proprietary websites
(AmeriSuites.com and Wellesley.com) but also through popular travel web sites
such as TravelScape, Priceline, Expedia and Travelocity. In the future, the
Company plans to increase its distribution channels, create web based marketing
alliances and develop business to business booking and marketing relationships.
Management believes that the growing brand 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 chains' number of hotels in the
past year will permit its brands to achieve critical mass and outperform its
older, more established competitors.
11
<PAGE> 13
FRANCHISING
Prime intends to grow its brands primarily through franchising. The
Company began its franchise sales efforts in mid-1998 when it obtained all the
necessary statutory approvals to begin franchising its AmeriSuites and Wellesley
brands. Prime currently has a franchise sales team of eight professionals which
include a senior vice president and seven regional vice presidents. In addition
to their direct sales effort, the franchise sales team also develops the
franchise marketing programs which include advertising in industry and business
publications, attending various trade shows and producing brochures and other
collateral material. Prime has also formed a franchise services team which has
developed a variety of programs to guide its franchisees through the various
phases of opening and operating a hotel. These include training, pre-opening,
construction management and purchasing services. Prime also offers its
franchisees an internet based communications system which provides brand
updates, operating standards and manuals and other important communications.
Since it began its franchising program in mid-1998, the Company has
executed 59 new AmeriSuites franchise agreements and has 16 AmeriSuites
franchise applications pending. The first two franchisee-constructed AmeriSuites
opened in 2000 in Grapevine, TX and Peoria, IL. As of March 20, 2000, there are
seven AmeriSuites under construction by franchisees and six AmeriSuites hotels
are scheduled to begin construction within 90 days. In addition to the two newly
constructed franchised AmeriSuites, Prime has 29 other franchised AmeriSuites in
operation. These franchise agreements were executed pursuant to sales of these
hotels. Equity Inns, Inc. owns 19 of these hotels.
As of March 20, 2000, the Company has two Wellesley Inn & Suites
franchise applications pending. Prime believes that the conversion of the former
HomeGate hotels to its Wellesley brand will improve the chain's future
franchising prospects by adding critical mass to the brand. As part of its
franchising initiatives, Wellesley Inn & Suites became a founding sponsor of
the Asian American Hotel Owners' Association in January 2000, a group
representing a substantial number of owners in this segment.
Prime's AmeriSuites and Wellesley franchise agreements typically
provide for terms of between ten and twenty years and require the franchisee to
maintain certain operating and product standards. The franchise fees are
generally comprised of an initial application fee, plus monthly fees based on a
percentage of hotel revenues. The monthly fees cover royalties and the cost of
marketing and reservation services. Prime also offers additional services
including purchasing and design services. The standard monthly fees as a
percentage of room sales are as follows:
<TABLE>
<CAPTION>
ROYALTY MARKETING RESERVATION
FEE FEE FEE
------- --------- -----------
<S> <C> <C> <C>
AmeriSuites................... 5.0% 2.0% 1.5%
Wellesley Inn & Suites....... 4.5% 1.5% 1.5%
</TABLE>
12
<PAGE> 14
DEVELOPMENT
While the Company has developed the majority of its existing
AmeriSuites and Wellesley Inn & Suites, it intends to rely on franchisees for
the majority of future development of its hotels.
As of March 20, 2000, Prime has two hotels under construction in the
Baltimore and Orlando markets. In addition, Prime may construct AmeriSuites
hotels on three additional land sites it already owns in the Detroit, San Jose
and San Francisco areas and two sites it may purchase from Sholodge in Mt.
Laurel, NJ and Virginia, near Dulles Airport. Prime intends to focus any future
development efforts in the Northeast and West Coast, or in other areas where the
development process is more difficult and higher barriers to entry exist. The
Company intends to fund new development with internally generated cash flow.
The Company's Wellesley Inn & Suites development effort will focus
on the conversion of other limited-service hotels to its brands. The Company
plans to convert three limited-service hotels that it already owns or leases
(two in New Jersey and one in Florida) to its Wellesley brand in 2000.
OPERATIONS
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With over 200
hotels under management covering a number of price points and broad geographic
regions, the Company possesses the critical mass to support sophisticated
operating, marketing and financial systems. The Company believes that its broad
array of central services permits on-site hotel general managers to effectively
focus on providing guest services, resulting in economies of scale and leading
to above-market hotel profit margins. As a result of these operating strategies,
the Company's comparable hotels generated average operating profit margins that
exceeded industry averages for 1998, the most current data available from
industry sources, by approximately 18% for full-service hotels and 6% for
limited-service hotels.
The Company's operating strategy combines operating service and
guidance from its central management team with decentralized decision-making
authority delegated to each hotel's on-site management. The on-site hotel
management teams consist of a general manager and, depending on the hotel's size
and market position, 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
an AmeriSuites operations office 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.
13
<PAGE> 15
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. 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.
14
<PAGE> 16
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 Company's role as
the franchisor.
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 March 20, 2000, the Company operated 28 hotels under lease
agreements with REITs. These are comprised of 19 AmeriSuites hotels owned by
Equity Inns, Inc., eight full-service hotels owned by MeriStar Hospitality, Inc.
and one full-service hotel owned by Winston Hotels. The leases have terms of 10
years expiring from 2007 to 2008 with certain renewal options. The Leased Hotels
provide for base 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 franchise fees. The
remaining Leased Hotels are operated under franchise agreements with national
chains.
MANAGED HOTELS
As of March 20, 2000, the Company provided hotel management services
to third party hotel owners of 17 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 2014. 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 primarily
with full-service 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 implement certain capital programs. The payment
15
<PAGE> 17
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
believes it currently enjoys good relationships with its franchisors.
WORKING CAPITAL
The Company's operating cash flow is sufficient to cover its current
operational and capital needs. The Company also intends to generate proceeds
from asset sales, to be utilized for repayment of debt and/or the repurchase of
its common shares. 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 relatively
modest due to the seasonal balance achieved from the geographical location of
the Company's hotel properties. The second and third quarters of the year are
generally the strongest due to business travel patterns.
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, 1999, the Company employed approximately 7,100
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its employees
are generally 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
environmental liability that is likely, individually or in the aggregate, to
have a material adverse effect on its financial condition or results of
operations or cash flows.
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 is likely, individually or in the
aggregate, to have a material adverse effect on its financial condition or
results of operations or cash flows.
16
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December
31, 1999, 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 20,
2000 there were 47,689,445 shares of common stock outstanding.
The following table sets forth the reported high and low closing
sales prices of, and the dividends per share on, the common stock on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND/SHARE
---- --- --------------
<S> <C> <C> <C>
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
Year Ended December 31, 1999
First Quarter.................... 11 1/8 9 1/16 0
Second Quarter................... 12 15/16 10 3/8 0
Third Quarter.................... 12 1/8 7 15/16 0
Fourth Quarter................... 9 7 5/8 0
</TABLE>
As of March 20, 2000, the closing sales price of the common stock on
the NYSE was $8 1/2 per share, and there were approximately 1,888 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. In
addition, the Company is prohibited by the terms of certain debt agreements
from paying cash dividends.
17
<PAGE> 19
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, 1999. 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,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................................................... $205,628 $271,100 $340,961 $469,405 $552,732
Income from continuing operations before extraordinary
items and the cumulative effect of change in accounting
principle......................................................... 17,465 30,048 25,931 53,847 40,197
Extraordinary items-gains on discharge of indebtedness
(Net of income taxes)............................................. 104 202 --- --- ---
Cumulative effect of a change in accounting principle (net
of income taxes).................................................. --- --- --- --- (5,315) (a)
Pro-forma effect of change in accounting principle (net
of income taxes) (b).............................................. (157) (1,260) (255) (3,788) ---
Net income........................................................ 17,569 30,250 25,931 53,847 34,882
Pro-forma net income after taxes (b)............................... 17,412 28,990 25,676 50,059 ---
NET INCOME PER COMMON SHARE:
Basic.............................................................. $.57 $.74 $.56 $1.04 $.68
Diluted............................................................ $.54 $.68 $.54 $1.00 $.67
PRO-FORMA NET INCOME PER COMMON SHARE (b):
Basic.............................................................. $.57 $.71 $.55 $.97 ---
Diluted............................................................ $.54 $.66 $.53 $.94 ---
BALANCE SHEET DATA:
Total assets....................................................... $573,241 $877,100 $1,196,666 $1,408,398 $1,328,779
Long-term debt, net of current portion............................. 276,920 319,836 554,500 582,031 543,485
Stockholders' equity............................................... 232,916 484,584 524,413 641,045 632,000
</TABLE>
(a) Cumulative effect of a change in accounting principle of $5.3 million (net
of income taxes) in 1999, relates to the adoption by the Company of
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP 98-5"). The Company adopted SOP 98-5 on January 1, 1999,
and was required to write-off any unamortized pre-opening costs that
remained on the balance sheet.
(b) Pro-forma amounts reflect the effect on net income and earnings per share
had the company written off pre-opening costs pursuant to SOP-98-5 in
1995-1998.
18
<PAGE> 20
Unaudited selected consolidated quarterly financial data for the years
ending December 31, 1998 and 1999, follow (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue ...................................... $103,288 $122,947 $121,045 $122,125
Operating income ................................... 21,125 24,641 18,908 24,287
Net income before the cumulative effect of a
change in accounting principle .................... 10,291 23,571 8,943 11,042
Cumulative effect of a change in accounting
principle (net of income taxes)................... --- --- --- ---
Net income ......................................... 10,291 23,571 8,943 11,042
Earnings per common share:
Basic:
Income before cumulative effect of a change
in accounting principle (net of income taxes)..... $0.22 $0.45 $0.17 $0.20
Cumulative effect of a change in accounting
principle (net of income taxes)................... --- --- --- ---
----------- ----------- ----------- -----------
Earnings per share ................................. $0.22 $0.45 $0.17 $0.20
=========== =========== =========== ===========
Diluted:
Income before cumulative effect of a change
in accounting principle (net of income taxes)...... $0.20 $0.43 $0.17 $0.20
Cumulative effect of a change in accounting
principle (net of income taxes)................... --- --- --- ---
----------- ----------- ----------- -----------
Earnings per share ................................. $0.20 $0.43 $0.17 $0.20
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue ...................................... $133,300 $146,021 $140,832 $132,579
Operating income ................................... 24,677 36,093 10,645 29,321
Net income before the cumulative effect of a
change in accounting principle ................... 11,516 16,264 1,393 11,024
Cumulative effect of a change in accounting
principle (net of income taxes)................... (5,315) --- --- ---
Net income ......................................... 6,201 16,264 1,393 11,024
Earnings per common share:
Basic:
Income before cumulative effect of a change in
accounting principle (net of income taxes)........ $0.22 $0.32 $0.03 $0.22
Cumulative effect of a change in accounting
principle (net of income taxes)................... (0.11) -- -- --
----------- ----------- ----------- -----------
Earnings per share ................................. $0.11 $0.32 $0.03 $0.22
=========== =========== =========== ===========
Diluted:
Income before cumulative effect of a change in
accounting principle (net of income taxes)........ $0.22 $0.31 $0.03 $0.21
Cumulative effect of a change in accounting
principle (net of income taxes)................... (0.10) -- -- --
----------- ----------- ----------- -----------
Earnings per share ................................. $0.12 $0.31 $0.03 $0.21
=========== =========== =========== ===========
</TABLE>
19
<PAGE> 21
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
Prime is an owner, operator, manager and franchisor of hotels, with
205 hotels in operation containing 27,029 rooms located in 32 states (the
"Portfolio") as of March 20, 2000. Prime controls two hotel brands --
AmeriSuites (R) and Wellesley Inn & Suites (R) -- as well as a portfolio of
upscale, full-service hotels operated under franchise agreements with national
hotel chains. As of March 20, 2000, the Company owned and operated 149 hotels
(the "Owned Hotels"), operated 28 hotels under lease agreements with real estate
investment trusts (the "Leased Hotels"), managed 17 hotels for third parties
(the "Managed Hotels"), and franchised 11 hotels which it does not operate (the
"Franchised Hotels"). Included in the Portfolio are 31 AmeriSuites hotels owned
by third parties which are operated pursuant to franchise agreements, 20 of
which are operated by Prime under lease or management agreements. Prime's
portfolio consists primarily of new, well- maintained hotels, with an average
age of approximately 7 years.
The Company's strategy is to develop its proprietary AmeriSuites and
Wellesley Inn & Suites brands primarily through franchising. The Company
currently has 99 AmeriSuites and 66 Wellesley Inn & Suites in operation, with
31 of these AmeriSuites operated under franchise agreements. Through the
development of its proprietary brands, the Company is transforming itself from
an owner/operator into a franchisor and manager and has positioned itself to
generate additional revenues with minimal capital investment. The Company
currently has 57 executed franchise agreements for new AmeriSuites to be built
with 16 applications pending. In 2000, the first two franchisee constructed
AmeriSuites have been opened. The previous franchise agreements on opened
hotels were generated pursuant to asset sales.
Prime's strategy is also focused on growing the operating profits of
its Portfolio. With over 200 hotels in operation, Prime believes it possesses
the hotel management expertise to maximize the profitability and value of its
hotel assets.
On November 1, 1999, the Company converted 38 of its 43 extended-stay
HomeGate hotels into its limited-service Wellesley Inn & Suites brand. In
2000, the Company sold the remaining five HomeGate hotels and the Company's
rights to the HomeGate brand name. The conversion changed the hotels' customer
base from extended-stay to transient. The Company believes this will enhance the
value of its existing hotels, create efficiencies by adding critical mass to the
chain and improve its franchising prospects for the Wellesley Inn & Suites
brand.
In March 2000, the Company signed an agreement with Sholodge, Inc.
("Sholodge") to acquire its leasehold interests in 27 Sumner Suites hotels for
net consideration of $2.0 million. Pursuant to the agreement, the Company will
convert these hotels to its AmeriSuites brand and will operate the hotels under
lease agreements with Hospitality Properties Trust ("HPT") and Sholodge. The
Company will also purchase two land sites from Sholodge to develop two
additional AmeriSuites hotels. The transaction is expected to close in mid-April
and is subject to certain due diligence items and approval by HPT.
Under the agreement, a subsidiary of Prime will assume Sholodge's
interest in an existing lease for 20 hotels with HPT, subject to HPT's consent,
and enter into new lease agreements on the
20
<PAGE> 22
seven remaining hotels. As part of the transaction, Prime will also purchase
land from Sholodge in Mt. Laurel, NJ and in Sterling, VA, near Dulles Airport.
An affiliate of Sholodge will then construct AmeriSuites hotels on these sites.
The Company's EBITDA increased by $28.7 million, or 19.4%, from
$148.3 million in 1998 to $177.0 million in 1999, and Hotel EBITDA increased by
$28.8 million, or 20.3%, from $142.0 million in 1998 to $170.8 million in 1999.
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 three segments of
the industry: the upscale all-suites segment, under the Company's proprietary
AmeriSuites brand; the upscale full-service segment, under major national
franchises; and the mid-price limited-service segment, primarily under the
Company's proprietary Wellesley Inn & Suites brand. The following table
illustrates the Hotel EBITDA contribution from each segment (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
All-suites........... $ 71,658 50.5% $ 87,714 51.3%
Full-service......... 39,111 27.5 41,200 24.1
Limited-service...... 31,225 22.0 41,925 24.6
-------- ----- -------- -----
Total...... $141,994 100.0% $170,839 100.0%
======== ===== ======== =====
</TABLE>
Hotel EBITDA for 1999 reflects the shifting mix in the Company's
hotel portfolio toward its proprietary brands. Based on the Company's strategic
plan, the Company expects the relative contribution from its all-suite
AmeriSuites hotels and limited-service Wellesley Inn & Suites hotels to
continue to increase in 2000.
The Company evaluates the performance of its segments based primarily
on EBITDA generated by the operations of its hotels. EBITDA and Hotel EBITDA are
not measures of financial performance under accounting principles generally
accepted in the United States 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.
Forward-looking statements include the information about Prime's
possible or assumed future results of operations and statements preceded by,
followed by or that include the words "believe," "except," "anticipate,"
"intend," "plan," "estimate," or similar expressions, or the negative thereof.
Actual results may differ materially from those expressed in these
forward-looking
21
<PAGE> 23
statements. Readers of this Form 10-K are cautioned not to unduly rely on any
forward-looking statements.
The following important factors, in addition to those discussed
elsewhere in this Form 10-K or incorporated herein by reference, could cause
results to differ materially from those expressed in such forward-looking
statements: competition within each of the Company's business segments in areas
such as access, location, quality or accommodations and room rate structures;
the balance between supply of and demand for hotel rooms and accommodations; the
Company's continued ability to obtain new operating contracts and franchise
agreements; the Company's ability to develop and maintain positive relations
with current and potential hotel owners and other industry participants; the
level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; the ability of the Company or its
franchisees to maintain the properties in a first-class manner, including
meeting capital expenditure requirements; changes in travel patterns, taxes and
government regulations which influence or determine wages, prices, construction
procedures and costs; the effect of international, national and regional
economic conditions that will affect, among other things, demand for products
and services at the Company's hotels; government approvals, actions and
initiatives including the need for compliance with environmental and safety
requirements, and change in laws and regulations or the interpretation thereof
and the potential effects of tax legislative action; and other risks described
from time to time in our filings with the SEC.
Although the Company believes the expectations reflected in these
forward-looking statements are based upon reasonable assumptions, no assurance
can be given that Prime will attain these expectations or that any deviations
will not be material. Except as otherwise required by the federal securities
laws, the Company disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
22
<PAGE> 24
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $83.3 million, or 21.2%,
from $394.0 million in 1998 to $477.3 million in 1999. The increase was
primarily due to incremental revenues of $77.7 million from new hotels added
during 1998 and 1999, growth in revenues at comparable Owned Hotels of $4.3
million and an increase in revenues at the Frenchman's Reef of $3.3 million over
the prior year. Frenchman's Reef has been sold as of March 2000 and will not
impact future periods. These increases in revenues were partially offset by a
decrease in revenues from disposed properties.
The following table illustrates the REVPAR growth, by segments, in
1999 from the 94 Owned Hotels which were operated for comparable periods in 1998
and 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 %
---- ---- ---
<S> <C> <C> <C>
AMERISUITES
Occupancy 66.2% 68.4%
ADR $81.85 $81.70
REVPAR $53.87 $55.88 3.7%
FULL-SERVICE
Occupancy 70.7% 70.8%
ADR $101.95 $106.02
REVPAR $72.03 $75.06 4.2%
WELLESLEY INN & SUITES
Occupancy 70.8% 71.0%
ADR $61.13 $60.90
REVPAR $43.26 $43.26 0.0%
TOTAL
Occupancy 68.0% 69.4%
ADR $80.89 $81.65
REVPAR $54.96 $56.67 3.1%
</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 limited-service segment did not show growth
due to additional hotel supply in this segment, particularly in Florida, where a
majority of the Wellesley Inns are located. The improvements in REVPAR at
comparable Owned Hotels were generated by increases in ADR, which rose by 1.0%
and an increase in occupancy which rose by 2.1%.
23
<PAGE> 25
Food and beverage revenues increased by $2.0 million, or 3.8%, from
$53.4 million in 1998 to $55.4 million in 1999 primarily due to the increase in
revenues at the Frenchman's Reef of $2.4 million. Frenchman's Reef has been sold
as of March 2000 and will not impact future periods.
Management, franchise and other fees 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 fees increased by $4.0
million, or 30.0%, from $13.4 million in 1998 to $17.4 million in 1999. 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 relates to
mortgages secured by certain Managed Hotels. Interest on mortgages and notes
receivable decreased by $2.1 million, or 44.0%, from $4.7 million in 1998 to
$2.6 million in 1999 due to the settlement of various cash flow mortgages and
notes receivable in 1998 and 1999.
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 Bertha in July 1996. In 1998, the Company recognized $4.0
million related to this settlement.
Direct lodging expenses increased by $23.7 million, or 24.1%, from
$98.4 million in 1998 to $122.1 million in 1999, due primarily to the addition
of new hotels. Direct lodging expenses, as a percentage of lodging revenue
increased to 25.6% in 1999 from 25.0% in 1998 due primarily to increased labor
costs.
As a percentage of food and beverage revenues, direct food and
beverage expenses decreased from 74.5% in 1998 to 71.1% in 1999 due to improved
margins at the Frenchman's Reef.
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 $14.7 million, or 14.8%, from $99.4 million in 1998 to $114.1
million in 1999, 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 22.2% in 1998 to 21.4% in 1999 due,
primarily, to a change in insurance carriers resulting in lower liability
insurance costs.
Occupancy and other operating expenses consist primarily of property
insurance, real estate and other taxes and rent expense. Occupancy and other
operating expenses increased by $13.8 million, or 24.2%, from $57.1 million in
1998 to $70.9 million in 1999, primarily due to the full year's rent associated
with the sale/leaseback of 9 hotels to Equity Inns, Inc. ("Equity Inns") and 8
hotels to MeriStar Hospitality Corporation ("MeriStar") in 1998. As a percentage
of hotel revenues, occupancy and other operating expenses increased from 12.8%
in 1998 to 13.3% in 1999, 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
24
<PAGE> 26
increased by $2.7 million, or 10.2%, from $26.5 million in 1998 to $29.2 million
in 1999, due to increased brand advertising, payroll and training costs
associated with opening new AmeriSuites and Wellesley Inn & Suites hotels and
the costs related to the development of the Company's franchising business. As a
percentage of total revenues, general and administrative expenses decreased from
5.6% in 1998 to 5.3% in 1999 due primarily to decreased operating leverage.
Depreciation and amortization expense increased by $3.8 million, or
9.2%, from $42.0 million in 1998 to $45.8 million in 1999, due primarily to the
impact of new hotel properties.
Valuation and other charges in 1999 consist of a $7.1 million
valuation allowance related to five HomeGate properties, a $22.0 million
valuation allowance related to Frenchmen's Reef and $1.4 million for severance
charges related to a restructuring of the Company's corporate and regional
offices. Valuation and other charges in 1998 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 decreased by $1.9 million, or 53.7%, from $3.5
million in 1998 to $1.6 million in 1999 primarily due to sales of marketable
securities resulting in a decrease in dividend income and lower average cash
balances.
Interest expense increased by $19.7 million, or 82.5%, from $23.9
million in 1998 to $43.6 million in 1999, primarily due to decreases in
capitalized interest related to the construction of new hotels. The Company
capitalized $26.7 million and $11.0 million of interest in 1998 and 1999,
respectively.
Other income/loss consists of property transactions and other items
which are not part of the Company's recurring operations. Other income in 1999
consisted of a $4.0 million fee for the termination of a hotel sale agreement,
net gains on disposition of property of $8.0 million and losses of $4.8 million
on the sales of marketable securities. 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.
Cumulative effect of a change in accounting principle of $5.3 million
(net of income taxes) in 1999, relates to the adoption by the Company of
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
("SOP 98-5"). The Company adopted SOP 98-5, on January 1, 1999 and was required
to write-off any unamortized pre-opening costs that remained on the balance
sheet.
25
<PAGE> 27
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
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 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, by segment, in
1998 from the 77 Owned Hotels operated for comparable periods in 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 %
---- ---- ---
<S> <C> <C> <C> <C>
AMERISUITES
Occupancy 66.1% 68.4%
ADR $75.50 $79.52
REVPAR $49.88 $54.35 9.0%
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 69.8% 69.6%
ADR $74.32 $79.61
REVPAR $51.88 $55.43 6.8%
</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 7.1%.
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.
26
<PAGE> 28
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.
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 outlets which reopened in 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 due to the impact of the Frenchman's Reef.
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.
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 and 8 hotels to 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
27
<PAGE> 29
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 in 1998 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 and
a $123,000 gain on the retirement of debt.
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash, cash equivalents and
current marketable securities of $15.5 million. In addition, at December 31,
1999, the Company had $56.0 million available to it under the Revolving Credit
Facility.
The Company's major sources of cash for 1999 were borrowings of $22.4
million, net proceeds from the sales of hotels of $86.7 million and cash flows
from operations of $99.8 million. The Company's major uses of cash during the
period were capital expenditures of $108.4 million relating primarily to the
development of new hotels, debt repayments of $70.7 million and the repurchases
of its common stock totaling $54.1 million.
28
<PAGE> 30
Cash flow from operations was positively impacted by the utilization
of net operating loss carryforwards ("NOLs") and other tax basis differences of
$5.0 million in 1998 and $3.9 million in 1999. At December 31, 1999, the Company
had federal NOLs relating primarily to its predecessor, Prime Motor Inns, Inc.
("PMI"), of approximately $61.1 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 hotel real estate and to invest the proceeds in the growth of its
proprietary brands, the repurchase of the Company's common stock or the
reduction of debt. During 1999, the Company sold eight of its AmeriSuites hotels
under various sales agreements for $80.2 million in cash. The transactions
generated a net gain of $10.0 million. Under the terms of its sales agreements,
the Company will receive franchise fees under ten to twenty year franchise
agreements. In addition to AmeriSuites sales, the Company intends to sell
certain Wellesley and full-service hotels in 2000.
During 1999, the Company also sold three land parcels, one HomeGate
hotel and an apartment building for $6.5 million in cash, recognizing $2.0
million in net losses.
In February 2000, the Company sold its remaining five HomeGate hotels
and its rights to the HomeGate brand name for approximately $17.7 million,
including the assumption of $17.4 million of debt associated with these
properties.
In March 2000, the Company sold its Frenchman's Reef hotel in St.
Thomas, USVI for $73.0 million. A portion of the net proceeds from this
transaction were used to repay $40 million of first mortgage debt. The Company
intends to utilize the remaining proceeds to reduce debt under its Revolving
Credit Facility and to repurchase its common stock.
In March 2000, the Company also sold its Chicago/Warrenville
AmeriSuites hotel for $10.8 million. The Company will realize a gain of
approximately $1.0 million on the sale and will be entitled to franchise fees in
the future, pursuant to a 20 year franchise agreement.
The Company 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 $4.0 million
contract termination fee in February 1999.
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. The aggregate amount of the Revolving Credit
Facility will be reduced to $175.0 million in December 2000 and to $125.0
million in December 2001. 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. At December 31,
1999, the Company had outstanding borrowings of $125.0 million under the
facility and further availability of $56.0 million.
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
29
<PAGE> 31
and any change of control of the Company. In October 1999, the Revolving Credit
Facility was amended to allow an additional $100.0 million of share repurchases
to be funded by 50% of the proceeds from asset sales.
Uses of Capital. The Company's capital spending in 1999 focused on
the completion of its 1998 AmeriSuites and Wellesley Inn & Suites (formally
HomeGate) pipeline. During 1999, the Company opened 21 new hotels and spent
$88.0 million on new construction in completing the pipeline. The Company
intends to continue the growth of its brands, primarily through franchising. The
Company has resumed limited new corporate development with the commencement of
construction of two AmeriSuites hotels. The Company plans to spend approximately
$35.0 to $40.0 million on these and other new AmeriSuites during 2000, to be
funded by internally generated cash flow. In addition, during 1999, the Company
also spent approximately $20.4 million on capital improvements at its Owned
Hotels, which includes the Company's conversion of its HomeGates Studio and
Suites to Wellesley Inn & Suites. The Company expects to spend a similar
amount in 2000 which will include the conversion of three limited-service hotels
to Wellesley Inn & Suites.
Under its stock repurchase program, in 1999 the Company repurchased
approximately 5.8 million shares of its common stock at an average price of
$9.34 per share. In October 1999, the Company's Board of Directors approved the
repurchase of an additional $100.0 million of its common stock. In October 1999,
the Revolving Credit Facility was amended to allow the repurchase of the
additional $100.0 million of the Company's common stock. The purchase of these
additional shares are limited to 50% of the proceeds from asset sales. From
January 1, 2000 through March 20, 2000, the Company has repurchased
approximately 850,000 shares at an average price of $8.05 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, 1999, the Company had advances of
approximately $215.0 million to such third party, which advances are classified
as property, equipment and leasehold improvements in the Company's accompanying
financial statements.
Year 2000 Readiness. In prior years, the Company discussed the nature
and progress of it plans to become Year 2000 ready. In late 1999, the Company
completed its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Company expensed approximately $1.0 million during 1999 in
connection with remediating its systems. The Company is not aware of any
material problems resulting from year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
This table presents descriptions of the financial instruments and
derivative instrument that are held by the Company at December 31, 1999, and
which are sensitive to changes in interest rates. The Company has entered into a
derivative financial instrument transaction in order to manage or
30
<PAGE> 32
reduce market risk. Under the interest-rate swap, the Company agreed with
another party to exchange monthly the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. 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>
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Fixed Rate. . . . . . . . $1,247 $1,302 $7,520 $1,321 $1,397 $349,752 $362,539 $352,337
Average Interest Rate . . 9.48% 9.48% 9.50% 9.52% 9.52% 9.58% 9.58%
Variable Rate . . . . . . $4,300 $7,020 $141,717 $3,275 $3,275 $26,906 $186,493 $198,494
Average Interest Rate. . . 8.10% 8.10% 8.12% 8.22% 8.23% 8.21% 8.13%
INTEREST-RATE DERIVATIVES
Variable to fixed:
Notional Amount. . . . . $40,000 $40,000 $ --- $ --- $ --- $ --- $ --- $388
Average Pay Rate . . . . 6.03% 6.03% --- --- --- --- ---
Average Receive Rate . .. 6.13% 6.86% --- --- --- --- ---
</TABLE>
In October 1999, 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 6.03% 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 1999 and expires
in October 2001.
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
In August 1999, the Company announced a change in auditors from
Arthur Andersen LLP to Ernst and Young LLP. There were no disagreements with the
prior accountants on any accounting and financial matters. See Form 8-K filed on
August 17, 1999 for further information.
31
<PAGE> 33
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............... 56 President, Chief Executive Officer and Chairman of the Board of Directors
Lawrence N. Friedland(1)...... 77 Director
Howard M. Lorber(1)........... 51 Director
Herbert Lust, II(1)........... 73 Director
Jack H. Nusbaum............... 59 Director
Douglas W. Vicari............. 40 Director, Senior Vice President and Chief Financial Officer
Joseph Bernadino.............. 53 Senior Vice President, Secretary and General Counsel
Edward J. Dykes............... 49 Senior Vice President/Hotel Operations
Stephen M. Kronick............ 45 Senior Vice President/Hotel Operations
John H. Leavitt............... 47 Senior Vice President/Sales and Marketing
Terry P. O'Leary.............. 44 Senior Vice President/Franchising
J. David Johnson.............. 50 Senior Vice President/Administration
Richard T. Szymanski.......... 42 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.
32
<PAGE> 34
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.
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 W.R.
Berkley Corporation, Neuberger Berman, Inc., Pioneer Companies, Inc., Strategic
Distribution, Inc. and The Topps Company, Inc.
Douglas W. Vicari became a Director of the Company in 1999 and 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.
Joseph Bernadino has been Senior Vice President, Secretary and
General Counsel of the Company since 1992.
Edward J. Dykes has been a Senior Vice President of the Company since
1999. Prior to that he held the position of Vice President of the Company for
more than five years.
Stephen M. Kronick has been a Senior Vice President of the Company
since 1999. Prior to that he held the position of Vice President of the Company
for more than five years.
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 Food and Beverage since 1995. Mr. O'Leary
was an area manager and corporate director with B.F. Saul Co. from 1993 to
1995.
J. David Johnson has been a Senior Vice President of the Company
since 1999. Prior to that he held the position of Vice President of Hotel
Operation Services from 1997 to 1999. Prior to that he was Vice President of
Strategic Sourcing for Crown Vantage for more than five years.
Richard T. Szymanski has been a Vice President 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."
33
<PAGE> 35
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."
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 refernce.
(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.
(g) Purchase and Sale Agreement between Prime Hospitality Corp.,
as seller, and Marriott International, Inc. as purchaser,
dated September 15, 1999.
(h) First Amendment dated December 18, 1999, to Purchase and
Sale Agreement between Prime Hospitality Corp. and Marriott
International, Inc., dated September 15, 1999.
34
<PAGE> 36
(i) Sale and Purchase Agreement between Prime Hospitality Inc.
and Sholodge, Inc., dated March 16, 2000.
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.
(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.
35
<PAGE> 37
(j) Third Amendment to the Senior Secured Revolving Credit
Agreement, Dated October 27, 1999, 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-K dated December 31, 1999,
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,
whereby $ 1.8 million shares were made available for
distribution.
(g) Reference is made to Change of Control Agreement, dated May
14, 1998, between John H. Leavitt and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 26, 1999.
(h) Reference is made to Change of Control Agreement, dated May
14, 1998, between Joseph Bernadino and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 26, 1999.
(i) Reference is made to Change of Control Agreement, dated May
14, 1998, between Richard T. Szymanski and the Company filed
as an Exhibit to the Company's Form 10-K, dated March 26,
1999.
(j) Reference is made to Change of Control Agreement, dated May
14, 1998, between Douglas W. Vicari and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 26, 1999.
(k) Reference is made to Change of Control Agreement, dated May
14, 1998, between Terry P. O'Leary and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 26, 1999.
(l) Reference is made to Employment Agreement, dated September
14, 1998, between Attilio F. Petrocelli and the Company.
36
<PAGE> 38
(m) Reference is made to Change of Control Agreement, dated
September 14, 1998, between Atillio F. Petrocelli and the
Company filed as an Exhibit to the Company's Form 10-K,
dated March 26, 1999.
(n) Reference is made to the Nonqualified Stock Option Agreement
dated October 14, 1998 between A.F. Petrocelli and the
Company.
(o) Change in Control Agreement, dated October 25, 1999, between
Terry P. O'Leary and the Company.
(p) Change in Control Agreement, dated October 25, 1999, between
Stephen Kronick and the Company.
(q) Change in Control Agreement, dated October 25, 1999, between
J.David Johnson and the Company.
(r) Amendment to Change in Control Agreement, dated March 18,
1999, between A.F. Petrocelli and the Company.
(16) Letter RE: Change in certifying accountant:
Reference is made to Form 8K filed on August 17, 1999.
37
<PAGE> 39
(21) Subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---------------------------------------------- ---------------
<S> <C>
AmeriSuites Franchising, Inc. ................ Delaware
Budd Holding Corp. ........................... Delaware
Caldwell Holding Corp. ....................... Delaware
Clifton Holding Corp. ........................ Delaware
Dynamic Marketing Group, Inc. ................ Delaware
Fairfield Holding Corp. ...................... Delaware
Fairfield-Meridian Claims Service, Inc. ...... Delaware
Flanders Holding Corp. ....................... Delaware
Haledon Holding Corp. ........................ Delaware
HomeGate Hospitality, Inc. ................... Delaware
KSA Management, Inc. ......................... Kansas
Landing Holding Corp. ........................ Delaware
Mahwah Holding Corp. ......................... Delaware
Market Segments, Incorporated ................ Delaware
Maywood Holding Corp. ........................ Delaware
Prime-American Realty Corp. .................. Delaware
Prime Hospitality Franchising, Inc. .......... Delaware
Prime Hospitality Management Co., Inc. ....... Delaware
Prime-O-Lene, Inc. ........................... New Jersey
Republic Motor Inns, Inc. .................... Virginia
Roxbury Holding Corp. ........................ Delaware
Secaucus Holding Corp. ....................... Delaware
VPS, Inc. .................................... Delaware
Wayne Holding Corp. .......................... Delaware
Wellesley Inn & Suites Franchising, Inc. ..... Delaware
</TABLE>
(23) Consent of independent auditors.
(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 furnish a copy of
such instruments to the Commission upon request.
38
<PAGE> 40
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 14(a))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................................................. F-2
Consolidated Financial Statements:
Balance Sheets at December 31, 1998 and 1999.............................................. F-3
Statements of Income for the Years Ended December 31, 1997, 1998 and 1999................. F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1998 and 1999... F-5
Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999............. 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> 41
REPORT OF INDEPENDENT AUDITORS
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, 1998 and 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial position of Prime
Hospitality Corp. and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities", which required the expensing of unamortized pre-opening costs in
1999.
ERNST & YOUNG LLP
New York, New York
February 9, 2000 except, for Note 1 (Business Activities)
and Note 20 as to which the date is March 20, 2000
F-2
<PAGE> 42
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $12,534 $7,240
Marketable securities available for sale................................................ 12,460 8,262
Accounts receivable, net of reserves of $732 and $954
in 1998 and 1999, respectively.................................................... 20,816 21,379
Current portion of mortgages and notes receivable....................................... 797 1,920
Other current assets.................................................................... 28,791 16,879
------ ------
Total current assets............................................................... 75,398 55,680
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization......................................................... 1,281,378 1,093,123
Assets held for sale.................................................................... -- 134,596
Mortgages and notes receivable, net of current portion.................................. 14,688 11,750
Other assets............................................................................ 36,934 33,630
------ ------
Total Assets....................................................................... $1,408,398 $1,328,779
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt................................................................. $15,762 $5,547
Current portion of deferred income...................................................... 10,322 10,322
Other current liabilities............................................................... 72,445 61,225
------ ------
Total current liabilities.......................................................... 98,529 77,094
Long-term debt, net of current portion.................................................. 582,031 543,485
Deferred income, net of current portion................................................. 80,553 70,977
Other liabilities....................................................................... 6,240 5,223
----- -----
Total liabilities.................................................................. 767,353 696,779
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;
55,202,253 and 55,747,340 shares issued and outstanding in 1998 and 1999,
respectively....................................................................... 552 557
Capital in excess of par value.......................................................... 511,981 519,834
Retained earnings....................................................................... 159,584 194,466
Accumulated other comprehensive loss, net of taxes..................................... (4,993) (2,694)
Treasury stock, at cost (1,470,439 and 7,263,578 shares in 1998 and 1999,
respectively)................................................................ (26,079) (80,163)
-------- --------
Total stockholders' equity......................................................... 641,045 632,000
------- -------
Total Liabilities and Stockholders' Equity................................... $1,408,398 $1,328,779
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 43
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
--------------- --------------- -------------
<S> <C> <C> <C>
Revenues:
Lodging............................................................. $272,267 $393,988 $477,329
Food and beverage................................................... 41,968 53,391 55,417
Management, franchise and other fees................................ 9,708 13,362 17,372
Interest on mortgages and notes receivable.......................... 6,097 4,664 2,614
Business interruption insurance..................................... 10,921 4,000 --
------- ------- -------
Total revenues.............................................. 340,961 469,405 552,732
------- ------- -------
Costs and expenses:
Direct hotel operating expenses:
Lodging.......................................................... 68,072 98,400 122,130
Food and beverage................................................ 31,036 39,771 39,412
Selling and general.............................................. 70,225 99,361 114,101
Occupancy and other operating......................................... 23,669 57,067 70,862
General and administrative............................................ 22,923 26,509 29,200
Depreciation and amortization......................................... 34,198 41,975 45,835
Valuation and other charges........................................... -- 17,361 30,456
------- ------- -------
Total costs and expenses.................................... 250,123 380,444 451,996
------- ------- -------
Operating income...................................................... 90,838 88,961 100,736
Investment income..................................................... 3,197 3,486 1,613
Interest expense...................................................... (26,893) (23,914) (43,634)
Other income, net..................................................... 2,200 18,132 7,182
Merger costs.......................................................... (18,555) -- --
------- ------- -------
Income before income taxes and the cumulative effect of
a change in accounting principle.................................... 50,787 86,665 65,897
Provision for income taxes............................................ 24,856 32,818 25,700
------- ------- -------
Income before the cumulative effect of a change in
accounting principle................................................ 25,931 53,847 40,197
Cumulative effect of a change in accounting principle (net
of income taxes of $3,398)......................................... -- -- (5,315)
------- ------- -------
Net income............................................................ $25,931 $53,847 $34,882
======= ======= =======
Basic earnings per Common Share:
Income before the cumulative effect of a change in
accounting principle................................................ $.56 $1.04 $.79
Cumulative effect of a change in accounting principle................. -- -- (.11)
------- ------- -------
Net income per common share........................................... $.56 $1.04 $.68
======= ======= =======
Diluted earnings per Common Share:
Income before the cumulative effect of a change in
accounting principle............................................... $.54 $1.00 $.77
Cumulative effect of a change in accounting principle................. -- -- (.10)
------- ------- -------
Net income per common share........................................... $.54 $1.00 $.67
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 44
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
COMMON STOCK EXCESS OF RETAINED COMPREHENSIVE
SHARES AMOUNT PAR VALUE EARNINGS LOSS
------ ------ --------- -------- ----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 .............................. 46,317,917 $463 $404,315 $79,806 $ --
Net income .............................................. -- -- -- 25,931 --
Utilization of net operating loss carryforwards ......... -- -- 4,141 -- --
Amortization of pre-fresh start tax basis
differences .......................................... -- -- 102 -- --
Proceeds from exercise of stock options ................. 576,908 6 5,771 -- --
Proceeds from exercise of stock warrants ................ 338,186 3 913 -- --
Treasury stock purchases ................................ (50,039) -- -- -- --
Contribution from shareholder .......................... -- -- 4,000 -- --
Comprehensive income .................................... -- -- -- --
---------- ----- -------- -------- -------
Balance December 31, 1997 ............................ 47,182,972 472 419,242 105,737 --
Net income .............................................. -- -- -- 53,847 --
Utilization of net operating loss carryforwards ......... -- -- 3,956 -- --
Amortization of pre-fresh start tax basis
differences ........................................... -- -- 1,005 -- --
Proceeds from exercise of stock options ................. 146,167 2 1,906 -- --
Proceeds from exercise of stock warrants ................ 637,524 6 1,712 -- --
Unrealized loss on marketable securities
available for sale (net of income taxes) ............. -- -- -- -- (4,993)
Treasury stock purchases ................................ (1,420,400) -- -- -- --
Conversion of long-term debt ............................ 7,185,551 72 84,160 -- --
Comprehensive income .................................... -- -- -- --
---------- ----- -------- -------- -------
Balance December 31, 1998 .............................. 53,731,814 552 511,981 159,584 (4,993)
Net income .............................................. -- -- -- 34,882 --
Utilization of net operating loss carryforwards ......... -- -- 3,425 -- --
Amortization of pre-fresh start tax basis differences ... -- -- 484 -- --
Proceeds from exercise of stock options ................. 545,087 5 3,944 -- --
Unrealized gain on marketable securites
available for sale (net of income taxes) ............ -- -- -- -- 2,299
Treasury stock purchases ................................ (5,793,139) -- -- -- --
Comprehensive income .................................... -- -- -- --
---------- ----- -------- -------- -------
Balance December 31, 1999 .............................. 48,483,762 $557 $519,834 $194,466 $(2,694)
========== ===== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
TREASURY COMPREHENSIVE
STOCK TOTAL INCOME
----- ----- ------
<S> <C> <C> <C>
Balance December 31, 1996 .............................. $ -- $484,584 $ --
Net income .............................................. -- 25,931 25,931
Utilization of net operating loss carryforwards ......... -- 4,141 --
Amortization of pre-fresh start tax basis
differences .......................................... -- 102 --
Proceeds from exercise of stock options ................. -- 5,777 --
Proceeds from exercise of stock warrants ................ -- 916 --
Treasury stock purchases ................................ (1,038) (1,038) --
Contribution from shareholder .......................... -- 4,000 --
Comprehensive income .................................... -- -- $25,931
-------- -------- =======
Balance December 31, 1997 ............................ (1,038) 524,413 $ --
Net income .............................................. -- 53,847 53,847
Utilization of net operating loss carryforwards ......... -- 3,956 --
Amortization of pre-fresh start tax basis
differences ........................................... -- 1,005 --
Proceeds from exercise of stock options ................. -- 1,908 --
Proceeds from exercise of stock warrants ................ -- 1,718 --
Unrealized loss on marketable securities
available for sale (net of income taxes) ............. -- (4,993) (4,993)
Treasury stock purchases ................................ (25,041) (25,041) --
Conversion of long-term debt ............................ -- 84,232 --
Comprehensive income .................................... -- -- $48,854
-------- -------- =======
Balance December 31, 1998 .............................. (26,079) 641,045 $ --
Net income .............................................. -- 34,882 34,882
Utilization of net operating loss carryforwards ......... -- 3,425 --
Amortization of pre-fresh start tax basis differences ... -- 484 --
Proceeds from exercise of stock options ................. -- 3,949 --
Unrealized gain on marketable securites
available for sale (net of income taxes) ............ -- 2,299 2,299
Treasury stock purchases ................................ (54,084) (54,084) --
Comprehensive income .................................... -- -- $37,181
-------- -------- =======
Balance December 31, 1999 .............................. $(80,163) $632,000
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 45
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
Cash flows from operating activities: 1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income .................................................. $25,931 $53,847 $34,882
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................... 34,198 41,975 45,835
Valuation adjustment on properties held for sale ....... -- 10,000 29,045
Amortization of deferred financing costs ............... 2,874 3,109 3,113
Utilization of net operating loss carryforwards ........ 4,141 3,956 3,425
Amortization of pre-fresh start tax basis differences .. 102 1,005 484
Net gains on sales of assets ........................... (2,200) (18,132) (3,182)
Cumulative effect of a change in accounting principle... -- -- 8,713
Amortization of deferred income ........................ (150) (9,421) (10,028)
Deferred income taxes .................................. 2,479 (4,259) (7,858)
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 .................................... (3,423) (4,498) (564)
Other current assets ................................... (21,079) (1,554) 9,306
Other liabilities ...................................... 25,744 5,405 (13,379)
--------- --------- ---------
Net cash provided by operating activities ............ 72,617 82,433 99,792
Cash flows from investing activities:
Net proceeds from mortgages and notes receivable ....... 3,543 26,320 785
Disbursements for mortgages and notes receivable ....... (1,194) (1,541) (1,771)
Proceeds from sales of property, equipment and leasehold 100,820 223,773 86,660
Purchases of property, equipment and leasehold improvements (107,868) (28,473) (20,384)
Construction of new hotels ............................. (341,439) (402,288) (88,013)
Decrease/(increase) in restricted cash ................. 3,596 (7,012) 8,580
Proceeds from insurance settlement ..................... 2,500 3,782 4,706
Proceeds from sales of marketable securities ........... 238 1,906 7,725
Purchase of marketable securities ...................... -- (350) (4,702)
Other .................................................. (1,597) (3,298) (176)
--------- --------- ---------
Net cash used in investing activities ................ (341,401) (187,181) (6,590)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ..................... 390,769 203,552 22,352
Payments of debt ....................................... (170,100) (69,870) (70,713)
Proceeds from the exercise of stock options and warrants 6,693 3,628 3,949
Purchase of treasury stock ............................. (1,038) (25,041) (54,084)
--------- --------- ---------
Net cash provided by/(used in) financing activities .. 226,324 112,269 (98,496)
--------- --------- ---------
Net (decrease)/increase in cash and cash equivalents ........ (42,460) 7,521 (5,294)
Cash and cash equivalents at beginning of year .............. 47,473 5,013 12,534
--------- --------- ---------
Cash and cash equivalents at end of year .................... $5,013 $12,534 $7,240
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 46
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Prime is an owner, operator, manager and franchisor of hotels, with 205
hotels in operation containing 27,029 rooms located in 32 states (the
"Portfolio") as of March 20, 2000. Prime controls two hotel brands --
AmeriSuites (R) and Wellesley Inn & Suites (R) -- as well as a portfolio of
upscale, full-service hotels operated under franchise agreements with national
hotel chains. As of March 20, 2000, the Company owned and operated 149 hotels
(the "Owned Hotels"), operated 28 hotels under lease agreements with real estate
investment trusts (the "Leased Hotels"), managed 17 hotels for third parties
(the "Managed Hotels"), and franchised 11 hotels which it does not operate (the
"Franchised Hotels"). Included in the Portfolio are 31 AmeriSuites hotels owned
by third parties which are operated pursuant to franchise agreements, 20 of
which are operated by Prime under lease or management agreements. Prime's
portfolio consists primarily of new, well-maintained hotels, with an average age
of approximately 7 years.
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.
F-7
<PAGE> 47
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. At December 31, 1998 and 1999,
cash and cash equivalents were comprised of approximately $500,000 and $644,000,
respectively, of cash, and $12.0 million and $6.6 million, respectively, of
commercial paper and other cash equivalents.
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, net of income taxes. Realized gains and losses are
determined using the cost basis of the security recorded at the time of
purchase.
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.
Construction in progress represents costs incurred in the development of
hotels. Such costs include construction costs and capitalized interest.
The Company reviews each of its assets held for use for which indicators
of impairment are present to determine whether the carrying amount of the asset
will be recovered. The Company recognizes impairment if the future undiscounted
cash flows (before interest charges) are less than the carrying amount.
Assets held for sale are recorded at the lower of carrying value or fair
value less costs to sell (See Notes 2 and 20).
MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are reflected at their fair value as of
July 31, 1992, adjusted
F-8
<PAGE> 48
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. 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, 1999, 1998 and 1997.
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 straight line 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 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.
REVENUE RECOGNITION
Room revenue and other revenues are recognized when earned. Management
and franchise fee revenues are recognized when all material services or
conditions relating to the respective property or franchisee have been
substantially performed or satisfied by the Company. Such revenues, when
recognized, are included in management, franchise and other fees on the
accompanying consolidated financial statements.
Gains and losses resulting from sales of hotels are recorded in full when
title is conveyed to
F-9
<PAGE> 49
the buyer and when various criteria are met relating to the buyer's financial
commitment and any subsequent involvement by the Company with respect to the
hotels being sold.
The Company's sales of hotels are sometimes accompanied by a leaseback of
the facilities under operating lease arrangements. Such sales are recognized
when the above sales criteria are met and certain specific criteria are met
relating to the lease terms. Related profit is deferred and is recognized as
income over the remaining lease term.
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
In January 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," ("SOP 98-5"). The Company
recorded a $5.3 million charge, net of income taxes, for the cumulative effect
of a change in accounting principle to write off the unamortized pre-opening
costs that remained on the balance sheet at the date of adoption. Additionally,
subsequent to the adoption of this new standard, all future pre-opening costs
are being expensed as incurred.
Prior to the Company's adoption of SOP 98-5, non-capital expenditures
incurred before the opening of new or renovated hotels, such as payroll and
operating supplies, were deferred and expensed within one year after opening.
Pre-opening costs charged to expense were $3.3 million and $6.7 million for the
years ended December 31, 1997 and 1998, respectively.
Had the Company adopted SOP 98-5 at the beginning of 1997 and 1998 net
income before taxes would have been reduced by $500,000 and $6.1 million,
respectively and diluted earnings per share would have been reduced by $.01 and
$.06, respectively.
DEFERRED INCOME
Deferred income consists 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 amount
F-10
<PAGE> 50
paid or received in connection with this agreement is accrued and recognized as
an adjustment of interest expense (the accrual method of accounting).
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, 2000. 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1997 and
1998 consolidated financial statements to conform them to the December 31, 1999
presentation.
NOTE 2 -- HOTEL 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 total consideration of $138.4
million. The Company is operating the hotels under an operating lease agreement
which has a term of ten years. The transaction generated a net gain of
approximately $64.9 million which was deferred and is being recognized as a
reduction of rent expense over the life of the lease. As of December 31, 1999,
$13.0 million of this gain had been amortized.
The Company also had a contract to sell and lease back nine additional
full-service hotels from 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. Such amount is included
in other income in the accompanying consolidated financial statements.
On September 22, 1997, the Company entered into 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.
In December 1997, the Company completed the sale and leaseback of 10
hotels to Equity Inns for total consideration of $87.0 million. The Company will
continue to operate the hotels under an operating lease agreement for a term of
10 years with certain renewal options. The Company is
F-11
<PAGE> 51
also generating franchise fees under a ten year franchise agreement. The sale
generated a gain of approximately $20.8 million which was deferred and is being
recognized over the life of the lease. As of December 31, 1999, $4.3 million of
this gain had been amortized.
In June 1998, the Company sold nine AmeriSuites hotels to Equity Inns for
total consideration of $97.0 million. 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 was deferred and is
being recognized as a reduction of rent expense over the life of the lease. As
of December 31, 1999, $2.3 million of this gain had been amortized.
The amortization of the gains are included in occupancy and other
operating expenses in the accompanying consolidated financial statements.
OTHER DISPOSITIONS
The Company's long-term objective is to transform itself from an
owner/operator into a franchisor and manager. In accordance with those
objectives, the Company disposed of eight AmeriSuites for $ 80.2 million. The
transactions generated net gains of $ 10.0 million and provide for the Company
to generate franchise fees under ten to twenty year franchise agreements.
During 1999, the Company sold one HomeGate Studios and Suites hotel, an
apartment building and three vacant land parcels for total proceeds of $6.5
million. The transactions generated a net loss of $2.0 million.
In addition to the hotels sold in 1999, the Company has fifteen hotels
that are currently being marketed for sale with a carrying value of $134.6
million as of December 31, 1999. The Company anticipates the sale of the
properties to be completed during 2000. In accordance with Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Assets and for Long-Lived Assets to Be Disposed Of," the Company
has discontinued depreciating these assets while they are held for sale.
F-12
<PAGE> 52
NOTE 3 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------ YEARS OF
1998 1999 USEFUL LIFE
-------------- -------------- --------------
<S> <C> <C> <C>
Land and land leased to others(a)....................... $202,444 $164,770
Hotels.................................................. 821,737 800,354 20 to 40
Furniture, fixtures and autos........................... 148,602 166,047 3 to 10
Leasehold improvements.................................. 64,856 68,282 3 to 40
Construction in progress................................ 130,726 11,981
------- ------
Sub-total 1,368,365 1,211,434
Less accumulated depreciation and amortization.......... (86,987) (118,311)
------- ------
Totals........................................ $1,281,378 $1,093,123
========== ==========
</TABLE>
(a) Included in land at December 31, 1998 and 1999, was $47.9 million and
$5.8 million, respectively, of land associated with hotels under
construction.
At December 31, 1999, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $11.0 million pursuant to noncancelable operating leases expiring on
various dates through 2010. Minimum future rent under such leases for each of
the next 5 years subsequent to December 31, 1999, and thereafter are
approximately $2.8 million and $300,000 respectively.
Depreciation and amortization expense on property, equipment and
leasehold improvements was $31.1 million, $36.7 million and $45.4 million for
the years ended December 31, 1997, 1998 and 1999, respectively.
During the years ended December 31, 1997, 1998 and 1999, the Company
capitalized $18.2 million, $26.7 million and $11.0 million, respectively, of
interest related to borrowings used to finance hotel construction.
F-13
<PAGE> 53
NOTE 4 -- MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
------------- -------------
<S> <C> <C>
Properties operated by the Company(a)......... $ 13,325 $ 10,200
Other(b)...................................... 2,160 3,470
----- -----
Total............................... 15,485 13,670
Less current portion.......................... (797) (1,920)
----- -------
Long-term portion............................. $ 14,688 $ 11,750
======== ========
</TABLE>
(a) At December 31, 1999, the Company is the holder of mortgage notes
receivable with a book value of $10.2 million secured by the Company's
leasehold position in three hotels operated under lease agreements. These
notes bear interest at rates ranging from 8.0% to 13.0% and mature on
various dates from 2000 through 2015. The mortgages were derived from the
sales of hotel properties.
During 1997, 1998 and 1999, the Company recognized $3.3 million, $3.3
million and $1.2 million, respectively, of interest income related to
mortgages which pay interest based on excess cash flow. During 1999, all
remaining cash flow notes were settled.
(b) Other notes receivable currently bear interest at effective rates ranging
from 4.0% to 12.0%, mature through 2011 and are secured primarily by
hotel properties not currently managed by the Company.
F-14
<PAGE> 54
NOTE 5 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
--------- --------
<S> <C> <C>
9.75% Senior Subordinated Notes(a) ........................ $200,000 $200,000
Revolving Credit Facility(b) .............................. 165,000 125,000
9.25% First Mortgage Notes(c) ............................ 120,000 120,000
Mortgages and other notes payable(d) ...................... 112,793 104,032
--------- ---------
Total debt ................................................ 597,793 549,032
Less current maturities ................................... (15,762) (5,547)
--------- ---------
Long-Term debt, net of current portion .................... $582,031 $543,485
========= =========
</TABLE>
(a) In March 1997, the Company issued $200.0 million 9.75% Senior
Subordinated Notes due 2007 ("Senior Subordinated Notes") in reliance
upon Rule 144A under the Securities Act of 1933, as amended. 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 aggregate amount of the Revolving Credit
Facility will be reduced to $175.0 million in December 2000 and $125.0
million in December 2001. The Revolving Credit Facility is secured by
first liens on certain of the Company's hotels with recourse to the
Company. Availability under the facility is subject to a borrowing base
test and certain other covenants. The Revolving Credit Facility bears
interest at LIBOR plus 2.0% which is paid monthly (weighted average for
1999 was 7.3%) 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. In October 1999,
the Revolving Credit Facility was amended to allow an additional $100
million of share repurchases. The purchase of these additional shares are
limited to 50% of the proceeds from asset sales. During 1999, the Company
had gross borrowings and repayments of $10.0 million and $50.0 million,
respectively, under the Revolving Credit Facility. As of December 31,
1999, the Company had outstanding borrowings of $125.0 million under this
facility and had additional borrowing capacity of $56.0 million.
(c) During 1996, the Company issued $120 million of 9.25% First Mortgage
Notes due 2006. Interest on the notes is payable semi-annually on January
15 and July 15. At December 31, 1999, the notes are secured by first
liens on 17 hotels and contain certain covenants including
F-15
<PAGE> 55
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) The Company has mortgage and other notes payable of approximately $104.0
million that are secured by mortgage notes receivable and hotel
properties with a book value of $182.1 million. Principal and interest on
these mortgages and notes are generally paid monthly. At December 31,
1999 these notes bear interest at rates ranging from 6.6% to 9.7%, with a
weighted average interest rate of 9.0%, and mature from 2000 through
2009.
In October 1999, 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 6.03% 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 1999 and expires in October 2001.
Maturities of long-term debt subsequent to December 31, 1999 are
as follows (in thousands):
<TABLE>
<S> <C>
2000 .................................... $5,547
2001 .................................... 8,322
2002 .................................... 149,237
2003 .................................... 4,596
2004 .................................... 4,672
Thereafter ............................... 376,658
-------
Total .................................... $549,032
========
</TABLE>
In connection with certain covenants related the Company's Senior
Subordinated Notes, Revolving Credit Facility and 9.25% First Mortgage
Notes due 2006, Homegate, a wholly-owned subsidiary of the Company is
listed as a guarantor.
F-16
<PAGE> 56
The following is the separate financial information of Homegate for the
years ended December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
Balance Sheet Data: 1998 1999
-------- --------
<S> <C> <C>
Total current assets $9,554 $7,047
Noncurrent assets 244,229 307,241
------- -------
Total assets $253,783 $314,288
======== ========
Total current liabilities $ 4,422 $6,213
Noncurrent liabilities 210,235 261,499
------- -------
Total liabilities $214,657 $267,712
======== ========
Stockholder's equity $39,126 $46,576
Operating Results:
Net sales $29,419 $57,088
Operating income/(loss) (3,785) 11,115
Net income/(loss) $(7,834) $7,450
</TABLE>
Total noncurrent liabilities includes $165.4 million and $225.9 million
of intercompany liabilities at December 31, 1998 and 1999, respectively.
Included in operating income in 1999 is a $7.1 million valuation reserve. (See
Note 12).
NOTE 6 -- OTHER CURRENT ASSETS/LIABILITIES
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
------------ ------------
<S> <C> <C>
Hotel inventories ...................................... $12,083 $13,338
Pre-opening expense ................................... 8,713 --
Accrued interest receivable ............................ 1,854 486
Prepaid expenses ...................................... 3,350 1,428
Other .................................................. 2,791 1,627
------- -------
Totals ....................................... $28,791 $16,879
======= =======
</TABLE>
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
------------ ------------
<S> <C> <C>
Accounts payable .............................................. $10,904 $9,793
Construction payables ......................................... 9,209 825
Interest payable .............................................. 11,248 10,860
Accrued payroll and related benefits ......................... 6,576 6,121
Accrued expenses .............................................. 16,783 16,881
Accrued income taxes .......................................... 5,613 6,467
Accrued sales and use taxes ................................... 5,389 3,557
Insurance reserves ............................................ 5,298 4,583
Other ......................................................... 1,425 2,138
------- -------
Totals .............................................. $72,445 $61,225
======= =======
</TABLE>
F-17
<PAGE> 57
NOTE 7 -- 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 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, 1999, (in thousands):
<TABLE>
<S> <C>
2000 .................................... $40,511
2001 .................................... 40,034
2002 .................................... 40,097
2003 .................................... 40,110
2004 .................................... 39,859
Thereafter ............................... 166,502
--------
Total .................................... $367,113
========
</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,
1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Rentals ............................................ $8,131 $41,237 $43,397
Contingent rentals ................................. 1,608 7,010 12,826
------- ------- -------
Rental expense ............................ $9,739 $48,247 $56,223
======= ======= =======
</TABLE>
Such amounts are included in occupancy and other operating expenses in
the accompanying consolidated financial statements.
EMPLOYEE BENEFITS
The Company does not provide any material post employment benefits to its
current or former employees.
F-18
<PAGE> 58
NOTE 8 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the years ended December 31,
1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal ................................................... $13,133 $33,391 $24,362
State ..................................................... 1,450 4,500 5,800
-------- -------- --------
14,583 37,891 30,162
Deferred:
Federal ................................................... 9,174 (4,573) (6,560)
State ..................................................... 1,099 (500) (1,300)
-------- -------- --------
10,273 (5,073) (7,860)
-------- -------- --------
Total .......................................... $24,856 $32,818 $22,302
======== ======== ========
</TABLE>
Income taxes are provided at the applicable federal and state statutory
rates. The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the years ended December 31,
1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Utilization of net operating loss ...................................... $4,141 $3,956 $3,425
Amortization of pre-fresh start basis differences -- properties
and notes .............................................................. 102 1,005 484
Depreciation ........................................................... 650 1,066 968
Compensation expense ................................................... 3,552 152 --
Property sales ......................................................... (1,273) (10,822) (10,825)
Note settlement ........................................................ -- 1,104 --
Other .................................................................. 3,101 (1,534) (1,912)
------- ------- -------
Total ........................................................ $10,273 $(5,073) $(7,860)
======= ======= =======
</TABLE>
The following is a reconciliation of the statutory Federal tax rate to
the Company's effective income tax rate:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate ................................. 35.0% 35.0% 35.0%
State income taxes, net of
Federal tax benefit .................................. 3.3% 5.1% 5.1%
Other, net ................................................. 10.6% (2.2)% (1.1)%
---- ---- ----
Effective income tax rate ........................ 48.9% 37.9% 39.0%
==== ==== ====
</TABLE>
At December 31, 1999, the Company had available federal net operating
loss carryforwards related to PMI of approximately $61.1 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 SAS 109, the Company has not recognized the future tax
benefits
F-19
<PAGE> 59
associated with the net operating loss carry forwards or with other temporary
differences. Accordingly, the Company has provided a valuation allowance of
approximately $21.4 million against the deferred tax asset as of December 31,
1999. 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,
1997, 1998 and 1999, the Company recognized $4.1 million, $4.0 million and $3.4
million, respectively, of such benefits as a contribution to stockholders'
equity.
Additionally, the Company recognized $102,000, $1.0 million and $484,000
as a contribution to stockholders' equity for the years ended December 31, 1997,
1998 and 1999, 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, 1998 and 1999.
NOTE 9 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
COMMON STOCK
During 1999, the Company repurchased approximately 5.8 million shares of
its common stock at an average price of $9.34 per share. In October 1999, the
Company's Board of Directors approved the repurchase of an additional $100.0
million of its stock. Under this plan through March 20, 2000, the Company
repurchased $9.9 million of its common stock ($3.0 million on 1999 and $6.9
million in 2000).
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, 1999, a total of 4.0 million options were outstanding
under various plans with another 2.9 million options available to be issued.
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 per share, 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 1998 and 1999,
respectively, options to purchase 2,653,000 and 544,000 shares of common stock
were granted under this plan.
F-20
<PAGE> 60
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 190,000
shares of common stock were granted under this plan in 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 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 40,000 shares of common stock were outstanding at December
31, 1999. The options were granted at prices which approximate fair market value
at the date of grant ranging from $7.25 to $9.88 and expire from 2001 to 2002.
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 868,000 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 $3.2 million, or $.07 per share in 1997, $6.5
million, or $.12 per share in 1998 and $2.9 million, or $.06 per share in 1999.
This pro forma impact only takes into account options granted since January 1,
1997 and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period. The weighted average fair value
of options granted during 1997, 1998 and 1999 was $7.02, $3.49 and $5.92,
respectively.
The fair value was estimated using the Black-Scholes option-pricing model
based on the weighted average market price at grant date of $18.57 in 1997,
$8.49 in 1998 and $11.25 in 1999 and the following weighted average assumptions:
risk-free interest rate of 6.21% in 1997, 4.72% in
F-21
<PAGE> 61
1998, and 6.23% in 1999, volatility of 30.8% for 1997, 40.4% in 1998, and 42.3%
in 1999, and dividend yield of 0.0% for 1997, 1998 and 1999.
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, 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
Granted ................................................. 544,000 $11.25-$11.25
Exercised ............................................... (545,000) $3.20-$10.00
Canceled ................................................ (1,375,000) $3.63-$20.16
----------
Outstanding at December 31, 1999 ............................ 3,992,000 $4.72-$13.78
=========
Exercisable at December 31, 1999 ............................ 1,413,000 $4.72-$13.78
=========
</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-22
<PAGE> 62
NOTE 10 -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED, DECEMBER 31, 1997
-------------------------------------
PER-SHARE
---------
INCOME SHARES AMOUNT
------ ------ ------
<S> <C> <C> <C>
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
======= ====== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED, DECEMBER 31, 1998
-------------------------------------
PER-SHARE
---------
INCOME SHARES AMOUNT
------ ------ ------
<S> <C> <C> <C>
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>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED, DECEMBER 31, 1999
-------------------------------------
PER-SHARE
---------
INCOME SHARES AMOUNT
------ ------ ------
<S> <C> <C> <C>
Basic Earnings per Share
Net income ......................................... $34,882 50,966 $.68
====
Diluted Earnings per Share
Options and warrants issued ........................ -- 1,028
Net income plus assumed conversions ................ $34,882 51,994 $.67
======= ====== ====
</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. 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-23
<PAGE> 63
NOTE 11 -- BUSINESS INTERRUPTION INSURANCE
In July 1996, the Frenchman's Reef suffered damage when Hurricane Bertha
struck the U.S. Virgin Islands. 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 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 $10.9 million and $4.0 million, respectively.
NOTE 12 -- VALUATION AND OTHER CHARGES
Valuation and other charges in 1999 consist of a $29.1 million valuation
allowance related to certain non-prototype HomeGate properties and the
Frenchman's Reef hotel and $1.4 million for severance charges. Valuation and
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 -- OTHER INCOME, NET
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, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Gains on sales of properties ............................... $2,200 $1,060 $7,993
Gains on settlements of notes receivable ................... -- 18,353 --
Contract termination fee ................................... -- -- 4,000
Loss on the sale of marketable securities .................. -- (1,281) (4,811)
------- ------ ------
Total $2,200 $18,132 $7,182
======= ======= ======
</TABLE>
F-24
<PAGE> 64
NOTE 14 -- OTHER COMPREHENSIVE INCOME
For the twelve months ended December 31, 1999 and 1998, comprehensive
income consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net income ......................................... $53,847 $34,882
Unrealized (loss) gain on marketable securities,
(net of income taxes of $3,060 in 1998 and
$1,338 in 1999) .............................. (4,993) 2,299
------- -----
Total .................................... $48,854 $37,181
======= =======
</TABLE>
NOTE 15 -- 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 approximate their reported carrying amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage and notes receivable ...................... $ 14,688 $ 28,864 $ 11,750 $ 11,750
Long-term debt ..................................... 582,031 590,981 543,485 533,285
Interest rate swap agreement ....................... -- (397) -- 388
</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 current rates available to the Company for debt of the
same maturities. The fair values of the interest rate swap agreement is based on
the estimated amounts the Company would pay to terminate the agreement.
The Company's mortgages and other notes receivable (See Note 4) are
derived primarily from and are secured by hotel properties, which constitutes a
concentration of credit risk. These notes are subject to many of the same risks
as the Company's operating hotel assets. A significant portion of the collateral
is located in the Northeastern United States.
NOTE 16 -- 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, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Management and other fee income .................... $144 $138 $136
</TABLE>
F-25
<PAGE> 65
The amounts above relate to two hotels managed by the Company for an entity
controlled by the Company's Chairman and Chief Executive Officer.
NOTE 17 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities for
the years ended December 31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Hotels received in settlements of mortgage notes receivable .............. $ -- $ -- $ 2,800
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 $36.7 million, $48.5 million and $51.5 million
for the years ended December 31, 1997, 1998 and 1999, respectively.
Cash paid for income taxes was $14.4 million, $17.7 million and $31.0
million for the years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 18 -- GEOGRAPHIC AND BUSINESS INFORMATION
The Company's hotels currently service three major lodging industry
segments: the all-suites segment, under its AmeriSuites brand; the
limited-service segment, primarily under its Wellesley Inn & Suites brand and
the full-service segment under major national franchises. The Company's 99
AmeriSuites are upscale, all-suite limited service hotels containing
approximately 128 suites and are located in 30 states throughout the United
States. The 66 Wellesley Inn & Suites hotels compete in the mid-price segment,
and are primarily located in the Northeast, Texas and Florida regions of the
United States. A Wellesley Inn & Suites has between 100 to 140 rooms and
suites and includes amenities such as pool facilities, complimentary continental
breakfast, remote control television and facsimile services. Certain of the
larger Wellesley Inn & Suites have fully equipped kitchens, upscale
furnishings and separation between cooking, living and sleeping areas. 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 full-service hotels are primarily located in the northeastern region
of the United States. On November 1, 1999, the Company converted 38 of its 43
extended-stay HomeGate hotels into its limited-service Wellesley Inn & Suites
brand. The conversion changed the customer base from extended-stay to transient.
In March 2000, the Company sold the remaining five HomeGate hotels and all its
rights to the HomeGate brand name. The Company no longer operates in the
extended-stay segment. As a result, segment information for prior periods has
been restated to conform to this change.
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.
F-26
<PAGE> 66
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.
The following table presents revenues and other financial information by
business segment for the years ended December 31, 1997, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
LIMITED FULL
ALL-SUITES SERVICE SERVICE CONSOLIDATED
---------- ------- ------- ------------
<S> <C> <C> <C> <C>
Revenues ................................... $238,656 $105,437 $188,653 $532,746
Hotel EBITDA ............................... 87,714 41,925 41,200 170,839
Depreciation and
amortization ............................. 20,876 13,898 10,125 44,899
Capital expenditures ....................... 50,750 39,270 10,506 100,526
Total Assets ............................... 590,579 429,395 196,123 1,216,097
<CAPTION>
---------------------------------------------------------------------------
LIMITED FULL
ALL-SUITES SERVICE SERVICE CONSOLIDATED
---------- ------- ------- ------------
<S> <C> <C> <C> <C>
Revenues ................................... $191,690 $76,716 $178,973 $447,379
Hotel EBITDA ............................... 71,658 31,225 39,111 141,994
Depreciation and
amortization ............................. 20,967 8,865 11,992 41,824
Capital expenditures ....................... 224,282 178,219 18,489 420,990
Total Assets ............................... 554,253 367,971 228,385 1,150,609
<CAPTION>
---------------------------------------------------------------------------
LIMITED FULL
ALL-SUITES SERVICE SERVICE CONSOLIDATED
---------- ------- ------- ------------
<S> <C> <C> <C> <C>
Revenues ................................... $113,412 $58,857 $141,966 $314,235
Hotel EBITDA ............................... 52,377 26,891 53,861 133,129
Depreciation and
amortization ............................. 15,289 5,653 12,122 33,064
Capital expenditures ....................... 265,956 39,525 68,664 374,145
Total Assets ............................... 431,673 275,073 286,487 993,233
</TABLE>
F-27
<PAGE> 67
NOTE 19 -- 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.
In November 1999, the Company converted 38 of its 43 extended-stay
Homegate hotels into its limited-service Wellesley Inn & Suites brand.
NOTE 20 -- SUBSEQUENT EVENTS
In February 2000, five non-prototype Homegate hotels and the Company's
rights to the HomeGate brand name, were sold for approximately $17.7 million,
including the assumption of debt by the purchaser, of approximately $17.4
million related to these properties. During 1998, the Company recorded an
impairment loss in the amount of $10.0 million relating to five non-prototype
HomeGate properties as future undiscounted cash flows (before interest charges)
were less than the carrying amount. Such loss provision is included in valuation
and other charges in the accompanying financial statements (See Note 12). In
1999, the Company classified the aforementioned HomeGate properties as held for
sale and recognized an additional impairment loss of approximately $7.1 million.
During 1999, these properties generated net losses, before income tax benefits,
of approximately $370,000, which are included in the accompanying financial
statements.
F-28
<PAGE> 68
The Company also reclassified its Frenchman's Reef hotel in St. Thomas,
U.S.V.I. (Frenchman's Reef) as held for sale in 1999. For the year ended
December 31, 1999, the Company recognized a valuation loss of $22.0 million
which reduced the property's carrying value to approximately $71.1 million. In
March 2000, the Frenchman's Reef was sold. The carrying amount at December 31,
1999 reflected the selling price less closing costs. The net proceeds of this
transaction were used to repay $40.0 million of first mortgage debt and the
remainder will be used for the repayment of debt and the repurchase of the
Company's common stock. For the year ended December 31, 1999, this hotel
generated income, before income taxes, of approximately $3.2 million, which is
included in the accompanying financial statements.
On March 16, 2000, the Company signed an agreement with Sholodge, Inc.
("Sholodge") to acquire its leasehold interests in 27 Sumner Suites hotels for
net consideration of $2.0 million. Pursuant to the agreement, the Company will
convert these hotels to its AmeriSuites brand and will operate the hotels under
lease agreements with Hospitality Properties Trust ("HPT") and Sholodge. The
Company will also purchase two land sites from Sholodge to develop two
additional AmeriSuites hotels. The transaction is expected to close in mid-April
and is subject to certain due diligence items and approval by HPT.
Under the agreement, a subsidiary of Prime will assume Sholodge's
interest in an existing lease for 20 hotels with HPT, subject to HPT's consent,
and enter into new lease agreements on the seven remaining hotels. As part of
the transaction, Prime will also purchase land from Sholodge in Mt. Laurel, NJ
and in Sterling, VA, near Dulles Airport. An affiliate of Sholodge will then
construct AmeriSuites hotels on these sites.
The hotels are located in 12 states, primarily in the Southeast, Midwest
and Southwest regions of the country. The hotels were all recently constructed
by Sholodge, with an average age of 2.8 years. Sholodge has prior experience
developing AmeriSuites hotels as 15 current AmeriSuites hotels were constructed
by Sholodge. The Company will operate the hotels as Sumner Suites until the
conversion process is complete.
On March 17, 2000, the Company also sold its AmeriSuites hotel in
Warrenville, IL for $10.8 million. The transaction generated a net gain of
approximately $1.0 million and provides for the Company to receive franchise
fees under a twenty-year franchise agreement.
F-29
<PAGE> 69
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: /s/ A.F. Petrocelli
-------------------------------------
A.F. Petrocelli,
Chairman of the Board of Directors,
President and Chief Executive Officer
DATE: March 29, 2000
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 29, 2000.
<TABLE>
<CAPTION>
Signature Title
- ----------------------------------------- -------------------------------------------------------
<S> <C>
/s/ A.F. Petrocelli
- -----------------------------------------
A.F. Petrocelli Chairman of Board of Directors, President and Chief Executive Officer
/s/ Douglas Vicari
- -----------------------------------------
Douglas Vicari Senior Vice President and Chief Financial Officer
/s/ Lawrence Friedland
- -----------------------------------------
Lawrence Friedland Director
/s/ Howard M. Lorber
- -----------------------------------------
Howard M. Lorber Director
/s/ Herbert Lust, II
- -----------------------------------------
Herbert Lust, II Director
/s/ Jack H. Nusbaum
- -----------------------------------------
Jack H. Nusbaum Director
</TABLE>
<PAGE> 1
EXHIBIT 2(g)
Frenchman's Reef
PURCHASE AND SALE AGREEMENT
by and among
PRIME HOSPITALITY CORP.,
as Seller,
and
MARRIOTT INTERNATIONAL, INC.,
as Purchaser
----------------------
September 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Agreement to Sell and Purchase Subject Property.........................
2. Purchase Price and Terms................................................
3. Allocation of Purchase Price............................................
4. Transaction Taxes.......................................................
5. Environmental...........................................................
6. Debts and Liabilities...................................................
7. Representations and Warranties of Seller................................
8. Title and Survey........................................................
9. Conditions Precedent to Closing.........................................
10. Closing.................................................................
11. Risk of Loss............................................................
12. Indemnification.........................................................
13. Inventory of Personal Property..........................................
14. Union/Contract/Contract Employees.......................................
15. Default.................................................................
16. Notice .................................................................
17. Brokers.................................................................
18. Publicity...............................................................
19. Purchaser's Right of Entry..............................................
20. Assignment..............................................................
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
21. No Third Party Beneficiaries............................................
22. Attorney's Fees.........................................................
23. Time....................................................................
24. Severability............................................................
25. Counterparts; Facsimile Signatures......................................
26. Binding Effect, Etc.....................................................
27. Further Assurances......................................................
28. [Intentionally Deleted].................................................
29. Exclusivity.............................................................
</TABLE>
- ii -
<PAGE> 4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), made and
entered into this _____ day of September, 1999, by and between PRIME HOSPITALITY
CORP, a Delaware corporation (hereby referred to as "Seller"), and MARRIOTT
INTERNATIONAL, INC., its successor or assigns (hereinafter referred to as
"Purchaser").
WITNESSETH:
WHEREAS, Seller desires to sell, convey, transfer, assign and
deliver to Purchaser, and Purchaser desires to purchase from Seller:
(i) those certain parcels of real property situated in St.
Thomas in the Territory of the U.S. Virgin Islands, more
particularly described on Exhibit A attached hereto,
together with all structures, improvements and fixtures
located thereon, and together with all hereditaments,
appurtenances, easements, and other rights and interests
belonging or incident thereto (the "Real Property"); and
(ii) all of the assets of the resort businesses conducted by
Seller on the above-described Real Property under the
trade names "Frenchman's Reef Beach Resort" and "Morning
Star Beach Resort" (collectively hereinafter referred to
as the "Resorts"), including without limitation the
rights, title, and interest to the name and trademarks
"Frenchman's Reef Beach Resort" and "Morning Star Beach
Resort;" and all registrations for such names (the
"Names") to the extent assignable, all goodwill of the
businesses, all furniture, vehicles, appliances,
televisions and other video equipment, furnishings, floor
and wall coverings, fixtures (including lighting, heating,
plumbing, and ventilating fixtures, and everything
attached in any manner to walls, ceilings or floors), all
fixed assets and supplies and inventories (as such terms
are defined in the Uniform System of Accounts for the
Lodging Industry, Ninth Revised Edition), appliances,
equipment, machinery, security and alarm and telephone and
sprinkler and computer systems, supplies, advance room
reservations and deposits, (such deposits being referred
to as "Room Reservation Deposits") any and all telephone
and telecopy numbers related to and used in the operation
of the Resorts, Seller's right, title and interest in all
leases or services contracts listed on Exhibit E hereto,
all permits and licenses related to the operation of the
Real Property and Resorts, and all other tangible and
intangible personal property owned by Seller and presently
located upon or within the Real Property or otherwise used
in connection with the operation of the
<PAGE> 5
Resorts or the operation and maintenance of the Real
Property, building plans and specifications, equipment
warranties and the like, and copies of all financial and
operating records of the business (other than personnel
files) and of the Real Property, specifically including
without limitation all those tangible assets to be listed
on Exhibit B pursuant to the terms of Section 13 hereto,
but specifically excluding all cash, bank accounts,
accounts receivable, and liabilities of any kind or
nature, except for the Room Reservation Deposits and
liabilities specifically assumed herein (said Real
Property and Business Assets being hereinafter
collectively referred to as the "Subject Property"); and
WHEREAS, Purchaser desires to acquire the Subject Property from
Seller, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the
mutual covenants and agreements herein contained, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. AGREEMENT TO SELL AND PURCHASE SUBJECT PROPERTY. Seller
agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller all of
the above-described Subject Property, subject to the terms and conditions herein
contained. It is expressly understood that this transaction does not include any
of Seller's cash, bank accounts or accounts receivable, other than any Room
Reservation Deposits, and that, other than as expressly set forth in this
Agreement, Purchaser shall not assume nor be liable or responsible in any manner
for any of the liabilities or obligations of Seller of any kind or nature
relating to the Subject Property, the Resorts' business, or any other matter
whatsoever, existing or accrued or otherwise arising prior to the date of
Closing hereunder. Purchaser will be obligated to honor advance room
reservations, to assume Seller's yellow pages advertising contracts, and to
assume those space leases, leases on equipment, machinery and items of personal
property, and service contracts identified on Exhibit E hereto (collectively,
the "Leases and Contracts"), and to assume the other obligations as may be
expressly set forth in this Agreement.
2. PURCHASE PRICE AND TERMS. The purchase price for the
Subject Property shall be Seventy Five Million Dollars ($75,000,000). The total
purchase price shall be payable by Purchaser as follows:
(a) Earnest Money Deposit:
A $2,000,000 earnest money deposit (this deposit, and all
interest thereon, the "Earnest Money Deposit") will be
delivered to Chicago Title Insurance Company ("Escrow
Agent"), within five business days following receipt by
Purchaser of a fully-executed copy of this Agreement, such
sum to be promptly deposited by
-2-
<PAGE> 6
Escrow Agent in an interest-bearing money market escrow
account at a federally insured banking institution, and to
be held by Escrow Agent in such account pursuant to the
terms of this Agreement. If Purchaser fails to deliver the
Earnest Money Deposit by said deadline, this Agreement
shall be null and void and the parties shall be relieved
of all further rights or responsibilities hereunder. At
the time of the making of such Earnest Money Deposit,
Seller, Purchaser and Escrow Agent shall execute an Escrow
Instruction Letter substantially in the form of Exhibit C
hereof.
(b) Balance:
The balance of the Purchase Price (subject to customary
closing adjustments and those adjustments set forth
herein) shall be delivered by Purchaser to Escrow Agent in
the form of wired funds at the Closing. Title company
escrow and closing fees shall be shared equally between
the parties. Any monetary lien or encumbrance on the
Subject Property or any part thereof shall be paid in full
by Seller at Closing, and shall be released/terminated of
record prior to or at Closing.
(c) Apportionments.
(i) Seller shall be entitled to and responsible for all
income, cost and expense which accrues up to the day
preceding Closing with respect to the Subject Property.
Purchaser shall be entitled to and responsible for all
income, cost and expense accruing as of the date of
Closing and thereafter with respect to the Subject
Property. In accordance with the foregoing, closing
adjustments for the Subject Property will be made as
follows:
a. All real estate taxes, personal property
taxes, gross receipt taxes, ad valorem taxes and
assessments and other state, county or city taxes, fees,
charges and assessments affecting the Subject Property
shall be prorated as of the Closing on an accrual basis
based on the most recent ascertainable amounts of or other
reliable information in respect to each such item of
income and expense. Franchise fees and all other expenses
due Purchaser or its affiliates (in its capacity as
franchisor) shall be paid by Seller based upon all
revenues due Seller through Closing. Any net credit due to
Seller as a result of such prorations shall be paid in
cash by Purchaser at Closing. Any net credit due to
Purchaser as a result of such prorations shall be credited
against the Purchase Price.
b. The following items shall be prorated as of
the Closing on an accrual basis based on the most recent
ascertainable
-3-
<PAGE> 7
amounts of or other reliable information in respect to
each such item of income and expense:
(i) Utility charges.
(ii) Income, if any, from the operation of the
Resorts including, but not limited to, leases and
concession agreements with third parties, room
rentals, restaurant, telephone, room service and
other charges due from guests or other customers
(Seller and Purchaser shall each be entitled to
receive a credit equal to one-half of the amount of
all transient guest revenues for the full night
preceding the Closing).
(iii) Commission of rental agents, travel agents,
credit organizations and others, provided, however,
that commissions respecting guest room rentals for
the night preceding the Closing shall be treated in
the same fashion as guest room rentals.
(iv) Seller's prepayments of purchase orders, and
other prepaid items.
(v) Amounts paid or payable under the Leases and
Contracts, if any, assigned to Purchaser at the
Closing. All security deposits shall be transferred
to Purchaser.
(vi) All other costs and expenses in connection
with operation of the Resorts, which are
customarily and usually apportioned on the purchase
or transfer of a hotel property.
(vii) Laundry, valet and vending machines income.
(ii) At the Closing, Purchaser shall pay to Seller for
all unopened items of food, beverage and operating
supplies which are in good and usable condition for the
purposes of the operation of the Resorts, as further
described by category on Exhibit F hereto, and which are
in quantities normal and customary for resorts of the
nature and size of the Resorts. The payment shall be in
the amount of Seller's cost for such items.
(iii) Seller shall be entitled to all accounts receivable
accruing, but not realized, prior to 11:59 p.m. on the
night preceding Closing. Payments relating to such
accounts receivable realized after Closing shall be the
sole property of Seller and to the extent Purchaser
receives any such payments, it will promptly remit them
-4-
<PAGE> 8
to Seller. Purchaser will cooperate with Seller in
connection with Seller's efforts to collect its account
receivables.
(iv) Accounting: Except as otherwise expressly provided
herein, all apportionments and adjustments shall be made
on an accural basis in accordance with generally accepted
accounting principles. The computation of the adjustments
shall be jointly prepared by Seller and Purchaser, and,
upon the request of either Purchaser or Seller, shall be
reviewed by a reputable accounting firm mutually selected
by Seller and Purchaser (the "Accountants") and reviewed
by representatives of both Purchaser and Seller. To the
extent the exact amount of any adjustment item provided
for in this Agreement cannot be precisely determined on
the Closing, the Seller and Purchaser (or, if either
elects, the Accountants) shall estimate the amount
thereof, for purposes of computing the net amount due
Seller or Purchaser pursuant to this Agreement and shall
determine the exact amount thereof not later than sixty
(60) days after the Closing. The determinations made by
the Accountants shall be binding on both Seller and
Purchaser. The fees and expenses of the Accountants shall
be borne by the party requesting the use of the
Accountants.
(v) The parties hereto will agree at Closing to adjust
and/or apportion the Purchase Price, as necessary due to
the assumption by Purchaser of a settlement agreement
reached by and between Seller and Armando and Dana
Santucci, as more particularly set forth in that certain
letter agreement dated August 3, 1999.
3. ALLOCATION OF PURCHASE PRICE. Set forth on Exhibit D
hereof is the agreed upon allocation of the total Purchase Price; such
allocation being made only among land, buildings, fixtures, personal property
and good will.
The parties further agree that each of them will timely file IRS
Form 8594 with the Internal Revenue Service, reflecting the allocation set forth
above.
4. TRANSACTION TAXES. All documentary fees/stamps/taxes and
real property and transfer taxes shall be paid 50% by Seller and 50% by
Purchaser. Purchaser shall pay for all other recording taxes and any sales or
use taxes imposed upon the sale of any personal property.
5. ENVIRONMENTAL. Purchaser has delivered to Seller that
certain Phase I Environmental Site Assessment dated June, 1999 prepared by
Parsons Engineering Science, Inc. (the "Environmental Report"). Seller agrees
that prior to Closing, it shall undertake and complete, to Purchaser's
reasonable satisfaction, the items specified under Section 6.2 of the report, a
copy of which is attached hereto as Exhibit G. Purchaser will inspect Seller's
work within fifteen (15) days of Seller's written notice that
-5-
<PAGE> 9
such work is complete. No later than four (4) days after the expiration of said
fifteen (15) day period Purchaser will notify Seller in writing of any
corrections it requires in order for the work to be completed in accordance with
industry standards for resorts of a similar nature. Seller shall promptly make
any such corrections. Upon Seller's final completion of the work required under
Section 5, Seller shall have no further responsibility or liability with respect
to the correction of items specified in Section 6.2 of the Environmental Report.
6. DEBTS AND LIABILITIES. Other than as expressly set forth
in this Agreement, it is expressly understood that Purchaser shall not assume or
pay, perform or discharge or cause to be paid, performed or discharged any
obligation or liability of Seller. Purchaser agrees to honor advance room
reservations made by Seller prior to Closing in the ordinary course of business,
to assume Seller's yellow pages advertising contracts, and to accept the
assignment of and to assume the Leases and Contracts. Other than as expressly
set forth in this Agreement, Seller agrees to pay all debts and liabilities
relating to the Subject Property and the Resorts business at or prior to the
Closing hereunder. The parties agree that Purchaser shall acquire title,
ownership and possession of the Subject Property free and clear of all claims of
any kind or nature whatsoever (excepting (a) advance room reservations, (b) Room
Reservation Deposits, (c) obligations pursuant to the leases and service
contracts set forth on Exhibit E hereto, and (d) all matters of record).
7. REPRESENTATIONS AND WARRANTIES OF SELLER.
(a) Seller hereby makes the following additional
representations and warranties to Purchaser as of the date
of this Agreement, continuing throughout the term of this
Agreement, and as of the date and time of Closing
hereunder, with the knowledge that Purchaser is acting in
full reliance thereon;
(i) Seller possesses full power and authority to enter
into and perform this Agreement and the execution,
delivery, or performance of this Agreement will
not conflict with or violate the terms or
provisions of any loan agreement (excepting those
which will be discharged at the Closing
hereunder), contract, other agreement, court
order, decree, statute, rule or regulation by
which Seller is bound or affected. This Agreement
is a valid and binding obligation of Seller, and
is enforceable against Seller in accordance with
its terms. Seller is duly organized, validly
existing and in good standing under the laws of
the state of formation, has all requisite power
and authority under the laws of such state and by
proper corporate proceedings to execute and
consummate this Agreement and the transactions
contemplated hereby, and shall deliver to
-6-
<PAGE> 10
Purchaser prior to Closing a certificate of good
standing and copies of such corporate
authorizations.
(ii) Seller is the owner of, both beneficially and of
record, and has good and marketable title to, all
of the Subject Property, and at the Closing will
convey and assign to Purchaser good and marketable
title to all of the Subject Property free and
clear of all encumbrances, covenants, easements,
leases and restrictions, excepting (a) those items
set forth on the Title Commitment (as defined in
Section 8 hereof) (the "Permitted Exceptions"),
and (b) those rights of governmental entities
pursuant to the terms of the Coastal Zone Permit
No. C2T-1-81W and C2T-12-90W, (c) monetary liens,
judgments and mechanic's liens, which will be
satisfied and released at Closing and (d) those
leases and service contracts set forth on Exhibit
E hereto. Seller has no ownership or other direct
or indirect interest in any strip or
parcel of land which adjoins the Real Property. To
the best of Seller's knowledge and belief, no
further consent of any person or entity, and no
license, approval, or authorization of, or
registration or declaration with, any governmental
authority is required in connection with the
execution and delivery of or performance by Seller
of its obligations under this Agreement.
(iii) Seller holds Federal Trademark No. 1,976,397 and
1,973,749 for the names "Frenchman's Reef Beach
Resort" and "Morning Star Beach Resort."
(iv) Seller shall continue to be solely responsible for
and shall pay as and when due all of Seller's
obligations, debts and liabilities which are
associated in any way with the Subject Property
and/or the Resorts business accruing prior to the
Closing, and not otherwise expressly assumed by
Purchaser.
(v) Within the times and in the manner prescribed by
law, Seller has filed all federal, state and local
tax returns required by law and has paid all
applicable sales, use, withholding, real and
personal property, income, FICA, employment and
other taxes, assessments and penalties due and
payable, in connection with the Subject Property
and the Resorts business. There are no proceedings
pending, or to the best of Seller's knowledge,
threatened with or by any taxing authorities as to
taxes of any nature payable by
-7-
<PAGE> 11
Seller in connection with the Subject Property or
the Resorts business.
(vi) There are no outstanding judgments against Seller,
and there is no suit, action, claim, demand,
arbitration, or legal, administrative or other
proceedings pending or, to the best of Seller's
knowledge, threatened against or affecting the
Subject Property or the Resorts business, and
Seller does not know or have reasonable grounds to
know of any basis for any such action or claim.
(vii) Other than as set forth in Exhibit M, to the best
of Seller's knowledge and belief, Seller has
complied with, and is not in violation of, any
applicable federal, state or local statutes, laws,
rules and regulations affecting the Subject
Property or the Resorts business.
(viii) Other than documents recorded in the public
records, the Leases and Contracts to be assigned to
Purchaser pursuant to the terms of this Agreement,
the Coastal Zone Permit No. C2T-1-81W and
C2T-12-90W and agreements and easements with
governmental bodies and utility companies which are
customary reasonably necessary for the development
and operation of the Subject Property and the
Resorts business (and of which true and complete
copies have been supplied by Seller to Purchaser),
Seller is not a party to or bound by any
agreements, contracts, employment arrangements,
leases, subleases or commitments relating to the
Subject Property or any part or portion thereof or
the Resorts business which will extend beyond or
survive the Closing hereunder.
(ix) Seller has received no written notice that the
present development, improvement, use and
operation of the Subject Property and of the
Resorts business are not in compliance with or
violate any local, state or federal laws,
ordinances, resolutions, codes, regulations or
requirements of any kind or nature, including,
without limitation, zoning, adequacy of parking,
land use laws and building codes, or any private
covenants, restrictions, or setbacks. There are
presently, and at the date of Closing there will
be, in effect all material licenses, permits and
other authorizations necessary for the Seller's
use, occupancy and operation of the Subject
Property and the Resorts business as it is
currently being used.
-8-
<PAGE> 12
(x) To the best of Seller's knowledge, Seller is in
compliance and in good standing with all permits,
approvals, licenses, grants and other similar
items from governmental entities relating to, or
affecting the Property, (including, without
limitation, liquor licenses, coastal zone
management permits and industrial development
credit agreements) (collectively, "Governmental
Permits and Grants"). Set forth on Exhibit I
hereto is a complete list of all Governmental
Permits and Grants.
(xi) There are no unpaid ad valorem taxes on the Real
Property (except to the extent current taxes are
not yet due and payable) or governmental or special
district assessments or levies for sewer, sidewalk,
curb, gutter, water, paving, electrical, gas, storm
drainage, park dedication fees, or other such
impositions related to the Real Property, matured
or unmatured, and Seller does not know of any such
threatened assessments or levies.
(xii) Seller has not received written notice of any
pending or threatened condemnation proceeding,
proposed change of zoning, or other proposed land
use regulation or action affecting the Real
Property.
(xiii) All bills for work done or materials furnished with
respect to the Real Property have been paid in full
or will be paid in full and discharged by Seller at
or prior to Closing.
(xiv) Seller is not a party to any oral or written
employment contracts or agreements with respect to
the Property other than those set forth on Exhibit
H hereto (the "Employment Agreements"). To the best
of Seller's knowledge, no party is in default under
any Employment Agreement.
(xv) There are no property interests, buildings,
structures or other improvements or personal
property that are owned or leased by Seller which
are necessary for the operation of the Subject
Property that are not being conveyed pursuant to
this Agreement.
(xvi) Seller has not received written notice from any
insurance carrier of defects or inadequacies in the
Subject Property which, if uncorrected, would
result in a termination of insurance coverage or an
increase in the premiums charged therefor.
-9-
<PAGE> 13
(xvii) All space leases, leases and service contracts for
any space, property services or advance room
contracts relating to the Subject Property and/or
the Resort are listed on Exhibit E hereto, and
Seller has supplied to Purchaser true and complete
copies of all such documents.
(xviii) Exhibit H sets forth and describes in detail, as to
each employee, all accrued but unpaid vacation pay
and sick leave, a description of whether any of
Seller's employees are participating in a Seller
group health plan, and all other fringe benefits,
as well as a schedule of employees, showing
salaries and duties, with a statement of the length
of service of each such employee, such Exhibit to
be brought current to the date of Closing.
(xix) Other than as set forth in Exhibit M, to the best
of knowledge of Seller, there are no Hazardous
Materials upon or in any way affecting the Real
Property. As used herein, "Hazardous Materials"
shall mean any chemical, material or substance to
which exposure is prohibited, limited, or regulated
by any federal, state, county or regional authority
and/or which is known to pose a hazard to the
health and/or safety of humans, animals or the
environment.
(xx) Between the date of this Agreement and the Closing,
Seller:
(a) Shall not transfer or otherwise dispose of
any interest in the Subject Property or any part
thereof and shall not create or suffer the
imposition of any further liens or encumbrances or
restrictions on the Subject Property or any
interest therein.
(b) Shall maintain all existing policies of
insurance on the Subject Property.
(c) Shall maintain the Subject Property and all
mechanical, heating, plumbing, electrical and other
utility systems which serve the Real Property in
such repair and order as existed on the date of
this Agreement.
(d) Shall conduct the Resorts' business only in
the normal and ordinary course thereof, consistent
with past practices, and in compliance with the
law and shall continue to use its reasonable and
good faith efforts to take guest room reservations
and to otherwise promote the
-10-
<PAGE> 14
business of the subject property in the same
manner as Seller did prior to the execution of
this Agreement; and shall maintain the level of
fixed assets and supplies and inventories as has
been its practice within the past one (1) year
from the date of this Agreement.
(e) Shall not make any material alterations in
the Subject Property.
(f) Shall not enter into any contracts,
agreements or leases affecting the Subject
Property which will survive the Closing hereunder.
(g) Shall not take any actions of any kind which
might interfere with the performance by any party
hereto of the obligations and responsibilities set
forth herein or the enjoyment by any party hereto
of the rights created hereby.
(h) Shall use and operate the Subject Property
in compliance with all applicable laws, rules,
regulations of any applicable governmental agency
and the requirements of any mortgage, operating
agreement or insurance policy affecting the
Subject Property.
(i) Shall file for and obtain, at Seller's
expense, any federal, state or local
authorizations, consents, approvals, or
clearances, which may be required in connection
with Seller's conveyance of the Subject Property
to Purchaser.
(xxi) Seller has terminated the employment of Nick
Pourzal and Nick Pourzal no longer has any rights
to live on the Subject Property.
(xxii) Seller has no knowledge of any impediment to the
issuance of the Second Certificate (as defined in
Section 9(a)(v) Conditions Precedent to Closing
hereof) other than the normal governmental
requirements for such issuance.
(b) To the best of Seller's knowledge: (i) the information
that has been furnished to Purchaser by Seller pursuant to
this Agreement does not contain any material
misrepresentation as to any material fact; and (ii) Seller
has not omitted any material fact or information which
would reasonably affect a prudent investor's decision to
purchase the Subject Property and the Resorts business in
the manner herein set forth.
-11-
<PAGE> 15
(c) To Seller's "best knowledge" or similar qualification
means to the actual knowledge of Joseph Bernadino, General
Counsel; Steven Siegel, vice president - construction; and
Andrew HeLal, General Manager, without independent inquiry
other than to the internal files of Seller.
(d) All representations, warranties, and covenants contained
in this Section 7 shall survive closing for a period of
three (3) months from the date of Closing.
(e) Purchaser acknowledges that it is relying on its
independent investigation of the condition of the
Subject Property (including the physical and the
environmental condition of the Subject Property), that
it has not relied upon any statement, representation or
warranty, written or otherwise, of Seller, other than as
expressly set forth in this Agreement, or of any
employee or agent of Seller and that it is purchasing
the Subject Property "as is." Purchaser acknowledges
that any budgets or forecasts of financial results
provided to it are estimates only, that such budgets and
forecasts do not constitute guaranties of future
performance and that future performance of the Subject
Property may vary substantially from such budgets and
forecasts. Purchaser warrants and represents that it has
no knowledge of any fact which would render any
representation, warranty or covenant contained in this
Section 7 to be false or incorrect or cause Seller to be
in breach thereof.
(f) Seller agrees that if any deed, Leases and Service
Contracts or Governmental Permits and Grants or other
document to be assigned or conveyed to Purchaser is not in
the name of "Prime Hospitality Corp.," but instead is in
the name of Frenchman's Reef Beach Associates or other
similar name ("Beach Associates"), Seller shall undertake
such acts as may be necessary to assign and/or convey the
interest in such documents(s) to Purchaser.
(g) The limitations to the representations and warranties
contained in Sections 7(c); 7(d) and the last sentence of
7(e) shall apply to and be incorporated by referenced in
each and every warranty and representation given by Seller
anywhere in this Agreement.
8. TITLE AND SURVEY.
(a) Attached hereto as Exhibit J is a current
commitment for a title insurance policy covering the Real
Property, issued by Escrow Agent, in the amount of the purchase
price (the "Title Commitment"). As a condition to Closing, the
Escrow Agent will deliver to Purchaser an endorsement to the
title commitment which extends the effective date
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<PAGE> 16
thereof to the date of Closing and which discloses no further
exceptions to title, as well as such other endorsements as
Purchaser may reasonably request. In addition, Seller shall
cooperate with Purchaser's efforts to produce such agreements,
affidavits or other documents as may be reasonably required by
the Escrow Agent to issue the owner's title policy. Finally,
Seller agrees that on the date of Closing it will deliver to
Purchaser evidence reasonably satisfactory to Purchaser and
Escrow Agent, by Certificate or otherwise, which discloses no
unpaid taxes or assessments on the Real Property except those
pertaining to the year of Closing, it being mutually understood
that Seller will have paid in full all prior years' taxes and
assessments as well as all taxes and assessments allocated to the
date of Closing, on or before the date of Closing.
(b) Attached hereto as Exhibit K is a survey of the
Real Property (the "Existing Survey"). Within sixty (60) days
from the date of this Agreement, Purchaser shall obtain, at its
expense, an updated survey, certified by a licensed surveyor for
the express benefit of Purchaser and the Escrow Agent depicting
all property corners, improvements, fences, roads, driveways,
parking areas, easements and rights-of-way, encroachments on or
off the Real Property, utility lines, restrictions of record, and
setbacks, existing upon the Real Property (the "Improvement
Survey"). The Improvement Survey shall be in form and content
sufficient to cause the Escrow Agent as title company to issue an
endorsement to its title commitment agreeing to delete from
Schedule B, Section 2, of its to-be-issued title policy, the
standard printed exceptions (including exceptions 2 and 3) and
the exception for parties in possession (exception 1). If the
Improvement Survey depicts any condition different than the
conditions shown on the Existing Survey which causes the Escrow
Agent as title company to add any additional exceptions or
conditions to its Title Commitment that substantially, adversely
affect the utility of the Subject Property as currently used, or
substantially diminishes its value, Purchaser shall have the
option in its sole discretion of (i) terminating this Agreement
by written notice to Seller and receiving a prompt refund of the
Earnest Money Deposit, in which case the parties shall be deemed
relieved of all further rights or responsibilities hereunder, or
(ii) waiving such right to terminate and proceeding to Closing in
accordance with the terms and provisions of this Agreement.
9. CONDITIONS PRECEDENT TO CLOSING
(a) It shall be an express condition to Purchaser's obligation
to purchase the Subject Property that each and every one
of the following conditions shall have been satisfied as
of the date of Closing (or waived by Purchaser):
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(i) Representations and Warranties. Each of Seller's
representations and warranties shall be true and
accurate, in all material respects, as if made on
and as of the Closing.
(ii) Covenants of Seller. All actions Seller covenants
herein to take shall have been completed in all
material respects, including those obligations set
forth in Section 5. Environmental hereto.
(iii) Permits; No Impediments. Purchaser shall have been
able to obtain all Governmental Permits and Grants
(including a liquor license) necessary to operate
the Subject Property on and subsequent to the
Closing, or such permits shall have been applied
for and Purchaser is satisfied will be issued in
the normal course and the absence thereof as of
Closing will not interfere with the operation of
the Subject Property immediately subsequent to the
Closing, in all material respects. There shall be
no impediments to reissuance to Purchaser of any
Permits required for the ongoing uninterrupted
operation of the Subject Property immediately
following the Closing, if transfer of such Permits
is not allowed.
(iv) Title and Survey. Purchaser shall be able to obtain
a policy of title insurance in conformance with the
provisions of Section 8 hereof, and shall obtain an
Improvement Survey in conformance of the provisions
of Section 8 hereof.
(v) Transfer of Industrial Development Certificate and
Industrial Development Benefits. Purchaser shall
have been able to obtain a transfer of (i) that
certain Industrial Development Certificate (the
"First Certificate") and any and all benefits
including, without limitation, Industrial
Development benefits, pursuant to the First
Certificate issued by the Virgin Islands
Industrial Development Commission ("Commission")
and currently benefiting Seller until March 31,
2001, by virtue of that certain Transfer of
Certificate from Frenchman's Reef Beach Associates
to Seller dated March 18, 1998, and (ii) that
certain Industrial Development Certificate (the
"Second Certificate") and any and all benefits
including, without limitation, Industrial
Development benefits, pursuant to the Second
Certificate issued or to be issued by the
Commission for the benefit of Seller for a period
of 10 years commencing April 1, 2001. It is the
requirement of Purchaser that transfer of the
First Certificate and the
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<PAGE> 18
Second Certificate provide for the following
exemptions from taxes and duties through March 31,
2011:
- Gross Receipt Taxes 100% exemption
- USVI Income Taxes 90% exemption
- Dividend Withholding Taxes 80% exemption
- Interest Withholding Taxes 100% exemption
- USVI Real Property Taxes 100% exemption
on real property used for operating a hotel
- Customs Duties Customs duty capped
at 1% ad valorem assessment on certain items
- Excise Taxes 100% exemption
Purchaser agrees to use its reasonable efforts to
comply with and complete all preconditions set by
the Commission for the transfer of the First and
Second Certificates. Seller agrees to cooperate
with Purchaser to obtain the Commission's approval
to transfer the First Certificate and the Second
Certificate and all of the benefits pursuant
thereto (including, without limitation, benefits
relating to income taxes, gross receipt taxes, and
excise taxes) to Purchaser. In addition, Seller
agrees to use its reasonable efforts to obtain the
issuance of the Second Certificate.
(vi) Environmental. Seller shall have completed the work
required to be completed pursuant to Section 5
hereof.
(vii) Documents/Agreements. Seller shall have delivered
at Closing all of the documents, agreements and
instruments required under Section 10 hereof.
(b) Failure of Condition. In the event of the failure of any
condition precedent set forth above, Purchaser, at its
sole election, may (a) terminate this Agreement (and
receive a return of the Earnest Money Deposit); (b)
waive the condition and proceed to Closing; (c) extend
the date of Closing for an additional period of thirty
(30) days to allow Purchaser to remedy such failure;
and/or (d) if such failure arises from Seller's breach
of this Agreement, avail itself of any remedies provided
in herein.
10. CLOSING. The purchase and sale of the Subject Property shall
close on the date which Seller and Purchaser shall mutually agree upon and
designate in writing, but in no event later than the earlier of (a) fifteen (15)
days from the date on which all of the conditions precedent set forth in Section
9 hereinabove have been satisfied or (b) one hundred twenty (120) days from the
date of this Agreement (the "Closing"), provided, however, if Closing would
otherwise occur during the period of
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<PAGE> 19
December 24, 1999 to and including January 3, 2000, the Closing shall occur on
January 4, 2000. The Closing shall be held at 10:00 a.m., at the offices of
Escrow Agent on St. Thomas or at such other location, time and date as may be
mutually agreed upon by the parties. At the Closing the following shall occur:
(a) Seller shall deliver to Purchaser a duly executed and
acknowledged Special Warranty Deed, or its local
equivalent in proper statutory form for recording,
covering the Real Property free and clear of all taxes,
liens, encumbrances, restrictions or claims of any kind or
nature except the Permitted Exceptions.
(b) Seller shall deliver to Purchaser a duly executed and
acknowledged Bill of Sale with full warranty of title
covering the Business Assets (to the extent the same are
not leased) and all architectural and other plans,
specifications, studies, reports and other materials
owned by Seller pertaining in any way to the existing or
potential use, development, expansion or alteration of
the Real Property or any part thereof, free and clear of
all taxes, liens, encumbrances, restrictions or claims
of any kind or nature except the Permitted Exceptions.
Seller and Purchaser shall each execute and deliver to
the other, assignments and assumptions in form and
content set forth in Exhibit L wherein Seller assigns
and Purchaser assumes the Leases and Contracts.
(c) Seller shall deliver to Purchaser such documentation as
Purchaser may reasonably request to evidence the sale and
transfer of the Federal Trademarks for the names
"Frenchman's Reef Beach Resort" and "Morning Star Beach
Resort."
(d) Seller shall deliver to Purchaser a duly executed and
acknowledged Assignment covering all warranties which
Seller may have on the equipment, appliances, fixtures or
other of the Business Assets being conveyed to Purchaser.
(e) Seller shall deliver to the Escrow Agent a duly executed
and acknowledged Mechanic's Lien Affidavit and Indemnity
Agreement indemnifying Purchaser and Escrow Agent against
any claims or demands for work performed or materials
furnished for the benefit of the Real Property.
(f) Seller shall execute and deliver to Purchaser and Escrow
Agent a FIRPTA Non-Withholding Certificate in the name of
the Seller from the Virgin Islands Internal Revenue
Bureau, in form and content reasonably acceptable to
Purchaser.
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<PAGE> 20
(g) Purchaser shall deliver to Escrow Agent the balance of the
Purchase Price (subject to any contract credits and
closing adjustments) in the form of wired funds.
(h) Purchaser and Seller shall execute Statements of
Settlement prepared by Escrow Agent which reflect the
purchase price and all credits and other adjustments
thereto.
(i) Seller and Purchaser shall execute and deliver such other
documents as may be necessary or appropriate to effectuate
the intent and purpose of this Agreement and the
transactions contemplated hereby.
(j) Seller shall cause possession and management of the
Subject Property and of the Resorts business to be
delivered to Purchaser, in a clean condition and free
and clear of any leases or tenancies other than the
Leases and Contracts, and the advance room reservations
taken by Seller in the ordinary course of business; and
the Subject Property shall contain and include all fixed
assets and supplies and inventory as are designated on
Exhibit B hereto (as amended pursuant to Section 13
hereof) all in the same condition and repair as they are
on the date of this Agreement, reasonable wear and tear
accepted.
(k) Any franchise agreements for the Resorts between Seller
and Purchaser, or Purchaser's affiliates, will be
terminated without payment of any penalty or termination
fee, provided that payment of all fees under such
franchise agreements, other than any penalty or
termination fees, have been paid in full by Seller prior
to Closing.
11. RISK OF LOSS. The risk of loss to the Subject Property or
any part or portion thereof shall remain with Seller until the Closing hereunder
has been completed, and Purchaser shall have the option to either cancel this
Agreement without further obligation (and receive a prompt refund of all Earnest
Money Deposit) or to close without adjustment in price and to receive from
Seller an assignment of all property loss insurance other than business
interruption insurance or similar coverage or other proceeds or awards in the
event of any material loss, destruction, damage or taking to or of the Subject
Property or any part or portion thereof by reason of fire, other casualty or
condemnation prior to Closing. As used in this Paragraph 11, the term "material"
shall mean any damage or destruction to the Subject Property which cannot be
fully repaired by Seller prior to the Closing, or the commencement of a
condemnation proceeding involving any part of the Property. Such option must be
exercised by Purchaser by written notice given to Seller no later than thirty
(30) days following the occurrence of the event which causes the loss, damage or
taking. If no such notice is timely given, Purchaser shall be deemed to have
elected to close without adjustment in price and to
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<PAGE> 21
receive an assignment of all proceeds or awards. If the Closing falls within the
said thirty (30) day notice period, the Closing shall be extended to the fifth
business day following the expiration of said thirty (30) day period.
12. INDEMNIFICATION. Seller agrees to and does hereby
indemnify, defend (including reasonable attorneys' fees), save and hold harmless
Purchaser against and in respect of any and all claims, demands, losses, costs,
expenses, injuries, liabilities, obligations or damages which may be asserted
against, incurred or suffered by Purchaser ("Purchaser's Loss") caused by or
arising out of Seller's ownership and/or operation of the Subject Property prior
to the date of Closing, including losses caused by liability to third parties
for personal injuries occurring prior to the date of Closing, but excluding any
loss caused by or arising out of any physical, environmental or other condition
of the Subject Property existing prior to the date of Closing, except with
respect to personal injuries if such injuries occurred prior to the date of
Closing. The foregoing indemnity shall include all attorneys' fees incurred by
Purchaser in prosecuting or defending any claim, cause of action, or lawsuit
within the scope of the indemnity, including any suit that may be necessary to
enforce the indemnity, and shall survive the Closing hereunder and remain in
full force and effect.
In addition to the indemnifications set forth in the
immediately preceding paragraph, Seller agrees to and does hereby indemnify,
defend (including reasonable attorneys' fees), save and hold harmless Purchaser
against and in respect to any claims, demands, losses, costs, expenses,
injuries, liabilities, obligations or damages which may be asserted against,
incurred by or suffered by Purchaser or the Subject Property, which relate to
any rights, title, interest or other claims, of any type or nature (including
any right, title or interest or other claim relating to the Subject Property) by
Nick Pourzal and/or his spouse (collectively and individually, the "Pourzals")
or any business entity in which the Pourzals have an interest (collectively,
"Pourzals' Claims") to the extent and only to the extent, such Pourzals' Claims
relate to conditions, facts or events alleged or existing prior to the date of
Closing and arise from acts or omissions by Seller or any predecessor in
interest to Seller of the Subject Property. The foregoing indemnity shall
include all attorneys' fees incurred by Purchaser in any suit that may be
necessary to enforce the indemnity, and shall survive the Closing hereunder and
remain in full force and effect. Purchaser agrees that Seller may (a) retain
counsel on behalf of Purchaser, such counsel to be reasonably acceptable to
Purchaser, and (b) direct the course of any litigation, and negotiate any
settlement, provided such course and negotiations are consistent with the
reasonable goals of MI and provided that the cost of such counsel, litigation
and settlement shall be borne solely by Seller.
Purchaser agrees to and does hereby indemnify, defend
(including reasonable attorneys' fees), save and hold harmless Seller against
and in respect of any and all claims, demands, losses, costs, expenses,
injuries, liabilities, obligations or damages which may be asserted against,
incurred or suffered by Seller, caused by or arising out of Purchaser's
ownership or operation of the Real Property and Resorts after the date of
Closing. In addition, except for any rights it may have (i) for breach of any
representation or warranty contained in this Agreement and (ii) related to the
work to be
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<PAGE> 22
performed by Seller pursuant to Section 5 hereof, Purchaser agrees to and does
hereby waive and release Seller from any claim Purchaser may have against Seller
relating to or caused by any physical, environmental or other conditions of the
Subject Property existing prior to the date of Closing, including any liability
arising from any claim of a third party against Purchaser with respect to any
such physical, environmental or other condition of the Subject Property. The
foregoing indemnity shall include all attorneys' fees incurred by Seller in
prosecuting or defending any claim, cause of action, or lawsuit within the scope
of the indemnity, including any suit that may be necessary to enforce the
indemnity. This paragraph shall survive the Closing hereunder and remain in full
force and effect. The rights which Purchaser may have for breach of any
representation or warranty contained in this Agreement are subject to the terms
of Section 7(d) of this Agreement, relating to the period of survival of the
representations and warranties. The rights of Purchaser relating to the work to
be performed by Seller pursuant to Section 5 hereof are subject to Seller's
release of liability for such work upon final completion of the work, as set
forth in the last sentence of Section 5 hereto.
13. INVENTORY OF PERSONAL PROPERTY. An inventory of the
personal property, including fixed supplies, supplies and inventory, located on
the Real Property and Resorts shall be performed by Seller and Purchaser within
thirty (30) days of the date of the execution of this Agreement and attached
hereto as Exhibit B hereto. Purchaser and Seller will amend Exhibit B to reflect
such inventory as of the date of Closing.
14. UNION CONTRACT/CONTRACT EMPLOYEES.
(a) Union Employees. On the date of Closing, Purchaser agrees
to assume the collective Bargaining Agreement dated June
27, 1997 between Seller and United States of America
AFL-CIO ("Union") ("Union Contract"). Seller shall
reasonably cooperate with Purchaser to assist Purchaser
in making such modifications to the Union Contract as
may be reasonably necessary to provide equivalent
benefits thereunder (i.e., to account for the fact that
Purchaser may be unable to duplicate Prime's benefits
but can provide equivalent Marriott benefits), provided
that no such modification shall be a condition to
Closing. Seller represents that it is not a party to any
union or other collective bargaining agreement with
employees employed in connection with the Subject
Property, other than the Union Contract, and that there
are no amendments to or modifications of the Union
Contract and that the copy of the Union Contract
provided to Purchaser is true, correct and complete in
all respects. Seller represents that, to its knowledge
and except as provided on Exhibit H, there are no
grievances or similar claims pending or threatened
pursuant to the Union Contract. Purchaser assumes all
liability and agrees to indemnify Seller against any
liability, including any severance costs and liabilities
imposed by law, arising out of Purchaser's
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<PAGE> 23
failure to hire any union employee at closing or
termination of any union employee subsequent to the
closing date.
(b) Non-Union Employees. Purchaser will hire all employees
not subject to the Union Contract, subject to
Purchaser's standard ninety-day probationary period for
new employees, provided that Purchaser assumes all
liability and agrees to indemnify Seller against all
liability, including any severance costs and liabilities
imposed by law arising out of Purchaser's failure to
hire any employee at closing or termination of any
employee within the ninety (90) day probationary period
for new employees, and further provided that the
employment of the individuals identified on Exhibit H is
provided for in subsection (f) below.
(c) Benefits. With respect to all Union employees and all
non-union employees, Seller shall pay to Purchaser at
Closing all costs and expenses associated with accrued but
unpaid or unearned costs associated with the following,
calculated through the date of Closing: salary, vacation
leave, sick leave, medical, pension, and welfare benefits
and employee fringe benefits (collectively, the "Employee
Plans"). Purchaser agrees to promptly pay when due all
amounts due to employees under the Employee Plans.
(d) Mutual Indemnity. Seller shall indemnify and hold
harmless Purchaser, from and against any and all claims,
causes of action, proceedings, judgments, damages,
penalties and liabilities made, assessed or rendered
against Purchaser or its affiliates and any and all
costs and expenses (including reasonable attorneys fees
and expenses) incurred by Purchaser or its affiliates
with respect to (i) any termination of any employee
prior to the Closing Date, (ii) any grievances, claims,
or actions of any employees of the Property occurring or
relating to periods on or prior to Closing, any employee
benefits pursuant to any Employee Plans accrued or
earned as of the Closing Date, payment for which Seller
has failed to make to Purchaser pursuant to subsection
(c) above. Purchaser shall indemnify and hold harmless
Seller, from and against any and all claims, causes of
action, proceedings, judgments, damages, penalties and
liabilities made, assessed or rendered against Seller or
its affiliates and any and all costs and expenses
(including reasonable attorneys fees and expenses)
incurred by Seller or its affiliates (i) with respect to
any employee benefits pursuant to any Employee Plans
accrued or earned after the Closing Date, (ii) with
respect to any employee benefits pursuant to any
Employee Plans for which Seller has made payment to
Purchaser pursuant to subsection (c) above, and (iii)
the termination of any employee after the Closing Date
(other than with respect to the employees
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<PAGE> 24
identified on Exhibit H, which are provided for in
subsection (f) below).
(e) Access to Employees. Seller will cooperate reasonably in
connection with Purchaser's interviewing of employees at
the Hotel and, upon Purchaser's request, provide
Purchaser with access to wage and benefits information.
Purchaser shall indemnify and hold harmless Seller, from
and against any and all claims, causes of action,
proceedings, judgments, damages, penalties and
liabilities made, assessed or rendered against Seller or
its affiliates and any and all costs and expenses
(including reasonable attorneys fees and expenses)
incurred by Seller or its affiliates with respect to its
interviewing employees or with respect to any employment
decisions made with respect to such interviews. Seller
agrees that it will not make any promise, commitment or
representation to any non-Union employee regarding
possible employment with Purchaser, other than the
employees listed on Exhibit H.
(f) Designated Employees. Purchaser agrees to assume the
Employment Agreements for those six (6) employees
identified as "Designated Employees," which employees and
agreements are described on Exhibit H ("Designated
Employees' Agreements"). Each Designated Employee has
consented to this assumption pursuant to the executed
Consents attached hereto as Exhibit H-2 (such consents
being known as the "Designated Employee's Consent").
(g) Purchaser's/Seller's Obligations. Purchaser's assumption
of the Designated Employees' Agreement shall be subject to
the following terms:
(i) If Purchaser notifies Seller of Purchaser's
election to terminate the employment of any
Designated Employee between the 180th day and the
210th day after the date of Closing (the
"Termination Period"), Seller shall conclusively
be deemed to have accepted a reassignment and
reassumption of such Designated Employee
Agreement. In the event that any Designated
Employee receives a bonus for the calendar year of
the reassignment pursuant to the terms of the
Designated Employee Agreement, Purchaser shall
reimburse Seller for a portion of such bonus equal
to the portion of such year which expired prior to
the date of reassignment. Purchaser may not
reassign a Designated Employee Agreement before
the 180th day after the date of Closing.
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(ii) If Purchaser reassigns the Designated Employee
Agreement of any Designated Employee to Seller
during the Termination Period, and as a result of
such reassignment or subsequent termination by
Seller Designated Employee has any claim or cause
of action against Purchaser or is entitled to any
payment under the Designated Employee's Agreement
or pursuant to law (including any payment required
pursuant to the U.S. Virgin Islands Wrongful
Discharge Act), Seller agrees to indemnify and
hold Purchaser harmless form any such claims,
damages or expenses, including all reasonable
legal fees incurred by Purchaser. Seller's
foregoing indemnification shall not extend to any
claim or cause of action resulting from any act or
omission taken by Purchaser during the course of
Purchaser's employment of the Designated Employee.
(iii) If Purchaser terminates the employment of any
Designated Employee at any time or attempts to
reassign the Designated Employee Agreement to
Seller before or after the Termination Period, and
as a result of such termination or attempted
reassignment by Purchaser, Designated Employee has
any claim or cause of action against Seller or is
entitled to any payment under the Designated
Employees' Agreement or pursuant to law (including
any payment required pursuant to the U.S. Virgin
Island Wrongful Discharge Act), Purchaser agrees
to indemnify and hold Seller harmless from any
such claims, damages or expenses, including all
reasonable legal fees incurred by Seller.
Purchaser agrees to defend and indemnify Seller
against, and agrees to hold it harmless from, any
and all claims or losses incurred to suffered by
Seller as a result of (i) any breach or claims of
breach of any Designated Employee Agreement by
Purchaser and (ii) any claim by the Designated
Employee resulting from or relating to any actions
or omissions of Purchaser and its employees or
agents, including without limitation, any claim of
discrimination, unfair labor practices, or
violation of labor or employment laws or
regulations. Purchaser's foregoing
indemnifications shall not extend to any claim or
cause of action resulting from any act or omission
taken by Seller during the course of Seller's
employment of the Designated Employee.
(iv) Purchaser shall pay to Seller all sums which seller
had previously paid to Purchaser pursuant to the
terms of this subsection for any Designated
Employee whose Designated
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Employee Agreement the Purchaser reassigned to
Seller or who is otherwise terminated at any time
by Purchaser and thereafter prior to the
expiration of the stated term of the Designated
Employee Agreement either Purchaser (or any
subsidiary in which Purchaser owns all or
substantially all of the voting interests) hires
or otherwise retains the services of such
Designated Employee in connection with the
management, ownership or operation of any hotel in
the U.S. Virgin Islands.
15. DEFAULT. If Purchaser fails or refuses to perform or
tender any of its closing obligations hereunder, which default Seller elects not
to waive, the Earnest Money Deposit and accrued interest shall be forfeited by
Purchaser and retained by Seller and both parties shall thereafter be released
from all obligations and responsibilities hereunder. It is agreed that such
forfeited earnest monies and interest are liquidated damages and are Seller's
sole and only remedy for Purchaser's failure to perform or tender its closing
obligations under this Agreement. Seller expressly waives the remedies of
specific performance and additional damages.
In the event that during the term of this Agreement (i) any of
Seller's representations or warranties are (or become prior to Closing) untrue
or incapable of performance, or (ii) Seller shall fail or refuse to perform any
of its obligations hereunder, which default Purchaser elects not to waive,
Purchaser shall have the option of (aa) declaring this Agreement terminated, in
which event Purchaser shall be entitled to a prompt refund of the Earnest Money
Deposit and the parties shall be deemed discharged from any further rights or
responsibilities hereunder, or (bb) treating this Agreement as being in full
force and effect and suing for the specific performance hereof, or damages, or
both. Such option shall be exercised by written notice provided by Purchaser to
Seller.
16. NOTICE. All notices provided for herein shall be in
writing and shall either be delivered personally or sent by facsimile
transmission, by Federal Express, or by certified mail, return receipt
requested, postage prepaid, addressed to the party for whom intended at the
address set forth below. Any party may change its address by written notice to
the other party.
To the Seller: Prime Hospitality Corp
700 Route 46 East
Fairfield, New Jersey 07004
Attn: President
With a copy to: Joseph Bernadino, Esquire
(which shall not 700 Route 46 East
constitute notice) Fairfield, New Jersey 07004
Attn: General Counsel
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<PAGE> 27
To the Purchaser: Marriott International, Inc.
10400 Fernwood Road
Lodging Development
Bethesda, Maryland 20817
Attn: Wendell Ward
Fax: (301) 530-2918
With a copy to: James D. Wright, Esquire
(which shall not Venable, Baetjer and Howard, LLP
constitute notice) Two Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201
Fax No. (410) 244-7742
Each such notice shall be deemed given on the date personally
delivered or faxed, on the date following the date of delivery to Federal
Express, or two days after mailing by certified mail, return receipt requested.
17. BROKERS. Seller agrees to indemnify and hold harmless
Purchaser with respect to all commissions and fees due to or claims by CIBC
Oppenheimer and any other brokers employed by Seller who may claim a commission,
in connection with this transaction. Purchaser represents and warrants to the
other that it has not employed or used the services of any broker or finder in
connection with this transaction. Each of said parties agrees to and does hereby
indemnify, defend (including attorney's fees), save and hold harmless the other
from and against any and all claims, demands, costs, expenses and liability
arising out of any claims for a brokerage commission or other compensation made
by any broker or brokers (other than those identified above) purporting to
represent the indemnifying party or claiming by, through or under the
indemnifying party in connection with this transaction.
18. PUBLICITY. The parties agree that no party shall, with
respect to this Agreement and the transactions contemplated hereby, contact or
conduct negotiations with public officials, make any public pronouncements,
issue press releases or otherwise furnish information regarding this Agreement
or the transactions contemplated hereby to any third party without the consent
of the other parties, except as may be required by law or as may be reasonably
necessary, on a confidential basis, to inform any rating agencies, potential
sources of financing, financial analysts, or to entities involved with a sale of
a controlling interest in the Seller, the Purchaser or any of their affiliates
or to receive legal, accounting and/or tax advice; provided, however, that, if
such information is required to be disclosed by law, the party so disclosing the
information will use reasonable efforts to give notice to the other parties as
soon as such party learns that is must make such disclosure.
19. PURCHASER'S RIGHT OF ENTRY. Throughout the term of this
Agreement Purchaser and Purchaser's authorized representatives shall have the
right, upon the giving of reasonable notice to Seller, to enter upon the Real
Property and to undertake such activities to prepare to operate the Resorts on
and after the Closing;
-24-
<PAGE> 28
provided that no activity of Purchaser or its authorized representative on the
Real Property will unreasonably interfere with the normal operation of business
by Seller.
20. ASSIGNMENT. Purchaser may assign or transfer its interest
in this Agreement to any other person or entity which assumes Purchaser's rights
and obligations hereunder, without the consent of the Seller being required.
21. NO THIRD PARTY BENEFICIARIES. None of the terms,
covenants, obligations or rights contained in this Agreement is or shall be
deemed to be for the benefit of any person or entity not a party hereto.
22. ATTORNEY'S FEES. In the event of any litigation between
Seller and Purchaser involving the interpretation and/or enforcement of this
Agreement or any provisions hereof or any other element of this transaction,
including the indemnification contained in Paragraph 11 above, the prevailing
party shall be entitled to an award of its costs and expenses (including
reasonable costs and attorney's fees) incurred therein as a part of the judgment
or stipulated settlement entered in such litigation.
23. TIME. Time is of the essence hereof. In the event the day
or last day specified or permitted for the performance of any act required or
allowed under this Agreement falls on a Saturday, Sunday, or legal holiday, the
time for such performance shall be extended to the next succeeding business day.
24. SEVERABILITY. If any provisions of this Agreement shall be
invalid, illegal or unenforceable, it shall not affect or impair the validity,
legality or enforceability of this Agreement itself or of any other provisions
hereof, and there shall be substituted for the affected provision, a valid and
enforceable provision as similar as possible to the affected provision. For
purposes of avoiding the rule against perpetuities, no provision of this
Agreement shall be effective, and no closing or conveyance shall occur, after 20
years from the date of this Agreement.
25. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in one instrument, signed by all parties, or in counterparts, in which
case all such counterparts together shall constitute one and the same instrument
and Agreement, binding on all of the parties thereto, notwithstanding that all
of the parties are not signatory to the original or the same counterpart.
Facsimile signatures shall be treated as original signatures hereon, but not on
closing documents.
26. BINDING EFFECT, ETC. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns, and shall be construed in
accordance with and governed by the laws of the Territory of the U.S. Virgin
Islands. This Agreement contains the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior arrangements,
writings, representations, and negotiations relating thereto. Finally, this
Agreement may not be amended or modified except by an instrument in writing
signed by all of the parties.
-25-
<PAGE> 29
27. FURTHER ASSURANCES. Each party hereto shall from time to time
execute and deliver such additional instruments or do such additional acts as
the other party may reasonably request in order to effectuate the full intent of
this Agreement.
28. ACCEPTANCE DEADLINE. In the event this Agreement has not been
fully executed and copies thereof delivered to Purchaser by __________________
the offer of Purchaser represented by this Agreement shall be deemed withdrawn
at that time, and this Agreement shall no longer be capable of acceptance by
Seller.
29. EXCLUSIVITY. During the pendency of this Agreement, Seller
agrees not to seek, negotiate or accept any other offers or agreements for the
sale of the Subject Project, or any portion thereof, with any prospective
purchaser(s) other than the Purchaser under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
SELLER:
PRIME HOSPITALITY CORP
By: /s/ DOUGLAS VICARI,
-----------------------------------
Its: Douglas Vicari, Sr. V.P.
----------------------------------
PURCHASER:
MARRIOTT INTERNATIONAL, INC.
By: /s/ JAMES M. SULLUS
-----------------------------------
Its: Executive Vice President
----------------------------------
-26-
<PAGE> 30
LIST OF EXHIBITS
A Description of Real Property
B Business Assets
C Escrow Instruction Letter
D Allocation of Total Purchase Price
E Leases and Service Contracts To Be Assumed by Purchaser
F Categories of Unopened Food, Beverage and Operating Supplies
G Environmental Report
H Employment Agreements/Designated Employees Agreements
I List of Governmental Permits and Grants
J Title Commitment
K Existing Survey
L Form of Assignment and Assumption Agreement of Leases and
Service Contracts
<PAGE> 31
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
Property A: Parcel of P1 Bakkero (a/k/a "East Point" "The Quarantine
Station" and "Muhlenfeldt Point")
No. 5a Frenchman's Bay Quarter
St. Thomas Virgin Islands as shown on PWD D9-167-T48
Property B: Muhlenfeldt Point Light Station Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD D3-30-T34
Property C: Parcel No. 2K Estate Bakkero and Elisenlund
No. 3 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD G9-554-T60
Property D: Parcel No. 4B Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD F9-3593-T78
Property E: Parcel No. 4 Remainder Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD D9-1418-T78,
excluding the following parcels:
(1) Parcel No. 4A Estate Bakkero
No.5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD No.
F3-33-T75
(2) Parcel No. 4B Estate Bakkero
No. 5 Frenchman's Bay Quarter
St Thomas, Virgin Islands as shown on PWD No.
F9-3593-T78
(3) Parcel No. 4C Remainder Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD No.
F9-3594-T78
excluding: Parcel No. 4C-1 Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on
PWD No. D9-3040-T85
<PAGE> 32
Property F: Parcel No. 4C Remainder Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD No. F9-3594-T78
excluding: Parcel No. 4C Remainder Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown
on PWD No. D9-3040-T85
Property G: Parcel No. 1-42 Estate Bakkero
Section AA No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD A9-88-T68
Property H: Parcel No. 4C-1 Estate Bakkero
No. 5 Frenchman's Bay Quarter
St. Thomas, Virgin Islands as shown on PWD D9-3040-T85
<PAGE> 33
EXHIBIT D
ALLOCATION OF TOTAL PURCHASE PRICE
Land $ 4,700,000
-----------
Buildings 61,000,000
-----------
Fixtures 7,300,000
-----------
Personal Property --
-----------
Good Will --
----------------------- -----------
TOTAL $73,000,000
===========
<PAGE> 34
EXHIBIT L
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
OF LEASES AND SERVICE CONTRACTS
THIS ASSIGNMENT OF LEASES AND SERVICE CONTRACTS ("this Assignment") made
the ___ day of_____________ , ____, by and between PRIME HOSPITALITY CORP, a
Delaware corporation (hereby referred to as "Assignor"), and MARRIOTT
INTERNATIONAL, INC., its successor or assigns (hereinafter referred to as
"Assignee").
EXPLANATORY STATEMENT
A. Assignor is the owner of those certain parcels of real
property situated in St. Thomas in the Territory of the U.S. Virgin Islands,
more particularly described on Schedule A attached hereto (the "Property"), a
portion of which Property is improved by two (2) resorts operating under the
trade names "Frenchman's Reef Beach Resort" and "Morning Star Beach Resort"
(collectively, the "Resorts").
B. Pursuant to a Purchase and Sale Agreement dated __________,
______________ by and between Assignor and Assignee (the "Agreement"), Assignee
has contracted to purchase the Property from Assignor.
C. Pursuant to the terms of the Agreement, Assignor has agreed
to assign, transfer, sell, and convey unto Assignee, all of Assignor's right,
title, and interest in, to, and under a variety of leases and service contracts
to which Assignor is a party, which leases and service contracts are required or
desirable for the orderly operation and maintenance of the Property and the
Resorts.
NOW, THEREFORE, in consideration of the foregoing Explanatory
Statement, the covenants and agreements set forth below and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Explanatory Statement. The Explanatory Statement portion of
this Assignment forms an integral part of this Assignment and is hereby
incorporated by reference. All terms used herein shall be given the meaning
assigned to them in the Agreement, unless expressly assigned a different meaning
in this Assignment.
2. Assignment. Assignor does hereby assign, transfer, sell, and
convey unto Assignee and does hereby confirm the assignment, transfer, sale, and
conveyance unto Assignee of all of Assignor's right, title, and interest in, to,
and under those leases and service contracts set forth and described on Schedule
B attached hereto (collectively, the "Leases and Service Contracts") Assignor
acknowledges and agrees that its obligations
<PAGE> 35
3. Assumption. By execution hereof, Assignee does hereby, from
and after the date of this Assignment, assume and agree to perform all duties,
obligations, and responsibilities of Assignor under the Leases and Service
Contracts.
4. Indemnification. Assignee does hereby agree to defend,
indemnify, and hold Assignor harmless from and against any and all causes,
claims, demands, losses, liabilities, costs, damages, expenses, and fees
(including, but not limited to, reasonable attorneys' fees) incurred or suffered
by Assignor as a result of Assignee's failure to perform, after the date of this
Assignment, any or all of Assignee's obligations under the Leases and Service
Contracts. Assignor does hereby agree to defend, indemnify, and hold Assignee
harmless from and against any and all causes, claims, demands, losses,
liabilities, costs, damages, expenses, and fees (including, but not limited to,
reasonable attorneys' fees) incurred or suffered by Assignee as a result of
Assignor's failure to perform, prior to and through the date of this Assignment,
any or all of Assignor's obligations under the Leases and Service Contacts.
5. Representations by Assignor.
5.1 Assignor, for itself and its legal
representatives, successors, and assigns, covenants and represents to Assignee
and agrees that (a) Assignor has full right, authority, and power to assign its
rights and interests in and under the Leases and Service Contracts, subject to
any consents which may be required pursuant to the terms of such Leases or
Service Contracts, (b) no other assignment of the Leases and Service Contracts
has been made by Assignor, and the rights and interests of Assignor in and under
the Leases and Service Contracts are now and will, on the date hereof, be free
and clear of any liens and encumbrances made by Assignor, and (c) as of the date
hereof, to its best knowledge, there exist no outstanding material defaults
under the Leases and Service Contracts. The limitation contained in Section
7(c), 7(d), and the last sentence of Section 7(e) of the Agreement shall apply
to and is incorporated into this Section 5.
5.2 Notwithstanding any term herein to the contrary,
Assignee hereby waives any and all rights, claims, causes or demands
(collectively, the "CLAIMS") against Assignor as the grantor of the Special
Warranty Deed (the "DEED") to be executed and delivered by Assignee in
connection with the consummation of the sale of the Property from Assignor to
Assignee pursuant to the terms of the Agreement, to the extent the Claims relate
to the Leases and Service Contracts.
5.3 Notwithstanding any term herein to the contrary,
Assignee hereby waives any and all Claims against Assignor as the grantor of the
Deed to the extent the Claims related to any and all matters, encroachments, and
conditions set forth on that certain Survey of the Property revised as of
January 1, 2000 as prepared by William H. Byam.
6. Representations by Assignee. Assignee, for itself and its
legal representatives, successors and assigns, covenants and represents to
Assignor and agrees
-2-
<PAGE> 36
under the Leases and Service Contracts arising before the date of this
Assignment shall remain the sole responsibility of Assignor.
3. Assumption. By execution hereof, Assignee does hereby, from
and after the date of this Assignment, assume and agree to perform all duties,
obligations, and responsibilities of Assignor under the Leases and Service
Contracts.
4. Indemnification. Assignee does hereby agree to defend,
indemnify, and hold Assignor harmless from and against any and all causes,
claims, demands, losses, liabilities, costs, damages, expenses, and fees
(including, but not limited to, reasonable attorneys' fees) incurred or suffered
by Assignor as a result of Assignee's failure to perform, after the date of this
Assignment, any or all of Assignee's obligations under the Leases and Service
Contracts. Assignor does hereby agree to defend, indemnify, and hold Assignee
harmless from and against any and all cases, claims, demands, losses,
liabilities, costs, damages, expenses, and fees (including, but not limited to,
reasonable attorneys' fees) incurred or suffered by Assignee as a result of
Assignor's failure to perform, prior to and through the date of this Assignment,
any or all of Assignor's obligations under the Leases and Service Contracts.
5. Representations by Assignor. Assignor, for itself and its
legal representatives, successors, and assigns, covenants and represents to
Assignee and agrees that (a) Assignor has full right, authority, and power to
assign its rights and interests in and under the Leases and Service Contracts,
subject to any consents which may be required pursuant to the terms of such
Leases or Service Contracts, (b) no other assignment of the Leases and Service
Contracts has been made by Assignor, and the rights and interests of Assignor in
and under the Leases and Service Contracts are now and will, on the date hereof,
be free and clear of any liens and encumbrances made by Assignor, and (c) as of
the date hereof, to its best knowledge, there exist no outstanding material
defaults under the Leases and Service Contracts. The limitation contained in
Section 7(c), 7(d), and the last sentence of Section 7(e) of the Agreement shall
apply to and is incorporated into this Section 5.
6. Representations by Assignee. Assignee, for itself and its
legal representatives, successors and assigns, covenants and represents to
Assignor and agrees that all payments required by the terms of the Leases and
Service Contracts, which become due and payable on and after the date hereof,
shall be made by Assignee in accordance with the terms of the respective Leases
and Service Contracts and sent directly to the respective named contractor
thereunder or as otherwise directed in writing by such contractor.
7. Governing Law. This Assignment shall be construed,
interpreted and enforced in accordance with and governed by the laws of the
Territory of the U.S. Virgin Islands, without regard to principles of conflict
of laws.
<PAGE> 37
8. No Partnership. Nothing in this Assignment shall be deemed
in any way to create between the parties hereto any relationship of partnership,
joint venture, or association, and the parties hereto hereby disclaim the
existence of any such relationship.
IN WITNESS WHEREOF, the parties hereto have each caused this
Assignment to be executed on its behalf by its duly authorized representative
with the specific intention of creating a document under seal.
WITNESS: ASSIGNOR:
PRIME HOSPITALITY CORP.
- ------------------------ By: (SEAL)
-------------------
Name:
------------------------
Title:
-----------------------
WITNESS:
ASSIGNEE:
MARRIOTT INTERNATIONAL, INC.
- ------------------------ By: (SEAL)
--------------------
Name:
------------------------
Title:
------------------------
<PAGE> 38
SCHEDULE A
DESCRIPTION OF PROPERTY
<PAGE> 39
SCHEDULE B
LIST OF LEASES AND SERVICE CONTRACTS
<PAGE> 40
LISTING OF EXHIBITS INTENTIONALLY OMMITTED
EXHIBIT B BUSINESS ASSETS
EXHIBIT C ESCROW INSTRUCTION LETTER
EXHIBIT E LEASES AND SERVICE CONTRACTS TO BE ASSUMED
BY PURCHASER
EXHIBIT F CATEGORIES OF UNOPENING FOOD, BEVERAGE,
AND OPERATING SUPPLIES
EXHIBIT G ENVIRONMENTAL REPORT
EXHIBIT H EMPLOYMENT AGREEMENTS/DESIGNATED
EMPLOYEES AGREEMENTS
EXHIBIT I LIST OF GOVERNMENTAL PERMITS AND GRANTS
EXHIBIT J TITLE COMMITMENT
EXHIBIT K EXISTING SURVEY
EXHIBIT M VIOLATIONS
<PAGE> 1
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this
"AMENDMENT") made as of the 17th day of December, 1999, by and between PRIME
HOSPITALITY CORP., a Delaware corporation ("SELLER"), and MARRIOTT INTERNATIONAL
INC., its successor or assigns ("PURCHASER").
EXPLANATORY STATEMENT
A. By Purchase and Sale Agreement dated September 15, 1999
between Seller and Purchaser (the "ORIGINAL AGREEMENT"), Seller agreed to sell
to Purchaser and Purchaser agreed to buy from Seller those certain parcels of
Real Property situated in St. Thomas in the Territory of the U.S. Virgin Islands
and the Business Assets of the Resorts operating thereon (collectively, the
"SUBJECT PROPERTY"), all as more particularly described in the Original
Agreement, on to terms and conditions set forth therein.
B. Under the terms of the Original Agreement, it is a condition
precedent to Purchaser's obligation to close on the Subject Property for
Purchaser to obtain from the Virgin Islands Industrial Development Commission
(the "COMMISSION") a transfer of those certain Industrial Development
Certificates and any and all benefits pursuant thereto (including, without
limitation, benefits relating to income taxes, gross receipt taxes, and excise
taxes), issued by the Commission and benefiting, or intended to benefit, Seller
through March 31, 2011 as set forth in the Original Agreement (referred to in
the Original Agreement as the First Certificate and the Second Certificate, and
hereinafter collectively referred to as the "CERTIFICATES").
C. Purchaser and Seller have agreed to an alternative approach
to satisfy the condition precedent relating to the transfer of the Certificates
whereby Purchaser shall, as a new applicant, make application for and attempt to
obtain from the Commission a new Industrial Development Certificate (the "New
Certificate") to be issued in the name of Purchaser and to take effect on the
date of transfer of the Subject Property from Seller to Purchaser.
D. To memorialize the foregoing understanding and agreement,
Seller and Purchaser have agreed to amend the Original Agreement as hereinafter
set forth (the Original Agreement and this Amendment, hereafter this
"AGREEMENT").
NOW, THEREFORE, WITNESSETH, that Seller and Purchaser, in
consideration of Explanatory Statement which is hereby incorporated by
reference, the mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment
shall have the meaning ascribed to them in the Original Agreement.
<PAGE> 2
2. Conditions Precedent to Closing. As of the effective date of
this Amendment, Section 9(a)(v) of the Original Agreement shall be amended to
read as follows:
(v) Industrial Development Certificate and Industrial Benefits.
Purchaser shall have been able either to (1) obtain a
transfer of those certain Industrial Development
Certificates as more particularly hereinafter set forth in
subsection (A), or (2) obtain the issuance of an Industrial
Development Certificate as more particularly hereinafter set
forth in subsection (B).
(A) Transfer of Industrial Development Certificate and
Industrial Development Benefits. Purchaser shall
have been able to obtain a transfer of (i) that
certain Industrial Development Certificate
(the "First Certificate") and any and all benefits
including, without limitation, Industrial
Development benefits, pursuant to the First
Certificate issued by the Virgin Islands
Industrial Development Commission ("Commission")
and currently benefiting Seller until March 31,
2001, by virtue of that certain Transfer of
Certificate from Frenchman's Reef Beach Associates
to Seller dated March 18, 1998, and (ii) that
certain Industrial Development Certificate (the
"Second Certificate") and any and all benefits
including, without limitation, Industrial
Development benefits, pursuant to the Second
Certificate issued or to be issued by the
Commission for the benefit of Seller for a period
of 10 years commencing April 1, 2001. It is the
requirement of Purchaser that transfer of the
First Certificate and the Second Certificate
provide for the following exemptions from taxes
and duties through March 31, 2011:
<TABLE>
<S> <C>
- Gloss Receipt Taxes 100% exemption
- USVI Income Taxes 90% exemption
- Dividend Withholding Taxes 80% exemption
- Interest Withholding Taxes 100% exemption
- USVI Real Property Taxes 100% exemption
on real property used for operating a hotel
- Customs Duties Customs duty capped
at 1% ad valorem assessment on certain items
- Excise Taxes 100% exemption
</TABLE>
Purchaser agrees to use its reasonable
efforts to comply with and complete all
preconditions set by the Commission for
the transfer of the First and Second
Certificates. Seller agrees to cooperate
with Purchaser to obtain the
Commission's approval to transfer the
First Certificate and the Second
Certificate and all of the benefits
pursuant thereto (including, without
limitation, benefits relating to
-2-
<PAGE> 3
income taxes, gross receipt taxes, and
excise taxes) to Purchaser.
(B) Industrial Development Certificate and Industrial
Development Benefits. The Virgin Islands
Industrial Development Commission (the
"Commission") shall approve and issue directly to
Purchaser, in Purchaser's name, an Industrial
Development Certificate (the "New IDC
Certificate") providing benefits and exemptions
equivalent to those afforded Seller pursuant to
the First Certificate and Second Certificate but
for a period from the date of Closing through the
ten (10) year anniversary date of Closing,
including, without limitation, the following
exemptions from taxes and duties:
<TABLE>
<S> <C>
Gross Receipt Taxes 100% exemption
USVI Income Taxes 90% exemption
Dividend Withholding Taxes 80% exemption
Interest Withholding Taxes 100% exemption
USVI Real Property Taxes 100% exemption
on real property used for operating a hotel
Customs Duties Customs duty capped
at 1% ad valorem assessment on certain items
Excise Taxes 100% exemption
</TABLE>
(C) Purchaser agrees to use its reasonable efforts to
comply with and complete all preconditions set by
the Commission either for the transfer specified
in Section 9(a)(v)(A) or the issuance of the New
IDC Certificate specified in Section 9(a)(v)(B).
Seller agrees to cooperate with Purchaser, if
necessary, to obtain the Commission's approval to
issue the New IDC Certificate and all of the
benefits pursuant thereto (including, without
limitation, benefits relating to income taxes,
gross receipt taxes, and excise taxes) to
Purchaser.
3. Purchase Price. As of the effective date of this Amendment,
Section 2 of the Original Agreement shall be amended to incorporate the
following provision, to be inserted after the first sentence of paragraph 2:
Notwithstanding any term or provision in this Agreement to
the contrary, if Purchaser obtains the issuance of the New IDC
Certificate as more particularly set forth in Section 9(a)(v)(B) of
this Agreement but does not obtain the transfer as more particularly
set forth in Section 9(a)(v)(A), the purchase price for the Subject
Property shall be Seventy Three Million Dollars ($73,000,000), it
being agreed among the parties hereto that said reduction in purchase
price is necessary to account for the loss of benefits provided under
the First and Second Certificates.
-3-
<PAGE> 4
4. Closing. As of the effective date of this Amendment, Section
10 of the Original Agreement shall be amended to incorporate the following
provision, to be inserted after the second sentence of the first paragraph:
Notwithstanding any term or provision in this Agreement to
the contrary, if Purchaser obtains the issuance of the New IDC
Certificate as more particularly set forth in Section 9(a)(v)(B) of
this Agreement but does not obtain the transfer as more particularly
set forth in Section 9(a)(v)(A), the purchase and sale of the Subject
Property shall close in accordance with the terms and conditions set
forth in the Original Agreement but in no event earlier than January
31, 2000.
5. No Other Amendments. In all other respects, each and every
term, covenant, agreement and condition of the Agreement shall remain in full
force and effect and binding on the parties thereto, except as amended herein.
6. Multiple Counterparts and Facsimile Signature. This
Amendment may be executed in a number of identical counterparts and by exchange
of facsimile signatures. If so executed, each of such facsimile executed
counterparts shall, collectively, constitute one agreement; but in making proof
of this Amendment, it shall not be necessary to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereto have executed this Amendment, with the intention that this Amendment
constitute a sealed instrument, as of the date first above written.
SELLER:
PRIME HOSPITALITY CORP.
Dated: 12/17/99 By: /s/ DOUGLAS VICACI [SEAL]
----------- --------------------
Name: DOUGLAS VICACI
------------------
Title: SVP & CFO
-----------------
-4-
<PAGE> 5
PURCHASER:
MARRIOTT INTERNATIONAL, INC.
Dated: December 17, 1999 By: /s/ WENDELL B. WARD [SEAL]
----------------- --------------------------
Name: WENDELL WARD
------------------------
Title: VICE PRESIDENT
----------------------
-5-
<PAGE> 6
LISTING OF EXHIBITS INTENTIONALLY OMMITTED
EXHIBIT B BUSINESS ASSETS
EXHIBIT C ESCROW INSTRUCTION LETTER
EXHIBIT E LEASES AND SERVICE CONTRACTS TO BE ASSUMED
BY PURCHASER
EXHIBIT F CATEGORIES OF UNOPENING FOOD, BEVERAGE,
AND OPERATING SUPPLIES
EXHIBIT G ENVIRONMENTAL REPORT
EXHIBIT H EMPLOYMENT AGREEMENTS/DESIGNATED
EMPLOYEES AGREEMENTS
EXHIBIT I LIST OF GOVERNMENTAL PERMITS AND GRANTS
EXHIBIT J TITLE COMMITMENT
EXHIBIT K EXISTING SURVEY
EXHIBIT M VIOLATIONS
<PAGE> 1
EXHIBIT 2(i)
SALE AND PURCHASE AGREEMENT
THIS SALE AND PURCHASE AGREEMENT (the "Agreement") is made and
entered into this 16th day of March, 2000, by and between SHOLODGE, INC., a
Tennessee corporation (herein "ShoLodge"), and PRIME HOSPITALITY CORP., a
Delaware corporation (herein "Prime").
W I T N E S S E T H:
WHEREAS, Prime and ShoLodge desire (i) that a wholly-owned
subsidiary of Prime acquire a leasehold interest in (A) twenty (20) Sumner
Suites hotels which are currently leased from HPT Suite Properties Trust, a
Maryland real estate investment trust, to Suite Tenant, Inc., a Tennessee
corporation and a wholly-owned subsidiary of ShoLodge, and (B) seven (7)
existing Sumner Suites hotels currently owned by wholly-owned subsidiaries of
ShoLodge, and (ii) that Prime acquire two (2) sites currently owned by
wholly-owned subsidiaries of ShoLodge for development as AmeriSuites hotels.
NOW, THEREFORE, in consideration of One Hundred Dollars ($100)
paid from Prime to ShoLodge as initial consideration as described herein, the
mutual terms and conditions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Additional Advance Payments" shall have the meaning set forth
in Section 3.2(b).
"Additional Buildings" shall have the meaning set forth in
Section 3.1.
"Additional Equipment" shall have the meaning set forth in
Section 3.1.
"Additional Hotel Operating Assets" shall have the meaning set
forth in Section 3.2.
"Additional Hotel Operating Assets Transfer Documents" shall
have the meaning set forth in Section 3.4
<PAGE> 2
"Additional Hotel Subsidiaries" means the wholly-owned
subsidiaries of ShoLodge which own the Additional HPT Hotels, identified by site
as follows:
<TABLE>
<CAPTION>
Owner Site
----- ----
<S> <C>
Carolina Inns, Inc. Pine Knoll Shores, North Carolina
Midwest Inns, Inc. Indianapolis, Indiana
Midwest Inns, Inc. Kansas City, Missouri
Sunshine Inns, Inc. Orlando, Florida
</TABLE>
"Additional HPT Hotels" means the Sumner Suites hotels
currently operated on the Additional Land.
"Additional Inventory" shall have the meaning set forth in
Section 3.2(a).
"Additional Land" shall have the meaning set forth in Section
3.1.
"Additional Operating Agreements" shall have the meaning set
forth in Section 3.2(c).
"Additional Property" shall have the meaning set forth in
Section 3.1.
"Additional Property Documents" shall have the meaning set
forth in Section 3.3.
"Advance Payments" means the STI Advance Payments, the
Additional Advance Payments and the Texas Advance Payments.
"Affiliate" means, as applied to any Person, any other Person
who, directly or indirectly, controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of shares, options,
warrants, interests, participations or other equivalents (regardless of how
designated) of or in a Person, whether voting or nonvoting, including common
stock, preferred stock or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended), by contract or otherwise.
"Agreement" means this Sale and Purchase Agreement.
"Assets" means collectively the STI Assets, the Additional
Property, the Additional Hotel Operating Assets, the Texas Property, the Texas
Hotel Operating Assets and the Development Sites.
"Benefit Plan" shall have the meaning set forth in Section
15.5.
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"Buildings" means the STI Buildings, the Additional Buildings
and the Texas Buildings.
"Closing" shall mean the conference to be held at 10:00 a.m.,
New York, New York time, on the Closing Date, at the offices of Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York, or at such other time and
place on the Closing Date as the parties may mutually agree to in writing, at
which time the transactions contemplated by this Agreement shall be consummated,
or, if permitted as set forth in Section 17.1, at which time one (1) or more of
the transactions contemplated by this Agreement shall be consummated.
"Closing Date" shall mean the date on which the Closing
occurs, and, if the Closing with respect to all transactions contemplated herein
does not occur on the same date as contemplated in Section 17.1, the term
"Closing Date" with respect to each transaction contemplated herein shall mean
the date of the actual Closing with respect to each such transaction.
"Closing Documents" means all documents to be executed by
Prime, a Prime Subsidiary, ShoLodge or a ShoLodge Subsidiary to consummate the
transactions contemplated in this Agreement, including, without limitation, the
STI Transfer Documents, the Additional Property Documents, the Additional Hotel
Operating Assets Transfer Documents, the Texas Lease, the Texas Hotel Operating
Assets Transfer Documents, the Development Site Transfer Documents, the
Construction Contract and the Reservation Agreement; provided, however, in the
event there is more than one (1) Closing Date as contemplated in Section 17.1,
"Closing Documents" for each such Closing Date means only such of the documents
as described above as are necessary to consummate the transactions contemplated
in this Agreement being closed on such Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Construction Contract" shall have the meaning set forth in
Section 7.1.
"Development Site Purchase Price" shall have the meaning set
forth in Section 6.2.
"Development Site Subsidiaries" means the wholly-owned
subsidiaries of ShoLodge which own the Development Sites, identified by site as
follows:
<TABLE>
<CAPTION>
Owner Site
----- ----
<S> <C>
Delaware Inns, Inc. Mt. Laurel, New Jersey
Virginia Inns, Inc. Fairfax County, Virginia
</TABLE>
"Development Site Transfer Documents" shall have the meaning
set forth in Section 5.2.
"Development Sites" shall have the meaning set forth in
Section 5.1.
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"Due Diligence Period" means the thirty (30) day period
commencing on the Effective Date.
"Effective Date" shall mean the date this Agreement is fully
executed by ShoLodge and Prime.
"Encumbrance" means any security interest, pledge, mortgage,
lien (including environmental liens), personal property lease, charge, adverse
claim or restriction of any kind, including encumbrances or imperfections of
title of whatever nature.
"Equipment" means the STI Equipment, the Additional Equipment
and the Texas Equipment.
"ERISA" shall have the meaning set forth in Section 15.5.
"Existing HPT Hotels" means the Sumner Suites hotels currently
operated on the STI Land.
"Financial Information" shall have the meaning set forth in
Section 15.19.
"Hendersonville Restriction" shall have the meaning set forth
in Section 17.6.
"Hotel" and "Hotels" shall mean individually one of the
Existing HPT Hotels or one of the Additional HPT Hotels or one of the Texas
Hotels and collectively the Existing HPT Hotels, the Additional HPT Hotels and
the Texas Hotels.
"HPT" means Hospitality Properties Trust, a Maryland real
estate investment trust, and its successors and assigns.
"HPT Assignment and Security Agreement" means that certain
Assignment and Security Agreement dated as of November 19, 1997 between STI and
Landlord, as amended by that certain Second Amendment to Lease Agreement and
First Amendment to Incidental Documents dated as of June 29, 1999 among HPT,
Landlord, ShoLodge and STI, together with such subsequent amendments,
modifications and supplements thereto as shall have been approved by Prime in
writing prior to execution by STI, such approval not to be unreasonably
withheld, delayed or conditioned.
"HPT Documents" means the HPT Lease and the HPT Incidental
Documents.
"HPT Estoppel Certificate" means the estoppel certificate from
HPT in favor of Prime and the Prime HPT Subsidiary substantially in the form of
Exhibit H attached hereto and incorporated herein by this reference.
"HPT Incidental Documents" means the HPT Lease Guaranty, the
HPT Security Agreement, the HPT Stock Pledge and the HPT Assignment and Security
Agreement.
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"HPT Lease" means that certain Lease Agreement dated as of
November 19, 1997 between Landlord and STI, as amended by that certain First
Amendment to Lease Agreement dated as of March 5, 1999 between Landlord and STI,
by that certain Second Amendment to Lease Agreement and First Amendment to
Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and
STI and by that certain Third Amendment to Lease Agreement dated as of March 3,
2000 between Landlord and STI, together with such subsequent amendments,
modifications and supplements thereto as shall have been approved by Prime in
writing prior to execution by STI, such approval not to be unreasonably
withheld, delayed or conditioned.
"HPT Lease Amendment" shall have the meaning set forth in
Section 11.6.
"HPT Lease Guaranty" means that certain Limited Guaranty
Agreement dated as of November 19, 1997 executed by ShoLodge in favor of HPT and
Landlord, as amended by that certain Second Amendment to Lease Agreement and
First Amendment to Incidental Documents dated as of June 29, 1999 among HPT,
Landlord, ShoLodge and STI, together with such subsequent amendments,
modifications and supplements thereto as shall have been approved by Prime in
writing prior to execution by ShoLodge, such approval not to be unreasonably
withheld, delayed or conditioned.
"HPT Lease Guaranty Deposit" means the "Guaranty Deposit" in
the amount of Fourteen Million and No/100 Dollars ($14,000,000.00) deposited by
ShoLodge with HPT and Landlord to secure the obligations of ShoLodge under the
HPT Lease Guaranty.
"HPT Lease Security Deposit" means the "Retained Funds" in the
amount of Twenty-One Million Two Hundred Eighty Thousand and No/100 Dollars
($21,280,000.00) deposited by STI with Landlord to secure the obligations of STI
under the HPT Lease.
"HPT Real Property" means the STI Land, the STI Buildings, the
Additional Land and the Additional Buildings.
"HPT Security Agreement" means that certain Security Agreement
dated as of November 19, 1997 between STI and Landlord, as amended by that
certain Second Amendment to Lease Agreement and First Amendment to Incidental
Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI and by
that certain Second Amendment to Security Agreement dated as of March 3, 2000
between Landlord and STI, together with such subsequent amendments,
modifications and supplements thereto as shall have been approved by Prime in
writing prior to execution by STI, such approval not to be unreasonably
withheld, delayed or conditioned.
"HPT Stock Pledge" means that certain Stock Pledge dated as of
November 19, 1997 made by ShoLodge in favor of Landlord, as amended by that
certain Second Amendment to Lease Agreement and First Amendment to Incidental
Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI,
together with such subsequent amendments, modifications and supplements thereto
as shall have been approved by Prime in writing prior to execution by ShoLodge,
such approval not to be unreasonably withheld, delayed or conditioned.
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<PAGE> 6
"Indemnified Party" shall have the meaning set forth in
Section 19.4.
"Indemnifying Party" shall have the meaning set forth in
Section 19.4.
"Initial Consideration" shall have the meaning set forth in
Section 9.3.
"Inventory" means the STI Inventory, the Additional Inventory
and the Texas Inventory.
"Landlord" means HPT Suite Properties Trust, a Maryland real
estate investment trust, and its successors and assigns.
"Moore" means Moore and Associates, Inc., a Tennessee
corporation and a wholly-owned subsidiary of ShoLodge, and its successors and
assigns.
"Operating Agreements" means the STI Operating Agreements, the
Additional Operating Agreements and the Texas Operating Agreements.
"Permitted Exceptions" means (a) with respect to all Assets,
(i) liens for taxes, assessments and governmental charges with respect to an
Asset not yet due and payable or due and payable but not yet delinquent or as to
which adequate reserves are provided therefor, (ii) those Encumbrances
contemplated in this Agreement, and (iii) such other Encumbrances as shall be
approved or deemed approved by Prime pursuant to Section 12.1; (b) with respect
to the HPT Real Property only, the HPT Lease; (c) with respect to the Additional
Property only, the HPT Lease as amended or a separate lease as contemplated in
Section 3.3 and in Section 3.8, if applicable; (d) with respect to the Texas
Property only, the Texas Lease; (e) with respect to the Hendersonville,
Tennessee Hotel only, the Hendersonville Restriction; and (f) with respect to
the Real Property only, applicable zoning regulations and ordinances provided
the same do not prohibit or impair in any material respect use of such Real
Property as a hotel as currently operated or constructed or, as to the
Development Sites, as proposed to be operated or constructed.
"Person" means natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts and
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Post Termination Obligations" shall have the meaning set
forth in Section 14.1.
"Prime" means Prime Hospitality Corp., a Delaware corporation,
and its successors and permitted assigns.
"Prime Subsidiaries" means the Prime HPT Subsidiary and the
Prime Texas Subsidiary.
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"Prime HPT Subsidiary" means the wholly-owned subsidiary of
Prime which acquires the STI Assets and the Additional Hotel Operating Assets
and which leases the Additional Property pursuant to this Agreement, and its
successors and permitted assigns.
"Prime Texas Subsidiary" means the wholly-owned subsidiary of
Prime which acquires the Texas Hotel Operating Assets and which leases the Texas
Property pursuant to this Agreement, and its successors and permitted assigns.
"Purchase Price" shall have the meaning set forth in Section
6.1.
"Real Property" means the STI Land, the STI Buildings, the
Additional Land, the Additional Buildings, the Texas Land, the Texas Buildings
and the Development Sites.
"Reservation Agreement" shall have the meaning set forth in
Section 8.1.
"ShoLodge" means ShoLodge, Inc., a Tennessee corporation, and
its successors and assigns.
"ShoLodge Subsidiaries" means STI, the Additional Hotel
Subsidiaries, Southeast, the Development Site Subsidiaries and Moore.
"Southeast" means Southeast Texas Inns, Inc., a Tennessee
corporation and a wholly-owned subsidiary of ShoLodge, and its successors and
assigns.
"STI" means Suite Tenant, Inc., a Tennessee corporation and a
wholly-owned subsidiary of ShoLodge, and its successors and assigns.
"STI Advance Payments" shall have the meaning set forth in
Section 2.1(c).
"STI Assets" shall have the meaning set forth in Section 2.1.
"STI Buildings" shall have the meaning set forth in Section
2.1(a).
"STI Equipment" shall have the meaning set forth in Section
2.1(a).
"STI Inventory" shall have the meaning set forth in Section
2.1(b).
"STI Operating Agreements" shall have the meaning set forth in
Section 2.1(d).
"STI Land" shall have the meaning set forth in Section 2.1(a).
"STI Leased Property" shall have the meaning set forth in
Section 2.1(a).
"STI Transfer Documents" shall have the meaning set forth in
Section 2.2.
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<PAGE> 8
"Texas Advance Payments" shall have the meaning set forth in
Section 4.2(b).
"Texas Buildings" shall have the meaning set forth in Section
4.1.
"Texas Equipment" shall have the meaning set forth in Section
4.1.
"Texas Hotel Operating Assets" shall have the meaning set
forth in Section 4.2.
"Texas Hotel Operating Assets Transfer Documents" shall have
the meaning set forth in Section 4.4.
"Texas Hotels" means the Sumner Suites hotels currently
operated on the Texas Land.
"Texas Inventory" shall have the meaning set forth in Section
4.2(a).
"Texas Land" shall have the meaning set forth in Section 4.1.
"Texas Lease" shall have the meaning set forth in Section 4.3.
"Texas Operating Agreements" shall have the meaning set forth
in Section 4.2(c).
"Texas Property" shall have the meaning set forth in Section
4.1.
"Texas Real Property" means the Texas Land and the Texas
Buildings.
ARTICLE II
SALE OF EXISTING HPT HOTELS
2.1 Sale of STI Assets. ShoLodge hereby agrees to cause
STI, at the Closing and in the manner specified in Section 2.2 of this
Agreement, to sell, convey, transfer, assign and deliver to the Prime HPT
Subsidiary, and Prime hereby agrees to cause the Prime HPT Subsidiary, at the
Closing and in the manner specified in Section 2.2 of this Agreement, to
purchase from STI, all the following (collectively, the "STI Assets"):
(a) all right, title and interest of STI in and to the
HPT Lease, including, without limitation, the HPT Lease Security Deposit and,
except as limited in the last paragraph of Section 19.3, the "FF&E Reserve"
created pursuant to the HPT Lease, and in and to (i) that certain real property
more particularly described on Exhibit A attached hereto and incorporated herein
by this reference (the "STI Land"); (ii) any and all buildings, structures and
similar improvements erected on, over, upon or under the STI Land on the Closing
Date (the "STI Buildings"); and (iii) all furniture, fixtures and equipment
located thereon or therein on the Closing Date (the "STI Equipment") (the STI
Land, the STI Buildings and the STI Equipment are referred to herein
collectively as the "STI Leased Property");
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<PAGE> 9
(b) all merchandise, inventories, materials and supplies
used or intended for use or held for use in connection with and located on the
Closing Date at the STI Land (collectively, the "STI Inventory");
(c) all reservation and advance booking deposits and
guest security deposits (including interest, if any, accrued thereon) for guests
or future guests of the Existing HPT Hotels existing on the Closing Date (the
"STI Advance Payments");
(d) to the extent assignable, all of STI's right, title
and interest, if any, in and to all service contracts, vendor agreements,
maintenance agreements, utility contracts, cable service agreements, advertising
agreements, equipment leases and similar operating agreements relating to the
Existing HPT Hotels and in effect on the Closing Date (collectively, the "STI
Operating Agreements");
(e) to the extent assignable, all of STI's right, title
and interest, if any, in and to all licenses and permits for the sale and
on-premises consumption of liquor and other alcoholic beverages at the Existing
HPT Hotels in effect on the Closing Date; and
(f) all vehicles owned by STI and located at and used in
connection with the Existing HPT Hotels on the Closing Date.
2.2 Transfer of STI Assets. The sale, conveyance,
transfer, assignment and delivery of the STI Assets hereunder will be effected
by the delivery by STI to the Prime HPT Subsidiary at the Closing of the
Assignment and Assumption of Lease Agreement in the form of Exhibit E attached
hereto and incorporated herein by this reference, the Bill of Sale in the form
of Exhibit F attached hereto and incorporated herein by this reference, the
Assignment and Assumption of Contracts in the form of Exhibit G attached hereto
and incorporated herein by this reference and such other instruments of sale,
transfer, assignment and conveyance as STI and the Prime HPT Subsidiary shall
reasonably request in form and substance reasonably satisfactory to STI and the
Prime HPT Subsidiary (which shall include an assumption by the Prime HPT
Subsidiary of all liabilities of STI under the HPT Security Agreement and under
the HPT Assignment and Security Agreement which first accrue after the Closing
Date) (such documents being referred to herein as the "STI Transfer Documents").
The STI Assets shall be transferred free and clear of all Encumbrances, but
subject to the Permitted Exceptions which relate to the STI Assets and to the
STI Operating Agreements. From and after Closing, all liabilities of STI under
the STI Operating Agreements and under the instruments creating the Permitted
Exceptions which relate to the STI Assets and which first accrue after the
Closing Date shall be the responsibility of the Prime HPT Subsidiary.
2.3 HPT Lease Guaranty. As a condition to the transfer
of the STI Assets from STI to the Prime HPT Subsidiary, Prime will assume all
obligations of ShoLodge under the HPT Lease Guaranty which first accrue from and
after the Closing Date. ShoLodge will use its best efforts to obtain from HPT
and/or Landlord the return of the HPT Lease Guaranty Deposit. If ShoLodge is
unable to obtain the return of the HPT Lease Guaranty Deposit from HPT and/or
Landlord, Prime will pay to ShoLodge at Closing the sum of Fourteen Million and
No/100 Dollars
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<PAGE> 10
($14,000,000.00) in cash or other immediately available funds in exchange for
the absolute assignment by ShoLodge to Prime of all right, title and interest of
ShoLodge in and to the HPT Lease Guaranty Deposit, so long as HPT and Landlord
agree or consent to such assignment and so long as the HPT Estoppel Certificate
acknowledges that (i) there are no existing defaults nor events which with the
giving of notice or the passage of time may become defaults by STI under the HPT
Lease nor any cause for HPT or Landlord to offset any obligation of STI under
the HPT Lease against the HPT Lease Guaranty Deposit, and (ii) as of the date of
the HPT Estoppel Certificate, the HPT Lease Security Deposit is Twenty-One
Million Two Hundred Eighty Thousand and No/100 Dollars ($21,280,000.00) and the
HPT Lease Guaranty Deposit is Fourteen Million and No/100 Dollars
($14,000,000.00).
2.4 Further Assurances. ShoLodge covenants that at the
Closing and from time to time after the Closing, it will, upon the reasonable
request of the Prime HPT Subsidiary or Prime, cause STI to execute, acknowledge
and deliver, and to do or cause to be done, executed, acknowledged and
delivered, all such additional documents or actions as may be reasonably
required by the Prime HPT Subsidiary or Prime, in order more effectively to
sell, convey, transfer, assign and deliver to the Prime HPT Subsidiary the STI
Assets in the manner described in Sections 2.1 and 2.2 above, and to carry out
the intention and purposes of this Article II and the transactions contemplated
hereby and to evidence and preserve the ownership by the Prime HPT Subsidiary of
the STI Assets, provided neither ShoLodge nor STI shall incur any liability,
cost or expense not contemplated by this Agreement. The provisions of this
Section 2.4 shall survive the Closing.
2.5 Sumner Suites Name. The Prime HPT Subsidiary shall
be allowed to continue operating each of the Existing HPT Hotels as a "Sumner
Suites" for a period of not more than nine (9) months from the Closing Date, at
which time all Existing HPT Hotels must be converted to another flag at the sole
cost and expense of the Prime HPT Subsidiary. The provisions of this Section 2.5
shall survive the Closing.
ARTICLE III
SALE OF ADDITIONAL HPT HOTELS
3.1 Sale of Additional Property to Landlord. ShoLodge
hereby agrees (i) to cause the Additional Hotel Subsidiaries, at the Closing and
in the manner specified in Section 3.3 of this Agreement, to sell, convey,
transfer, assign and deliver to Landlord all right, title and interest of the
Additional Hotel Subsidiaries in and to (A) that certain real property more
particularly described on Exhibit B attached hereto and incorporated herein by
this reference (the "Additional Land"); (B) any and all buildings, structures
and similar improvements erected on, over, upon or under the Additional Land on
the Closing Date (the "Additional Buildings"); and (C) all furniture, fixtures
and equipment located thereon or therein on the Closing Date (the "Additional
Equipment") (the Additional Land, the Additional Buildings and the Additional
Equipment are referred to herein collectively as the "Additional Property"); and
(ii) to use its best efforts to cause Landlord to lease the Additional Property
to the Prime HPT Subsidiary, and, if Landlord agrees to the same, Prime hereby
agrees to cause the Prime HPT Subsidiary, at the
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<PAGE> 11
Closing and in the manner specified in Section 3.3 of this Agreement, to lease
the Additional Property from Landlord.
3.2 Sale of Additional Hotel Operating Assets. ShoLodge
hereby agrees to cause the Additional Hotel Subsidiaries, at the Closing and in
the manner specified in Section 3.4 of this Agreement, to sell, convey,
transfer, assign and deliver to the Prime HPT Subsidiary, and Prime hereby
agrees to cause the Prime HPT Subsidiary, at the Closing and in the manner
specified in Section 3.4 of this Agreement, to purchase from the Additional
Hotel Subsidiaries, all the following (collectively, the "Additional Hotel
Operating Assets"):
(a) all merchandise, inventories, materials and supplies
used or intended for use or held for use in connection with and located on the
Closing Date at the Additional Land (collectively, the "Additional Inventory");
(b) all reservation and advance booking deposits and
guest deposits (including interest, if any, accrued thereon) for guests or
future guests of the Additional HPT Hotels existing on the Closing Date (the
"Additional Advance Payments");
(c) to the extent assignable, all of the right, title
and interest of the Additional Hotel Subsidiaries, if any, in and to all service
contracts, vendor agreements, maintenance agreements, utility contracts, cable
service agreements, advertising agreements, equipment leases and similar
operating agreements relating to the Additional HPT Hotels and in effect on the
Closing Date (collectively, the "Additional Operating Agreements");
(d) to the extent assignable, all of the right, title
and interest of the Additional Hotel Subsidiaries, if any, in and to licenses
and permits for the sale and on-premises consumption of liquor and other
alcoholic beverages at the Additional HPT Hotels in effect on the Closing Date;
and
(e) all vehicles owned by the Additional Hotel
Subsidiaries and located at and used in connection with the Additional HPT
Hotels on the Closing Date.
Notwithstanding the foregoing, the obligation of the Prime HPT Subsidiary to
accept the transfer of any or all of the Additional Hotel Operating Assets shall
be conditioned upon the lease of the corresponding Additional Property by the
Prime HPT Subsidiary as contemplated in Sections 3.1 and 3.3.
3.3 Transfer of Additional Property. The sale,
conveyance, transfer, assignment and delivery of the Additional Property
hereunder will be effected by the delivery by the Additional Hotel Subsidiaries
to Landlord at the Closing of instruments of sale, transfer, assignment and
conveyance in form and substance reasonably satisfactory to the Additional Hotel
Subsidiaries and Landlord, and the lease of the Additional Property from
Landlord to the Prime HPT Subsidiary shall be effected either by an amendment to
the HPT Lease or by separate lease which contains terms and provisions
reasonably satisfactory to Prime, but Prime shall not have reason to object to
any terms and provisions which are in the HPT Lease unless an objection to
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<PAGE> 12
such terms and provisions is made in accordance with the provisions of Section
12.1; provided, however, the minimum annual rent under such lease with respect
to the Additional Property shall be Four Million Three Hundred Sixty-Five
Thousand and No/100 Dollars ($4,365,000.00), allocated as set forth in Exhibit P
attached hereto and incorporated herein by this reference (such documents being
referred to herein as the "Additional Property Documents"). Notwithstanding the
foregoing, ShoLodge, by written notice to Prime, may adjust the minimum annual
rent for the Additional Property and the allocation thereof by up to ten percent
(10%) of the amount thereof per Hotel as long as (i) the aggregate minimum
annual rent for the Additional Property and the Texas Property does not exceed
Seven Million Four Hundred Twenty-Three Thousand and No/100 Dollars
($7,423,000.00), and (ii) the lease of the Additional Property and the Texas
Property shall have the same initial term and renewal options as provided in the
HPT Lease. The Additional Property shall be transferred to Landlord and leased
by the Prime HPT Subsidiary free and clear of all Encumbrances, but subject to
the Permitted Exceptions which relate to the Additional Property and to the
Additional Operating Agreements. From and after Closing, all liabilities of the
Additional Hotel Subsidiaries under the Additional Operating Agreements and
under the instruments creating the Permitted Exceptions which relate to the
Additional Property and which first accrue after the Closing Date shall be the
responsibility of the Prime HPT Subsidiary.
3.4 Transfer of Additional Hotel Operating Assets. The
sale, conveyance, transfer, assignment and delivery of the Additional Hotel
Operating Assets hereunder will be effected by the delivery by the Additional
Hotel Subsidiaries to the Prime HPT Subsidiary at the Closing of the Bill of
Sale in the form of Exhibit F attached hereto and incorporated herein by this
reference, the Assignment and Assumption of Contracts in the form of Exhibit G
attached hereto and incorporated herein by this reference and such other
instruments of sale, transfer, assignment and conveyance as an Additional Hotel
Subsidiary or the Prime HPT Subsidiary shall reasonably request in form and
substance reasonably satisfactory to the Additional Hotel Subsidiaries and the
Prime HPT Subsidiary (such documents being referred to herein as the "Additional
Hotel Operating Assets Transfer Documents"). The Additional Hotel Operating
Assets shall be transferred free and clear of all Encumbrances, but subject to
the Permitted Exceptions which relate to the Additional Hotel Operating Assets
and to the Additional Operating Agreements. From and after Closing, all
liabilities of the Additional Hotel Subsidiaries under the Additional Operating
Agreements and under the instruments creating the Permitted Exceptions which
relate to the Additional Hotel Operating Assets and which first accrue after the
Closing Date shall be the responsibility of the Prime HPT Subsidiary.
3.5 Prime Guaranty. Prime will guarantee all obligations
of the Prime HPT Subsidiary with respect to the lease of the Additional Property
pursuant to an amendment to the HPT Lease Guaranty or a separate instrument
which contains terms and provisions reasonably satisfactory to Prime, but Prime
shall not have reason to object to any terms and provisions which are in the HPT
Lease Guaranty unless an objection to such terms and provisions is made in
accordance with the provisions of Section 12.1; provided, however, that (i) the
liability of Prime thereunder shall be limited to an amount equal to minimum
annual rent for the Additional Property for one (1) year, and (ii) Prime shall
not be required to increase the HPT Lease Guaranty Deposit pursuant to the HPT
Lease Guaranty (as amended in connection with such transaction) or to deposit a
"Guaranty Deposit" in connection with a separate guaranty.
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<PAGE> 13
3.6 Further Assurances. ShoLodge covenants that at the
Closing and from time to time after the Closing, it will, upon the reasonable
request of the Prime HPT Subsidiary or Prime, cause the Additional Hotel
Subsidiaries to execute, acknowledge and deliver, and to do or cause to be done,
executed, acknowledged and delivered, all such additional documents or actions
as may be reasonably required by the Prime HPT Subsidiary or Prime, in order
more effectively to sell, convey, transfer, assign and deliver to the Prime HPT
Subsidiary the Additional Hotel Operating Assets in the manner described in
Sections 3.2 and 3.4 above, and to carry out the intention and purposes of this
Article III and the transactions contemplated hereby and to evidence and
preserve the ownership by the Prime HPT Subsidiary of the Additional Hotel
Operating Assets and the lease by the Prime HPT Subsidiary of the Additional
Property, provided neither ShoLodge nor the Additional Hotel Subsidiaries shall
incur any liability, cost or expense not contemplated by this Agreement. The
provisions of this Section 3.6 shall survive the Closing.
3.7 Sumner Suites Name. The Prime HPT Subsidiary shall
be allowed to continue operating each of the Additional HPT Hotels as a "Sumner
Suites" for a period of not more than nine (9) months from the Closing Date, at
which time all Additional HPT Hotels must be converted to another flag at the
sole cost and expense of the Prime HPT Subsidiary. The provisions of this
Section 3.7 shall survive the Closing.
3.8 Advance HPT Closing. ShoLodge, at its option, may
proceed to close the transfer of the Additional Property from the Additional
Hotel Subsidiaries to Landlord as contemplated in part (i) of Section 3.1 prior
to the Closing. In such event, the Additional Property will be leased from
Landlord to STI either by an amendment to the HPT Lease or by separate lease
identical to the amendment or separate lease contemplated in Section 3.3 (but
with STI as the tenant), and at Closing the interest of STI in the Additional
Property will be transferred to the Prime HPT Subsidiary in the same manner as
the transfer of the STI Leased Assets contemplated in Article II, including,
without limitation, with the same further assurances as set forth in Section
2.4. Without limiting the generality of the foregoing, in such event, ShoLodge
agrees to cause STI to sell, convey, transfer, assign and deliver to the Prime
HPT Subsidiary, and Prime agrees to cause the Prime HPT Subsidiary, at the
Closing, to purchase from STI, all right, title and interest of STI in and to
the HPT Lease (as so amended) or the separate lease, as applicable, including
without limitation, the amount added to the "Retained Funds" under the HPT Lease
if so amended or the "Retained Funds" under such separate lease, as applicable,
and, except as limited in the last paragraph of Section 19.3, the "FF&E Reserve"
created pursuant to the HPT Lease (as so amended) or the separate lease, as
applicable, and in and to the Additional Property, such sale, conveyance,
transfer, assignment and delivery of the Additional Property to be effected by
the delivery by STI to the Prime HPT Subsidiary at the Closing of the Assignment
and Assumption of Lease Agreement in the form of Exhibit E attached hereto and
incorporated herein by this reference. Further, in such event, any guaranty by
ShoLodge of the lease to STI of the Additional Property (whether by virtue of an
amendment to the HPT Lease Guaranty or by separate instrument) shall be treated
like the HPT Lease Guaranty as described in Section 2.3 to the extent any such
guaranty by ShoLodge is consistent with Section 3.5. At least ten (10) days
prior to execution, ShoLodge shall deliver to Prime a copy of the amendment to
the HPT Lease or separate lease and a copy of the amendment to the HPT Lease
Guaranty or separate instrument as contemplated in this Section 3.8 for Prime's
written approval, such approval not to be
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unreasonably withheld, delayed or conditioned. In no event shall ShoLodge or any
ShoLodge Subsidiary execute any such amendment to the HPT Lease or separate
lease without Prime's prior written approval.
3.9 Direct Lease. ShoLodge, at its option, may cause the
Additional Property (or one (1) or more, but less than all, of the Additional
HPT Hotels and the portion of the Additional Land, the Additional Buildings and
the Additional Equipment relating thereto) to be leased to the Prime Texas
Subsidiary by the Additional Hotel Subsidiaries (or the appropriate Additional
Hotel Subsidiary or Subsidiaries, if only a portion of the Additional Property
is so leased) in the same manner as the Texas Property is leased to the Prime
Texas Subsidiary pursuant to Article IV, but with the terms of such lease being
consistent with Section 3.3. In such event, all applicable references to the
Texas Property in this Agreement shall be deemed to include the Additional
Property (or such Additional HPT Hotel or such Additional HPT Hotels and the
portion of the Additional Land, the Additional Buildings and the Additional
Equipment relating thereto), and all applicable references to Southeast in this
Agreement shall be deemed to include the appropriate Additional Hotel Subsidiary
or Subsidiaries.
ARTICLE IV
SALE OF TEXAS HOTELS
4.1 Lease of Texas Property. ShoLodge hereby agrees to
cause Southeast, at the Closing and in the manner specified in Section 4.3 of
this Agreement, to lease to the Prime Texas Subsidiary, and Prime hereby agrees
to cause the Prime Texas Subsidiary, at the Closing and in the manner specified
in Section 4.3 of this Agreement, to lease from Southeast, (A) that certain real
property more particularly described on Exhibit C attached hereto and
incorporated herein by this reference (the "Texas Land"); (B) any and all
buildings, structures and similar improvements erected on, over, upon or under
the Texas Land on the Closing Date (the "Texas Buildings"); and (C) all
furniture, fixtures and equipment located thereon or therein on the Closing Date
(the "Texas Equipment") (the Texas Land, the Texas Buildings and the Texas
Equipment are referred to herein collectively as the "Texas Property").
4.2 Sale of Texas Hotel Operating Assets. ShoLodge
hereby agrees to cause Southeast, at the Closing and in the manner specified in
Section 4.4 of this Agreement, to sell, convey, transfer, assign and deliver to
the Prime Texas Subsidiary, and Prime hereby agrees to cause the Prime Texas
Subsidiary, at the Closing and in the manner specified in Section 4.4 of this
Agreement, to purchase from Southeast, all the following (collectively, the
"Texas Hotel Operating Assets"):
(a) all merchandise, inventories, materials and supplies
used or intended for use or held for use in connection with and located on the
Closing Date at the Texas Land (collectively, the "Texas Inventory");
(b) all reservation and advance booking deposits and
guest deposits (including interest, if any, accrued thereon) for guests or
future guests of the Texas Hotels existing on the Closing Date (the "Texas
Advance Payments");
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(c) to the extent assignable, all of the right, title
and interest of Southeast, if any, in and to all service contracts, vendor
agreements, maintenance agreements, utility contracts, cable service agreements,
advertising agreements, equipment leases and similar operating agreements
relating to the Texas Hotels and in effect on the Closing Date (collectively,
the "Texas Operating Agreements");
(d) to the extent assignable, all of the right, title
and interest of Southeast, if any, in and to licenses and permits for the sale
and on-premises consumption of liquor and other alcoholic beverages at the Texas
Hotels in effect on the Closing Date; and
(e) all vehicles owned by Southeast and located at and
used in connection with the Texas Hotels on the Closing Date.
Notwithstanding the foregoing, the obligation of the Prime Texas Subsidiary to
accept the transfer of any or all of the Texas Hotel Operating Assets shall be
conditioned upon the lease of the Texas Property by the Prime Texas Subsidiary
as contemplated in Sections 4.1 and 4.3.
4.3 Lease of Texas Property. The lease of the Texas
Property from Southeast to the Prime Texas Subsidiary shall be effected by lease
(the "Texas Lease") which contains terms and provisions reasonably satisfactory
to Prime, but Prime shall not have reason to object to any terms and provisions
which are in the HPT Lease unless an objection to such terms and provisions is
made in accordance with the provisions of Section 12.1; provided, however, (i)
the Prime Texas Subsidiary shall be deemed to have deposited "Retained Funds" in
an amount equal to the same multiple of the minimum annual rent under such lease
with respect to the Texas Property as is required by Landlord with respect to
the Additional Property pursuant to an amendment to the HPT Lease or a separate
lease as contemplated in Section 3.3, and (ii) the minimum annual rent under
such lease with respect to the Texas Property shall be Three Million Fifty-Eight
Thousand and No/100 Dollars ($3,058,000.00), allocated as set forth in Exhibit P
attached hereto and incorporated herein by this reference. Notwithstanding the
foregoing, ShoLodge, by written notice to Prime, may adjust the minimum annual
rent for the Texas Property and the allocation thereof by up to ten percent
(10%) of the amount thereof per Hotel as long as (i) the aggregate minimum
annual rent for the Additional Property and the Texas Property does not exceed
Seven Million Four Hundred Twenty-Three Thousand and No/100 Dollars
($7,423,000.00), and (ii) the lease of the Additional Property and the Texas
Property shall have the same initial term and renewal options as provided in the
HPT Lease. The obligations of the Prime Texas Subsidiary under the Texas Lease
shall be secured by a security interest in the personal property located at the
Texas Real Property and in the "FF&E Reserve" created pursuant to the Texas
Lease and by a pledge of the stock of the Prime Texas Subsidiary pursuant to
documents which contain terms and provisions reasonably satisfactory to Prime,
but Prime shall not have reason to object to any terms and provisions which are
in the HPT Security Agreement, the HPT Assignment and Security Agreement or the
HPT Stock Pledge unless an objection to such terms and provisions is made in
accordance with the provisions of Section 12.1. The Texas Property shall be
leased by the Prime Texas Subsidiary free and clear of all Encumbrances, but
subject to the Permitted Exceptions which relate to the Texas Property and to
the Texas Operating Agreements. From and after Closing, all liabilities of
Southeast under the Texas Operating Agreements and under the
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instruments creating the Permitted Exceptions which relate to the Texas Property
and which first accrue after the Closing Date shall be the responsibility of the
Prime Texas Subsidiary. The obligation of Southeast to deliver the "Retained
Funds" upon the expiration of the Texas Lease pursuant to the terms thereof
shall be guaranteed by ShoLodge pursuant to an instrument in form and substance
reasonably satisfactory to Prime and ShoLodge, but such undertaking by ShoLodge
shall terminate upon the transfer of the Texas Property to HPT or an Affiliate
of HPT or to another Person whose financial condition is equivalent to or better
than that of HPT on the date of such transfer, provided that such transferee has
assumed the obligation of Southeast to deliver the "Retained Funds" upon the
expiration of the Texas Lease.
4.4 Transfer of Texas Hotel Operating Assets. The sale,
conveyance, transfer, assignment and delivery of the Texas Hotel Operating
Assets hereunder will be effected by the delivery by Southeast to the Prime
Texas Subsidiary at the Closing of the Bill of Sale in the form of Exhibit F
attached hereto and incorporated herein by this reference, the Assignment and
Assumption of Contracts in the form of Exhibit G attached hereto and
incorporated herein by this reference and such other instruments of sale,
transfer, assignment and conveyance as Southeast or the Prime Texas Subsidiary
shall reasonably request in form and substance reasonably satisfactory to
Southeast and the Prime Texas Subsidiary (such documents being referred to
herein as the "Texas Hotel Operating Assets Transfer Documents"). The Texas
Hotel Operating Assets shall be transferred free and clear of all Encumbrances,
but subject to the Permitted Exceptions which relate to the Texas Hotel
Operating Assets and to the Texas Operating Agreements. From and after Closing,
all liabilities of Southeast under the Texas Operating Agreements and under the
instruments creating the Permitted Exceptions which relate to the Texas Hotel
Operating Assets and which first accrue after the Closing Date shall be the
responsibility of the Prime Texas Subsidiary.
4.5 Prime Guaranty. Prime will guarantee all obligations
of the Prime Texas Subsidiary with respect to the lease of the Texas Property
pursuant to an instrument which contains terms and provisions reasonably
satisfactory to Prime, but Prime shall not have reason to object to any terms
and provisions which are in the HPT Lease Guaranty unless an objection to such
terms and provisions is made in accordance with the provisions of Section 12.1;
provided, however, that (i) the liability of Prime thereunder shall be limited
to an amount equal to minimum annual rent for the Texas Property for one (1)
year, and (ii) Prime shall not be required to deposit a "Guaranty Deposit" in
connection with such guaranty.
4.6 Further Assurances. ShoLodge covenants that at the
Closing and from time to time after the Closing, it will, upon the reasonable
request of the Prime Texas Subsidiary or Prime, cause Southeast to execute,
acknowledge and deliver, and to do or cause to be done, executed, acknowledged
and delivered, all such additional documents or actions as may be reasonably
required by the Prime Texas Subsidiary or Prime, in order more effectively to
sell, convey, transfer, assign and deliver to the Prime Texas Subsidiary the
Texas Hotel Operating Assets in the manner described in Sections 4.2 and 4.4
above, and to carry out the intention and purposes of this Article IV and the
transactions contemplated hereby and to evidence and preserve the ownership by
the Prime Texas Subsidiary of the Texas Hotel Operating Assets and the lease by
the Prime Texas Subsidiary of the Texas Property, provided neither ShoLodge nor
Southeast
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shall incur any liability, cost or expense not contemplated by this Agreement.
The provisions of this Section 4.6 shall survive the Closing.
4.7 Sumner Suites Name. The Prime Texas Subsidiary shall
be allowed to continue operating each of the Texas Hotels as a "Sumner Suites"
for a period of not more than nine (9) months from the Closing Date, at which
time all Texas Hotels must be converted to another flag at the sole cost and
expense of the Prime Texas Subsidiary. The provisions of this Section 4.7 shall
survive the Closing.
4.8 AmeriSuites Name. In the event that the Texas Lease
is terminated prior to the expiration of the term thereof due to a breach or
default by the Prime Texas Subsidiary, Prime and Southeast shall enter into a
license or franchise agreement whereby Southeast is given the right to operate
the Texas Hotels as "AmeriSuites" hotels, which agreement shall be the standard
license or franchise agreement, if any, then used, or most recently used if a
standard license or franchise agreement is not then being used, by Prime to
franchise "AmeriSuites" hotels, but with (i) a minimum term of ten (10) years,
(ii) a royalty equal to one-half (1/2) of the standard royalty for "AmeriSuites"
franchisees (provided Southeast shall pay full marketing and reservation fees),
and (iii) no "initial" fee or "license" fee due upon signing such agreement. The
provisions of this Section 4.8 shall survive the Closing.
4.9 HPT Lease. ShoLodge, at its option, may cause the
Texas Property (or one (1) or more, but less than all, of the Texas Hotels and
the portion of the Texas Land, the Texas Buildings and the Texas Equipment
relating thereto) to be leased to the Prime HPT Subsidiary by Landlord as if the
Texas Property (or the portion thereof) were Additional Property, but with the
terms of such lease being consistent with Section 4.3. In such event, all
applicable references to the Additional Property in this Agreement shall be
deemed to include the Texas Property (or such Texas Hotel or Texas Hotels and
the portion of the Texas Land, the Texas Buildings and the Texas Equipment
relating thereto), and all applicable references to the Additional Hotel
Subsidiaries in this Agreement shall be deemed to include Southeast. The failure
of Landlord to lease the Texas Property (or portion thereof) to the Prime HPT
Subsidiary, however, shall not constitute a condition precedent to the
obligation of ShoLodge to close pursuant to Section 10.6.
ARTICLE V
SALE OF DEVELOPMENT SITES
5.1 Sale of Development Sites. ShoLodge hereby agrees to
cause the Development Site Subsidiaries, at the Closing and in the manner
specified in Section 5.2 of this Agreement, to sell, convey, transfer, assign
and deliver to Prime, and Prime hereby agrees, at the Closing and in the manner
specified in Section 5.2 of this Agreement, to purchase from the Development
Site Subsidiaries, all right, title and interest of the Development Site
Subsidiaries in and to that certain real property more particularly described on
Exhibit D attached hereto and incorporated herein by this reference (the
"Development Sites").
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5.2 Transfer of Development Sites. The sale, conveyance,
transfer, assignment and delivery of the Development Sites hereunder will be
effected by the delivery by the Development Site Subsidiaries to Prime at the
Closing of a special warranty deed for each site in the form of Exhibit I
attached hereto and incorporated herein by this reference as to the Mt. Laurel,
New Jersey site and in the form of Exhibit J attached hereto and incorporated
herein by this reference as to the Fairfax County, Virginia site (such deeds
being referred to herein as the "Development Site Transfer Documents"). The
Development Sites shall be transferred free and clear of all Encumbrances, but
subject to the Permitted Exceptions which relate to the Development Sites. From
and after Closing, all liabilities of the Development Site Subsidiaries under
the instruments creating the Permitted Exceptions which relate to the
Development Sites and which first accrue after the Closing Date shall be the
responsibility of Prime.
ARTICLE VI
CONSIDERATION
6.1 Purchase Price. The total purchase price for the STI
Assets, the Additional Hotel Operating Assets, the Texas Hotel Operating Assets
and, if applicable, the interest of STI in the Additional Property and the
interest of Southeast in the Texas Property shall be Two Million and No/100
Dollars ($2,000,000.00) (the "Purchase Price"). Prime shall pay or cause a Prime
Subsidiary, as applicable, to pay the Purchase Price on the Closing Date as
follows:
(a) Three Hundred Fifty-Two Thousand Eight Hundred Eighty
and No/100 Dollars ($352,880.00) in cash or other
immediately available funds, to an account or
accounts designated by ShoLodge prior to Closing; and
(b) One Million Six Hundred Forty-Seven Thousand One
Hundred Twenty and No/100 Dollars ($1,647,120.00) by
the delivery to ShoLodge or to such other Person as
designated by ShoLodge of ShoLodge debt securities
which are held currently by Prime or an Affiliate of
Prime as follows:
(1) Two Hundred Thirty-Eight Thousand and No/100
Dollars ($238,000.00) face value of 9 3/4%
senior subordinated notes at 68% of face
value;
(2) Four Hundred Sixty-One Thousand and No/100
Dollars ($461,000.00) face value of 9.55%
senior subordinated notes at 68% of face
value; and
(3) One Million Eight Hundred Sixty Thousand and
No/100 Dollars ($1,860,000.00) face value of
7 1/2% convertible subordinated debentures
at 63% of face value.
The Purchase Price shall be allocated among the STI Assets, the Additional
Property Operating Assets, the Texas Property Operating Assets and, if
applicable, the interest of STI in the
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Additional Property and the interest of Southeast in the Texas Property, as set
forth on Exhibit N attached hereto and made a part hereof.
6.2 Development Site Purchase Price. The total purchase
price for the Development Sites shall be Three Million Three Hundred Nineteen
Thousand Nine Hundred Thirty and No/100 Dollars ($3,319,930.00) (the
"Development Site Purchase Price"), which amount shall be payable by Prime to
the Development Site Subsidiaries in cash or other immediately available funds
at Closing, One Million Six Hundred Ninety-Seven Thousand Five Hundred Five and
No/100 Dollars ($1,697,505.00) for the Mt. Laurel, New Jersey site and One
Million Six Hundred Twenty-Two Thousand Four Hundred Twenty-Five and No/100
Dollars ($1,622,425.00) for the Fairfax County, Virginia site.
ARTICLE VII
CONSTRUCTION CONTRACT
7.1 Construction Contract. At the Closing, Prime shall
enter into, and ShoLodge shall cause Moore to enter into, an agreement (the
"Construction Contract") in form and substance reasonably satisfactory to Prime
and Moore whereby Moore will agree to construct for Prime, and Prime will engage
Moore to construct, an AmeriSuites hotel on each Development Site. The
Construction Contract shall provide for a fixed price of Seventy-Six Thousand
Five Hundred and No/100 Dollars ($76,500.00) per room (including land, building
and furniture, fixtures and equipment). The parties acknowledge that the fixed
price set forth in the preceding sentence includes the cost of acquisition of
the Development Sites, and, thus, the Development Site Purchase Price shall be
deducted from the fixed price otherwise payable to Moore during the course of
construction (as it will already have been paid to the Development Site
Subsidiaries at Closing). Disbursements to Moore of the fixed price less the
Development Site Purchase Price will be paid by Prime monthly during
construction based upon the percentage of completion, subject to retainage of
ten percent (10%). The Construction Contract shall further provide that Moore
shall construct on each Development Site a hotel building in accordance with the
plans and specifications which have been filed by ShoLodge, Moore or the
applicable Development Site Subsidiary with the local building code officials,
but with finishes and signage in accordance with the plans and specifications
described on Exhibit K attached hereto and incorporated herein by this
reference, all in accordance with all applicable laws, regulations, statutes and
orders. The parties acknowledge that the Construction Contract shall contain a
scheduled completion date, together with delay damages, among other terms, which
terms shall be negotiated during the Due Diligence Period. The provisions of
this Section 7.1 shall survive the Closing, but any conflict between the terms
of this Section 7.1 and the terms of the Construction Contract shall be governed
by the Construction Contract.
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ARTICLE VIII
RESERVATION AGREEMENT
8.1 Reservation Agreement. At the Closing, Prime and
ShoLodge shall enter into an agreement (the "Reservation Agreement") in form and
substance reasonably satisfactory to Prime and ShoLodge whereby ShoLodge will
agree to provide to Prime, and Prime will engage ShoLodge to provide, exclusive
reservation services for all proprietary brand hotels owned, operated or
franchised by Prime or any Affiliate of Prime (including the Sumner Suites
hotels acquired by a Prime Subsidiary as contemplated herein, but such Sumner
Suites hotels may be removed from the ShoLodge reservation system upon
conversion to the AmeriSuites brand in Prime's sole discretion if the
Reservation Agreement has not then become effective as described in subparagraph
(d) below). The Reservation Agreement, among other provisions, will contain the
following terms:
(a) The term of the Reservation Agreement will be for
five (5) years from the date the Reservation
Agreement becomes effective as described in
subparagraph (d) below and ShoLodge begins providing
reservation services thereunder for all or all but an
insignificant number of such proprietary brand hotels
owned, operated or franchised by Prime or any
Affiliate of Prime, but Prime will have a right to
terminate the Reservation Agreement without penalty
at any time upon one hundred twenty (120) days prior
written notice to ShoLodge, such notice not to be
given earlier than the date two (2) years after the
Reservation Agreement becomes effective as described
in subparagraph (d) below and ShoLodge begins
providing reservation services thereunder for all or
all but an insignificant number of such proprietary
brand hotels owned, operated or franchised by Prime
or any Affiliate of Prime; provided, however, in the
event any of the Hotels are removed from the ShoLodge
reservation system, such two (2) year period during
which notice of termination may not be given shall be
extended for a period equal to the shorter of (i) the
time one (1) or more of the Sumner Suites hotels
acquired by a Prime Subsidiary as contemplated herein
is not on the ShoLodge reservation system, or (ii)
three (3) months.
(b) The Reservation Agreement will provide that Prime
will pay a monthly fee to ShoLodge in the amount of
one percent (1%) of gross room revenues and will pay
customary pass through costs such as commissions and
global distribution system fees.
(c) The Reservation Agreement will provide that Prime
will have the right of first offer and the right of
first refusal with respect to any proposed sale by
ShoLodge of the reservation system during the term of
the Reservation Agreement.
(d) The Reservation Agreement shall not become effective
until the day after (i) ShoLodge has notified Prime
that its reservation system complies with
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the software and hardware requirements set forth on
Exhibit Q hereto and incorporated herein by this
reference and (ii) Prime has confirmed in writing
that the ShoLodge reservation system does so comply,
provided that Prime shall have no more than a ninety
(90) day period following ShoLodge's notice to test
the system and confirm such compliance with whatever
tests Prime desires, in Prime's reasonable
discretion.
(e) The effective date of the Reservation Agreement must
occur within four hundred forty-five (445) days after
the date of execution of the Reservation Agreement by
ShoLodge and Prime or Prime shall have the option to
terminate the Reservation Agreement effective upon
written notice thereof to ShoLodge.
(f) The Reservation Agreement shall contain performance
standards together with termination rights related
thereto.
(g) The Reservation Agreement will provide that Prime
shall have the exclusive right to use the Sumner
Suites 1-800 number (1-800-74-SUITE) for the one (1)
year period commencing on the initial Closing Date
under this Agreement, after which time the right of
Prime to use such 1-800 number shall terminate;
provided, however, during such one (1) year period,
Prime shall cause all calls received on such 1-800
number which relate to a Hotel then operated by
ShoLodge or an Affiliate of ShoLodge to be forwarded
to the ShoLodge reservation system. ShoLodge shall
reimburse to Prime the actual out of pocket cost to
Prime to transfer such calls to the ShoLodge
reservation system, not to exceed One Dollar ($1.00)
per transferred call.
8.2 Termination Fee. Prime shall pay any required
termination fees to cancel its current agreement for reservation services.
8.3 Survival. The provisions of Article VIII shall
survive the Closing, but any conflict between the terms of Article VIII and the
terms of the Reservation Agreement shall be governed by the Reservation
Agreement.
ARTICLE IX
PRICE ADJUSTMENTS; INITIAL CONSIDERATION
9.1 Closing Adjustments.
(a) The cash portion of the Purchase Price described in
Section 6.1(a) and the Development Site Purchase Price, as applicable, shall be
increased, by:
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(i) any cash on hand at the Hotels when a Prime
Subsidiary takes possession (any such cash shall be counted by representatives
of ShoLodge and Prime on the Closing Date);
(ii) any revenue generated by the operation of
the Hotels through and including the night before the Closing Date arising from
accounts receivable with respect to guests of the Hotels then in occupancy which
in the normal course of business would be received after the Closing (the amount
of such revenue to be determined by representatives of ShoLodge and Prime on the
Closing Date);
(iii) amounts paid prior to Closing for any ad
valorem real estate taxes and assessments relating to the Real Property on
account of any period from and after 12:01 a.m. of the Closing Date;
(iv) personal property taxes, gross receipts
taxes, sales taxes, excise taxes, hotel occupancy taxes or other similar taxes
(but excluding income and franchise taxes), if any, relating to the Assets paid
prior to Closing on account of any period from and after 12:01 a.m. of the
Closing Date;
(v) amounts paid prior to Closing under any
Operating Agreement, the HPT Lease (including, if applicable, as amended, or
pursuant to the separate lease contemplated in Section 3.8) or any instrument
creating a Permitted Exception on account of any period from and after 12:01
a.m. of the Closing Date;
(vi) accrued but unpaid interest earnings on the
HPT Lease Guaranty Deposit for any period prior to 12:01 a.m. of the Closing
Date (if such HPT Lease Guaranty Deposit is not returned from HPT and/or
Landlord to ShoLodge or STI);
(vii) any utility deposits relating to the Assets
which are transferred and remain on deposit after Closing for the benefit of a
Prime Subsidiary or Prime, as applicable; and
(viii) any other charges or fees customarily
prorated by a credit to the seller in the jurisdiction in which the Real
Property is situated, on customary terms.
(b) The cash portion of the Purchase Price described in
Section 6.1(a) and the Development Site Purchase Price, as applicable, shall be
decreased, by:
(i) any Advance Payments retained by STI, an
Additional Hotel Subsidiary, or Southeast, as applicable;
(ii) unpaid ad valorem real estate taxes and
assessments relating to the Real Property on account of any period prior to
12:01 a.m. of the Closing Date;
(iii) unpaid personal property taxes, gross
receipts taxes, sales taxes, excise taxes, hotel occupancy taxes or other
similar taxes (but excluding income and franchise
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taxes), if any, relating to the Assets payable on account of any period prior to
12:01 a.m. of the Closing Date;
(iv) unpaid amounts payable under any Operating
Agreement (ShoLodge shall use its best efforts to cause all amounts due under
the Operating Agreements to be paid to the Closing Date), the HPT Lease
(including, if applicable, as amended, or pursuant to the separate lease
contemplated in Section 3.8) or any instrument creating a Permitted Exception on
account of any period prior to 12:01 a.m. of the Closing Date (for this purpose
"Additional Rent" (as defined in the HPT Lease) shall be calculated based on the
"Total Hotel Sales" (as defined in the HPT Lease) for the current year to the
Closing Date compared to "Base Total Hotel Sales" (as defined in the HPT Lease)
for the similar period of the applicable "Base Year" (as defined in the HPT
Lease)); and
(v) unpaid rates, rents and charges for sewer,
water, gas, electricity, telephone and other utility services provided to the
Hotels for any period prior to 12:01 a.m. of the Closing Date (ShoLodge shall
use commercially reasonable efforts to cause meters to be read as of the Closing
Date);
(vi) accrued but unpaid benefits due to employees
of the Hotels who are hired by Prime or a Prime Subsidiary, as applicable, which
are not paid by STI, ShoLodge or an Affiliate of ShoLodge directly to such
employees upon termination of employment; and
(vii) any other charges or fees customarily
prorated by a charge to the seller in the jurisdiction in which the Real
Property is situated, on customary terms.
(c) The intent of the foregoing is to credit or charge,
as the case may be, STI, the Additional Hotel Subsidiaries, Southeast or the
Development Subsidiaries, as applicable, with all revenues and expenses
respecting the Assets which are attributable to operations before the Closing
Date and to credit or charge, as the case may be, Prime or a Prime Subsidiary,
as applicable, with all such revenues and expenses attributable to operations on
and after the Closing Date. At Closing, STI, the Additional Hotel Subsidiaries
and Southeast, as applicable, shall provide the Prime HPT Subsidiary and the
Prime Texas Subsidiary, as applicable, with a list setting forth advance guest
bookings, conventions, meetings and any other booking commitments for the period
from and after the Closing Date.
9.2 Post-Closing Adjustments. If at any time following
the Closing Date, the calculation of an item listed in Section 9.1 above shall
prove to be incorrect or an item is discovered which should have been included
in the adjustments but which was omitted therefrom, the Person in whose favor
the error or omission was made shall pay the sum necessary to correct such error
or omission to the Person entitled to such payment promptly following receipt of
proof of such error or omission from such Person entitled to such payment,
provided that such proof is delivered to the Person from whom payment is
requested within thirty (30) days of the Closing Date. The adjustment of
"Additional Rent" pursuant to Section 9.1(b)(iv), however, shall be final and
shall not be further adjusted regardless of the actual amount of "Additional
Rent" for the year in which the Closing Date occurs.
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If the amount of real estate taxes or assessments for the
current year is not known on the Closing Date, then the taxes or assessments
shall be apportioned on the basis of the taxes assessed for the preceding year
or some reasonable assessment agreed by the parties if a Hotel is in its first
year of operation. Notwithstanding the foregoing thirty (30) day limitation, the
amounts as computed shall be adjusted when the final tax assessment and tax
rates are determined.
Subject to the limitations set forth herein, the provisions of
this Section 9.2 shall survive the Closing.
9.3 Initial Consideration. On the date of execution of
this Agreement by Prime, Prime will deliver to ShoLodge a check in the amount of
One Hundred and No/100 Dollars ($100.00) as initial consideration for any option
granted in this Agreement (the "Initial Consideration"). The Initial
Consideration is non-refundable and shall be retained by ShoLodge regardless of
whether or not this Agreement is terminated pursuant to a right to do so
hereunder.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SHOLODGE
Each and every obligation of ShoLodge and the ShoLodge
Subsidiaries to be performed hereunder shall be subject to the satisfaction,
prior to or on the date on which performance is due, of the following express
conditions precedent:
10.1 Compliance with Agreement. Prime and the Prime
Subsidiaries shall have performed and complied in all respects with all of their
obligations under this Agreement which are to have been performed or complied
with by Prime or the Prime Subsidiaries, as applicable, as of such date.
10.2 Representations and Warranties. The representations
and warranties made by Prime in this Agreement shall have been true and correct
in all material respects and such representations and warranties shall be true
and correct in all material respects as of the Closing Date with the same force
and effect as though such representations and warranties had been made on the
Closing Date.
10.3 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by Prime or a Prime Subsidiary, as
applicable, in connection with the performance of this Agreement and all Closing
Documents to be executed by Prime and/or a Prime Subsidiary shall be complete to
the reasonable satisfaction of ShoLodge and ShoLodge's attorneys, and Prime and
the Prime Subsidiaries, as applicable, shall have made available to ShoLodge for
examination the originals or true and correct copies of all documents relating
to such proceedings which ShoLodge may reasonably request in connection with the
transactions contemplated by this Agreement.
10.4 Deliveries at Closing. Prime and the Prime
Subsidiaries, as applicable, shall have delivered or caused to be delivered to
ShoLodge the Closing Documents to be executed by
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Prime and/or a Prime Subsidiary, each properly executed, acknowledged or
notarized, if appropriate, and dated as of the Closing Date or such other date
as the parties shall agree, including, without limitation, the Construction
Contract (in form and substance reasonably satisfactory to Moore and including,
without limitation, those provisions set forth in Section 7.1) and the
Reservation Agreement (in form and substance reasonably satisfactory to ShoLodge
and including, without limitation, those provisions set forth in Section 8.1).
10.5 Other Documents. Prime and the Prime Subsidiaries,
as applicable, shall have delivered to ShoLodge or caused to be delivered to
ShoLodge such certificates and documents of officers of Prime and the Prime
Subsidiaries, as applicable, and public officials as shall be reasonably
requested by ShoLodge's counsel to establish the existence and good standing of
Prime and the Prime Subsidiaries, as applicable, and the due authorization and
enforceability of this Agreement and the Closing Documents to be executed by
Prime and/or a Prime Subsidiary, and the authorization of the transactions and
performance contemplated hereby and thereby by Prime and the Prime Subsidiaries.
10.6 HPT Closing. All transactions with HPT and Landlord
as contemplated in this Agreement, including, without limitation, the agreement
or consent of Landlord and HPT to the assignment by STI to the Prime HPT
Subsidiary of all of STI's right, title and interest in and to the HPT Lease,
the amendment of the HPT Lease and related documents to reflect the transfer of
the STI Leased Property and, if applicable, the Additional Property (as
contemplated in Section 3.8) from STI to the Prime HPT Subsidiary and the change
of the brand from "Sumner Suites" to "AmeriSuites", the release by Landlord of
STI of and from any liability under the HPT Lease and related documents
(including, without limitation, any separate lease as contemplated in Section
3.8), the substitution of a pledge of the stock of the Prime HPT Subsidiary for
the existing pledge of the stock of STI to Landlord, the release by HPT and
Landlord of ShoLodge of and from any liabilities under the HPT Lease Guaranty
and, if applicable, any separate guaranty (as contemplated in Section 3.8), if
applicable, the agreement or consent of HPT and Landlord to the absolute
assignment by ShoLodge to Prime of all of ShoLodge's right, title and interest
in and to the HPT Lease Guaranty Deposit, the transfer and conveyance of the
Additional Property from the Additional Hotel Subsidiaries to Landlord and, if
applicable, the removal of any Hotel from the HPT Lease or a separate lease (as
contemplated in Section 3.8) to accomplish a partial termination of this
Agreement pursuant to Section 13.3 or Section 13.4 (with minimum annual rent
reduced by the applicable amount set forth in Exhibit C to the HPT Lease or set
forth in Exhibit P attached hereto and incorporated herein by this reference, as
applicable), shall have closed pursuant to documents in form and substance
reasonably satisfactory to ShoLodge. Further, the HPT Estoppel Certificate shall
acknowledge that (i) there are no existing defaults nor events which with the
giving of notice or the passage of time may become defaults by STI under the HPT
Lease nor any cause for HPT or Landlord to offset any obligation of STI under
the HPT Lease against the HPT Lease Guaranty Deposit, and (ii) as of the date of
the HPT Estoppel Certificate the HPT Lease Security Deposit is Twenty-One
Million Two Hundred Eighty Thousand and No/100 Dollars ($21,280,000.00) and the
HPT Lease Guaranty Deposit is Fourteen Million and No/100 Dollars
($14,000,000.00).
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10.7 Opinions of Counsel. ShoLodge shall have received a
written opinion from counsel to Prime regarding the organization and authority
of Prime and the Prime Subsidiaries, the due execution and delivery of this
Agreement and the Closing Documents by Prime and the Prime Subsidiaries, as
applicable, and such other matters with respect to the transactions contemplated
by this Agreement as ShoLodge may reasonably require, which opinion may have
customary and reasonable assumptions and qualifications.
In the event that the conditions to the performance by
ShoLodge and the ShoLodge Subsidiaries have not occurred by the Closing Date,
ShoLodge may terminate this Agreement by delivering written notice to Prime.
Thereafter, Prime and ShoLodge shall be released and relieved of all further
obligations, liabilities and claims hereunder, other than the performance by
each party of its Post Termination Obligations, and, as to a failure or refusal
by Prime to perform Prime's obligations hereunder, other than the right of
ShoLodge to pursue a suit for damages as described in Section 19.5(b)(i).
ARTICLE XI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIME
Each and every obligation of Prime and the Prime Subsidiaries
to be performed hereunder shall be subject to the satisfaction prior to or on
the Closing Date of the following express conditions precedent:
11.1 Compliance with Agreement. ShoLodge and the ShoLodge
Subsidiaries shall have performed and complied in all respects with all of their
obligations under this Agreement which are to have been performed or complied
with by ShoLodge or the ShoLodge Subsidiaries, as applicable, prior to or on
such Closing Date.
11.2 Representations and Warranties. The representations
and warranties made by ShoLodge in this Agreement shall have been true and
correct in all material respects and such representations and warranties shall
be true and correct in all material respects as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on the Closing Date.
11.3 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by ShoLodge or a ShoLodge
Subsidiary, as applicable, in connection with the performance of this Agreement
and all Closing Documents to be executed by ShoLodge and/or a ShoLodge
Subsidiary shall be complete to the reasonable satisfaction of Prime and Prime's
attorneys, and ShoLodge and the ShoLodge Subsidiaries, as applicable, shall have
made available to Prime for examination the originals or true and correct copies
of all documents relating to such proceedings which Prime may reasonably request
in connection with the transactions contemplated by this Agreement.
11.4 Deliveries at Closing. ShoLodge and the ShoLodge
Subsidiaries, as applicable, shall have delivered or caused to be delivered to
Prime the Closing Documents to be
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executed by ShoLodge and/or a ShoLodge Subsidiary, each properly executed,
acknowledged or notarized, if appropriate, and dated as of the Closing Date or
such other date as the parties shall agree, including, without limitation, the
Construction Contract (in form and substance reasonably satisfactory to Prime
and including, without limitation, those provisions set forth in Section 7.1)
and the Reservation Agreement (in form and substance reasonably satisfactory to
Prime and including, without limitation, those provisions set forth in Section
8.1.
11.5 Other Documents. ShoLodge and the ShoLodge
Subsidiaries, as applicable, shall have delivered to Prime or caused to be
delivered to Prime such certificates and documents of officers of ShoLodge and
the ShoLodge Subsidiaries, as applicable, and public officials as shall be
reasonably requested by counsel to Prime to establish the existence and good
standing of ShoLodge and the ShoLodge Subsidiaries, as applicable, and the due
authorization and enforceability of this Agreement and the Closing Documents to
be executed by ShoLodge and/or a ShoLodge Subsidiary, and the authorization of
the transactions and performance contemplated hereby and thereby by ShoLodge and
the ShoLodge Subsidiaries, as applicable.
11.6 HPT Closing. All transactions with HPT and Landlord
as contemplated in this Agreement, including, without limitation, the agreement
or consent of Landlord and HPT to the assignment by STI to the Prime HPT
Subsidiary of all of STI's right, title and interest in and to the HPT Lease,
the amendment of the HPT Lease and related documents (i) to acknowledge the
assignment of STI's interest in the HPT Lease and the STI Leased Property and,
if applicable, the Additional Property (as contemplated in Section 3.8) from STI
to the Prime HPT Subsidiary, (ii) to add the Additional Properties to the
properties leased from Landlord to STI (and the Prime HPT Subsidiary) by the HPT
Lease, if applicable, (iii) to remove any Hotel from the HPT Lease to accomplish
a partial termination of this Agreement pursuant to Section 13.3 or Section 13.4
(with minimum annual rent reduced by the applicable amount set forth in Exhibit
C to the HPT Lease or set forth in Exhibit P attached hereto and incorporated
herein by this reference, as applicable), (iv) to reflect the change of the
brand from "Sumner Suites" to "AmeriSuites", and (v) to make such other
modifications as Prime or the Prime HPT Subsidiary reasonably may request
consistent with the provisions of this Agreement prior to the expiration of the
Due Diligence Period (such amendment being referred to herein as the "HPT Lease
Amendment"), the substitution of a pledge of the stock of the Prime HPT
Subsidiary for the existing pledge of the stock of STI to Landlord, the transfer
and conveyance of the Additional Property from the Additional Hotel Subsidiaries
to Landlord, if applicable, and, if applicable, the lease by separate document
of the Additional Property from Landlord to the Prime HPT Subsidiary, shall have
closed pursuant to documents in form and substance reasonably satisfactory to
Prime. Further, Prime shall have received the executed HPT Estoppel Certificate
which acknowledges that (i) there are no existing defaults nor events which with
the giving of notice or the passage of time may become defaults by STI under the
HPT Lease nor any cause for HPT or Landlord to offset any obligation of STI
under the HPT Lease against the HPT Lease Guaranty Deposit, and (ii) as of the
date of the HPT Estoppel Certificate the HPT Lease Security Deposit is
Twenty-One Million Two Hundred Eighty Thousand and No/100 Dollars
($21,280,000.00) and the HPT Lease Guaranty Deposit is Fourteen Million and
No/100 Dollars ($14,000,000.00).
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11.7 Condition of Assets.
(a) All of the Assets shall be in substantially
the same physical condition (including, without limitation, with respect to the
environmental condition of the Assets) as on the last day of the Due Diligence
Period, ordinary wear and tear excepted;
(b) No material default or event which with the
giving of notice and/or the lapse of time could constitute a material default
shall have occurred and be continuing under any Operating Agreement; and
(c) All material licenses, permits and other
authorizations necessary for the current use, occupancy and operation of the
Assets shall be in full force and effect in all material respects, including,
without limitation, any licenses and permits for the sale and on-premises
consumption of liquor and other alcoholic beverages.
11.8 Opinions of Counsel. Prime shall have received a
written opinion from counsel to ShoLodge regarding the organization and
authority of ShoLodge and the ShoLodge Subsidiaries, the due execution and
delivery of this Agreement and the Closing Documents by ShoLodge and the
ShoLodge Subsidiaries, as applicable, and such other matters with respect to the
transactions contemplated by this Agreement as Prime may reasonably require,
which opinion may have customary and reasonable assumptions and qualifications.
11.9 Security Deposit. Any addition to the HPT Lease
Security Deposit or any "Retained Funds" required to be deposited pursuant to a
separate lease, as applicable, with respect to the lease of the Additional
Property from Landlord to STI or the Prime HPT Subsidiary, as applicable, shall
be deposited by ShoLodge or a ShoLodge Affiliate with Landlord on or prior to
the Closing Date.
11.10 Resolution of Prime Objections. ShoLodge shall have
completed, to the reasonable satisfaction of Prime, the resolution of
"unacceptable items" identified pursuant to Sections 12.1 and 12.2 of this
Agreement which ShoLodge undertakes to resolve pursuant to such sections.
11.11 Title Policies for Development Sites. A title company
reasonably satisfactory to Prime shall be prepared, subject only to payment of
the applicable premium, endorsement and related fees and delivery of related
conveyance documents in recordable form, to issue title insurance policies
insuring Prime concerning the Development Sites, subject only to the Permitted
Exceptions.
In the event that the conditions to the performance by Prime
and the Prime Subsidiaries have not occurred by the Closing Date, Prime may
terminate this Agreement by delivering written notice to ShoLodge. Thereafter,
Prime and ShoLodge shall be released and relieved of all further obligations,
liabilities and claims hereunder, other than the performance by each party of
its Post Termination Obligations and, as to a failure or refusal by ShoLodge to
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perform ShoLodge's obligations hereunder, other than the right of Prime to
pursue a suit for damages as described in Section 19.5(a)(i).
Further, the obligation of Prime to acquire each Development
Site pursuant to Article V shall be subject to the receipt by Prime prior to or
on the Closing Date for such Development Site of evidence reasonably
satisfactory to Prime that all building permits necessary for the construction
of an AmeriSuites hotel thereon as contemplated in Article VII have been
obtained. In the event that such condition has not been satisfied as to a
Development Site on or before the scheduled (or last possible) Closing Date for
such Development Site, Prime shall have the right to terminate this Agreement as
to such Development Site only by giving written notice to ShoLodge at any time
thereafter, so long as ShoLodge has not satisfied such condition prior to
receipt of Prime's termination notice. In the event Prime timely elects to
terminate this Agreement pursuant to the preceding sentence with respect to a
Development Site, the Development Site Purchase Price shall be reduced by the
portion of the Development Site Purchase Price applicable to such Development
Site as set forth in Section 6.2 and thereafter ShoLodge and Prime shall be
released and relieved of all further obligations, liabilities and claims
hereunder with respect to such Development Site other than the performance by
each party of its Post Termination Obligations with respect to such Development
Site. Such termination shall not affect the rights and obligations of the
parties hereto with respect to the other Assets.
ARTICLE XII
DUE DILIGENCE
12.1 Title Policies; Surveys and Environmental Studies;
HPT Documents; Operating Agreements; Operating Permits and Licenses. Prior to
the execution of this Agreement, ShoLodge has delivered to Prime a copy of a
title policy (and all exceptions described therein), survey and environmental
study for each parcel constituting a part of the Real Property, a copy of the
HPT Documents, a copy of all Operating Agreements described on Exhibit L
attached hereto and incorporated herein by this reference and a copy of all
certificates of occupancy and operating permits and licenses relating to the
Hotels. In the event that any matter shown on such title policies, surveys or
environmental studies or any provision of the HPT Documents or any of the
Operating Agreements described on Exhibit L or any matter concerning the Hotels
as revealed by an examination of the certificates of occupancy and the operating
permits and licenses (or lack thereof) is not acceptable to Prime, in Prime's
sole judgment, Prime shall deliver written notice to ShoLodge on or prior to the
last day of the Due Diligence Period specifying in detail all such unacceptable
items; provided, however, that with respect to any of the foregoing items which
have not been delivered to Prime prior to the execution of this Agreement, the
deadline for Prime to deliver such written notice to ShoLodge shall end on the
later of (i) the last day of the Due Diligence Period or (ii) the date ten (10)
days after delivery of such item to Prime. Unless ShoLodge undertakes to resolve
such unacceptable items in a manner acceptable to Prime within five (5) days of
receipt of such notice, Prime may, by delivering written notice to ShoLodge
within five (5) days after the deadline for ShoLodge to undertake to resolve
such unacceptable items, terminate this Agreement, whereupon Prime and ShoLodge
shall be released and relieved of all further obligations, liabilities and
claims hereunder, other than the performance by each party of its Post
Termination Obligations. In the event that the Agreement is not terminated
pursuant to this Section 12.1, Prime shall be deemed to have approved all
exceptions to title as reflected on
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the title policies, the condition of the Real Property as reflected by the
surveys and environmental studies, all provisions of the HPT Documents and the
Operating Agreements described on Exhibit L and all matters which would be
revealed by an examination of the operating permits and licenses (but subject to
ShoLodge completing the resolution of the unacceptable items which ShoLodge has
undertaken to resolve).
12.2 Property Inspections. Beginning on the Effective
Date, Prime shall have the right to undertake a complete physical examination
and inspection of the Assets and to perform or have performed such engineering
and environmental tests as deemed necessary or appropriate by Prime. ShoLodge
will provide to Prime and its officers and other representatives, during normal
business hours, and with prior notice to ShoLodge, free and full access to the
Hotels and the other Assets to conduct such examinations and inspections and
will cooperate fully with any examination or inspection made by Prime, its
officers or representatives. All examinations and inspections shall be conducted
at such times and in such a manner as to minimize the disruption to the business
being conducted on the Real Property. ShoLodge shall also request that HPT
forward to Prime a copy of all examinations and inspections which HPT obtained
with respect to the Existing HPT Hotels or hereafter obtains with respect to the
Additional HPT Hotels. Should Prime discover any physical condition of the
Assets (including, without limitation, any environmental condition) which is not
acceptable to Prime and which is not eligible to be repaired with funds in the
"FF&E Reserve" established under the HPT Lease or the Texas Lease or a similar
fund created under a separate lease contemplated in Section 3.3 and in Section
3.8, as applicable, Prime shall deliver written notice to ShoLodge on or prior
to the last day of the Due Diligence Period specifying in detail all such
unacceptable items; provided, however, that with respect to any of the foregoing
examinations and inspections obtained by HPT with respect to the Existing HPT
Hotels or the Additional HPT Hotels, the deadline for Prime to deliver such
written notice to ShoLodge shall end on the later of (i) the last day of the Due
Diligence Period or (ii) the date ten (10) days after delivery of such item to
Prime or (iii) thirty (30) days after receipt by Prime of written notice from
HPT or ShoLodge that any such examinations and inspections obtained by HPT will
not be provided to Prime. Unless ShoLodge undertakes to repair such unacceptable
items in a manner acceptable to Prime within five (5) days of receipt of such
notice, Prime may, by delivering written notice to ShoLodge within five (5) days
after the deadline for ShoLodge to undertake to repair such unacceptable items,
terminate this Agreement, whereupon Prime and ShoLodge shall be released and
relieved of all further obligations, liabilities and claims hereunder, other
than the performance by each party of its Post Termination Obligations. In the
event that the Agreement is not terminated pursuant to this Section 12.2, Prime
shall be deemed to have approved the physical condition of the Assets as in
existence on the last day of the Due Diligence Period (but subject to ShoLodge
completing the repair of the unacceptable items which ShoLodge has undertaken to
repair).
12.3 Confidentiality. All materials delivered to Prime
and all results, information and reports generated from Prime's examinations and
inspections of the Assets shall be held in strict confidence and no copies of
such materials, results, information or reports shall be given to anyone (other
than employees, agents, attorneys and accountants of Prime who shall also agree
to keep such results, information and reports confidential) without the prior
written approval of ShoLodge. The provisions of this Section 12.3 shall survive
any termination of this Agreement.
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ARTICLE XIII
CERTAIN MATTERS PENDING THE CLOSING
13.1 Notice of Adverse Changes. Pending the Closing Date,
ShoLodge shall give to Prime prompt notice of the occurrence of any of the
following:
(a) the commencement or threat of commencement
of any proceeding at law or in equity or before any agency or administrative or
regulatory body or authority which could have a material adverse effect on any
of the Hotels or the operation of any of the Hotels;
(b) any notice of breach, default, claimed
default or termination of the HPT Lease or any Operating Agreement;
(c) any violation by STI, an Additional Hotel
Subsidiary or Southeast, as applicable, or notice of any alleged violation by
STI, an Additional Hotel Subsidiary or Southeast, as applicable, of any federal,
state or local law, statute, ordinance, rule or regulation, but only as relates
to the operation of the Hotels; or
(d) any material change in any condition with
respect to any of the Assets or any event or circumstance which makes any
representation or warranty of ShoLodge to Prime under this Agreement untrue or
misleading in any material respect (Prime agreeing, on learning of any such fact
or condition, promptly to notify ShoLodge thereof).
13.2 Operations Pending Closing. Pending the Closing Date,
STI, the Additional Hotel Subsidiaries and Southeast, as applicable, shall,
unless otherwise approved in writing by Prime:
(a) operate the Hotels in the ordinary course
of business of a first class hotel operation and in accordance with past
practices consistently applied so as to keep the Hotels in first class
condition, reasonable wear and tear excepted, and so as to maintain a first
class hotel operation and the reasonable goodwill of all tenants of the Hotels
and all employees, guests and other customers of the Hotels;
(b) maintain the Equipment in good operating
condition and repair and replace with equipment of similar value which is in
good operating condition or repair any of the Equipment which shall be worn out,
lost, stolen or destroyed (which maintenance, repair and replacement as to the
STI Equipment and, if applicable, the Additional Equipment may be made from
funds in the "FF&E Reserve" created pursuant to the HPT Lease or any separate
lease as contemplated in Section 3.8);
(c) not sell, lease, mortgage, pledge or
otherwise dispose of any of the Assets or any portion thereof, except for
dispositions contemplated in this Agreement and dispositions in the ordinary
course of business;
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(d) with respect to the personnel employed at
the Hotels, (i) not increase or otherwise change the rate or nature of the
compensation (including wages, salaries and bonuses) which is paid or payable to
any such employee other than in the ordinary course of business, and (ii) use
reasonable efforts to keep available to the applicable Prime Subsidiary the
services of the present employees at the Hotels (except those dismissed for
cause or those who voluntarily discontinue their employment);
(e) not (i) enter into or become obligated
under any Operating Agreement except for normal contracts entered into in the
ordinary course of business which can be terminated upon not more than thirty
(30) days notice without penalty and, if the party thereto delivering goods or
performing services is an Affiliate of ShoLodge, which contain fair market
terms, or (ii) in any manner change, modify, extend or renew any existing
Operating Agreement unless such Operating Agreement can be terminated upon not
more than thirty (30) days notice without penalty and, if the party thereto
delivering goods or performing services is an Affiliate of ShoLodge, unless such
changes, modifications, extensions or renewals are at fair market terms;
(f) maintain the Inventory in good condition
and in amount in accordance with past practices consistently applied (but as to
bath towels, hand towels, wash cloths, bath mats, sheets and pillow cases not
less than two (2) "turns" (as such term is used in the hotel industry) and as to
other linen items such as blankets, pillows and bed spreads, not less than one
(1) "turn" plus appropriate spare inventory of such other linen items);
(g) maintain in full force and effect policies
of liability and casualty insurance of the same type, character and coverage as
the policies currently carried with respect to the Assets and as required under
the HPT Lease or any separate lease as contemplated in Section 3.8;
(h) not in any manner change, modify, extend,
renew or terminate the HPT Lease, except as required by the terms thereof or
except as expressly permitted by this Agreement;
(i) maintain its books of account and records
relating to the Assets in accordance with sound accounting principles;
(j) use and operate the Hotels in compliance in
all material respects with applicable laws, statutes, rules and regulations and
the requirements of any mortgage, lease, Operating Agreement, Permitted
Exception and insurance policy affecting the Hotels or any Assets;
(k) pay or cause to be paid prior to delinquency
all ad valorem, occupancy and sales taxes due and payable with respect to any
Asset or the operation of the Hotels or establish or cause to be established
adequate reserves therefor;
(l) except as otherwise permitted hereby, not
take any action or fail to take action the result of which would have a material
adverse effect on an Asset or on the ability
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of the applicable Prime Subsidiary to operate the Hotels as first class hotels
after the Closing Date or which would cause any of the representations and
warranties contained in Article XV hereof to be untrue in any material respect
as of Closing;
(m) maintain the Buildings (including, but not
limited to, the mechanical systems, plumbing, electrical, wiring, appliances,
fixtures, heating, air conditioning and ventilating equipment, elevators,
boilers, equipment, roofs, structural members and furnaces) in substantially the
same condition as they are as of the last day of the Due Diligence Period,
reasonable wear and tear excepted (which maintenance as to the STI Buildings
and, if applicable, the Additional Buildings, may be made from funds in the
"FF&E Reserve" created pursuant to the HPT Lease or any separate lease as
contemplated in Section 3.8);
(n) not materially diminish the quality or
quantity of maintenance and upkeep services heretofore provided to the Assets;
(o) continue to use reasonable efforts to take
guest room reservations and to book functions and meetings and otherwise to
promote the business of the Hotels in accordance with current practices and at
current rates; provided, however, no such bookings shall be for more than six
(6) months in advance without the consent of Prime;
(p) promptly deliver to Prime upon Prime's
request such reports showing the revenue and expenses of the Hotels and all
departments thereof, together with such periodic information with respect to
room reservations and other bookings, as ShoLodge customarily keeps or receives
internally for its own use; and
(q) keep, observe and perform all its
obligations in all material respects under the HPT Lease, the Operating
Agreements and all material licenses, permits and other authorizations necessary
for the current use, occupancy and operation of the Assets, including, without
limitation, any licenses and permits for the sale and on-premises consumption of
liquor and other alcoholic beverages, consistent with ShoLodge's past practice.
13.3 Destruction of Assets. If prior to the Closing Date,
any Hotel suffers loss or damage on account of fire, flood, earthquake,
accident, act of war, civil commotion or other similar cause or event occurring
after the Effective Date such that STI has the right to terminate the HPT Lease
as to such Hotel or would have such right if such Hotel were leased by STI
pursuant to the HPT Lease and ShoLodge has not repaired such damage prior to the
Closing Date, Prime shall have the right to terminate this Agreement as to such
damaged Hotel (and the Assets related thereto) only by giving written notice to
ShoLodge on or prior to the Closing Date, in which event (i) the Purchase Price
shall be reduced by the applicable amount as reflected on Exhibit O attached
hereto and incorporated herein by this reference, (such reduction to come first
from the cash portion of the Purchase Price described in Section 6.1(a) and then
from the ShoLodge debt securities described in Section 6.1(b)) and Exhibit N
shall be appropriately modified, and (ii) if applicable, the "minimum annual
rent" described in Section 3.3 and in Section 4.3 shall be reduced by the
applicable amount as specified on Exhibit P attached hereto and incorporated
herein by this reference (as adjusted, if applicable, pursuant to Section 3.3
and
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Section 4.3). If Prime fails to terminate this Agreement as to a damaged Hotel
(and the Assets related thereto) by giving timely written notice of termination
as provided herein or if a Hotel is damaged but the damage is such that Prime
does not have an option to terminate this Agreement as to such damaged Hotel
(and the Assets related thereto), Prime shall consummate the transactions
contemplated hereunder (including, without limitation, as contemplated herein
with respect to such damaged Hotel (and the Assets related thereto)), in which
event the applicable Prime Subsidiary, except as otherwise provided in the HPT
Lease (or a separate lease contemplated in Section 3.8, if applicable), shall be
entitled to all insurance or other proceeds payable by reason of such loss or
damage to such damaged Hotel in excess of the amount spent by ShoLodge or a
ShoLodge Subsidiary to repair such damage (insurance or other proceeds in such
amount being payable to ShoLodge or such ShoLodge Subsidiary), and, in addition,
there shall be a reduction in the Purchase Price by the amount by which any
deductibles under the policies of insurance covering such loss or damage exceed
the amount spent by ShoLodge or a ShoLodge Subsidiary to repair such damage
which is not reimbursed from insurance or other proceeds. ShoLodge shall not
permit STI to terminate the HPT Lease or the separate lease contemplated in
Section 3.8 due to any casualty without the prior written approval of Prime,
such written approval not to be unreasonably withheld, delayed or conditioned.
In the event of a casualty to an Existing HPT Hotel or to an Additional HPT
Hotel such that Prime elects to terminate this Agreement as to such Hotel,
ShoLodge agrees that, at Prime's request, ShoLodge shall cause STI to terminate
the HPT Lease or the separate lease contemplated in Section 3.8 with respect to
such Hotel pursuant to the provisions thereof. Further, prior to commencing the
repair of any damage following a casualty event which would cost more than Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate to
repair, ShoLodge shall cause STI to obtain the prior written consent of Prime,
not to be unreasonably withheld, conditioned or delayed, to such repair.
In the event Prime timely elects to terminate this Agreement
pursuant to the preceding paragraph with respect to a damaged Hotel (and the
Assets related thereto), thereafter, ShoLodge and Prime shall be released and
relieved of all further obligations, liabilities and claims hereunder with
respect to such damaged Hotel (and the Assets related thereto), other than the
performance by each party of its Post Termination Obligations with respect to
such damaged Hotel (and the Assets related thereto). Such termination shall not
affect the rights and obligations of the parties hereto with respect to the
other Assets.
13.4 Condemnation. In the event of any actual or
threatened taking pursuant to the power of eminent domain of all or any portion
of any HPT Real Property or the Texas Real Property such that STI has the right
to terminate the HPT Lease as to such HPT Real Property or would have such right
if such HPT Real Property or such Texas Real Property were leased by STI
pursuant to the HPT Lease or any Development Site such that the taking would
materially adversely affect the operation of the hotel to be constructed on such
property, as applicable, or any proposed sale in lieu thereof, ShoLodge shall
give written notice thereof to Prime promptly after ShoLodge learns or receives
notice thereof, and Prime shall have the right to terminate this Agreement as to
such HPT Real Property or such Texas Real Property (and the Assets related
thereto) or as to such Development Site, as applicable, only by giving written
notice to ShoLodge on or prior to the date ten (10) days after receipt of such
written notice from ShoLodge, in which
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event (i) if applicable, the Purchase Price shall be reduced by the applicable
amount as reflected on Exhibit O attached hereto and incorporated herein by this
reference (such reduction to come first from the cash portion of the Purchase
Price described in Section 6.1(a) and then from the ShoLodge debt securities
described in Section 6.1(b)) and Exhibit N shall be appropriately modified, (ii)
if applicable, the Development Site Purchase Price shall be reduced by the
portion of the Development Site Purchase Price applicable to such Development
Site as set forth in Section 6.2, and (iii) if applicable, the "minimum annual
rent" in Section 3.3 and in Section 4.3 shall be reduced by the applicable
amount as specified on Exhibit P attached hereto and incorporated herein by this
reference (as adjusted, if applicable, pursuant to Section 3.3 and Section 4.3).
If Prime fails to terminate this Agreement as to any such HPT Real Property or
any such Texas Real Property (and the Assets related thereto) or as to any such
Development Site, as applicable, by giving timely written notice of termination
as provided herein or if the taking or threatened taking of such HPT Real
Property, Texas Real Property or Development Site, as applicable, is such that
Prime does not have an option to terminate this Agreement as to such HPT Real
Property or such Texas Real Property (and the Assets related thereto) or as to
such Development Site, as applicable, Prime shall consummate the transactions
contemplated hereunder (including, without limitation, as contemplated herein
with respect to such HPT Real Property or such Texas Real Property (and the
Assets related thereto) or such Development Site, as applicable), in which event
the applicable Prime Subsidiary or Prime, as applicable, except as otherwise
provided in the HPT Lease (or a separate lease contemplated in Section 3.8 if
applicable), shall be entitled to all proceeds, awards and other payments
arising out of such condemnation or sale (actual or threatened), but there shall
be no reduction in the Purchase Price. ShoLodge shall not permit STI to
terminate the HPT Lease or the separate lease contemplated in Section 3.8 due to
any taking pursuant to the power of eminent domain without the prior written
approval of Prime, such written approval of Prime not to be unreasonably
withheld, delayed or conditioned. In the event of a taking with respect to any
HPT Real Property, ShoLodge agrees that, at Prime's request, ShoLodge shall
cause STI to terminate the HPT Lease or the separate lease contemplated in
Section 3.8 with respect to such HPT Real Property pursuant to the provisions
thereof.
In the event Prime timely elects to terminate this Agreement
pursuant to the preceding paragraph with respect to any HPT Real Property or any
Texas Real Property (and the Assets related thereto) or a Development Site, as
applicable, thereafter, ShoLodge and Prime shall be released and relieved of all
further obligations, liabilities and claims hereunder with respect to such HPT
Real Property or such Texas Real Property (and the Assets related thereto), or
such Development Site, as applicable, other than the performance by each party
of its Post Termination Obligations with respect to such HPT Real Property or
such Texas Real Property (and the Assets related thereto) or such Development
Site, as applicable. Such termination shall not affect the rights and
obligations of the parties hereto with respect to the other Assets.
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ARTICLE XIV
POST TERMINATION OBLIGATIONS
14.1 Post Termination Obligations. All costs and expenses
related to Prime's examination and inspection of the Assets shall be paid for by
Prime, and Prime agrees to indemnify and hold ShoLodge and the ShoLodge
Subsidiaries harmless from and against all such costs and expenses. Prime shall
not permit any liens to attach to the Assets by reason of the exercise of
Prime's inspection rights hereunder. Prime agrees that if this Agreement is
terminated for any reason, Prime will: (i) restore the Assets to the condition
which existed prior to any inspections, tests or other activities of Prime
(casualty, condemnation, ordinary wear and tear and acts or omissions of
ShoLodge or its Affiliates excepted); (ii) indemnify and hold ShoLodge and the
ShoLodge Subsidiaries harmless from and against any and all liens by
contractors, subcontractors, materialmen or laborers performing work or tests
for Prime and from and against any and all claims for damages by third parties
for damage to property or personal injuries to the extent arising out of or
attributable to the conduct of such work and tests and/or any other activities
of Prime or Prime's employees or agents; (iii) pay or reimburse ShoLodge and the
ShoLodge Subsidiaries for the payment of any expenses (including reasonable
attorney fees and court costs) incurred in connection with any of the foregoing;
and (iv) deliver to ShoLodge copies of all studies, reports, surveys, tests and
other materials of any kind or nature generated for or by Prime in connection
with Prime's inspection of the Assets. The foregoing obligations of Prime,
together with Prime's obligation to maintain the confidentiality of certain
matters as specified in Section 12.3, the obligation of each party to maintain
the confidentiality of certain matters as specified in Section 20.1 and the
obligation of each party with respect to costs and expenses set forth in Section
17.5, are referred to herein collectively as the "Post Termination Obligations."
Notwithstanding any provision herein to the contrary, it is agreed and
understood that a termination of this Agreement under any right granted
hereunder shall terminate all obligations of ShoLodge and Prime under this
Agreement except that such termination shall not terminate the provisions in
this Agreement relating to the Post Termination Obligations and except that any
termination due to the failure or refusal of a party to perform its obligations
hereunder shall not terminate the right of the other party hereto to pursue a
suit to recover damages in accordance with the provisions of Section 19.5(a)(i)
or Section 19.5(b)(i), as applicable. The Post Termination Obligations shall
survive any termination of this Agreement, and the right to pursue a suit to
recover damages in accordance with the provisions of Section 19.5(a)(i) and
Section 19.5(b)(i) shall survive any termination due to the failure or refusal
of a party to perform its obligations hereunder. Further, the obligations of
Prime set forth in (ii) and (iii) of the third sentence of this Section 14.1
shall survive the Closing.
ARTICLE XV
REPRESENTATIONS AND WARRANTIES OF SHOLODGE
ShoLodge hereby represents and warrants to Prime and to the
Prime Subsidiaries, as follows:
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15.1 Organization. ShoLodge is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee and has the corporate power and authority to enter into and to perform
this Agreement and the Closing Documents to which ShoLodge is a party. Each
ShoLodge Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee and has the corporate
power and authority to perform its obligations as contemplated in this Agreement
and to enter into and to perform the Closing Documents to which each such
ShoLodge Subsidiary is a party. ShoLodge and each ShoLodge Subsidiary have duly
qualified to transact business in each jurisdiction in which the nature of the
business conducted by it requires such qualification, except where failure to do
so could not reasonably be expected to have a material adverse effect.
15.2 Authorization. The execution and delivery of this
Agreement by ShoLodge, the execution and delivery of all Closing Documents to be
executed by ShoLodge, and the consummation by ShoLodge of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of ShoLodge. The execution and delivery of all Closing Documents to be
executed by a ShoLodge Subsidiary, as applicable, and the consummation by each
ShoLodge Subsidiary, as applicable, of the transactions contemplated hereby and
thereby have been duly authorized by each such corporation's Board of Directors.
Neither the entering into this Agreement and the Closing Documents to be
executed by ShoLodge or a ShoLodge Subsidiary, as applicable, nor the
consummation of the transactions contemplated herein or therein will cause a
violation, default or breach by ShoLodge or a ShoLodge Subsidiary, as
applicable, of, or conflict with, any contracts, agreements or instruments to
which ShoLodge or a ShoLodge Subsidiary, as applicable, is a party or by which
ShoLodge or a ShoLodge Subsidiary, as applicable, is bound.
15.3 Valid and Binding Agreement. This Agreement
constitutes, and each of the Closing Documents to be executed by ShoLodge or a
ShoLodge Subsidiary, as applicable, will constitute upon execution by all
parties thereto, a valid and binding agreement of ShoLodge and the ShoLodge
Subsidiaries who are parties thereto, as applicable, enforceable in accordance
with its terms, subject as to enforceability to bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to the availability of
equitable remedies.
15.4 No Violation. Neither the execution and delivery of
this Agreement, the execution and delivery of the Closing Documents to be
executed by ShoLodge or a ShoLodge Subsidiary, as applicable, nor the
consummation by ShoLodge and the ShoLodge Subsidiaries, as applicable, of the
transactions contemplated hereby or thereby violates or conflicts with any such
corporation's Charter or Bylaws or any agreement or other restriction of any
kind to which any such corporation is as a party or by which any such
corporation is bound.
15.5 Employment Issues. The employees at the Hotels are
not represented by any union and, to the knowledge of ShoLodge, have not been
solicited with respect to organization or representation by any labor
organization or similar body. There are no employment agreements or other labor
agreements with respect to any employees at the Hotels. Except as set forth on
Exhibit M attached hereto and incorporated herein by this reference, there is
not any "employee benefit plan" as defined in Section 3(3) of the Employment
Retirement Income Security Act of 1974,
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as amended ("ERISA"), nor any stock purchase plan, practice or arrangement, nor
any other material benefits, practice or arrangement relating to employees at
the Hotels (each such plan, practice or arrangement being referred to as a
"Benefit Plan"). ShoLodge is not currently required to contribute to any
multi-employer plans (as defined within the meaning of Section 3(37) of ERISA)
for the benefit of the employees of any Hotel, nor has ShoLodge been required to
contribute to any multi-employer plans (as defined within the meaning of Section
3(37) of ERISA) for the benefit of the employees at the Hotels, nor has ShoLodge
been required to contribute to any multi-employer plan for the benefit of the
employees at the Hotels within the last five (5) years. With respect to each
Benefit Plan set forth on Exhibit M, if any, ShoLodge has furnished Prime, to
the extent applicable to each Benefit Plan (i) complete and accurate copies of
the Benefit Plan, including all amendments, (ii) the most recent determination
letter from the Internal Revenue Service, (iii) the most recent actuarial
reports, and (iv) all reports of the Benefit Plan required by ERISA and the
regulations thereunder. The execution and delivery of this Agreement by ShoLodge
and the consummation of the transactions contemplated hereunder (x) do not
constitute a prohibited transaction within the meaning of Section 406 of ERISA
or Section 4975 of the Code, and (y) will not result in any obligation or
liability of Prime or ShoLodge to the Pension Benefit Guaranty Corporation in
respect of any Benefit Plan.
15.6 Site Disclosure.
(a) To the knowledge of ShoLodge, there is no pending or
threatened condemnation or similar proceeding affecting the Real Property or any
portion thereof, and to the knowledge of ShoLodge, no such action is presently
contemplated.
(b) To the knowledge of ShoLodge (i) all necessary
permits and licenses required for the operation of the Hotels have been
obtained, and (ii) no zoning, building or other federal, state or municipal law,
ordinance, regulation or restriction is violated by the continued operation of
the Hotels in the manner now being operated. No notice of zoning or building
code violations resulting from the improvements on the HPT Real Property or the
Texas Real Property or the continued operation of the Hotels thereon has been
received by ShoLodge.
(c) To the knowledge of ShoLodge and except as disclosed
in any environmental studies obtained by Prime or provided by ShoLodge to Prime,
(i) the Hotels have been operated in compliance with all environmental
regulations, and (ii) no pollutants or other toxic or hazardous substances,
including any solid, liquid, gaseous or thermal irritant or contaminant, such as
smoke, vapor, soot, fumes, alkalis, acids, chemicals or wastes, have been
stored, discharged, released, generated or allowed to escape at or from the Real
Property in violation of any environmental regulations, (iii) no underground
storage tanks are located on the Real Property or have been removed or filled,
and (iv) no investigation, administrative order, consent order or agreement,
litigation or settlement with respect to any of the foregoing is proposed,
threatened, anticipated or in existence with respect to the Real Property.
ShoLodge has not received any notice of any such investigation, administrative
order, consent order or agreement, litigation or settlement.
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(d) To the knowledge of ShoLodge, there are no
structural, electrical, mechanical, plumbing or other defects in any of the
Hotels which could have a material adverse effect on the operation of such
Hotel.
15.7 Operating Agreements. Attached hereto as Exhibit L
is a schedule of all Operating Agreements in effect as of the Effective Date.
There are no material management, service, supply or maintenance contracts or
equipment leases or similar contracts or agreements in effect as of the
Effective Date with respect to the Assets other than the Operating Agreements
listed on Schedule L attached hereto and incorporated herein by this reference.
The copies of the Operating Agreements previously provided or made available to
Prime are true and complete copies of said Operating Agreements and, to
ShoLodge's knowledge, are valid and in full force and effect and no party has
breached any material condition or provision thereof. To ShoLodge's knowledge,
ShoLodge or the applicable ShoLodge Subsidiary has performed all of its material
obligations under each of the Operating Agreements. To ShoLodge's knowledge no
fact or circumstance has occurred which, by itself or with the passage of time
or the giving of notice or both, would constitute a default in any material
respect under any of the Operating Agreements. To ShoLodge's knowledge, all
other parties to the Operating Agreements have performed all of their
obligations thereunder in all material respects and are not in default
thereunder in any material respect. Except as set forth on Exhibit L or
disclosed to Prime, ShoLodge has received no notice of any intention of any of
the parties to any of the Operating Agreements to cancel the same, nor has
ShoLodge or the applicable ShoLodge Subsidiary canceled any of same.
15.8 Equipment. To the knowledge of ShoLodge, each item of
Equipment is in good operating condition and repair.
15.9 Brokers Fees. No brokers, finders or similar agents
acting on behalf of ShoLodge are entitled to any brokerage commission, finder's
fee or any similar compensation in connection with this Agreement or the
transactions contemplated hereby.
15.10 Litigation. ShoLodge has not received any written
notice of and, to ShoLodge's knowledge, no action or proceeding is pending or
threatened and no investigation looking toward such an action or proceeding has
begun, which (a) questions the validity of this Agreement or the HPT Lease or
any action taken or to be taken pursuant hereto, (b) will result in any material
adverse change in the business, operation, affairs or condition of any of the
Hotels, (c) will result in or subject any Asset to a material liability, or (d)
involves condemnation or eminent domain proceedings against any part of the
Assets.
15.11 Booking Agreements. All bookings of guest rooms and
meeting rooms which will be binding on a Prime Subsidiary subsequent to the
Closing Date were entered into in the ordinary course of business consistent
with past practice.
15.12 HPT Documents. The copy of the HPT Documents
previously provided or made available to Prime is a full and complete copy of
the HPT Documents and, to ShoLodge's knowledge, the HPT Documents are valid and
in full force and effect and no party has breached any material condition or
provision thereof, including, without limitation, as to STI, the provisions
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of Section 9.1 of the HPT Lease concerning required insurance. To ShoLodge's
knowledge, STI has performed all of its material obligations under the HPT
Lease. To ShoLodge's knowledge no fact or circumstance has occurred which, by
itself or with the passage of time or the giving of notice or both, would
constitute a default in any material respect under the HPT Lease. To ShoLodge's
knowledge, Landlord has performed all of its obligations under the HPT Lease in
all material respects and is not in default thereunder in any material respect.
STI has not prepaid rent or additional rent or any other items under the HPT
Lease for more than one (1) month in advance.
15.13 Not A Foreign Person. Neither ShoLodge nor any
ShoLodge Subsidiary is a "foreign person" within the meaning of Section 1445 of
the Code.
15.14 Insurance. ShoLodge has not received any written
notice from any insurance carrier of defects or inadequacies in any Asset which,
if uncorrected, would result in a termination of insurance coverage or a
material increase in the premiums charged therefor.
15.15 Adjacent Land. No land or facilities adjacent to any
of the Hotels is used in the operation of the Hotels except for access, parking
and utility easements as reflected in the title documents previously provided by
ShoLodge to Prime.
15.16 Trademarks. ShoLodge has received no written notice
that the use of the "Sumner Suites" trademark or tradename is in violation of
any trademark or tradename owned by any other Person, except for claims resolved
in favor of ShoLodge by final order.
15.17 Compliance with Laws. To ShoLodge's knowledge, each
Asset is in compliance in all material respects with all laws of governmental
authorities which are applicable to the Asset or the use or operation of such
Asset.
15.18 Taxes. In connection with the ownership and operation
of each Asset, to ShoLodge's knowledge, ShoLodge or a ShoLodge Subsidiary, as
applicable, has filed or will timely file all required federal, state and local
income, withholding, unemployment, FICA, excise, franchise, gross receipts,
property, sales, resort, use, occupancy and other tax returns either when due or
not later than the end of applicable extension periods. All taxes which have
become due and payable or may become due and payable prior to or after the
Closing on account of the Assets or the operation of the Hotels prior to the
Closing Date have been paid or will be paid when due, except liens for real
estate taxes which are not delinquent or which are being contested in good faith
or as to which adequate reserves are provided therefor (and none of such taxes
shall be assumed by Prime except to the extent the Purchase Price or the
Development Site Purchase Price is decreased for such taxes pursuant to Section
9.1(b)). After the Closing and except as contemplated to the contrary in the
preceding sentence, there shall be no liens on any of the Assets by reason of
any taxes payable on or before the Closing Date or pertaining to periods ending
on or before the Closing Date. To ShoLodge's knowledge, other than the amounts
disclosed by tax bills, no taxes or special assessments of any kind (special,
bond or otherwise) are or have been levied with respect to any of the Assets, or
any portion thereof, which are outstanding or unpaid,
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other than amounts not yet due and payable or, if due and payable, not yet
delinquent or as to which adequate reserves are provided therefor.
15.19 Financial Information. All of ShoLodge's financial
information, including, without limitation, all books and records and financial
statements previously furnished to Prime ("Financial Information") is to
ShoLodge's knowledge true and correct in all material respects and presents
accurately the results of the operations of the Hotels for the periods indicated
and has been prepared in accordance with generally accepted accounting
principles. Since the date of the last financial statement included in
ShoLodge's Financial Information, there has been no material adverse change in
the financial condition or in the operations of the Hotels.
15.20 Leases. There are no leases, subleases, licenses or
other lettings of space within a Hotel that will remain in existence after the
Closing Date other than (i) the rights of guests in occupancy and the holders of
reservations for future occupancy of guest rooms or meeting rooms, (ii) the
rights set forth in the Operating Agreements, and (iii) the rights of the owner
of record of any license or permit for the sale and on-premises consumption of
liquor and other alcoholic beverages (which license shall remain in effect to
the extent contemplated in Section 18.1).
15.21 HTP Lease Security Deposit/HPT Lease Guaranty
Deposit. The amount of the HPT Lease Security Deposit is Twenty-One Million Two
Hundred Eighty Thousand and No/100 Dollars ($21,280,000.00). The amount of the
HPT Lease Guaranty Deposit is Fourteen Million and No/100 Dollars
($14,000,000.00).
When used herein the words "to the knowledge of ShoLodge" or
words of similar effect mean the actual knowledge of the current officers of
ShoLodge, without independent inquiry.
Prime acknowledges that Prime has not entered into this
Agreement based upon any representation, warranty, agreement, statement or
expression of opinion by ShoLodge or by any Person acting or allegedly acting
for or on behalf of ShoLodge as to the Assets or the condition of the Assets
(other than any warranty of title set out in the Closing Documents and other
than the representations and warranties specifically set forth in Article XV
hereof). Prime agrees that the Assets to be sold or leased to Prime or a Prime
Subsidiary hereunder are to be sold or leased to and accepted by Prime or a
Prime Subsidiary at Closing, AS IS, WHERE IS, WITH ALL FAULTS, IF ANY, AND
WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED (other
than (i) any warranty of title set out in the Closing Documents, (ii) the
representations and warranties specifically set forth in Article XV hereof, and
(iii) the obligation of ShoLodge to complete the "unacceptable items" identified
pursuant to Sections 12.1 and 12.2 of this Agreement which ShoLodge undertakes
to resolve pursuant to such sections).
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ARTICLE XVI
REPRESENTATIONS AND WARRANTIES OF PRIME
Prime hereby represents and warrants to ShoLodge and to the
ShoLodge Subsidiaries, as follows:
16.1 Organization. Prime is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into and to perform this
Agreement and the Closing Documents to which Prime is a party. Each Prime
Subsidiary is, or prior to Closing will be, a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has, or will have prior to Closing, the corporate power and authority to
perform its obligations as contemplated in this Agreement and to enter into and
to perform the Closing Documents to which each such Prime Subsidiary is a party.
Prime and each Prime Subsidiary have, or prior to Closing will have, duly
qualified to transact business in each jurisdiction in which the nature of the
business conducted by it requires such qualification, except where failure to do
so could not reasonably be expected to have a material adverse effect.
16.2 Authorization. The execution and delivery of this
Agreement by Prime, the execution of all Closing Documents to be executed by
Prime and the consummation by Prime of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Prime. The
execution and delivery of all Closing Documents to be executed by a Prime
Subsidiary, as applicable, and the consummation by each Prime Subsidiary, as
applicable, of the transactions contemplated hereby and thereby have been, or
prior to Closing will be, duly authorized by such corporation's Board of
Directors. Neither the entering into this Agreement and the other Closing
Documents to be executed by Prime or a Prime Subsidiary, as applicable, nor the
consummation of the transactions contemplated herein or therein will cause a
violation, default or breach by Prime or a Prime Subsidiary, as applicable, of,
or conflict with, any contracts, agreements or instruments to which Prime or a
Prime Subsidiary, as applicable, is a party or by which Prime or a Prime
Subsidiary, as applicable, is bound.
16.3 Valid and Binding Agreement. This Agreement
constitutes, and each of the Closing Documents to be executed by Prime or a
Prime Subsidiary, as applicable, will constitute upon execution by all parties
thereto, a valid and binding agreement of Prime and the Prime Subsidiaries who
are parties thereto, as applicable, enforceable in accordance with its terms,
subject as to enforceability to bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to the availability of equitable
remedies.
16.4 No Violation. Neither the execution and delivery of
this Agreement, the execution and delivery of the Closing Documents to be
executed by Prime or a Prime Subsidiary, as applicable, nor the consummation by
Prime and the Prime Subsidiaries, as applicable, of the transactions
contemplated hereby or thereby violates or conflicts with either such
corporation's Charter or Bylaws or any agreement or other restriction of any
kind to which either such corporation is as a party or by which either such
corporation is bound.
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16.5 Brokers Fees. No brokers, finders or similar agents
acting on behalf of Prime are entitled to any brokerage commission, finder's fee
or any similar compensation in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE XVII
CLOSING
17.1 Closing. The Closing shall occur on such date as the
parties hereto may agree upon in writing for the closing of the transactions
contemplated hereby; provided, however, that such date shall not be later than
the date thirty (30) days after the last day of the Due Diligence Period;
provided, further, that if on such date the conditions precedent to Closing set
forth in Sections 10.6 and 11.6 have not been satisfied, ShoLodge, by written
notice to Prime, may postpone the Closing while ShoLodge diligently and
continuously attempts to satisfy such conditions precedent, such postponed
Closing to occur no later than the earlier of (i) the date one hundred five
(105) days after the last day of the Due Diligence Period, and (ii) the date
fifteen (15) days after such conditions precedent are satisfied; and provided,
further, that if on such date the condition precedent to Closing with respect to
one (1) or both of the Development Sites set forth in the last paragraph of
Article XI has not been satisfied, ShoLodge, by written notice to Prime, may
postpone the Closing as to such Development Site or Development Sites, as
applicable, while ShoLodge diligently and continuously attempts to satisfy such
condition precedent, such postponed Closing to occur no later than the earlier
of (i) the date one hundred eighty (180) days after the last day of the Due
Diligence Period, and (ii) the date fifteen (15) days after such condition
precedent is satisfied. Notwithstanding the foregoing or any other provision to
the contrary set forth in this Agreement, upon the receipt by ShoLodge from
Prime of (i) ten (10) days advance written notice, and (ii) the written waiver
by Prime of any right to terminate this Agreement pursuant to Section 12.1 or
Section 12.2, Prime, at Prime's option, may proceed to close all (but not less
than all) of the transactions contemplated herein other than the transaction
with respect to the Additional HPT Hotels as contemplated in Article III and
other than the transfer of one (1) or both of the Development Sites the Closing
of which has been postponed as described herein. In the event the transactions
contemplated by this Agreement are closed on more than one (1) date as
contemplated in this Section 17.1, the provisions of this Agreement shall be
interpreted to accommodate such separate Closings, and the provisions of this
Agreement relating to the transactions which have not closed shall remain in
effect following any Closing.
17.2 Closing Date Deliveries. At the Closing on the
Closing Date:
(a) ShoLodge shall deliver, or cause to be delivered, to
Prime, a Prime Subsidiary or Landlord, as applicable: (1) the Closing Documents
to be signed by ShoLodge and/or a ShoLodge Subsidiary, as applicable, properly
executed by ShoLodge and/or the ShoLodge Subsidiaries, as applicable, (2) a
certificate of existence or similar document from the Secretary of State of the
State of Tennessee or from such other appropriate official in Tennessee
evidencing the due organization, valid existence and good standing of ShoLodge
and the ShoLodge Subsidiaries under the laws of the State of Tennessee, (3)
resolutions of ShoLodge and the ShoLodge Subsidiaries authorizing the
transactions contemplated hereby, certified by the Secretary
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of ShoLodge and the ShoLodge Subsidiaries, (4) the HPT Estoppel Certificate, (5)
the HPT Lease Amendment, (6) title records for any vehicles transferred pursuant
to this Agreement, and (7) such other documents as Prime shall reasonably
request.
(b) Prime shall deliver, or cause to be delivered, to
ShoLodge, a ShoLodge Subsidiary or Landlord, as applicable: (1) the Closing
Documents to be signed by Prime and/or a Prime Subsidiary, as applicable,
properly executed by Prime and/or the Prime Subsidiaries, as applicable, (2) a
certificate of existence or similar document from the Secretary of State of the
State of Delaware or from such other appropriate official in Delaware evidencing
the due organization, valid existence and good standing of Prime and the Prime
Subsidiaries under the laws of the State of Delaware, (3) resolutions of Prime
and the Prime Subsidiaries authorizing the transactions contemplated hereby,
certified by the Secretary of Prime and the Prime Subsidiaries, and (4) such
other documents as ShoLodge shall reasonably request.
17.3 Possession. Possession of all tangible Assets will be
delivered by ShoLodge and the ShoLodge Subsidiaries, as applicable, to Prime or
a Prime Subsidiary, as applicable, on the Closing Date, and ShoLodge and the
ShoLodge Subsidiaries, as applicable, shall relinquish their use of or claims to
any and all intangible Assets on the Closing Date.
17.4 Employment Matters. At Closing, all employees working
at the Hotels shall be terminated by ShoLodge or a ShoLodge Subsidiary, as
applicable, and ShoLodge or such ShoLodge Subsidiary, as applicable, shall pay
all salaries and wages and, to the extent possible, all accrued but unsatisfied
benefits of such employees with regard to all periods of time prior to the
Closing Date. ShoLodge shall defend, indemnify and hold Prime and the Prime
Subsidiaries, as applicable, harmless from and against any and all loss, expense
(including, without limitation, reasonable attorneys' fees and court costs
arising from the enforcement of this indemnity), damage and liability arising
from the termination of any employees on the Closing Date, including, without
limitation, any claim, damage, penalty or fees, including reasonable attorneys'
fees, arising out of the failure of ShoLodge or a ShoLodge Subsidiary, as
applicable, to comply with all provisions of the Worker Adjustment and
Retraining Act, as amended, except to the extent any of the foregoing is caused
by the failure of Prime or a Prime Subsidiary, as applicable, to rehire such
employees pursuant to the next succeeding sentence and except to the extent the
Purchase Price is decreased for accrued but unpaid benefits due to such
terminated employees pursuant to Section 9.1(b)(vi). Immediately following the
termination of all employees working at the Hotels as contemplated herein, Prime
shall hire, or shall cause a Prime Subsidiary to hire, all such employees other
than the general manager, the assistant general manager and the director of
sales at each Hotel. Prior to the execution of this Agreement, ShoLodge has
provided to Prime a schedule of all employees working at the Hotels by
classification, seniority, rate of pay and accrued benefits. Prime may, during
normal business hours and with prior notice to ShoLodge during the Due Diligence
Period, interview the general managers, assistant general managers and directors
of sales to determine if Prime wants to employ such employees. The provisions of
this Section 17.4 shall survive the Closing.
17.5 Closing Costs and Expenses. Prime shall pay or cause
to be paid the premium for any title policy insuring Prime or a Prime
Subsidiary, as applicable, as to the Real
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Property. All costs of recording the transfer and assignment documents to Prime
or a Prime Subsidiary, as applicable, contemplated herein, including, without
limitation, any and all real estate transfer taxes, shall be paid in accordance
with local custom. Except as set forth in the preceding sentence, each party
shall be responsible for the payment of its own attorney's fees, copying
expenses and other costs and expenses incurred in connection with the
negotiation of this Agreement and the consummation of the transactions
contemplated hereunder. The provisions of this Section 17.5 shall survive the
Closing and any termination of this Agreement.
17.6 Hendersonville Restriction. At or prior to Closing,
ShoLodge shall cause to be recorded against the Hendersonville, Tennessee Hotel
restrictions and covenants (i) requiring the lessee under the HPT Lease during
the term thereof (including extensions and renewals) and thereafter the owner of
such property (A) to secure the approval (not to be unreasonably withheld,
delayed or conditioned) of the owner of the adjacent property on which
ShoLodge's corporate offices are located of any change, alteration, repair,
repainting or similar activity which affects the exterior of such Hotel or the
premises on which such Hotel is located except in an insignificant manner and
(B) to maintain such Hotel and such premises in a neat and attractive manner
consistent with the standard for AmeriSuites hotels, and (ii) providing for
common lawncare and maintenance of landscaping of such properties and the
adjacent bank property with the cost to be shared based on the square footage of
each property compared to the total square footage of all such property (the
"Hendersonville Restriction"). At least ten (10) days prior to recordation,
ShoLodge shall deliver to Prime a copy of the proposed Hendersonville
Restriction for Prime's written approval, such approval not to be unreasonably
withheld, delayed or conditioned. In no event shall the Hendersonville
Restriction be recorded without Prime's prior written approval. The portion of
the Hendersonville Restriction described in part (ii) of the first sentence of
this Section 17.6 shall be mutually restrictive as to all real property covered
thereby. The provisions of this Section 17.6 shall survive the Closing, but any
conflict between the terms of this Section 17.6 and the terms of the
Hendersonville Restriction shall be governed by the Hendersonville Restriction.
ARTICLE XVIII
POST CLOSING ITEMS
18.1 Operating Permits. Prime or a Prime Subsidiary, as
applicable, shall apply for new or modified operating permits and licenses,
including, without limitation, liquor licenses, if applicable, to reflect Prime
or a Prime Subsidiary, as applicable, as the new operator of the Hotels as soon
as possible after Closing. ShoLodge and the ShoLodge Subsidiaries, as
applicable, shall cooperate with Prime or a Prime Subsidiary, as applicable, in
its efforts to obtain new operating permits and licenses for the Hotels or
modifications to existing operating permits and licenses or, to the extent
permitted by applicable law, to maintain the existing operating permits and
licenses in effect until such time as the new or modified operating permits and
licenses may be obtained. Until such time as such new or modified operating
permits and licenses are obtained, ShoLodge and the ShoLodge Subsidiaries, as
applicable, to the extent permitted by applicable law, shall take all steps
reasonably necessary to enable the current operating permits and licenses, if
any, to be used in the operation of the Hotels and to permit the continued
operation of the Hotels,
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including, without limitation, the uninterrupted sale and serving of alcoholic
beverages at the Hotels, if applicable. All costs and expenses incurred by
ShoLodge or a ShoLodge Subsidiary in connection with the foregoing shall be paid
by Prime or a Prime Subsidiary, as applicable, and Prime and the Prime
Subsidiaries shall defend, indemnify and hold ShoLodge and the ShoLodge
Subsidiaries harmless from and against any and all loss, expense (including,
without limitation, reasonable attorney's fees and court costs arising from the
enforcement of this indemnity), damage and liability arising from the foregoing,
and Prime and the Prime Subsidiaries shall cause ShoLodge and the ShoLodge
Subsidiaries, as applicable, to be named as additional insureds under their
liability insurance policies for the Hotels including, without limitation, under
their liquor liability or "dram shop" coverage with respect to the sale,
distribution or consumption of alcoholic beverages. Evidence of such insurance
shall be provided to ShoLodge at Closing, and such insurance must contain a
provision to the effect that it may not be canceled or modified without thirty
(30) days advance written notice from the insurer to ShoLodge (until such time
as the new or modified operating permits and licenses are received). The
provisions of this Section 18.1 shall survive the Closing.
18.2 Radius Restriction. For a twenty (20) year period
commencing on the Closing Date, neither ShoLodge nor any ShoLodge Affiliate
shall own, operate or franchise any all-suites hotel substantially similar in
nature and kind to the AmeriSuites hotels to be operated by Prime or a Prime
Subsidiary, as applicable, as contemplated in this Agreement anywhere within a
certain designated area of each Hotel, such area being as to the Existing HPT
Hotels and the Additional HPT Hotels the applicable "Restricted Trade Area" as
set forth in Exhibit B to the HPT Lease or the comparable provision of any
separate lease contemplated in Section 3.3 and in Section 3.8, as applicable,
and being as to the Texas Hotels a three (3) mile radius of each such Texas
Hotel. The foregoing, however, shall not limit ShoLodge or any ShoLodge
Affiliate from (i) developing or constructing any all-suites hotel substantially
similar in nature and kind to the AmeriSuites hotels contemplated herein within
such restricted area as long as such hotel is both (A) operated by someone other
than ShoLodge or a ShoLodge Affiliate, and (B) owned by someone other than
ShoLodge or a ShoLodge Affiliate, or (ii) owning, operating or franchising (A)
any "Shoney's" brand all-suites hotel within such restricted area, or (B) any
other hotel within such restricted area as long as such other hotel is not an
all-suites hotel substantially similar in nature and kind to the AmeriSuites
hotels contemplated herein. The provisions of this Section 18.2 shall survive
the Closing. Prime shall have the right to any remedies available to it at law
or in equity, including without limitation, injunction, in the event ShoLodge or
any ShoLodge Affiliate violates the covenant set forth in this Section 18.2.
ARTICLE XIX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS; REMEDIES
19.1 Survival of Representations. All representations and
warranties made by any party in this Agreement shall be true and correct in all
material respects as of Closing and, subject to the limitations described in
Section 19.6 below, shall survive the Closing hereunder.
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19.2 Indemnification by Prime. Prime hereby indemnifies
and holds ShoLodge and the ShoLodge Subsidiaries harmless from and against, and
agrees to promptly defend ShoLodge and the ShoLodge Subsidiaries from and
reimburse ShoLodge and the ShoLodge Subsidiaries for, any and all losses,
damages, costs, expenses, liabilities, obligations, suits, actions, proceedings
(formal or informal), investigations, settlements and claims of any kind
(including, without limitation, reasonable attorney fees and other legal costs
and expenses) which ShoLodge or the ShoLodge Subsidiaries may at any time suffer
or incur, or become subject to, as a result of or in connection with:
(a) the representations and warranties made by Prime in
this Agreement having been untrue or incorrect in any material respect;
(b) any failure by Prime to carry out, perform, satisfy
and discharge any of the covenants, agreements, undertakings, liabilities or
obligations of Prime under this Agreement; and
(c) except to the extent the Purchase Price or the
Development Site Purchase Price has been increased pursuant to Section 9.1(a)
for the obligation in question, the operation of the Hotels on and after the
Closing Date, including, without limitation, the following:
(i) any obligation arising out of an accident,
injury, death or damage whatsoever caused to any Person or
loss of property occurring on or after the Closing Date in or
about the Assets or any part thereof; and
(ii) any obligation arising out of any actions or
omissions of Prime or a Prime Subsidiary or its or their
agents, representatives, employees or contractors relating to
the Assets on or after the Closing Date.
19.3 ShoLodge's Indemnity. ShoLodge hereby indemnifies and
holds Prime and the Prime Subsidiaries harmless from and against, and agrees
promptly to defend Prime and the Prime Subsidiaries from and reimburse Prime and
the Prime Subsidiaries for, any and all losses, damages, costs, expenses,
liabilities, obligations, suits, actions, proceedings (formal or informal),
investigations, settlements and claims of any kind (including, without
limitation, reasonable attorney fees and other legal costs and expenses) which
Prime or the Prime Subsidiaries may at any time suffer or incur, or become
subject to, as a result of or in connection with:
(a) the representations and warranties made by ShoLodge
in this Agreement having been untrue or incorrect in any material respect;
(b) any failure by ShoLodge to carry out, perform,
satisfy and discharge any of the covenants, agreements, undertakings,
liabilities or obligations of ShoLodge under this Agreement;
(c) except to the extent the Purchase Price or the
Development Site Purchase Price has been decreased pursuant to Section 9.1(b)
for the obligation in question, the operation of the Hotels prior to the Closing
Date, including, without limitation, the following:
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(i) any obligation arising out of an accident,
injury, death or damage whatsoever caused to any Person or
loss of property occurring prior to the Closing Date in or
about the Assets or any part thereof;
(ii) any obligation arising out of any actions or
omissions of ShoLodge or a ShoLodge Subsidiary or its or their
agents, representatives, employees or contractors relating to
the Assets prior to the Closing Date; and
(iii) accounts payable with respect to goods or
services provided to or for the Hotels prior to the Closing
Date; and
(d) any failure of ShoLodge or any ShoLodge Subsidiary to
comply with any bulk sales law or like statute in connection with the
transactions contemplated herein.
Notwithstanding the foregoing, ShoLodge shall have no
obligation to indemnify Prime or the Prime Subsidiaries with respect to any
representation or warranty concerning the condition of the STI Assets, the
Additional Property or the Texas Property or any portion thereof to the extent
such condition can be corrected (by maintenance, repair or replacement) pursuant
to the terms of the HPT Lease or the Texas Lease with funds in the "FF&E
Reserve" created pursuant to the HPT Lease (or a similar fund created under a
separate lease contemplated in Section 3.3 and in Section 3.8) or the Texas
Lease, as applicable.
19.4 Notification of Claims.
(a) A party or parties entitled to be indemnified
pursuant to Section 19.2 or 19.3 hereof or otherwise pursuant to this Agreement
(the "Indemnified Party") shall notify the party or parties liable for such
indemnification (the "Indemnifying Party") in writing of any claim or demand
which the Indemnified Party has determined has given or could give rise to a
right of indemnification under this Agreement. Subject to the Indemnifying
Party's right to defend in good faith third party claims as hereinafter
provided, the Indemnifying Party shall satisfy its obligations under this
Article XIX or otherwise pursuant to this Agreement within thirty (30) days
after the receipt of written notice thereof from the Indemnified Party.
(b) If the Indemnified Party shall notify the
Indemnifying Party of any claim or demand pursuant to Section 19.4(a), and if
such claim or demand relates to a claim or demand asserted by a third party
against the Indemnified Party which the Indemnified Party asserts is a claim or
demand for which the Indemnifying Party must indemnify or hold harmless the
Indemnified Party under Section 19.2 or 19.3 hereof or otherwise pursuant to
this Agreement, the Indemnifying Party shall have the right to employ counsel to
defend any such claim or demand asserted against the Indemnified Party. The
Indemnified Party shall have the right to cooperate at its expense in the
defense of any such claim or demand. The Indemnifying Party shall notify the
Indemnified Party in writing, within thirty (30) days after the date of the
notice of claim given by the Indemnified Party to the Indemnifying Party under
Section 19.4(a) of its election to defend in good faith any such third party
claim or demand. So long as the Indemnifying Party is defending in good faith
any such claim or demand asserted by a third party against the Indemnified
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Party, the Indemnified Party shall not settle or compromise such claim or
demand. The Indemnified Party shall make available to the Indemnifying Party or
its agents all records and other materials in the Indemnified Party's possession
reasonably required by the Indemnifying Party for its use in contesting any
third party claim or demand. Whether or not the Indemnifying Party elects to
defend any such claim or demand, the Indemnified Party shall have no obligation
to do so.
19.5 Remedies.
(a) If ShoLodge fails or refuses to timely perform
ShoLodge's obligations hereunder, Prime shall have only the following options:
(i) to terminate this Agreement as provided in Article XI and thereupon this
Agreement shall terminate, and Prime and ShoLodge shall be relieved and released
of any further obligations, claims and liabilities hereunder, except for the
performance by each party of its Post Termination Obligations which shall remain
enforceable, and except that Prime may pursue a suit against ShoLodge for
damages resulting from any failure or refusal of ShoLodge to perform ShoLodge's
obligations hereunder prior to such termination, or (ii) to pursue any and all
remedies available to Prime at law or in equity, including, without limitation,
a suit for specific performance.
(b) If Prime fails or refuses to timely perform Prime's
obligations hereunder, ShoLodge shall have only the following options: (i) to
terminate this Agreement as provided in Article X and thereupon this Agreement
shall terminate, and Prime and ShoLodge shall be relieved and released of any
further obligations, claims and liabilities hereunder, except for the
performance by each party of its Post Termination Obligations which shall remain
enforceable and except that ShoLodge may pursue a suit against Prime for damages
resulting from any failure or refusal of Prime to perform Prime's obligations
hereunder prior to such termination, or (ii) to pursue any and all remedies
available to ShoLodge at law or in equity, including, without limitation, a suit
for specific performance.
(c) Notwithstanding anything to the contrary expressed or
implied in this Agreement, the sole and exclusive remedy of Prime and the Prime
Subsidiaries for any breach of any representation or warranty of ShoLodge
contained in this Agreement shall be as follows: (i) prior to Closing, to
terminate this Agreement pursuant to Article XI; and (ii) on and after Closing,
to obtain indemnification from ShoLodge pursuant to this Article XIX. Prime and
the Prime Subsidiaries shall have no other right or remedy with respect to the
breach of any representation or warranty of ShoLodge contained in this Agreement
at law or in equity.
19.6 Limitations. Notwithstanding the foregoing, unless
notice of any claim for any indemnification obligation of ShoLodge for any
breach of any representation or warranty of ShoLodge contained in this Agreement
has been given to ShoLodge within twelve (12) months after the Closing, no claim
may be asserted against, and no action, suit or proceeding may be brought
against, ShoLodge. Further, notwithstanding anything contained herein to the
contrary, neither Prime nor the Prime Subsidiaries shall have the right to
recover damages against ShoLodge for the breach of any representation or
warranty of ShoLodge contained herein as to which Prime or a Prime Subsidiary
had knowledge prior to or at Closing, and neither ShoLodge nor any
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ShoLodge Subsidiary shall have the right to recover damages against Prime for
the breach of any representations or warranty of Prime contained herein as to
which ShoLodge or any ShoLodge Subsidiary had knowledge prior to or at Closing.
19.7 Survival. The provisions of this Article XIX shall
survive the Closing of the transactions contemplated by this Agreement, and the
provisions of Section 19.4 shall survive the termination of this Agreement and
apply with respect to indemnification obligations constituting a part of the
Post Termination Obligations. Further, the provisions of Section 19.5(a)(i) and
Section 19.5(b)(i) concerning a suit for damages shall survive the termination
of this Agreement pursuant to Section 19.5.
ARTICLE XX
MISCELLANEOUS
20.1 Confidentiality. Each of the parties hereto agrees
and undertakes to retain in confidence and to require its respective employees,
consultants and agents to retain in confidence, all information obtained in
connection with this Agreement and the transactions and disclosures contemplated
hereby which information is not generally ascertainable from public sources.
Except as required by law, each of the parties further agrees not to make any
disclosure to non-parties, or any public announcements, regarding this Agreement
or the transactions contemplated hereby without the prior consent of the other
party hereto. It is understood and agreed, however, that this section will not
be construed as an obligation to refrain from business activities in the future
that are similar to the business in which the parties hereto are now engaged.
The provisions of this Section 20.1 shall survive the Closing and any
termination of this Agreement.
20.2 Parties in Interest. Except as otherwise expressly
provided herein, all the terms and provisions of this Agreement shall be binding
upon, shall inure to the benefit of, and shall be enforceable by the respective
heirs, beneficiaries, personal and legal representatives, successors, and
assigns of the parties hereto. Notwithstanding the foregoing, Prime shall not
assign its rights under this Agreement without the prior written approval of
ShoLodge, and any attempted assignment without such approval shall be null and
void.
20.3 Entire Agreement; Amendments. This Agreement,
including the exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to this subject matter. There are no
restrictions, agreements, promises, warranties, covenants, or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties or their respective successors or permitted assigns. Any
condition to a party's obligations hereunder may be waived by such party in
writing.
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20.4 Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
20.5 Notices. Any notice, request or other communication
to be given by any party hereunder shall be in writing and shall be deemed
effective three (3) business days after deposit in the United States Registered
or Certified Mail, postage prepaid, return receipt requested, or one (1)
business day after delivery to an overnight courier service for next business
day delivery or upon delivery in person, or upon sending via telecopy with a
copy deposited in the United States first class mail, addressed to such party as
follows:
20.6 If to ShoLodge, then to:
ShoLodge, Inc.
130 Maple Drive North
Hendersonville, TN 37075
Attn: Leon Moore
Telecopy: (615)264-1758
and with a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
Nashville, TN 37219
Attn: Patrick L. Alexander, Esq.
Telecopy: (615)252-6362
20.7 If to Prime, then to:
Prime Hospitality Corp.
700 Route 46 East
Fairfield, NJ 07004
Attn: Douglas W. Vicari
Telecopy: (973) 882-7635
and with a copy to:
Prime Law Department
700 Route 46 East
Fairfield, NJ 07004
Attn: Joseph Bernadino, Esq.
Telecopy: (973)882-1787
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
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20.8 Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
20.9 Severability. If any provision, clause or part of
this Agreement or the application thereof under certain circumstances is held
invalid, the remainder of this Agreement or the application of such provision,
clause or part under other circumstances shall not be affected thereby.
20.10 Time of Essence. Time is of the essence in this
Agreement, and all dates and time periods specified herein shall be strictly
observed.
20.11 Enforcement Expenses. The prevailing party in any
action commenced due to the breach hereof shall be entitled to recover its
costs, expenses and reasonable attorney's fees incurred in the enforcement of
this Agreement.
20.12 Survival. The provisions of this Agreement which by
their terms survive or must survive in order to accomplish the purpose of such
provisions shall survive the termination of this Agreement.
20.13 Governing Laws. This Agreement shall be construed
and enforced in accordance with the laws of the State of Delaware.
20.14 Representation by Counsel. The parties acknowledge
that each party to this Agreement has been represented by counsel and such
counsel have participated in the negotiation and preparation of this Agreement.
This Agreement shall be construed without regard to any presumption or rule
requiring that it be construed or constructed against the party who has drafted
or caused the Agreement to be drafted.
20.15 Notice by Counsel. Anything contained in this
Agreement to the contrary notwithstanding, all notices pursuant to this
Agreement, whether from ShoLodge to Prime or from Prime to ShoLodge, will be
effective if executed by and sent by the attorney of the party sending such
notice. Prime and ShoLodge hereby agree that if a notice is given hereunder by
counsel, such counsel may communicate directly in writing with all principals,
as may be required to comply with the notice provisions of this Agreement.
20.16 No Recording. ShoLodge and Prime hereby acknowledge
that neither this Agreement nor any memorandum, affidavit or other instrument
evidencing this Agreement or relating hereto (other than the closing documents
contemplated hereunder) shall ever be recorded in the real property records
where any of the Real Property is located.
20.17 Exclusive Contract. Beginning on the Effective Date
and continuing until the termination of this Agreement, unless ShoLodge obtains
the prior approval of Prime, ShoLodge shall not enter into an agreement to sell,
lease or otherwise transfer and convey the Assets or any portion thereof to
anyone other than Prime or a Prime Subsidiary; provided,
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however, that the foregoing shall not apply to the sale of such portion of the
Assets as would be sold in the ordinary course of business notwithstanding the
transactions contemplated herein or to the sale of such portion of the Assets to
Landlord as is contemplated herein.
(signatures on following page)
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly signed, all as of the date first above written.
SHOLODGE, INC.
By: [SIG]
---------------------
Date: 3-15-00 Title: President
--------------------- ---------------------
PRIME HOSPITALITY CORP.
By: [SIG]
---------------------
Douglas Vieari
Date: 3/16/00 Title: Sr. V.P.
--------------------- ---------------------
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EXHIBIT 4(K)
THIRD AMENDMENT
TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "THIRD AMENDMENT") is dated
as of October 27, 1999 and entered into by and among PRIME HOSPITALITY CORP., a
Delaware corporation ("COMPANY"), the financial institutions listed on the
signature pages hereof ("LENDERS"), SOCIETE GENERALE, SOUTHWEST AGENCY, as
Documentation Agent, CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and
BANKERS TRUST COMPANY, as agent for Lenders ("AGENT"), and, for purposes of
Section 4 hereof, the Credit Support Parties listed on the signature pages
hereof, and is made with reference to that certain Amended and Restated Senior
Secured Credit Agreement dated as of December 17, 1997, by and among Company,
Lenders, Documentation Agent, Syndication Agent and Agent, as amended or
otherwise modified by that certain First Amendment to Credit Agreement dated as
of February 23, 1998, that certain Limited Waiver to Credit Agreement dated as
of August 5, 1998, and that certain Second Amendment to Credit Agreement dated
as of September 24, 1998 (collectively, the "CREDIT AGREEMENT"). Capitalized
terms used herein without definition shall have the same meanings herein as set
forth in the Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit Agreement in the
manner set forth below,
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS
A. The definition of the term "New Sources" set forth in subsection 1.1 of
the Credit Agreement is hereby amended by deleting it in its entirety and
substituting the following therefor:
"NEW SOURCES" means, as of any date of determination, the sum, without
duplication, of (a) Net Equity Proceeds and (b) Net Cash Proceeds derived from
any Asset Sale, less (i) any and all Supplemental Amounts expended from New
Sources pursuant to Subsection 5.19, (ii) any and all amounts expended from New
Sources pursuant to subsection 6.5 in connection with any Stock Repurchase
(exclusive of amounts expended pursuant to clause (i)(B) of subsection 6.5), and
(iii) two hundred percent (200%) of any and all amounts expended from New
Sources in connection with any Stock Repurchase pursuant to clause (i)(B) of
subsection 6.5."
B. Subsection 1.1 of the Credit Agreement is hereby amended by adding
thereto the following definition, which shall be inserted in proper alphabetical
order:
<PAGE> 2
"THIRD AMENDMENT EFFECTIVE DATE" shall have the meaning assigned to such
term in the Third Amendment to Credit Agreement dated as of October 27, 1999."
1.2 AMENDMENTS TO SECTION 6: FINANCIAL COVENANTS
Subsection 6.5 of the Credit Agreement is hereby amended by deleting it in
its entirety and substituting the following therefor:
"6.5 RESTRICTED PAYMENTS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, declare, order, pay, make, give, or
publish notice or fix a date in respect of or set apart any sum for any
Restricted Payment, enter into an agreement or make any commitment to effect
any of the foregoing or take any other similar action in furtherance of or
otherwise in connection with the foregoing; provided that, (i) if no Event of
Default or Potential Event of Default exists and Company would then be able to
incur $1 of additional Indebtedness pursuant to the Mortgage Note indenture (as
in effect on the Closing Date), Company may elect to make one or more Stock
Repurchases and pay dividends or make other distributions on shares or purchase
shares of Capital Stock of Company in an aggregate amount not to exceed
$25,000,000, except that Company may (A) at any time during the 1999 calendar
year make one or more Stock Repurchases in an aggregate amount not to exceed
$50,000,000 over and above the $25,000,000 amount otherwise permitted herein
and (B) at any time make one or more Stock Repurchases in an aggregate amount
not to exceed $100,000,000 over and above the $25,000,000 amount or the
$50,000,000 amount, as applicable, otherwise permitted herein, provided that (1)
each such Stock Repurchase pursuant to clause (A) or (B) above shall be effected
only through the use of New Sources and (2) the aggregate amount applied in
respect of any Stock Repurchase pursuant to clause (B) above, if any, shall not
exceed fifty percent (50%) of New Sources then available therefor; (ii) Company
and its Subsidiaries may make Restricted Payments (but not any voluntary
prepayments) in respect of Indebtedness permitted pursuant to subsection 6.1 in
accordance with, and to the extent required by, the terms and provisions of the
applicable Indebtedness; (iii) Company may prepay Indebtedness permitted
pursuant to subsection 6.1 with the proceeds of refinancing indebtedness
permitted pursuant to subsection 6.1(c); (iv) Company may prepay Indebtedness
permitted pursuant to subsection 6.1(d), provided that the aggregate amount of
principal payments prior to the Maturity Date in respect of such Indebtedness
shall not exceed $20,000,000; and (v) Company may prepay Indebtedness referred
to in clause (i) of the definition of the term "Net Cash Proceeds" contained in
Section 1.1."
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Third Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT
EFFECTIVE DATE"):
A. On or before the Third Amendment Effective Date, Company shall deliver
to Agent executed copies of this Third Amendment (with sufficient originally
executed copies for each Lender and its counsel) dated the Third Amendment
Effective Date.
2
<PAGE> 3
B. On or before the Third Amendment Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or certified copies
of such documents as Agent may reasonably request.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Third Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each of Company and the Subsidiary
Guarantors that are a party hereto have all requisite corporate power and
authority to enter into this Third Amendment and to carry out the transactions
contemplated by, and perform its respective obligations under, the Credit
Agreement as amended by this Third Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Third
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of Company and the Subsidiary
Guarantors, as the case may be.
C. NO CONFLICT. The execution and delivery by each of Company and the
Subsidiary Guarantors that are a party hereto of this Third Amendment and the
performance by Company of the Amended Agreement do not, and will not, (i)
violate any provision of any law or any governmental rule or regulation
applicable to Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Company or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on
Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company or any of its Subsidiaries (other than Liens created under any
of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require
any approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any of its Subsidiaries, except for such
approvals or consents which have been obtained on or before the Third Amendment
Effective Date and disclosed in writing to Agent and Lenders.
D. GOVERNMENTAL CONSENTS. The execution and delivery by each of Company and
the Subsidiary Guarantors that are a party hereto of this Third Amendment and
any other operative document delivered pursuant to this Third Amendment and the
performance by Company of the Amended Agreement do not, and will not, require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.
3
<PAGE> 4
E. BINDING OBLIGATION. This Third Amendment and the Amended Agreement have
been duly executed and delivered by each of Company and the Subsidiary
Guarantors that are a party hereto, and will be legally valid and binding
obligations of Company and such Subsidiary Guarantors, enforceable against
Company and such Subsidiary Guarantors in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
F. GOVERNMENTAL REGULATION; SECURITIES ACTIVITIES. Neither the making of
the Loans pursuant to the Amended Agreement nor the granting of a Security
Interest in any Collateral (as defined in the Security Agreement) pursuant to
the Security Documents violates Regulations T, U or X of the Board of Governors
of the Federal Reserve System. It is not necessary in connection with the
execution and delivery of this Third Amendment or the Amended Agreement to
register the Loans under the Securities Act or to qualify any indenture under
the Trust Indenture Act of 1939, as amended.
G. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.
The representations and warranties contained in Section 4 of the Credit
Agreement are and will be true, correct and complete in all material respects on
and as of the Third Amendment Effective Date to the same extent as though made
on and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
H. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Third
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Third Amendment and
consents to the amendment of the Credit Agreement effected pursuant to this
Third Amendment. Each Credit Support Party hereby confirms that each Credit
Support Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the case may be, to
the fullest extent possible the payment and performance of all "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Guarantied Obligations" or
"Secured Obligations," as the case may be, in respect of the Obligations of
Company now or hereafter existing under or in respect of the Amended Agreement
and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the Loan
Documents and the Credit Support Documents to which it is a party or otherwise
bound shall continue in full force and effect and that all of its obligations
thereunder (which obligations on the date hereof remain absolute and
unconditional and are not subject to any defenses, set-offs or counterclaims)
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Third Amendment. Each Credit Support Party
represents and
4
<PAGE> 5
warrants that all representations and warranties contained in the Amended
Agreement and the Credit Support Documents to which it is a party or otherwise
bound are true, correct and complete in all material respects on and as of the
Third Amendment Effective Date to the same extent as though made on and as of
that date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and complete
in all material respects on and as of such earlier date.
Each Credit Support Party (other than Company) acknowledges and agrees
that (i) notwithstanding the conditions to effectiveness set forth in this Third
Amendment, such Credit Support Party is not required by the terms of the Credit
Agreement or any other Loan Document to consent to the amendments to the Credit
Agreement effected pursuant to this Third Amendment and (ii) nothing in the
Credit Agreement, this Third Amendment or any other Loan Document shall be
deemed to require the consent of such Credit Support Party to any future
amendments to the Credit Agreement.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Third Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference
in the other Loan Documents to the "Credit Agreement", "Thereunder",
"Thereof" or words of like import referring to the Credit Agreement shall
mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Third Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Third Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Agent or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 8.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Third Amendment and the documents and
transactions contemplated hereby shall be for the account of Company. Without
limiting the generality of the foregoing, and in addition to any other costs,
fees and expenses required to be paid by Company hereunder or under the Credit
Agreement or the other Loan Documents, Company agrees that it shall pay to each
Lender that consents to this Third Amendment an amount equal to the product of
(i) four hundredths of one percent (0.04%) and (ii) such Lender's Pro Rata Share
of the aggregate amount of the Commitments.
5
<PAGE> 6
C. EXHIBITS. The Credit Agreement is hereby further amended as follows:
(i) Exhibit XVI and Exhibit XVII to the Credit Agreement shall mean the exhibits
attached to the First Amendment as Annex D and Annex B thereto, respectively;
and (ii) the phrase "Exhibit XVI" in the definition of the term "Development
Plan" set forth in subsection 1.1 of the Credit Agreement is hereby deleted and
the phrase "Exhibit XVIII" substituted therefor.
D. HEADINGS. Section and subsection headings in this Third Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Third Amendment for any other purpose or be given any substantive
effect.
E. APPLICABLE LAW. THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
F. COUNTERPARTS; EFFECTIVENESS. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Third Amendment shall become
effective upon the execution of a counterpart hereof by Company, Lenders and
each of the Credit Support Parties and receipt by Company and Agent of written
or telephonic notification of such execution and authorization of delivery
thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
PRIME HOSPITALITY CORP.
By: /s/ DOUGLAS VICARI
--------------------------------------
Name: Douglas Vicari
Title: SVP & CFO
HOMEGATE AUSTIN, INC.,
(for purposes of Section 4 only) as a Credit Support
Party
By: /s/ DOUGLAS VICARI
--------------------------------------
Name: Douglas Vicari
Title: President
HOMEGATE HOSPITALITY, INC.,
(for purposes of Section 4 only) as a Credit Support
Party
By: /s/ DOUGLAS VICARI
--------------------------------------
Name: Douglas Vicari
Title: President
S-1
<PAGE> 8
BANKERS TRUST COMPANY,
as Agent and as a Lender
By: /s/ LAURA BURWICK
--------------------------------------
Name: Laura Burwick
Title: Principal
S-2
<PAGE> 9
CREDIT LYONNAIS NEW YORK BRANCH,
as Syndication Agent and as a Lender
By: /s/ BRUNO DeFLOOR
--------------------------------------
Name: BRUNO DeFLOOR
Title: VICE PRESIDENT
S-3
<PAGE> 10
SOCIETE GENERALE, SOUTHWEST
AGENCY,
as Documentation Agent and as a Lender
By: /s/ HUVISHKA ALI
------------------------------------
Name: HUVISHKA ALI
Title: VICE PRESIDENT
S-4
<PAGE> 11
BANK LEUMI USA,
as a Lender
By: /s/ CYNTHIA C. WILBAR
----------------------------------
Name: CYNTHIA C. WILBAR
Title: AVP
S-5
<PAGE> 12
BANKBOSTON, N.A.,
as a Lender
By: /s/ ROBERT C. AVIL
------------------------------------
Name: Robert C. Avil
Title: Director
<PAGE> 13
BANK ONE, TEXAS NATIONAL
ASSOCIATION,
as a Lender
By: /s/ CHARLES L. CRANE
------------------------------------
Name:
Title:
S-7
<PAGE> 14
CIBC, INC.,
as a Lender
By: /s/ DEAN J. DECKER
------------------------------------
Name: Dean J. Decker
Title: Executive Director
CIBC World Markets Corp., AS AGENT
S-8
<PAGE> 15
IMPERIAL BANK,
as a Lender
By: /s/ STEVEN K. JOHNSON
-------------------------
Name: STEVEN K. JOHNSON
Title: SENIOR VICE PRESIDENT
S-10
<PAGE> 16
BANK OF AMERICA, N.A.,
f/k/a NATIONSBANK, N.A.,
as a Lender
By: /s/ MATT JUALL
-----------------
Name: Matt Juall
Title: Vice President
S-11
<PAGE> 17
ORIX USA CORPORATION,
as a Lender
By: /s/ KAZUSOSTIA KAWABATA
-------------------------
Name: Kazusostia Kawabata
Title: Vice President
S-12
<PAGE> 18
PNC BANK, N.A.,
as a Lender
By: /s/ GREGORY J. McMANUS
-------------------------
Name: GREGORY J. McMANUS
Title: VICE PRESIDENT
S-13
<PAGE> 19
SOUTHERN PACIFIC BANK,
as a Lender
By: /s/ MUNYOUNG KIM
-------------------------
Name: MunYoung Kim
Title: Vice President
S-14
<PAGE> 1
EXHIBIT 10(n)
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT, is made and entered into as of
October 14, 1998, by and between PRIME HOSPITALITY CORP., a corporation
organized and existing under the laws of the State of Delaware with its
principal place of business in Fairfield, New Jersey (the "Corporation"), and
A.F. PETROCELLI ("Optionee"), a resident of the State of New Jersey (the
"Agreement")
WITNESSETH:
WHEREAS, Optionee has agreed to serve as an officer of the Corporation;
and
WHEREAS, as a material inducement to Optionee to enter into the
Employment Agreement, dated as of September 14, 1998, by and between Optionee
and the Corporation (the "Employment Agreement") and serve the Corporation as an
officer, Corporation desires to grant to Optionee an option to purchase shares
of common stock of the Corporation, par value $.01 per share (the "Common
Stock"), on the terms and subject to the conditions set forth in this Agreement
and Optionee desires to accept such stock option award on such terms and
conditions; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Employment Agreement.
NOW THEREFORE, in consideration of the premises set forth in the
Employment Agreement, the parties hereto agree as follows:
1. GRANT OF STOCK OPTION. The Corporation hereby grants Optionee the
right, privilege and option to purchase 1,750,000 shares of Common Stock (the
"Option Shares") at a price of $5.91 per share ("Exercise Price"), in the manner
and subject to the terms and conditions contained herein. The grant of this
option shall be effective as of October 14, 1998 ("Grant Date") in accordance
with the terms of the Employment Agreement. This option is hereby designated as
a "Nonqualified Stock Option."
2. OPTION TERM. This option shall terminate ten (10) years from the
Grant Date ("Option Term"); however, this option is subject to earlier
expiration upon termination of Optionee's status as an employee of the
Corporation, as more fully described in Section 5 hereof.
3. VESTING OF OPTION SHARES. The Option Shares shall vest and become
exercisable in accordance with the following schedule: (a) Tranche A, covering
1,000,000 Option Shares, shall vest and become exercisable with respect to 20%
of such Option Shares 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 Optionee remains an employee
of the Corporation on the applicable vesting date; and (b) Tranche B, covering
the remaining 750,000 Option Shares, shall vest and become exercisable on the
eighth anniversary of the Grant Date, provided Optionee remains an employee of
the Corporation on such date, subject to earlier vesting, however,
<PAGE> 2
based upon the Corporation's attainment of the following share price values: (i)
250,000 Option Shares 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; (ii) an additional 250,000 Option Shares 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.O0 per share; and (iii) an additional
250,000 Option Shares 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, Optionee remains an
employee of the Corporation on the applicable vesting date. In addition, (x) all
Option Shares shall become immediately vested and fully exercisable upon a
"Change in Control", as defined in the Change in Control Agreement between the
Corporation and Optionee, provided Optionee remains an employee of the
Corporation on the date of such Change in Control; and (y) all unvested Option
Shares covered by Tranche A of the Option grant shall become immediately and
fully exercisable upon expiration of the Employment Agreement prior to September
13, 2003 as a result of notice of non-renewal given by the Company pursuant to
Section 2 of the Employment Agreement. Optionee shall have the right hereunder
to purchase only those Option Shares which have become vested and exercisable as
provided under this Agreement.
4. MANNER OF EXERCISE OF OPTIONS. To exercise the options granted
herein, Optionee shall give written notice to the Corporation at its principal
executive office, to the attention of the Secretary of the Corporation,
accompanied by a proper notice of exercise setting forth the number of Option
Shares with respect to which the option is to be exercised, and by payment of
the Exercise Price in one of the methods permitted by Section 9. Optionee
further agrees that in connection with any exercise of all or part of this
option; Optionee shall deliver to the Corporation such sum, if any, as the
Corporation deems necessary to satisfy any withholding and other tax obligations
resulting from such exercise. Optionee may elect to surrender to the Corporation
shares of Common Stock already owned by Optionee or shares that would otherwise
have been acquired upon exercise to fulfill any tax withholding obligation. The
date on which the Corporation receives written notice of any exercise hereunder
accompanied by payment of the Exercise Price will be considered the date this
option was exercised. Promptly, and in no event more than five (5) business days
after receipt of written notice of exercise of all or part of this option, the
Corporation shall deliver to Optionee or such other person a certificate or
certificates for the requisite number Of Option Shares. Optionee or a transferee
of an option hereunder shall not have any privileges as a stockholder of the
Corporation with respect to any stock covered by this option until the date of
issuance of a stock certificate for such Option Shares.
5. TERMINATION OF OPTION RIGHTS.
(a) If Optionee's employment with the Corporation shall terminate
voluntarily by Optionee, or by the Company for Cause, and immediately after such
termination Optionee shall not then be employed by the Corporation, the option
granted hereunder, to the extent not exercised prior to the date of termination
of employment, shall expire forthwith. In the event of Optionee's voluntary
termination of employment, the Corporation, in its sole discretion, may consent
to Optionee's exercise within three (3) months after termination of the option
granted hereunder, if the Corporation determines that it is in the interest of
the Corporation to permit such exercise, subject, however, to the limitations of
subparagraph (d), below.
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<PAGE> 3
(b) If the employment of Optionee with the Corporation shall
terminate other than (i) by reason of death, (ii) voluntarily by Optionee, or
(iii) by the Corporation for Cause, and immediately after such termination
Optionee shall not then be employed by the Corporation, the option granted
hereunder may be exercised at any time within three (3) months after such
termination, subject to the provisions of subparagraph (d) below. For purposes
of this Agreement, the retirement of Optionee either pursuant to a pension or
retirement plan adopted by the Corporation, on the normal retirement date
presented from time to time by the Corporation, and the termination of
employment as a result of Optionee's Disability, shall be deemed to be a
termination of Optionee's employment other than voluntarily by Optionee or for
Cause.
(c) If an Optionee dies (i) while employed by the Corporation or (ii)
within three (3) months after the termination of his employment other than as a
result of (A) a voluntary termination by Optionee, or (B) a termination by the
Corporation for Cause, the option granted hereunder may be exercised at any time
within six (6) months after Optionee's death, subject to the provisions of
subparagraph (d) below.
(d) This option may not be exercised pursuant to this Section 5
except to the extent that Optionee was entitled to exercise the option at the
time of termination of employment or death, and in any event may not be
exercised after the expiration of ten (10) years from the Grant Date.
6. CHANGES IN CAPITAL STRUCTURE. If the capital stock of the
Corporation is changed by reason of a reorganization, merger, consolidation,
recapitalization, reclassification, stock split, reverse stock split, stock
dividend or exchange of shares and the like, appropriate equitable adjustments
shall be made in (a) the number and class of shares of Common Stock subject to
this option, and (b) the Exercise Price of this option; provided, however, that
if fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares and any adjustment in
the number of shares of Common Stock subject to this option shall apply
proportionately to only the unexercised portion of such option. Each such
adjustment shall be determined by the Board of Directors of the Corporation (the
"Board") in good faith, which determination shall be final and binding on all
persons. If the Corporation shall be reorganized, consolidated, or merged with
another corporation, or if all or substantially all of the assets of the
Corporation shall be sold or exchanged, Optionee shall at the time of issuance
of the stock under such corporate event be entitled to receive upon the
exercise of this option the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon the occurrence of any such corporate event as if he had been, immediately
prior to such event, the bolder of the number of shares covered by this option.
7. AUTHORIZED SHARES. The Corporation agrees to take all necessary
and appropriate steps to ensure that there are at all times sufficient
authorized shares of capital stock available for issuance upon exercise of this
option.
8. TRANSFERABILITY OF OPTIONS. To the extent not prohibited by any
statute, rule or regulation applicable to the option or the registration of the
Option Shares with the Securities and Exchange Commission, all or a portion of
the option is transferable by Optionee, without consideration, to or for the
benefit of Immediate Family Members, including but not limited to a
-3-
<PAGE> 4
partnership or trust with respect to which Immediate Family Members are the sole
partners or beneficiaries, respectively. The right to transfer the option is
personal to Optionee and any transferee of the option shall not have the right
to transfer the option to any person other than by the laws of descent and
distribution. As used herein the phrase "Immediate Family Members" shall mean
Optionee's spouse, children, grandchildren, parents and grandparents. Except
with respect to transfers to Immediate Family Members as discussed above, this
option shall not be transferable, except by will or the laws of descent or
distribution, and the option may be exercised during the lifetime of Optionee
only by him. This option shall not be subject to execution, attachment or other
process.
9. PAYMENT OF EXERCISE PRICE. Except as provided below, payment of
the Exercise Price for the Option Shares shall be made (a) in cash, (b) by
certified check or bank cashier's check payable to the order of the Corporation
in the amount of such Exercise Price, (c) by delivery to the Corporation of
shares of Common Stock having a fair market value on the date of exercise equal
to such Exercise Price, (d) by irrevocable instructions to a broker to deliver
promptly to the Corporation the amount of sale or loan proceeds necessary to pay
such Exercise Price and to sell the shares of Common Stock to be issued upon
exercise of the option and deliver the net cash proceeds (less the Exercise
Price delivered to the Corporation and the commissions and brokerage fees) to
the Optionee or to deliver the remaining shares of Common Stock to the Optionee,
or (e) by any combination of the methods of payment described in (a) through
(d) above. Proceeds of any payment shall constitute general funds of the
Corporation. Before the option is exercised, the Board, in the exercise of its
absolute discretion, may authorize payment by acceptance of Optionee's full
recourse promissory note for some or all of the Exercise Price of the Option
Shares being acquired (except for the aggregate par value of the shares being
acquired, which must be paid in cash or other lawful consideration under
applicable law), payable on such terms and bearing such interest rate as
determined by the Board, and secured in such manner as the Board shall approve,
including, without limitation, by a security interest in shares of Common Stock
or other securities of the Corporation.
10. GOVERNING LAW. This Agreement shall be interpreted and construed
according to and governed by the laws of the State of New Jersey. Any disputes
or claims shall be resolved as provided in Section 11.5 of the Employment
Agreement.
11. ENTIRE AGREEMENT. This instrument, the Employment Agreement and
the Change in Control Agreement contain the entire agreement of the parties
relating to the option grant. To the extent that the terms and provisions of
this Agreement are in conflict with or inconsistent with the terms and
provisions of the Employment Agreement or Change in Control Agreement, then the
Employment Agreement or Change in Control Agreement, as applicable, shall be
controlling and shall govern the relationship between the parties. This
Agreement may not be changed orally, but may be changed only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
12. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision of this Agreement.
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<PAGE> 5
13. AUTHORITY. The provisions of this Agreement required to be
approved by the Board have been so approved and authorized.
14. BENEFIT. This Agreement shall bind all parties, their respective
heirs, executors, administrators and assigns. Except as provided in Section 8
hereof, nothing contained herein shall be construed as an authorization or right
of any party to assign their respective rights or obligations hereunder and
Optionee shall have no right to assign the option herein granted to him and any
such attempted assignment shall be ineffective. The option, right and privilege
herein granted to Optionee to purchase Option Shares shall be binding upon the
Corporation and its successors or assigns.
15. TERMINATION OF AGREEMENT. This Agreement shall terminate: (a)
upon the written agreement of all parties or (b) upon the terms and conditions
set forth in the Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this instrument
effective as of the day and year first above written.
Attest: PRIME HOSPITALITY CORP.
By: /s/ RICHARD FRANZBLAU By: /s/ JOSEPH BERNADINO
----------------------------- -----------------------------
Name: Richard Franzblau JOSEPH BERNADINO
--------------------------- SENIOR VICE PRESIDENT
Title: Assistant Secretary
--------------------------
OPTIONEE
/S/ A.F. PETROCELLI
--------------------------------
A.F. PETROCELLI
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<PAGE> 1
EXHIBIT 10(o)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 25th day of October, 1999, 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,
2
<PAGE> 3
however that, notwithstanding the prior clause of
this Section 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 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
3
<PAGE> 4
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 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.
4
<PAGE> 5
(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, 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" for such year
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.
5
<PAGE> 6
(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 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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
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
8
<PAGE> 9
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)
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.
9
<PAGE> 10
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 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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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
12
<PAGE> 13
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:
<TABLE>
<S> <C>
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
</TABLE>
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
13
<PAGE> 14
between Employee and the Company.
PRIME HOSPITALITY CORP.
By: /s/ A. F. PETROCELL
----------------------------------
A. F. Petrocelli, President
EMPLOYEE:
/s/ TERRY P. O'LEARY
-------------------------------------
Terry P. O'Leary
14
<PAGE> 1
EXHIBIT 10(p)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 25th day of October, 1999, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Stephen Kronick
("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,
2
<PAGE> 3
however that, notwithstanding the prior clause of
this Section 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 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
3
<PAGE> 4
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 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.
4
<PAGE> 5
(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, 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" for such year
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.
5
<PAGE> 6
(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 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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
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
8
<PAGE> 9
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)
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.
9
<PAGE> 10
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 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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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
12
<PAGE> 13
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:
<TABLE>
<S> <C>
If to the Employee: Stephen Kronick
------------------ 31 Avondale Road
West Hartford, Connecticut 06117
If to the Company: Prime Hospitality Corp.
----------------- 700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
</TABLE>
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
13
<PAGE> 14
between Employee and the Company.
PRIME HOSPITALITY CORP.
By: /s/ A. F. PETROCELLI
----------------------------------
A. F. Petrocelli, President
EMPLOYEE:
/s/ STEPHEN KRONICK
-------------------------------------
Stephen Kronick
14
<PAGE> 1
EXHIBIT 10(q)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 25th day of October, 1999, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and J. David Johnson
("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,
2
<PAGE> 3
however that, notwithstanding the prior clause of
this Section 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 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
3
<PAGE> 4
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 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.
4
<PAGE> 5
(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, 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" for such year
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.
5
<PAGE> 6
(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 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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
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
8
<PAGE> 9
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)
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.
9
<PAGE> 10
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 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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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
12
<PAGE> 13
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:
<TABLE>
<S> <C>
If to the Employee: J. David Johnson
------------------ 82 Fern Circle
Trumbull, Connecticut 06611
If to the Company: Prime Hospitality Corp.
----------------- 700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
</TABLE>
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
13
<PAGE> 14
between Employee and the Company.
PRIME HOSPITALITY CORP.
By: /s/ A. F. PETROCELLI
---------------------------------------------
A. F. Petrocelli, President
EMPLOYEE:
/s/ J. DAVID JOHNSON
------------------------------------------------
J. David Johnson
14
<PAGE> 1
EXHIBIT 10 (r)
AMENDMENT TO
CHANGE IN CONTROL AGREEMENT
Amendment dated this 8th day of March, 1999 to Change in Control
Agreement ("Agreement"), dated the 14th day of September, 1998, between Prime
Hospitality Corp., a Delaware corporation (the "Company") and A. F. Petrocelli
("Employee").
WHEREAS, the parties wish to amend the Agreement;
The parties agree as follows:
1. The Agreement is hereby amended in the following respects:
a. Section 1(a), the definition "Cause" is deleted.
b. Section 1(c), the definition "Good Reason" is deleted.
c. Section 2(b) is to read as follows:
"(b) Cash Payment. If a Change in Control of the Company
shall occur, then the Company shall, within ten (10) days of such
event, 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."
d. Section 5 (Arbitration of Disputes) is amended by deleting
from the second sentence thereof the words "At any time
following the termination of Employee's employment with the
Company."
2. In all other respects, the Agreement as amended hereby shall
remain in full force and effect.
PRIME HOSPITALITY CORP.
By: /s/ JOSEPH BERNADINO
---------------------------
Joseph Bernadino
Senior Vice President
/s/ A. F. PETROCELLI
---------------------------
A. F. Petrocelli
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 dated October 7, 1993 pertaining to the 1992 Prime Hospitality Corp.
Employee Stock Option Plan; Form S-8, file number 033-54995 pertaining to the
Prime Hospitality Corp. 1992 Performance Incentive Plan; Form S-8, file number
333-03361 of Prime Hospitality Corp. pertaining to the 1995 Employee Stock
Option Plan and the 1995 Non-employee Director Stock Option Plan; Form S-8, file
number 333-44287 pertaining to the Prime Hospitality Corp. 1995 Employee Stock
Option Plan and the 1995 Non-employee Director Stock Option Plan; and Form S-8,
file number 333-60911, pertaining to the Prime Hospitality Corp. 1995 Employee
Stock Option Plan) of our report dated February 9, 2000, except for Note 1
(Business Activities) and Note 20, as to which the date is March 20, 2000, with
respect to the consolidated financial statements of Prime Hospitality Corp.
included in the Annual Report (Form 10-K) for each of the three years in the
period ended December 31, 1999.
Ernst & Young LLP
New York, New York
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,240
<SECURITIES> 8,262
<RECEIVABLES> 21,379
<ALLOWANCES> 954
<INVENTORY> 0
<CURRENT-ASSETS> 55,680
<PP&E> 1,093,123
<DEPRECIATION> 118,311
<TOTAL-ASSETS> 1,328,779
<CURRENT-LIABILITIES> 61,225
<BONDS> 549,032
0
0
<COMMON> 557
<OTHER-SE> 632,000
<TOTAL-LIABILITY-AND-EQUITY> 1,328,779
<SALES> 532,746
<TOTAL-REVENUES> 552,732
<CGS> 0
<TOTAL-COSTS> 451,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,634
<INCOME-PRETAX> 65,897
<INCOME-TAX> 25,700
<INCOME-CONTINUING> 40,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,315)
<NET-INCOME> 34,882
<EPS-BASIC> .68
<EPS-DILUTED> .67
</TABLE>
