-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DmfiQ4d8xEZcla3lZPl+FEgjXcV6HiuEw+IYjQJLdm43c/WFJ536yndGVN0CR5wC 36y7LGowWJr4EswNssF0kw== 0000950123-98-004874.txt : 19980514 0000950123-98-004874.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950123-98-004874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222640625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06869 FILM NUMBER: 98617334 BUSINESS ADDRESS: STREET 1: 700 RTE 46 E CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 9738821010 MAIL ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 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-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 1-6869 PRIME HOSPITALITY CORP. (Exact name of registrant as specified in its charter) Delaware 22-2640625 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 700 Route 46 East, Fairfield, New Jersey 07004 (Address of principal executive offices) (973) 882-1010 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /x/ No / / The registrant had 54,083,851 shares of common stock, $.01 par value outstanding, as of May 8, 1998. 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheets December 31, 1997 and March 31, 1998............................... 1 Consolidated Statements of Income Three Months Ended March 31, 1997 and March 31, 1998................................................. 2 Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and March 31, 1998................................................. 3 Notes to Interim Consolidated Financial Statements................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.....................................16 Signatures....................................................................17 3 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31 1997 1998 ----------- ----------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ............................................... $ 5,013 $ 35,098 Marketable securities available for sale ................................ 8,697 23,664 Accounts receivable, net of reserves .................................... 16,318 20,752 Current portion of mortgages and notes receivable .................................................... 2,271 2,209 Other current assets .................................................... 28,780 28,899 ----------- ----------- Total current assets .............................................. 61,079 110,622 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization ........................ 1,079,591 1,100,880 Mortgages and notes receivable, net of current portion ......................................................... 19,698 19,095 Other assets ................................................................. 36,298 40,559 ----------- ----------- TOTAL ASSETS ...................................................... $ 1,196,666 $ 1,271,156 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt ................................................. $ 3,871 $ 3,029 Other current liabilities ............................................... 76,921 78,859 ----------- ----------- Total current liabilities ......................................... 80,792 81,888 Long-term debt, net of current portion ....................................... 554,500 569,266 Deferred income .............................................................. 18,708 74,651 Other liabilities ............................................................ 18,253 17,281 ----------- ----------- Total liabilities ................................................. 672,253 743,086 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued ........................... -- -- Common stock, par value $.01 per share; 75,000,000 shares authorized; 47,182,972 and 46,838,482 shares issued and outstanding at December 31, 1997 and March 31, 1998, respectively ........................................................ 472 473 Capital in excess of par value .......................................... 419,242 421,751 Retained earnings ....................................................... 105,737 116,029 Treasury stock (50,039 shares at December 31, 1997 and 561,839 shares at March 31, 1998) ............................... (1,038) (10,183) ----------- ----------- Total stockholders' equity ........................................ 524,413 528,070 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 1,196,666 $ 1,271,156 =========== ===========
See Accompanying Notes to Interim Consolidated Financial Statements. -1- 4 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1997 1998 --------- --------- Revenues: Lodging ............................... $ 60,037 $ 86,601 Food and beverage ..................... 9,449 11,643 Management and other fees ............. 1,162 1,384 Interest on mortgages and notes receivable .................. 1,729 1,575 Rental and other ...................... 5,676 2,085 --------- --------- Total revenues ................. 78,053 103,288 --------- --------- Costs and expenses: Direct hotel operating expenses: Lodging ........................... 15,123 20,501 Food and beverage ................. 7,965 9,440 Selling and general ............... 17,635 22,151 Occupancy and other operating ......... 5,792 12,588 General and administrative ............ 5,763 6,583 Depreciation and amortization ......... 7,690 10,900 --------- --------- Total costs and expenses ....... 59,968 82,163 --------- --------- Operating income ........................... 18,085 21,125 Investment income .......................... 615 1,261 Interest expense ........................... (4,715) (5,787) --------- --------- Income before income taxes and extraordinary items ............... 13,985 16,599 Provision for income taxes ................. 5,783 6,308 --------- --------- Income before extraordinary items .......... 8,202 10,291 Extraordinary items - Gains on discharges of indebtedness (net of income taxes) .... 22 -- --------- --------- Net income ................................. $ 8,224 $ 10,291 ========= ========= Earnings per common share: Basic: Income before extraordinary items ..... $ 0.18 $ 0.22 Extraordinary items ................... -- -- --------- --------- Net earnings ............................... $ 0.18 $ 0.22 ========= ========= Diluted: Income before extraordinary items ..... $ 0.17 $ 0.20 Extraordinary items ................... -- -- --------- --------- Net earnings ............................... $ 0.17 $ 0.20 ========= =========
See Accompanying Notes to Interim Consolidated Financial Statements. -2- 5 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 1997 1998 --------- --------- Cash flows from operating activities: Net income .................................... $ 8,224 $ 10,291 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 7,690 10,900 Amortization of deferred financing costs .. 606 826 Business interruption insurance revenue ... (4,990) (1,575) Utilization of net operating loss carryforwards .......................... 911 1,614 Gains on discharges of indebtedness ....... (37) -- Amortization of deferred gain ............. -- (2,156) Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable .................... (797) (4,434) Other current assets ................... (1,274) 1,425 Other liabilities ...................... (1,636) (7,109) --------- --------- Net cash provided by operating activities .......................... 8,697 9,782 --------- --------- Cash flows from investing activities: Net proceeds from mortgages and notes receivable ................................ 377 621 Proceeds from sales of property, equipment and leasehold improvements ................ 14,910 115,280 Construction of new hotels .................... (69,466) (88,281) Purchases of property, equipment and leasehold improvements .................... (19,673) (14,203) Net proceeds from insurance settlement ........ 571 -- Increase in restricted cash ................... (7,769) (6,234) Purchase of marketable securities ............. -- (350) Proceeds from retirement of debt securities ... 177 -- Other ......................................... (1,261) (1,423) --------- --------- Net cash (used in) provided by investing activities .......................... (82,134) 5,410 --------- --------- Cash flows from financing activities: Net proceeds from issuance of debt ............ 262,331 39,150 Payments of debt .............................. (107,033) (15,956) Proceeds from the exercise of stock options and warrants .............................. 441 896 Purchase of treasury stock .................... -- (9,145) Other ......................................... -- (52) --------- --------- Net cash provided by financing activities .......................... 155,739 14,893 --------- --------- Net increase in cash and cash equivalents ..... 82,302 30,085 Cash and cash equivalents at beginning of period ................................. 47,473 5,013 --------- --------- Cash and cash equivalents at end of period .... $ 129,775 $ 35,098 ========= =========
See Accompanying Notes to Interim Consolidated Financial Statements. -3- 6 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying interim unaudited consolidated financial statements of Prime Hospitality Corp. and subsidiaries (the "Company") contain all material adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 1998 and the results of its operations for the three months ended March 31, 1997 and 1998 and cash flows for the three months ended March 31, 1997 and 1998. The consolidated financial statements for the three months ended March 31, 1997 and 1998 were prepared on a consistent basis with the audited consolidated financial statements for the year ended December 31,1997. Certain reclassifications have been made to the March 31,1997 consolidated financial statements to conform them to the March 31, 1998 presentation. The consolidated results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2 - ACCOUNTING POLICIES In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5) which is required to be adopted in 1999. At that time, the Company will be required to record a cumulative effect of a change in accounting principle to write off any unamortized pre-opening costs that remain on the balance sheet at the date of adoption. Additionally, on a prospective basis subsequent to the adoption of this new standard, all future pre-opening costs will be expensed as incurred. The Company believes that the adoption of SOP 98-5 will not have a material effect on its financial condition or results of its operations. NOTE 3 - MERGER On December 1, 1997, the Company merged with HomeGate Hospitality, Inc. ("HomeGate"), a provider of mid-price extended-stay hotels. The transaction was accounted for as a pooling of interests, which required that the historical consolidated statements of operations of the companies be restated on a combined basis without giving effect to operating synergies. - 4 - 7 NOTE 4 - SALE/LEASEBACK TRANSACTION In January 1998, the Company completed the sale/leaseback of eight full-service hotels to American General Hospitality, Inc. ("American General") for $138.4 million consisting of $114.4 million in cash, $10.2 million in assumed debt and $13.8 million in American General limited partnership operating units. The Company is operating the hotels under a lease agreement with American General which has a term of 10 years. The transaction generated a net gain of approximately $65.0 million which will be recognized as a reduction of rent expense over the life of the lease. The Company has also entered into an agreement to sell and lease back eleven additional full-service hotels to American General not later than March 31, 1999. NOTE 5 - EARNINGS PER COMMON SHARE In 1997, the Company adopted SFAS No. 128, "Earnings per Share," (SFAS 128). Under SFAS 128, primary earnings per share has been replaced by basic earnings per share which excludes any dilutive effects of options, warrants and convertible securities. Fully diluted earnings per share is now called diluted earnings per share and includes a change in applying the treasury stock method. Earnings per share amounts for all prior periods have been restated to conform to the SFAS 128 requirements. Basic earnings per common share was computed based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares used in computing basic earnings per share was 46.4 million and 46.9 million for the three months ended March 31, 1997 and 1998, respectively. Diluted earnings per share reflects adjustments to basic earnings per share for the dilutive effect of stock options and warrants and the elimination of interest expense and the issuance of additional common shares from the assumed conversion of the 7% convertible subordinated notes. The weighted average number of common shares used in computing diluted earnings per share was 55.4 million for both the three months ended March 31, 1997 and 1998, respectively. NOTE 6 - RENTAL AND OTHER REVENUE Rental and other revenue is comprised of the following (in thousands):
Three Months Ended Three Months Ended March 31, 1997 March 31, 1998 ------ ------ Business interruption insurance $4,990 $1,575 Rental income 580 258 Franchise revenue -- 252
- 5 - 8 Other 106 -- ------ ------ Total $5,676 $2,085 ====== ======
Business interruption insurance revenue relates to damages caused by Hurricane Bertha at the Company-owned Marriott's Frenchman's Reef Hotel (the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands in July 1996 and is based on the settlement of the Company's insurance claim. In March 1998, the Company settled its property and business interruption insurance claim for $16.4 million. The Company had previously received $2.5 million in 1997 and received the remaining amount, net of deductibles, in April 1998. NOTE 7 - INTEREST EXPENSE The Company capitalized $3.8 million and $7.2 million for the three months ended March 31, 1997 and 1998, respectively, of interest related to borrowings used to finance hotel construction. Also included in interest expense is the amortization of deferred financing fees of $606,000 and $826,000 for the three months ended March 31, 1997 and 1998, respectively. NOTE 8 - TREASURY STOCK In December 1997, the Company's Board of Directors approved a program to purchase from time to time up to one million shares of its common stock at various prices . Under this program, the Company purchased approximately 512,000 shares during the three months ended March 31,1998 at an average price of $17.76. NOTE 9 - SUBSEQUENT EVENTS On April 17, 1998, the Company's $86.3 million 7% Convertible Notes due 2002 were converted into 7.2 million shares of common stock of the Company at a conversion price of $12 per share. The notes were included as long-term debt as of March 31, 1998 and were subsequently transferred to stockholders' equity in April 1998. In May 1998, the Company agreed to sell and leaseback ten AmeriSuites to Equity Inns, Inc. ("Equity Inns") for $101.3 million in cash. The sale is part of an ongoing strategic relationship between the Company and Equity Inns, which contemplates the sale of approximately 20 AmeriSuites per year. The Company will continue to operate the hotels under a ten-year lease agreement and will also generate franchise income streams under a ten-year franchise agreement. The transaction is expected to generate a net gain of approximately $16.0 million which will be recognized as a reduction of rent expense over the life of the lease. The agreement is subject to the completion of due diligence and is expected to close by the end of the second quarter. - 6 - 9 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company is a leading hotel owner/operator which, as of April 30,1998, owned 124 hotels (the "Owned Hotels"), operated 18 hotels under sale/leaseback agreements (the "Sale/Leaseback Hotels") and managed 12 hotels for third parties (the "Managed Hotels"). The Company has significant equity interests in the Owned Hotels and has economic interests limited to a percentage of revenue (generally between 2.5% to 5.0%) on the Sale/Leaseback Hotels and the Managed Hotels. The Company consolidates the results of operations of its Owned Hotels and Sale/Leaseback Hotels and records management fees (including incentive management fees) and interest income, where applicable, on the Managed Hotels. The Company's strategy is to capitalize on two lodging industry trends perceived by management: (i) favorable industry fundamentals, in the segments in which Prime operates (i.e. upscale all-suites and mid-price extended-stay), which are producing strong earnings growth and (ii) growing consumer preferences for newer accommodations with strong brand identities. Through its development of proprietary brands, the Company is positioning itself to generate additional revenue not dependent on investment in real estate. The Company's external growth focuses on the accelerated expansion of its proprietary AmeriSuites and HomeGate brands through new construction. Although future results of operations may be adversely affected in the short term by the costs associated with the construction and acquisition of new hotels, it is expected that this impact will be offset, after an initial period, by revenues generated by such new hotels. On December 1, 1997, the Company completed its merger with HomeGate Hospitality, Inc. ("HomeGate"), a provider of mid-price extended-stay hotels. The transaction was accounted for as a pooling of interests which required that the historical consolidated statements of operations of the companies be restated on a combined basis without giving effect to operating synergies. For the three months ended March 31, 1998, the Company's EBITDA increased by $6.2 million, or 24.2%, from $25.8 million in 1997 to $32.0 million in 1998, and Hotel EBITDA increased by $7.5 million, or 26.7%, from $28.0 million in 1997 to $35.4 million in 1998. EBITDA represents earnings before interest, taxes, depreciation and amortization. Hotel EBITDA represents EBITDA generated from the operations of Owned Hotels. Hotel EBITDA excludes management fee income, interest income from mortgages and notes receivable, general and administrative expenses and other revenues and expenses which do not directly relate to the operations of Owned Hotels. The Company's hotels operate in four segments of the industry: the upscale all-suites segment, under the Company's proprietary AmeriSuites brand; the mid-price extended-stay segment under the Company's proprietary HomeGate Studios & Suites brand; the upscale full-service segment, under major national franchises; and the midprice limited-service segment, primarily under the Company's - 7 - 10 proprietary Wellesley Inns brand. The following table illustrates the Hotel EBITDA contribution from each segment (in thousands):
THREE MONTHS ENDED MARCH 31, 1997 1998 Amount % of Total Amount % of Total ------- ------- ------- ------- All-suites ........... $ 8,678 31.0% $16,725 47.2% Full-service ......... 12,052 43.1 10,466 29.5 Limited-service ...... 6,407 22.9 6,787 19.2 Extended-Stay ........ 836 3.0 1,461 4.1 ------- ------- ------- ------- Total ...... $27,973 100.0% $35,439 100.0% ======= ======= ======= =======
Hotel EBITDA for the three months ended, March 31, 1998 reflects the shifting mix in the Company's hotel portfolio toward its proprietary brand AmeriSuites. Based on the Company's development plans, Prime expects the relative contribution from its all-suite AmeriSuites hotels and extended-stay HomeGate hotels to increase in 1998 with the full-service hotel's percentage contribution declining. EBITDA and Hotel EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered as alternatives to net income as an indicator of the Company's operating performance or as alternatives to cash flows as a measure of liquidity. Certain statements in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. - 8 - 11 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 The following table presents the components of operating income, operating expense margins and other data for the Company and the Company's comparable Owned Hotels for the three months ended March 31, 1997 and 1998. The results of the seven hotels divested during 1997 and 1998 are not material to an understanding of the results of the Company's operations in such periods and, therefore, are not separately discussed.
COMPARABLE OWNED Total HOTELS(2) THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, 1997 1998 1997 1998 (IN THOUSANDS, EXCEPT ADR AND REVPAR) INCOME STATEMENT DATA: Revenues: Lodging ...................................... $ 60,037 $ 86,601 $ 35,592 $ 39,058 Food and Beverage ............................ 9,449 11,643 4,481 4,920 Management and Other Fees .................... 1,162 1,384 Interest on Mortgages and Notes Receivable ... 1,729 1,575 Rental and Other ............................. 5,676 2,085 ---------- ---------- Total Revenues ....................... 78,053 103,288 Direct Hotel Operating Expenses: Lodging ...................................... 15,123 20,501 9,022 9,470 Food and Beverage ............................ 7,965 9,440 3,776 4,108 Selling and General .......................... 17,635 22,151 9,660 9,611 Occupancy and Other Operating .................. 5,792 12,588 General and Administrative ..................... 5,763 6,583 Depreciation and Amortization .................. 7,690 10,900 Operating Income ............................... 18,085 21,125 OPERATING EXPENSE MARGINS: Direct Hotel Operating Expenses: Lodging, as a percentage of lodging revenue .. 25.2% 23.7% 25.4% 24.3% Food and Beverage, as a percentage of food and beverage revenue .......................... 84.3% 81.1% 84.3% 83.5% Selling and General, as a percentage of lodging and food and beverage revenue ..... 25.4% 22.5% 24.1% 21.9% Occupancy and Other Operating, as a percentage of lodging and food and beverage revenue ..... 8.3% 12.8% General and Administrative, as a percentage of total revenue ................................ 7.4% 6.4% Other Data((1)): Occupancy ...................................... 59.7% 60.6% 63.1% 64.7% Average Daily Rate ("ADR") ..................... $ 75.60 $ 82.78 $ 74.75 $ 80.28 Revenue per Available Room ("REVPAR") .......... $ 45.10 $ 50.14 $ 47.14 $ 51.95 Gross Operating Profit ......................... $ 19,970 $ 37,652 $ 17,615 $ 20,790
(1) For purposes of showing operating trends the seven hotels divested in 1997 have been excluded from the other data section of the tables. (2) Comparable Owned Hotels refers to the 63 Owned Hotels which were open for the full period in both 1997 and 1998 excluding the Frenchman's Reef which was impacted by hurricane damage. - 9 - 12 Lodging revenues, which include room revenues and other related revenues such as telephone and vending, increased by $26.6 million, or 44.2%, for the three months ended March 31, 1998 as compared to the same period in 1997. Lodging revenues for the three months ended March 31, 1998 increased due to incremental revenues of $21.4 million from new hotels and higher revenues for comparable Owned Hotels, which increased by $3.5 million, or 9.7%. The revenue gains during the three month periods were partially offset by decreases of $2.1 million related to the revenue from divested hotels. The following table sets forth operating data for the comparable Owned Hotels for the three months ended March 31, 1998 as compared to the same period in 1997, by product type:
THREE MONTHS ENDED MARCH 31, % 1997 1998 CHANGE ---- ---- ------ AMERISUITES OCCUPANCY 61.1% 64.5% ADR $72.86 $78.89 REVPAR $44.53 $50.89 14.3% FULL-SERVICE OCCUPANCY 58.0% 59.3% ADR $86.90 $96.26 REVPAR $50.38 $57.11 13.4% WELLESLEY INNS OCCUPANCY 69.5% 70.0% ADR $68.63 $70.93 REVPAR $47.67 $49.65 4.2% TOTAL OCCUPANCY 63.1% 64.7% ADR $74.75 $80.28 REVPAR $47.14 $51.95 10.2%
- 10 - 13 The Company achieved solid revenue growth in all of its industry segments. The REVPAR increases reflect the growing recognition of AmeriSuites as a leading brand in the fast-growing all-suites segment and continued favorable industry trends in the full-service segment. The improvements in REVPAR at comparable Owned Hotels were generated by increases in ADR, which rose by 7.4% and occupancy gains of 1.6 percentage points, respectively, for the three month period. Food and beverage revenues increased by $2.2 million, or 23.2%, for the three months ended March 31, 1998 as compared to the same period in 1997 primarily due to an increase of $1.7 million at the Frenchman's Reef, which operated on an impaired basis during the three months ended March 31, 1997 due to hurricane damage sustained in 1995 and 1996. Food and beverage revenues for comparable Owned Hotels increased by $439,000, or 9.8%, for the three month period due to an increase in banquet business. Management and other fees consist of base and incentive fees earned under management agreements, fees for additional services rendered to Managed Hotels and sales commissions earned by the Company's national sales group, Market Segments, Inc. ("MSI"). Management and other fees increased by $222,000, or 19.1%, for the three months ended March 31, 1998 as compared to the same period in 1997 primarily due to increased base and incentive management fees. Interest on mortgages and notes receivable primarily relate to mortgages secured by certain Managed Hotels. Interest on mortgages and notes receivable decreased by $154,000, or 8.9%, for the three months ended March 31, 1998 as compared to the same period in 1997 due to conversions of notes receivable into hotel assets. Rental and other revenue decreased by $3.6 million, or 63.3%, for the three months ended March 31, 1998 as compared to the same period in 1997 due to decreased business interruption insurance revenue. Business interruption insurance revenue is based on the settlement of the Company's claim related to the hurricane damage at the Frenchmen's Reef caused by Hurricane Bertha in July 1996. Business interruption insurance revenue decreased by $3.4 million for the three months ended March 31, 1998 as compared to the same period in 1997 due to higher operating losses in 1997. Direct lodging expenses increased by $5.4 million, or 35.6%, for the three months ended March 31, 1998 as compared to the same period in 1997 due primarily to the addition of new hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased from 25.2% to 23.7% for the three month period due to increases in ADR and lower corresponding increases in expenses. For comparable Owned Hotels, direct lodging expenses as a percentage of lodging revenues also decreased from 25.4% to 24.3% due to ADR increases. Direct food and beverage expenses for the three months ended March 31, 1998 increased by $1.5 million, or 18.5%, as compared to the same period in 1997 primarily due to the Frenchman's Reef. As a percentage of food and beverage revenues, direct food and beverage - 11 - 14 expenses decreased from 84.3% to 81.1% for the three month period. For comparable Owned Hotels, food and beverage expenses as a percentage of food and beverage revenues also decreased from 84.3% to 83.5% for the three month period. The decreases were primarily due to the higher margins associated with the increased banquet business. Direct hotel selling and general expenses consist primarily of hotel expenses for Owned Hotels which are not specifically allocated to rooms or food and beverage activities, such as administration, selling and advertising, utilities, repairs and maintenance. Direct hotel selling and general expenses increased by $4.5 million, or 25.6% for the three months ended March 31, 1998 as compared to the same period in 1997 due primarily to the addition of new hotels. As a percentage of hotel revenues (defined as lodging and food and beverage revenues), direct hotel selling and general expenses decreased from 25.4% to 22.5% for the three month period. For the comparable Owned Hotels, direct hotel selling and general expenses as a percentage of hotel revenues decreased from 24.1% to 21.9% for the three month period. The decreases were primarily due to the ADR improvements, effective expense controls and decreases in snow removal and other weather-related costs in the first quarter. Occupancy and other operating expenses consist primarily of insurance, real estate and other taxes and rent expense. Occupancy and other operating expenses increased by $6.8 million, or 117.3%, for the three months ended March 31, 1998 as compared to the same period in 1997 due to the rent expense associated with the sale/leaseback of hotels to American General and Equity Inns. Occupancy and other operating expenses as percentage of hotel revenues increased from 8.3% to 12.8% for the three month period due to rent expense associated with the sale/leasebacks. Occupancy and other operating expenses are expected to continue to increase as the Company plans to sell and leaseback additional hotels in 1998. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating both the Owned Hotels and Managed Hotels and general corporate expenses. General and administrative expenses increased by $820,000, or 14.2%, for the three months ended March 31, 1998 as compared to the same period in 1997 due to increased advertising, personnel and training costs associated with opening the new AmeriSuites hotels. As a percentage of total revenues, general and administrative expenses decreased from 7.4% to 6.4% for the three month period due to increased operating leverage. Depreciation and amortization expense increased by $3.2 million or 41.7%, for the three months ended March 31, 1998 as compared to the same period in 1997 due to the impact of new hotel properties. Investment income increased by $646,000 or 105.0%, for the three month period as compared to the same period in 1997 due to changes in weighted average cash balances. - 12 - 15 Interest expense increased by $1.1 million, or 22.7%, for the three months ended March 31, 1998 as compared to the same period in 1997 primarily due to the issuance of $200 million of Senior Subordinated Notes in March 1997 offset by capitalized interest related to new hotel construction. The Company capitalized interest of $3.8 million and $7.2 million for the three months ended March 31, 1997 and 1998. LIQUIDITY AND CAPITAL RESOURCES Prime's external growth focuses on the accelerated expansion of its proprietary AmeriSuites and HomeGates brands through new construction. As of April 30, 1998, Prime had 71 AmeriSuites and 21 HomeGates in operation with plans to have 95 AmeriSuites and 45 HomeGates open by the end of 1998. Prime believes that it has access to sufficient resources to implement its planned expansion of the AmeriSuites and HomeGate brands, including capital from the following sources: (i) borrowing availability under the Company's Revolving Credit Facility; (ii) proceeds from sale/leaseback transactions with respect to certain of its properties and; (iii) internally generated cash flow. The Company may also from time to time seek additional debt or equity financing. At March 31, 1998, the Company had cash, cash equivalents and current marketable securities of $58.8 million. In addition, at March 31, 1998, the Company had $129.4 million available under the Revolving Credit Facility. The Company's major sources of cash for the three months end March 31, 1998 were net proceeds from the sale/leaseback of hotels of $114.4 million, borrowings under the Revolving Credit Facility of $37.5 million and cash flow from operations of $9.8 million. The Company's major uses of cash during the period were capital expenditures of $102.5 million relating primarily to the development of new hotels and debt repayments of $16.0 million. For the three months ended March 31, 1997 and 1998, cash flow from operations was positively impacted by the utilization of net operating loss carryforwards ("NOLs") and other tax basis differences of $1.0 million and $1.6 million, respectively. At March 31, 1998, the Company had federal NOLs relating primarily to its predecessor, Prime Motor Inns, Inc. ("PMI"), of approximately $77.7 million which are subject to annual utilization limitations and expire beginning in 2005 and continuing through 2007. Sources of Capital. The Company has undertaken a strategic initiative to dispose of significant hotel real estate and to invest the proceeds in the growth of its proprietary brands. As - 13 - 16 part of this initiative, Prime has entered into two strategic alliances with real estate investment trusts. In January 1998, the Company completed the sale/leaseback of eight full-service hotels to American General for $138.4 million, consisting of $114.4 million in cash, $10.2 million in assumed debt and $13.8 million in American General limited partnership operating units. Prime is operating the hotels under a lease agreement with American General which has a term of 10 years. The sale is the first phase of a transaction which also includes the sale and leaseback of 11 additional full-service hotels to American General not later than March 31, 1999. In May 1998, the Company agreed to sell and leaseback ten AmeriSuites to Equity Inns for $101.3 million in cash. The sale is part of an ongoing strategic relationship between the Company and Equity Inns, which contemplates the sale of approximately 20 AmeriSuites per year. The Company will continue to operate the hotels under a ten-year lease agreement and will also generate franchise income streams under a ten-year franchise agreement. The agreement is subject to the completion of due diligence and is expected to close by the end of the second quarter. The Company has a $200.0 million Revolving Credit Facility which bears interest at LIBOR plus 2%. The facility is available through 2001 and may be extended for an additional year. Borrowings under the facility are secured by certain of the Company's hotels with recourse to Prime. Additional properties may be added subject to the approval of the lenders. Availability under the facility is subject to a borrowing base test and certain other covenants. As of April 30, 1998, Prime had outstanding borrowings of $85.6 million under the facility and further availability of $114.4 million. Uses of Capital. The Company's capital spending is focused primarily on the development of its AmeriSuites and HomeGate hotel chains. For the three months ended March 31, 1998, the Company spent $47.9 million on new construction of AmeriSuites and $40.4 million on new construction of HomeGates. The Company expects to spend a total of approximately $500 million on development of new hotels in 1998 to be funded by borrowings under the Revolving Credit Facility, the sale/leaseback of hotels and internally generated cash flow. On March 12, 1998, the Company settled its insurance claim for $16.4 million related to hurricane damage at the Frenchman's Reef caused by Hurricane Bertha in July 1996. The Company had previously received $2.5 million in 1997 and received the remaining amount, net of deductibles, in April 1998. For the three months ended March 31, 1998, the Company spent approximately $14.2 million on capital improvements at its Owned Hotels of which approximately $6.8 million related to the refurbishment of the Frenchman's Reef. In December 1997, the Company's Board of Directors approved a program to purchase from time to time up to one million shares of its common stock at various prices. Under this - 14 - 17 program, the Company purchased approximately 512,000 shares at an average price of $17.76 during the first quarter of 1998. On April 17, 1998, the Company's $86.3 million 7% Convertible Notes due 2002 were converted into 7.2 million shares of common stock of the Company at a conversion price of $12 per share. In order to facilitate future tax-deferred exchanges of hotel properties, the Company from time to time enters into arrangements with an unaffiliated third party under Section 1031 of the Internal Revenue Code of 1986, as amended. As of March 31, 1998, the Company had advances of approximately $42.3 million to such third party which advances are classified as property, equipment and leasehold improvements. The Company has preliminarily reviewed its systems and equipment as it relates to year 2000 compliance. Based on this assessment, the Company has determined that the cost of compliance is not expected to be material to its cash flows, financial condition or results of operations. - 15 - 18 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (b) 10.1 Employment Agreement, dated February 20, 1998, between David Simon and the Company. 10.2 Employment Agreement, dated February 20, 1998, between John Elwood and the Company. 11 Computation of Earnings Per Share 27 Financial Data Schedule - 16 - 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIME HOSPITALITY CORP. Date: May 11, 1998 By: /s/ David A. Simon ------------------ David A. Simon, President and Chief Executive Officer Date: May 11, 1998 By: /s/ John M. Elwood ------------------ John M. Elwood, Executive Vice President and Chief Financial Officer - 17 - EX-10.1 2 EMPLOYMENT AGREEMENT 1 EXECUTION VERSION EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 20, 1998, between David A. Simon ("Executive") and Prime Hospitality Corp., a Delaware corporation ("Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT OF EXECUTIVE Employer hereby agrees to employ Executive, and Executive hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. EMPLOYMENT PERIOD Subject to earlier termination as provided in section 5, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof and shall continue for a period of three (3) years. Either party may terminate this Agreement at the end of three (3) years or this Agreement may be renewed on a day to day basis pending the negotiation of a new agreement. 3. DUTIES AND RESPONSIBILITIES 3.1 General. During the Employment Period, Executive (i) shall have the titles of President and Chief Executive Officer of Employer and (ii) shall devote substantially all of his business time and expend his best efforts, energies and skills to the business of Employer. Executive shall perform such duties, consistent with his status as President and Chief Executive Officer of Employer, as he may be assigned from time to time by Employer's Board. 4. COMPENSATION AND RELATED MATTERS 4.1 Base Salary. For each twelve-month period of the Employment Period, commencing with the twelve-month period beginning on the date of this Agreement (each such period, an "Employment Year"), Employer shall pay to Executive a base salary ("Base Salary") equal to $400,000. The Base Salary for each Employment Year shall be payable in equal weekly installments. 4.2 Annual Bonus. For each calendar year (the "Bonus Year"), at the discretion of the Employer's Board of Directors (the "Board"), Executive may receive a cash bonus ("Bonus") based upon attainment of annual performance objectives to be reasonably established by the Board for the Bonus Year in consultation with Executive, such performance objectives to be established as soon as possible following the beginning of the Bonus Year. Bonus earned for the 2 Bonus Year shall be payable promptly following the determination thereof, on the earlier of (i) fifteen (15) days after the members of the Board have received the audited financial statements for the Bonus Year, or (ii) the next meeting of the Board. The Bonus Year 1998 will be deemed to commence on January 1. To the extent specifically provided in Section 6 hereof, the Bonus payable for the Bonus Year in which the Employment Period terminates shall equal the Bonus that would have been paid had the Employment Period not so terminated, multiplied by a fraction, the numerator of which shall be the number of days of the Employment Period within the Bonus Year and the denominator of which shall be 365. 4.3 Life Insurance. Employer shall maintain in effect at all times during the Employment Period, at Employer's expense, a policy of term insurance on the life of Executive in the amount equal to $1,000,000, naming such person as Executive shall designate from time to time as the owner and beneficiary thereof. Executive agrees that Employer shall have the right to obtain other life insurance on Executive's life, at Employer's sole expense and with Employer or an affiliate thereof as the sole beneficiary thereof. Executive shall (i) cooperate fully with Employer in obtaining all such insurance, (ii) sign any necessary consents, applications and other related forms or documents, and (iii) take any required medical examinations. 4.4 Automobile. Employer shall provide Executive with the use of a vehicle at Employer's expense. Executive will be entitled to continue to use that automobile for the term of this Agreement. Employer shall be responsible for all expenses of use, maintenance and operation of that vehicle, except if Executive's operation of the vehicle causes penalty insurance rates, in which case Executive will bear such costs. 4.5 Other Benefits. During the Employment Period, subject to, and to the extent Executive is eligible under their respective terms, Executive shall be entitled to receive such fringe benefits as are, or are from time to time hereafter generally provided by Employer to Employer's senior management employees or other employees (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan, disability plan or insurance, group life insurance, medical and dental insurance, travel accident insurance, phantom stock or other similar plan or program of Employer. Executive's Base Salary shall (where applicable) constitute the compensation on the basis of which the amount of Executive's benefits under any such plan or program shall be fixed and determined. 4.6 Expense Reimbursement. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his presentation of signed, itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. 4.7 Vacations. Executive shall be entitled to 20 days vacation for each calendar year during the Employment Period with reasonable one year carry-over allowances, which vacations shall be taken at such time or times as shall not unreasonably interfere with Executive's performance of his duties under this Agreement. -2- 3 4.8 Stock Options. On February 20, 1998, the Compensation Committee of the Board granted to Executive, subject to stockholder approval of an amendment to the Employer's 1995 Employee Stock Option Plan (the "Plan") at the 1998 Annual Meeting of Stockholders, increasing the maximum number of options that can be granted to one person during a single year, a stock option (the "Option") to purchase 300,000 shares of Common Stock of the Employer (the "Common Stock"), having a term of ten years. The Option shall vest and become exercisable as to one-third of the shares of common stock covered by the Option on and after February 20, 1999, as to an additional one-third of the shares of common stock on and after February 20, 2000 and as to an additional one-third of the shares of common stock on and after February 20, 2001. The exercise price shall be the Fair Market Value of the Employer's shares as defined in the Plan on February 20, 1998. Except as otherwise set forth herein, the terms of the Option shall be as set forth in the Plan and the Option Agreement. 4.9 Tax Gross-Up. To the extent that payments made by Employer to or on behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4 hereof are subject to federal, state or local income or payroll taxes, Employer shall pay to Executive, not later than forty-five (45) days after the end of the calendar year for which such payments are includable in Executive's gross income, the amount of such additional taxes, calculated by assuming application of the highest applicable tax rates, plus such additional amount as shall be necessary to hold harmless Executive, as nearly as practicable, from the obligation to pay such taxes in respect of amounts payable pursuant to this Section 4.9. 5. TERMINATION OF EMPLOYMENT PERIOD 5.1 Termination Without Cause; Voluntary Termination by Executive. Employer may, by notice to Executive at any time during the Employment Period, terminate the Employment Period without cause. The effective date of such termination of the Executive from the Employer shall be the date that is thirty (30) days following the date on which such notice is given. Executive may, by notice to Employer at any time during the Employment Period, voluntarily resign from the Employer and terminate the Employment Period. The effective date of such termination of the Executive from the Employer shall be the date that is thirty (30) days following the date on which such notice is given. 5.2 By Employer for Cause. Employer may, at any time during the Employment Period by notice to Executive (but only after compliance with the procedure hereinafter set forth in this Section 5.2 in the event of the cause specified in clause (ii) below), terminate the Employment Period "for cause" effective on the later of the giving of such notice or upon the determination by the Board following notice, if applicable. Such notice shall specify the conduct which is the basis for termination for cause in reasonable detail. For the purposes hereof, "for cause" means: (i) the conviction of Executive in a court of competent jurisdiction of a crime constituting a felony in such jurisdiction involving money or other property of the Employer or any of its affiliates or any other felony (whether or not involving money or other property of the Employer) involving moral turpitude; or -3- 4 (ii) the willful engaging in misconduct that is materially injurious to Employer, monetarily or otherwise. For the purposes hereof, (a) no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that such action or omission was in or not opposed to the best interests of Employer and (b) no failure to achieve performance targets shall be considered a willful act of misconduct. Termination "for cause" pursuant to clause (ii) of the preceding sentence shall be effected only if (i) Employer has delivered to Executive a copy of a notice of termination that complies with the foregoing paragraph and that gives Executive, on at least fifteen (15) business days' prior notice, the opportunity, together with Executive's counsel, to be heard before Employer's Board, and (ii) the Board (after such notice and opportunity to be heard), adopts a resolution that in the good faith opinion of the Board Executive was guilty of conduct set forth in clause (ii) of the preceding sentence, and specifying the particulars thereof in reasonable detail. 5.3 By Executive for Good Reason. Executive may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement "for good reason" effective immediately. For the purposes hereof, "good reason" means any material breach by Employer of any provision of this Agreement. Without limiting the generality of the foregoing, each of the following shall be deemed to be "good reason": (i) a failure by the Employer to comply with any provision of this Agreement which has not been cured within ten (10) days after notice of such noncompliance has been given by Executive to the Employer, (ii) the assignment to Executive by Employer of duties inconsistent with Executive's position, responsibilities or status with Employer as in effect on the date of this Agreement including, but not limited to, any reduction whatsoever in such position, duties, responsibilities or status, any change in Executive's titles, offices or perquisites, as then in effect, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions (except for Executive's election to the Board), except in connection with the termination of his employment on account of his death, disability, or for cause, (iii) any failure to pay (or any reduction in) compensation (including benefits) paid or payable to Executive pursuant to the provisions of Section 4 hereof, (iv) any purported termination of Executive's employment for cause which is not effected in accordance with the requirements of Section 5.2 hereof (and for purposes of this Agreement no such purported termination shall be effective) or (v) the failure of the Employer to obtain the assumption of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Employer as set forth in Section 9 herein. 5.4 Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 180 days, or (ii) periods aggregating at least 270 days during any period of 12 consecutive months (each a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, shall have the right to terminate the Employment Period for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician mutually selected by Employer and Executive, whose determination -4- 5 shall be final and binding on the parties. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Executive to be disabled at any time after the end of the Disability Period if Executive has then commenced receiving benefits under the long-term disability insurance policy obtained pursuant to Section 4.5 hereof. 5.5 Death. The Employment Period shall end on the date of Executive's death. 6. TERMINATION COMPENSATION 6.1 Termination Without Cause by Employer or for Good Reason by Executive. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.1 hereof or by Executive pursuant to the provisions of Section 5.3 hereof, Employer will pay to Executive (i) Executive's Base Salary through the date of termination, (ii) within five (5) days following the date of termination in one lump sum an amount equal to the greater of the (a) Base Salary multiplied by the number of full and partial years then remaining in the Employment Period (assuming no termination) and (b) one year's Base Salary (calculated in each case at the Base Salary rate then in effect); and (iii) on the date due pursuant to the provisions of Section 4.2 hereof, the bonus for the then current Bonus Year, without proration. All other benefits provided for in Sections 4.3, 4.4, 4.5 and Section 4.9 shall be continued at the expense of Employer for the longer of the balance of the unexpired portion of the Employment Period (assuming no termination) and twelve months from date of termination. 6.2 Certain Other Terminations. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.2, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive, within thirty (30) days of the date of termination, Executive's Base Salary through the date of termination. Provided the date of termination is after the end of a calendar year for which a Bonus is payable, but prior to the date of payment, Employer shall also pay to Executive, when due pursuant to provisions of Section 4.2 hereof, the Bonus for the Bonus Year in which the date of termination occurred. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.3 Termination for Disability. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.4, Employer shall make all payments and continue all benefits for the period specified in Section 6.1; provided, however, that such payment shall be reduced by any amounts actually paid to Executive pursuant to any disability insurance or other such similar program maintained by Employer, including amounts paid pursuant to any long-term disability policy purchased pursuant to Section 4.5 hereof. 6.4 No Other Termination Compensation. Executive shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 6.5 Mitigation; Offset. Executive shall not be required to mitigate the amount of any payments or benefits provided for hereunder upon termination of the Employment Period by seeking employment with any other person, or otherwise, nor shall the amount of any such payments or benefits be reduced by any compensation, benefit or other amount earned by, -5- 6 accrued for or paid to Executive as the result of Executive's employment by or consultancy or other association with any other person or entity, provided, that any medical, dental or hospitalization insurance or benefits provided to Executive in connection with his employment by or consultancy with any person or entity unaffiliated with the Employer during such period shall be primary to the benefits to be provided to Executive pursuant to this Agreement for the purposes of coordination of benefits. Notwithstanding the foregoing, if Executive elects to be covered by the insurance or benefits provided by an entity or person unaffiliated with the Employer, Executive agrees that Employer may terminate any insurance or benefits provided to the Executive. The Employer's obligation to pay termination compensation pursuant to this Section 6 shall not be reduced by any amount owed by Executive to the Employer. 7. INDEMNIFICATION 7.1 General. The Employer shall indemnify the Executive to the fullest extent permitted by law in effect as of the date hereof against all costs, expenses, liabilities and losses (including, without limitation, attorneys' fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by the Executive in connection with a Proceeding. For the purposes of this Section, a "Proceeding" shall mean any action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the Executive is made, or is threatened to be made, a party to, or a witness in, such action, suit or proceeding by reason of the fact that he is or was an officer, director or employee of the Employer or is or was serving as an officer, director, member, employee, trustee or agent of any other entity at the request of the Employer. 7.2 Costs and Expenses. The Employer shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within 20 days after receipt by the Employer of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses. Notwithstanding anything herein to the contrary, to the extent that Executive has served on behalf of the Employer as a witness or other participant in any Proceeding, or has been successful, on the merits or otherwise, in defense of any Proceeding, including but not limited to, the dismissal of any Proceeding without prejudice, Executive shall be indemnified against all costs, charges and expenses (including attorney's fees) actually incurred by Executive in connection therewith. 7.3 Standard of Conduct. The Executive shall not be entitled to indemnification under this Section unless he meets the standard of conduct specified in the Delaware General Corporation Law. Notwithstanding the foregoing, to the extent permitted by law, neither Section 145(d) of the Delaware General Corporation Law nor any similar provision shall apply to indemnification under this Section, so that if the Executive in fact meets the applicable standard of conduct, he shall be entitled to such indemnification whether or not the Employer (whether by the Board of Directors, the shareholders, independent legal counsel or other party) determines that indemnification is proper because he has met such applicable standard of conduct. Neither the failure of the Employer to have made such a determination prior to the -6- 7 commencement by the Executive of any suit or arbitration proceeding seeking indemnification, nor a determination by the Employer that he has not met such applicable standard of conduct, shall create a presumption that he has not met the applicable standard of conduct. 7.4 Settlement. The Employer shall not settle any Proceeding or claim in any manner which would impose on the Executive any penalty or limitation without his prior written consent. Neither the Employer nor the Executive will unreasonably withhold its or his consent to any proposed settlement. The Employer shall not be liable to indemnify the Executive under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. 7.5 Notification and Defense of Claim. Promptly after receipt by the Executive of notice of the commencement of any Proceeding, the Executive will, if a claim in respect thereof is to be made against the Employer under this Agreement, notify the Employer in writing of the commencement thereof; but the omission to so notify the Employer will not relieve the Employer from any liability that it may have to the Executive otherwise than under this Agreement. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding as to which the Executive gives notice to the Employer of the commencement thereof: (i) The Employer will be entitled to participate therein at its own expense; and (ii) Except as otherwise provided in this Section 7.5(ii) to the extent that it may wish, the Employer, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel satisfactory to the Executive. After notice from the Employer to the Executive of its election to so assume the defense thereof, the Employer shall not be liable to the Executive under this Agreement for any legal or other expenses subsequently incurred by the Executive in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Executive shall have the right to employ the Executive's own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Employer of its assumption of the defense thereof shall be at the expense of the Executive unless (a) the employment of counsel by the Executive has been authorized by the Employer, (b) the Executive shall have reasonably concluded that there may be a conflict of interest between the Employer and the Executive in the conduct of the defense of such Proceeding (which conclusion shall be deemed reasonable if, without limitation, such action shall seek any remedy other than money damages and the Executive would be personally affected by such remedy or the carrying out thereof), or (c) the Employer shall not in fact have employed counsel to assume the defense of the Proceeding, in each of which cases the fees and expenses of counsel shall be at the expense of the Employer. The Employer shall not be entitled to assume the defense of any Proceeding brought against the Executive by or on behalf of the Employer or as to which the Executive shall have reached the conclusion provided for in clause (b) above. -7- 8 8. CONFIDENTIALITY Unless otherwise required by law or judicial process, Executive shall retain in confidence after termination of Executive's employment with Employer pursuant to this Agreement all confidential information known to the Executive concerning the Employer and its businesses for the shorter of one (1) year following such termination or until such information is publicly disclosed by the Employer or otherwise becomes publicly disclosed other than through Executive's actions. 9. SUCCESSORS; BINDING AGREEMENT (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Employer, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place. Failure of the Employer to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Employer in the same amount and on the same terms as the Executive would be entitled to hereunder had the Employer terminated the Executive without Cause pursuant to the provisions of Section 5.1 hereof on the succession date (and assuming a Change in Control of the Employer had occurred prior to such succession date). As used in this Agreement, "the Employer" means the Employer as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive's estate. 10. SURVIVORSHIP The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 11. MISCELLANEOUS 11.1 Notices. Any notice, consent or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally or by facsimile transmission (deemed -8- 9 given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 Attn.: Secretary If to Executive: Mr. David A. Simon Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 11.2 Legal Fees. Employer shall promptly reimburse the Executive for the reasonable legal fees and expenses incurred by Executive in connection with enforcement of Executive's rights hereunder. 11.3 Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) such amounts for income tax, social security, unemployment compensation and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 11.4 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed therein. 11.5 Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Fairfield, New Jersey in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until expiration of the Employment Period during the pendency of any arbitration. 11.6 Headings. All descriptive headings in this Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Agreement. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -9- 10 11.8 Severability. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 11.9 Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Executive with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans or prospects have been made by or on behalf of Employer to Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PRIME HOSPITALITY CORP. By: /s/ David A. Simon --------------------------- David A. Simon -10- EX-10.2 3 EMPLOYMENT AGREEMENT 1 EXECUTION VERSION EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 20, 1998, between John M. Elwood ("Executive") and Prime Hospitality Corp., a Delaware corporation ("Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment of Executive Employer hereby agrees to employ Executive, and Executive hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. Employment Period Subject to earlier termination as provided in section 5, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof and shall continue for a period of three (3) years. Either party may terminate this Agreement at the end of three (3) years or this Agreement may be renewed on a day to day basis pending the negotiation of a new agreement. 3. Duties and Responsibilities 3.1 General. During the Employment Period, Executive (i) shall have the titles of Executive Vice President and Chief Financial Officer of Employer and (ii) shall devote substantially all of his business time and expend his best efforts, energies and skills to the business of Employer. Executive shall perform such duties, consistent with his status as Executive Vice President and Chief Financial Officer of Employer, as he may be assigned from time to time by Employer's Chief Executive Officer. 4. Compensation and Related Matters 4.1 Base Salary. For each twelve-month period of the Employment Period, commencing with the twelve-month period beginning on the date of this Agreement (each such period, an "Employment Year"), Employer shall pay to Executive a base salary (the "Base Salary") equal to $310,000. The Base Salary for each Employment Year shall be payable in equal weekly installments. 2 4.2 Annual Bonus. For each calendar year (the "Bonus Year"), at the discretion of the Employer's Board of Directors (the "Board"), Executive may receive a cash bonus ("Bonus") based upon attainment of annual performance objectives to be reasonably established by the Chief Executive Officer and approved by the Board for the Bonus Year in consultation with Executive, such performance objectives to be established as soon as possible following the beginning of the Bonus Year. The Bonus earned for the Bonus Year shall be payable promptly following the determination thereof, on the earlier of (i) fifteen (15) days after the members of the Board have received the audited financial statements for the Bonus Year, or (ii) the next meeting of the Board. The Bonus Year 1998 will be deemed to commence on January 1. To the extent specifically provided in Section 6 hereof, the Bonus payable for the Bonus Year in which the Employment Period terminates shall equal the Bonus that would have been paid had the Employment Period not so terminated, multiplied by a fraction, the numerator of which shall be the number of days of the Employment Period within the Bonus Year and the denominator of which shall be 365. 4.3 Life Insurance. Employer shall maintain in effect at all times during the Employment Period, at Employer's expense, a policy of term insurance on the life of Executive in the amount equal to $1,000,000 naming such person as Executive shall designate from time to time as the owner and beneficiary thereof. Executive agrees that Employer shall have the right to obtain other life insurance on Executive's life, at Employer's sole expense and with Employer or an affiliate thereof as the sole beneficiary thereof. Executive shall (i) cooperate fully with Employer in obtaining all such insurance, (ii) sign any necessary consents, applications and other related forms or documents, and (iii) take any required medical examinations. 4.4 Automobile. Employer shall provide Executive with the use of a vehicle at Employer's expense. Executive will be entitled to continue to use that automobile for the term of this Agreement. Employer shall be responsible for all expenses of use, maintenance and operation of that vehicle, except if Executive's operation of the vehicle causes penalty insurance rates, in which case Executive will bear such costs. 4.5 Other Benefits. During the Employment Period, subject to, and to the extent Executive is eligible under their respective terms, Executive shall be entitled to receive such fringe benefits as are, or are from time to time hereafter generally provided by Employer to Employer's senior management employees or other employees (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan, disability plan or insurance, group life insurance, medical and dental insurance, travel accident insurance, phantom stock or other similar plan or program of Employer. Executive's Base Salary shall (where applicable) constitute the compensation on the basis of which the amount of Executive's benefits under any such plan or program shall be fixed and determined. 3 4.6 Expense Reimbursement. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his presentation of signed, itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. 4.7 Vacations. Executive shall be entitled to 20 days vacation for each calendar year during the Employment Period with reasonable one year carry-over allowances, which vacations shall be taken at such time or times as shall not unreasonably interfere with Executive's performance of his duties under this Agreement. 4.8 Stock Options. On February 20, 1998, the Compensation Committee of the Board granted to Executive, subject to stockholder approval of an amendment to the Employer's 1995 Employee Stock Option Plan (the "Plan") at the 1998 Annual Meeting of Stockholders, increasing the maximum number of options that can be granted to one person during a single year, a stock option (the "Option") to purchase 240,000 shares of Common Stock of the Employer (the "Common Stock"), having a term of ten years. The Option shall vest and become exercisable as to one-third of the shares of common stock covered by the Option on and after February 20, 1999, as to an additional one-third of the shares of common stock on and after February 20, 2000 and as to an additional one-third of the shares of common stock on and after February 20, 2001. The exercise price shall be the Fair Market Value of the Employer's shares as defined in the Plan on February 20, 1998. Except as otherwise set forth herein, the terms of the Option shall be as set forth in the Plan and the Option Agreement. 4.9 Tax Gross-up. To the extent that payments made by Employer to or on behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4 hereof are subject to federal, state or local income or payroll taxes, Employer shall pay to Executive, not later than forty-five (45) days after the end of the calendar year for which such payments are includable in Executive's gross income, the amount of such additional taxes, calculated by assuming application of the highest applicable tax rates, plus such additional amount as shall be necessary to hold harmless Executive, as nearly as practicable, from the obligation to pay such taxes in respect of amounts payable pursuant to this Section 4.9. 5. Termination of Employment Period 5.1 Termination Without Cause; Voluntary Termination by Executive. Employer may, by notice to Executive at any time during the Employment Period, terminate the Employment Period without cause. The effective date of such termination of the Executive from the Employer shall be the date that is thirty (30) days following the date on which such notice is given. Executive may, by notice to Employer at any time during the Employment Period, voluntarily resign from the Employer and terminate the Employment Period. The effective date of such termination of the Executive from the Employer shall be the date that is thirty (30) days following the date on which such notice is given. 4 5.2 By Employer for Cause. Employer may, at any time during the Employment Period by notice to Executive (but only after compliance with the procedure hereinafter set forth in this Section 5.2 in the event of the cause specified in clause (ii) below), terminate the Employment Period "for cause" effective on the later of the giving of such notice or upon the determination by the Board following notice, if applicable. Such notice shall specify the conduct which is the basis for termination for cause in reasonable detail. For the purposes hereof, "for cause" means: (i) the conviction of Executive in a court of competent jurisdiction of a crime constituting a felony in such jurisdiction involving money or other property of the Employer or any of its affiliates or any other felony (whether or not involving money or other property of the Employer) involving moral turpitude; or (ii) the willful engaging in misconduct that is materially injurious to Employer, monetarily or otherwise. For the purposes hereof, (a) no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that such action or omission was in or not opposed to the best interests of Employer and (b) no failure to achieve performance targets shall be considered a willful act of misconduct. Termination "for cause" pursuant to clause (ii) of the preceding sentence shall be effected only if (i) Employer has delivered to Executive a copy of a notice of termination that complies with the foregoing paragraph and that gives Executive, on at least fifteen (15) business days' prior notice, the opportunity, together with Executive's counsel, to be heard before Employer's Board, and (ii) the Board (after such notice and opportunity to be heard), adopts a resolution that in the good faith opinion of the Board Executive was guilty of conduct set forth in clause (ii) of the preceding sentence, and specifying the particulars thereof in reasonable detail. 5.3 By Executive for Good Reason. Executive may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement "for good reason" effective immediately. For the purposes hereof, "good reason" means any material breach by Employer of any provision of this Agreement. Without limiting the generality of the foregoing, each of the following shall be deemed to be "good reason": (i) a failure by the Employer to comply with any provision of this Agreement which has not been cured within ten (10) days after notice of such noncompliance has been given by Executive to the Employer, (ii) the assignment to Executive by Employer of duties inconsistent with Executive's position, responsibilities or status with Employer as in effect on the date of this Agreement including, but not limited to, any reduction whatsoever in such position, duties, responsibilities or status, any change in Executive's titles, offices or perquisites, as then in effect, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions (except for Executive's election to the Board), except in connection with the termination of his employment on account of his death, disability, or for cause, (iii) any failure to pay (or any reduction in) compensation (including benefits) paid or payable to Executive pursuant to the provisions of Section 4 hereof, (iv) any purported termination of Executive's employment for cause which is not effected in accordance with the requirements of Section 5.2 hereof (and for purposes of this Agreement no such purported termination shall be effective) or (v) the failure of the Employer to obtain the assumption of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Employer as set forth in Section 9 herein. 5 5.4 Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 180 days, or (ii) periods aggregating at least 270 days during any period of 12 consecutive months (each a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, shall have the right to terminate the Employment Period for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician mutually selected by Employer and Executive, whose determination shall be final and binding on the parties. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Executive to be disabled at any time after the end of the Disability Period if Executive has then commenced receiving benefits under the long-term disability insurance policy obtained pursuant to Section 4.5 hereof. 5.5 Death. The Employment Period shall end on the date of Executive's death. 6. Termination Compensation 6.1 Termination Without Cause by Employer or for Good Reason by Executive. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.1 hereof or by Executive pursuant to the provisions of Section 5.3 hereof, Employer will pay to Executive (i) Executive's Base Salary through the date of termination, (ii) within five (5) days following the date of termination in one lump sum an amount equal to the greater of the (a) Base Salary multiplied by the number of full and partial years then remaining in the Employment Period (assuming no termination) and (b) one year's Base Salary (calculated in each case at the Base Salary rate then in effect); and (iii) on the date due pursuant to the provisions of Section 4.2 hereof, the bonus for the then current Bonus Year, without proration. All other benefits provided for in Sections 4.3, 4.4, 4.5 and Section 4.9 shall be continued at the expense of Employer for the longer of the balance of the unexpired of the Employment Period (assuming no termination) and twelve months from the date of termination. 6 6.2 Certain Other Terminations. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.2, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive, within thirty (30) days of the date of termination, Executive's Base Salary through the date of termination. Provided the date of termination is after the end of a calendar year for which a Bonus is payable, but prior to the date of payment, Employer shall also pay to Executive, when due pursuant to provisions of Section 4.2 hereof, the Bonus for the Bonus Year in which the date of termination occurred. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.3 Termination for Disability. If the Employment Period is terminated by Employer pursuant to the provisions of Section 5.4, Employer shall make all payments and continue all benefits for the period specified in Section 6.1; provided, however, that such payment shall be reduced by any amounts actually paid to Executive pursuant to any disability insurance or other such similar program maintained by Employer, including amounts paid pursuant to any long-term disability policy purchased pursuant to Section 4.5 hereof. 6.4 No Other Termination Compensation. Executive shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 6.5 Mitigation; Offset. Executive shall not be required to mitigate the amount of any payments or benefits provided for hereunder upon termination of the Employment Period by seeking employment with any other person, or otherwise, nor shall the amount of any such payments or benefits be reduced by any compensation, benefit or other amount earned by, accrued for or paid to Executive as the result of Executive's employment by or consultancy or other association with any other person or entity, provided, that any medical, dental or hospitalization insurance or benefits provided to Executive in connection with his employment by or consultancy with any person or entity unaffiliated with the Employer during such period shall be primary to the benefits to be provided to Executive pursuant to this Agreement for the purposes of coordination of benefits. Notwithstanding the foregoing, if Executive elects to be covered by the insurance or benefits provided by an entity or person unaffiliated with the Employer, Executive agrees that Employer may terminate any insurance or benefits provided to the Executive. The Employer's obligation to pay termination compensation pursuant to this Section 6 shall not be reduced by any amount owed by Executive to the Employer. 7 7. Indemnification 7.1 General. The Employer shall indemnify the Executive to the fullest extent permitted by law in effect as of the date hereof against all costs, expenses, liabilities and losses (including, without limitation, attorneys' fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by the Executive in connection with a Proceeding. For the purposes of this Section, a "Proceeding" shall mean any action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the Executive is made, or is threatened to be made, a party to, or a witness in, such action, suit or proceeding by reason of the fact that he is or was an officer, director or employee of the Employer or is or was serving as an officer, director, member, employee, trustee or agent of any other entity at the request of the Employer. 7.2 Costs and Expenses. The Employer shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within 20 days after receipt by the Employer of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses. Notwithstanding anything herein to the contrary, to the extent that Executive has served on behalf of the Employer as a witness or other participant in any Proceeding, or has been successful, on the merits or otherwise, in defense of any Proceeding, including but not limited to, the dismissal of any Proceeding without prejudice, Executive shall be indemnified against all costs, charges and expenses (including attorney's fees) actually incurred by Executive in connection therewith. 7.3 Standard of Conduct. The Executive shall not be entitled to indemnification under this Section unless he meets the standard of conduct specified in the Delaware General Corporation Law. Notwithstanding the foregoing, to the extent permitted by law, neither Section 145(d) of the Delaware General Corporation Law nor any similar provision shall apply to indemnification under this Section, so that if the Executive in fact meets the applicable standard of conduct, he shall be entitled to such indemnification whether or not the Employer (whether by the Board of Directors, the shareholders, independent legal counsel or other party) determines that indemnification is proper because he has met such applicable standard of conduct. Neither the failure of the Employer to have made such a determination prior to the commencement by the Executive of any suit or arbitration proceeding seeking indemnification, nor a determination by the Employer that he has not met such applicable standard of conduct, shall create a presumption that he has not met the applicable standard of conduct. 8 7.4 Settlement. The Employer shall not settle any Proceeding or claim in any manner which would impose on the Executive any penalty or limitation without his prior written consent. Neither the Employer nor the Executive will unreasonably withhold its or his consent to any proposed settlement. The Employer shall not be liable to indemnify the Executive under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. 7.5 Notification and Defense of Claim. Promptly after receipt by the Executive of notice of the commencement of any Proceeding, the Executive will, if a claim in respect thereof is to be made against the Employer under this Agreement, notify the Employer in writing of the commencement thereof; but the omission to so notify the Employer will not relieve the Employer from any liability that it may have to the Executive otherwise than under this Agreement. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding as to which the Executive gives notice to the Employer of the commencement thereof: (i) The Employer will be entitled to participate therein at its own expense; and (ii) Except as otherwise provided in this Section 7.5(ii) to the extent that it may wish, the Employer, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel satisfactory to the Executive. After notice from the Employer to the Executive of its election to so assume the defense thereof, the Employer shall not be liable to the Executive under this Agreement for any legal or other expenses subsequently incurred by the Executive in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Executive shall have the right to employ the Executive's own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Employer of its assumption of the defense thereof shall be at the expense of the Executive unless (a) the employment of counsel by the Executive has been authorized by the Employer, (b) the Executive shall have reasonably concluded that there may be a conflict of interest between the Employer and the Executive in the conduct of the defense of such Proceeding (which conclusion shall be deemed reasonable if, without limitation, such action shall seek any remedy other than money damages and the Executive would be personally affected by such remedy or the carrying out thereof), or (c) the Employer shall not in fact have employed counsel to assume the defense of the Proceeding, in each of which cases the fees and expenses of counsel shall be at the expense of the Employer. The Employer shall not be entitled to assume the defense of any Proceeding brought against the Executive by or on behalf of the Employer or as to which the Executive shall have reached the conclusion provided for in clause (b) above. 9 8. Confidentiality Unless otherwise required by law or judicial process, Executive shall retain in confidence after termination of Executive's employment with Employer pursuant to this Agreement all confidential information known to the Executive concerning the Employer and its businesses for the shorter of one (1) year following such termination or until such information is publicly disclosed by the Employer or otherwise becomes publicly disclosed other than through Executive's actions. 9. Successors; Binding Agreement (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Employer, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place. Failure of the Employer to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Employer in the same amount and on the same terms as the Executive would be entitled to hereunder had the Employer terminated the Executive without Cause pursuant to the provisions of Section 5.1 hereof on the succession date (and assuming a Change in Control of the Employer had occurred prior to such succession date). As used in this Agreement, "the Employer" means the Employer as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive's estate. 10. Survivorship The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 10 11. Miscellaneous 11.1 Notices. Any notice, consent or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally or by facsimile transmission (deemed given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 Attn.: Secretary If to Executive: Mr. John M. Elwood Prime Hospitality Corp. 700 Route 46 East P.O. Box 2700 Fairfield, NJ 07007-2700 11.2 Legal Fees. Employer shall promptly reimburse the Executive for the reasonable legal fees and expenses incurred by Executive in connection with enforcement of Executive's rights hereunder. 11.3 Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) such amounts for income tax, social security, unemployment compensation and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 11.4 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed therein. 11.5 Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Fairfield, New Jersey in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until expiration of the Employment Period during the pendency of any arbitration. 11 11.6 Headings. All descriptive headings in this Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Agreement. 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11.8 Severability. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 11.9 Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Executive with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans or prospects have been made by or on behalf of Employer to Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PRIME HOSPITALITY CORP. By: /s/ John M. Elwood ------------------- John M. Elwood EX-11 4 COMPUTATION OF EARNINGS PER SHARE 1 COMPUTATION OF EARNINGS PER COMMON SHARE Exhibit 11 (Unaudited) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1997 1998 ------- ------- BASIC EARNINGS Income before extraordinary items ........... $ 8,202 $10,291 Extraordinary items ......................... 22 -- ------- ------- Net earnings ......................... $ 8,224 $10,291 ======= ======= Shares: Weighted average number of common shares outstanding ................... 46,387 46,867 ======= ======= Basic earnings per common share: Income before extraordinary items ...... $ 0.18 $ 0.22 Extraordinary items .................... -- -- ------- ------- Net earnings ......................... $ 0.18 $ 0.22 ======= ======= DILUTED EARNINGS Income before extraordinary items ........... $ 8,202 $10,291 Assumed conversion of convertible debt ...... 996 996 ------- ------- Income before extraordinary items as adjusted $ 9,198 $11,287 Extraordinary items ......................... 22 -- ------- ------- Net earnings as adjusted ............. $ 9,220 $11,287 ======= ======= Shares: Weighted average number of common shares outstanding ................... 46,387 46,867 Options and warrants issued ............ 1,848 1,362 Assumed conversion of convertible debt . 7,188 7,188 ------- ------- Weighted average number of common shares outstanding as adjusted ....... 55,423 55,417 ======= ======= Diluted earnings per common share: Income before extraordinary items ...... $ 0.17 $ 0.20 Extraordinary items .................... -- -- ------- ------- Net earnings ......................... $ 0.17 $ 0.20 ======= =======
EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 35,098 23,664 21,167 415 0 110,622 1,168,307 67,427 1,271,156 81,888 569,266 0 0 473 527,597 1,271,156 103,288 103,288 0 82,163 0 0 5,787 16,599 6,308 10,291 0 0 0 10,291 .22 .20
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