-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UOYIBs8rtAsIAC/eHWoV+hD1N4aRyY2XVqW/8/XOk9JJK6BJMlawPbFPLJs54SqQ 2Z7oZMMOV3Oasd08vwpn9Q== 0000950123-94-000572.txt : 19940325 0000950123-94-000572.hdr.sgml : 19940325 ACCESSION NUMBER: 0000950123-94-000572 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 221890234 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06869 FILM NUMBER: 94517538 BUSINESS ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2018821010 FORMER COMPANY: FORMER CONFORMED NAME: PRIME MOTOR INNS INC DATE OF NAME CHANGE: 19920609 FORMER COMPANY: FORMER CONFORMED NAME: PRIME EQUITIES INC DATE OF NAME CHANGE: 19731120 10-K 1 PRIME HOSPITALITY CORP. 1 ================================================================================ 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, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM -------- TO -------- COMMISSION FILE NO. 1-6869 ----------------- PRIME HOSPITALITY CORP. (Exact name of Registrant as specified in its charter) DELAWARE 22-2640625 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004 (address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(201)882-1010 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange Title of each class on which registered ------------------- ---------------------------- Common Stock, New York Stock Exchange Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act: Warrants To Purchase Common Stock 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 10, 1994 based on the last sale price as reported by the National Quotation Bureau, Inc. on that date was approximately $208,050,000. The Registrant had 29,200,204 shares of Common Stock outstanding as of March 10, 1994. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ------ ------ ================================================================================ 2 THIS ANNUAL REPORT ON FORM 10-K IS SUBMITTED FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 FOR PRIME HOSPITALITY CORP., A DELAWARE CORPORATION, ("THE COMPANY") AND ITS PREDECESSOR CORPORATION PRIME MOTOR INNS, INC. ("PMI"). ON JULY 31, 1992 (THE "EFFECTIVE DATE"), PMI MERGED WITH AND INTO THE COMPANY, WHICH PRIOR TO SUCH MERGER HAD BEEN A WHOLLY-OWNED SUBSIDIARY OF PMI. THE COMPANY WAS THE SURVIVING CORPORATION IN THE MERGER. THE COMPANY IMPLEMENTED "FRESH START REPORTING" ON JULY 31, 1992 AND CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO DECEMBER 31. THIS REPORT CONTAINS THE (A) COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992 AND JULY 31, 1992 AND THE CONSOLIDATED STATEMENTS OF INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993 AND THE FIVE MONTHS ENDED DECEMBER 31, 1992 AND (B) PMI'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1992 AND THE CONSOLIDATED STATEMENTS OF INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE ONE MONTH ENDED JULY 31, 1992 AND THE YEARS ENDED JUNE 30, 1992 AND 1991. THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY PRESENTED HEREIN WILL VARY SIGNIFICANTLY FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PMI. ACCORDINGLY, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND SUBSEQUENT TO JULY 31, 1992 ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS TO STATEMENTS OF PMI AS OF ANY DATE PRIOR TO JULY 31, 1992. THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF PMI AND ITS SUBSIDIARIES HAVE BEEN PREPARED IN ACCORDANCE WITH THE AICPA STATEMENT OF POSITION 90-7. PART I and PART II Items 1 and 2. Business and Properties General Business The Company is a leading independent hotel operating company with ownership or management of 86 full-service and limited-service hotels in 19 states and one resort hotel in the U.S. Virgin Islands (the "Hotels"). The Company's Hotels are generally moderately priced hotels which are designed to attract business and leisure travelers desiring quality accommodations at affordable prices. Located primarily in secondary and tertiary markets, the Hotels typically contain 100 to 200 guest rooms or suites and operate under franchise agreements with national hotel chains (the "Franchised Hotels") or under the Company's proprietary Wellesley Inns or AmeriSuites trade names (the "Proprietary Hotels"). The Company owns or leases 40 of the Hotels (the "Owned Hotels") and 1 3 manages the remaining 47 Hotels for others (the "Managed Hotels"). The Company holds significant mortgages or other financial interests in 12 of the 47 Managed Hotels. Wellesley Inns and AmeriSuites are limited-service hotels that primarily target the business traveler. Wellesley Inns are upper- economy hotels located in Florida, the Middle Atlantic and the Northeast United States, generally within short distances from restaurant facilities. AmeriSuites are all-suites hotels mainly situated near corporate office parks and major attractions in locations in the Southern and Central United States. The Company has entered into an agreement in which it or its joint venture partner may, if certain conditions are met, contribute its eight AmeriSuites to a joint venture of which it will be a 50% owner. As a leading domestic hotel operating company, the Company enjoys a number of operating advantages over other lodging companies. With 87 Hotels covering a number of price points and a broad geographic range, the Company possesses the critical mass to support sophisticated operating, marketing and financial systems. The Company believes that its array of central services permits on-site hotel general managers to focus effectively on providing guest services, results in economies of scale and helps generate above-market hotel profit margins. As a result of these operating efficiencies, the Company's Hotels generated average operating profit margins that exceeded comparable industry standards for 1992, as reported by industry sources, by approximately six percent for limited-service hotels and 16 percent for full-service hotels. In addition to its hotel operations, the Company owns a portfolio of notes and real estate (the "Other Assets"). As of December 31, 1993, the Other Assets included $115.3 million in notes related to the Managed Hotels, $50.0 million in other notes and $23.6 million in real estate. The Company intends over time to convert certain of these Other Assets to cash and hotel assets. In 1992 and 1993, the Company converted $46.2 million and $14.6 million, respectively, of Other Assets to cash and added six operating hotel assets through settlements and lease terminations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Lodging Operations--Franchised Hotels" and "Business--Other Assets." Lodging Industry As of December 31, 1993, there were approximately 3 million hotel rooms in the United States. During the past decade, approximately 742,000 rooms were added to the hotel industry, producing a 3.1% annual growth rate. However, subsequent to 1990, 2 4 the growth rate of new construction diminished significantly, with only an estimated 40,000 rooms added in 1992 (for a growth rate of 1.3%) and 31,000 rooms added in 1993 (for a growth rate of 1.0%). Such decreases in supply, coupled with increases in demand in 1992 and 1993 generally have resulted in improved operating results for domestic hotels. The improvement in industry fundamentals has contributed to higher occupancy percentages and room rates for the domestic hotel industry, including the Company. Over the next three years industry analysts project national demand for hotel rooms to grow at a 3% to 4% annual rate due to an improved economic environment while supply growth will be negligible. Such projections also call for increases in occupancy and room rates. The following table sets forth industry data for 1992 and 1993 as to (i) the average occupancy, (ii) the average room rate, (iii) REVPAR and (iv) the percentage change of supply and demand. The table includes further industry information relative to the Company's principal operating regions and types of accommodations. Lodging Industry Profile
Average Average % Change Occupancy Room Rate REVPAR(2) 1992-1993 Segment 1992 1993 1992 1993 1992 1993 Supply Demand - ------- ---- ---- ---- ---- ---- ---- ------ ------ U.S. Industry . . . . . 61.9% 63.7% $59.62 $60.99 $36.90 $38.85 1.0% 4.0% By Region: Middle Atlantic(1) . 61.8% 64.4% $77.03 $77.48 $47.60 $49.90 0.6% 4.8% South Atlantic . . . 62.7% 64.8% $59.29 $60.92 $37.17 $39.48 0.7% 4.1% By Service: Luxury . . . . . . . 67.4% 69.6% $104.77 $106.86 $70.61 $74.37 2.0% 5.2% Upscale . . . . . . 64.7% 66.0% $73.11 $74.47 $47.30 $49.15 0.9% 2.9% Mid-Price . . . . . 62.9% 63.9% $53.98 $54.77 $33.95 $35.00 1.4% 2.9% Economy . . . . . . 61.4% 61.9% $43.76 $43.68 $26.87 $27.04 0.8% 1.6% Budget . . . . . . . 59.9% 59.3% $33.07 $33.68 $19.81 $19.97 0.3% -0.7%
- ------------------- Source: Smith Travel Lodging Outlook, February 1994. (1) Middle Atlantic includes New Jersey, New York and Pennsylvania. (2) REVPAR means revenues per available room and is equal to the amount of room revenue divided by the total number of rooms available for sale. Strategy The Company believes that its equity ownership in the Hotels has generated attractive yields and therefore it seeks to expand its role as equity owner. As an owner/operator of hotels, the Company has control over hotel product quality and service and benefits directly from both improving industry fundamentals and its ability to improve individual hotel operating performance. The Company's strategy to meet the foregoing objective and achieve sustainable earnings growth has five key elements: 3 5 - Expand Proprietary Hotel Chains. The Company believes that its two proprietary hotel brands, Wellesley Inns and AmeriSuites, are well positioned in attractive segments of the lodging industry. The Company plans to continue the expansion of the Wellesley Inns chain in the Southeast, the Middle Atlantic and the Northeast United States through development of new hotels and the acquisition and conversion of existing hotels. The Company also intends to expand the AmeriSuites chain through development of new hotels in business and corporate markets throughout the country. - Acquire and Reposition Hotels. The Company believes short-term opportunities exist to acquire and reposition hotels at attractive multiples of cash flow or at significant discounts to replacement values. Generally, this strategy requires investment of additional capital to improve product quality and implementation of marketing and operating systems to enhance market position and improve operating performance. - Refurbish and Improve Operations at Existing Company-owned Hotels. During the last two years, the Company has acquired operating control of six Hotels through mortgage foreclosures, lease termination/evictions or acquisitions. The Company is pursuing a program of refurbishing, repositioning and, in some instances, changing the franchise affiliation of these recently acquired Hotels as well as other Hotels in the Company's portfolio. - Expand Management Service Operations. The Company seeks to expand the number of Managed Hotels as a complement to its core hotel ownership operations. The Company believes that its management services business provides profit opportunities without significant capital investment or incremental costs. - Monetize or Convert Other Assets. The Company is currently seeking to monetize or convert Other Assets to hotel operating assets and cash. The Company converted $46.2 million and $14.6 million of other assets in 1992 and 1993 to cash and added six operating hotels through settlements and lease terminations. The Company presently is attempting to convert Other Assets which presently carry a book value of $75.0 million, to approximately $50.0 million in operating assets with respect to the Marriott's Frenchman's Reef hotel in St. 4 6 Thomas, U.S. Virgin Islands ("the Frenchman's Reef") and $32.0 million in cash from the settlement of notes with Allan V. Rose and Arthur G. Cohen (the "Rose and Cohen Settlement"), of which $25.0 million represents cash held in escrow as settlement for notes receivable and an estimated $7.0 million from the proceeds of the sale of 1.1 million shares of the Company's common stock held by Rose. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Lodging Operations--Franchised Hotels" and "Business--Other Assets." Lodging Operations The Hotels are located in 19 states and the U.S. Virgin Islands and contain a total of 13,011 rooms. Hotel size generally ranges between 100 to 200 guest rooms or suites. The Hotels are operated primarily under franchise agreements with national chains including Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson trade names and under the proprietary trade names Wellesley Inns and AmeriSuites. The Hotels generally serve secondary and tertiary markets and focus primarily on the business traveler customer base. The following table sets forth information with respect to the Owned and Managed Hotels as of March 1, 1994:
Owned(1) Managed with ----------------- Significant Interest (2) Other Managed Total ------------------------ ------------------- ----------------- Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms ------ ----- --------- ------ -------- ------- ------ ------ Wellesley Inn . . . 11 1,157 5 478 11 1,031 27 2,666 AmeriSuites (3) . . 8 993 0 0 0 0 8 993 Marriott . . . . . 0 0 1 517 1 525 2 1,042 Radisson . . . . . 0 0 1 204 1 192 2 396 Sheraton . . . . . 2 364 0 0 1 225 3 589 Holiday Inn . . . . 2 363 1 158 4 827 7 1,348 Ramada . . . . . . 7 1,031 2 423 12 2,483 21 3,937 Howard Johnson . . 8 846 2 361 4 515 14 1,722 Other . . . . . . . 2 228 0 0 1 90 3 318 -- ----- -- ----- -- ----- -- ------ TOTAL . . . . . 40 4,982 12 2,141 35 5,888 87 13,011 == ===== == ===== == ===== == ====== - --------------
(1) Of the 40 Owned Hotels, ten are leased. (2) Twelve Managed Hotels in which the Company holds a significant mortgage on the property. (3) The AmeriSuites presently owned by the Company are managed by ShoLodge. 5 7 The following table sets forth information with respect to the Owned Hotels as of March 1, 1994:
- -------------------------------------------------------------------------------------------------------------------- Wellesley Inn AmeriSuites Sheraton Holiday Inn Ramada Inn State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms - -------------------------------------------------------------------------------------------------------------------- Arizona 1 118 Arkansas 1 130 California Connecticut 1 105 3 486 Delaware Florida 8 845 Georgia 1 114 Indiana 1 126 Nevada 1 202 New Jersey 1 101 1 124 2 304 New York 1 240 2 241 Ohio 2 254 Oregon 1 161 Tennessee 2 251 Virginia 1 106 ----------------------------------------------------------------------------------------------- Total 11 1,157 8 993 2 364 2 363 7 1,031 ===============================================================================================
- -------------------------------------------------------------------------------------------------- Howard Johnson Other Total State Hotels Rooms Hotels Rooms Hotels Rooms - -------------------------------------------------------------------------------------------------- Arizona 1 118 Arkansas 1 130 California 1 94 1 94 Connecticut 4 591 Delaware 1 142 1 142 Florida 1 96 2 228 11 1,169 Georgia 1 114 Indiana 1 126 Nevada 1 202 New Jersey 4 418 8 947 New York 1 96 4 577 Ohio 2 254 Oregon 1 161 Tennessee 2 251 Virginia 1 106 ------------------------------------------------------------------------ Total 8 846 2 228 40 4,982 ========================================================================
The following table sets forth information with respect to Managed Hotels as of March 1, 1994:
- ---------------------------------------------------------------------------------------------------------- Wellesley Inn Marriott Radisson Sheraton Holiday Inn State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms - ---------------------------------------------------------------------------------------------------------- California Connecticut Florida 6 597 Maryland 1 84 1 525 Massachusetts Nebraska New Jersey 2 179 2 396 1 225 2 550 New York 5 461 Ohio Pennsylvania 1 105 2 320 Virginia 1 83 1 115 Virgin Islands 1 517 ------------------------------------------------------------------------------------- Total 16 1,509 2 1,042 2 396 1 225 5 985 =====================================================================================
- ------------------------------------------------------------------------------------------------------ Ramada Inn Howard Johnson Other Total State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms - ------------------------------------------------------------------------------------------------------ California 1 260 1 95 2 355 Connecticut 1 199 1 199 Florida 2 325 8 922 Maryland 1 189 3 798 Massachusetts 1 196 1 196 Nebraska 1 215 1 215 New Jersey 7 1,372 2 267 16 2,989 New York 5 461 Ohio 1 191 1 191 Pennsylvania 1 280 1 90 5 795 Virginia 1 193 3 391 Virgin Islands 1 517 --------------------------------------------------------------------------------- Total 14 2,906 6 876 1 90 47 8,029 =================================================================================
6 8 The following table sets forth for the five years ended December 31, 1993 the number of hotels and rooms and the occupancy and ADR ("average room rate") of the Owned and Managed Hotels. The data includes full year operating results for hotels that the Company had previously managed and then acquired during the year.
Year Ended Managed with December 31, Owned Significant Interest Other Managed Total - ------------ ---------------- -------------------- ---------------- ---------------- Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms ------ ----- ------ ----- ------ ----- ------ ----- 1989 . . . . . . . 21 2,687 12 2,141 31 5,245 64 10,073 1990 . . . . . . . 31 3,941 12 2,141 31 5,245 74 11,327 1991 . . . . . . . 32 4,071 12 2,141 32 5,489 76 11,701 1992 . . . . . . . 35 4,419 12 2,141 32 5,489 79 12,049 1993 . . . . . . . 41 5,092 12 2,141 33 5,604 86 12,837
Occupancy ADR Occupancy ADR Occupancy ADR Occupancy ADR --------- --- --------- --- --------- --- --------- --- 1989 . . . . . 67.7% $59.19 71.0% $82.29 71.1% $58.53 70.3% $64.41 1990 . . . . . 65.9% $55.88 69.1% $78.63 66.3% $60.99 66.6% $63.19 1991 . . . . . 66.6% $53.60 64.1% $78.14 61.4% $59.15 63.7% $60.80 1992 . . . . . 68.0% $54.83 64.9% $80.45 66.3% $58.64 66.6% $61.16 1993 . . . . . 70.0% $56.02 68.8% $84.36 68.4% $59.88 69.1% $62.74
The leases covering the Company's leased Hotels provide for fixed lease rents and, in most instances, additional percentage rents based on a percentage of room revenues. The leases also generally require the Company to pay the cost of repairs, insurance and real estate taxes. In addition, some of the Company's Owned Hotels are located on land subject to long-term leases, generally for terms in excess of the depreciable lives of the improvements. The Company continuously refurbishes its Owned Hotels in order to maintain consistent quality standards. The Company generally spends approximately 4% to 6% of hotel revenue on capital improvements at its Owned Hotels and typically refurbishes each hotel approximately every five years. The Company believes that its Owned Hotels are in generally good physical condition, with over half of the Owned Hotels being less than five years old. The Company recommends the refurbishment and repair projects on its Managed Hotels although spending amounts vary based on the financial strength of the hotel and its owner and the significance of the Company's interest as a mortgagee. Franchised Hotels The Company currently operates 36 full-service Hotels and 15 limited-service Hotels under franchise agreements with Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson. Additionally, the Company owns one independent hotel. The Franchised Hotels are mostly located in the Northeast, Middle Atlantic and Western regions in the United States. The hotels are generally positioned along major highways within close proximity to corporate headquarters, office parks, airports, convention or trade 7 9 centers and other major facilities. The customer base for Franchised Hotels consists primarily of business travelers as well as tourists. The Company's sales force markets to companies which have a significant number of employees traveling in the Company's operating regions who consistently produce a high volume demand for hotel room nights. Full-service hotels generally have pool, restaurant, lounge, banquet and meeting facilities, whereas limited-service hotels generally only have a pool and, in some instances, meeting facilities. The Company manages one resort hotel, Marriott's Frenchman's Reef in St. Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517- room resort hotel which includes a 421-room eight-story building and 96 rooms in the adjacent Morningstar Beach Resort. The Frenchman's Reef has seven restaurants, extensive convention facilities, complete sports and beach facilities and a self-contained total energy and desalinization system. The Frenchman's Reef is marketed directly through its own sales force in New York City and at the Hotel, and through the Marriott reservation system. The Frenchman's Reef markets primarily to tour groups, corporate meetings, conventions and individual vacationers. The Company currently manages the Frenchman's Reef for an independent owner, although the Company holds a significant interest in the property through a first mortgage that the Company acquired when it sold the Frenchman's Reef in 1985. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The full-service Franchised Hotels generally are larger Hotels and have between 150 and 300 rooms, pool, restaurant, lounge, banquet and meeting facilities. Other amenities include fitness rooms, room service, remote-control cable television and facsimile services. In order to improve guest satisfaction, the Company has recently introduced or expanded theme concept lounges such as sports bars, fifties clubs and country and western bars in six of its Hotels. The hotels actively market meeting and banquet services to groups and individuals for seminars, business meetings, holiday parties and weddings. The full-service Franchised Hotels are operated under agreements with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne Plaza Hotels) and Ramada. The Company received recognition in 1993 as a highly awarded Ramada franchisee for hotel quality and service and received awards from other franchisors and associations as well. The following table sets forth for the five years ended December 31, 1993, with respect to the full-service Franchised Hotels that were Owned and Managed Hotels, the number of locations, number of rooms, occupancy percentage and ADR. The data includes full year operating results for hotels that the Company had previously managed and then acquired during the year. 8 10
Number of ------------------------ Locations Rooms Occupancy % ADR --------- ----- ----------- --- 1989 . . . . . . . . . . . . 34 7,032 68.3 $72.41 1990 . . . . . . . . . . . . 36 7,389 64.3 $72.48 1991 . . . . . . . . . . . . 37 7,633 61.4 $69.57 1992 . . . . . . . . . . . . 37 7,633 64.7 $70.31 1993 . . . . . . . . . . . . 37 7,633 67.0 $73.00
The Company's limited-service Franchised Hotels generally have an average of between 100 and 120 rooms and offer complimentary continental breakfast, remote control cable television, pool facilities and facsimile services, generally with restaurant facilities within a short distance of the hotel. They are designed to appeal primarily to business travelers and secondarily to tourists. The following table sets forth for the five years ended December 31, 1993, with respect to the limited-service Franchised Hotels that were Owned and Managed Hotels, the number of locations, number of rooms, occupancy percentage and ADR. The data includes full year operating results for hotels that the Company had previously managed and then acquired during the year.
Number of ----------------------- Locations Rooms Occupancy % ADR --------- ----- ----------- --- 1989 . . . . . . . . . . . . . 9 1,010 69.1 $52.02 1990 . . . . . . . . . . . . . 9 1,010 61.8 $52.17 1991 . . . . . . . . . . . . . 9 1,010 54.4 $49.42 1992 . . . . . . . . . . . . 10 1,106 57.4 $47.01 1993 . . . . . . . . . . . . 13 1,465 60.4 $45.67
The Company reviews on an on-going basis each Franchised Hotel's competitive position in its local market in order to decide the types of product that will best meet the market's demand characteristics. Repositioning a hotel generally requires renovation and refurbishment of the exterior and interior of the building and may result in a change in brand name. In 1993, the Company changed the franchise affiliations of four of its Hotels and will continue to do so where appropriate. The Company has completed or is in the process of repositioning eight of its Franchised Owned Hotels. The Company believes short-term opportunities exist for acquisitions of full-service Franchised Hotels at attractive multiples of cash flow or at significant discounts to replacement values. Due to competition among hotel buyers, the Company cannot predict when or if it will acquire additional hotels. The Company seeks to complement its acquisition objectives by adding Managed Hotels. The Company believes there is a market for experienced 9 11 hotel operators to manage for hotel equity holders such as banks, insurance companies and other capital investors. Wellesley Inns The Company's proprietary Wellesley Inns chain consists of 27 limited-service hotels, 14 of which are located in Florida and the remainder in the Middle Atlantic and Northeast United States. The Company owns and operates 11 Wellesley Inns and manages 16 Wellesley Inns for independent owners. The Company has developed separate strategies for the Wellesley Inns located in Florida and the northern Wellesley Inns. In Florida, where the population has grown rapidly and development opportunities continue to exist, it has built a geographically concentrated group of Wellesley Inns thereby developing brand name recognition in Florida. In 1993, the Florida Wellesley Inns average occupancy was approximately 90% and gross operating profits averaged over 50% of hotel revenues. The prototypical Florida Wellesley Inn has 105 rooms and is distinguished by its classic stucco exterior, spacious lobby and amenities such as continental breakfast, remote control cable television and facsimile services. The Florida properties are operated through the Company's Florida regional office. Marketing efforts rely heavily on direct marketing and billboard advertising. In the Middle Atlantic and Northeast where the Company believes new development opportunities are limited, the Company has focused on building the Wellesley Inns system through acquisition and conversion of existing properties. In 1993, the northern Wellesley Inns average occupancy was over 72% and gross operating profits averaged approximately 46% of hotel revenues. The Company owns eight Florida Wellesley Inns and three northern Wellesley Inns. The following table sets forth for the five years ended December 31, 1993, with respect to the Wellesley Inns that are Owned and Managed Hotels, the number of locations, number of rooms, occupancy percentage and the average daily rate ADR. The data includes full year operating results for hotels that the Company had previously managed and then acquired during the year.
Number of ------------------------ Locations Rooms Occupancy % ADR --------- ----- ----------- --- 1989 . . . . . . . . . . . . 21 2,031 78.8 $43.54 1990 . . . . . . . . . . . . 26 2,561 78.4 $43.75 1991 . . . . . . . . . . . . 26 2,561 76.5 $43.75 1992 . . . . . . . . . . . . 26 2,561 78.0 $43.74 1993 . . . . . . . . . . . . 27 2,666 81.2 $45.28
The majority of the Florida Wellesley Inns were constructed within the past five years. Historically, the Company has built 10 12 Florida Wellesley Inns at a cost of approximately $35,000 to $40,000 per room, depending on land costs. Florida Wellesley Inns have a low cost structure and have had rapid stabilization periods generally within six to 18 months of opening. The Company has begun construction of one Wellesley Inn in the Sawgrass section of Fort Lauderdale, Florida and one Wellesley Inn in Lakeland, Florida. The Company plans to expand the Northern portion of the Wellesley Inn chain through conversion of existing mid-priced limited-service hotels rather than through new construction. AmeriSuites The Company owns eight AmeriSuites hotels, which are positioned in the all-suites segment of the hotel industry. AmeriSuites hotels offer guests an attractively designed suite unit with a complimentary continental breakfast in a spacious lobby cafe, remote control cable television and facsimile service. AmeriSuites is a limited-service concept which offers group meeting space, but does not include restaurant or lounge facilities. AmeriSuites attract customers which typically stay in mid-market limited-service and full-service hotels principally because of the quality of the guest suites, which offer distinct living, sleeping and kitchen areas. AmeriSuites contain approximately 125 suites and two to four meeting rooms. AmeriSuites are primarily located near corporate office parks and major attractions in the South and Central parts of the United States. The target market is primarily the business traveler with an average length of stay of two to three nights and secondarily traveling families. The Company's eight AmeriSuites are managed by ShoLodge. The Company currently intends to manage the AmeriSuites it is planning to build in Tampa, Florida and any other AmeriSuites owned by the Company outside the ShoLodge joint venture. AmeriSuites are marketed on a local level primarily through direct sales and use the ShoLodge reservation system. The following table sets forth for the five years ended December 31, 1993, with respect to AmeriSuites that are Owned Hotels, the number of locations, number of rooms, occupancy percentage and the ADR. The data includes full year operating results for hotels that the Company had previously managed and then acquired during the year. 11 13
Number of ------------------------ Locations Rooms Occupancy % ADR --------- ----- ----------- --- 1989 . . . . . . . . . . . . 0 0 0.0 $0.00 1990 . . . . . . . . . . . . 3 367 37.9 $60.23 1991 . . . . . . . . . . . . 4 497 48.5 $55.33 1992 . . . . . . . . . . . . 6 749 60.0 $54.99 1993 . . . . . . . . . . . . 8 993 64.1 $56.21
In 1993, the Company, through Suites of America, Inc., a wholly owned subsidiary ("Suites of America"), entered into a joint venture agreement with ShoLodge designed to increase the number of AmeriSuites from the six hotels owned at that time by adding six hotels to be built and financed by ShoLodge. ShoLodge has completed development of three hotels, two of which the Company has acquired subject to ShoLodge mortgages, bringing to eight the total number of AmeriSuites owned by the Company. In addition, ShoLodge has three hotels currently under construction. Upon the occurrence of certain events and the exercise of an option by either ShoLodge or the Company, Suites of America will own 12 AmeriSuites, ShoLodge will own a 50% interest in Suites of America and Suites of America will enter into a 20 year management agreement with ShoLodge. The Company will retain ownership of and all rights to license and develop the brand name for its own account, regardless of whether the Company or ShoLodge executes such option. The Company plans to develop the AmeriSuites chain through new construction for its own account outside the joint venture. The Company has begun development of a site in Tampa, Florida and has other sites currently under review. All of the AmeriSuites were constructed within the past four years. The Company has historically built AmeriSuites at a cost of approximately $45,000 to $48,000 per room, depending on land costs. AmeriSuites have a low cost structure and have had stabilization periods, generally of 24 to 36 months of opening. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Other Assets On the December 31, 1993 balance sheet, Other Assets totalled approximately $188.9 million and consisted of an aggregate principal amount of $115.3 million of mortgages and notes secured by Managed Hotels, $50.0 million of other mortgages and notes and $23.6 million of real property not related to Owned Hotels (approximately $12 million of which consisted of office buildings). The Company intends to convert certain of these Other Assets to cash and hotel assets. In 1992 and 1993, the Company converted 12 14 $46.2 million and $14.6 million, respectively, of Other Assets to cash and added six operating hotel assets through settlements and lease terminations. The Company's mortgage notes secured by hotel properties consist primarily of notes with a book value of $100.2 million secured by mortgages on 12 Managed Hotels. These notes currently bear interest at rates ranging from 8.5% to 14.0% per annum and have various maturities through 2014. The mortgages were primarily derived from the sales of hotel properties. The largest of the 12 is the Frenchman's Reef mortgage, which the Company is seeking to restructure. The Frenchman's Reef accounts for $50.0 million of the mortgage notes and has a face value of approximately $79.0 million (excluding accrued interest). The Company has restructured approximately $36.5 million of the remaining mortgages and notes to receive the majority of available cash flow and a participation in the future excess cash flow of such hotel properties. The restructurings generally include senior mandatory-payment notes and junior notes payable annually based on cash flow. The Company believes that, taken together, the restructured senior and junior mortgage notes often exceed the value of the properties they encumber. As a result, these junior notes bear many of the characteristics and risks of operating hotel equity investments and are not reflected on the Company's balance sheet. Earnings on the Other Assets totaled 14.9% of Company's revenues in 1993. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition to the 12 significant mortgage positions referred to above, the Company also holds the junior, accruing or cash flow notes and other interests on 19 other properties managed by the Company. With regard to these 19 properties, third parties generally hold significant senior mortgages. Because there is substantial doubt that the Company will recover any of their value, none of these subordinated financial interests are valued on the Company's balance sheet. In 1993, the Company recognized $3.8 million of interest income from the senior, mandatory payment notes and $1.0 million of interest income related to the junior, accruing or cash flow-based notes. The ability to collect on these junior notes is affected by interest rates on other hotel debt owed to third parties that is senior to the Company's mortgages and notes on the hotel properties. The junior, accruing or cash flow notes have benefitted recently from lower floating interest rates on the more senior debt. Approximately $4.3 million or 28.8% of the 1993 interest income on mortgages and notes was derived from the Company's note receivable secured by the Frenchman's Reef. See 13 15 "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's other notes receivable consist primarily of a note with a book value of $25 million related to loans its predecessor made to entities controlled by Rose and Cohen. The Company has collected $25.0 million from Rose, which amount has been placed in escrow in settlement of the note from Rose and Cohen. The entire amount of the settlement is subject to a claim by Financial Security Assurance, Inc. ("FSA"). The Rose and Cohen Settlement will include an additional amount from the liquidation of approximately 1.1 million shares of the Company's common stock held by Rose. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Asset Realizations." Management Agreements The Company provides hotel management services to third party hotel owners of 47 Managed Hotels. Management fees are derived from the Managed Hotels based on fixed percentages of the property's total revenues. Additional fees are also generated from the rendering of specific services such as accounting services, construction services, design services and sales commissions and performance related incentive payments based on certain measures of hotel income. The Company's fixed management fee percentages range from 0.5% to 5.0% and average 3.5% of the Managed Hotel's total revenues before giving consideration to performance related incentive payments. The base and incentive fees comprised approximately 60.1%, or $6.5 million, of the total management and other fees in 1993. Terms of the management agreements vary but the majority are considered short-term and, therefore, there are risks associated with termination of these agreements. However, the Company believes these risks are mitigated due to its role as lender or provider of trade names in many of these instances. The Company seeks to expand the number of hotels under management agreements for third parties as a complement to its core hotel ownership operation. In the first quarter of 1994 the Company added two Managed Hotels in Santa Clara, California and Atlanta, Georgia. It believes that the management service business provides gross revenue opportunities without the investment of significant capital expenses and operating costs. Operations As a leading domestic hotel operating company, the Company enjoys a number of operating advantages over other lodging companies. With 87 Hotels covering a number of price points and broad geographic regions, the Company possesses the critical mass 14 16 to support sophisticated operating, marketing and financial systems. The Company believes that its broad array of central services permits on-site hotel general managers to effectively focus on providing guest services, results in economies of scale and leads to above-market hotel profit margins. As a result of these operating strategies, the Company's Hotels generated average operating profit margins that exceeded comparable industry standards for 1992, as reported by industry sources, by approximately six percent for limited-service hotels and 16 percent for full-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. On-site hotel managers focus on providing guest services. The on- site hotel management teams focus on providing guest services and consist of a general manager and, depending on the hotel's size and market positioning, managers of sales and marketing, food and beverage, front desk services, housekeeping and engineering. The Company's operating objective is to exceed guest expectations by providing quality services and comfortable accommodations at the lowest cost consistent with each hotel's market position. On-site hotel management is responsible for efficient expense controls and uses operating standards provided by the Company. Within parameters established in the operating and capital planning process, on-site management possesses broad decision-making authority on operating issues such as guest services, marketing strategies, hiring practices and incentive programs. Each hotel's management team is empowered to take all necessary steps to ensure guest satisfaction within established guidelines. Key on-site personnel participate in an incentive program based on hotel revenues and profits. The central management team, located in Fairfield, New Jersey, provides four major categories of services: (i) operations management, (ii) sales and marketing management, (iii) financial reporting and control and (iv) hotel support services. Operations Management. Operations management consists of the development, implementation and monitoring of hotel operating standards and is provided by a network of regional operating officers who are each responsible for the operations of 10-15 hotels. Supporting them are training, food and beverage and human resources departments, each staffed full-time by specialized professionals. The cornerstone of operations management is employee training, with a staff of professionals dedicated to training in sales, housekeeping, food service, front desk services and leadership. The Company believes these efforts increase 15 17 employee effectiveness, reduce turnover and improve the level of guest services. The Company's cost-effective centralized management services benefit not only its existing operations but also provide additional opportunities for growth and development from acquisitions. In all of the recently acquired Hotels, the Company's headquarters have assumed certain of the operational responsibilities which previously had been performed by the on-site Hotel management. In addition, the Company believes it has improved operating efficiencies for each of these Hotels that it has acquired. Sales and Marketing. Aggressive sales and marketing is a top operating priority. Sales and marketing management is directed by a corporate staff of 20 professionals, including regional marketing directors who are responsible for each Hotel's sales and marketing strategies, and the Company's 12-member national sales group, Market Segments, Inc. ("MSI"). In cooperation with the regional marketing and organization staff, on-site sales management develops and implements short- and intermediate-term marketing plans. The Company focuses on yield management techniques, which optimize the relationship between hotel rates and occupancies and seek to maximize profitability. In addition, the Company assumes prominent roles in franchise marketing associations to obtain maximum benefit from franchise affiliations. The Company's in-house creative department creates hotel advertising materials and programs at cost-effective rates. Complementing regional and on-site marketing efforts, MSI's marketing team targets specific hotel room demand generators including tour operators, major national corporate accounts, athletic teams, religious groups and others with segment-specialized sales initiatives. MSI's primary objective is to book hotel rooms at the Company's Hotels and its secondary objective is to market its services on a commission basis to major operators throughout the industry. Sales activities on behalf of non-affiliated hotels increase the number of hotels where bookings can be made to support marketing efforts and defray the costs of the marketing organization. Financial Reporting and Control. The Company's system of centralized financial reporting and control permits management to closely monitor decentralized hotel operations without the cost of financial personnel on site. Centralized accounting personnel produce detailed financial and operating reports for each Hotel. Additionally, central management directs budgeting and analysis, processes payroll, handles accounts payable, manages each Hotel's 16 18 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. Franchise Agreements The Company enters into non-exclusive franchise licensing agreements with various franchisors, which agreements typically have a ten year term and allow the Company to benefit from franchise brand recognition and loyalty. The non-exclusive nature of the franchise agreement allows the Company the flexibility to continue to develop properties with the brands that have shown success in the past or to develop in conjunction with other brand names. While the Company currently has a good relationship with its franchisors, there can be no assurance that a desirable replacement would be available if any of the franchise agreements were to be terminated. The franchise agreements require the Company to pay annual fees, to maintain certain standards and to implement certain programs which require additional expenditures by the Company such as remodeling or redecorating. The payment of annual fees, which typically total 7% to 8% of room revenues, cover royalty fees and the costs of marketing and reservation services provided by the franchisors. The use of franchisor reservation systems typically result in increased occupancy. Franchise agreements, when initiated, generally provide for an initial fee in addition to annual fees payable to the franchisor. Working Capital The Company currently funds its working capital needs principally through a combination of existing cash balances, cash flow from operations and cash from Other Asset settlements. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Financial Condition." 17 19 Seasonality The impact of seasonality on the Company as a whole is insignificant due to the seasonal balance achieved from the geographical location of the Company's hotel properties in the Northeast and Southeast. Competition The Company operates and manages hotel properties in areas that contain numerous other hotels, some of which are affiliated with national or regional chains. The Company competes with other hotels primarily on the basis of price, physical facilities and customer service. The Company also competes with other management companies for the management of hotel properties owned by third parties. Due to the abundance of management companies, the percentage of gross sales which the Company earns as a manager has decreased in certain instances and the terms of the management agreements, have been reduced. In order to retain existing management contracts, the Company may have to reduce further the fees which it receives. Employees As of December 31, 1993, the Company employed approximately 4,900 employees. Certain of the Company's employees are covered by collective bargaining agreements. The Company believes that relations with its employees are good. Environmental Matters The Hotels are subject to environmental regulations under Federal, state and local laws. Certain of these laws may require a current or previous owner or operator of real estate to clean up designated hazardous or toxic substances or petroleum product releases affecting the property. In addition, the owner or operator may be held liable to a governmental entity or to third parties for damages or costs incurred by such parties in connection with the contamination. The Company does not believe that it is subject to any material environmental liability. Item 3. Legal Proceedings. On September 3, 1993 Frenchmen's Reef Beach Resorts ("FRBA") filed for protection under chapter 11 of the Bankruptcy Code. FRBA is the owner of the Marriott Hotel, St. Thomas. U.S. Virgin Islands (the "Hotel"). The Company holds mortgages encumbering the Hotel which secure obligations of FRBA to the Company. In addition, the 18 20 Company manages the Hotel for FRBA pursuant to a written agreement. FRBA has filed with the bankruptcy court a Disclosure Statement setting forth a Plan of Reorganization which, among other things, provides for the conveyance of the Hotel to the Company. The limited partners of FRBA have filed an objection to the Disclosure Statement. The Company has pending before the bankruptcy court a motion for permission to commence and pursue a foreclosure of its mortgages through the receipt of a judgement of foreclosure. In a proceeding captioned PMI Investment, Inc. vs. Allan V. Rose and Arthur Cohen et al. brought before the bankruptcy court the Company seeks to recover amounts owed by Rose and Cohen under a guaranty. In that same proceeding, the Company also seeks a determination that FSA has no claim to the proceeds of any recovery from Rose and Cohen. The Company has reached a settlement in that proceeding with Rose and Cohen. Under the settlement, the Company will receive $25.0 million in cash, which Rose has deposited in escrow, and the cash proceeds of the sale of approximately 1.1 million shares of the Company's stock owned by Rose under the Prime Motor Inns, Inc. Second Amended Plan of Reorganization. Disbursal of the settlement proceeds is subject to the bankruptcy court's approval of the settlement and the bankruptcy court's determination that FSA has no claim to the settlement proceeds. A trial was held in January, 1994 on both issues and the Company is awaiting the decision of the bankruptcy court. PMI has responded to informal requests for information by the United States Securities and Exchange Commission's Division of Enforcement relating to certain of PMI's significant transactions for the years 1985 through 1990. PMI has not submitted its Annual Report on Form 10-K for the fiscal year ended June 30, 1990 and Quarterly Reports on Form 10-Q during the pendency of its reorganization, except for its Quarterly Report on Form 10-Q for the quarter ended March 31, 1992. Contingent Claims As of March 1, 1994 unresolved bankruptcy claims of approximately $437,000,000 have been asserted against PMI. The Company has disputed substantially all of these unresolved bankruptcy claims and has filed objections to such claims. Management and its counsel believe that substantially all of these claims will be dismissed and disallowed. Any claims not disallowed will be satisfied by issuance of the Company's common stock. In accordance with SOP 90-7, the consolidated financial statements have given full effect to the issuance of the Company's common 19 21 stock. The Company believes that the resolution of these claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. In addition to the foregoing legal proceedings, the Company is involved in various other proceedings incidental to the normal course of its business. Management does not expect that any of such other proceedings will have a material adverse effect on the Company's financial position. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted during the fiscal quarter ended December 31, 1993 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, commenced trading on the New York Stock Exchange (the "NYSE") on August 3, 1992 under the symbol "PDQ." As of March 10, 1994 there were 29,200,204 shares of common stock outstanding. The Company's Plan of Reorganization ("the Plan") provided for the issuance of 33,000,000 shares of common stock to holders of claims under the Plan. The number of shares ultimately distributed under the Plan could be less than 33,000,000 shares depending on the final outcome of disputed claims. In addition, the Company has issued warrants to purchase an aggregate of 2,106,000 shares of common stock. The warrants are not listed on any exchange. The following table sets forth the reported high and low closing sales prices of the common stock on the NYSE.
Five Months Ended December 31, 1992 High Low Dividend/Share - ----------------- ---- ----- -------------- Third Quarter (August 3, . . . . . . . . . . . . . . . . . 2-1/8 1-1/2 -0- 1992 - September 30, 1992) Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 2-1/4 1-1/2 -0- Year Ended December 31, 1993 - ----------------- First Quarter . . . . . . . . . . . . . . . . . . . . . . . 3-5/8 2-1/8 -0- Second Quarter . . . . . . . . . . . . . . . . . . . . . . 4-1/2 3-1/2 -0- Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 4-3/4 3-1/8 -0- Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 6 4-3/8 -0-
20 22 As of March 10, 1994, the closing sales price of the common stock on the NYSE was $7 1/8. As of March 10, 1994, there were approximately 3,422 holders of record of common stock. Prime does not anticipate paying any dividends on the common stock in the foreseeable future. Covenants contained in certain of the Company's debt securities prohibit Prime from paying cash dividends. 21 23 Item 6. Selected Financial Data The Company is the successor in interest to PMI. The Company implemented "fresh start" reporting pursuant to the Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" of the American Institute of Certified Public Accountants, as of the Effective Date. Accordingly, the consolidated financial statements of the Company are not comparable in all material respects to any such financial statement as of any date or any period prior to the Effective Date. Subsequent to the Effective Date, the Company changed its fiscal year end from June 30 to December 31. The table below presents selected consolidated financial data derived from: (i) the Company's historical financial statements for the year ended December 31, 1993, (ii) the Company's historical financial statements as of and for the five month period ended December 31, 1992, (iii) the Company's "fresh start" balance sheet as of the Effective Date, and (iv) the historical consolidated financial statements of PMI for the one month ended July 31, 1992 and for each of the four years in the period ended June 30, 1992. This data should be read in conjunction with the Consolidated Financial Statements.
Post-Reorganization Pre-Reorganization --------------------------- ---------------------------------------- As of and for the -------------------------- As of and for Five Months | One Month As of and for the the Year Ended Ended | Ended Year Ended June 30, December 31, December 31, | July 31, ----------------------- 1993 1992 | 1992(1) 1992(1) 1991(1) ---------------- ------------- | ------------ -------- ------- (IN THOUSANDS) | STATEMENT OF OPERATIONS DATA: | Total revenues . . . . . . . . . . . $108,860 $ 41,334 | $ 8,793 $134,190 $205,699 Valuation writedowns | and reserves . . . . . . . . . . . -- -- | (13,000) (62,123) (59,149) Reorganization items . . . . . . . . -- -- | 1,796 (23,194) (181,655) Income(loss) from | continuing operations before | extraordinary items (3) . . . . . . 8,175 1,393 | (10,274) (71,965) (246,110) Extraordinary items - gains | on discharge of indebtedness | (net of income taxes) . . . . . . 3,989 -- | 249,600 -- -- Net income (loss) . . . . . . . . . . . . 12,164 1,393 | 239,326 (71,965) (227,188) | BALANCE SHEET DATA: | Total assets . . . . . . . . . . . . 410,685 403,314 | 468,650 554,118 679,916 Long-term debt, net of | current portion . . . . . . . . . 168,618 192,913 | 204,438 8,921 2,851 Sotckholders' equity | (deficiency) . . . . . . . . . . . 171,364 137,782 | 135,600 (229,292) (157,327)
Pre-Reorganization ------------------------ As of and for the Year Ended June 30, ------------------------ 1990 (1)(2) 1989 ------------ ---------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Total revenues . . . . . . . . . . . $277,239 $ 315,189 Valuation writedowns and reserves . . . . . . . . . . . (240,855) (9,398) Reorganization items . . . . . . . . -- -- Income(loss) from continuing operations before extraordinary items (3) . . . . . . (280,387) (6,630) Extraordinary items - gains on discharge of indebtedness (net of income taxes) . . . . . . -- -- Net income (loss) . . . . . . . . . . (267,075) (6,630) BALANCE SHEET DATA: Total assets . . . . . . . . . . . . 934,116 1,079,682 Long-term debt, net of current portion . . . . . . . . . 368,925 422,828 Sotckholders' equity (deficiency) . . . . . . . . . . . 66,681 334,014
- ---------------- (1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at which time it owned or managed 141 hotels. During its approximately two-year reorganization, PMI restructured its assets, operations and capital structure. On the Effective Date, the Company emerged from chapter 11 reorganization with 75 owned or managed hotels (as compared to 141 owned or managed hotels prior to the chapter 11 reorganization) $135.6 million of stockholders' equity and $266.4 million of long-term debt. (2) PMI effectively discontinued the operations of its franchise segment on July 1, 1990, with the sales of the Howard Johnson, Ramada and Rodeway franchise businesses in July 1990. (3) Approximately $2.3 million, $28.0 million and $25.3 million of contractual interest expense during the one month ended July 31, 1992 and for the fiscal years ended June 30, 1992 and 1991, respectively, was not accrued and was not paid due to the chapter 11 proceeding. 22 24 Item 6. (Continued) Selected Quarterly Financial Data (Unaudited) Quarterly financial data for the years ending December 31, 1993 and 1992 is presented as follows (in thousands, except per share amounts).
Three Months Ended ---------------------------------------------------------------------- December 31, September 30 June 30, March 31, December 31, 1993 1993 1993 1993 1992 ---------------------------------------------------------------------- Net revenue . . . . . . $27,906 $29,480 $26,689 $24,785 $23,781 Gross profit(a) . . . . . 5,394 7,545 6,393 5,594 4,553 Net income(loss) before extraordinary items. . 2,213 3,379 1,588 995 281 Extraordinary items (net of tax) . . . . (68) -- 631 3,426 -- Net income(loss) . . . . . 2,145 3,379 2,219 4,421 281 Income(loss) per common share: Income(loss) before extraordinary items 0.06 0.10 0.05 0.03 0.01 Extraordinary items -- -- 0.02 0.10 -- ---------------------------------------------------------------------- Net income(loss) . . . . . $0.06 $0.10 $0.07 $0.13 $0.01 ======================================================================
Two Months One Month Three Months Ended Ended Ended ------------------------ September 30, July 31, June 30, March 31, 1992 1992 1992 1992 ------------------------------------------------------ Net revenue . . . . . . $17,553 $8,793 $29,378 $29,683 Gross profit(a) . . . . . 4,793 1,709 4,137 5,188 Net income(loss) before extraordinary items. . 1,112 (10,274) (74,344) 351 Extraordinary items (net of tax) . . . . -- 249,600 -- -- Net income(loss) . . . . . 1,112 (239,326) (74,344) 351 Income(loss) per common share: Income(loss) before extraordinary items 0.03 (0.31) (2.25) 0.01 Extraordinary items -- 7.56 -- -- ------------------------------------------------------ Net income(loss) . . . . . $0.03 $7.25 ($2.25) $0.01 ======================================================
(a) Gross profit is defined as net revenues less direct operating expenses, other operating and general expenses and depreciation and amortization expense. (b) Certain quarterly data has been reclassified to conform with the December 31, 1993 presentation. 23 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company is the successor in interest to PMI, which emerged from chapter 11 reorganization on the Effective Date. During its approximately two-year reorganization, PMI restructured its assets, operations and capital structure. As a result, the Company (i) eliminated numerous unprofitable lease and management agreements, (ii) revalued its assets to reflect the then approximate current fair market value of such assets on its financial statements and (iii) reduced its liabilities by approximately $500 million. On the Effective Date, the Company emerged from chapter 11 reorganization with 75 owned or managed hotels (as compared to 141 hotels prior to the chapter 11 reorganization), $135.6 million of total equity and $266.4 million of long-term debt. Since the Effective Date, the Company has taken the following actions to further strengthen its operations and financial condition: - Reduced overhead costs, reconstituted its management team and recruited new senior management to the Company that is responsible to a new, independent board of directors; - Converted a portion of its notes, mortgages and other assets to cash or hotel operating assets that provided the Company with approximately $61.0 million in cash and six operating hotel properties obtained through settlements or lease expiration; - Repaid approximately $87.0 million of its long-term debt using the cash proceeds from conversions of other assets, tax refunds and income generated from Hotel operations; - Formulated and began implementing a hotel development and improvement plan pursuant to which the Company purchased one full- service hotel and built one new Wellesley Inn in 1993; and - Allocated more than 6.0% of its hotel revenues during this period to enhance the product quality and market position of its existing Hotels, including repositioning eight Hotels and changing the franchise affiliations of four of such Hotels. 24 26 The following table sets forth certain operating data for the five year period ended December 31, 1993 with respect to the 41 Owned Hotels that were in the Company's portfolio on December 31, 1993 since the later of the year in which they were acquired or January 1, 1989. The data includes full year operating results for hotels that the Company previously managed and then acquired during the year.
1989(1) 1990(1) 1991(1) 1992(1) 1993(1) ------- ------- ------- ------- ------- Number of locations at year end . . . . . . . . . . . . . . 21 31 32 35 41 Number of rooms at year end . . . . . . . . . . . . . 2,545 3,953 4,083 4,425 5,145 Occupancy% . . . . . . . . . . . . . . . . 67.8% 65.9% 66.6% 68.0% 70.0% ADR . . . . . . . . . . . . . . . . . . . $59.19 $55.88 $53.60 $54.83 $56.01 REVPAR . . . . . . . . . . . . . . . . . . $40.10 $36.80 $35.68 $37.30 $39.19 Room revenues . . . . . . . . . . . . . . . $29,809 $44,101 $51,774 $57,992 $66,721 Total hotel revenues . . . . . . . . . . . $43,090 $59,437 $68,137 $74,162 $83,652 Gross operating profit(1) . . . . . . . . . $17,741 $25,312 $26,798 $26,607 $31,997 Gross operating profit% . . . . . . . . . . 41.2% 42.6% 39.3% 35.9% 38.2%
(1) Gross operating profit is defined as total hotel revenues less direct hotel operating expenses including room, food and beverage and selling and general expenses. - -------------- The Company's operating results for the five-year period from 1989 to 1993 were principally impacted by the overall trends in the U.S. lodging industry. In 1990 and 1991, occupancy and ADR declined due to the oversupply of hotel rooms and the weakness in demand due to the general slowdown in the U.S. economy. Beginning in 1992, the demand for hotel rooms increased primarily due to improved economic conditions in the United States. Coupled with the lack of new hotel supply, occupancy, ADR and REVPAR improved. In 1993, occupancy, ADR and REVPAR continued to rise due to improving industry fundamentals, the stabilization of the Company's Wellesley Inns and AmeriSuites and the positive effects of the capital investments made by the Company to improve product quality through repositionings of hotels. Over the five-year period ended December 31, 1993, gross operating profit was most affected by (i) the mix of the Company's limited- service hotels as compared to full-service hotels, (ii) labor and related costs and (iii) strategic marketing initiatives. The five Wellesley Inns added to the Company's portfolio generated high gross operating margins and allowed the Company to increase margins in 1990 despite a difficult economic environment. In 1991 and 1992, the positive impact on gross operating profits from the addition of the Wellesley Inns were offset by (i) above inflation 25 27 rate increases in direct hotel labor and related expenses (including wages, health care benefits and workman's compensation), (ii) the Company's decision to increase advertising and promotions (including hiring additional sales staff, providing additional guest services such as enhanced continental breakfasts and increasing outdoor advertising and direct mail marketing campaigns) and (iii) the reallocation of previously centralized costs to specific hotels. In 1993, gross operating profit improved primarily due to the stabilization of labor and related costs and increased sales volumes. Given the current positive industry fundamentals and the Company's proposed new hotel development and acquisition refurbishment programs, the Company believes it will continue to benefit from operating leverage. Results of Operations for Year Ended December 31, 1993 Compared to Year Ended December 31, 1992 The Company implemented "fresh start" reporting in accordance with Statement of Position 90-7 of the American Institute of Certified Public Accountants upon its emergence from reorganization on the Effective Date. Under "fresh start" reporting, the purchase method of accounting was used and the assets and liabilities of the Company were restated to reflect their approximate fair value at the Effective Date. In addition, during the reorganization period (September 18, 1990 to the Effective Date), the Company's financial statements were prepared under accounting principles for entities in reorganization which includes reporting interest expense only to the extent paid and recording transactions and events directly associated with the reorganization proceedings. Accordingly, the consolidated financial statements of the Company are not comparable in all material respects to any such financial statement as of any date or for any period prior to the Effective Date. Subsequent to the Effective Date, the Company elected to change its fiscal year end from June 30 to December 31. For purposes of an analysis of the results of operations, comparisons of the Company's results of operations for the year ended December 31, 1993 to the prior year are made only when, in management's opinion, such comparisons are meaningful. Prior to the Effective Date, the Company did not employ "fresh start" reporting thereby making comparisons of certain financial statement data prior to such date less meaningful. The financial information set forth below presents the revenues and expenses which can be compared. The table excludes the items which were impacted by the changes in accounting such as interest expense, occupancy and other operating expense and depreciation expense for the years ended December 31, 1992 and 1993. The financial information should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this report. Since the Company 26 28 changed its fiscal year in 1992, management has compiled unaudited data for the calendar year ended December 31, 1992. The direct revenues and expenses of the Owned Hotels are classified into three categories: comparable hotels, new hotels and divested hotels. The following discussion focuses primarily on the 29 comparable hotel properties which were owned or leased by the Company during the entire two years presented. The 12 hotels classified as new hotels are composed of four new AmeriSuites hotels which were opened after December 31, 1991, a full-service Ramada Inn in Meriden, Connecticut which was purchased in July 1993, a newly constructed Wellesley Inn in Orlando, Florida which opened in November 1993 and six hotel properties which were added through settlements of mortgages and notes receivable and lease expirations. The hotels classified as divested hotels are composed of three hotel properties divested primarily as a result of property restructurings in 1992 and the Holiday Inn in Milford, Connecticut which was sold in September 1993.
Years Ended December 31, 1993 1992 ------ ------ (In thousands, except for statistical information) Room revenues: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,219 $51,679 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,941 2,001 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,327 8,699 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,487 62,379 Food and beverage revenues: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,055 9,549 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 91 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 3,422 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,270 13,062 Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,831 11,452 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,765 20,063 Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,507 2,232 Direct room expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,848 14,003 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,115 574 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 3,281 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,456 17,858 Direct food and beverage expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,480 8,278 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,504 78 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 3,046 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,230 11,402
27 29
Years Ended December 31, 1993 1992 ------ ------ Direct selling and general hotel expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 16,004 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860 541 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 5,574 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,429 22,119 General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . 15,685 17,162 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,809 -- Extraordinary items (pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . 6,761 -- Statistical information: Comparable hotels: Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 72.15% 68.11% ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55.96 $54.66 New hotels: Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 63.86% 50.67% ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57.17 $55.59
Room revenues increased by $7.1 million or 11.4% for the year ended December 31, 1993 over the prior year due to the impact of new hotels and improved occupancy and room rates at comparable hotels. The increase was partially offset by a decrease in room revenues as a result of the divestiture of hotels. Room revenues for comparable hotels increased by $3.5 million or 6.8% for the year ended December 31, 1993 compared to the prior year. The increase was primarily due to improved occupancy which increased 5.9% in 1993 reflecting improved economic conditions and the limited new construction of hotels. Average daily room rates were slightly higher in the year ended December 31, 1993 compared to the prior year, increasing by $1.30 or 2.4% over the prior year. The Company's comparable full-service hotels had an average occupancy of 69.3% for the year ended December 31, 1993 as compared to 65.2% in 1992. Average occupancy at the seven comparable Wellesley Inns in Florida remained relatively stable at approximately 90% while average occupancy at the three comparable Wellesley Inns in the Northeast increased to 73.4% for the year ended December 31, 1993 from 61.3% in 1992 primarily as a result of improved direct marketing efforts. Significant occupancy increases were also reported at the four comparable AmeriSuites hotels all of which were opened within the past four years. The average occupancy at the comparable AmeriSuites hotels increased to 67.7% for the year ended December 31, 1993 from 63.7% in 1992 reflecting stabilization of these hotels and their increased recognition in the market. Food and beverage revenues decreased by $792,000 or 6.1% for the year ended December 31, 1993 as compared to 1992 because all of 28 30 the divested hotels contained food and beverage operations while many of the new hotels are limited-service hotels. Food and beverage revenues for comparable hotels increased by 5.3% for the year ended December 31, 1993 compared to the prior year primarily as a result of increased beverage revenues at the Company's sports lounges located in two Franchised Hotels. Management and other fees consist of base and incentive fees earned under management agreements, fees for additional services rendered to Managed Hotels and sales commissions earned by the Company's national sales group, MSI. The base and incentive fees comprise approximately 60% or $6.5 million of total management and other fees for the year ended December 31, 1993. Management and other fees decreased by $621,000 for the year ended December 31, 1993 as compared to the prior year primarily due to a decrease in charges for additional services. In addition, during the year ended December 31, 1993, the number of Managed Hotels declined by five due to property divestitures by independent owners, two of which were acquired by the Company. The decreases have been partially offset by increases in management fees attributable to increased hotel occupancies and higher incentive related performance fees. Interest income on mortgages and notes decreased by $5.3 million for the year ended December 31, 1993 as compared to the prior year primarily due to the Company's early collection of a note receivable with a face amount of $58.0 million in August 1992. Interest income for the year ended December 31, 1993 primarily related to mortgages secured by 12 Managed Hotels. Approximately $4.3 million or 28.8% of interest income is derived from the Company's $50 million note receivable secured by the Frenchman's Reef. For the year ended December 31, 1993, operating profits improved for the Frenchman's Reef over the prior year due to the stronger economy, the new affiliation with Marriott and product improvements and cost controls at the hotel. The Company's proposed mortgage restructuring is intended to provide the Company with ownership and control of the Frenchman's Reef. If consummated, the impact of this restructuring on operating income is expected to be minimal as direct revenues, expenses and depreciation would increase and interest income would decrease. In the year ended December 31, 1993, interest income also includes $976,000 recognized on subordinated mortgages which have been assigned no value on the Company's balance sheet due to substantial doubts as to their recoverability. These subordinated mortgages generated interest income primarily due to declines in interest rates on the variable rate mortgages senior to the Company's positions on these hotels. 29 31 Direct room expenses increased by $1.6 million or 9.0% for the year ended December 31, 1993 over the prior year, as the increased occupancy of the comparable hotels combined with the new hotels more than offset the impact of the divested full-service hotels. Direct room expenses for comparable hotels increased by 6.0% for the year ended December 31, 1993 over the prior year primarily due to increased expenses associated with the higher occupancy levels including payroll costs, guest room supplies and reservation fees. In addition, the increase is also attributable to higher health benefits and worker's compensation expenses which have risen faster than the general inflation rate over the past three years. Direct room expenses as a percentage of room revenues decreased to 28.0% in 1993 as compared to 28.6% in 1992 primarily due to the impact of the divested hotels. Direct room expenses as a percentage of room revenues for comparable hotels were approximately 27% in 1993 and 1992 as the Company was able to increase room rates to offset the increases in costs. Direct food and beverage expenses decreased by $1.2 million or 10.3% primarily due to the impact of divested full-service hotels. Direct food and beverage expenses for comparable hotels increased by 2.4% for the year ended December 31, 1993 over the prior year. Direct food and beverage expenses as a percentage of food and beverage revenues for comparable hotels decreased to 84.3% for the year ended December 31, 1993 as compared to 86.7% for the year ended December 31, 1992. This improvement reflects the increase in beverage sales which have a lower cost of sales percentage versus food sales. Direct selling and general expenses consist primarily of hotel expenses which are not specifically allocated to rooms or food and beverage activities such as administration, selling and advertising, utilities and repairs and maintenance. Direct selling and general expenses decreased by $1.7 million or 7.6% as the divested hotels were all full-service operations which generally require increased overhead to support food and beverage operations. Direct selling and general expenses for comparable Hotels increased by only 1.2% for the year ended December 31, 1993 over the prior year primarily due to the restructuring of the Company's centralized operations which eliminated certain allocated central office charges. These cost savings were offset by higher utility charges as a result of the unusually warm summer in 1993. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating both the Owned and Managed Hotels and general corporate expenses. For the year ended December 31, 1993, general and administrative expenses consisted of $11.7 million of 30 32 centralized management expenses and $4.0 million in general corporate expenses. General and administrative expenses decreased by $1.5 million or 8.6% for the year ended December 31, 1993 as compared to the prior year primarily due to the restructuring of the Company's centralized management operations in February 1993 which eliminated approximately $2.5 million of annual costs. Other income consists primarily of a gain on the sale of a hotel of $1.0 million, settlement of closing adjustments of $625,000 related to the sale of a hotel in a prior year, interest of $1.2 million received as part of a federal tax refund and $500,000 received in settlement of prior year's fees on a Managed Hotel. The pre-tax extraordinary gains of $6.8 million in 1993 relate to the repurchase of debt. Pre-tax extraordinary gains of approximately $187,000 will be recognized in the first quarter of 1994 related to additional repurchases. See "Management's Discussion and Analysis of Financial Condition and Results of Operation- Liquidity and Capital Resources." Six Months Ended December 31, 1992 Compared to Six Months Ended December 31, 1991 The following discussion and analysis is based on the historical results of operations of the Company for the six-month periods ended December 31, 1992 and 1991. For purposes of the following discussion, comparisons of the Company's results of operations for the six-month period ended December 31, 1992 to the same period in the prior year are made only when, in management's opinion, such comparisons are meaningful. The financial information set forth below should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this report. The following table presents the Company's condensed income statements for the six months ended December 31, 1992 and 1991 (in thousands):
Six Months Ended December 31, 1992 1991 -------- -------- Owned and Leased Hotel Properties: Total direct revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,063 $55,545 Total direct expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,409) (38,497) ------ ------ Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,654 17,048 Other Revenues and Expenses: Management fees received . . . . . . . . . . . . . . . . . . . . . . . . . . 5,785 5,364 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348
31 33
Six Months Ended December 31, 1992 1991 -------- -------- Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1,872 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,497) (5,622) Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,867) (28,982) Valuation writedowns and reserves . . . . . . . . . . . . . . . . . . . . . (13,000) -- ------ ------ Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . $(7,953) $ 2,028 ====== ======
The Company's results of operations for the six months ended December 31, 1992 changed dramatically from the comparable period of the prior year. As a result of the Chapter 11, hotel properties were disposed of through lease rejection, lease expiration, contract termination or sale. The following table presents the direct revenues and expenses of the Company's owned and leased hotel properties for the six months ended December 31, 1992 and 1991. The hotel properties are classified into three categories: comparable hotels; new hotels; and divested hotels. The following discussion focuses on the 29 comparable hotel properties which were owned or leased by the Company during the two periods presented. At December 31, 1992, the Company owned or leased 34 hotel properties. Three new hotel properties which were opened after June 30, 1991 and two hotel properties which were added through note receivable settlements in 1992 are classified as "New Hotels". The hotel properties divested primarily as a result of the Chapter 11 are classified as "Divested Hotels". Owned and Leased Properties (In thousands, except for statistical information)
Six Months Ended December 31, 1992 1991 -------- -------- Room Revenues: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,672 $25,618 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,668 115 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 16,742 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,772 42,475 Food and Beverage Revenues: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 5,156 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 -- Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,914 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,291 13,070
32 34
Six Months Ended December 31, 1992 1991 -------- -------- Direct Room Expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,473 6,896 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786 56 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5,255 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,373 12,207 Direct Food and Beverage Expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,630 4,064 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 -- Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,324 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708 10,388 Selling and General Expenses: Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,546 7,692 New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 47 Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8,163 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,328 $15,902 Statistical Information: Comparable hotels: Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.30% 68.52% Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.41 $54.17
Room revenues for comparable hotels increased by $1.1 million or 4.1% for the six months ended December 31, 1992 compared to the same period in the prior year. The increase was due to improved occupancy while average daily rate remained even with the prior year. The gain in occupancy was primarily attributable to the improved results at three AmeriSuites hotels, which were opened in the second half of 1990. In addition, occupancy increased at six Wellesley Inns located in Florida partially, as a result of Hurricane Andrew. The Company's inability to increase room rates was caused by the slowdown in the economy, particularly in the Northeast and increased competition. Food and beverage revenues for comparable hotels for the six months ended December 31, 1992 were relatively even with the same period in the prior year, as a result of the recession in the Northeast where the majority of the Company's food and beverage outlets are located. Room expenses as a percentage of room revenues for comparable hotels increased to 28.0% for the six months ended December 31, 1992 from 26.9% for the same period in the prior year. Food and beverage expenses as a percentage of food and beverage revenues for comparable hotels increased to 89.0% from 78.8% for the same period 33 35 in the prior year. The increases in the percentage of expenses to revenues were primarily attributable to increased labor-related operating costs. In particular, health benefits and workers' compensation costs have increased at rates greater than inflation. Selling and general expenses for comparable hotels increased by 11.1% for the six months ended December 31, 1992 over the same period in the prior year primarily due to hiring of additional sales staff, sales training programs and increased advertising and sales promotion expenses. The following table presents the Company's other revenues and expenses for the six months ended December 31, 1992 and 1991 which are not considered direct operating revenues and expenses of the owned and leased hotels and which were not affected by accounting changes due to the reorganization and, therefore, can be compared. Other Revenues and Expenses (In thousands)
Six Months Ended December 31, 1992 1991 -------- -------- Management and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,785 $ 5,364 Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348 Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1872 General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 7,637 9,905
The Company derived management fees from the hotel properties it managed based on a fixed percentage of gross revenues and charges for certain other services rendered. Under certain agreements, the Company was also eligible to receive performance-related incentive payments. The Company managed 28 of its 34 owned and leased hotel properties and managed 50 hotel properties for third party owners. Management fees increased by $0.4 million for the six months ended December 31, 1992 as compared to the same period of the prior year primarily due to incentive payments. The Company had a concentration of short-term management agreements with a limited number of related and third party owners. Fees derived from these agreements were approximately $3.3 million or 57% of the total management and other fees recognized during the six months ended December 31, 1992. Interest and dividend income decreased for the six months ended December 31, 1992 as compared to the same period of the prior year primarily due to a $58 million reduction in the principal amount of a note receivable arising from a note prepayment by New World Development Co., Ltd. in August 1992. 34 36 General and administrative expenses decreased by 22.9% for the six months ended December 31, 1992 as compared to the same period of the prior year primarily due to staff reductions in administrative areas. Based on settlement negotiations and declines in cash flow generated by a hotel property, the Company recorded $13.0 million in valuation writedowns and reserves in July 1992 related to mortgages and notes receivable. Fiscal Year Ended June 30, 1992 Compared to Fiscal Year Ended June 30, 1991 PMI's results of operations for the years ended June 30, 1992 and 1991 changed dramatically from the prior years. On September 18, 1990 (the "Petition Date"), PMI and certain subsidiaries filed voluntary petitions in the Bankruptcy Court. Immediately after the Petition Date, the Company performed a detailed analysis of the operating performance of the 141 hotel properties that it operated either through ownership, lease or management. The 141 hotel properties were comprised of 81 owned or leased hotel properties and 60 hotel properties managed by PMI for third parties. As a result of the analysis 54 owned and leased hotel properties and 15 managed hotel properties were identified for disposal through lease rejection, lease expiration, contract termination or sale. The majority of the disposals occurred during the second and third quarters of fiscal 1991. In 1991, management segregated its hotel properties into Core Properties (those properties which PMI intended to retain) and Non-Core Properties (those properties intended for disposition). The following table presents the direct revenues and expenses of PMI's owned and leased Core and Non-Core Properties as shown in the accompanying consolidated statements of operations for the years ended June 30, 1992 and 1991. The discussion and analysis of direct revenues and expenses that follows the table focuses solely on the 30 owned and leased Core Properties that will continue to be owned or leased. Owned and Leased Properties (In thousands of dollars, except for statistical information) 35 37
Years Ended June 30, 1992 1991 -------- -------- Room revenues: Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,020 $ 45,805 Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,062 76,097 ------- ------- Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,082 121,902 Food and beverage revenues: Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,448 9,025 Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,393 28,898 ------- ------- Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,841 37,923 Direct room expenses: Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,721 11,152 Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,971 18,174 ------- ------- Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,692 29,326 Direct food and beverage expenses: Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,723 7,197 Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,359 23,935 ------- ------- Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,082 $ 31,132 Statistical Information - Core Properties only: Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.69% 65.73% Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.89 $ 55.68
Room revenues for the 30 owned and leased Core Properties increased by $3.2 million in 1992 as compared to the prior year. Food and beverage revenues for such properties increased by $.4 million in 1992 as compared to the prior year. The increases were due to the opening of 3 new hotel properties in 1992 and the full year impact of 7 hotel properties opened in the first half of fiscal 1991. PMI experienced a decline in average daily rate which was offset by increased occupancy in 1992. The results were impacted by the slowdown in the economy, particularly in the Northeast, and increased competition resulting from the oversupply of hotels. Direct expenses as a percentage of revenues for rooms for the 30 owned and leased Core Properties increased to 26% in 1992 from 24% in 1991. Direct expenses as a percentage of revenues for food and beverage increased to 82% in 1992 from 80% in 1991. The increases were attributable to payroll and other fixed expenses which increased at inflation rates while revenues remained relatively stable. 36 38 PMI derived management fees from the hotel properties it manages based on a fixed percentage of gross revenues and charges for services rendered. Under certain agreements, PMI was also eligible to receive performance-related incentive payments. PMI managed 24 of its 30 owned and leased Core Properties and managed 48 hotel properties for third parties as part of its core business. Management fees increased by $2.2 million in 1992, as compared to the prior year, primarily due to the increased level of services billed to third party owners. Interest income was derived primarily from PMI's portfolio of mortgage notes and other notes receivable. Certain of the notes held by PMI were received as part of the consideration for the sale of hotel properties, for services rendered or in connection with the development of hotel properties. PMI generally obtained contracts to manage the hotel properties securing the mortgages and notes and guaranteed that certain hotel properties would generate specific levels of cash flows which would enable the owners and investors to meet various obligations, including interest on the mortgage notes receivable. Other notes arose from loans to developers and operators of hotel properties and from transactions related to PMI's discontinued franchise operations. As a result of the oversupply of hotels and the slowdown of the economy, certain of the properties securing the notes experienced decreased operating cash flows and have been unable to pay some or all of the interest and principal due on the notes. Most of PMI's obligations to the owners and investors under financial guarantees were terminated as a result of PMI's bankruptcy filing. Accordingly, PMI suspended the accrual of interest on the related notes during September 1990 and began recognizing interest income only as cash was received. Interest and dividend income decreased by $7.0 million in 1992, versus the prior year, primarily as a result of the suspension of the accrual of interest in September 1990. Other operating and general expense decreased throughout 1992 primarily due to the elimination of expenses associated with properties disposed of as part of the Chapter 11. The most significant decrease is attributable to rent expense as properties operated under lease agreements with an annual rent expense of approximately $47 million were rejected as part of the Chapter 11 in 1991. Depreciation and amortization expense decreased in 1992 due to the impact of the disposition of hotel properties during 1991 and 1992. This was offset by the depreciation related to the new hotel properties. Interest expense declined in 1992, versus the prior year, as PMI discontinued accruing interest on certain debt obligations 37 39 subject to compromise as of the Petition Date. Interest expense would have been higher by $28 million for the year ended June 30, 1992 had the Debtors' not filed for Chapter 11. If such interest expense had been recorded, the reported losses in 1992 would have increased. These debt obligations included $230 million aggregate principal amount of convertible subordinated debentures, the $110 million remaining balance under a bank credit agreement, and certain other notes to banks and others of approximately $58 million. Interest expense also decreased due to the reduction in interest rates throughout the year. Reorganization expenses consisted primarily of professional fees and other expenses of $19.3 million, estimated claims arising from bankruptcy of $6.0 million and losses on the disposal of assets of $2.3 million, offset by interest earned of $4.4 million on accumulated cash resulting from the Chapter 11. PMI also recorded $62.1 million in valuation writedowns and reserves in 1992 as part of the restructuring of its business. These items relate to mortgages and notes receivable of $49.5 million, land and buildings of $9.0 million, and other items of $3.6 million. The disproportionate tax rates in 1992 and 1991 resulted primarily from accounting losses for which deferred income tax credits cannot be recognized and state income taxes. Liquidity and Capital Resources The Company believes that it has sufficient financial resources to provide for its working capital needs, capital expenditures and debt service obligations in 1994. The Company anticipates meeting its future capital needs through a combination of existing cash balances, projected cash flow from operations, conversion of Other Assets to cash, and a portion of the proceeds from debt or equity offerings. Additionally, the Company may in the future incur mortgage financing on certain of its 15 unencumbered properties or enter into alliances with capital partners to provide additional funds for the development and acquisition of hotels to the extent such financing is available. At December 31, 1993, the Company had cash and cash equivalents of $41.6 million and restricted cash of $11.0 million, which was primarily collateral for various debt obligations. Cash flow from operations was approximately $19.7 million for the year ended December 31, 1993. Cash flow from operations exceeded income before extraordinary items of $8.2 million due to non-cash items such as depreciation and amortization of $7.1 million and the utilization of net operating loss carryforwards 38 40 ("NOL's") of $4.5 million. At December 31, 1993, the Company has NOL's relating to its predecessor, PMI, of approximately $121.0 million which, subject to annual limitations, expire beginning in 2005 and continuing through 2008. The Company's other major sources of cash for the year ended December 31, 1993 were proceeds from asset settlements and scheduled collections of mortgages and notes receivable of $10.9 million and refunds of Federal income taxes of $17.7 million (of which approximately $1.2 million related to interest and was recorded as other income) related to PMI. The Company's major uses of cash for the year ended December 31, 1993 were debt repurchases and required principal payments of $30.9 million and capital expenditures of $14.3 million. During 1993, the Company repurchased $500,000 of its Senior Secured Notes, $16.5 million of its Junior Secured Notes and $8.8 million of its mortgage notes payable for an aggregate purchase price of $19.0 million. The repurchases were funded through internal sources of $17.5 million and additional borrowings of $1.5 million. As of March 15, 1994, the Company had repurchased during 1994 $7.2 million of its Senior Secured Notes and Junior Secured Notes for an aggregate purchase price of $7.0 million. During the first quarter of 1994, the Company also purchased through a third party agent approximately $5.2 million of its Senior Secured and Junior Secured Notes for aggregate consideration of $4.8 million. These notes are currently held by the third party agent and have not been retired due to certain restrictions under the note agreements. The purchases will be recorded as investments on the Company's balance sheet and no gain will be recorded on these transactions by the Company until the notes mature or are redeemed. The Company has a fully-secured demand credit agreement which permits borrowing of up to $5.0 million. This facility is supported by a certificate of deposit which is maintained by the lender. The Company currently has debt obligations of $19.3 million, $8.9 million and $42.8 million due in 1994, 1995, and 1996, respectively. Approximately $14.3 million, $5.0 million and $4.1 million of the debt due in 1994, 1995 and 1996, respectively, is owed by Suites of America. Of the approximately $14.3 million of Suites of America's debt due in 1994, approximately $9.2 is owed to ShoLodge and scheduled to mature in April 1994. The Company believes it will be able to refinance that debt with ShoLodge due to its relationship as a potential joint venture partner. Upon exercise of an option by either the Company or ShoLodge under a joint venture agreement, ShoLodge will hold a 50% equity interest in Suites of America and $9.1 million of its debt will be converted into equity of the joint 39 41 venture. The remaining debt owed to ShoLodge will become debt of the joint venture with a five-year maturity. In addition, the Company has $34.0 million of debt obligations related to the Frenchman's Reef due in December 1996. The Company believes it will be required to seek an extension of the maturity of such debt or refinance it. The debt is secured by a first mortgage note receivable held by the Company with a book value of $50.0 million. See "Business--Lodging Operations--Franchised Hotels," "Business--Lodging Operations--AmeriSuites" and Note 9 to the Notes to the Consolidated Financial Statements. Capital Investments. The Company is implementing a hotel development and acquisition program, which focuses on its proprietary limited-service brands, Wellesley Inns and AmeriSuites, and on strategically positioned full-service hotels. In November 1993, the Company opened its newly constructed Wellesley Inn in Orlando, Florida. The Company is constructing a new Wellesley Inn in the Sawgrass section of Fort Lauderdale, Florida and has begun development of a Wellesley Inn site in Lakeland, Florida. The Company plans to acquire and convert two additional Wellesley Inns in 1994. The Company has also purchased a site in Tampa, Florida for planned construction of an AmeriSuites hotel. The Company plans to develop two additional AmeriSuites in 1994. The Company is also evaluating opportunities to acquire and rehabilitate existing full-service hotels either for its own portfolio or with investors. As part of the Company's full-service acquisition program, the Company acquired the Ramada Inn in Meriden, Connecticut in July 1993. The Company spent $7.8 million on its development and acquisition program in 1993. The Company anticipates capital spending for its hotel development and acquisition programs in 1994 will range between $35 and $40 million. No assurance can be given that the Company will locate suitable acquisitions and therefore will complete such capital expenditures in 1994. The Company is pursuing a program of refurbishing its Owned Hotels and repositioning them in order to meet the local market's demand characteristics. In some instances, this may involve a change in franchise affiliation. The refurbishment and repositioning program primarily involves Hotels which the Company has recently acquired through mortgage foreclosures or settlements, lease evictions/terminations or acquisitions. In 1993, the Company spent approximately $5.0 million on capital improvements at its Owned Hotels, of which $2.5 million related to refurbishments and repositionings on eight Owned Hotels. The Company intends to spend approximately $7.1 million on capital improvements related to its refurbishment and repositioning program at its Owned Hotels in 1994. Of this amount, $5.1 million relates to refurbishments and 40 42 repositionings on eight Owned Hotels, which includes five hotels that were being refurbished in 1993 and will continue to be refurbished in 1994. Asset Realizations. The Company continues to negotiate settlements with mortgage and note obligors, from which it anticipates receiving cash or operating hotel assets. The Company intends to use the cash proceeds from asset conversions for debt repayments and general corporate purposes. In June 1993, the Company reached a settlement of an adversary proceeding regarding a note and promissory guarantee commenced by a subsidiary of PMI during PMI's bankruptcy case (the "Rose and Cohen Settlement") with Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen"). The settlement provided for Rose or his affiliate to pay the Company the sum of $25.0 million, all of which was paid into escrow on February 25, 1994, plus proceeds from approximately 1.1 million shares of the Company's common stock held by Rose which will be liquidated over a period of time. The Rose and Cohen Settlement is subject to a claim on the entire amount by Financial Security Assurance, Inc. ("FSA"). All proceeds from the Rose and Cohen Settlement must continue to be held in escrow until the Company receives an order of the U.S. Bankruptcy Court for the Southern District of Florida determining the Company's exclusive right to the settlement proceeds. A trial was held on such claim in such court in January 1994. The Company expects an order to be issued by that court in the near future, which order will be subject to appeal. Upon receipt of a favorable order, substantially all of the net proceeds will be used to repay the Senior Secured Notes and Junior Secured Notes. The Company has entered into a restructuring agreement relating to its mortgage notes receivable secured by the Frenchman's Reef with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In conjunction with the agreement, FRBA filed a pre-negotiated chapter 11 petition in September 1993. The plan of reorganization dated October 21, 1993 provides for the Company to receive ownership and control of the hotel through a 100% equity interest in the reorganized FRBA. The plan also provides for the existing equity holders and any other impaired claim holders to participate in excess cash flow above specified levels and all administrative and unsecured trade claims incurred in the ordinary course of business to be paid in full. There can be no assurance that the plan will become effective. A group purporting to represent a significant number of limited partners has filed an objection to the disclosure statement related to such plan and seeks to replace the Frenchman's Reef's general partner with a new general partner that may seek to 41 43 redirect the bankruptcy proceedings in a way that may be materially adverse to the Company. In light of this uncertainty, the Company intends to pursue a foreclosure of its mortgages and has filed a motion with the bankruptcy court seeking to lift the stay of relief under the chapter 11 petition to permit a commencement of a foreclosure action. The motion is subject to approval by the Bankruptcy Court. Due to, among other factors, the contingent nature of bankruptcy proceedings, there can be no assurance of when and if any court approval will be obtained. Certain equity holders of the Frenchman's Reef have challenged the authority of the current general partner of the Frenchman's Reef and requested to replace it as general partner. If these equity holders were to become general partner, they have indicated through court filings that they would investigate the validity and priority of the Company's mortgages. In addition, the Company's management agreement with respect to the Frenchman's Reef could be rejected in connection with the bankruptcy case. The Company had, as of December 31, 1993, $39.6 million of debt secured by the Company's mortgage on the Frenchman's Reef. The Company does not intend to obtain ownership of the Frenchman's Reef unless the lender of such debt consents. The Company has entered into discussion with the lender regarding revising the terms of such debt. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations," "Business--Lodging Operations--Franchised Hotels" and Note 3 to Notes to Consolidated Financial Statements. During 1993, the Company also collected a $5.0 million installment obligation related to the Baltimore Marriott hotel and received $4.0 million in settlement of a mortgage note secured by the East Brunswick, New Jersey Sheraton hotel. During 1993, the Company received the fee interest in a Ramada hotel in Danbury, Connecticut in settlement of its mortgage note receivable. The Company also acquired three hotels through lease expiration or foreclosure, one of which it is presently converting to a Shoney's Inn in Orlando, Florida. In September 1993, the Company sold the Holiday Inn in Milford, Connecticut for a net sales price of $2.4 million. After retiring the property's debt of $1.4 million, the Company received net cash proceeds of $1.0 million from the transaction. Item 8. Financial Statements and Supplementary Data. See Index to Financial Statements and Financial Statement Schedules included in Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None PART III Item 10. Directors and Executive Officers of the Registrant. Set forth below are the names, ages and positions of the directors and executive officers of the Company: 42 44
Name Age Position - ---- --- -------- David A. Simon 41 President, Chief Executive Officer and Chairman of the Board of Directors John M. Elwood 39 Executive Vice President, Chief Financial Officer and Director Herbert Lust, II 65 Director Leon Moore 52 Director Allen J. Ostroff 57 Director A.F. Petrocelli 49 Director Paul H. Hower 59 Executive Vice President Denis W. Driscoll 49 Senior Vice President John H. Leavitt 40 Senior Vice President John E. Stetz 52 Senior Vice President Joseph Bernadino 47 Senior Vice President, Secretary and General Counsel Richard T. Szymanski 36 Vice President and Corporate Controller Douglas W. Vicari 34 Vice President and Treasurer
The following is a biographical summary of the experience of the directors and executive officers of the Company: David A. Simon has been President, Chief Executive Officer and a Director since 1992 and Chairman of the Board of the Company since 1993. Mr. Simon was a director of PMI from 1988 to 1992. Mr. Simon was the Chief Operating Officer of PMI from 1988 to 1989 and Chief Executive Officer of PMI from 1989 to 1992 and was an executive officer in September 1990 when PMI filed for protection under Chapter 11 of the United States Bankruptcy Code. John M. Elwood has been a Director and Executive Vice President of the Company since 1992, Chief Financial Officer since 1993 and the Director of Reorganization of the Company during 1992. Mr. Elwood was the Director of Reorganization of PMI from 1990 to 1992. Mr. Elwood was the director of Reorganization of Allegheny International, Inc. from 1988 to 1990 and a Vice President of Mellon Bank, N.A. during 1988. Herbert Lust, II has been a Director since 1992 and Chairman of the Compensation and Audit Committee of the Company since 1993 and Chairman of the Compensation Committee and a member of the Audit Committee of the Company from 1992 to 1993. Mr. Lust was a member of the Committee of Unsecured Creditors of PMI from 1990 to 1992. Mr. Lust is a director of BRT Realty Trust. Leon Moore has been a Director of the Company since 1992 and a member of the Audit and Compensation Committee since 1993. From 1992 to 1993, Mr. Moore was a member of the Compensation Committee. Mr. Moore has been the President, Chief Executive Officer and 43 45 Chairman of the Board of Directors of ShoLodge, Inc. for more than the past five years. Mr. Moore is a director of the Bank of Nashville. Allen J. Ostroff has been a Director since 1992. Mr. Ostroff was Chairman of the Board of the Company and a member of the Audit Committee from 1992 to 1993. Mr. Ostroff has been a Senior Vice President of the Prudential Realty Group, a subsidiary of the Prudential Insurance Company of America, for more than the last five years. A. F. Petrocelli has been a Director since 1992 and a member of the Compensation and Audit Committee of the Company since 1993 and of the Compensation Committee of the Company from 1992 to 1993. Mr. Petrocelli has been the Chairman of the Board of Directors and Chief Executive Officer of United Capital Corp. for more than the past five years. Paul H. Hower has been an Executive Vice President of the Company since 1993. Mr. Hower was President of Integrity Hospitality Services from 1992 to 1993 and Vice President and Hotel Division Manager of B. F. Saul Co. from 1988 to 1991. Denis W. Driscoll has been a Senior Vice President of the Company since 1993. Mr. Driscoll was President of Driscoll Associates, a human resources consulting organization from 1988 to 1993. John H. Leavitt has been a Senior Vice President of the Company since 1992. Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a Senior Vice President of Medallion Hotel Corporation from 1988 to 1991. John E. Stetz has been a Senior Vice President of Development of the Company since 1993. Mr. Stetz was a Vice President - Development of Choice Hotels International from 1988 to 1992. Joseph Bernadino has been Senior Vice President, Secretary and General Counsel of the Company since 1993. Mr. Bernadino was an Assistant Secretary and Assistant General Counsel of PMI from 1988 to 1992. Richard T. Szymanski has been a Vice President and Corporate Controller of the Company since 1992. Mr. Szymanski was Corporate Controller of PMI from 1989 to 1992, and Division Controller from 1988 to 1989. 44 46 Douglas W. Vicari has been a Vice President and Treasurer of the Company since 1992 and was Vice President and Treasurer of PMI during 1992. Mr. Vicari was the Director of Budget and Financial Analysis of PMI from 1989 to 1992, and Budget Manager from 1988 to 1989. Item 11. Executive Compensation The following summary compensation table sets forth information concerning compensation for services in all capacities awarded to, earned by or paid to the persons who were, at December 31, 1993, the Company's Chief Executive Officer and the five other most highly compensated executive officers of the Company. The information shown reflects compensation for services in all capacities awarded to, earned by or paid to these persons for the fiscal year ending December 31, 1993.
Summary Compensation Table -------------------------- Long-Term Annual Compensation Compensation ------------------- ------------ Name and Principal Other Annual Stock All Other Position Year Salary Bonus Compensation Options Compensation ----------------- ---- ------ -------- ------------ ------- ------------ David A. Simon 1993 $303,853 $ -0- $-0- 45,000 $ 6,211 President and Chief 1992 298,175 665,045 -0- 330,000 1,402 Executive Officer 1991 282,565 -0- -0- -0- 66 John M. Elwood 1993 240,000 -0- -0- 45,000 21,981 Executive Vice President 1992 295,170 554,205 -0- 20,000 252 and Chief Financial Officer 1991 307,980 -0- -0- -0- -0- John H. Leavitt 1993 127,500 4,000 -0- 8,000 1,273 Senior Vice President 1992 125,000 -0- -0- -0- 299 1991 67,438 -0- -0- -0- 131 Joseph Bernadino 1993 120,750 -0- -0- 8,000 87 Senior Vice President, 1992 114,648 43,125 -0- -0- 252 Secretary and General Counsel 1991 114,648 -0- -0- -0- 51 Richard T. Szymanski 1993 105,000 -0- -0- 5,000 44 Vice President and 1992 101,956 25,000 -0- -0- 27 Corporate Controller 1991 99,931 -0- -0- -0- 27 Douglas W. Vicari 1993 105,000 -0- -0- 5,000 27 Vice President and 1992 101,304 25,000 -0- -0- 27 Treasurer 1991 79,904 -0- -0- -0- -0-
Stock option grants during fiscal year ended December 31, 1993 The following table sets forth information concerning individual grants of stock options made during the fiscal year ending December 31, 1993 to each of the officers listed below. The Company did not grant any stock appreciation rights during such period. 45 47
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants For Option Terms -------------------------------------------------------- ---------------- % of Total Options Granted to Exercise Employees Price Options in Fiscal Per Expiration Name Granted Year Share Date 5% 10% - ---- ------- ---------- -------- ---------- ------ ------- David A. Simon . . . . . . . 45,000(1) 6.2% $3.20 8/4/99 $82,141 $154,951 John M. Elwood . . . . . . . 45,000(2) 6.2% $3.20 8/4/99 $82,141 $154,951 John H. Leavitt . . . . . . . 8,000(3) 1.1% $3.625 6/18/99 $13,883 $27,690 Joseph Bernadino . . . . . . 8,000(4) 1.1% $3.625 (4) $12,878 $26,361 Richard T.Szymanski . . . . . 5,000(3) 0.7% $3.625 6/18/99 $8,677 $17,306 Douglas W. Vicari . . . . . . 5,000(3) 0.7% $3.625 6/18/99 $8,677 $17,306
(1) These stock options were granted to David A. Simon as a director of the Company in connection with a grant of options to the directors. These stock options vest with respect to 15,000 shares on each of August 4, 1993, 1994 and 1995 and will continue to be exercisable through August 4, 1999, subject to the provisions of the Company's 1992 Stock Option Plan. (2) These stock options were granted to John M. Elwood as a director of the Company in connection with a grant of options to the directors. These stock options vest with respect to 15,000 shares on each of August 4, 1993, 1994, and 1995 and will continue to be exercisable through August 4, 1999, subject to the provisions of the Company's 1992 Stock Option Plan. (3) These stock options vest with respect to one third of the grant on each of June 18, 1994, 1995, and 1996 and will continue to be exercisable through June 18, 1999, subject to the provisions of the Company's 1992 Stock Option Plan. (4) Joseph Bernadino received separate stock option grants of 5,000 shares and 3,000 shares each. One third of the 5,000 share grant vests on each of June 18, 1994, 1995 and 1996 and will continue to be exercisable through June 18, 1999. One third of the 3,000 share grant vests on each of September 1, 1994, 1995 and 1996 and will continue to be exercisable through September 1, 1999. Both grants are subject to the Company's 1992 Stock Option Plan. 46 48 Aggregated option in fiscal year ended December 31, 1993 and year-end option values
Number of Value of Unexercised Unexercised Shares Options at in the Acquired Year-End Money Options on Value Exercisable/ Exercisable/ Name Exercise Realized Unexercisable Unexercisable - ---- -------- -------- -------------------- --------------------- David A. Simon . . . . . . . -0- -0- 125,000 250,000 $450,475 $901,550 John M. Elwood . . . . . . . -0- -0- 35,000 30,000 98,565 95,250 John H. Leavitt . . . . . . . -0- -0- -0- 8,000 -0- 22,000 Joseph Bernadino . . . . . . -0- -0- -0- 8,000 -0- 22,000 Richard T.Szymanski . . . . . -0- -0- -0- 5,000 -0- 13,750 Douglas W. Vicari . . . . . . -0- -0- -0- 5,000 -0- 13,750
Employment Agreement Under the Plan As provided in the Plan, Mr. David A. Simon and the Company executed an employment agreement which provides for an initial term of three years, with automatic successive one-year extensions unless a prior election is made by either party not to extend the agreement. The employment agreement provides for an annual base salary of $300,000 (which will increase annually based upon increases in the consumer price index), a discretionary annual bonus based on attainment of performance objectives set by the Board of Directors, a life insurance policy in an amount not less than $1,000,000, an automobile and other customary welfare benefits, including medical and disability insurance. The agreement also provides that, to the extent payments made by the Company for disability insurance, life insurance and the use of the automobile are subject to federal, state or local income taxes, the Company will pay Mr. Simon the amount of such additional taxes plus such additional amount as will be reasonable to hold him harmless from the obligation to pay such taxes. Pursuant to this employment agreement, Mr. Simon was granted stock options on July 31, 1992 to purchase 330,000 shares of Common Stock. Such stock options are exercisable with respect to 110,000 shares at the end of each of the first, second and third years of his employment, provided his employment has not been terminated by such date. This employment agreement may be terminated by the Company at any time, with or without cause. If the agreement is terminated by the Company prior to the expiration of the initial three-year term 47 49 without cause, or if Mr. Simon resigns because of circumstances amounting to constructive termination of employment, severance would be paid in a single lump sum equal to one-year's base salary or, if greater, the base salary that would have been payable over the remainder of the initial term. All stock options would become fully vested and remain exercisable for 90 days after termination or, if longer, until the expiration of the initial three year term. Any bonus awarded for the year of termination would be prorated. If the Company does not terminate the agreement prior to the expiration thereof, but elects not to extend the agreement beyond the initial term, severance would be payable in a single lump sum equal to one-year's base salary. If the agreement is terminated by the Company for cause (as such term is defined in the employment agreement), or if Mr. Simon resigns voluntarily under circumstances not amounting to a constructive termination of employment, no benefits are payable other than accrued but unpaid salary. Employment Agreements Subsequent to the Plan As of December 31, 1992, Mr. Elwood and the Company executed an employment agreement which has a term of one year. This employment agreement provides for an annual base salary of $240,000, a discretionary annual bonus based on attainment of performance objectives set by the Board of Directors, a life insurance policy in an amount not less than $480,000 (of which the Company will not pay premiums which exceed $5,000), moving expenses, an automobile, and other customary welfare benefits, including medical and disability insurance. Pursuant to the agreement, Mr. Elwood was granted stock options to purchase 20,000 shares of Common Stock which are now fully vested. The agreement expired on December 31, 1993 by its terms, but was extended on a day to day basis pending negotiation of a new contract. As of May 18, 1993, Mr. Paul H. Hower and the Company executed an employment agreement which has a term commencing June 23, 1993 and ending June 30, 1994. This employment agreement provides for an annual base salary of $180,000, a cash bonus of $10,000. a discretionary annual bonus based on attainment of performance objectives set by the Board of Directors, a life insurance policy in an amount not less than $360,000, moving expenses, an automobile, and other customary welfare benefits, including medical and disability insurance. Pursuant to the agreement, Mr. Hower was granted stock options as of June 23, 1993 to purchase 20,000 shares of Common Stock. Such stock options vest on June 30, 1994 provided his employment has not been terminated by such date. 48 50 The agreement may be terminated by the Company at any time, with or without cause. If the agreement is terminated by the Company prior to the expiration of the one year term without cause, or if Mr. Hower resigns because of circumstances amounting to constructive termination of employment, severance would be paid in a single lump sum equal to six month's base salary or, if greater, the base salary that would have been payable over the remainder of the term. All other benefits, any bonus (subject to adjustment) and any non-vested stock options (subject to adjustment) will terminate. If the agreement is terminated by the Company for cause (as such term is defined in the agreement), or if Mr. Hower resigns voluntarily under circumstances not amounting to a constructive termination of employment, no benefits are payable other than accrued but unpaid salary. As of March 1, 1993, Mr. John Stetz and the Company executed an employment agreement which has a term of one year. This employment agreement provides for an annual base salary of $115,000, an annual bonus equal to 10% of the first year base management fee for each management agreement obtained, and other customary welfare benefits, including medical and disability insurance. The Agreement expired on February 28, 1994. Stock Option Plans 1992 Stock Option Plan As provided in the Plan, the Company adopted the 1992 Stock Option Plan (the "SOP"), providing for the grant of non-qualified stock options to key employees, officers and directors. The SOP (but not outstanding options) will terminate on July 31, 2002 and is administered by the Audit and Compensation Committee of the Board of Directors (the "Committee"). The Company has reserved 1,320,000 shares of common stock for issuance upon the exercise of stock options under the SOP. During the fiscal year ended December 31, 1993 options covering 728,000 shares of common stock were granted. Recipients of options under the SOP are selected by the Committee. The Committee determines the terms of each option grant including the purchase price of shares subject to options, the dates on which options become exercisable and the expiration date of each option (which may not exceed six years from the date of grant). Of the 728,000 shares covered by option grants under the SOP, 45,000 were granted to Mr. David A. Simon and 45,000 were granted to Mr. John M. Elwood. Options to purchase 152,000 shares of common stock were granted to all current executive officers as a 49 51 group. The terms of these option grants are described above under the heading "Stock option grants during fiscal year ended December 31, 1993". Recipients of option grants under the SOP will have no voting, dividend or other rights as stockholders with respect to shares of common stock covered by stock options prior to becoming the holders of record of such stock. All stock option grants will permit the exercise price to be paid in cash, by tendering stock or by cashless exercise. The number of shares covered by stock options will be appropriately adjusted in the event of any merger, recapitalization or similar corporate event. The Board of Directors may at any time terminate the SOP or from time to time make such modifications or amendments to the SOP as it may deem advisable; provided that the Board may not, without the approval of stockholders, increase the maximum number of shares of common stock for which options may be granted under the SOP. 1992 Performance Incentive Plan As provided in the Plan, the Company adopted the 1992 Performance Incentive Plan (the "PIP") under which stock options covering an additional 330,000 shares of common stock were reserved for grants to one or more other executives, including those newly hired, at the discretion of Mr. David A. Simon. No options have been granted under the PIP. Mr. Simon will determine the terms of each option grant under the PIP including the purchase price of shares subject to options, the dates on which options become exercisable and the expiration date of each option (which may not exceed six years from the date of grant). Recipients of stock option grants under the PIP will have no voting, dividend or other rights as stockholders with respect to shares of Common Stock covered by stock options prior to becoming the holders of record of such stock. All stock option grants under the PIP will permit the exercise price to be paid in cash, by tendering stock or by cashless exercise. The number of shares covered by stock options under the PIP will be appropriately adjusted in the event of any merger, recapitalization or similar corporate event. The Board of Directors may at any time terminate the PIP or from time to time make such modifications or amendments to the PIP as it may deem advisable; provided that the Board may not, without the approval of stockholders, increase the maximum number of shares of Common Stock for which options may be granted under the PIP or 50 52 change the class of persons eligible to receive options under the PIP. Audit and Compensation Committee Report on Executive Compensation All members of the Audit and Compensation Committee are independent, non-employee Directors. As provided in the Plan, Mr. Simon and the Company are parties to an employment agreement which provides for an initial term of three years, with automatic successive one-year extensions unless a prior election is made by either party not to extend the agreement. The agreement provides for an annual base salary of $300,000 (which will increase annually based upon increases in the consumer price index) and a discretionary annual bonus based on attainment of performance objectives to be set by the Board of Directors. Pursuant to the Plan and his employment agreement, Mr. Simon was granted options to purchase 330,000 shares of Common Stock. Mr. Simon's employment agreement and option grants were approved by the former directors of the Company. During 1993, no bonus was paid to Mr. Simon pursuant to his employment agreement. The Company's compensation policy is designed to help the Company achieve its business objectives by: - setting levels of compensation designed to attract and retain qualified executive in a highly competitive business environment; - providing incentive compensation that varies directly with both the Company's financial performance and individual initiative and achievement contributing to such performance; and - linking compensation to elements which effect the Company's annual and long-term share performance. The Company intends to compensate executives and to grant stock options pursuant to the SOP in order to provide executives with a competitive total compensation package and reward them for their contribution to the Company's annual and long-term share performance. Compensation Committee Interlocks and Insider Participation Mr. Moore and Mr. Petrocelli have certain business relationships with the Company, which are described under the heading "Certain Relationships and Related Transactions." 51 53 AUDIT AND COMPENSATION COMMITTEE Herbert Lust, II (Chairman) Leon Moore A. F. Petrocelli Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth as of March 10, 1994, information with respect to the beneficial ownership of the Company's common stock by (i) each person known by the Company to own beneficially 5% or more of the Company's common stock, (ii) each director of the Company, (iii) the Company's Chief Executive Officer and each of the five remaining most highly compensated executive officers, and (iv) all executive officers and directors of the Company as a group.
Amount and Name and Address Nature Percent of of Beneficial Owner of Ownership Class (g) - -------------------- ------------ ----------- Ingalls & Snyder 61 Broadway New York, New York 10006(a) 2,506,123 8.6 David A. Simon(b) 108,895 * John M. Elwood(c) 42,122 * Herbert Lust, II(d) 20,700 * Leon Moore 50,000 * Allen J. Ostroff 5,000 * A.F. Petrocelli(e) 161,026 * John H. Leavitt(f) 111 * Joseph Bernadino 1,000 * Richard T. Szymanski -0- * Douglas W. Vicari -0- * All directors and executive officers as a group (13 persons) 395,140 1.4
(a) Ingalls & Snyder filed a Schedule 13G, dated February 1, 1994, with the Securities and Exchange Commission (the "SEC") 52 54 reporting ownership of 2,506,123 shares of common stock, with sole voting power with respect to 208,754 shares and sole dispositive power with respect to 2,506,123 shares. (b) Includes 101,726 shares owned by David A. Simon, 146 shares owned by his wife and 249 shares held by Mr. Simon as custodian for his children. Mr. Simon disclaims beneficial ownership of the shares owned by his wife and held as custodian for his children. Also includes warrants to purchase 6,774 shares with an exercise price of $2.71 a share, of which Mr. Simon disclaims beneficial ownership of 467 warrants owed by his wife and 697 warrants held as custodian for his children. (c) Includes warrants to purchase 12,122 shares with an exercise price of $2.71 a share. (d) Held by a trust under which Mr. Lust and his wife are co-trustees and beneficiaries. (e) These shares are owned by United Capital Corp. Mr. Petrocelli is Chairman of the Board of Directors and Chief Executive Officer of United Capital Corp. (f) Includes warrants to purchase 85 shares with an exercise price of $2.71. (g) The Directors and executive officers each own less than one percent of the outstanding common stock and own approximately one percent of the outstanding common stock as a group. Percentages were based on 29,200,204 shares outstanding as of March 10, 1994. Item 13. Certain Relationships and Related Transactions. Leon Moore, a Director of the Company, is the President, Chief Executive Officer and Chairman of the Board of ShoLodge, Inc. ("ShoLodge"). Pursuant to an agreement with the Company and Suites of America, Inc. ("SOA"), a wholly owned subsidiary of the Company, ShoLodge was appointed the exclusive agent to develop certain AmeriSuites hotel properties. ShoLodge is entitled to receive fees for each hotel property developed. In addition, ShoLodge may receive, among other things, a profit sharing interest in certain sites. During the fiscal year ended December 31, 1993, ShoLodge earned development fees of $-0- and loan origination fees of $40,349. As of December 31, 1993, the Company and SOA have outstanding loans in the amount of $18,361,000 owed to ShoLodge and in the 53 55 amount of $5,066,000 owed to the Bank of Nashville. Mr. Leon Moore is a director of The Bank of Nashville. The foregoing loans are secured by hotel properties owned by SOA. ShoLodge manages eight AmeriSuites hotel properties for the Company. During the fiscal year ended December 31, 1993, ShoLodge earned management fees and incentive fees totalling $468,000 from these AmeriSuites hotel properties. The Company and SOA are parties to agreements with ShoLodge which provide that, under certain circumstances, ShoLodge will contribute hotels to SOA, receive 50% ownership interest, and manage the AmeriSuites hotels owned by SOA pursuant to a new management agreement. In April 1993, the Company sold land located in Flagstaff, Arizona to an affiliate of Mr. Moore for the sum of $1.3 million. Upon its completion of the construction of an AmeriSuites hotel on the land in October 1993, Mr. Moore's affiliate sold the completed hotel to SOA for the sum of $5,875,000. ShoLodge financed a portion of the purchase price and received a mortgage on the hotel in the principal sum of $5,045,000. ShoLodge manages the hotel for SOA. In addition, in May 1993, the Company sold to an affiliate of Mr. Moore land located in Overland Park, Kansas on which the affiliate will build an AmeriSuites hotel for sum of $486,000. During 1993, the Company paid $2,376,000 in cash and cancelled its note receivable of $486,000 in full satisfaction of the profit participation of ShoLodge in four AmeriSuites hotel owned by SOA. An affiliate of Mr. Moore has entered into a contract to build a hotel for the Company in Tampa, Florida for $3,587,900. In April 1993, an affiliate of Mr. Moore completed construction of an AmeriSuites hotel located in Brentwood, Tennessee on land it leased from SOA and sold it to SOA for the sum of $4,035,000. ShoLodge financed the full purchase price and received a deed of trust on the hotel. The lease from SOA to the affiliate was terminated. ShoLodge manages the property for SOA. The Company uses the ShoLodge reservation system for its AmeriSuites and Wellesley Inn hotel properties. The total amount of reservation fees paid to ShoLodge for the fiscal year ended December 31, 1993 was approximately $222,000. A.F. Petrocelli, a Director of the Company, is the Chairman of the Board and Chief Executive Officer of United Capital Corp. In March 1994, the Company entered into management agreements with the corporate owners of two hotels who are affiliates of United Capital 54 56 Corp. During 1993, the Company managed and held a nonrecourse junior note and mortgage on a hotel property owned partially by a partnership comprised of David A. Simon and certain former officers and directors of the Company. In connection with a settlement in lieu of foreclosure between the first mortgagee and the owners in which the hotel was conveyed to the first mortgagee, the Company discharged its junior mortgage. During 1989, a partnership in which Peter E. Simon, father of David A. Simon, is a partner acquired an interest in three hotels from PMI. In partial payment PMI received nonrecourse junior loans aggregating $21,590,000. As of December 31, 1993, the aggregate balance owed on these loans was $21,472,766. The Company is currently in the process of restructuring these loans. Due to the nonrecourse junior nature of these loans and the insufficient cash generated by the hotels, no debt payments were made on these loans during 1993. During 1989, this same partnership acquired PMI's interest in eight hotel properties. In partial payment PMI received a junior non- recourse mortgage note in the principal amount of $9,647,450. The Company restructured this transaction as of December 1, 1992 by (i) conveying to the partnership its interest in one hotel property, and (ii) amending the principal amount and interest rate of the note to $8,103,362 and 8.2% per annum, respectively. No debt payments were made on these loans during 1993. During February 1990, this same partnership purchased from PMI a note owing from a third party in the original principal amount of $3,255,380. This partnership paid PMI $488,318 in cash and granted PMI an 85% note participation. In partial settlement of its claim on the note, the Company acquired a hotel located in Miami, Florida in which the partnership has a 15% interest. In December 1993, the Company entered into a management agreement with the corporate owner of a hotel in which Peter E. Simon is a stockholder. 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. 55 57 2. Financial Statement Schedules The Financial Statement Schedules listed in the accompanying index to financial statements are filed as part of this Annual Report. 3. Exhibits (2) (a) Reference is made to the Disclosure Statement for Debtors' Second Amended Joint Plan of Reorganization dated January 16, 1992, which includes the Debtors' Second Amended Plan of Reorganization as an exhibit thereto filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (3) (a) Reference is made to the Restated Certificate of Incorporation of the Company dated June 5, 1992 filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the Restated 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% Fixed Rate Senior Secured 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 Adjustable Rate Senior Secured 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% Junior Secured Note of the Company filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is 56 58 incorporated herein by reference. (d) 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. (e) Reference is made to the Form of 10.20% 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. (f) 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. (g) 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. (h) Reference is made to the Collateral Agency Agreement among the Company, U.S. Trust and the Secured Parties, 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. (i) Reference is made to the Security Agreement between the Company and U.S. Trust, 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. (j) Reference is made to the Subsidiary Guaranty from FR Delaware, Inc. to United States Trust Company of New York, dated as of July 31, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated 57 59 herein by reference. (k) Reference is made to the Security Agreement between FR Delaware, Inc. and United States Trust Company of New York, 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. (l) Reference is made to the Subsidiary Guaranty from Prime Note Collections Company, Inc. to United States Trust Company of New York, 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. (m) Reference is made to the Security Agreement between Prime Note Collections Company, Inc. and United States Trust Company of New York, 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. (n) 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. (10) (a) Reference is made to the Agreement of Purchase and Sale between Flamboyant Investment Company, Ltd. and VMS Realty, Inc. dated June 3, 1985, and its related agreements, each of which was included as Exhibits to the Form 8-K dated August 14, 1985 of PMI, which are incorporated herein by reference. (b) 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. 58 60 (c) Reference is made to the Employment Agreement dated as of July 31, 1992, between David A. Simon and 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 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. (e) 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. (f) 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. (g) Reference is made to the 1992 Non-Qualified Stock Option Agreement between the Company and David L. Barsky filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (i) Reference is made to the Employment Agreement dated as of December 31, 1992 between John Elwood and the Company filed as an Exhibit to the Company's Form 10-K dated March 26, 1993, which is incorporated herein by reference. (j) 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. (k) Employment Agreement dated as of March 1, 1993 between John Stetz and the Company. (l) Employment Agreement dated as of May 18, 1993 between Paul Hower. (m) Consolidated and Amended Settlement Agreement dated as of October 12, 1993 59 61 between Allan V. Rose and the Company. (11) Computation of Earnings Per Common Share. (21) Subsidiaries of the Company. (23) (a) Consent of Arthur Andersen & Co. (b) Consent of J.H. Cohn & Co. (b) Reports on Form 8-K: None 62 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEM 14 (A))
PAGE ----- FINANCIAL STATEMENTS: Report of Arthur Andersen & Co..................................................... F-2 Consolidated: Balance Sheets at December 31, 1993 and 1992.................................... F-3 Statements of Income for the Year Ended December 31, 1993 and the Five Months Ended December 31, 1992........................................................ F-4 Statements of Stockholders' Equity for the Year Ended December 31, 1993 and the Five Months Ended December 31, 1992............................................ F-5 Statements of Cash Flows for the Year Ended December 31, 1993 and the Five Months Ended December 31, 1992................................................. F-6 Notes to Consolidated Financial Statements......................................... F-7 Report of Arthur Andersen & Co. ................................................... F-20 Report of J.H. Cohn & Company...................................................... F-21 Consolidated: Balance Sheets at July 31, 1992 and June 30, 1992............................... F-23 Statements of Operations for the One Month Ended July 31, 1992 and the Years Ended June 30, 1992 and 1991................................................... F-24 Statements of Stockholders' Equity (Deficiency) for the One Month Ended July 31, 1992 and the Years Ended June 30, 1992 and 1991................................ F-25 Statements of Cash Flows for the One Month Ended July 31, 1992 and the Years Ended June 30, 1992 and 1991................................................... F-26 Notes to Consolidated Financial Statements......................................... F-27 Financial Statement Schedules: II Amounts Receivable from Related Parties, Underwriters, Promoters, and Employees Other than Related Parties.................................... F-50 V Property, Equipment and Leasehold Improvements............................ F-53 VI Accumulated Depreciation, Depletion and Amortization of Property, Equipment and Leasehold Improvements.................................... F-56 IX Short-Term Borrowings..................................................... F-58 X Supplementary Income Statement Information................................ F-59
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. Separate financial statements of 50% or less owned entities accounted for by the equity method have been omitted because such entities considered in the aggregate as a single subsidiary would not constitute a significant subsidiary. F-1 63 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Hospitality Corp.: We have audited the accompanying consolidated balance sheets of Prime Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as of December 31, 1993 and 1992 and the related consolidated statements of income, stockholders' equity and cash flows for the year ended December 31, 1993 and the five months ended December 31, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Prime Hospitality Corp. and subsidiaries as of December 31, 1993 and 1992 and the results of their operations and their cash flows for the year ended December 31, 1993 and the five months ended December 31, 1992 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements and financial statement schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. The schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Roseland, New Jersey March 17, 1994 F-2 64 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 (IN THOUSANDS, EXCEPT SHARE DATA)
1993 1992 -------- -------- ASSETS Current assets: Cash and cash equivalents........................................... $ 41,569 $ 36,616 Restricted cash..................................................... 10,993 12,896 Accounts receivable, net of reserves................................ 6,266 6,395 Current portion of mortgages and other notes receivable............. 2,275 6,898 Accrued interest receivable......................................... 3,954 3,038 Other current assets................................................ 3,145 2,661 -------- -------- Total current assets........................................ 68,202 68,504 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization.................................... 172,786 162,797 Mortgages and other notes receivable, net of current portion........ 163,033 165,654 Other assets........................................................ 6,664 6,359 -------- -------- TOTAL ASSETS................................................ $410,685 $403,314 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt............................................. $ 19,282 $ 18,275 Other current liabilities........................................... 22,445 23,011 -------- -------- Total current liabilities................................... 41,727 41,286 Long-term debt, net of current portion................................ 168,618 192,913 Other liabilities..................................................... 28,976 31,333 -------- -------- Total liabilities........................................... 239,321 265,532 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued......................................... -- -- Common stock, par value $.01 per share; 50,000,000 shares authorized; 33,075,880 and 33,000,000 shares issued and outstanding in 1993 and 1992, respectively...................... 331 330 Capital in excess of par value...................................... 157,476 136,059 Retained earnings................................................... 13,557 1,393 -------- -------- Total stockholders' equity.................................. 171,364 137,782 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $410,685 $403,314 -------- -------- -------- --------
See Accompanying Notes to Consolidated Financial Statements. F-3 65 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIVE YEAR MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, 1993 1992 -------- ------- Revenues: Rooms........................................................... $ 69,487 $24,639 Food and beverage............................................... 12,270 4,598 Management and other fees....................................... 10,831 5,000 Interest on mortgages and other notes receivable................ 14,765 6,335 Rental and other................................................ 1,507 762 -------- ------- Total revenues.......................................... 108,860 41,334 -------- ------- Costs and expenses: Direct hotel operating expenses: Rooms........................................................ 19,456 6,952 Food and beverage............................................ 10,230 4,027 Selling and general.......................................... 20,429 7,811 Occupancy and other operating................................... 11,047 4,351 General and administrative...................................... 15,685 5,929 Depreciation and amortization................................... 7,117 2,918 -------- ------- Total costs and expenses................................ 83,964 31,988 -------- ------- Operating income.................................................. 24,896 9,346 Interest income on cash investments............................... 1,267 693 Interest expense.................................................. (16,116) (7,718) Other income...................................................... 3,809 -- -------- ------- Income before income taxes and extraordinary items................ 13,856 2,321 Provision for income taxes........................................ 5,681 928 -------- ------- Income before extraordinary items................................. 8,175 1,393 Extraordinary items -- Gains on discharges of indebtedness (net of income taxes of $2,772)......................................... 3,989 -- -------- ------- Net income........................................................ $ 12,164 $ 1,393 -------- ------- -------- ------- Net income per common share: Income before extraordinary items............................... $ .24 $ .04 Extraordinary items............................................. .12 -- -------- ------- Net income per common share....................................... $ .36 $ .04 -------- ------- -------- -------
See Accompanying Notes to Consolidated Financial Statements. F-4 66 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
CAPITAL IN EXCESS COMMON STOCK OF ------------------ PAR RETAINED SHARES AMOUNT VALUE EARNINGS TOTAL --------- ---- -------- ------- -------- Balance August 1, 1992................. 33,000,000 $330 $135,270 $ -- $135,600 Net income............................. -- -- -- 1,393 1,393 Utilization of net operating loss carryforwards........................ -- -- 789 -- 789 --------- ---- -------- ------- -------- Balance December 31, 1992.............. 33,000,000 330 136,059 1,393 137,782 Net income............................. -- -- -- 12,164 12,164 Utilization of net operating loss carryforwards........................ -- -- 4,525 -- 4,525 Federal income tax refund.............. -- -- 16,462 -- 16,462 Compensation expense related to stock option plan.......................... -- -- 225 -- 225 Proceeds from exercise of stock options.............................. 30,000 -- 81 -- 81 Proceeds from exercise of stock warrants............................. 45,880 1 124 -- 125 --------- ---- -------- ------- -------- Balance December 31, 1993.............. 33,075,880 $331 $157,476 $13,557 $171,364 --------- ---- -------- ------- -------- --------- ---- -------- ------- --------
See Accompanying Notes to Consolidated Financial Statements. F-5 67 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FIVE YEAR MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, 1993 1992 -------- -------- Cash flows from operating activities: Net income......................................................... $ 12,164 $ 1,393 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................... 7,117 2,918 Utilization of net operating loss carryforwards................. 4,525 789 Deferred income taxes........................................... 1,541 -- Gains on discharges of indebtedness............................. (6,761) -- Gains on disposals of assets.................................... (1,769) -- Compensation expense related to stock options................... 225 -- Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable............................................. 269 320 Other current assets............................................ (1,791) (1,445) Other liabilities............................................... 4,208 (248) -------- -------- Net cash provided by operating activities.................. 19,728 3,727 -------- -------- Cash flows from investing activities: Proceeds from mortgages and other notes receivable................. 10,861 46,165 Disbursements for mortgages and other notes receivable............. (515) -- Proceeds from sales of property, equipment and leasehold improvements.................................................... 3,715 -- Purchases of property, equipment and leasehold improvements........ (14,346) (1,803) Decrease in restricted cash........................................ 1,903 9,939 Other.............................................................. 663 (506) -------- -------- Net cash provided by investing activities.................. 2,281 53,795 -------- -------- Cash flows from financing activities: Payments of debt................................................... (30,890) (56,592) Proceeds from issuance of debt..................................... 2,771 -- Proceeds from the exercise of stock options and warrants........... 206 -- Principal proceeds from federal income tax refund.................. 16,462 -- Reorganization items after emergence from bankruptcy............... (5,605) (3,807) -------- -------- Net cash used in financing activities...................... (17,056) (60,399) -------- -------- Net increase (decrease) in cash and cash equivalents................. 4,953 (2,877) Cash and cash equivalents at beginning of period..................... 36,616 39,493 -------- -------- Cash and cash equivalents at end of period........................... $ 41,569 $ 36,616 -------- -------- -------- --------
See Accompanying Notes to Consolidated Financial Statements. F-6 68 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Business Activities Prime Hospitality Corp. (the "Company") is a leading independent hotel operating company with ownership or management of full-service and limited-service hotels in the United States and one resort hotel in the U.S. Virgin Islands. The Company's hotels primarily provide moderately priced, quality accommodations in secondary or tertiary markets, and operate under franchise agreements with national hotel chains or under the Company's proprietary Wellesley Inns or AmeriSuites trade names. In addition to its hotel operations, the Company has a portfolio of financial assets including mortgages and notes receivable secured by hotel properties and owns real estate that is not part of its hotel operations. The Company emerged from the Chapter 11 reorganization case of its predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"), which consummated its Plan of Reorganization ("the Plan") on July 31, 1992 (the "Effective Date"). PMI and certain of its subsidiaries had filed for protection under Chapter 11 of the United States Bankruptcy Code in September of 1990. During the reorganization, PMI renegotiated most of its leases, management agreements and debt commitments, resulting in the elimination of a substantial number of unprofitable contract relationships and excessive debt obligations. Basis of presentation Pursuant to the American Institute of Certified Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start reporting as of July 31, 1992. Under fresh start reporting, the reorganization value of the entity was allocated to the reorganized Company's assets on the basis of the purchase method of accounting. The reorganization value (the approximate fair value) of the assets of the emerging entity was determined by consideration of many factors and various valuation methods, including discounted cash flows and price/earnings and other applicable ratios believed by management to be representative of the Company's business and industry. Liabilities were recorded at face values, which approximate the present values of amounts to be paid determined at appropriate interest rates. Under fresh start reporting, the consolidated balance sheet as of July 31, 1992 became the opening consolidated balance sheet of the emerging Company. In accordance with SOP 90-7, financial statements covering periods prior to July 31, 1992 are not presented because such statements have been prepared on a different basis of accounting and are thus not comparable. Principles of consolidation The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents Cash equivalents are highly liquid unrestricted investments with a maturity of three months or less when acquired. Restricted cash Restricted cash consists primarily of highly liquid investments that serve as collateral for debt obligations due within one year. F-7 69 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) Mortgages and other notes receivable Mortgages and other notes receivable are reflected at their fair value as of July 31, 1992, adjusted for payments and other advances since that date. The amount of interest income recognized on mortgages and other notes receivable is generally based on the stated interest rate and the carrying value of the notes. The Company has a number of subordinated or junior mortgages which remit payment based on hotel cash flow. Because there is substantial doubt that the Company will recover their face value, these mortgages have not been valued in the Company's consolidated financial statements. Interest on cash flow mortgages and delinquent loans is only recognized when cash is received. Property, equipment and leasehold improvements Property, equipment and leasehold improvements that the Company intends to continue to operate are stated at their fair market value as of July 31, 1992 plus the cost of acquisitions subsequent to that date less accumulated depreciation and amortization from August 1, 1992. Provision is made for depreciation and amortization using the straight-line method over the estimated useful lives of the assets. Properties identified for disposal are stated at their estimated net realizable value. Income taxes The Company and its subsidiaries file a consolidated Federal income tax return. For financial reporting purposes, the Company follows Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 ("FAS 109"). In accordance with FAS 109, as well as SOP 90-7, income taxes have been provided at statutory rates in effect during the period. Tax benefits associated with net operating loss carryforwards and other temporary differences that existed at the time fresh start reporting was adopted are reflected as a contribution to stockholders' equity in the period in which they are realized. Income per common share Net income per common share is computed based on the weighted average number of common shares and common share equivalents outstanding during each period. The weighted average number of common shares used in computing primary net income per share was 33,808,000 for the year ended December 31, 1993 and 33,000,000 for the five months ended December 31, 1992. The dilutive effect of stock warrants and options during the year ended December 31, 1993 and the five months ended December 31, 1992 was not material (see Note 10). Reclassifications Certain reclassifications have been made to the December 31, 1992 consolidated financial statements to conform them to the December 31, 1993 presentation. NOTE 2 -- CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of the following (in thousands):
DECEMBER 31, -------------------- 1993 1992 ------- ------- Cash................................................... $ 3,013 $ 1,526 Commercial paper and other cash equivalents............ 38,556 35,090 ------- ------- Totals....................................... $41,569 $36,616 ------- ------- ------- -------
F-8 70 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) NOTE 3 -- MORTGAGES AND OTHER NOTES RECEIVABLE Mortgages and other notes receivable are comprised of the following (in thousands):
DECEMBER 31, --------------------- 1993 1992 -------- -------- Frenchman's Reef resort hotel (a)..................... $ 50,000 $ 50,000 Rose and Cohen entities (b)........................... 25,000 25,000 Other properties managed by the Company (c)........... 65,323 62,070 Other (d)............................................. 24,985 35,482 -------- -------- Total....................................... 165,308 172,552 Less current portion.................................. 2,275 6,898 -------- -------- Long-term portion..................................... $163,033 $165,654 -------- -------- -------- --------
- --------------- (a) These mortgage notes are secured by the Marriott Frenchman's Reef resort hotel, which is managed by the Company, and consist of first and second mortgages with face values of $53,383,000 and $25,613,000, respectively, with final scheduled principal payments of $51,976,000 and $25,613,000 due on July 31, 1995. The notes bear interest at a stated rate of 13%. Interest and principal payments on the first mortgage are payable in monthly installments. Interest and scheduled principal payments on the second mortgage note are payable only to the extent of available cash flow, as defined, with any unpaid interest due at maturity. In connection with the adoption of fresh start reporting, the Company valued the notes at $50,000,000. During the year ended December 31, 1993 and five months ended December 31, 1992, the Company recognized $4,250,000 and $1,770,000 of interest income on these notes, respectively (an effective rate of approximately 8.5%), based on the current level of cash flows generated from the hotel property available to service the notes. During 1993, the Company entered into a restructuring agreement related to these notes with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In conjunction with the agreement, FRBA filed a pre-negotiated Chapter 11 petition in September 1993. The disclosure statement setting forth the plan of reorganization dated October 21, 1993 provided for the Company to receive ownership and control of the hotel through a 100% equity interest in the reorganized FRBA. The plan also provided for the existing equity holders and any other impaired claim holders to participate in excess cash flow above specified levels and all administrative and unsecured trade claims incurred in the ordinary course of business to be paid in full. A group purporting to represent a significant number of limited partners has filed an objection to the disclosure statement and has challenged the authority of the general partner. These holders have also indicated that they intend to challenge the validity of the Company's lien. In light of this uncertainty, the Company intends to defend its position and pursue a foreclosure of its mortgages and has filed a motion to lift the stay of relief under the Chapter 11 petition to permit a commencement of a foreclosure action. The motion is subject to approval by the Bankruptcy Court. In the event that the Company is successful in its foreclosure proceedings and obtains title to the property, the assets and liabilities of the Frenchman's Reef resort hotel will be included in the consolidated financial statements of the Company at an initial net carrying value equal to the carrying value of the notes. (b) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and Arthur Cohen (the "Rose and Cohen entities"), an aggregate of $100,890,000 which was initially fully secured by property and/or F-9 71 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) personal guarantees. PMI was committed to make additional loans, also on a fully secured basis, to the Rose and Cohen entities of up to an aggregate of $130,000,000 if values of, and/or revenues generated by, certain hotel properties controlled by the Rose and Cohen entities attained specified levels. PMI was to receive a minimum annual return of 10% on all loans made to the Rose and Cohen entities and a maximum return of 20%. All loans and unpaid interest are payable on December 31, 1997. In 1992, certain of the Rose and Cohen entities owning a portion of the collateral that secures the loans filed for Chapter 11 protection in the United States Bankruptcy Court, Southern District of New York. Also during 1992, PMI commenced an adversary proceeding against Rose and Cohen to recover jointly and severally on the personal guarantees of $50,000,000 given by Rose and Cohen as part of the loan agreement. The accrual of interest on the Rose and Cohen note was discontinued in fiscal 1990 and the notes were reflected at their estimated net realizable value. In June 1993, the Company reached a settlement with Allan Rose and Arthur Cohen. The settlement provided for an affiliate of Rose to purchase the notes for the sum of $25,000,000 in cash, which was fully funded into escrow by Rose on February 25, 1994. The Company is also to receive the cash proceeds from approximately 1,100,000 shares of the Company's common stock owned by Rose which will be liquidated over a period of time. In addition, pursuant to the settlement, certain bankruptcy claims against PMI have been withdrawn (see Note 7). The settlement is subject to a claim on the entire amount of the proceeds by Financial Security Assurance, Inc. ("FSA"). A trial was held in the United States Bankruptcy Court for the Southern District of Florida in January 1994 to approve the settlement agreement and resolve FSA's claim on the settlement proceeds. The Company expects an order to be issued by that court in the near future, which may be subject to appeal. All proceeds received pursuant to the settlement must be held in escrow until such order is received. The Company believes that FSA is unlikely to prevail on its claim, and as a result, does not believe it will have a material impact on the financial statements. Upon receipt of a favorable order from the court, substantially all of the net proceeds will be used to retire debt (see Note 6). (c) The Company is the holder of mortgage notes receivable with a book value of $50,670,000 secured primarily by 11 hotel properties operated by the Company under management agreements and $14,653,000 in mortgages secured primarily by 4 properties operated under lease agreements. These notes currently bear interest at rates ranging from 8.5% to 14.0% and mature through 2003. The mortgages were primarily derived from the sales of hotel properties. Many of the 11 managed properties were unable to pay in full the annual debt service required under the terms of the original mortgages. The Company has restructured approximately $36,500,000 of these loans to pay based upon available cash and a participation in the future excess cash flow of such hotel properties. The restructurings generally include a "senior portion" featuring defined payment terms, and a "junior portion" payable annually based on cash flow. The junior portion represents the difference between the original mortgage and the new senior portion and provides the Company the opportunity to recover that difference if the hotel's performance improves. In addition to the junior portions of the restructured mortgages, the Company holds junior or other cash flow mortgages and subordinated interests in 19 other hotel properties operated by the Company under management agreements. The Company's consolidated balance sheets do not reflect any value related to the junior portion of the restructured notes or the junior mortgages and subordinated interests on the 19 other hotels as there is substantial doubt that the Company will recover any of their face value. During 1993, the Company recognized $976,000 of interest income related to these mortgages due to excess cash flow on certain properties attributable to decreased interest expense on variable rate borrowings senior to the Company's positions on these hotels. F-10 72 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) (d) Other notes receivable currently bear interest at effective rates ranging from 4% to 11%, mature through 2011 and are secured primarily by hotel properties not currently managed by the Company. NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consist of the following (in thousands):
DECEMBER 31, YEARS OF -------------------- USEFUL 1993 1992 LIFE -------- -------- -------- Land and land leased to others............... $ 29,407 $ 26,074 Hotels....................................... 109,671 97,179 20 to 40 Furniture, fixtures and autos................ 21,879 18,333 3 to 10 Leasehold improvements....................... 10,222 15,771 3 to 40 Construction in progress..................... 2,555 -- Properties held for sale..................... 8,355 8,000 -------- -------- Sub-total............................... 182,089 165,357 Less accumulated depreciation and amortization.......................... (9,303) (2,560) -------- -------- Totals............................. $172,786 $162,797 -------- -------- -------- --------
At December 31, 1993, the Company was the lessor of land and certain restaurant facilities in Company-owned hotels with an approximate aggregate book value of $8,676,000 pursuant to noncancelable operating leases expiring on various dates through 2013. Minimum future rentals under such leases are $10,730,000, of which $3,939,000 is scheduled to be received in the aggregate during the five-year period ending December 31, 1998. Depreciation and amortization expense on property, equipment and leasehold improvements was $7,015,000 for the year ended December 31, 1993 and $2,784,000 for the five months ended December 31, 1992. NOTE 5 -- OTHER CURRENT LIABILITIES Other current liabilities consist of the following (in thousands):
DECEMBER 31, ------------------- 1993 1992 ------- ------- Accounts payable........................................ $ 2,025 $ 1,626 Interest................................................ 4,454 4,933 Accrued payroll and related benefits.................... 2,190 3,181 Insurance reserves...................................... 6,206 2,103 Reorganization reserve.................................. 676 5,497 Other................................................... 6,894 5,671 ------- ------- Totals........................................ $22,445 $23,011 ------- ------- ------- -------
F-11 73 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) NOTE 6 -- DEBT Debt consists of the following (in thousands):
DECEMBER 31, --------------------- 1993 1992 -------- -------- Senior secured notes(a)............................... $ 33,152 $ 37,009 Junior secured notes(a)............................... 53,531 69,999 Mortgages and other notes payable(b).................. 99,946 104,180 Borrowings under credit agreement(c).................. 1,271 -- -------- -------- Total debt............................................ 187,900 211,188 Less current maturities............................... 19,282 18,275 -------- -------- Debt, net of current portion................ $168,618 $192,913 -------- -------- -------- --------
- --------------- (a) Pursuant to the Plan, the Company issued two classes of Secured Notes which are identified as "Senior Secured Notes" and "Junior Secured Notes". Senior Secured Notes were issued in two series of notes which are identified as the "8.20% Fixed Rate Senior Secured Notes" and the "Adjustable Rate Senior Secured Notes". Each series is identical except that the interest rate on the Adjustable Rate Senior Secured Notes will be periodically adjusted to one-half of one percent over the prime rate, with a maximum interest rate of 10.0% per annum. The aggregate principal amount of Senior Secured Notes issued under the Plan was $91,300,000, comprised of $30,100,000 of 8.20% Fixed Rate Senior Secured Notes and $61,200,000 of Adjustable Rate Senior Secured Notes. On August 11, 1992, the Company prepaid $17,900,000 of the 8.20% Fixed Rate Senior Secured Notes and $36,400,000 of the Adjustable Rate Senior Secured Notes from the proceeds of collections of portions of the collateral for the Senior Secured Notes. The other class of Secured Notes issued to satisfy claims was comprised of Junior Secured Notes that bear interest at a rate of 9.20% per annum and will mature on July 31, 2000. The aggregate principal amount of Junior Secured Notes issued under the Plan was approximately $70,000,000. The collateral for the Secured Notes consists primarily of mortgages and other notes receivable and real property, net of related liabilities, (the "Secured Note Collateral") with a book value of $104,790,000 as of December 31, 1993. Interest on the Secured Notes is payable semi-annually commencing January 31, 1993. The Secured Notes require that 85% of the cash proceeds from the Secured Note Collateral be applied first to interest, second to prepayment of the Senior Secured Notes and third to prepayment of the Junior Secured Notes. Any remaining principal balance of the Senior Secured Notes is due July 31, 1997. Aggregate principal payments on the Junior Secured Notes are required in order that one-third of the principal balance outstanding on December 31, 1996 is paid by July 31, 1998; two-thirds of the balance is paid by July 31, 1999; and all of the balance is paid by July 31, 2000. To the extent the cash proceeds from the Secured Note Collateral are insufficient to pay interest or required principal payments on the Secured Notes, the Company will be obligated to pay any deficiency out of its general corporate funds. The Secured Notes contain covenants which, among other things, require the Company to maintain a net worth of at least $100,000,000, limit expenditures related to the development of hotel properties through December 31, 1996 and preclude cash distributions to stockholders, including dividends and redemptions, until the Secured Notes have been paid in full. F-12 74 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) During 1993, the Company repurchased $513,000 of its 8.2% Senior Secured Notes and $16,467,000 of its 9.2% Junior Secured Notes for an aggregate purchase price of $13,249,000. The Company recorded pre-tax extraordinary gains of $3,731,000 related to these repurchases. During the first quarter of 1994, the Company repurchased $6,527,000 of its Adjustable Rate Senior Secured Notes, $217,000 of its 8.20% Senior Secured Notes and $461,000 of its 9.20% Junior Secured Notes for an aggregate purchase price of $7,018,000. The repurchases resulted in pretax extraordinary gains of $187,000, which will be reflected in the Company's first quarter 1994 consolidated financial statements. These notes have been classified as long-term debt at December 31, 1993, in accordance with their terms, as repurchase was not contemplated at the balance sheet date. During the first quarter of 1994, the Company purchased through a third party agent approximately $5.2 million of its Senior Secured and Junior Secured Notes for aggregate consideration of $4.8 million. These notes are currently held by the third party agent and have not been retired due to certain restrictions under the note agreements. The purchases will be recorded as investments on the Company's balance sheet and no gain will be recorded on these transactions until the notes mature or are redeemed. (b) The Company has mortgage and other notes payable of approximately $66,039,000 that are secured by mortgage notes receivable and hotel properties with a book value of $104,324,000. Principal and interest on these mortgages and notes are generally paid monthly. At December 31, 1993 these notes bear interest at rates ranging from 4.68% to 10.5% and mature through 2008. At December 31, 1993, the Company has outstanding loans in the amount of $18,361,000 payable to ShoLodge, Inc. ("ShoLodge"), a company controlled by a director. The foregoing loans are secured by AmeriSuites hotel properties with an aggregate book value of $35,588,000. Interest is payable monthly at rates ranging from 8% (the prime rate plus 2%) to 9.5% (Note 9) and mature through April 1996. The Company has $11,665,000 of notes restructured under the Plan which bear interest at rates ranging from 8.00% to 9.50% per annum payable semi-annually. Prior to maturity, principal amounts outstanding will be paid semi-annually based on a thirty-year amortization schedule. Each note matures on July 31, 2002 and is secured by a lien on mortgage notes receivable and hotel properties with a book value of $11,074,000 at December 31, 1993. During 1993, the Company repurchased $8,828,000 of these notes for an aggregate purchase price of $5,799,000. The repurchase resulted in a pre-tax extraordinary gain of $3,030,000. The Company has other notes payable of $3,881,000, which bear interest at rates ranging from 8.0% to 8.2% and mature through 1999. (c) The Company has a fully-secured demand credit agreement which permits borrowing of up to $5,000,000 and bears interest at the prime rate plus 2%. This facility is supported by a certificate of deposit which is maintained by the bank. Maturities of long-term debt for the next five years ending December 31 are as follows (in thousands): 1994.............................................. $ 19,282 1995.............................................. 8,931 1996.............................................. 42,754 1997.............................................. 34,903 1998.............................................. 19,586 Thereafter........................................ 62,444 -------- Total................................... $187,900 -------- --------
F-13 75 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) NOTE 7 -- LEASE COMMITMENTS AND CONTINGENCIES Leases The Company leases various hotels under lease agreements with initial terms expiring at various dates from 1994 through 2015. The Company has options to renew certain of the leases for periods ranging from 1 to 94 years. Rental payments are based on minimum rentals plus a percentage of the hotel properties' revenues in excess of stipulated amounts. 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, 1993 (in thousands): 1994............................................... $ 4,028 1995............................................... 3,989 1996............................................... 3,957 1997............................................... 3,925 1998............................................... 3,756 Thereafter......................................... 38,817 ------- Total.................................... $58,472 ------- -------
Rental expense for all operating leases, including those with terms of less than one year, consist of the following for the year ended December 31, 1993 and the five months ended December 31, 1992 (in thousands):
1993 1992 ------ ------ Rentals................................................... $5,009 $1,844 Contingent rentals........................................ 764 266 ------ ------ Rental expense.................................. $5,773 $2,110 ------ ------ ------ ------
Employee Benefits The Company does not provide any material post employment benefits to its current or former employees. Contingent Claims As of March 1, 1994, unresolved bankruptcy claims of approximately $437,000,000 have been asserted against PMI. The Company has disputed substantially all of these unresolved claims and has filed objections to such claims. The Company believes that substantially all of these claims will be dismissed and disallowed. Any claims not disallowed will be satisfied through the distribution of the Company's common stock. In accordance with SOP 90-7, the consolidated financial statements have given full effect to the maximum distribution, pursuant to the Plan of the Company's common stock (see Note 10). The Company has responded to informal requests for information by the Staff of the United States Securities and Exchange Commission's Division of Enforcement relating to a number of the significant transactions of PMI, for the years 1985 through 1991. However, no formal allegations have been made by the Staff. In addition to the foregoing legal proceedings, the Company is involved in various other proceedings incidental to the normal course of its business. F-14 76 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) The Company believes that the resolution of these contingencies will not have a material adverse effect on the Company's consolidated financial position or results of operations. Financial Instruments and Concentration of Credit Risk The Company's accounts receivable and mortgages and other notes receivable (see Note 3) are derived primarily from and are secured by hotel properties, which constitutes a concentration of credit risk. These notes are subject to many of the same risks as the Company's operating hotel assets. A significant portion of the collateral is located in the Northeastern and Southeastern United States. In addition to the hotel property related receivables referred to above, the Company's financial instruments include (i) assets; cash and cash equivalents and restricted cash investments and (ii) liabilities; trade and notes payable and long-term debt (see Note 6). As described in Note 1, in connection with the adoption of fresh start accounting as of July 31, 1992, the Company revalued its assets and liabilities at amounts approximating fair market value. Since there have been no substantive changes in market conditions since the date of the revaluation and on the basis of market quotes and experience on recent redemption offers for the Company's long-term debt, the Company believes that the carrying amount of these financial instruments approximated their fair market value as of December 31, 1993 and 1992. As a result of the reorganization proceedings and the rejection of certain leases, management contracts and other guarantees, the Company has no other material off-balance-sheet liabilities or credit risk as of December 31, 1993. NOTE 8 -- INCOME TAXES The provision for income taxes (including amounts applicable to extraordinary items) consisted of the following for the year ended December 31, 1993 and the five months ended December 31, 1992 (in thousands):
DECEMBER 31, ---------------- 1993 1992 ------ ---- Current: Federal.................................................. $2,167 $ -- State.................................................... 220 139 ------ ---- 2,387 139 Deferred: Federal.................................................. 5,049 789 State.................................................... 1,017 -- ------ ---- 6,066 789 ------ ---- Total............................................ $8,453 $928 ------ ---- ------ ----
Income taxes are provided at the applicable federal and state statutory rates. F-15 77 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) The tax effects of the temporary differences in the areas listed below resulted in deferred income tax provisions for the year ended December 31, 1993 and the five months ended December 31, 1992 (in thousands):
DECEMBER 31, ---------------- 1993 1992 ------ ---- Utilization of net operating loss.......................... $4,525 $789 Basis difference -- properties and notes................... 1,356 -- Allowance for doubtful accounts............................ (545) -- Depreciation............................................... 415 -- Gains on property sales.................................... (366) -- Property transactions...................................... 348 -- Other...................................................... 333 -- ------ ---- Total............................................ $6,066 $789 ------ ---- ------ ----
At December 31, 1993, the Company had available federal net operating loss carryforwards of approximately $121,000,000 which will expire beginning in 2005 and continuing through 2008. Of this amount, $114,000,000 is subject to an annual limitation of $8,735,000 under the Internal Revenue Code due to a change in ownership of the Company upon consummation of the Plan. The Company also has potential state income tax benefits relating to net operating loss carryforwards of approximately $9,900,000 which will expire during various periods from 1995 to 2006. Certain of these potential benefits are subject to annual limitations similar to federal requirements due to a change in ownership. The utilization is further dependent on such factors as the level of business conducted in each state and the amount of income subject to tax within each state's carryforward period. In accordance with FAS 109, the Company has not recognized the future tax benefits associated with the net operating loss carryforwards or with other temporary differences. Accordingly, the Company has provided a valuation allowance of approximately $42,000,000 against the deferred tax asset as of December 31, 1993. To the extent any available carryforwards or other tax benefits are utilized, the amount of tax benefit realized will be treated as contribution to stockholders' equity and will have no effect on the income tax provision for financial reporting purposes. For the year ended December 31, 1993 and the five months ended December 31, 1992, the Company recognized $4,525,000 and $789,000, respectively, of such tax benefits as a contribution to stockholders' equity. The Company's federal income tax returns for the years 1987 through 1991 were examined by the Internal Revenue Service. The Company received a $17,700,000 federal income tax refund, including interest relating to its predecessor, PMI. In accordance with SOP 90-7, the Company recorded the tax refund and the interest related to its predecessor as a contribution to additional paid in capital ($16,462,000). The remaining amount of $1,238,000, which represents interest since July 31, 1992, is included in other income in the accompanying financial statements. F-16 78 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) NOTE 9 -- RELATED PARTY TRANSACTIONS The following summarizes significant financial information with respect to transactions with present and former officers, directors, their relatives and certain entities they control or in which they have a beneficial interest for the year ended December 31, 1993 and the five months ended December 31, 1992 (in thousands):
DECEMBER 31, -------------- 1993 1992 ---- ---- Management and other fee income (a)......................... $810 $312 Interest income (a)......................................... 14 72 Management fee expense (b).................................. 222 162 Interest expense (b)........................................ 475 332 Reservation fee expense (b)................................. $468 $101
- ------------ (a) The Company manages 12 hotels for partnerships in which a related party owns various interests. The income amounts shown above primarily include transactions related to these hotel properties. (b) In 1991, PMI entered into an agreement (the "Development Agreement") with ShoLodge, whereby ShoLodge was appointed the exclusive agent to develop and manage certain hotel properties. The Company has loans payable to ShoLodge of $18,361,000 at December 31, 1993 related to the development of Hotels (see Note 6). In January 1993, the Company and its wholly-owned subsidiary, Suites of America, Inc. ("SOA") entered into agreements with ShoLodge designed to enhance the growth of its AmeriSuites hotel chain from the six hotels owned at that time by adding an additional six hotels to be built and financed by ShoLodge. ShoLodge has completed development of three hotels, two of which the Company has acquired subject to mortgages with ShoLodge. In addition, ShoLodge has three hotels currently under construction. Upon completion of the new hotels and the exercise of an option by either ShoLodge or the Company, ShoLodge will contribute its fee or mortgage interests on six hotels to SOA and will own a 50% interest in SOA. Upon exercise of this option, the Development Agreement will terminate and ShoLodge will manage all 12 hotels in SOA pursuant to a new management agreement. The Company will retain ownership of the AmeriSuites brand name and all rights to license and develop the name for its own account. In conjunction with the agreement, ShoLodge has also relinquished its profit sharing interests of $2,862,000 on the initial six hotels for cash and the cancellation of a note receivable. The Company uses the ShoLodge reservation system for its Wellesley and AmeriSuites hotel properties. NOTE 10 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS Pursuant to the Plan, on July 31, 1992 the Company began distributing shares of common stock to certain claimants and holders of PMI stock. The Plan provided for issuance of 33,000,000 shares of common stock and as of March 10, 1994, 29,124,324 shares of common stock were distributed. The remaining shares are to be distributed semi-annually to holders of previously allowed claims and pending final resolution of disputed claims (see Note 7). The consolidated financial statements have given full effect to the issuance of the maximum amount of 33,000,000 shares under the Plan. The number of shares ultimately distributed under the Plan could be less than 33,000,000 depending on the final outcome of the disputed claims. In addition to the shares distributed under the Plan, warrants to purchase 2,100,000 shares of the Company's common stock were issued to former shareholders of the Company's predecessor, PMI, in partial settlement of their bankruptcy interests. The warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per share. The exercise price was determined from the average per share daily closing price of the Company's F-17 79 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) common stock during the year following its reorganization on July 31, 1992. As of December 31, 1993, 45,880 shares have been exercised. On July 31, 1992, the Company adopted various stock option and performance incentive plans under which options to purchase up to 1,320,000 shares of common stock may be granted to directors, officers or key employees under terms determined by the Board of Directors. During 1993 and 1992, options to purchase 20,000 and 350,000 shares, respectively, were granted to officers and directors, 130,000 of which are exercisable at December 31, 1993. In addition, options to purchase 330,000 shares were granted to a former officer in 1992. Such options are currently exercisable and expire on July 31, 1995. During 1993, 30,000 of these options were exercised. The exercise prices of the above options are based on the average market price one year from the date of grant and have been determined to be $2.71 per share. Based on this exercise price, the amount of compensation expense attributable to these options was $225,000 for the year ended December 31, 1993. In June 1993, options to purchase 393,000 shares of common stock were granted to employees under the Company's stock option plan. The options were granted at $3.625, which approximates the fair market value at the date of grant. Generally, options can be exercised during a participant's employment with the Company in equal annual installments over a three-year period and expire six years after the date of grant. In August 1993, options to purchase 315,000 shares of common stock were granted to the members of the Company's Board of Directors. The options were granted at $3.20, which approximates the fair market value at the date of grant. One-third of these options became exercisable at the date of grant and the remaining options can be exercised in equal annual installments over a two year period. The options expire six years after the date of grant. Summary of the stock option plans are as follows:
OPTION NUMBER PRICE OF SHARES PER SHARE --------- ----------- Outstanding -- July 31, 1992....................... -- Granted............................................ 680,000 $2.71 --------- Outstanding -- December 31, 1992................... 680,000 2.71 Granted............................................ 728,000 $2.71-$3.63 Exercised.......................................... (30,000) $2.71 Cancelled.......................................... (77,000) $2.71-$3.63 --------- Outstanding at December 31, 1993................... 1,301,000 --------- ---------
F-18 80 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1992 (CONTINUED) NOTE 11 -- TRANSITION PERIOD FINANCIAL INFORMATION (UNAUDITED) Following the Effective Date, the Company elected to change its fiscal year end from June 30 to December 31. As described in Note 1, financial statements for periods prior to the Effective Date have been prepared on a different basis of accounting and are thus not comparable. Selected financial information for the six months ended December 31, 1992 and 1991, prepared on a pro-forma basis as if the Plan became effective on June 30, 1991, are as follows (in thousands, except per share amounts):
SIX MONTHS ENDED DECEMBER 31, ------------------- 1992 1991 ------- ------- Revenues................................................ $50,820 $73,379 Income before income taxes.............................. 2,068 1,038 Net income.............................................. 1,241 623 Net income per common share............................. $ .04 $ .02
NOTE 12 -- SUPPLEMENTAL CASH FLOW INFORMATION The following summarizes non-cash investing and financing activities for the year ended December 31, 1993 and the five months ended December 31, 1992 (in thousands):
DECEMBER 31, ------------------ 1993 1992 ------ ------ Hotels acquired in exchange for the assumption of mortgage notes payable................................. $9,161 $ -- Hotels received in settlement of mortgage notes receivable............................................. 3,500 7,800 Sale of hotel in exchange for a mortgage note receivable............................................. $6,500 $ --
Cash paid for interest was $16,347,000 for the year ended December 31, 1993 and $2,981,000 for the five months ended December 31, 1992. Cash paid for income taxes was $2,697,000 for the year ended December 31, 1993 and $0 for the five months ended December 31, 1992. F-19 81 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Hospitality Corp.: We have audited the accompanying consolidated balance sheet of Prime Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as of July 31, 1992 and the related consolidated statements of operations, stockholders' equity and cash flows for the one month then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Prime Hospitality Corp. and subsidiaries as of July 31, 1992 and the results of their operations and their cash flows for the one month then ended in conformity with generally accepted accounting principles. As discussed in Note 8, the Company held an investment in a mortgage note receivable from certain entities with a face value of $100,890,000 that is valued at $25,000,000 at July 31, 1992. The realization of this investment is dependent primarily on the ability of the Company to recover such amount pursuant to the personal guarantees provided by two individuals who control the entities that are the obligors under the mortgage note and own the hotel properties that serve as the underlying collateral for the note. The Company has commenced a legal action to recover pursuant to such guarantees; however, the financial statements do not include any adjustments that might result from the outcome of this matter. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements and financial statement schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. The schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Roseland, New Jersey March 10, 1993 F-20 82 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Motor Inns, Inc. (Debtor-in-Possession) We have audited the consolidated balance sheet of Prime Motor Inns, Inc. and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the years ended June 30, 1992 and 1991. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedules for the years ended June 30, 1992 and 1991. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Prime Motor Inns, Inc. and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and their results of operations and cash flows for the years ended June 30, 1992 and 1991, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein for the years ended June 30, 1992 and 1991. As discussed in Note 8, the Company held an investment in a mortgage note receivable from certain entities with a face value of $100,890,000 that had been written down to $30,000,000 at June 30, 1992. The realization of the carrying value is dependent primarily on the ability of the Company to recover such amount pursuant to the personal guarantees provided by the two individuals who control the entities that are the obligors under the mortgage note and the owners of the hotel properties that serve as the underlying collateral for the loan. The Company has commenced a legal action to recover pursuant to such guarantees; however, the outcome of this action is not presently determinable. As discussed in Note 12, the Company has reflected pre-petition and certain post-petition claims in the consolidated balance sheet as of June 30, 1992 as liabilities subject to compromise based on its estimate of the aggregate amount that will ultimately be allowable for settlement upon consummation of the plan of reorganization; however, the aggregate amount claimed by creditors is substantially in excess of the liability recorded by the Company. The actual aggregate amount of allowable pre and post-petition claims cannot presently be determined. As discussed in Note 15, the Company and certain of its present and former officers and directors are defendants in certain consolidated class action complaints alleging federal securities law violations and other claims. The ultimate outcome of such litigation cannot presently be determined. The eventual outcome of the matters discussed in the three preceding paragraphs is not presently determinable and the consolidated financial statements as of June 30, 1992 and for the years ended June 30, 1992 and 1991 do not include any adjustments relating to the resolution of those uncertainties. As discussed in Note 2, the Company's plan of reorganization became effective on July 31, 1992, and it will implement the guidance as to the accounting for entities emerging from Chapter 11 set forth in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("Fresh Start Reporting") as of that date. The Company has not presently determined the amounts that will be recorded under Fresh Start Reporting. However, the implementation of Fresh Start Reporting as a result of the Company's emergence from Chapter 11 will materially change the amounts reported in consolidated F-21 83 financial statements as of and for periods ending subsequent to July 31, 1992. As a result of the reorganization and the implementation of Fresh Start Reporting, assets and liabilities will be recorded at fair values and outstanding obligations relating to the claims of creditors will be discharged primarily in exchange for cash, new indebtedness and equity. The accompanying consolidated financial statements as of June 30, 1992 and for the years ended June 30, 1992 and 1991 do not give effect to any adjustments that will be made as a result of the Company's reorganization and emergence from Chapter 11. J.H. COHN & CO. Roseland, New Jersey September 24, 1992 F-22 84 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) FRESH START REPORTING WAS IMPLEMENTED AND THE PURCHASE METHOD OF ACCOUNTING WAS APPLIED TO RECORD THE FAIR VALUE OF ASSETS AND ASSUMED LIABILITIES OF THE REORGANIZED COMPANY AT JULY 31, 1992. ACCORDINGLY, THE ACCOMPANYING BALANCE SHEET AS OF JULY 31, 1992 IS NOT COMPARABLE IN ALL MATERIAL RESPECTS TO SUCH STATEMENT AS OF ANY DATE PRIOR TO JULY 31, 1992 SINCE THE BALANCE SHEET IS THAT OF A NEW ENTITY.
JULY 31, JUNE 30, 1992 1992 -------- -------- ASSETS Current assets: Cash and cash equivalents........................................... $ 39,493 $ 60,142 Restricted cash..................................................... 22,835 -- Accounts receivable, net of reserves................................ 9,115 7,962 Current portion of mortgages and other notes receivable............. 48,006 63,506 Other current assets................................................ 4,254 1,895 -------- -------- Total current assets........................................ 123,703 133,505 Restricted cash....................................................... 1,232 43,947 Property, equipment and leasehold improvements, net of accumulated depreciation and reserves........................................... 160,417 179,472 Mortgages and other notes receivable, net of current portion, writedowns and valuation reserves................................... 178,543 194,443 Other assets.......................................................... 4,755 2,751 -------- -------- TOTAL ASSETS................................................ $468,650 $554,118 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Notes payable....................................................... $ 5,971 $ 5,971 Current portion of long-term debt................................... 61,917 81 Other current liabilities........................................... 31,136 25,944 -------- -------- Total current liabilities................................... 99,024 31,996 Long-term debt, net of current portion................................ 204,438 8,921 Deferred income....................................................... -- 36,243 Other liabilities..................................................... 29,588 -- -------- -------- Total liabilities not subject to compromise................. 333,050 77,160 Liabilities subject to compromise..................................... -- 706,250 -------- -------- Total liabilities........................................... 333,050 783,410 -------- -------- Commitments and contingencies Stockholders' equity (deficiency): Preferred stock, par value $1.00 per share; 5,000,000 shares authorized; none issued; cancelled July 31, 1992................. -- -- Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued.......................................... -- -- Common stock; par value $.05 per share; 100,000,000 shares authorized; 33,662,334 shares issued; cancelled July 31, 1992.... -- 1,683 Common stock, par value $.01 per share; 50,000,000 shares authorized; 33,000,000 shares issued and outstanding............. 330 -- Capital in excess of par value...................................... 135,270 311,355 Retained earnings (accumulated deficit)............................. -- (539,125) Treasury stock, 634,535 shares at cost; cancelled July 31, 1992..... -- (3,205) -------- -------- Total stockholders' equity (deficiency)..................... 135,600 (229,292) -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)..... $468,650 $554,118 -------- -------- -------- --------
See Accompanying Notes to Consolidated Financial Statements. F-23 85 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ----------------------- 1992 1992 1991 -------- -------- --------- Revenues: Rooms................................................. $ 5,133 $ 75,082 $ 121,902 Food and beverage..................................... 693 20,841 37,923 Management and other fees............................. 785 11,031 8,833 Interest and dividend income.......................... 1,949 24,127 31,115 Other................................................. 233 3,109 5,926 -------- -------- --------- Total revenues................................ 8,793 134,190 205,699 -------- -------- --------- Costs and expenses: Direct operating expenses: Rooms.............................................. 1,421 21,692 29,326 Food and beverage.................................. 681 17,082 31,132 Other operating and general expenses.................. 4,302 65,184 129,980 Depreciation and amortization......................... 680 7,635 8,887 Interest (contractual interest of $3,079 for July 1992, $36,252 for fiscal 1992 and $44,582 for fiscal 1991)....................................... 779 8,245 19,331 Valuation writedowns and reserves..................... 13,000 62,123 59,149 Loss on sale of securities............................ -- -- 6,695 -------- -------- --------- Total costs and expenses...................... 20,863 181,961 284,500 -------- -------- --------- Loss before reorganization items, income taxes, discontinued operations and extraordinary items....... (12,070) (47,771) (78,801) Reorganization items.................................... 1,796 (23,194) (181,655) -------- -------- --------- Loss before income taxes, discontinued operations and extraordinary items................................... (10,274) (70,965) (260,456) Provision (credit) for income taxes..................... -- 1,000 (14,346) -------- -------- --------- Loss before discontinued operations and extraordinary items................................................. (10,274) (71,965) (246,110) Discontinued operations: Gain on disposal of franchise segment, net of income taxes of $5,300.................................... -- -- 18,922 -------- -------- --------- Loss before extraordinary items......................... (10,274) (71,965) (227,188) Extraordinary items: Gain on discharge of indebtedness....................... 249,600 -- -- -------- -------- --------- Net income (loss)....................................... $239,326 $(71,965) $(227,188) -------- -------- --------- -------- -------- --------- Income (loss) per common share: Primary: Continuing operations.............................. $ (.31) $ (2.18) $ (7.45) Discontinued operations............................ -- -- .57 Extraordinary items................................ 7.56 -- -- -------- -------- --------- Net income (loss)....................................... $ 7.25 $ (2.18) $ (6.88) -------- -------- --------- -------- -------- ---------
See Accompanying Notes to Consolidated Financial Statements. F-24 86 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (IN THOUSANDS, EXCEPT SHARE DATA)
NET UNREALIZED CAPITAL LOSS ON IN RETAINED NON-CURRENT TOTAL COMMON STOCK EXCESS EARNINGS MARKETABLE TREASURY STOCK STOCKHOLDERS' --------------------- OF PAR ACCUMULATED EQUITY ------------------ EQUITY SHARES AMOUNT VALUE DEFICIT) SECURITIES SHARES AMOUNT (DEFICIENCY) ----------- ------- --------- --------- ------- -------- ------- --------- Balance June 30, 1990...... 33,662,334 $ 1,683 $ 311,355 $(239,972) $(3,180) (634,535) $(3,205) $ 66,681 Net realized loss.......... -- -- -- -- 3,180 -- -- 3,180 Net loss................... -- -- -- (227,188) -- -- -- (227,188) ----------- ------- --------- --------- ------- -------- ------- --------- Balance June 30, 1991...... 33,662,334 1,683 311,355 (467,160) -- (634,535) (3,205) (157,327) Net loss................... -- -- -- (71,965) -- -- -- (71,965) ----------- ------- --------- --------- ------- -------- ------- --------- Balance June 30, 1992...... 33,662,334 1,683 311,355 (539,125) -- (634,535) (3,205) (229,292) Net income................. -- -- -- 239,326 -- -- -- 239,326 Cancellation of former equity interests in connection with emergence from bankruptcy.......... (33,662,334) (1,683) (311,355) -- -- 634,535 3,205 (309,833) Issuance of new equity interests in connection with emergence from bankruptcy............... 33,000,000 330 135,270 -- -- -- -- 135,600 Elimination of accumulated deficit in connection with emergence from bankruptcy............... -- -- -- 299,799 -- -- -- 299,799 ----------- ------- --------- --------- ------- -------- ------- --------- Balance July 31, 1992...... 33,000,000 $ 330 $ 135,270 $ -- $ -- -- $ -- $ 135,600 ----------- ------- --------- --------- ------- -------- ------- --------- ----------- ------- --------- --------- ------- -------- ------- ---------
See Accompanying Notes to Consolidated Financial Statements. F-25 87 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ---------------------- 1992 1992 1991 -------- -------- --------- Cash flows from operating activities: Net income (loss)....................................... $239,326 $(71,965) $(227,188) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities before reorganization items: Depreciation and amortization........................ 680 7,635 8,887 Valuation writedowns and reserves.................... 13,000 62,123 59,149 Loss on sale of securities........................... -- -- 6,695 Provisions for lease rejection damages, guarantees of third party debt and other bankruptcy related claims............................................. -- 6,017 141,912 Loss on disposal of assets........................... -- 2,307 18,963 Write-off of assets in connection with bankruptcy.... -- -- 11,833 Reorganization items................................. 604 9,072 8,947 Gain on sale of discontinued operations.............. -- -- (24,222) Gain on discharge of indebtedness.................... (249,600) -- -- Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable................................ (1,153) 2,200 2,740 Tax refund receivable.............................. -- 30,874 29,322 Other operating assets............................. (2,359) 5,075 5,413 Other operating liabilities........................ (4,857) (5,797) 20,262 Deferred income.................................... -- -- (1,930) -------- -------- --------- Net cash provided by (used in) operating activities before reorganization items........ (4,359) 47,541 60,783 -------- -------- --------- Reorganization items: Interest earned on accumulated cash resulting from Chapter 11 proceedings............................... 298 4,427 2,950 Decrease in liabilities subject to compromise........... (677) (17,183) -- Professional fees and other expenses for services rendered in connection with Chapter 11 proceedings... (902) (13,499) (11,897) -------- -------- --------- Net cash used in reorganization activities...... (1,281) (26,255) (8,947) -------- -------- --------- Net cash provided by (used in) operating activities.................................... (5,640) 21,286 51,836 -------- -------- --------- Cash flows from investing activities: Proceeds from mortgages and other notes receivable...... (70) 10,160 11,238 Disbursements for mortgages and other notes receivable........................................... -- (42) (2,571) Sale of property, net................................... -- 4,168 11,270 Purchases of property, equipment and leasehold improvements......................................... (692) (14,141) (21,913) Sales of marketable investment securities............... -- -- 9,997 Additions to restricted cash............................ -- (5,746) (13,708) Decrease in restricted cash............................. 19,880 -- -- Proceeds from sale of discontinued operations, net...... -- -- 182,850 Increase (decrease) in net assets of discontinued operations and other assets.......................... 196 -- (178) -------- -------- --------- Net cash provided by (used in) investing activities.................................... 19,314 (5,601) 176,985 -------- -------- --------- Cash flows from financing activities: Proceeds from notes payable and long-term debt.......... -- 9,613 11,917 Payments of notes payable and long-term debt............ (34,323) (25,905) (201,953) -------- -------- --------- Net cash used in financing activities........... (34,323) (16,292) (190,036) -------- -------- --------- Net increase (decrease) in cash and cash equivalents (20,649) (607) 38,785 Cash and cash equivalents at beginning of period.......... 60,142 60,749 21,964 -------- -------- --------- Cash and cash equivalents at end of period................ $ 39,493 $ 60,142 $ 60,749 -------- -------- --------- -------- -------- ---------
See Accompanying Notes to Consolidated Financial Statements. F-26 88 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 NOTE 1 -- REORGANIZATION AND EMERGENCE FROM CHAPTER 11 Prime Hospitality Corp. became the successor corporation to Prime Motor Inns, Inc. on July 31, 1992. As used herein, the "Company" refers to Prime Hospitality Corp. and subsidiaries, "PMI" refers to Prime Motor Inns, Inc. and subsidiaries and "Prime Motor Inns" refers to Prime Motor Inns, Inc., the parent company only. The accompanying consolidated financial statements and notes thereto reflect the activities of the Company as of and subsequent to July 31, 1992 and PMI prior to July 31, 1992. On September 18, 1990, Prime Motor Inns (predecessor to and former parent of the Company) and fifty of its subsidiaries (together with Prime Motor Inns, the "Debtors") filed voluntary petitions under title 11 of the United States Code ("Chapter 11") in the United States Bankruptcy Court, Southern District of Florida, Miami Division (the "Bankruptcy Court") and began operating as Debtors-In-Possession. On September 23, 1991, the Debtors filed their Joint Plan of Reorganization. The Debtors filed their Disclosure Statement for Debtors' Amended Joint Plan of Reorganization and their Amended Joint Plan of Reorganization on November 15, 1991. These plans and the disclosure statement were further amended and restated by the Disclosure Statement and the Second Amended Joint Plan of Reorganization of the Debtors dated January 16, 1992 (the "Plan"). The Plan was confirmed by the Bankruptcy Court on April 6, 1992. On July 31, 1992 (the "Effective Date"), the Debtors consummated the Plan and emerged from bankruptcy. On the Effective Date, Prime Motor Inns merged with and into the Company, which had been a wholly-owned subsidiary of Prime Motor Inns. The Company was the surviving corporation in the merger. In addition, certain of the Debtors and other subsidiaries of Prime Motor Inns that did not file petitions under Chapter 11 merged, consolidated or contributed substantially all of their assets to the Company or subsidiaries of the Company. On the Effective Date, the Company assumed the obligations of each combining Debtor under the Plan. The Company has distributed Secured Notes and Restructured Notes and is in the process of distributing cash, Tax Notes, Common Stock and Warrants in settlement of pre-petition claims and interests as such claims and interests are processed and settled. The American Institute of Certified Public Accountants has issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial reporting by Chapter 11 debtors during and following their Chapter 11 cases. The accompanying historical consolidated financial statements of PMI for the period from September 18, 1990 to the Effective Date have been prepared in accordance with SOP 90-7 on the following basis: - Liabilities subject to compromise are segregated. - Transactions and events directly associated with the reorganization proceedings are reported separately. - Interest expense is reported only to the extent it will be paid. Also pursuant to SOP 90-7, the Company implemented Fresh Start Reporting (hereinafter defined) upon the emergence of the Debtors from bankruptcy as of the Effective Date (see Note 2). NOTE 2 -- FRESH START REPORTING SOP 90-7 provides for the implementation of Fresh Start Reporting upon the emergence of debtors from bankruptcy if the reorganization value (the approximate fair value) of the assets of the emerging entity immediately prior to emergence is less than the total of all post-petition liabilities and allowed pre-petition claims, and if the holders of existing voting shares immediately before the emergence from bankruptcy receive less than 50% of the voting shares of the emerging entity. A Fresh Start balance sheet reflects assets at their F-27 89 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) estimated fair value upon the emergence from bankruptcy and liabilities, other than deferred taxes, at the present value of amounts to be paid determined at appropriate current interest rates. The Company met the criteria for implementation of, and implemented Fresh Start Reporting as of the Effective Date. Under Fresh Start Reporting, the consolidated balance sheet as of July 31, 1992 became the opening consolidated balance sheet of the Company. Since Fresh Start Reporting has been reflected in the accompanying consolidated balance sheet as of July 31, 1992, this consolidated balance sheet is not comparable in all material respects to any such financial statements as of any prior date or for any period prior to July 31, 1992, since the consolidated balance sheet as of July 31, 1992 is that of a new entity. The estimated 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. Reorganization liabilities, consisting of Tax Notes, Restructured and Reinstated Notes, Senior Secured Notes and Junior Secured Notes distributed as of the Effective Date, have been recorded based on face values, which approximate the present values of amounts to be paid determined at appropriate current interest rates. Common Stock has been valued at the excess of the fair value of identifiable assets of the Company over the present value of liabilities. Other current liabilities, consisting of those arising from post-petition operating and other expenses not paid as of the Effective Date and obligations arising from certain loans to finance construction, will be paid in full under their original terms and have been presented in the following balance sheet at their historical carrying values. F-28 90 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) The effects of consummating the Plan and implementing Fresh Start Reporting are set forth on PMI's historical consolidated balance sheet as of July 31, 1992 as follows: CONSOLIDATED FRESH START BALANCE SHEET AS OF JULY 31, 1992 (IN THOUSANDS, EXCEPT SHARE DATA)
ADJUSTMENTS TO RECORD PLAN --------------------------------------------------- FRESH HISTORICAL START BALANCE BALANCE SHEET EXCHANGE FRESH SHEET 7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92 -------- --------- --------- --------- -------- ASSETS Current assets: Cash and cash equivalents...... $ 39,500 $ -- $ -- $ -- $ 39,500 Restricted cash................ 27,800 (5,000)(a) -- -- 22,800 Accounts receivable, net....... 9,100 -- -- -- 9,100 Current portion of mortgages and other notes receivable.................. 64,000 (16,000)(b) -- -- 48,000 Other current assets........... 4,300 -- -- -- 4,300 -------- --------- --------- --------- -------- 144,700 (21,000) -- -- 123,700 Restricted cash.................. 35,000 (33,800)(a) -- -- 1,200 Property, equipment and leasehold improvements, net.............. 179,400 (3,400)(b) -- (15,600)(f) 160,400 Mortgages and other notes receivable, net................ 180,600 (9,300)(b) -- 7,200(f) 178,500 Other assets..................... 2,500 -- -- 2,300(f) 4,800 -------- --------- --------- --------- -------- TOTAL ASSETS........... $542,200 $ (67,500) $ -- $ (6,100) $468,600 -------- --------- --------- --------- -------- -------- --------- --------- --------- --------
F-29 91 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) CONSOLIDATED FRESH START BALANCE SHEET AS OF JULY 31, 1992 (IN THOUSANDS, EXCEPT SHARE DATA)
ADJUSTMENTS TO RECORD PLAN --------------------------------------------------- FRESH HISTORICAL START BALANCE BALANCE SHEET EXCHANGE FRESH SHEET 7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92 -------- --------- --------- --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Notes payable and current portion of long-term debt... $ 6,100 $ 61,800(c) $ -- $ -- $ 67,900 Other current liabilities...... 24,600 (3,800)(a) -- 10,300(f) 31,100 -------- --------- --------- --------- -------- Total current liabilities.......... 30,700 58,000 -- 10,300 99,000 Long-term debt, net of current portion........................ 8,900 195,500(c) -- -- 204,400 Deferred income.................. 36,200 -- -- (36,200)(f) -- Other liabilities................ -- 2,600(c) -- 27,000(f) 29,600 -------- --------- --------- --------- -------- Total liabilities not subject to compromise............. 75,800 256,100 -- 1,100 333,000 Liabilities subject to compromise..................... 706,000 (35,000)(a) -- -- -- (28,700)(b) (266,400)(c) (375,900)(d) -------- --------- --------- --------- -------- Total liabilities......... 781,800 (449,900) -- 1,100 333,000 -------- --------- --------- --------- -------- Stockholders' equity (deficiency): Common stock (33,000,000 shares issued; $0.05 par value) (old)....................... 1,700 -- (1,700)(e) -- -- Capital in excess of par value (old)....................... 311,300 -- (311,300)(e) -- -- Common stock (33,000,000 shares issued and outstanding; $0.01 par value) (new)....... -- 300(d) --(e) 300 Capital in excess of par value (new).......................... -- 132,500(d) 309,800(e) (307,000)(e) 135,300 Retained earnings (accumulated deficit)....................... (549,400) 6,500(c) -- 299,800(f) -- 243,100(d) Treasury stock................... (3,200) -- 3,200(a) -- -- -------- --------- --------- --------- -------- Total stockholders' equity (deficiency)........... (239,600) 382,400 -- (7,200) 136,600 -------- --------- --------- --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY).... $542,200 $ (67,500) $ -- $ (6,100) $468,600 -------- --------- --------- --------- -------- -------- --------- --------- --------- --------
F-30 92 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) NOTES TO CONSOLIDATED FRESH START BALANCE SHEET (a) Reflects cash payments of $38,800,000 to creditors on or after the Effective Date in accordance with the terms of the Plan. (b) Represents mortgage notes, other notes receivable and property, which are offset against creditor claims on the Effective Date in accordance with the terms of the Plan. (c) Represents long-term debt in the principal amount of $257,300,000 distributed to creditors on or after the Effective Date in accordance with the terms of the Plan and the recognition of $6,500,000 of related gain on discharge of indebtedness. As part of the Plan, the Company distributed approximately $1,400,000 of Tax Notes, approximately $94,600,000 of Restructured and Reinstated Notes, approximately $91,300,000 of Senior Secured Notes and approximately $70,000,000 of Junior Secured Notes. Additionally, approximately $15,000,000 of construction financing related to hotel property development outstanding prior to consummation will be paid based on original terms. (d) Represents 32,300,000 shares of Common Stock with an estimated fair value of $132,800,000, which will be distributed to creditors on or after the Effective Date in accordance with the terms of the Plan and the recognition of $249,600,000 of related gain on discharge of indebtedness. (e) Represents 700,000 shares of Common Stock with an estimated fair value of $2,800,000, which was exchanged for all of the shares of Prime's old common stock outstanding on the Effective Date. (f) Represents adjustments to: record at fair value operating property, equipment and leasehold improvements, certain mortgages and other notes receivable and certain other assets and related liabilities; eliminate deferred income; and eliminate accumulated deficit in accordance with the provisions of SOP 90-7 for Fresh Start Reporting. The gain on discharge of indebtedness of $249,600,000 has been presented as an "Extraordinary Item" in the accompanying consolidated statement of operations for the one month ended July 31, 1992. NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies used by the Company and PMI in the preparation of the accompanying consolidated financial statements follows: Business activities The Company focuses on three types of business activities: operation of owned and leased hotel properties; management services provided to hotel properties owned by third parties; and management of its portfolio of mortgages, notes and other financial assets. The Company retains all the revenues and pays all the expenses with respect to the owned and leased hotel properties. The Company derives management fees from the hotel properties it manages based on a fixed percentage of gross revenues, fees for services rendered and performance-related incentive payments. The Company's portfolio of mortgages, notes and other assets primarily are associated with hotel properties currently managed or formerly owned by the Company and PMI. The majority of the Company's hotel properties are moderately priced hotels comprised of 100 to 150 rooms primarily located in the Northeast and Florida, which are designed to attract business and leisure travelers desiring quality accommodations at affordable prices. The Company operates or manages many of the restaurants and cocktail lounges at its full service hotels. Its limited service hotels, such as Wellesley Inns and AmeriSuite hotels, generally do not have restaurants or cocktail lounges. F-31 93 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) Most of the hotel properties are operated or managed by the Company in accordance with franchise agreements with national hotel chains, including Howard Johnson, Ramada, Marriott, Holiday Inn, Sheraton, Days Inn and Radisson. Additionally, the Company operates or manages the Wellesley hotel properties under its trademark "Wellesley Inns." The Company owns the trademark "AmeriSuites", and all of these hotel properties are managed for the Company by a related party. Principles of consolidation The consolidated financial statements include the accounts of the Company and PMI and all of their majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents Cash equivalents are highly liquid unrestricted investments with a maturity of three months or less when acquired. Restricted cash Restricted cash consists primarily of highly liquid investments that serve as collateral for debt obligations included in liabilities subject to compromise and is classified as either short-term or long-term depending on the date the obligation is due. Mortgages and other notes receivable Mortgages and other notes receivable are reflected at the lower of face or market value at July 31, 1992. Generally, the carrying amount of the portfolio of mortgages and other notes receivable is reduced through write-offs and by maintaining an aggregate loan valuation reserve at a level that, in the opinion of management, is adequate to absorb potential losses in the portfolio. To determine the appropriate level for the loan valuation reserve, management evaluates various factors including: general and regional economic conditions; the credit worthiness of the borrower; the nature and level of any delinquencies in the payment of principal or interest; and the adequacy of the collateral. Interest on delinquent loans (including impaired loans that have required writedowns or specific reserves) is only recognized when cash is received. The amount of interest income recognized on mortgages and other notes receivable is generally based on the loan's effective interest rate and adjusted carrying value of the note. Property, equipment and leasehold improvements Property, equipment and leasehold improvements that the Company intends to continue to operate are stated at cost less accumulated depreciation and amortization at June 30, 1992 and 1991 and at fair market value as of July 31, 1992. Provision is made for depreciation and amortization using the straightline method over the estimated useful lives of the assets. The Company intends to sell or otherwise dispose of those remaining operating and non-operating properties that have generated losses or insufficient returns on investment. Properties identified for disposal are stated at their estimated net realizable value through valuation reserves or writedowns. Income recognition on property sales and deferred income Income is generally recognized when properties used in the hotel business are sold. However, income is deferred and recognized under installment or other appropriate methods when collectibility of the sales price is F-32 94 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) not reasonably assured or other criteria for immediate profit recognition under generally accepted accounting principles are not satisfied. Gains from sales of properties under sale and leaseback transactions that are generally deferred pursuant to applicable accounting rules are amortized over the lives of the related leases. Gains from sales of properties and certain other assets acquired through business combinations accounted for as purchases are generally offset against the carrying value of the remaining purchased assets if the sale takes place within the allocation period (generally a period of one year or less) following the purchase. Construction income recognition and deferred income Revenues under long-term construction contracts are generally recognized under the percentage-of-completion method and include a portion of the earnings expected to be realized on the contract in the ratio of costs incurred to estimated total costs. Under certain circumstances, the recognition of income is deferred until continuing involvement, in the form of operating guarantees made to the owners of the hotel property subject to the contract, has expired. Income taxes The Company and its subsidiaries file a consolidated Federal income tax return. PMI adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes, "by applying FAS 109 to its consolidated financial statements commencing July 1, 1991. PMI used the "deferred method" of accounting for income taxes through June 30, 1991. Adoption of FAS 109 did not have a material effect on the consolidated financial statements. Deferred taxes have not been provided as of July 31, 1992 and June 30, 1992 due to the availability of significant net operating loss carryforwards and the uncertainty surrounding the ultimate realization of the future benefits, if any, to be derived from the temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Income (loss) per common share Primary net income (loss) per common share is computed based on the weighted-average number of common shares and common share equivalents (stock options) outstanding during each year. The weighted-average number of common shares and common share equivalents used in computing primary net income (loss) per share was 33,028,000 for the month ended July 31, 1992 and the years ended June 30, 1992 and 1991. Fully diluted net income (loss) per common share includes, when dilutive, the effects of the elimination of interest expense and the issuance of additional common shares from the assumed conversion of the 6 5/8% convertible subordinated debentures due 2011 and the 7% convertible subordinated debentures due 2013 (collectively, the "Debentures"). The Debentures are included in the consolidated balance sheets as of June 30, 1992 and 1991 as liabilities subject to compromise. The effects of assuming the conversion of the Debentures were not dilutive in each of the two years in the period ended June 30, 1992, and for the one month ended July 31, 1992. Reclassifications Certain reclassifications have been made to the consolidated financial statements to conform them to the July 31, 1992 classifications. NOTE 4 -- ACQUISITIONS AND DISPOSITIONS In December 1989, PMI consummated its agreement with New World Development Co. Ltd. ("New World") to participate with and assist New World in its acquisition of the hotel business of Ramada, Inc. F-33 95 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) ("Ramada"). Under the agreement, PMI loaned approximately $58,000,000 to New World (see Note 8) and acquired certain real estate, notes receivable, the Rodeway International Franchise System ("Rodeway") and certain other assets, and assumed certain liabilities, for aggregate cash consideration of approximately $54,000,000 plus closing adjustments. Such assets were sold in fiscal 1991 (see Note 5). PMI entered into a license agreement to operate the domestic Ramada franchise system and agreed to indemnify New World for certain potential tax liabilities associated with the license. The potential tax liabilities to New World, and all other claims by New World and PMI against each other, were settled on August 4, 1992 (see Note 8). NOTE 5 -- DISCONTINUED OPERATIONS On July 2, 1990, PMI consummated the sale of its Howard Johnson and Ramada franchise businesses (the "franchise segment") to an affiliate of Blackstone Capital Partners, L.P. for $170,000,000 in cash. On July 5, 1990, PMI sold its Rodeway franchise business and two Rodeway hotel properties to Manor Care, Inc. for $14,900,000 in cash. As a result, PMI effectively discontinued the operations of its franchise segment as of July 1, 1990. The gain on sale of the discontinued segment has been shown separately in the accompanying 1991 consolidated statement of operations, net of the related state income tax provision. NOTE 6 -- CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of the following (in thousands):
JULY 31, JUNE 30, 1992 1992 ------- ------- Cash.................................................... $10,479 $ 1,744 Commercial paper and other cash equivalents............. 29,014 58,398 ------- ------- Totals........................................ $39,493 $60,142 ------- ------- ------- -------
NOTE 7 -- RESTRICTED CASH -- LONG TERM Restricted cash consists of cash in bank of $360,000 and commercial paper of $872,000 at July 31, 1992. At June 30, 1992, restricted cash consists primarily of commercial paper of $43,947,000. NOTE 8 -- MORTGAGES AND OTHER NOTES RECEIVABLE Mortgages and other notes receivable are comprised of the following and are stated at face value, net of writedowns and valuation reserves as of June 30, 1992. As of July 31, 1992, these assets have been valued at their fair market value (in thousands):
JULY 31, JUNE 30, 1992 1992 -------- -------- Frenchman's Reef resort hotel(a)............................... $ 50,000 $ 78,996 Rose and Cohen entities(b)..................................... 25,000 100,890 FCD and Servico(c)............................................. 19,756 29,899 New World(d)................................................... 42,000 58,000 Properties managed by the Company(e)........................... 70,089 198,441 Other(f)....................................................... 19,704 52,308 -------- -------- Totals............................................... 226,549 518,534 Less writedowns and valuation reserves......................... -- 260,585 -------- -------- Totals............................................... 226,549 257,949 Less current portion........................................... 48,006 63,506 -------- -------- Long-term portion.............................................. $178,543 $194,443 -------- -------- -------- --------
F-34 96 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) - --------------- (a) The mortgage notes are secured by the Frenchman's Reef resort hotel, which is managed by the Company, and consist of first and second mortgages with face values of $53,383,000 and $25,613,000, respectively, with final scheduled principal payments of $51,976,000 and $25,613,000 due on July 31, 1995. The notes bear interest at a stated rate of 13%. Interest and principal payments on the first mortgage are payable in monthly installments. Interest and scheduled principal payments on the second mortgage note are payable only to the extent of available cash flow, as defined, with any unpaid interest due at maturity. Based on a valuation of the property, PMI wrote down the second mortgage to $11,400,000 as of June 30, 1990 and discontinued the accrual of interest. As a result of the continuing decline in economic conditions and operating cash flows, the balance of the second mortgage was written off in fiscal 1992. In connection with the adoption of Fresh Start Reporting at July 31, 1992, the Company has valued these notes at $50,000,000. During the one month ended July 31, 1992, the Company recognized $345,000 of interest income on these notes (an effective rate of approximately 8.3%), based on the current levels of cash flows generated from the property available to service the notes. The Company is in the process of renegotiating the terms of these notes based on the current level of cash flow generated by the property. (b) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and Arthur Cohen (the "Rose and Cohen entities"), who at such time were significant Howard Johnson franchisees, an aggregate of $100,890,000 fully secured initially by property and/or personal guarantees. PMI was committed to make additional loans, also on a fully secured basis, to the Rose and Cohen entities of up to an aggregate of $130,000,000 if values of, and/or revenues generated by, certain hotel properties controlled by the Rose and Cohen entities attained specified levels. PMI was to receive a minimum annual return of 10% on all loans made to the Rose and Cohen entities and a maximum return of 20%. All loans and unpaid interest are payable on December 31, 1997. Due to the decline in value of the hotel properties pledged as collateral for the loan and the continuing decline in the hotel real estate market, PMI discontinued funding additional loans in fiscal 1990. Further, based on PMI's estimate of the value of the collateral and the personal guarantees of Rose and Cohen and discussions related to the possible early payment of the loan, PMI wrote down the loan to $50,000,000 as of June 30, 1990 and discontinued the accrual of interest. In 1992, certain of the Rose and Cohen entities owning a portion of the collateral that secures the loans filed for Chapter 11 protection in the United States Bankruptcy Court, Southern District of New York. Also during 1992, the Company commenced an adversary proceeding against Rose and Cohen. The complaint seeks to recover jointly and severally on the personal guarantees of $50,000,000 given by Rose and Cohen as part of the loan agreement. As a result of further evaluation of the collateral and the personal guarantees, PMI wrote down the loan to $30,000,000 as of June 30, 1992 and $25,000,000 as of July 31, 1992. (c) In April 1989, PMI loaned FCD Hospitality, Inc. ("FCD"), an unaffiliated company, approximately $74,000,000 in cash for the purpose of financing FCD's acquisition of the outstanding common stock of Servico, Inc. ("Servico"), an operator of hotels. The loan was secured by the common stock of Servico, FCD and certain FCD affiliates, and was originally due prior to June 30, 1990. Interest was due at the prime rate plus 1%. PMI also entered into an agreement with FCD pursuant to which PMI would provide management consulting services for approximately $63,000,000 through June 1990. Additionally, in April 1989, PMI purchased approximately $80,000,000 of Servico's outstanding 12 1/4% subordinated notes due April 15, 1997 for approximately $64,000,000 (80% of par value). F-35 97 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) Subsequent to April 1989, PMI entered into certain other transactions including working capital loans and the sale of certain hotels to Servico. Servico also pledged a substantial portion of its hotel properties and mortgage notes receivable on hotel properties as collateral and/or in satisfaction of its commitments on the loan to FCD and the consulting agreement. On September 18, 1990, Servico and certain of its subsidiaries filed for Chapter 11 protection. After an extensive valuation and recovery analysis performed by PMI and Servico, PMI agreed to settle all claims and disputes with Servico and FCD in June 1991. Under the terms of the agreement, which was approved by the Bankruptcy Court, the FCD loan, the subordinated notes, loans related to sales of properties and working capital and all accrued interest relating to these notes and loans with a face value of $166,210,000 were forgiven. As part of the settlement, PMI retained ownership of certain mortgage notes receivable with a face value of approximately $30,000,000 that are secured by three hotel properties. The entity that owns one of the properties filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in December 1990. Subsequent to July 31, 1992, the Company has restructured the note receivable to receive payments based on the property's available cash flow. Based on the valuation of the mortgage notes on the three properties, PMI wrote down the FCD Loan and Servico notes to $16,757,000 as of June 30, 1990 and discontinued the accrual of interest. In connection with the adoption of Fresh Start Reporting, the Company has valued the notes at $19,756,000 at July 31, 1992. (d) In connection with the Ramada acquisition in December 1989, PMI agreed to loan New World $58,000,000 (see Note 4). Interest was payable quarterly at a rate of 11%. Principal was to be paid in installments beginning in 1995 with a final scheduled payment of $55,499,000 due on March 31, 2005. On August 4, 1992, after extensive negotiation and approval of a settlement by the Bankruptcy Court, the Company collected net proceeds of $42,000,000 plus accrued interest in full satisfaction of the $58,000,000 loan balance offset by liabilities subject to compromise related to the Ramada acquisition with a net carrying value of $16,000,000. The net proceeds were used to prepay a portion of the Senior Secured Notes issued on the Effective Date. (e) At July 31, 1992, the Company held mortgages and other notes receivable secured by 33 hotel properties operated by the Company under management or lease agreements. These notes currently bear interest at rates ranging from 8.5% to 14% and mature through 2014. The mortgages were primarily derived from the sales of hotel properties. Many of these properties had been unable to pay in full the annual debt service required under the terms of the original mortgages. The Company has restructured $33,530,000 of these mortgages to receive the majority of available cash and to receive a participation in the future excess cash flow of such hotel properties. The Company is also in process of restructuring another $9,500,000 of these mortgages. (f) Other notes receivable bear interest at effective rates ranging from 8% to 12%, mature through 2001 and are secured primarily by hotel properties. F-36 98 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) NOTE 9 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consist of the following and are stated at cost (other than properties held for sale) at June 30, 1992 and at fair market value as of July 31, 1992 (in thousands):
JULY 31, JUNE 30, YEARS OF 1992 1992 USEFUL LIFE -------- -------- ----------- Land and land leased to others........................ $ 24,855 $ 25,963 Hotels................................................ 95,942 116,192 20 to 45 Furniture, fixtures and autos......................... 16,192 25,346 2 to 10 Leasehold improvements................................ 15,428 13,425 3 to 45 Property and equipment under capital leases........... -- 93 2 to 33 -------- -------- 152,417 181,019 -------- -------- Properties held for sale, at net realizable value: Development properties.............................. 8,000 15,544 Non-core properties................................. -- 7,019 Properties acquired for resale...................... -- 248 -------- -------- 8,000 22,811 -------- -------- Less accumulated depreciation and amortization........ -- (24,358) -------- -------- Totals......................................... $160,417 $179,472 -------- -------- -------- --------
At July 31, 1992, the Company was the lessor of land and certain restaurant facilities in Company-owned hotels with an approximate aggregate book value of $12,338,000 pursuant to noncancelable operating leases expiring on various dates through 2013. Minimum future rentals under such leases are $8,095,000, of which $3,449,000 is to be received during the five year period ending June 30, 1997. Depreciation and amortization expense on property, equipment and leasehold improvements was $569,000, $6,867,000 and $7,867,000, for the one month ended July 31, 1992 and for the years ended June 30, 1992 and 1991, respectively. Capitalized interest was $0, $139,000 and $1,000,000 for the one month ended July 31, 1992 and for the years ended June 30, 1992 and 1991, respectively. F-37 99 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) NOTE 10 -- OTHER CURRENT LIABILITIES Other current liabilities consist of obligations for the following (in thousands):
JULY 31, JUNE 30, 1992 1992 ------- ------- Accounts payable................................................... $ 1,801 $ 1,803 Bankruptcy claims reserve.......................................... 6,591 -- Rent............................................................... 945 1,355 Interest........................................................... 196 3,824 Accrued payroll and related benefits............................... 3,385 3,484 Managed property reserve........................................... 3,333 2,042 Insurance reserve.................................................. 756 1,732 Professional fees.................................................. 6,522 4,798 Other.............................................................. 7,607 6,906 ------- ------- Totals........................................................ $31,136 $25,944 ------- ------- ------- -------
NOTE 11 -- NOTES PAYABLE Notes payable consist of the following (in thousands):
JULY 31, JUNE 30, 1992 1992 -------- -------- Notes payable to related party (a)................................. $ 5,706 $ 5,706 Other notes payable (b)............................................ 265 265 -------- -------- Totals........................................................ $ 5,971 $ 5,971 -------- -------- -------- --------
- --------------- (a) Notes payable to related party are payable to ShoLodge, Inc. ("ShoLodge"), a company controlled by a director. The notes are secured by three hotel properties with a book value of $17,354,000 that were constructed in 1992 and 1991. Interest is payable monthly at variable rates ranging from the prime interest rate (6% at July 31, 1992) plus 1% to the prime rate plus 2%. One promissory note for $3,000,000 is due in May 1993 and the remainder is due on demand (see Note 22). (b) Other notes payable are secured by a hotel property. Interest is payable at the prime rate plus 2%. The notes are due in May 1993. NOTE 12 -- LIABILITIES SUBJECT TO COMPROMISE As a result of the Chapter 11 filing (see Note 1), enforcement of certain unsecured claims against the Debtors in existence prior to the petition date were stayed while the Debtors continued business operations as debtors-in-possession. These claims are reflected in the accompanying consolidated balance sheets as of June 30, 1992, as liabilities subject to compromise. Additional unsecured claims classified as liabilities subject to compromise arose subsequent to the Petition Date resulting from rejection of executory contracts, including lease, management and franchise agreements, and from the determination by the Bankruptcy Court (or agreements by the parties in interest) to allow claims for contingencies and other disputed amounts. Enforcement of claims secured against the Debtors' assets ("secured claims") were also stayed although the holders of such claims have the right to move the Court for relief from the stay. Secured claims are secured primarily by liens on the Debtors' property, equipment and leasehold improvements and certain mortgages and other notes receivable. F-38 100 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) Creditors have asserted pre-and post-petition claims against the Debtors alleging liabilities of approximately $9 billion plus unliquidated amounts. The Company projects that the claims asserted against the Debtors will be resolved and reduced to an amount that approximates PMI's estimate of $706,250,000 recognized as liabilities subject to compromise as of June 30, 1992. PMI has filed motions objecting to those claims that are: (a) duplicative; (b) superseded by amended claims; (c) erroneously asserted against multiple Debtors; (d) not obligations of any of the Debtors; or (e) filed after the Bar Date (as hereinafter defined). Additionally, PMI otherwise has disputed a substantial number of the claims asserted against the Debtors and has filed objections to such claims. The Bankruptcy Court established May 15, 1991 (the "Bar Date") as the deadline for filing proofs of claim, except certain specified claims, against the Debtors. A significant number of the bankruptcy claims have been resolved. As of March 1, 1993, unresolved bankruptcy claims of approximately $1 billion have been asserted against PMI. Approximately $767 million of these unresolved claims were filed by entities controlled by Allan Rose and Arthur Cohen (see Note 8). The Company has disputed a substantial number of these unresolved bankruptcy claims and has filed objections to such claims. In addition, a number of these claims have been resolved with the claimant and are awaiting approval by the Bankruptcy Court. The Company believes that substantially all of these claims will be dismissed, disallowed or deemed paid pursuant to the Plan and estimates that unresolved bankruptcy claims will be allowed in the amount of approximately $27 million. These claims will be settled as follows: claims of $18 million will be satisfied through the issuance of Secured Notes, Restructured Notes and Tax Notes; claims of $8 million will be satisfied through the distribution of the Company's Common Stock; and claims of $1 million will be satisfied through cash payments. In accordance with SOP 90-7, the July 31, 1992 consolidated financial statements have given full effect to the issuance of these Secured Notes, Restructured Notes and Tax Notes and the distribution of the Company's Common Stock. Liabilities have been provided for the anticipated cash payments. PMI's liabilities subject to compromise, stated at management's estimate of the total amount of allowed claims and not at the amounts for which claims will be settled, consist of the following (in thousands):
JUNE 30, 1992 -------- Estimated claims: Trade accounts payable.................................................. $ 28,858 Lease rejection damages................................................. 97,856 Guarantees of third party debt.......................................... 30,529 Other liabilities....................................................... 79,943 -------- Total estimated claims.......................................... 237,186 Long-term debt (Note 13).................................................. 469,064 -------- Total........................................................... $706,250 -------- --------
The amounts listed above may be subject to future adjustments depending on further developments with respect to disputes or unresolved claims. Information as to the terms of the settlement of liabilities subject to compromise under the Plan as of or subsequent to the Effective Date through the distribution of cash, new indebtedness, new equity securities and/or offset against certain assets reflected in the accompanying consolidated balance sheets is set forth in Note 2. F-39 101 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) PMI discontinued accruing interest on certain debt obligations as of the date such obligations were determined to be subject to compromise. Contractual interest not accrued and not reflected as an expense in the consolidated statements of operations, as a result of the Debtors' Chapter 11 filing, amounted to approximately $2,300,000 for the one month ended July 31, 1992 and $28,000,000 and $25,300,000 for the years ended June 30, 1992 and 1991, respectively. Total contractual interest is disclosed in the accompanying consolidated statements of operations. NOTE 13 -- LONG-TERM DEBT As a result of the Chapter 11 filing (see Notes 1 and 12), all long-term obligations of the Debtors in existence prior to the Petition Date were stayed and have been classified as liabilities subject to compromise at June 30, 1992. Long-term debt consists of the following (in thousands):
JULY 31, JUNE 30, 1992 1992 -------- -------- Senior secured notes(a)........................................ $ 91,300 $ -- Junior secured notes(a)........................................ 69,999 -- Tax settlement notes(b)........................................ 1,422 -- Mortgage notes and bonds payable(c)............................ 94,639 -- Construction financing(d)...................................... 8,995 9,002 -------- -------- Total debt........................................... 266,355 9,002 Pre-petition liabilities: 7% convertible subordinated debentures due 2013(e)........... -- 115,000 6 5/8% convertible subordinated debentures due 2011(e)....... -- 115,000 Notes payable to banks under bank credit agreement(f): Tranche A and B.............................................. -- 31,848 Tranche C.................................................... -- 60,000 Mortgage notes and bonds due through 2008(g)................... -- 143,676 Other(h)....................................................... -- 3,540 -------- -------- Total debt........................................... 266,355 478,066 Less: Liabilities subject to compromise........................ -- 469,064 Current portion.............................................. 61,917 81 -------- -------- Long-term debt....................................... $204,438 $ 8,921 -------- -------- -------- --------
- --------------- (a) Pursuant to the Plan, the Company issued two classes of Secured Notes which are identified as "Senior Secured Notes" and "Junior Secured Notes". Senior Secured Notes were issued in two series of notes which are identified as the "8.20% Fixed Rate Senior Secured Notes" and the "Adjustable Rate Senior Secured Notes" (collectively the "Senior Secured Notes"). Each series is identical except that the interest rate on the Adjustable Rate Senior Secured Notes will be periodically adjusted to one-half of one percent over the daily "prime rate" reported by Chemical Bank, with a maximum interest rate of 10.0% per annum. The aggregate principal amount of Senior Secured Notes issued under the Plan was $91,300,000, comprised of $30,100,000 of 8.20% Fixed Rate Secured Notes and $61,200,000 of Adjustable Rate Senior Notes. On August 11, 1992, the Company prepaid $17,900,000 of the 8.20% Fixed Rate Senior Secured Notes and $36,400,000 of the Adjustable Rate Senior Secured Notes from the proceeds of collections of portions of the collateral for the Senior Secured Notes. The prepaid amounts of $54,300,000 have been classified as current at July 31, 1992. F-40 102 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) The other class of Secured Notes issued to satisfy claims was comprised of Junior Secured Notes that bear interest at a rate of 9.20% per annum and will mature on July 31, 2000. The aggregate principal amount of Junior Secured Notes issued under the Plan was $70,000,000. The collateral for the Secured Notes consists primarily of mortgages and other notes receivable and real property (the "Secured Note Collateral") with a book value of $143,191,000 as of July 31, 1992. Interest on the Secured Notes is payable semi-annually commencing January 31, 1993. The Secured Notes require that 85% of the cash proceeds from the Secured Note Collateral be applied first to interest, second to prepayment of the Senior Secured Notes and third to prepayment of the Junior Secured Notes. Any remaining principal balance of the Senior Secured Notes is due July 31, 1997. Aggregate principal payments on the Junior Secured Notes are required in order that one-third of the principal balance outstanding on December 31, 1996 is paid by July 31, 1998; two-thirds of that balance is paid by July 31, 1999; and all of that balance is paid by July 31, 2000. To the extent the cash proceeds from the Secured Note Collateral are insufficient to pay interest or required principal payments on the Secured Notes, the Company will be obligated to pay any deficiency out of its general corporate funds. The Secured Notes contain covenants which, among other things, require the Company to maintain a net worth of at least $100,000,000, limit expenditures related to the development of hotel properties through December 31, 1996 and preclude cash distributions to stockholders, including dividends and redemptions, until the Secured Notes have been paid in full. During March 1993, the Company repurchased $9,500,000 of the Junior Secured Notes for a purchase price of $7,400,000. The repurchase resulted in an extraordinary gain of $2,100,000, which will be reflected in the Company's first quarter 1993 consolidated financial statements. These notes have been classified as long-term debt at July 31, 1992 in accordance with their terms as repurchase was not contemplated at the balance sheet date. (b) Claims of taxing authorities were paid in Tax Notes or cash. Each Tax Note is in a face amount equal to the allowed claim and provides for annual payments of principal and interest until maturity on July 31, 1998. Such payments will be made in equal principal installments, plus simple interest from July 31, 1992 at the rate of 8.20% per annum, with payments to commence on July 31, 1993 and with additional payments to be made on each July 31 thereafter. (c) The Company has $20,734,000 of restructured notes issued to holders of oversecured and undersecured bankruptcy claims. Each restructured note matures on July 31, 2002 and is secured by a lien on the collateral which secured the underlying claim prior to bankruptcy. The notes are secured by mortgage notes receivable and hotel properties with a book value of $16,981,000 at July 31, 1992. The oversecured restructured notes bear interest at a rate of 9.20% per annum payable semi-annually in cash. Prior to maturity, principal amounts outstanding will be paid semi-annually based on a thirty-year amortization schedule. The Company has approximately $7,173,000 of these notes outstanding at July 31, 1992. During January 1993, the Company repurchased $1,700,000 of the oversecured restructured notes for a purchase price of $1,300,000. The repurchase resulted in an extraordinary gain of $400,000, which will be reflected in the Company's first quarter 1993 consolidated financial statements. These notes have been classified as current at July 31, 1992. The undersecured restructured notes bear interest at a rate of 8% per annum with interest payable semi-annually in cash. Semi-annual principal payments begin on July 31, 1996 based on a thirty-year F-41 103 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) amortization schedule. The Company has approximately $13,561,000 of these notes outstanding at July 31, 1992. The Company has other mortgage notes and bonds payable of approximately $73,905,000 which are due through April 1, 2008 and bear interest at rates ranging from 4.68% to 10.5% at July 31, 1992. The notes are secured by mortgage notes receivable and hotel properties with a book value of $83,577,000 at July 31, 1992. (d) Construction financing obligations primarily consist of two loans payable to banks with an aggregate balance of $5,193,000 and a loan payable to ShoLodge of $3,570,000 at July 31, 1992. The loans payable to banks are secured by mortgages on two hotel properties with a book value of $13,963,000 at July 31, 1992. Principal is payable in monthly installments with the balances due by June 1994. Interest is payable monthly at the prime rate plus 2%. The loan payable to ShoLodge is secured by a hotel with a book value of $7,670,000 at July 31, 1992. Principal is payable in September 1993. Interest is payable monthly at the prime rate plus 2% (see Note 22). (e) At June 30, 1992, PMI's 6 5/8% convertible subordinated debentures due 2011 and 7% convertible subordinated debentures due 2013 were convertible at any time prior to maturity into common stock at $40.568 per share and $43.95 per share, respectively, and 5,451,342 shares of common stock were reserved for issuance upon such conversion. Sinking fund payments of $5,750,000 annually were required commencing April 1, 1997 for the 6 5/8% Debentures and June 1, 1999 for the 7% Debentures. All Debentures were subordinated to all existing and future senior indebtedness of PMI. (f) In April 1989, PMI borrowed approximately $140,000,000 from Morgan Bank pursuant to a demand note (the "Morgan Loan") with interest at the prime rate. The note was secured by the notes receivable from FCD and Servico and certain other assets. In September 1989, PMI entered into a $263,000,000 secured bank credit agreement (the "Credit Agreement"), expiring March 1991, in which borrowings (the "Bank Group Loan") were fully utilized by December 1989. Borrowings bear interest at the prime rate plus 1/2%. The borrowings were principally incurred to extinguish the Morgan Loan issued in connection with the Servico transaction ("Tranche A") and to finance PMI's portion of the Ramada acquisition ("Tranche B"). The Bank Group Loan was secured by the notes receivable from FCD and Servico, the net assets and common stock of subsidiaries acquired in the Ramada acquisition, the New World note, certain other mortgage notes receivable and certain other assets. In March 1990, PMI prepaid $1,000,000 of the Bank Group Loan with the proceeds of previously pledged mortgage notes receivable. In May 1990, PMI prepaid $40,000,000 of the Bank Group Loan from proceeds from the collection of a receivable related to the sale of a hotel property in fiscal 1989. In June 1990, PMI prepaid $1,000,000 of the Bank Group Loan with the proceeds of certain previously pledged mortgage notes receivable. In July 1990, PMI prepaid approximately $171,200,000 of the Bank Group Loan from the proceeds of the sale of the Howard Johnson, Ramada and Rodeway franchise businesses. In July 1990, the Credit Agreement was amended to convert $60,000,000 of $65,000,000 of unsecured demand loans then outstanding, which had been borrowed in fiscal 1990 to fund construction, into secured term loans ("Tranche C"). In addition, certain unsecured letter of credit reimbursement obligations were converted into Tranche C secured obligations. PMI also pledged additional collateral and certain then-existing defaults under the Bank Credit Agreement were waived. In July 1990, PMI paid the remaining $5,000,000 of unsecured demand notes then outstanding. F-42 104 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) (g) Other mortgage notes and bonds payable consist of debt secured by properties operated by PMI or notes receivable held by PMI. Principal is due in installments through 2009. Interest rates are generally variable ranging from 5% to 15% at June 30, 1992. (h) Other debt as of June 30, 1992 consists of an unsecured note bearing interest at the rate of 17%. At July 31, 1992, maturities of long-term debt for the next five years ending July 31 are as follows (in thousands): 1993...................................................................... $ 61,917 1994...................................................................... 13,849 1995...................................................................... 3,429 1996...................................................................... 8,010 1997...................................................................... 72,285 Thereafter................................................................ 106,865 -------- Total........................................................... $266,355 -------- --------
NOTE 14 -- LEASE COMMITMENTS The Company leases various hotels under lease agreements with initial terms expiring at various dates from 1998 through 2019. The Company has options to renew certain of the leases for periods ranging from 1 to 94 years. Rental payments are based on minimum rentals plus a percentage of the hotel's revenues in excess of stipulated amounts. As a result of the Chapter 11 filing, all lease contracts were reviewed during 1991 and a determination was made as to whether to accept or reject these contracts. The commitments shown below reflect those lease contracts which the Company has assumed. The following is a schedule by year of future minimum lease payments required under the remaining operating leases for core properties that have terms in excess of one year as of July 31, 1992 (in thousands): 1993....................................................................... $ 4,079 1994....................................................................... 4,047 1995....................................................................... 4,003 1996....................................................................... 3,970 1997....................................................................... 3,938 Thereafter................................................................. 48,125 ------- Total............................................................ $68,162 ------- -------
Rental expense for all operating leases, including those with terms of less than one year, is comprised as follows (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ------------------ 1992 1992 1991 --------- ------ ------- Rentals............................................... $ 520 $6,866 $23,535 Contingent rentals.................................... 53 814 1,365 --------- ------ ------- Gross rental expense(a)............................... 573 7,680 24,900 Rental income from subleases.......................... (6) (61) (628) --------- ------ ------- Net rental expense............................... $ 567 $7,619 $24,272 --------- ------ ------- --------- ------ -------
F-43 105 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) - --------------- (a) Rentals include approximately $6,769,000 of rent recognized under the leases with related parties in 1991. NOTE 15 -- CONTINGENCIES PMI and certain of its present and former officers and directors were named as defendants in purported class action lawsuits on behalf of purchasers of PMI's common stock and debentures. The lawsuits allege that PMI made materially false and misleading statements and omissions regarding its financial condition in violation of Federal securities laws and other claims. A settlement was consummated in February 1993 which was funded through insurance proceeds. The Company has responded to informal requests for information by the Staff of the United States Securities and Exchange Commission's Division of Enforcement relating to a number of significant transactions of PMI for the years 1985 through 1991. However, no formal allegations have been made by the Staff. In addition to the foregoing legal proceedings, the Company is involved in various other proceedings incidental to the normal course of its business. The Company believes that the resolutions of these contingencies will not have a material adverse effect on the Company's consolidated financial position or results of operations. NOTE 16 -- REORGANIZATION EXPENSES The net expenses incurred as a result of the Debtors' Chapter 11 filing on September 18, 1990 and subsequent reorganization efforts have been segregated from normal operating expenses and presented as reorganization expenses in the accompanying consolidated statements of operations for the one month ended July 31, 1992 and for the years ended June 30, 1992 and 1991. Reorganization expenses are comprised of the following (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ----------------------- 1992 1992 1991 ---------- --------- --------- Professional fees and other expenses................ $902 $ 19,297 $ 11,897 Lease rejection damages............................. -- 981 112,785 Guarantees of third party debt...................... -- 3,250 27,279 Other claims arising from bankruptcy................ -- 1,786 1,848 Loss on disposal of assets.......................... -- 2,307 18,963 Writeoff of unamortized debt issue costs on debt obligations subject to compromise................. -- -- 7,123 Writeoff of other assets in connection with bankruptcy........................................ -- -- 4,710 Interest earned on accumulated cash resulting from Chapter 11 proceedings............................ (298) (4,427) (2,950) Insurance recovery proceeds......................... (2,400) -- -- ---------- --------- --------- Totals.................................... $(1,796) $ 23,194 $ 181,655 ---------- --------- --------- ---------- --------- ---------
F-44 106 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) NOTE 17 -- VALUATION WRITEDOWNS AND RESERVES Valuation writedowns and reserves have been recorded in order to adjust the carrying value of assets and liabilities resulting from the restructuring of PMI's business and general economic conditions and primarily consist of the following (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ------------------- 1992 1992 1991 --------- ------- ------- Accounts receivable.................................. $ -- $ 2,722 $ 7,378 Mortgages and notes receivable....................... 13,000 49,479 13,531 Property, equipment and leasehold improvements....... -- 9,000 36,767 Other items.......................................... -- 922 1,473 --------- ------- ------- Totals..................................... $13,000 $62,123 $59,149 --------- ------- ------- --------- ------- -------
The valuation writedowns and reserves for the year ended June 30, 1992 shown above were all recognized in the fourth quarter. In addition to the above, valuation writedowns and reserves of $-0-, $20,578,000 and $-0-were charged against deferred income for the one month ended July 31, 1992 and for the years ended June 30, 1992 and 1991, respectively. NOTE 18 -- INCOME TAXES Income taxes (credits) have been provided as follows (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ------------------- 1992 1992 1991 --------- ------ -------- Current: Continuing operations: Federal......................................... $ -- $ -- $(14,846) State........................................... -- 1,000 500 --------- ------ -------- Totals..................................... $ -- $1,000 $(14,346) --------- ------ -------- --------- ------ --------
F-45 107 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) The difference between total income taxes (credits) and the amount computed by applying the Federal statutory income tax rate of 34% to income (loss) from continuing and discontinued operations before income taxes are as follows (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ----------------------- 1992 1992 1991 --------- --------- --------- Federal income tax credit at statutory rates....... $(3,493) $ (24,128) $ (80,320) Increase (decrease) in tax resulting from: Accounting losses for which deferred Federal income tax cannot be recognized............... 3,493 24,468 67,777 State income taxes............................... -- 660 3,828 Dividends received credit........................ -- -- (331) --------- --------- --------- Totals................................... $ -- $ 1,000 $ (9,046) --------- --------- --------- --------- --------- ---------
The tax effects of the temporary differences in the areas listed below resulted in deferred income tax provisions (credits) (in thousands):
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ----------------- 1992 1992 1991 --------- ----- ------- Reserve for doubtful accounts......................... $ -- $(736) $ 1,160 Reserve for property valuations....................... -- (127) (2,953) Net temporary differences without tax benefit......... -- 359 1,276 Lease rejection damages............................... -- 423 (2,922) Interest income....................................... -- -- 193 Depreciation and amortization......................... -- 14 116 Gains on property sales............................... -- (33) 2,202 Other................................................. -- 100 928 --------- ----- ------- Totals...................................... $ -- $ -- $ -- --------- ----- ------- --------- ----- -------
No Federal income tax was payable at July 31, 1992 due primarily to the utilization of net operating loss carryforwards. At July 31, 1992, the Company had net operating loss carryforwards of approximately $347,000,000 for Federal income tax purposes. Such tax net operating loss carryforwards, if not used as offsets to future taxable income, will expire beginning in 2005 and continuing through 2007. The amount of net operating loss carryforwards available for future utilization is limited to $130,500,000 during the carryforward period as a result of the change in ownership of the Company upon consummation of the Plan. In accordance with FAS 109, the Company has not recognized the future tax benefits associated with the net operating loss carryforwards or with other temporary differences. Accordingly, the Company has provided a valuation allowance of approximately $44,000,000 against the deferred tax assets as of July 31, 1992 and June 30, 1992. To the extent any available carryforwards or other benefits are utilized in periods subsequent to July 31, 1992, the 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. F-46 108 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) PMI's Federal income tax returns for the years 1987 through 1991 are currently under examination by the Internal Revenue Service. The Company does not believe there will be any material adverse effects on the consolidated financial statements as a result of this examination. NOTE 19 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS Pursuant to the Plan, on July 31, 1992, the Company began distributing 33,000,000 shares of Common Stock to certain claimants and holders of PMI stock. At March 2, 1993, 22,623,100 shares of Common Stock were distributed. The remaining shares are to be distributed semi-annually to holders of previously allowed claims and pending final resolution of disputed claims (see Note 12). In addition, holders of PMI stock will receive Warrants to purchase Common Stock exercisable into an aggregate of approximately 2,100,000 shares at an exercise price equal to the average per share daily closing price during the year ending July 31, 1993. On July 31, 1992, the Company adopted a stock option plan under which options to purchase up to 1,320,000 shares of Common Stock may be granted to directors, officers or key employees under terms determined by the Board of Directors. During 1992, options to purchase 350,000 shares were granted to officers and directors none of which are exercisable at July 31, 1992. In addition, options to purchase 330,000 shares were granted to a former officer. Such options are currently exercisable and expire on July 31, 1995. The exercise prices of the above options are dependent on the average market price one year from the date of grant and are, therefore, currently undeterminable. On July 31, 1992, the Company adopted a performance incentive plan under which stock options covering an additional 330,000 shares of Common Stock were reserved for grants to key employees at the discretion of management. No options have been issued under this plan. PMI had an employee incentive stock option plan which provided for grants of stock options covering an aggregate of 3,520,000 shares of common stock to officers and key employees. Under the terms of the plan, which expired on November 23, 1991, options were granted at a price not less than 100% of fair market value on the date of grant. Options generally were exercisable in cumulative installments of 33 1/3% after the option has been outstanding 18, 32 and 46 months from the date of grant and expired five years after the date of grant. A summary of the transactions under this plan follows:
NUMBER OPTION PRICE OF SHARES PER SHARE ---------- ------------ Outstanding -- June 30, 1990................................ 2,155,910 $8.25-$40.45 Cancelled................................................... (1,205,336) $8.25-$40.45 ---------- Outstanding -- June 30, 1991................................ 950,574 $8.25-$40.45 Cancelled................................................... (950,574) $8.25-$40.45 ---------- Outstanding and exercisable -- June 30, 1992............................................. -- Outstanding and exercisable -- July 31, 1992............................................. -- ---------- ----------
F-47 109 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) NOTE 20 -- INTEREST AND DIVIDEND INCOME Included in interest and dividend income are the following (in thousands):
ONE MONTH YEARS ENDED ENDED JUNE 30, JULY 31, ------------------ 1992 1992 1991 --------- ------- ------- Interest on: Mortgages and other notes receivable.................. $ 1,949 $24,117 $30,067 Short-term and other investments...................... -- -- 503 Dividend income......................................... -- 10 545 --------- ------- ------- Totals........................................... $ 1,949 $24,127 $31,115 --------- ------- ------- --------- ------- -------
NOTE 21 -- OTHER REVENUES Included in other revenues are the following (in thousands):
ONE MONTH YEARS ENDED ENDED JUNE 30, JULY 31, ---------------- 1992 1992 1991 --------- ------ ------ Rentals of properties..................................... $ 144 $1,649 $2,232 Other..................................................... 89 1,460 3,694 --------- ------ ------ Totals............................................. $ 233 $3,109 $5,926 --------- ------ ------ --------- ------ ------
NOTE 22 -- RELATED PARTY TRANSACTIONS The following summarizes significant financial information with respect to transactions with present and former officers, directors, their relatives and certain entities they control or in which they have a beneficial interest (in thousands):
ONE MONTH YEARS ENDED ENDED JUNE 30, JULY 31, ---------------- 1992 1992 1991 --------- ------ ------ Management and other fee income(a)........................ $56 $ 746 $1,249 Interest income(a)........................................ 74 1,231 1,955 Rental income(a).......................................... -- 657 624 Management fee expense(b)................................. 37 216 -- Interest expense(b)....................................... 66 250 -- Reservation fee expense(b)................................ 20 10 --
- --------------- (a) During 1990, PMI sold eight hotel properties to partnerships controlled by former officers and/or directors for aggregate consideration of $52,500,000 resulting in deferred gains of $4,000,000. The Company held mortgages and other notes receivable with a face value of $44,992,000 at July 31, 1992, which arose primarily from those hotel sales. The mortgages mature through 2005 and bear interest at rates ranging from 9.5% to 12.5%. At July 31, 1992, the carrying value of those mortgages was reduced to $6,081,000. The income amounts shown above primarily include transactions related to these properties. F-48 110 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (CONTINUED) (b) In 1991, PMI entered into an agreement with ShoLodge, whereby Sholodge was appointed the exclusive agent to develop and manage certain hotel properties. Six hotels have been developed and opened to date. Development fees earned by ShoLodge of $-0-, $586,000 and $527,000 have been capitalized into property, equipment and leasehold improvements for the month ended July 1992, and the years ended June 1992 and June 1991, respectively. The Company has demand notes and loans payable to ShoLodge of $2,706,000 and $3,570,000, respectively, at July 31, 1992 concerning the development of hotels. Effective June 1992, the Company commenced using the ShoLodge reservation system for its Wellesley and AmeriSuite hotels. NOTE 23 -- SUPPLEMENTAL CASH FLOW INFORMATION PMI generally received mortgages and other notes as a portion of the total consideration paid by purchasers in connection with sales of hotel properties and as consideration for certain construction and development activities. Such noncash consideration is not reflected in the accompanying consolidated statements of cash flows. Investing activities involving such noncash proceeds are summarized below (in thousands):
ONE MONTH YEARS ENDED ENDED JUNE 30, JULY 31, ----------------- 1992 1992 1991 --------- ------ ------- Net book value of assets sold............................ $ -- $1,539 $15,664 Net realized gains on property transactions.............. -- 15 -- Liabilities assumed...................................... -- -- 5,799 Cash proceeds, net of selling costs...................... -- (249) (6,829) --------- ------ ------- Noncash proceeds.................................. $ -- $1,305 $14,634 --------- ------ ------- --------- ------ -------
Noncash proceeds consisted of the following (in thousands):
ONE MONTH YEARS ENDED ENDED JUNE 30, JULY 31, ----------------- 1992 1992 1991 --------- ------ ------- Mortgage and other notes receivable...................... $ -- $1,305 $14,634 --------- ------ ------- --------- ------ -------
Cash paid for interest net of amounts capitalized, was $4,407,000 for the one month ended July 31, 1992 and $6,432,000 and $16,802,000 for the years ended June 30, 1992 and 1991, respectively. Cash paid for income taxes was $2,000 for the one month ended July 31, 1992 and $1,460,000 and $2,100,000 for the years ended June 30, 1992 and 1991, respectively. F-49 111 SCHEDULE II PRIME HOSPITALITY CORP. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES DECEMBER 31, 1993 AND 1992 (IN THOUSANDS)
COLUMN E COLUMN D ------------------ ---------------------- BALANCE AT COLUMN B DEDUCTIONS END OF PERIOD ---------- ---------------------- ------------------ COLUMN A BALANCE AT COLUMN C (1) (2) (1) (2) - -------------------------------------- BEGINNING -------- AMOUNTS VALUATION NOT NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED RESERVES CURRENT CURRENT - -------------------------------------- ---------- -------- --------- --------- ------- ------- YEAR ENDED DECEMBER 31, 1993: We-Haven Associates(a)................ $818 -- $ 5 $-- $-- $ 813 FIVE MONTHS ENDED DECEMBER 31, 1992: We-Haven Associates(a)................ 828 -- 10 -- 32 786 Gerald Bohm(b)........................ 134 -- 10 -- 28 96
- --------------- (a) 11%; secured by real property; payable in monthly installments of $16,994 including interest. During 1993, the Company began foreclosure proceedings on this receivable. (b) 10%; secured by real property; due September 1, 1996. F-50 112 SCHEDULE II PAGE 1 OF 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS)
COLUMN E COLUMN D ------------------ ---------------------- BALANCE AT COLUMN B DEDUCTIONS END OF PERIOD ---------- ---------------------- ------------------ COLUMN A BALANCE AT COLUMN C (1) (2) (1) (2) - ------------------------------------- BEGINNING -------- AMOUNTS VALUATION NOT NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED RESERVES CURRENT CURRENT - ------------------------------------- ---------- -------- --------- --------- ------- ------- ONE MONTH ENDED JULY 31, 1992: We-Haven Associates(a)............... $ 1,331 $ 1 $ 502 $30 $ 798 Gerald Bohm(b)....................... 134 27 107 Monroe Property Associates(c)........ 5,950 950 5,000 Hillsborough Associates(d)........... 536 536 Jeffrey Halpern(e)................... 71 1 70 Joel Hecht(f)........................ 7 7 John Leavitt(g)...................... 41 1 40 YEAR ENDED JUNE 30, 1992: We-Haven Associates(a)............... 1,378 47 1,331 Gerald Bohm(b)....................... 161 27 25 109 Monroe Property Associates(c)........ 8,080 175 1,955 5,950 Hillsborough Associated(d)........... 7,917 7,381 536 Jeffrey Halpern(e)................... 72 1 1 70 Joel Hecht(f)........................ 10 3 1 6 John Leavitt(g)...................... $ 42 1 1 40 YEAR ENDED JUNE 30, 1991: We-Haven Associates(a)............... 1,437 59 1,378 Gerald Bohm(b)....................... 184 23 25 136 Monroe Property Associates(c)........ 8,125 45 8,080 Hillsborough Associates(d)........... 13,177 67 5,193 7,917 Joel Simon(h)........................ 430 430 Jeffrey Halpern(e)................... 73 1 1 71 Joel Hecht(f)........................ 10 1 9 Taub and Taub(i)..................... 6 6
F-51 113 SCHEDULE II PAGE 2 OF 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS) (CONTINUED) (a) 11%; secured by real property; payable in monthly installments of $16,994 including interest. (b) 10%; secured by real property; due September 1, 1996. (c) 10%; secured by real and personal property; due December 1, 1998; payable in monthly installments of $115,859 including interest. In January 1993, the Company restructured the note as follows: (i) a senior note of $5,000,000 at 8.5%; due January 1, 2003; payable in monthly installments of $38,446 and (ii) a junior note of $5,950,000 at 6.0% due January 1, 2008; payable to the extent of available cash flow. The notes are owed by a partnership in which a former director of PMI has a controlling interest. Subsequent to July 31, 1992, this note is no longer classified as a related party receivable. (d) 9.5% to 11%; secured by real and personal property; due from March 1, 1999 to December 1, 2019; payable in total monthly installments of $277,252 including interest. In December 1992, the Company restructured these notes to receive the majority of available cash flow. (e) 9.25%; secured by real property; payable in monthly installments of $590; due July 1, 2017. (f) Prime rate; unsecured; payable on demand. (g) 9%; secured by real property; due September 5, 2011. (h) Prime rate; unsecured; payable on demand. (i) 11%; secured by personal property; payable in quarterly installments of $2,307 including interest; due January 1, 1991. F-52 114 SCHEDULE V PRIME HOSPITALITY CORP. AND SUBSIDIARIES PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS DECEMBER 31, 1993 AND 1992 (IN THOUSANDS)
COLUMN B COLUMN E COLUMN F ---------- COLUMN C ------------ ---------- COLUMN A BALANCE AT -------- COLUMN D OTHER BALANCE AT - ---------------------------------------- BEGINNING ADDITIONS ----------- CHANGES ADD CLOSE OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD - ---------------------------------------- ---------- -------- ----------- ------------ ---------- YEAR ENDED DECEMBER 31, 1993: Land.................................... $ 26,074 $ 4,115 $ 1,422 $ 640(a) $ 29,407 Hotels.................................. 97,179 10,693 818 2,617(a) 109,671 Furniture, fixtures, autos.............. 18,333 4,585 1,183 144(a) 21,879 Leasehold improvements.................. 15,771 1,101 21 (6,629)(c) 10,222 Construction in progress................ -- 2,555 -- -- 2,555 ---------- -------- ----------- ------------ ---------- 157,357 23,049 3,444 (3,228) 173,734 Property held for sale.................. 8,000 355 -- -- 8,355 ---------- -------- ----------- ------------ ---------- Totals........................ $ 165,357 $23,404 $ 3,444 $ (3,228) $ 182,089 ---------- -------- ----------- ------------ ---------- ---------- -------- ----------- ------------ ---------- FIVE MONTHS ENDED DECEMBER 31, 1992: Land.................................... $ 24,855 $ 133 -- $ 1,086(a) $ 26,074 Hotels.................................. 95,942 5 -- 5,732(a) 97,179 (4,500)(b) Furniture, fixtures, autos.............. 16,192 1,272 231 1,100(a) 18,333 Leasehold improvements.................. 15,428 393 50 -- 15,771 ---------- -------- ----------- ------------ ---------- 152,417 1,803 281 3,418 157,357 Property held for sale.................. 8,000 -- -- -- 8,000 ---------- -------- ----------- ------------ ---------- Totals........................ $ 160,417 $ 1,803 $ 281 $ 3,418 $ 165,357 ---------- -------- ----------- ------------ ---------- ---------- -------- ----------- ------------ ----------
- --------------- (a) Transfer from notes receivable to land, hotels and furniture, fixtures and autos. (b) Represents a hotel conveyed to a third party in return for the assumption of the related debt by the third party. (c) Represents a transfer in exchange for a note receivable. See Notes to Consolidated Financial Statements as to depreciation method and useful lives. F-53 115 SCHEDULE V PRIME HOSPITALITY CORP. AND SUBSIDIARIES PAGE 1 OF 2 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS)
COLUMN B COLUMN F ---------- COLUMN C COLUMN E ---------- COLUMN A BALANCE AT ---------- COLUMN D ------------- BALANCE AT - -------------------------------------- BEGINNING ADDITIONS ----------- OTHER CHANGES CLOSE OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD (DEDUCT) PERIOD - -------------------------------------- ---------- ---------- ----------- ------------- ---------- ONE MONTH ENDED JULY 31, 1992: Land................................ $ 25,309 $ -- $ -- $ 2,292(a) $ 24,201 3,400(b) Land leased to others............... 654 -- -- -- 654 Hotels.............................. 116,192 -- -- (20,250)(a) 95,942 Furniture, fixtures and autos....... 25,346 571 274 (9,451)(a) 16,192 Leasehold improvements.............. 13,425 121 -- 1,882(a) 15,428 Leased equipment under capital leases........................... 93 -- -- (93)(a) -- ---------- ---------- ----------- ------------- ---------- 181,019 692 274 (29,020) 152,417 Property held for sale.............. 22,811 -- -- (14,811)(a) 8,000 ---------- ---------- ----------- ------------- ---------- Totals........................... $ 203,830 $ 692 $ 274 $ (43,831) $ 160,417 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- YEAR ENDED JUNE 30, 1992: Land................................ $ 25,664 $ 7 $ 362 $ -- $ 25,309 Land leased to others............... 654 -- -- -- 654 Hotels.............................. 98,551 95 -- 17,546(c) 116,192 Furniture, fixtures and autos....... 22,391 3,918 963 -- 25,346 Leasehold improvements.............. 13,454 512 541 -- 13,425 Leased equipment under capital leases........................... 243 -- 150 -- 93 Construction in progress............ 8,074 9,472 -- (17,546)(c) -- ---------- ---------- ----------- ------------- ---------- 169,031 14,004 2,016 -- 181,019 Property held for sale.............. 50,565 137 18,891 (9,000)(d) 22,811 ---------- ---------- ----------- ------------- ---------- Totals........................... $ 219,596 $ 14,141 $20,907 $ (9,000) $ 203,830 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- YEAR ENDED JUNE 30, 1991: Land................................ $ 39,823 $ -- $ 2,209 $ 8,079(c) $ 25,664 (19,423)(e) (606)(d) Land leased to others............... 1,209 -- -- (555)(d) 654 Hotels.............................. 86,163 628 4,804 39,258(c) 98,551 (21,671)(e) (1,023)(d) Furniture, fixtures and autos....... 34,962 695 9,831 3,573(c) 22,391 (6,938)(e) (70)(d) Leasehold improvements.............. 37,020 829 22,780 (1,495)(e) 13,454 (120)(d) Leased equipment under capital leases........................... 677 -- 191 (243)(e) 243 Construction in progress............ 64,998 18,446 13,228 (50,911)(c) 8,074 (9,954)(e) (1,277)(d) ---------- ---------- ----------- ------------- ---------- 264,852 20,598 53,043 (63,376) 169,031 Property held for sale.............. 22,643 1,315 -- 59,723(e) 50,565 (33,116)(d) ---------- ---------- ----------- ------------- ---------- Totals........................... $ 287,495 $ 21,913 $53,043 $ (36,769) $ 219,596 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ----------
F-54 116 SCHEDULE V PAGE 2 OF 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS) (CONTINUED) (a) Fresh-start reporting adjustments. (b) Distributions under the Plan. (c) Transfer from construction in progress to hotels, leasehold improvements and furniture, fixtures and autos. (d) Writeoffs and/or writedowns to net realizable value. (e) Transfer from operating land, hotels, furniture, fixtures and autos and/or construction in progress to property held for sale. See Notes to Consolidated Financial Statements as to depreciation method and useful lives. F-55 117 SCHEDULE VI PRIME HOSPITALITY CORP. AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS DECEMBER 31, 1993 AND 1992 (IN THOUSANDS)
COLUMN B COLUMN E COLUMN F ---------- COLUMN C ------------ ---------- COLUMN A BALANCE AT ---------- COLUMN D OTHER BALANCE AT - --------------------------------------- BEGINNING ADDITIONS ----------- CHANGES ADD CLOSE OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD - --------------------------------------- ---------- ---------- ----------- ------------ ---------- YEAR ENDED DECEMBER 31, 1993: Hotels................................. $1,065 $2,936 $ 28 $ 30 $4,003 Furniture, fixtures, autos............. 1,028 3,430 327 262 4,393 Leasehold improvements................. 467 649 -- 209 907 Construction in progress............... -- -- -- -- -- ---------- ---------- ----------- ------------ ---------- Totals............................ $2,560 $7,015 $ 355 $ 83 $9,303 ---------- ---------- ----------- ------------ ---------- ---------- ---------- ----------- ------------ ---------- FIVE MONTHS ENDED DECEMBER 31, 1992: Hotels................................. $ -- $1,065 $ -- $ -- $1,065 Furniture, fixtures, autos............. -- 1,252 224 -- 1,028 Leasehold improvements................. -- 467 -- -- 467 ---------- ---------- ----------- ------------ ---------- Totals............................ $ -- $2,784 $ 224 $ -- $2,560 ---------- ---------- ----------- ------------ ---------- ---------- ---------- ----------- ------------ ----------
F-56 118 SCHEDULE VI PRIME HOSPITALITY CORP. AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS)
COLUMN B COLUMN C COLUMN F ---------- ---------- COLUMN D ---------- COLUMN A BALANCE AT CHARGED TO -------- COLUMN E BALANCE AT - ---------------------------------------- BEGINNING COSTS AND RETIRE- ----------- CLOSE OF CLASSIFICATION OF PERIOD EXPENSES MENTS ADJUSTMENTS PERIOD - ---------------------------------------- ---------- ---------- -------- ----------- ---------- ONE MONTH ENDED JULY 31, 1992: Hotels................................ $ 8,689 $ 239 $ -- $ (8,928)(a) $ -- Furniture, fixtures and auto.......... 10,624 254 153 (10,725)(a) -- Leasehold improvements................ 4,961 76 -- (5,037)(a) -- Leased equipment under capital leases............................. 84 -- -- (84)(a) -- ---------- ---------- -------- ----------- ---------- Totals........................ $ 24,358 $ 589 $ 153 $ (24,774) $ -- ---------- ---------- -------- ----------- ---------- ---------- ---------- -------- ----------- ---------- YEAR ENDED JUNE 30, 1992: Hotels................................ $ 9,142 $ 2,537 $ 2,990 $ -- $ 8,689 Furniture, fixtures and auto.......... 12,956 3,054 5,386 -- 10,624 Leasehold improvements................ 4,469 1,268 776 -- 4,961 Leased equipment under capital leases............................. 346 8 270 -- 84 ---------- ---------- -------- ----------- ---------- Totals........................ $ 26,913 $ 6,867 $ 9,422 $ -- $ 24,358 ---------- ---------- -------- ----------- ---------- ---------- ---------- -------- ----------- ---------- YEAR ENDED JUNE 30, 1991: Hotels................................ $ 8,136 $ 2,854 $ 1,848 $ -- $ 9,142 Furniture, fixtures and auto.......... 14,950 3,415 5,409 -- 12,958 Leasehold improvements................ 6,438 1,569 3,538 -- 4,469 Leased equipment under capital leases............................. 499 29 182 -- 346 ---------- ---------- -------- ----------- ---------- Totals........................ $ 30,023 $ 7,867 $10,977 $ -- $ 26,913 ---------- ---------- -------- ----------- ---------- ---------- ---------- -------- ----------- ----------
- --------------- (a) Fresh start reporting adjustments. F-57 119 SCHEDULE IX PRIME HOSPITALITY CORP. AND SUBSIDIARIES SHORT-TERM BORROWINGS JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS)
COLUMN C COLUMN F -------- COLUMN D COLUMN E ---------- WEIGHTED ----------- ----------- WEIGHTED COLUMN B AVERAGE MAXIMUM AVERAGE AVERAGE ---------- INTEREST AMOUNT AMOUNT INTEREST COLUMN A BALANCE AT RATE AT OUTSTANDING OUTSTANDING RATE - -------------------------------------- END OF END OF DURING THE DURING THE DURING THE CATEGORY PERIOD PERIOD PERIOD PERIOD(A) PERIOD(B) - ------------------------------------------------ -------- ----------- ----------- ---------- One month ended July 31, 1992......... $5,971 7.8% $ 5,971 $ 5,971 7.8% ---------- -------- ----------- ----------- ---------- ---------- -------- ----------- ----------- ---------- Year ended June 30, 1992.............. $5,971 8.3% $ 5,971 $ 4,054 9.0% ---------- -------- ----------- ----------- ---------- ---------- -------- ----------- ----------- ---------- Year ended June 30, 1991.............. $2,556 9.8% $ 2,556 $ 627 10.4% ---------- -------- ----------- ----------- ---------- ---------- -------- ----------- ----------- ----------
- --------------- (a) The average amount outstanding during the period was computed on the basis of the outstanding daily principal balances. (b) The weighted average interest rate was computed by dividing the total interest expense on these obligations by the average balance of short-term obligations outstanding. F-58 120 SCHEDULE X PRIME HOSPITALITY CORP. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION DECEMBER 31, 1993 AND 1992 (IN THOUSANDS)
FIVE MONTHS YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, 1993 1992 ------------ ------------ Maintenance and repairs.................................... $4,163 $1,460 Real estate taxes.......................................... 4,170 1,847 Royalties.................................................. 1,239 429 Advertising and sales promotion costs...................... 5,010 1,947
F-59 121 SCHEDULE X PRIME HOSPITALITY CORP. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS)
ONE MONTH ENDED YEARS ENDED JUNE 30, JULY 31, ----------------------- 1992 1992 1991 --------- --------- --------- Maintenance and repairs........................................ $ 290 $ 5,330 $ 6,134 Taxes, other than payroll and income taxes: Real estate taxes............................................ 494 6,151 6,740 Royalties...................................................... 87 1,628 4,262 Advertising costs.............................................. 374 5,513 4,066
F-60 122 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. DATE: March 24, 1994. By: /s/ David A. Simon ------------------------ David A. Simon, President 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 24, 1994.
Signature Title --------- ----- /s/ David A. Simon Chairman of Board of Directors, - -------------------------- President, Chief Executive Officer David A. Simon and Director (Principal Executive Officer) /s/ John M. Elwood Chief Financial Officer, Executive - -------------------------- Vice President and Director John M. Elwood /s/Allen J. Ostroff Director - -------------------------- Allen J. Ostroff /s/ Herbert Lust, II Director - -------------------------- Herbert Lust, II /s/ Leon Moore Director - -------------------------- Leon Moore /s/ A. F. Petrocelli Director - -------------------------- A.F. Petrocelli
123 Exhibit Index (2) (a) Reference is made to the Disclosure Statement for Debtors' Second Amended Joint Plan of Reorganization dated January 16, 1992, which includes the Debtors' Second Amended Plan of Reorganization as an exhibit thereto filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (3) (a) Reference is made to the Restated Certificate of Incorporation of the Company dated June 5, 1992 filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the Restated 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% Fixed Rate Senior Secured 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 Adjustable Rate Senior Secured 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% Junior Secured Note of the Company filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is 124 incorporated herein by reference. (d) 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. (e) Reference is made to the Form of 10.20% 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. (f) 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. (g) 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. (h) Reference is made to the Collateral Agency Agreement among the Company, U.S. Trust and the Secured Parties, 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. (i) Reference is made to the Security Agreement between the Company and U.S. Trust, 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. (j) Reference is made to the Subsidiary Guaranty from FR Delaware, Inc. to United States Trust Company of New York, dated as of July 31, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated 125 herein by reference. (k) Reference is made to the Security Agreement between FR Delaware, Inc. and United States Trust Company of New York, 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. (l) Reference is made to the Subsidiary Guaranty from Prime Note Collections Company, Inc. to United States Trust Company of New York, 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. (m) Reference is made to the Security Agreement between Prime Note Collections Company, Inc. and United States Trust Company of New York, 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. (n) 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. (10) (a) Reference is made to the Agreement of Purchase and Sale between Flamboyant Investment Company, Ltd. and VMS Realty, Inc. dated June 3, 1985, and its related agreements, each of which was included as Exhibits to the Form 8-K dated August 14, 1985 of PMI, which are incorporated herein by reference. (b) 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. 126 (c) Reference is made to the Employment Agreement dated as of July 31, 1992, between David A. Simon and 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 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. (e) 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. (f) 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. (g) Reference is made to the 1992 Non-Qualified Stock Option Agreement between the Company and David L. Barsky filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (i) Reference is made to the Employment Agreement dated as of December 31, 1992 between John Elwood and the Company filed as an Exhibit to the Company's Form 10-K dated March 26, 1993, which is incorporated herein by reference. (j) 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. (k) Employment Agreement dated as of March 1, 1993 between John Stetz and the Company. (l) Employment Agreement dated as of May 18, 1993 between Paul Hower. (m) Consolidated and Amended Settlement Agreement dated as of October 12, 1993 127 between Allan V. Rose and the Company. (11) Computation of Earnings Per Common Share. (21) Subsidiaries of the Company are as follows:
Jurisdiction of Name Incorporation ---- ------------- A.J.& R. Motor Inns, Inc. North Carolina Civic Motor Inns, Inc. Virginia Coliseum Motor Inns, Inc. Maryland Dynamic Marketing, Inc. Delaware Fairfield-Meridian Claims Service, Inc. Delaware FR Delaware, Inc. Delaware FR Management Corporation Virginia Hartford Motor Inns, Inc. Virginia Market Segments, Incorporated Delaware Prime-American Realty Corp. Delaware Prime Hotel Real Estate Investments, Inc. Delaware Prime Note Collections Company, Inc. Delaware Prime-O-Lene, Inc. New Jersey Prime-Trevose Enterprises, Inc. Pennsylvania Republic Motor Inns, Inc. Virginia Suites of America, Inc. Delaware York Motor Inns, Inc. Virginia
(23) (a) Consent of Arthur Andersen & Co. (b) Consent of J.H. Cohn & Co. EX-10.K 2 EMPLOYMENT AGREEMENT DATED MARCH 1, 1993 1 EMPLOYMENT AGREEMENT AGREEMENT (this "Agreement"), made and entered into as of the first day of March, 1993, by and between PRIME HOSPITALITY CORP. ("Corporation"), and JOHN STETZ, residing at 76 Heller Way, Upper Montclair, New Jersey 07043 ("Associate"). W I T N E S S E T H: In consideration of the mutual covenants and obligations hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Subject to the terms and conditions contained in this Agreement, Corporation employs Associate and Associate agrees to serve Corporation for a one year term beginning on the date hereof, and ending on the date which is one year after the date of this Agreement. 2. So long as this Agreement shall continue in effect, Associate shall devote all of Associate's business time and energies to the business and affairs of the Corporation; use Associate's best efforts skills, and abilities to promote the Corporation's business and interests, and perform such duties as may be assigned to Associate by the President of Corporation, or such other person as the President of the Corporation may designate. 3. It is understood and agreed that the Associate's position shall be Vice President-Development of the Corporation and his primary responsibilities shall be the marketing, promoting and negotiating of commercial management agreements with hotel owners, including life insurance companies, other financial institutions and private owners; and the planning and growth of the Wellesley Inn and AmeriSuites hotel chains, including site selection and conversion of hotel properties. Associate shall have such reasonable authority as shall be required to enable Associate to discharge such duties in an efficient manner, provided, however, Associate agrees that the Board of Directors and President of the Corporation may place restrictions on such authority in order that Associate may not bind the Corporation without the prior consent and approval of certain officers of the Corporation. Prior to the execution of any contract (written or oral), Associate agrees that all contracts which will bind the Corporation must be reviewed by and receive the approval of the President of the Corporation. 2 4. The Corporation will pay Associate on a weekly basis for all services to be rendered at an annual salary of ONE HUNDRED FIFTEEN THOUSAND AND NO/100 ($115,000.00) DOLLARS, less any and all applicable taxes and withholdings. In addition, Associate shall receive a commission of ten (10%) per cent of the first year base management fee (capped at $20,000) for each management agreement completely executed. The commission shall be due and payable to Associate upon the receipt of management fees by the Corporation. 5. Associate shall be entitled to all benefits and insurance normally given to or received by all employees of Corporation (subject to change) and shall receive the use of a company car approved by the President of Corporation. 6. Corporation shall pay or reimburse Associate for all reasonable and necessary expenses incurred by Associate in connection with the performance of services under this Agreement. All such expenses shall be approved in writing prior to payment by Associate's immediate superior, who shall have the sole power to determine whether or not said expenses were reasonable and necessary. 7. During the term of this Agreement and in the event that Associate resigns or departs from the employ of the Corporation, with or without the approval of the Board of Directors, or is discharged for cause, Associate shall for a period of twelve (12) months after such resignation, discharge or departure, keep confidential any and all information obtained by Associate in the course of Associate's employment about Corporation and its affiliates and their respective business. 8. This Agreement shall terminate if Associate shall die or become so disabled that the President of the Corporation shall determine that Associate is unable to perform the functions for which Associate has been hired. The President of the Corporation may dismiss the Associate at any time for cause and this Agreement shall terminate. The term "cause" shall mean disloyalty, dishonesty or illegal conduct, neglect by Associate of Associate's duties hereunder, willful misconduct of Associate in connection with the performance of Associate's duties, or in the event the Associate shall violate any of the material terms contained in the Corporation's Handbook for Prime Associates. In the 3 event the President determines to dismiss Associate for cause, Associate agrees that this Agreement shall terminate and Associate shall be removed from all positions held by Associate with the Corporation effective upon the delivery of notice of such determination to Associate. Associate further agrees that the President of the Corporation may dismiss Associate at any time, without cause and this Agreement shall terminate; however, in such event Associate shall be paid an amount equal to the remaining amount of any unpaid Associate's then current annual salary in a lump sum, less applicable taxes and withholdings. 9. This Agreement contains the entire agreement of the parties relating to the subject matter hereof and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 10. The waiver or breach of any term or condition of this Agreement shall not be deemed to constitute a waiver or breach of any other term or condition. 11. This Agreement shall be construed in accordance with the laws of the State of New Jersey. 12. This Agreement shall extend to and be binding upon Associate, his executors, administrators, legal representatives, heirs and distributees, and Corporation, its successors and assigns. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by its duly authorized officers and the Associate has hereunto set his hand and seal all as of the day and year first above written. PRIME HOSPITALITY CORP. By: ------------------------------ David A. Simon, President ------------------------------ John Stetz EX-10.L 3 EMPLOYMENT AGREEMENT DATED MAY 18, 1993 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of May 18, 1993, between Paul Hower ("Executive") and Prime Hospitality Corp., a Delaware corporation ("Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT OF EXECUTIVE Employer hereby agrees to employ Executive, and Executive hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. EMPLOYMENT PERIOD Subject to earlier termination as provided in section 5, the term of Executive's employment under this Agreement (the "Employment Period") shall commence on June 23, 1993 (the "Effective Date") and shall continue until June 30, 1994 (the "Expiration Date"). Either party may terminate this Agreement on the Expiration Date or this Agreement may be renewed on a day to day basis pending the negotiation of a new agreement. 3. DUTIES AND RESPONSIBILITIES 3.1 General. During the Employment Period, Executive (i) shall have the title of Executive Vice President - Operations of Employer and (ii) shall devote substantially all of his business time and expend his best efforts, energies and skills to the business of Employer. Executive shall perform such duties, consistent with his status as Executive Vice President - Operations of Employer, as he may be assigned from time to time by Employer's Chief Executive Officer. Executive shall have such authority, discretion, power and responsibility, and shall be entitled to office, secretarial, administrative (one secretary or administrative assistant of his selection) and other facilities and conditions of employment, as are customary or appropriate to his position as Executive Vice President - Operations. Without limiting the generality of the foregoing, Executive shall have the power, subject to the direction of the Chief Executive Officer of the Employer, to: manage, supervise and direct the operations of all company owned, leased and managed hotels (the "Hotels"). Executive shall be responsible for 2 attaining corporate objectives with respect to hotel operations profits, quality of product and quality of guest services. Executive shall also be responsible for implementing corporate policies and procedures which pertain to the operation of the Hotels and the associates serving within the Hotels. Executive shall, subject to the direction of the Chief Executive Officer of the Employer, supervise the Regional Vice Presidents of Operations, Vice President of Food and Beverage, and Vice President of Sales and Marketing. 4. COMPENSATION AND RELATED MATTERS 4.1 Base Salary. For the twelve-month period of the Employment Period ("Employment Year"), Employer shall pay to Executive a base salary (the "Base Salary") equal to $180,000. 4.2 Annual Bonus. For the calendar year 1993 ("Bonus Year"), Executive shall receive (i) a cash bonus payable on January 7, 1994 in the amount of $10,000 and (ii) at the discretion of the Board of Directors, Executive may receive a cash bonus ("Bonus") based upon attainment of annual performance objectives to be reasonably established by the Chief Executive Officer and approved by the Board of Directors for the Employment Period in consultation with Executive, such performance objectives to be established as soon as possible following the date of employment. Notwithstanding anything contained herein to the contrary, the parties agree that the sum of the Bonus and Base Salary during the term of this Agreement shall not exceed $270,000. Bonus earned for the Employment Period shall be payable promptly following the determination thereof, on the earlier of fifteen (15) days after the members of the Board of Directors have received the audited financial statements for the Employment Period or the next meeting of the Board of Directors. 4.3 Life Insurance. Employer shall maintain in effect at all times during the Employment Period, at Employer's expense, a policy of term insurance on the life of Executive in the amount equal to two times Executive's Base Salary naming such person as Executive shall designate from time to time as the owner and beneficiary thereof. Executive agrees that Employer shall have the right to obtain other life insurance on Executive's life, at Employer's sole expense and with Employer or an affiliate thereof as the sole beneficiary thereof. Executive shall (i) cooperate fully with Employer in obtaining all such insurance, (ii) sign any necessary consents, applications and other related forms or documents, and (iii) take any required medical examinations. 4.4 Automobile; Moving Expense. Within 30 days following the date of this Agreement Employer shall provide for Executive's use, at Employer's expense, an automobile selected by Executive which 3 will not cost more than $25,000 (which may be leased by the Employer). Employer shall also be responsible for all expenses of use, maintenance and operation thereof, except if Executive's operation of the vehicle causes penalty insurance rates in which case Executive will bear such costs. Employer shall reimburse Executive for Executive's relocation expenses to New Jersey upon submission of invoices, which must be approved by Employer's Chief Executive Officer, up to a maximum amount of $40,000. Relocation expenses shall include travel costs, moving company costs, taxes, title insurance and real estate transaction costs. To the extent that any relocation payments made by Employer to or on behalf of Executive are subject to federal, state or local income taxes, Employer shall pay to Executive, not later than 45 days after the end of the calendar year for which such payments are includible in Executive's gross income, the amount of such additional taxes, calculated by assuming application of the Executive's applicable tax rate. 4.5 Other Benefits. During the Employment Period, subject to, and to the extent Executive is eligible under their respective terms, Executive shall be entitled to receive such fringe benefits as are, or are from time to time hereafter generally provided by Employer to Employer's senior management employees or other employees (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan, disability plan or insurance, group life insurance, medical and dental insurance, travel accident insurance, phantom stock or other similar plan or program of Employer. Executive's Base Salary shall (where applicable) constitute the compensation on the basis of which the amount of Executive's benefits under any such plan or program shall be fixed and determined. 4.6 Expense Reimbursement. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his presentation of signed, itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. 4.7 Vacations. Executive shall be entitled to 10 days vacation during the first twelve (12) months of employment, 15 days from the second twelve (12) months, and twenty (20) days for each year thereafter with reasonable one year carry-over allowances, which vacations shall be taken at such time or times as shall not unreasonably interfere with Executive's performance of his duties under this Agreement. 4 4.8 Stock Options. On the Effective Date, Employer shall grant to Executive a non-qualified stock option to purchase 20,000 shares of Common Stock pursuant to the provisions of Employer's 1992 Stock Option Plan, which option ("Stock Option") shall vest upon the Expiration Date (provided that the Executive is employed by the Employer on that date) at an exercise price per share equal to the closing price of the common stock as of the Effective Date on the New York Stock Exchange and in form and substance as set forth in the form of option agreement annexed hereto as Exhibit A. In the event of the termination of Executive for any reason (except for termination for cause), the options will vest on the date of termination. 5. TERMINATION OF EMPLOYMENT PERIOD 5.1 Termination Without Cause. Employer may, by notice to Executive at any time during the Employment Period, terminate the Employment Period without cause. The effective date of termination from the Employer to the Executive shall be the date on which such notice is given. 5.2 By Employer for Cause. Employer may, at any time during the Employment Period by notice to Executive (but only after compliance with the procedure hereinafter set forth in this Section 5.2 in the event of the cause specified in clause (ii) below), terminate the Employment Period "for cause" effective immediately. Such notice shall specify the conduct which is the basis for termination for cause in reasonable detail. For the purposes hereof, "for cause" means: (i) the conviction of Executive in a court of competent jurisdiction of a crime constituting a felony in such jurisdiction involving money or other property of the Company or any of its affiliates or any other felony (whether or not involving money or other property of the Company) involving moral turpitude; or (ii) the willful engaging in misconduct that is materially injurious to Employer, monetarily or otherwise. For the purposes hereof, no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that such action or omission was in or not opposed to the best interests of Employer. Termination "for cause" pursuant to clause (ii) of the preceding sentence shall be effected only if (i) Employer has 5 delivered to Executive a copy of a notice of termination that complies with the foregoing paragraph and that gives Executive, on at least ten business days' prior notice, the opportunity, together with Executive's counsel, to be heard before Employer's Board of Directors, and (ii) the Board of Directors (after such notice and opportunity to be heard), adopts a resolution that in the good faith opinion of the Board of Directors, Executive was guilty of conduct set forth in clause (ii) of the preceding sentence, and specifying the particulars thereof in reasonable detail. 5.3 By Executive for Good Reason. Executive may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement "for good reason" effective immediately. For the purposes hereof, "good reason" means any material breach by Employer of any provision of this Agreement. Without limiting the generality of the foregoing, each of the following shall be deemed to be a material breach of this Agreement by Employer: (i) a failure by the Employer to comply with any provision of this Agreement which has not been cured within ten (10) days after notice of such noncompliance has been given by Executive to the Employer, (ii) the assignment to Executive by Employer of duties inconsistent with Executive's position, responsibilities or status with Employer as in effect on the date of this Agreement including, but not limited to, any reduction whatsoever in such position, duties, responsibilities or status, any change in Executive's titles, offices or perquisites, as then in effect, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, except in connection with the termination of his employment on account of his death, disability, or for cause, (iii) any failure to pay (or any reduction in) compensation (including benefits) paid or payable to Executive pursuant to the provisions of Section 4 hereof, or (iv) any purported termination of Executive's employment for cause which is not effected in accordance with the requirements of Section 5.2 hereof (and for purposes of this Agreement no such purported termination shall be effective). 5.4 Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 180 days, or (ii) periods aggregating at least 270 days during any period of 12 consecutive months (each a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, shall have the right to terminate the Employment Period for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician mutually selected by Employer, whose 6 determination shall be final and binding on the parties. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Executive to be disabled at any time after the end of the Disability Period if Executive has then commenced receiving benefits under the long-term disability insurance policy obtained pursuant to Section 4.5 hereof. 5.5 Death. The Employment Period shall end on the date of Executive's death. 6. TERMINATION COMPENSATION 6.1 Termination Without Cause by Employer or for Good Reason by Executive. If the Employment Period (or the day to day basis after the Employment Period) is terminated by Employer pursuant to the provisions of Section 5.1 hereof or by Executive pursuant to the provisions of Section 5.3 hereof, Employer will pay to Executive within 30 days following the date of termination an amount equal to the greater of (i) Base Salary for the balance of the Employment Period (assuming no termination), or (ii) six months of Base Salary. All other benefits provided for in Sections 4.3, 4.4, 4.5 and Section 4.8, and any Bonus for the Employment Period (subject to Executive's right to receive a pro rata adjustment of any Bonus) shall terminate; provided however, that Executive shall be entitled to any COBRA rights provided to Employer's employees. 6.2 Certain Other Terminations. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.2, by Executive pursuant to Section 5.1, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive, within thirty (30) days of the date of termination, Executive's Base Salary through the date of termination. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination, including stock options which shall not vest. 6.3 Termination for Disability. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.4, Employer shall make all payments and continue all benefits for the period specified in Section 6.1; provided, however, that such payment shall be reduced by any amounts actually paid to Executive pursuant to any disability insurance or other such similar program maintained by Employer, including amounts paid pursuant to any long-term disability policy purchased pursuant to Section 4.5 hereof. 6.4 No Other Termination Compensation. Executive shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 7 6.5 Mitigation. Executive shall not be required to mitigate the amount of any payments or benefits provided for hereunder upon termination of the Employment Period by seeking employment with any other person, or otherwise, nor shall the amount of any such payments or benefits be reduced by any compensation, benefit or other amount earned by, accrued for or paid to Executive as the result of Executive's employment by or consultancy or other association with any other person or entity, provided, that any medical, dental or hospitalization insurance or benefits provided to Executive in connection with his employment by or consultancy with any person or entity unaffiliated with the Employer during such period shall be primary to the benefits to be provided to Executive pursuant to this Agreement for the purposes of coordination of benefits. Notwithstanding the foregoing, if Executive elects to be covered by the insurance or benefits provided by an entity or person unaffiliated with the Employer, Executive agrees that Employer may terminate any insurance or benefits provided to the Executive. 7. INDEMNIFICATION Employer shall indemnify and hold Executive harmless from and against any expenses (including reasonable attorneys' fees of the attorneys selected by Executive to represent him, which shall be advanced as incurred), judgments, fines and amounts paid in settlement incurred by him by reason of his being made a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of any act or omission to act by Executive during the Employment Period or otherwise by reason of the fact that he is an employee or officer of Employer, or of any subsidiary or affiliate included as a part of the Company, to the fullest extent and in the manner set forth and permitted by the General Corporation Law of the State of Delaware and any other applicable law as from time to time in effect. If any action, suit or proceeding is brought or threatened against Executive in respect of which indemnity may be sought against Employer, its subsidiaries, affiliates or predecessors pursuant to the foregoing, Executive shall notify Employer in writing of the institution of such action, suit or proceeding. In any such action, suit or proceeding Executive shall have the right to designate separate counsel acceptable to Executive in his sole discretion. 8. CONFIDENTIALITY Unless otherwise required by law or judicial process, Executive shall retain in confidence after termination of Executive's employment with Employer pursuant to this Agreement all 8 confidential information known to the Executive concerning the Company and its businesses for the shorter of one (1) year following such termination or until such information is publicly disclosed by the Company or otherwise becomes publicly disclosed other than through Executive's actions. 9. SUCCESSORS; BINDING AGREEMENT (a) This Agreement shall be binding upon and inure to the benefit of Employer and any successor of Employer, including, without limitation, any corporation or corporations acquiring directly or indirectly all or a substantial portion of the stock, business or assets of Employer, whether by merger, restructuring, reorganization, consolidation, division, sale or otherwise (and purposes of this Agreement). (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive's estate. 10. SURVIVORSHIP The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 11. MISCELLANEOUS 11.1 Notices. Any notice, consent or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally or by facsimile transmission (deemed given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 9 Attn.: President If to Executive: Mr. Paul Hower Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 11.2 Legal Fees. Employer shall promptly reimburse the Executive for the reasonable legal fees and expenses incurred by Executive in connection with enforcement of Executive's rights hereunder, provided that Executive shall not be reimbursed for legal fees and expenses in the event Executive has not acted in good faith. 11.3 Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) such amounts for income tax, social security, unemployment compensation and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 11.4 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed therein. 11.5 Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Fairfield, New Jersey in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until expiration of the Employment Period during the pendency of any arbitration. 11.6 Headings. All descriptive headings in this Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Agreement. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11.8 Severability. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 10 11.9 Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Executive with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans or prospects have been made by or on behalf of Employer to Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PRIME HOSPITALITY CORP. By: -------------------------- -------------------------- Paul Hower EX-10.M 4 CONSOLIDATED AND AMENDED SETTLEMENT AGREEMENT 1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA MIAMI DIVISION In re Jointly Administered PRIME MOTOR INNS, INC. et al., Chapter 11 Case No. 90-16604-BKC-AJC Debtors. PMI INVESTMENT, INC. Adversary Proceeding No. 91-1240 BKC AJC-A Plaintiff, CONSOLIDATED AND AMENDED v. SETTLEMENT AGREEMENT ALLAN V. ROSE, ARTHUR G. COHEN, and FINANCIAL SECURITY ASSURANCE INC., Defendants. The undersigned parties to this action, by and through their attorneys, hereby enter into this Consolidated and Amended Settlement Agreement, dated as of October 12, 1993 (the "Settlement Agreement"), which amends, restates, and supersedes in their entirety the prior Settlement Agreement, dated as of June 21, 1993, and the First Amendment to Settlement Agreement, dated September 30, 1993, and which constitutes a settlement of this action as to the claims between such undersigned parties, in accordance with the following terms and conditions: 2 WHEREAS, A. PMI Investment Inc. ("PMI"), and Northeast Hotel Associates ("Northeast Hotel"), Universal Motor Lodges ("Universal"), R/C Hotel Associates ("R/C Hotel"), Southeast Hotel Associates ("Southeast Hotel"), Hauppauge Hotel Corp. ("Hauppauge Hotel") and Pennco Hotel Corp. ("Pennco Hotel") (collectively the "PMI Borrowers") are parties to an agreement entitled Amendment and Restatement, dated February 4, 1988, as amended by the First Amendment to Amendment And Restatement, dated November 6, 1989 (the "PMI Loan"), pursuant to which PMI made loans to the PMI Borrowers in the currently outstanding amount in excess of $100,000,000. B. Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen") executed a personal guaranty, dated February 8, 1988 (the "Original Guaranty"), in favor of PMI pursuant to which Rose and Cohen guaranteed, subject to the terms and conditions contained therein, any and all amounts due and owing to PMI under the PMI Loan up to an aggregate amount of $50 million. C. On or about November 6, 1989, FSA Zeta Co. ("Zeta"), entered into an agreement with R/C Hotel, Southeast Hotel, Hauppauge Hotel, Pennco Hotel, Livonia Realty Inc. ("Livonia"), and PNP General Partner, Inc. ("PNP") (collectively the "FSA Borrowers"), entitled Loan and Security Agreement (the "FSA Loans"), whereby Zeta made mortgage loans to each of the FSA Borrowers in the aggregate principal amount of $115,000,000. As -2- 3 of March 24, 1992, the FSA Loans were outstanding in the following approximate and aggregate amounts, including accrued interest:
FSA Borrower Amount ------------ ------ R/C Hotel $35,500,000 Southeast Hotel $44,000,000 Pennco Hotel $44,000,000 Livonia $ 8,800,000 PNP $ 8,000,000 Hauppauge Hotel $ 2,000,000
Financial Security Assurance Inc. ("FSA") issued an insurance policy in connection with the FSA Loan to assure repayment by the FSA Borrowers. FSA also obtained by assignment all rights of Zeta under the FSA Loans. D. As a result of the PMI Loan and the FSA Loans, both PMI and FSA had loans outstanding to four of the same entities, specifically, R/C Hotel, Southeast Hotel, Hauppauge Hotel and Pennco Hotel. PMI alone pursuant to the PMI Loan was a lender to borrowers Northeast Hotel and Universal. FSA alone pursuant to the FSA Loans was a lender to borrowers PNP and Livonia. E. PMI and FSA entered into an intercreditor agreement (the "Intercreditor Agreement"), dated November 6, 1989, in order to set forth their respective rights as to the -3- 4 four entities that were both PMI and FSA borrowers (i.e., R/C Hotel, Southeast Hotel, Hauppauge Hotel, and Pennco Hotel; collectively, the "Subordinated Borrowers") and the 20 hotel properties pledged by such entities as security (the "Subordinated Collateral"). PMI's rights under the PMI Loan as to the other PMI Borrowers (i.e., Northeast Hotel and Universal (including the 44 hotel properties pledged by such entities as collateral) and the Original Guaranty of the PMI Loan were not subject to the Intercreditor Agreement. F. On or about November 3, 1989, Rose and Cohen, in order to induce PMI to modify its rights under the PMI Loan, and as consideration to PMI for entering into the Intercreditor Agreement, executed a letter (the "Amended Guaranty") amending their Original Guaranty. Any recovery by PMI pursuant to the Amended Guaranty was not subject to the Intercreditor Agreement. G. On September 18, 1990, Prime Motor Inns, Inc. ("Prime"), PMI, and certain of their affiliated entities (collectively, the "Prime Debtors") each filed a voluntary petition with this Court for reorganization under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). H. FSA, by notices to the FSA Borrowers dated September 16, 1991, October 2, 1991, November 1, 1991 and November 6, 1991 (collectively the "Notices"), notified the FSA Borrowers of events of default under the FSA Loans and, pursuant to the Notices, inter alia, the principal balances of the FSA -4- 5 Loans in the amount of approximately $115,000,000, together with all accrued and unpaid interest, and other charges and fees, were accelerated and became immediately due and payable. I. On or after December 30, 1991, PMI commenced this adversary proceeding against Rose and Cohen under the Amended Guaranty to recover $50 million, plus the cost of collection, because of events of default under the PMI Loan (the "PMI Action"). J. On or about March 10, 1992, FSA and the FSA Borrowers (including several related entities) entered into a settlement agreement (the "FSA Settlement Agreement") in respect of the FSA Loans. The Settlement Agreement provided, inter alia, that: 1. The FSA Borrowers shall file petitions under Chapter 11 of Bankruptcy Code in the United States District Court for the Southern District of New York and, concurrently with such filings, each FSA Borrower would file either a plan of reorganization or a joint plan of reorganization acceptable in all respects to FSA as further set forth therein; 2. The FSA Borrowers each shall convey all its right, title and interest in the FSA Collateral (as defined therein) to FSA (or its designee) free and clear of all liens, claims, security interest, assignments, encumbrances and other interest of any kind; 3. The plan of reorganization shall provide that, except with FSA's consent, no property of the FSA Borrowers would be distributed to, or received or retained by, unsecured or contingency creditors in respect of their claims, except for the payment of allowed administrative claims; and -5- 6 4. The FSA Borrowers' obligations to FSA under the FSA Loans will be released and discharged. K. On March 24, 1992, Livonia, Pennco Hotel, PNP, R/C Hotel and Southeast Hotel (the "FSA Debtors") filed chapter 11 petitions with the Bankruptcy Court in White Plains, New York (the "FSA Debtors Bankruptcy"). L. Hauppauge Hotel, while initially required by the FSA Settlement Agreement to file a petition and plan of reorganization, did not do so, the consent of FSA, because Hauppauge Hotel's sole asset, consisting of a leasehold interest in the Hauppauge Holiday Inn, had been foreclosed by the senior lender on or about December 31, 1991. As a result of such foreclosure, Hauppauge Hotel has no assets. M. On or about May 22, 1992, PMI filed claims (the "PMI Claims") against debtors R/C Hotel, Southeast Hotel and Pennco Hotel in the FSA Debtors Bankruptcy for money loaned pursuant to the PMI Loan in the amount of approximately $120 million. N. On December 15, 1992, the Bankruptcy Court in the FSA Debtors Bankruptcy entered in Order Confirming Debtors' Amended Joint Plan of Reorganization (the "FSA Debtors' Plan"). The FSA Debtors Plan recited, inter alia, that: 1. All of the FSA Debtors' property, real and personal, including but not limited to such debtors' interest in one or more of eighteen hotels, was collateral (the "FSA collateral") pledged to FSA and the FSA Loans: -6- 7 2. The indebtedness of the FSA Debtors to FSA in the principal amount of approximately $114,286,188 secured by the FSA Collateral was substantially more than the maximum fair market value of the FSA Collateral; 3. Events of default had occurred under the FSA Loans and the FSA Debtors had determined that no equity exists in its FSA Collateral beyond the amount owed to FSA; and 4. Accordingly, it is in each FSA Debtor's best interest by means of the plan of reorganization to effectuate, inter alia, the orderly conveyance of the FSA Collateral to FSA or its designee) and obtain the release and discharge of the FSA Debtors' obligations under the FSA Loans to FSA. The FSA Debtors Amended Plan of Reorganization became effective on or about December 15, 1992. O. The FSA Debtors' Plan states that the obligations owed to PMI under the PMI Loan by R/C Hotel, Pennco Hotel, and Southeast Hotel were extinguished and discharged. The PMI Claims were held to be valued at zero, and no distribution of any kind was made to PMI in respect of its claims. P. As a result of and pursuant to the terms of the FSA Debtors Plan and the FSA Settlement Agreement, (i) FSA has fully exercised and exhausted every right and remedy it had under the FSA Loans, including, but not limited to, against the FSA Borrowers, the FSA Collateral, and Rose and Cohen; (ii) FSA has received a transfer of the FSA Collateral, free and clear of all liens, claims, security interests, assignments, encumbrances, and other encumbrances, and other interests of any kind, including, but not limited to, the extinguishment of PMI's security interest in the Subordinated -7- 8 Collateral; and (iii) the obligations of the FSA Borrowers to FSA under the FSA Loans were released and discharged. Q. On April 3, 1992, this Court signed an order (the "Confirmation Order") confirming Prime's Second Amended Joint Plan of Reorganization, dated January 16, 1992, as modified (the "Prime Plan"). The Prime Plan's effective date was July 31, 1991. Prime Hospitality Corp. is now the successor-in-interest to all the Prime Debtors, including PMI, and shall also be referred to as "Prime". R. Under the Prime Plan, the PMI Loan and Amended Guaranty were pledged pursuant to a Security Agreement, dated as of july 31, 1992, together with other contract rights, promissory notes and properties as collateral (the "Collateral") by Prime in favor of United States Trust Company of New York, as agent (the "Agent") for the benefit of the holders of (i) the 8.20% Fixed Rate Senior Secured Notes (the "8.20% Senior Notes"), (ii) the Adjustable Rate Senior Secured Notes (the "Adjustable Senior Notes") (collectively the "Senior Notes"), and (iii) the 9.20% Junior Secured Notes, (the "Junior Notes" and, together with the Senior Notes, collectively the "Notes") which were issued under the Prime Plan. The sale, exchange, compromise, assignment or other disposition (collectively "Sale") of such Collateral is subject to the conditions, inter alia, that (i) Prime provide 20 days' prior written notice to the Agent and (ii) Prime not receive written notice from the holders of 51% of the principal -8- 9 amount of Senior Notes outstanding, if any, and Junior Notes outstanding, if any, as separate classes, objecting to the proposed Sale of such Collateral. Moreover, upon the consummation of any Sale, Prime is required immediately to deposit with the Agent any and all proceeds of such Sale. S. On July 20, 1992, nearly seven months after PMI commenced this action against Rose and Cohen pursuant to the Amended Guaranty, FSA for the first time informed PMI that it was considering taking the position that FSA was entitled to any payment received by PMI in this action. On or about August 25, 1992, PMI filed an Amended Complaint in the PMI Action wherein PMI (i) realleged its claim against Rose and Cohen pursuant to the Amended Guaranty and (ii) added claims against FSA seeking, inter alia, a declaratory judgment that PMI, and not FSA, is entitled to collect and retain any recovery in this action. T. By Order dated January 27, 1993, this Court approved a settlement related to the compromising of proofs of claim nos. 6277, 6278, 6279, and 6284 filed by Rose against Prime and Passaic Company, Inc. ("Passaic"), two of the above-captioned debtors, arising out of the rejection of certain leases (the "Lease Rejection Settlement"). The Lease Rejection Settlement provides that such claims were allowed in part and disallowed in part as follows: Rose was granted an allowed claim in the PAS-GEN class in the amount of $7,073,455; Rose was granted an allowed claim in Prime-Gen Class in the amount of $4,951,418.50; -9- 10 and all shares of New Common Stock (the "Prime Stock") to be distributed pursuant to the Prime Plan in respect of such allowed claims were to be held in escrow pending a resolution of the PMI Action against Rose and Cohen. A copy of the Lease Rejection Settlement is annexed hereto as Exhibit 1. Rose has assigned his right to receive the Prime Stock pursuant to the Lease Rejection Settlement to Northeast Hotel Corp. ("NHC"), a corporation organized under the laws of the State of New York, and NHC has agreed to be bound by the terms of the Lease Rejection Settlement. U. As of May 1, 1993, the FSA Borrowers' debt to FSA under the FSA Loans was zero, such obligations having been fully discharged and extinguished pursuant to the FSA Settlement Agreement and FSA Debtors Plan. V. As of May 1, 1993, the PMI Loan is outstanding in an amount in excess of $120 million, but is now owed solely by borrowers Northeast Hotels and Universal. The obligations of R/C Hotel, Pennco Hotel and Southeast Hotels to PMI under the PMI Loan having been discharged and extinguished pursuant to the FSA Debtors' Plan. The obligations of Hauppauge Hotel are valueless and uncollectible because it has no assets. The obligations of Rose and Cohen under the Amended Guaranty, however, remain outstanding. NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, by and among the undersigned counsel, that the Prime Action as -10- 11 against Rose and Cohen is settled, upon the following terms and conditions: 1. Prime shall sell and assign to NHC its full right, title and interest in the PMI Loan (and the Original Guaranty and the Amended Guaranty) in return for a payment (the "Payment") consisting of: (a) $25 million in cash; and (b) the net cash proceeds received from the sale of the Prime Stock received pursuant to the Lease Rejection Settlement (the "Stock Proceeds"). 2. Prime and NHC shall, with 15 days after execution of this Settlement Agreement, enter into an Escrow Agreement, in substantially the form annexed hereto as Exhibit 2, appointing Chemical Bank, or an equivalent bank, as escrow agent (the "Escrow Agent"). The Escrow Agent shall immediately establish an account (the "Escrow Account") at Chemical Bank, which shall be held in the name of the Escrow Agent acting in its capacity under the Escrow Agreement. 3. The following shall occur: (a) On or before October 31, 1993, Rose or NHC shall deliver to Prime a loan commitment letter, containing customary terms and conditions, from Chemical Bank, or such other institution as shall be approved in advance by Prime, to issue a loan in an amount sufficient to fund the Escrow Account, it being understood that the necessary commitment amount shall be reduced -11- 12 by any amounts deposited or to be deposited into the Escrow Account by reason of the sale of the White Plains Property. (b) On or before December 15, 1993 (hereinafter the "Closing Date"), NHC shall deliver or cause to be delivered to the Escrow Agent for deposit into the Escrow Account the amount of $25 million in cash. If Prime consents to any extension of the Closing Date, then the amount to be deposited in the Escrow Account shall be increased to include interest on such amounts at Chemical Bank's prime rate plus 1%, compounded annually and computed from December 15, 1993. (c) Rose or NHC shall deliver to the Escrow Agent such Stock Proceeds as from time to time may exist as the Prime Stock is sold. In order to effectuate the provisions of this Settlement Agreement and the Lease Rejection Settlement, Prime, Rose and NHC shall enter into an agreement (the "Stock Liquidation Agreement") regarding the procedures and instructions governing the delivery and sale of the Prime Stock. (d) In the event NHC or Rose shall fail to comply with the above paragraphs (a) (b) or (c) in the manner and on the dates specified therein, Prime (but not Rose) shall have the sole right at any time thereafter to terminate this Settlement Agreement, and each and every provision of this Settlement Agreement shall become null and void. (e) As consideration for the mutual covenants herein contained, upon execution hereof, Rose's and Cohen's liability -12- 13 under the Amended Guaranty and the Original Guaranty is hereby limited to $25 million plus the Cash Proceeds and Prime agrees to look solely to the Escrow Account or the Cash Collateral Account (defined below) for satisfaction of any amounts due thereunder, as well as any amounts which may be due under the PMI Loan, except that this limitation of liability shall not apply: (i) in the event Prime terminates this Settlement Agreement pursuant to paragraph 3(d); (ii) in the event of a Reorganization pursuant to paragraph 11; and (iii) in the event Rose or NHC elect Option 1 under paragraph 10. 4. Within 15 days after written request from Rose or NHC, Prime shall deliver to Willkie Farr & Gallagher such assignments of mortgages or satisfactions of mortgage in proper form for recording sufficient to discharge or assign all liens on the property subject to the PMI Loan. Upon receipt of written notice from NHC, confirmed by the Escrow Agent, that the Escrow Account has been funded in accordance with paragraph 3(b) hereof, Willkie Farr & Gallagher shall deliver the aforesaid assignments or satisfactions to Robinson Silverman Pearce Aronsohn & Berman, attention: Charles M. Kotick, Esq., who shall hold such assignments or satisfactions in escrow until (i) the Settlement Completion Date; (ii) Prime exercises its rights under paragraph 8 hereof; or (iii) Rose elects Option 2 as set forth in paragraph 10 hereof, whichever event first occurs. -13- 14 As to the White Plains Property, if a discharge of PMI's lien on such property is required in connection with the sale of the property prior to the Closing Date, Prime shall, upon reasonable notice, provide at or prior to the closing of the White Plains Property whatever documentation as may be necessary to discharge such lien provided that mutually satisfactory arrangements are made to cause not less than $8,000,000 received from the sale (the "White Plains Sale Proceeds"), immediately to be deposited into the Escrow Account. In consideration for Prime's agreement to release its lien on the White Plains Property prior to the Settlement Completion Date, Rose and Prime agree that in the event of termination in accordance with paragraphs 3(d) or 10 of this Settlement Agreement, and because the lien on the White Plains Property could not then be restored, that the White Plains Sale Proceeds shall be transferred from the Escrow Account to a separate account (the "Pledge Account") to be established at Chemical Bank, and Rose shall execute Pledge Agreement No. 2, in a form substantially similar to that annexed as Exhibit 3 hereto, establishing the Pledge Account and granting Prime an exclusive security interest in such Pledge Account. 5. Except as set forth in paragraphs 8 and 9 hereof, this Settlement Agreement is expressly conditioned upon Prime obtaining from the Bankruptcy Court an order (the "Settlement Order") declaring in substance that: -14- 15 (a) Prime has the sole and exclusive right to collect and retain the Payment (subject only to the requirements of the Plan described above); (b) FSA has no right, claim or interest, legal or equitable, in or to the Payment pursuant to the Intercreditor Agreement and the sale of the PMI Loan to NHC is not governed by or subject to the Intercreditor Agreement; and (c) Prime has satisfied the conditions governing permission to sell the PMI Loan (and Amended Guaranty) set forth in the Security Agreement and upon the receipt of the Payment may deposit such sums with the Agent for distribution to the Note holders. 6. The date upon which the entry of the Settlement Order becomes final, by virtue of affirmance on appeal or the expiration of the time to appeal, shall be the Settlement Completion Date. 7. Upon the Settlement Completion Date, the following events will occur: (a) The Escrow Agent shall release and deliver to Prime all funds in the Escrow Account; (b) Prime (or the Escrow Agent) shall release and/or deliver to NHC all documents effecting the sale by Prime to NHC of the PMI Loan and the Amended Guaranty, effective as of such date. (c) Prime, on the one hand, and each of Rose, Cohen and NHC, on the other hand, shall exchange mutual releases. 8. At any time after Prime has obtained the Settlement Order from the Bankruptcy Court, and regardless of the pendency of any appeal therefrom, Prime shall have the right to -15- 16 demand the release and delivery to Prime of all funds in the Escrow Account only upon delivery to Rose and Cohen of the Indemnity Agreement in the form annexed hereto as Exhibit 4. In such event and notwithstanding the outcome of any such appeal or the terms and conditions set forth in paragraph 10 hereof, the terms and conditions contained herein, including but not limited to the sale of the PMI Loan and the Original Guaranty and Amended Guaranty to NHC, shall be binding upon the parties hereto. In the event that Prime has received the release and delivery of all funds in the Escrow Account under this paragraph 8 and (i) more than eighteen (18) months have passed since the date of execution of this Settlement Agreement; (ii) the Settlement Completion Date has not occurred; and (iii) FSA or its assignee makes or has made a written claim against Rose, Cohen or NHC, which is covered by the Indemnity Agreement, then within fourteen (14) days of receipt of written demand by Rose, Cohen or NHC, as the case may be, Prime shall provide to the person making such demand, in a form reasonably acceptable to his or its attorney, documentation evidencing that Prime has deposited into an escrow account designated by the person making the demand the sum of one million ($1,000,000.00) dollars to be held as security for its obligations under the Indemnity Agreement until the FSA claim against Rose, Cohen and NHC has been resolved. 9. In the event that Prime terminates this Settlement Agreement pursuant to paragraph 3(d) hereof, then the Escrow -16- 17 Agent shall release and deliver the funds in the Escrow Account as follows: (i) the White Plains Sale Proceeds and the Stock Proceeds, if any, including all accrued interest thereon, shall be transferred to the Pledge Account and (ii) all remaining amounts, if any, in the Escrow Account shall be delivered to Rose. 10. In the event the Settlement Order is not obtained or is reversed on appeal, then, except as set forth in paragraph 8 hereof, Rose shall have the following two options. Rose and/or NHC by written notice to Prime to be delivered within (7) seven days after issuance by the Bankruptcy Court of an order or judgment which does not satisfy the requirements set forth in paragraph "5" hereof, or the Settlement Order is reversed on appeal, whichever is applicable, shall have the sole and exclusive right and option to either (i) cause this Settlement Agreement to be terminated ("Option 1"), in which event this Settlement Agreement shall have no further purpose or effect, and the Escrow Agent shall release and deliver the White Plains Sale Proceeds and the Stock Proceeds, together with all accrued interest thereon, to the Pledge Account and shall release and deliver all other funds remaining in the Escrow Account to Rose; or (ii) direct the Escrow Agent to release and to deliver all amounts in the Escrow Account to the Cash Collateral Account, as defined and described below ("Option 2"). -17- 18 In the event Rose and/or NHC elect to proceed with Option 2, the parties agree that: (i) Rose's and Cohen's liability under the Original Guaranty and the Amended Guaranty shall henceforth be limited to a maximum amount of $25 million plus the Stock Proceeds (except as set forth in paragraph 11 below) and the Original Guaranty and the Amended Guaranty shall be deemed amended to reflect this limitation on liability; (ii) Rose will establish a cash collateral account (the "Cash Collateral Account") at Chemical Bank. The Escrow Agent shall release and deliver all amounts in the Escrow Account to the Cash Collateral Account. Rose shall execute a pledge agreement, substantially in the form annexed as Exhibit 5 ("Pledge Agreement No. 1"), granting Prime an exclusive security interest in the Cash Collateral Account as security for the payment of all sums due under the Original Guaranty and/or the Amended Guaranty; (iii) Rose hereby agrees that effective upon his election to exercise Option 2 as above-defined he shall be deemed to have unconditionally and irrevocably waived in favor of Prime any and all defenses, whether by means of setoff, defense, counterclaim or otherwise that he may have to the enforcement of the Original Guaranty and/or the Amended Guaranty; and (iv) Prime hereby agrees that it will look solely to the Cash Collateral Account for satisfaction of all amounts outstanding under the PMI Loan, the Original Guaranty and the Amended Guaranty and all loan documents evidencing the PMI Loan as well as the Original Guaranty and the Amended Guaranty shall be deemed amended to reflect the terms hereof. -18- 19 The provisions of this paragraph 10 shall not apply if this Settlement Agreement is terminated by Prime pursuant to its rights under paragraph 3(d). 11. In the event that prior to the date that is (i) one year and one day after Prime receives written notice from Rose that the Settlement Completion Date has occurred or (ii) one year and one day from the date of release and delivery to Prime of all funds in the Escrow Account as set forth in paragraph 8 hereof, whichever occurs sooner, either or both of Rose or NHC shall become subject to a reorganization ("Reorganization") proceeding under state or federal law, including but not limited to, any voluntary or involuntary dissolution, total or partial liquidation, bankruptcy, insolvency or receivership action, and as a result thereof, Prime is in any way prevented from immediately receiving and obtaining sole and unencumbered possession of the funds in the Escrow Account, or the Cash Collateral Account, in accordance with the terms of this Settlement Agreement, then, notwithstanding anything in this Settlement Agreement to the contrary, Rose's liability under the Amended Guaranty shall not be limited to $25 million plus the Stock Proceeds, as set forth in paragraphs 3(e), 10(i) and (iv) but shall be for the full amount of the Amended Guaranty. All other provisions of this Settlement Agreement, including, but not limited to paragraphs 10(ii) and (iii), shall remain in full force and effect. -19- 20 12. Rose and NHC shall deliver to Prime such opinions of counsel as Prime shall reasonably request, including, but not limited to, an opinion that (i) all funds deposited into the Escrow Account, Pledge Account or Cash Collateral Account are free and clear of all liens, claims and charges, and (ii) the obligations of the FSA Borrowers to FSA under the FSA Loans have been released and discharged. Rose and NHC each represent that the funds in the Escrow Account or Cash Collateral Account are not their respective property except for any right to the refund of such funds as provided in this Settlement Agreement. Rose and NHC each expressly waive in favor of Prime the benefits of any statutory stay which under the Bankruptcy Code may or may not apply to the release of any funds in the Escrow Account, Pledge Account or Cash Collateral Account. Rose and NHC each also represent that should either become subject to a reorganization, each has no equity interest in either the Escrow Account or Cash Collateral Account and that such property is not necessary to an effective reorganization. 13. Upon written notification that the conditions and requirements set forth in paragraph 14 have been fulfilled, or the restrictions have been waived, Rose and/or is affiliated entities shall cause the execution and filing of a joint motion, in the form annexed hereto as Exhibit 6, withdrawing with prejudice as if disallowed all the claims in the Prime reorganization proceeding recited therein. The aforesaid -20- 21 withdrawal of such claims shall inure only to the benefit of Prime and shall not prevent Rose and/or his affiliated entities from asserting the same or similar claims but only as an offset or affirmative defense against claims which have been or may be asserted by Marriott Family Restaurants, Inc. or any related entities (collectively, "Marriott") against Rose or his affiliated entities. Nothing herein contained shall limit any rights or claims that Rose, Cohen and/or their affiliated entities may have against Marriott or any other third party. Rose is unable to effect a withdrawal of claims 5066, 5067, 5068, 5072, 5083, 5088, 5089, 5091, 5092, 5093, 5095 and 5096 (the "Remaining Claims") because such claims have been assigned pursuant to the FSA Debtors Plan to FSA (or its designee). In the event that FSA pursues any of the Remaining Claims, then Prime shall retain, in addition to all its other defenses, the right to assert the full amount of the obligations owed by R/C Hotel, Southeast Hotel, Hauppauge Hotel and Pennco Hotel to PMI as a right of set-off, recoupment or any other affirmative defense. Rose further acknowledges that the obligations of R/C Hotel, Southeast Hotel, Hauppauge Hotel and Pennco Hotel to PMI under the PMI Loan were not subject to any valid defense, off-set or counterclaim. 14. Prime represents that it has satisfied the requirements and restrictions of the Security Agreement (see paragraph R, supra) in order to enter into this Settlement -21- 22 Agreement and that no further notice or consents are required from the holders of the Notes. 15. In the event this Settlement Agreement is terminated for any reason, then this Settlement Agreement and any proceedings taken pursuant to it shall not be construed as or deemed to be an admission by any person. Except in connection with a proceeding for approval of this Settlement Agreement, for enforcement of this Settlement Agreement, including but not limited to actions taken pursuant to the provisions contained in paragraph 10 hereof, or in defense of the Remaining Claims, neither this Settlement Agreement, nor any of its provisions, shall be offered or received in evidence in this action or any other action or proceeding. 16. This Settlement Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 17. This Settlement Agreement shall be binding upon and shall inure solely to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 18. The parties hereto agree to execute and deliver such further instruments and documents as may be reasonably requested for the purposes of carrying out or confirming the transactions contemplated by this Settlement Agreement. -22- 23 19. This Settlement Agreement shall be governed by and construed in accordance with the laws of the State of New York. 20. Rose and Cohen hereby agree to withdraw with prejudice their currently pending appeals from the Order Denying Motions to Dismiss or Abstain and Motion to Declare Adversary Noncore, of the United States Bankruptcy Court, Southern District of Florida, dated February 12, 1993, Appeal Number ______ in Adversary Proceeding No. 91-1240 BKC-AJC-A, entitled PMI Investment, Inc. v. Allan V. Rose, Arthur G. Cohen and Financial Security Assurance Inc., and consent to the jurisdiction of the United States Bankruptcy Court for the Southern District of Florida, Miami Division, for purposes of resolving all issues raised in the above-referenced proceeding including, but not limited to, all issues related to the Amended Complaint therein and the Settlement Agreement. The provisions of this paragraph 20 shall survive any termination of this Settlement Agreement. -23- 24 IN WITNESS WHEREOF, the undersigned counsel for the parties have duly executed this Settlement Agreement as of the day and year first above written. WILLKIE FARR & GALLAGHER By: /s/ Steven H. Reidy -------------------- 153 East 53rd Street New York, New York 10022 (212) 935-8000 Attorneys for Prime Hospitality Corp. ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN By: /s/ Mark Jon Sugarman --------------------- 1290 Avenue of the Americas New York, New York 10104 (212) 541-2000 Attorneys for Allan V. Rose and Northeast Hotel Corp. MARSHALL J. COOPER, P.A. By: /s/ Marshall J. Cooper ----------------------- 2455 East Sunrise Boulevard Fort Lauderdale, Florida 33304 (305) 564-1400 Attorney for Arthur G. Cohen -24- EX-11 5 COMPUTATION OF EARNINGS PER COMMON SHARE 1 Exhibit 11 Page 1 of 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE DECEMBER 31, 1993 AND 1992 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Five Months Year Ended Ended December 31, December 31, 1993 1992 ------------ ------------ Primary: Income: Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $8,175 $ 1,393 Extraordinary items - Gains on discharge of indebtedness, net of income taxes . . . . . . . . . . . . . . . . . . . . 3,989 -- ------ ------ Net income . . . . . . . . . . . . . . . . . . . . . . . . $12,164 $ 1,393 ====== ====== Weighted average number of common shares and common share equivalents outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 33,808 33,000 ====== ====== Income per share: Continuing operations . . . . . . . . . . . . . . . . . . . . . $ .24 $ .04 Extraordinary items - Gains on discharge of indebtedness, net of income taxes . . . . . . . . . . . . . . . . . . . . .12 -- ------ ------ Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .36 $ .04 ====== ====== Fully diluted: Income: Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,175 $ 1,393 Extraordinary items - Gains on discharge of indebtedness, net of income taxes . . . . . . . . . . . . . . . . . . . . 3,989 -- ------ ------ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,164 $ 1,393 ====== =====
II-2 2 Exhibit 11 Page 2 of 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE DECEMBER 31, 1993 AND 1992 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
Five Months Year Ended Ended December 31, December 31, 1993 1992 ----------- ----------- Shares: Weighted average number of common shares and common share equivalents outstanding . . . . . . . . . . . . . . . . . . . . . 34,632 33,513 ====== ====== Income per share: Continuing operations . . . . . . . . . . . . . . . . . . .24 .04 Extraordinary items - Gains on discharge of indebteness, net of income taxes . . . . . . . . . . . . . . . . . .12 -- ------ ------ Net income . . . . . . . . . . . . . . . . . . . . . . $ .36 $ .04 ====== ======
II-3 3 Exhibit 11 Page 1 of 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
One Month Ended July 31, Years Ended June 30, ----------------------------- 1992 1992 1991 -------- --------- --------- Primary: Income (loss): Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . $(10,274) $(71,965) $(246,110) Income from discontinued operations . . . . . . . . . . . . . . . . . . . . -- -- 18,922 Extraordinary items - Gains on discharge of indebtedness . . . . . . . . . . . 249,600 -- -- ------- ------- ------- Net income (loss) . . . . . . . . . . . . . . . . . . $239,326 $(71,965) $(227,188) ======= ======= ======== Weighted average number of common shares and common share equivalents outstanding . . . . . . . . . . . . . . . . . . . . . 33,028 33,028 33,028 ======= ======= ======== Income (loss) per share: Continuing operations . . . . . . . . . . . . . . . . $ (.31) $ (2.18) $ (7.45) Discontinued operations . . . . . . . . . . . . . . . -- -- .57 Extraordinary items - Gains on discharge of indebtedness . . . . . . . . . . . . 7.56 -- -- ------- ------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . $ 7.25 $ (2.18) $ (6.88) ======= ======= ======== Fully diluted: Income (loss): Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . $(10,274) $(71,965) $(246,110) Add after tax interest expense applicable to 6-5/8% and 7% convertible subordinated debentures . . . . . . . . . . . . . -- -- 3,440 ------- ------- -------- Loss from continuing operations as adjusted . . . . . . . . . . . . . . (10,274) (71,965) (242,670) Income from discontinued operations . . . . . . . . . . . . . . . . . . . . -- -- 18,922 Extraordinary items - Gains on discharge of indebtedness . . . . . . . . . . . . 249,600 -- -- ------- ------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . $239,326 $(71,965) $(223,748) ======= ======= ========
II-4 4 Exhibit 11 Page 2 of 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE JULY 31, 1992 AND JUNE 30, 1992 AND 1991 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
One Month Ended Years Ended July 31, June 30, --------------------------------- 1992 1992 1991 -------- -------- -------- Shares: Weighted average number of common shares outstanding and common share equivalents outstanding . . . . . . . . . . . . . . 33,028 33,028 33,028 Assuming conversion of 6-5/8% and 7% convertible subordinated debentures . . . . . . . . . . . . . . -- 5,451 5,451 ------ ------ ------ Weighted average number of common shares and common share equivalents outstanding as adjusted . . . . . . . . . . . . . . 33,028 38,479 38,479 ====== ====== ====== Income (loss) per share: Continuing operations . . . . . . . . . . . . . . . . $ (.31) $ (1.87) $(6.31) Discontinued operations . . . . . . . . . . . . . . . -- -- .49 Extraordinary items - Gains on discharge of indebtedness . . . . . . . . . . . . 7.56 -- -- ------ ------ ----- Net income (loss) . . . . . . . . . . . . . . . . . $ 7.25 (A) $ (1.87)(A) $ (5.82)(A) ====== ====== =====
(A) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. II-5 EX-21 6 SUBSIDIARIES OF THE COMPANY 1
Exhibit 21 Subsidiaries of the Company are as follows: Jurisdiction of Name Incorporation ---- ------------- A.J.& R. Motor Inns, Inc. North Carolina Civic Motor Inns, Inc. Virginia Coliseum Motor Inns, Inc. Maryland Dynamic Marketing, Inc. Delaware Fairfield-Meridian Claims Service, Inc. Delaware FR Delaware, Inc. Delaware FR Management Corporation Virginia Hartford Motor Inns, Inc. Virginia Market Segments, Incorporated Delaware Prime-American Realty Corp. Delaware Prime Hotel Real Estate Investments, Inc. Delaware Prime Note Collections Company, Inc. Delaware Prime-O-Lene, Inc. New Jersey Prime-Trevose Enterprises, Inc. Pennsylvania Republic Motor Inns, Inc. Virginia Suites of America, Inc. Delaware York Motor Inns, Inc. Virginia
EX-23.A 7 CONSENT OF ARTHUR ANDERSEN & CO. 1 Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders' of Prime Hospitality Corp.: As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement No. 33-50603. ARTHUR ANDERSEN & CO. Roseland, New Jersey March 17, 1994 EX-23.B 8 CONSENT OF J.H. COHN & CO. 1 Exhibit 23(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 33-50603) previously filed by Prime Hospitality Corp. (formerly Prime Motor Inns, Inc.) of our report dated September 24, 1992, appearing in this Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of Prime Hospitality Corp., on the consolidated financial statements and the financial statement schedules of Prime Motor Inns, Inc. and Subsidiaries (Debtors-in-Possession). J.H. COHN & COMPANY Roseland, New Jersey March 17, 1994 -----END PRIVACY-ENHANCED MESSAGE-----