-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, M8XcnTXF4Ih9AXGRDjAvm73afId9zw+Ka5spUebuMhg4nfl49wSoTB7VuJ1rcphI jY3ZG4w6LwokimK3xKQweQ== 0000950123-95-000505.txt : 19950615 0000950123-95-000505.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950123-95-000505 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19950310 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 221890234 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58047 FILM NUMBER: 95520197 BUSINESS ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2018821010 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 S-3 1 PRIME HOSPITALITY CORP. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1995 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PRIME HOSPITALITY CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2640625 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR IDENTIFICATION NO.) ORGANIZATION)
------------------------ 700 ROUTE 46 EAST FAIRFIELD, NEW JERSEY 07004 (201) 882-1010 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JOSEPH BERNADINO SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL PRIME HOSPITALITY CORP. 700 ROUTE 46 EAST FAIRFIELD, NEW JERSEY 07004 (201) 882-1010 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copies to: WILLIAM N. DYE JOHN D. WATSON, JR. WILLKIE FARR & GALLAGHER LATHAM & WATKINS ONE CITICORP CENTER 1001 PENNSYLVANIA AVENUE, N.W. 153 EAST 53RD STREET SUITE 1300 NEW YORK, NEW YORK 10022 WASHINGTON, D.C. 20004 (212) 821-8000 (202) 637-2200
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, check the following box: / / ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------- % Convertible Subordinated Notes due 2002....................... $86,250,000 100% $86,250,000 $29,742 - ------------------------------------------------------------------------------------------------- Common Stock, par value $.01....................... -- $-- $-- $--(2) - -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for purposes of determining the registration fee. (2) Pursuant to Rule 457(i) under the Securities Act of 1933, no registration fee is required with respect to shares of Common Stock as no separate consideration will be received for the shares of Common Stock issuable upon conversion of the Notes. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MARCH 10, 1995 $75,000,000 [LOGO] PRIME HOSPITALITY CORP. % CONVERTIBLE SUBORDINATED NOTES DUE 2002 The Notes offered hereby (the "Offering") are convertible into Common Stock of Prime Hospitality Corp. ("Prime" or the "Company") at any time prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment in certain events. The Common Stock of the Company is traded on the New York Stock Exchange under the symbol "PDQ". On March 8, 1995, the last reported sale price of the Common Stock on the New York Stock Exchange was $9 1/4 per share. See "Price Range of Common Stock and Dividend Policy." Interest on the Notes is payable on April 15 and October 15 of each year, commencing October 15, 1995. The Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 17, 1998, at the redemption prices set forth herein, plus accrued interest, if any, to the redemption date. If a Risk Event (as defined herein) occurs, each holder of Notes will have the right, subject to certain conditions and restrictions, to require the Company to offer to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. The Notes are subordinated to all existing and future Senior Indebtedness (as defined herein) of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. The Indenture governing the Notes does not restrict the ability of the Company or its subsidiaries to incur additional indebtedness, including Senior Indebtedness. See "Description of Notes." The Company is applying to have the Notes listed on the New York Stock Exchange. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(1)(3) - ------------------------------------------------------------------------------------------------------ Per Note.................................. % % % - ------------------------------------------------------------------------------------------------------ Total(4).................................. $ $ $ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of initial issuance. (2) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (3) Before deducting expenses payable by the Company, estimated at $575,000. (4) The Company has granted the Underwriters a 30-day option to purchase up to an additional $11,250,000 aggregate principal amount of Notes at the Price to Public, less the Underwriting Discount, solely to cover overallotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting." The Notes are offered by the Underwriters when, as and if delivered to and accepted by the Underwriters and subject to the right to reject any order in whole or in part. It is expected that delivery of the certificates representing the Notes will be made against payment therefor at the office of Montgomery Securities on or about , 1995. ------------------------ MONTGOMERY SECURITIES SMITH BARNEY INC. APRIL , 1995 3 [PHOTOGRAPHS] 2 4 [MAP] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN MARKET PRICES OF THE NOTES OFFERED HEREBY OR SHARES OF THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and Consolidated Financial Statements, including the notes thereto, appearing elsewhere in or incorporated by reference into this Prospectus. Unless the context indicates or requires otherwise, references in this Prospectus to the "Company" or "Prime" are to Prime Hospitality Corp. and its subsidiaries. Unless otherwise indicated, all information in this Prospectus assumes that the Underwriters' over-allotment option is not exercised. See "Underwriting." THE COMPANY Prime is a leading hotel owner/operator with a portfolio of 86 hotels totalling 12,617 rooms. Located primarily in secondary markets in 19 states and the U.S. Virgin Islands, Prime's hotels operate either under franchise agreements with hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson, or under the Company's proprietary brand names, AmeriSuites(R) and Wellesley Inns(R). The Company owns or leases 49 hotels (the "Owned Hotels") and manages 37 hotels for third parties (the "Managed Hotels"). Prime holds financial interests in the form of mortgages or profit participations in 17 of the Managed Hotels. In total, the Company has equity or financial interests in 66 hotels containing approximately 10,000 rooms. The Company operates in three major lodging industry segments: full-service, all-suites and limited-service. Approximately 53% of Prime's hotel rooms are in full-service hotels. The AmeriSuites hotels, which comprise approximately 12% of the Company's hotel rooms, are mid-priced, all-suites hotels, situated near office parks and travel destinations in the Southern and Central United States. Prime also competes in the limited-service segment, which comprises approximately 35% of its hotel rooms, primarily through its economically priced Wellesley Inns, which are located in Florida, the Middle Atlantic and the Northeast. Prime is fundamentally committed to hotel equity ownership. Significant elements of Prime's ownership strategy are strong in-house hotel management and control of its proprietary brands, both of which have contributed to improved hotel operating performance. Reflecting Prime's operating strengths, the Company's hotels generated average operating profit margins that exceeded comparable industry averages for 1993, as reported by industry sources, by approximately 25% for full-service hotels, 21% for all-suites hotels and 6% for limited-service hotels. The Company's growth strategy is to: - generate improved results at existing hotels through increased operating efficiencies; - acquire full-service hotels with potential for operating and marketing improvements; and - expand the AmeriSuites hotel brand to meet growing all-suites segment demand. The Company's strategy for improving results at its existing hotels includes using sophisticated operating, marketing and financial systems and capitalizing on the operating leverage inherent in the lodging industry. Implementation of the Company's strategy, together with positive industry trends, has produced improved performance in recent years. Exemplifying the Company's operating leverage, during 1994 room revenues increased 7.4% while net operating income increased 17.0%, as compared to the prior year, for Company-owned comparable hotels, which are hotels that have been open for all of 1993 and 1994. Lodging industry analysts expect further improvement for the lodging sector, and the Company expects to continue to improve the performance of its existing hotels. The Company seeks to capitalize on its strength as a full-service hotel owner/operator and the favorable outlook for the full-service segment by continuing to pursue the acquisition of full-service hotels. In 1994 the Company acquired four full-service hotels with approximately 1,000 rooms. With a continued industry outlook for limited new room supply, steady demand growth and acquisition prices at discounts to replacement cost in the full-service segment, Prime believes that the acquisition of full-service hotels will continue to provide significant growth opportunities. 4 6 Prime is also committed to developing its AmeriSuites all-suites hotel brand. The Company believes that AmeriSuites provides an excellent guest experience and offers desirable suite accommodations and other amenities at mid-scale prices. The performance of AmeriSuites improved significantly in 1994 with revenue per available room ("REVPAR") and net operating income for comparable hotels increasing by 13.1% and 19.3% over the prior year, respectively. During the first quarter of 1995, the Company will acquire the option of ShoLodge, Inc. to purchase a 50% interest in 11 of the Company's 12 AmeriSuites hotels and will also acquire the only AmeriSuites hotel not already owned by Prime (collectively, the "ShoLodge Transaction"), thereby establishing Prime's exclusive control over the AmeriSuites brand. In 1994 the Company opened four new AmeriSuites. The Company currently plans to open or commence construction of ten new AmeriSuites in 1995 with approximately 1,250 rooms. The Company already owns six development sites for new AmeriSuites hotels and has begun construction at sites in Atlanta, Greensboro and Miami. As a leading owner/operator of hotels, Prime believes that it is well positioned to benefit from the continuing recovery occurring in the lodging industry. The recovery has been driven by a favorable supply/demand imbalance resulting primarily from increased economic activity and the sharp decline in the growth of the supply of new hotel rooms since 1991. Demand growth exceeded new supply growth by 3.0% in 1993 and by 3.3% in 1994. Since 1991, demand growth has outpaced new room supply growth, resulting in an increase in industry-wide occupancy levels from 60.9% in 1991 to 65.2% in 1994. Higher occupancy levels have allowed the industry to increase rates. In 1994 average daily rates ("ADR") increased by 3.8% over 1993 levels, marking the first inflation-adjusted ADR growth since 1986. REVPAR, which measures the combined impact of rate and occupancy, increased by 7.3% in 1994. Because of the operating leverage inherent in the lodging industry, increases in REVPAR have had a major impact on hotel operating performance, with industry pretax profits growing from breakeven levels in 1992 to approximately $4.6 billion in 1994, as estimated by Smith Travel Research. The Company is the successor in interest to Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"), which restructured its operations and capital structure pursuant to a bankruptcy reorganization completed on July 31, 1992 (the "Effective Date"). Under its restructuring, PMI recruited new management and directors, reduced its liabilities by $448.8 million, revalued its assets to reflect fair market value, and eliminated unprofitable contract commitments. During the period from July 31, 1992 through December 31, 1994, the Company further reduced its debt by $82.6 million from $266.4 million to $183.8 million, and reduced its portfolio of notes receivable through cash collections and collateral recoveries by $143.4 million from $226.6 million to $83.2 million. In the process, the Company increased its investment in hotel fixed assets by $138.9 million from $160.4 million to $299.3 million, and increased shareholders' equity by $68.5 million from $135.6 million to $204.1 million. With a strengthened balance sheet, a diminished note receivable portfolio and a significantly increased base of Owned Hotels, the Company believes that it is well positioned to implement its growth strategy. The Company is a Delaware corporation incorporated in 1985. The principal office of the Company is 700 Route 46 East, Fairfield, New Jersey 07007-2700 and its telephone number is (201) 882-1010. 5 7 THE OFFERING Securities Offered............ $75 million aggregate principal amount of % Convertible Subordinated Notes due 2002 (the "Notes"). Interest Payment Dates........ April 15 and October 15, commencing October 15, 1995. Maturity...................... April 15, 2002 Conversion.................... The Notes are convertible into the Company's Common Stock at any time prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment in certain events. Redemption at Option of Company..................... The Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 17, 1998, at the redemption prices set forth herein, plus accrued interest, if any, to the redemption date. Repurchase at Option of Holders..................... If a Risk Event (as defined herein) occurs, each holder of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to offer to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. Subordination................. The Notes are subordinated to all existing and future Senior Indebtedness (as defined herein) of the Company, and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. The Indenture governing the Notes does not restrict the ability of the Company or its subsidiaries to incur additional indebtedness, including Senior Indebtedness. Use of Proceeds............... The proceeds of the Offering will be used to finance the development or acquisition of hotels or hotel portfolios and for general corporate purposes. See "Use of Proceeds." Listing....................... The Company is applying to have the Notes listed on the New York Stock Exchange. The Common Stock is listed on the New York Stock Exchange under the symbol "PDQ".
6 8 SUMMARY RECENT CONSOLIDATED FINANCIAL AND OTHER DATA The table below presents summary recent consolidated financial and other data derived from the Company's historical financial statements as of and for the years ended December 31, 1993 and 1994. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, related notes and other financial information included and incorporated by reference in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND MARGIN AND RATIO DATA) INCOME STATEMENT DATA: Total revenues................................................. $108,860 $134,303 Costs and expenses: Direct hotel operating expenses............................. 50,115 65,158 Occupancy and other operating............................... 11,047 11,261 General and administrative.................................. 15,685 15,089 Depreciation and amortization............................... 7,117 9,427 -------- -------- Total costs and expenses............................... 83,964 100,935 -------- -------- Operating income............................................... 24,896 33,368 -------- -------- Interest expense............................................... 16,116 13,993 -------- -------- Net income: Income from recurring operations............................ 5,928 12,805 Other income -- non-recurring............................... 2,247 5,453 -------- -------- Income before extraordinary items........................... 8,175 18,258 Extraordinary items(1)...................................... 3,989 172 -------- -------- Net income..................................................... $ 12,164 $ 18,430 ======== ======== Net income per common share(2): Income from recurring operations............................ $ .20 $ .40 Other income -- non-recurring............................... .07 .17 -------- -------- Income before extraordinary items........................... .27 .57 Extraordinary items......................................... .13 .01 -------- -------- Net income per common share.................................... $ .40 $ .58 ======== ======== Weighted average shares outstanding(2)......................... 30,721 32,022 OTHER DATA: EBITDA before extraordinary items(3)........................... $ 32,013 $ 42,795 Net cash provided by operating activities...................... 19,728 28,672 Net cash provided by (used in) investing activities............ 2,281 (34,248) Net cash used in financing activities.......................... (17,056) (23,469) MARGIN AND RATIO DATA: EBITDA margin(3)............................................... 29.4% 31.9% Ratio of EBITDA to interest expense(3)......................... 1.99x 3.06x Ratio of earnings to fixed charges(4).......................... 1.77x 2.78x
7 9
DECEMBER 31, 1994 --------------------------- ACTUAL AS ADJUSTED(5) -------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents...................................... $ 12,524 $129,549 Property, equipment and leasehold improvements................. 299,291 299,291 Mortgages and notes receivable, net of current portion......... 81,260 81,260 Total assets................................................... 434,932 552,532 Current portion of debt........................................ 5,284 5,866 Long-term debt, net of current portion......................... 178,545 295,563 Total stockholders' equity..................................... 204,065 204,065
- --------------- (1) Extraordinary items consist of gains on discharges of indebtedness, net of income taxes of $2.8 million in 1993 and $120,000 in 1994. (2) Net income per common share has been restated for all periods to reflect a 9.4% retroactive reduction in the number of shares distributed under PMI's plan of reorganization from 33.0 million to 29.9 million. This reduction was effected in September 1994. (3) EBITDA represents earnings before extraordinary items, net interest expense, provision for income taxes (if applicable) and depreciation and amortization and excludes interest income on cash investments and other income. EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data are not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. (4) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized and the amortization of deferred financing fees, and that portion of rental expense representative of interest (deemed to be one third of rental expense). (5) As adjusted to reflect the Offering and the incurrence of $42.6 million of mortgage debt during the first quarter of 1995. See "Use of Proceeds" and "Capitalization." 8 10 The following table sets forth for the five years ended December 31, 1994, annual operating data for the 49 hotels in the Company's portfolio as of December 31, 1994. Operating data for the hotels built or acquired during the five-year period are presented from the date such hotel commenced operations or became an Owned Hotel. For purposes of showing operating trends, the results of six hotels that were managed by the Company prior to their acquisition by the Company during the five-year period are presented as if they had been owned by the Company since the Company began managing the hotels. OWNED HOTEL OPERATING DATA:
1990 1991 1992 1993 1994 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR) Number of hotels................ 33 34 37 42 49 Number of rooms................. 5,013 5,143 5,476 6,116 7,052 Occupancy %..................... 64.0% 64.7% 66.4% 70.3% 68.4% ADR(1).......................... $ 69.99 $ 64.45 $ 64.70 $ 66.66 $ 68.80 REVPAR(2)....................... $ 44.81 $ 41.70 $ 42.97 $ 46.88 $ 47.04 Room revenues................... $ 71,013 $ 76,635 $ 83,349 $ 97,196 $108,690 Total hotel revenues............ $112,407 $114,979 $120,938 $138,406 $151,089 Gross operating profit(3)....... $ 42,097 $ 36,967 $ 35,516 $ 43,473 $ 50,733 Gross operating profit %(3)..... 37.5% 32.2% 29.4% 31.4% 33.6%
- --------------- (1) "ADR" means average daily rate, which is equal to total room revenue divided by number of occupied rooms. (2) "REVPAR" means revenues per available room, which is equal to total room revenue divided by the number of rooms available for sale. (3) Gross operating profit is defined as total hotel revenues less direct hotel operating expenses including room, food and beverage and selling and general expenses. 9 11 RISK FACTORS Prospective purchasers of Notes should carefully consider, among other things, the following risk factors before purchasing the Notes offered hereby. LEVERAGE As of December 31, 1994, as adjusted for the issuance of the Notes and the incurrence of $42.6 million of mortgage debt during the first quarter of 1995, the Company's total long-term debt (including current installments) and shareholders' equity would have been $301.4 million and $204.1 million, respectively. The Company expects it will incur indebtedness in addition to the Notes in connection with the implementation of its growth strategy. The Indenture governing the Notes does not restrict the ability of the Company or its subsidiaries to incur additional indebtedness, including Senior Indebtedness. Additional indebtedness of the Company may rank senior or pari passu with the Notes in certain circumstances, while additional indebtedness of the Company's subsidiaries will rank effectively senior to the Notes. See "Description of Notes." The Company's ability to satisfy its obligations will be dependent upon its future performance, which is subject to prevailing economic conditions and financial, business and other factors, including factors beyond the Company's control. There can be no assurance that the Company's operating cash flow will be sufficient to meet its debt service requirements or to repay the Notes at maturity or that the Company will be able to refinance the Notes or other indebtedness at maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBORDINATION The Notes will be unsecured subordinated obligations of the Company and will be subordinated in right of payment to all present and future Senior Indebtedness of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The holders of any indebtedness of the Company's subsidiaries will be entitled to payment of their indebtedness from the assets of the subsidiaries prior to the holders of any general unsecured obligations of the Company, including the Notes. As of December 31, 1994, the Company had approximately $131.2 million of outstanding Senior Indebtedness, and the subsidiaries of the Company had approximately $52.6 million of indebtedness. In the event of a payment default with respect to Senior Indebtedness, no payments may be made on account of the Notes until such default has been cured or waived. In addition, under certain circumstances, no payments with respect to the Notes may be made for a period of up to 179 days if certain non-payment defaults exist with respect to Senior Indebtedness of the Company. See "Description of Notes." See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RISKS OF THE LODGING INDUSTRY; COMPETITION The Company's business is subject to all of the risks inherent in the lodging industry. These risks include, among other things, adverse effects of general and local economic conditions, changes in local market conditions, oversupply of hotel space, a reduction in local demand for hotel rooms, changes in travel patterns, changes in governmental regulations that influence or determine wages, prices or construction costs, changes in interest rates, the availability of credit and changes in real estate taxes and other operating expenses. The Company's ownership of real property, including hotels, is substantial. Real estate values are sensitive to changes in local market and economic conditions and to fluctuations in the economy as a whole. Due in part to the strong correlation between the lodging industry's performance and economic conditions, the lodging industry is subject to cyclical changes in revenues and profits. The lodging industry is highly competitive. During the 1980s, construction of lodging facilities in the United States resulted in an excess supply of available rooms. This oversupply had an adverse effect on occupancy levels and room rates in the industry, although the oversupply has largely been absorbed. 10 12 Competitive factors in the industry include reasonableness of room rates, quality of accommodations, brand recognition, service levels and convenience of locations. The Company's hotels generally operate in areas that contain numerous other competitors. There can be no assurance that demographic, geographic or other changes in markets will not adversely affect the convenience or desirability of the locales in which the Company's hotels are located. Furthermore, there can be no assurance that, in the locales in which the Company's hotels operate, competing hotels will not pose greater competition for guests than presently exists, or that new hotels will not enter such locales. See "Business -- Lodging Industry." HOTEL DEVELOPMENT AND ACQUISITION RISKS The Company's growth strategy of developing new hotels and acquiring hotels with repositioning potential will subject the Company to pre-opening, pre-stabilization and repositioning costs. As the Company opens additional Company-owned hotels, such costs may adversely affect the Company's results of operations. Newly opened hotels historically begin with lower occupancy and room rates that improve over time. While the Company has in the past successfully opened or repositioned new hotels, there can be no assurance that the Company will be able to achieve its growth strategy. Construction, acquisition and repositioning of hotels involves certain risks, including the possibility of construction cost overruns and delays, site acquisition cost and availability, uncertainties as to market potential, market deterioration after commencement of the acquisition or repositioning, possible unavailability of financing on favorable terms and the emergence of market competition from unanticipated sources. Although the Company seeks to manage its construction, acquisition and repositioning activities so as to minimize such risks, there can be no assurance that such projects will perform in accordance with the Company's expectations. AMERISUITES EXPANSION As part of its growth strategy, the Company intends to expand its AmeriSuites hotel brand to meet growing demand in the all-suites hotel segment. On March 31, 1995, in connection with the pending ShoLodge Transaction, the Company will take over the management of the AmeriSuites hotel brand. Prior to completion of the ShoLodge Transaction, the Company will have operated only one of the thirteen AmeriSuites hotels. In addition to the risks associated with hotel development generally, the Company is subject to additional risks in the all-suites hotel segment due to its limited operating history in this segment. Also, the Company competes with other companies in the all-suites segment, some of whom have greater brand recognition, financial resources and experience than the Company. There is no assurance that the Company can compete effectively with these other franchises. GEOGRAPHIC CONCENTRATION OF HOTELS Many of the Company's hotels are located in Florida, New Jersey and New York, and such geographic concentration exposes the Company's operating results to events or conditions which specifically affect those areas, such as local and regional economic, weather and other conditions. Adverse developments which specifically affect those areas may have a material adverse effect on the results of operations of the Company. In addition, the Company owns the Marriott's Frenchman's Reef Beach Resort (the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands. The Company obtained ownership and control of this hotel in December 1994 pursuant to the restructuring of a note receivable. Assuming the Company had obtained ownership on January 1, 1994, the Frenchman's Reef would have accounted for 11.6% of the Company's net operating income in 1994. The Frenchman's Reef's operating results have been adversely affected in recent years by a hurricane, disruption in airline service and the Persian Gulf War. As a resort hotel primarily operated for leisure travellers, operating results at the Frenchman's Reef also are subject to adverse developments in general economic conditions and changes in travel patterns. Adverse developments with respect to the Frenchman's Reef may have a material adverse effect on the results of operations of the Company. 11 13 RISKS ASSOCIATED WITH ROSE AND COHEN SETTLEMENT In April 1994, the Company received a favorable ruling from the U.S. Bankruptcy Court for the Southern District of Florida in litigation with Financial Security Assurance, Inc. ("FSA") with respect to FSA's attempt to recover a payment made to the Company pursuant to a settlement agreement with Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen"). In 1993, the Company reached a settlement with Rose and Cohen of an adversary proceeding regarding a promissory note and personal guarantee. FSA asserted in the Bankruptcy Court proceeding that it was entitled to receive the settlement proceeds otherwise payable to the Company (approximately $31.2 million) under the terms of an intercreditor agreement. The Bankruptcy Court ruled in favor of the Company in April 1994 and, immediately thereafter, the Company used $25.0 million of the settlement proceeds to retire its remaining Senior Secured Notes due July 31, 1997. On April 21, 1994, FSA filed a notice of appeal of the Bankruptcy Court's order. The appeal has been argued before the United States District Court for the Southern District of Florida and a decision of the District Court is pending. The Company is retaining the remaining $6.2 million of settlement proceeds as restricted cash pending disposition of the appeal. If the favorable decision of the Bankruptcy Court were reversed by the District Court or on further appeal by FSA, the Company could be required to pay over the $31.2 million in settlement proceeds to FSA, which could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." EMPLOYMENT AND OTHER GOVERNMENT REGULATION The lodging industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverage (such as health and liquor license laws) and building and zoning requirements. Also, the Company is subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions and work permits requirements. The failure to obtain or retain liquor licenses or an increase in the minimum wage rate, employee benefit costs or other costs associated with employees, could adversely affect the Company. Both at the federal and state level, there are proposals under consideration to increase the minimum wage and introduce a system of mandated health insurance. Under the Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes its hotels are substantially in compliance with these requirements, a determination that the Company is not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants. These and other initiatives could adversely affect the Company as well as the lodging industry in general. ENVIRONMENTAL REGULATION Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Certain environmental laws and common law principles could be used to impose liability for release of asbestos-containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released ACMs. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require expenditures. In connection with the ownership or operation of hotels, the Company may be potentially liable for any such costs. Although the Company is currently not aware of any material environmental claims pending or threatened against it, no assurance can be given that a material environmental claim will not be asserted against the Company or against the Company and its managed or franchised hotels. The cost of defending against claims of liability or of remediating a contaminated property could have a material adverse effect on the results of operations of the Company. 12 14 MANAGEMENT AGREEMENTS The Company currently manages 37 hotels under agreements with third party hotel owners, including 16 Wellesley Inns for which the Company provides the brand name. Terms of the management agreements vary but the majority are short-term and, therefore, there are risks associated with termination of these agreements. Furthermore, management agreements may be terminated in connection with a change in ownership of the underlying hotels. Although such risks may be limited due to the Company's role as lender or provider of the Wellesley Inn brand name, 18 of the Managed Hotels, including the 16 Wellesley Inns referenced above, are highly leveraged with debt maturing in December 1995. There can be no assurance that such debt can be repaid or restructured by the third party hotel owners in a manner that would permit the Company to continue as manager of such properties. IMPORTANCE OF FRANCHISOR RELATIONSHIPS The Company currently enjoys good relationships with its major franchisors, Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson, and the Company has no reason to believe that such relationships will not continue. However, under the applicable franchise agreements, the franchisor can terminate the agreement if its quality standards are not maintained or if payments due are not made in a timely fashion. If any of the franchise agreements were terminated by the franchisor, the Company could explore entering into a franchise agreement with another franchisor. There can be no assurance, however, that a desirable replacement relationship would be available. DEPENDENCE ON KEY EMPLOYEES The Company is dependent on its President, Chief Executive Officer and Chairman of the Board, David A. Simon, its Executive Vice President and Chief Financial Officer, John M. Elwood, its Executive Vice President of Operations, Paul H. Hower, and on certain other key members of its executive management staff, the loss of whose services could have a material adverse effect on the Company's business and future operations. See "Management." ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes are a new issue of securities for which there is currently no public market. Although the Company is applying to have the Notes listed on the New York Stock Exchange, there can be no assurance as to the liquidity of the market for the Notes that may develop, the ability of the holders to sell their Notes or the prices at which holders of the Notes would be able to sell their Notes. If a market for the Notes does develop, the Notes may trade at a discount from their initial public offering price, depending on prevailing interest rates, the market for similar securities, performance of the Company, the market price of the Company's Common Stock, performance of the lodging sector and other factors. No assurance can be given as to whether an active trading market will develop or be maintained for the Notes. See "Underwriting." 13 15 USE OF PROCEEDS The net proceeds from the sale of the Notes offered hereby are estimated to be approximately $72.2 million (approximately $83.1 million if the Underwriters' over-allotment option is exercised in full) after deducting the underwriting discount and estimated expenses related to the Offering. The Company intends to use the net proceeds to finance the development or acquisition of hotels or hotel portfolios and for general corporate purposes. The Company is engaged in an ongoing program of evaluating and acquiring hotels and hotel portfolios in selected markets in the United States. However, the Company has no agreement, understanding or arrangement with any person to effect any material acquisition. Until used, the net proceeds of this Offering will be invested in short-term investment grade marketable securities or money market funds or used to repay mortgage debt on existing hotels that the Company expects would be available, as a result of such repayment, to support additional indebtedness. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is traded on the New York Stock Exchange under the symbol "PDQ". The following table sets forth, for the periods indicated, the high and low closing price of the Common Stock as reported on the New York Stock Exchange.
PRICE RANGE ------------- HIGH LOW ---- ---- YEAR ENDED DECEMBER 31, 1993 1st Quarter.................................................... $3 5/8 $2 1/8 2nd Quarter.................................................... 4 1/2 3 1/2 3rd Quarter.................................................... 4 3/4 3 1/8 4th Quarter.................................................... 6 4 3/8 YEAR ENDED DECEMBER 31, 1994 1st Quarter.................................................... $8 1/8 $5 3/8 2nd Quarter.................................................... 7 5/8 5 3/8 3rd Quarter.................................................... 8 3/4 6 3/4 4th Quarter.................................................... 9 6 7/8 YEAR ENDED DECEMBER 31, 1995 1st Quarter (through March 8, 1995)............................ $9 1/2 $7 1/4
The closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape was $9 1/4 on March 8, 1995. As of March 8, 1995, there were approximately 2900 holders of record of the Common Stock. The Company has not declared any cash dividends on its Common Stock since the Effective Date and does not currently anticipate paying any dividends on the Common Stock in the foreseeable future. The Company currently anticipates that it will retain any future earnings for use in its business. Covenants contained in certain of the Company's debt instruments prohibit the payment of cash dividends. 14 16 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1994, and as adjusted to give effect to the Offering and the incurrence by the Company of $42.6 million of mortgage debt in the first quarter of 1995. This table should be read in conjunction with the Consolidated Financial Statements and notes thereto included and incorporated by reference in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
DECEMBER 31, 1994 --------------------------- ACTUAL AS ADJUSTED(1) -------- -------------- (DOLLARS IN THOUSANDS) Current portion of debt............................................ $ 5,284 $ 5,866 -------- -------------- Long-term debt, excluding current portion: 10% Secured Notes due 1999....................................... 52,580 52,580 Notes and Mortgages payable, less current portion(2)............. 125,965 167,983 % Convertible Subordinated Notes due 2002...................... -- 75,000 -------- -------------- Total long-term debt..................................... 178,545 295,563 Stockholders' equity: Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued..................... -- -- Common stock, par value $.10 per share; 50,000,000 shares authorized; 30,409,371 shares issued and outstanding(3)................................... 304 304 Capital in excess of par value................................... 171,774 171,774 Retained earnings................................................ 31,987 31,987 -------- -------------- Total stockholders' equity............................... 204,065 204,065 -------- -------------- Total capitalization..................................... $382,610 $499,628 ======== ===========
- --------------- (1) Gives effect to the Offering and mortgage debt of $39.0 million incurred in February 1995 and the anticipated incurrence of $3.6 million of mortgage debt related to the ShoLodge Transaction, which is scheduled to close on March 31, 1995. (2) See Note 6 of Notes to Consolidated Financial Statements as to interest rates on long-term debt, including current portion. (3) Does not include 1,855,886 shares of Common Stock reserved for issuance upon the exercise of warrants distributed under PMI's plan of reorganization, with an exercise price of $2.71 per share, and 1,442,156 shares of Common Stock reserved for issuance upon the exercise of employee stock options. 15 17 RECENT CONSOLIDATED FINANCIAL AND OTHER DATA The table below presents recent consolidated financial and other data derived from the Company's historical financial statements as of and for the years ended December 31, 1993 and 1994. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Consolidated Financial Data of the Company and its Predecessor" and the Consolidated Financial Statements, related notes and other financial information included and incorporated by reference in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues: Room.......................................................... $ 69,487 $ 88,753 Food and beverage............................................. 12,270 18,090 Management and other fees..................................... 10,831 10,021 Interest on mortgages and notes receivable.................... 14,765.. 15,867 Rental and other.............................................. 1,507 1,572 -------- -------- Total revenues........................................... 108,860 134,303 -------- -------- Costs and expenses: Direct hotel operating expenses: Room........................................................ 19,456 24,539 Food and beverage........................................... 10,230 13,886 Selling and general......................................... 20,429 26,733 Occupancy and other operating................................. 11,047 11,261 General and administrative.................................... 15,685 15,089 Depreciation and amortization................................. 7,117 9,427 -------- -------- Total costs and expenses................................. 83,964 100,935 -------- -------- Operating income................................................. 24,896 33,368 Interest income on cash investments.............................. 1,267 1,966 Interest expense................................................. (16,116) (13,993) Other income..................................................... 3,809 9,089 -------- -------- Income before income taxes and extraordinary items............... 13,856 30,430 Provision for income taxes....................................... 5,681 12,172 -------- -------- Income before extraordinary items................................ 8,175 18,258 Extraordinary items(1)........................................... 3,989 172 -------- -------- Net income....................................................... $ 12,164 $ 18,430 ======== ======== Net income per common share(2): Income before extraordinary items........................ $ .27 $ .57 Extraordinary items...................................... .13 .01 -------- -------- Net income per common share...................................... $ .40 $ .58 ======== ======== Weighted average shares outstanding(2)........................... 30,721 32,022
16 18
YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 -------- -------- (IN THOUSANDS, EXCEPT MARGIN AND RATIO DATA) OTHER DATA: EBITDA before extraordinary items(3)............................. $ 32,013 $ 42,795 Net cash provided by operating activities........................ 19,728 28,672 Net cash provided by (used in) investing activities.............. 2,281 (34,248) Net cash used in financing activities............................ (17,056) (23,469) MARGIN AND RATIO DATA: EBITDA margin(3)................................................. 29.4% 31.9% Ratio of EBITDA to interest expense(3)........................... 1.99x 3.06x Ratio of earnings to fixed charges(4)............................ 1.77x 2.78x BALANCE SHEET DATA: Cash and cash equivalents........................................ $ 41,569 $ 12,524 Property, equipment and leasehold improvements................... 172,786 299,291 Mortgages and other notes receivable, net of current portion..... 163,033 81,260 Total assets..................................................... 410,685 434,932 Current portion of debt.......................................... 19,282 5,284 Long-term debt, net of current portion........................... 168,618 178,545 Total stockholders' equity....................................... 171,364 204,065
- --------------- (1) Extraordinary items consist of gains on discharges of indebtedness, net of income taxes of $2.8 million in 1993 and $120,000 in 1994. (2) Net income per common share has been restated for all periods to reflect a 9.4% retroactive reduction in the number of shares distributed under PMI's plan of reorganization from 33.0 million to 29.9 million. This reduction was effected in September 1994. (3) EBITDA represents earnings before extraordinary items, net interest expense, provision for income taxes (if applicable) and depreciation and amortization and excludes interest income on cash investments and other income. EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data are not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. (4) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized and the amortization of deferred financing fees, and that portion of rental expense representative of interest (deemed to be one third of rental expense). 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading hotel owner/operator which owns or leases 49 Owned Hotels and manages 37 Managed Hotels for third parties. The Company has a financial interest in the form of mortgages or profit participations in 17 of the Managed Hotels. The Company records the direct revenues, operating expenses and depreciation of its Owned Hotels and management fees and interest income, where applicable, on the Managed Hotels. The Company has implemented a growth strategy which focuses on improving results at existing hotels through increased operating efficiencies, acquiring full-service hotels and expanding its AmeriSuites hotel brand in the all-suites segment. Operating results have continued to improve at comparable hotels due to repositioning efforts, yield management programs and overall improvements in the industry. The Company also added 11 Owned Hotels in 1994 through acquisition, construction or settlements of notes receivable, thereby increasing its Owned Hotel rooms by approximately 40%. The Company believes that it is well positioned to benefit from current industry trends due to its hotel equity ownership position. The Company has restated net income per common share for all periods to reflect a 9.4% reduction in the number of shares distributed under the plan of reorganization (the "Plan") of the Company's predecessor, PMI. The financial statements had previously given effect to the maximum amount of 33,000,000 shares of Common Stock issuable under the Plan, whereas the Company in total distributed only 29,913,000 shares under the Plan. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993 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 1993 and 1994. The results of the four hotels divested during 1993 and 1994 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(1) ------------------- ------------------- 1993 1994 1993 1994 ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR) Revenues: Room.............................................. $69,487 $88,753 $62,305 $66,821 Food and Beverage................................. 12,270 18,090 10,875 11,410 Management Fees................................... 10,831 10,021 Interest on Mortgages and Notes Receivable........ 14,765 15,867 Rental and Other.................................. 1,507 1,572 ------- ------- Total Revenues................................. 108,860 134,303
18 20
COMPARABLE OWNED TOTAL HOTELS(1) ------------------- ------------------- 1993 1994 1993 1994 ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR) Direct Hotel Operating Expenses: Room.............................................. $19,456 $24,539 $16,870 $17,281 Food and Beverage................................. 10,230 13,886 9,029 9,143 Selling and General............................... 20,429 26,733 17,779 18,889 Occupancy and Other Operating....................... 11,047 11,261 General and Administrative.......................... 15,685 15,089 Depreciation and Amortization....................... 7,117 9,427 ------- ------- Operating Income.................................... 24,896 33,368 Operating Expense Margins: Direct Hotel Operating Expenses: Room, as a percentage of room revenue............. 28.0% 27.6% 27.1% 25.9% Food and Beverage, as a percentage of food and beverage revenue............................... 83.4% 76.8% 83.0% 80.1% Selling and General, as a percentage of room and food and beverage revenue...................... 25.0% 25.0% 24.3% 24.1% Occupancy and Other, as a percentage of room and food and beverage revenue......................... 13.5% 10.5% General and Administrative, as a percentage of total revenue........................................... 14.4% 11.2% Other Data: ADR................................................. $ 66.66 $ 68.80 $ 56.84 $ 61.16 REVPAR.............................................. $ 46.88 $ 47.04 $ 41.61 $ 44.71 Occupancy........................................... 70.3% 68.4% 73.2% 73.1% Gross Operating Profit.............................. $31,642 $41,685 $29,500 $32,917
- --------------- (1) For purposes of this discussion of results of operations for 1994 compared to 1993, comparable Owned Hotels refers to the 31 Owned Hotels that were owned or leased by the Company during all of 1994 and 1993. Room revenues increased by $19.3 million, or 27.7%, from $69.5 million in 1993 to $88.8 million in 1994. This increase was primarily due to incremental room revenues of $17.6 million from hotels acquired or built in 1993 and 1994 and an increase in room revenues at comparable Owned Hotels. Room revenues for comparable Owned Hotels increased by $4.5 million, or 7.2%, in 1994 compared to 1993 due to improvements in ADR which increased by $4.32, or 7.6%, reflecting repositioning and refurbishment efforts at several full-service hotels and improving industry fundamentals. Occupancy rates for comparable Owned Hotels remained relatively constant in 1994 compared to the prior year. Food and beverage revenues increased by $5.8 million, or 47.4%, from $12.3 million in 1993 to $18.1 million in 1994. This increase was primarily due to the impact of incremental revenues of $5.6 million from additional food and beverage operations of four full-service hotels acquired in 1994. Food and beverage revenues for comparable Owned Hotels increased by $535,000, or 4.9%, in 1994 compared to 1993 primarily as a result of increased banquet sales and the repositioning of three lounges to a sports bar theme. 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. Management and other fees decreased by $810,000, or 7.5%, from $10.8 million in 1993 to $10.0 million in 1994 primarily due to the loss of management fees on four Managed Hotels acquired by the Company during 1994. In addition, the Company's management contracts covering six additional hotels were terminated during 1994 upon divestiture of those hotels by the third party 19 21 hotel owners. Partially offsetting these decreased management fees were the addition of two new management contracts and increased revenues associated with the remaining Managed Hotels. Interest on mortgages and notes receivable in 1993 and 1994 primarily related to mortgages secured by certain Managed Hotels including the Frenchman's Reef. Interest income on mortgages and notes receivable increased by $1.1 million, or 7.5%, from $14.8 million in 1993 to $15.9 million in 1994 primarily due to interest recognized on the Company's cash flow notes, which are subordinated or junior mortgages which remit payment based on hotel cash flow. These cash flow notes bear many of the characteristics and risks of operating hotel equity investments and are assigned no value on the Company's balance sheet due to substantial doubt as to their recoverability. The Company's policy is to recognize interest on cash flow notes when cash is received. In 1994, the portion of interest on mortgages and other notes receivable attributable to cash flow notes increased to $2.0 million from $1.0 million in 1993 primarily due to the execution of revised cash flow note agreements on three hotels and the improved operating performance of the underlying hotels. See "Business -- Mortgages and Notes Receivable." Approximately $4.3 million and $4.6 million of interest on mortgages and notes receivable in 1993 and 1994, respectively, was derived from the Company's $50.0 million note receivable secured by the Frenchman's Reef. This note was restructured in December 1994 and pursuant to such restructuring, the Company obtained ownership and control of the Frenchman's Reef (see "-- Liquidity and Capital Resources"). Direct room expenses increased by $5.0 million, or 26.1%, from $19.5 million in 1993 to $24.5 million in 1994 due primarily to the addition of new hotels. As a percentage of room revenue, direct room expenses decreased from 28.0% in 1993 to 27.6% in 1994 primarily due to increases in ADR which had minimal corresponding increases in expenses. For comparable Owned Hotels, direct room expenses increased $411,000, or 2.4%, but decreased as a percentage of comparable room revenue from 27.1% in 1993 to 25.9% in 1994. Direct food and beverage expenses increased by $3.7 million, or 35.7%, from $10.2 million in 1993 to $13.9 million in 1994 due primarily to the addition of new full-service hotels. As a percentage of food and beverage revenue, direct food and beverage expenses decreased from 83.4% in 1993 to 76.8% in 1994 primarily due to increased revenues in higher margin areas such as banquet departments and sports lounges. For comparable Owned Hotels, direct food and beverage expenses increased $114,000, or 1.3%, but decreased as a percentage of food and beverage revenue from 83.0% in 1993 to 80.1% in 1994. Direct hotel selling and general expenses consist primarily of hotel expenses which are not specifically allocated to rooms or food and beverage activities, such as administration, selling and advertising, utilities, repairs and maintenance. Direct hotel selling and general expenses increased by $6.3 million, or 30.9%, from $20.4 million in 1993 to $26.7 million in 1994 due primarily to the addition of new hotels. As a percentage of hotel revenues (defined as rooms and food and beverage revenues), direct hotel selling and general expenses remained relatively constant at 25.0% in 1994 and 1993. For comparable Owned Hotels, direct selling and general expenses increased $1.1 million, or 6.2%, but decreased slightly as a percentage of comparable Owned Hotel revenues from 24.3% in 1993 to 24.1% in 1994. Occupancy and other operating expenses which consist primarily of insurance, real estate and other taxes, and rent expense, increased by $214,000, or 1.9%, from $11.0 million in 1993 to $11.3 million in 1994. As a percentage of hotel revenues, occupancy and other operating expenses decreased from 13.5% in 1993 to 10.5% in 1994 primarily due to operating leverage, lower property and liability insurance charges based on favorable claims experiences and reductions in real estate taxes as a result of successful tax appeals on certain properties. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating both the Owned and Managed Hotels and general corporate expenses. General and administrative expenses decreased by $596,000, or 3.8%, from $15.7 million in 1993 to $15.1 million in 1994 primarily due to savings realized from the restructuring of the Company's centralized management operations in 1993. As a percentage of total revenues, general and administrative expenses decreased from 14.4% in 1993 to 11.2% in 1994. 20 22 Depreciation and amortization expense increased by $2.3 million, or 32.5%, from $7.1 million in 1993 to $9.4 million in 1994, due to the impact of new hotel properties acquired in the past year and refurbishment efforts at several hotels. Interest expense decreased by $2.1 million, or 13.2%, from $16.1 million in 1993 to $14.0 million in 1994, primarily due to the net reduction of approximately $27.4 million of debt over the past two years. Interest income on cash investments increased $701,000, or 63.2%, from $1.3 million in 1993 to $2.0 million in 1994 due to higher average cash balances in 1994. Other income for 1994 consisted of a gain of approximately $6.2 million related to the settlement of the Rose and Cohen note receivable (see "-- Liquidity and Capital Resources"), gains on sales of other hotel assets of approximately $1.0 million and rebates of prior years' insurance premiums of $1.3 million. Pretax extraordinary gains of approximately $292,000 for 1994 relate to the retirement of secured notes with a face value of $8.3 million. Pretax extraordinary gains of approximately $6.8 million in 1993 relate to the retirement of debt with a face value of $25.8 million. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER 31, 1992 The Company is the successor in interest to PMI, which emerged from chapter 11 reorganization on the Effective Date. During its approximately two-year reorganization, PMI restructured its assets, operations and capital structure. As a result, the Company (i) eliminated numerous unprofitable lease and management agreements, (ii) revalued its assets to reflect the then approximate current fair market value of such assets on its financial statements and (iii) reduced its liabilities by $448.8 million. On the Effective Date, the Company emerged from chapter 11 reorganization with 75 Owned or Managed Hotels (as compared to 141 hotels prior to the chapter 11 reorganization), $135.6 million of total equity and $266.4 million of long-term debt. The Company implemented "fresh start" reporting in accordance with Statement of Position 90-7 of the American Institute of Certified Public Accountants upon its emergence from reorganization on the Effective Date. Under "fresh start" reporting, the purchase method of accounting was used and the assets and liabilities of the Company were restated to reflect their approximate fair value at the Effective Date. In addition, during the reorganization period (September 18, 1990 to the Effective Date), the Company's financial statements were prepared under accounting principles for entities in reorganization which include reporting interest expense only to the extent paid and recording transactions and events directly associated with the reorganization proceedings. Accordingly, the consolidated financial statements of the Company are not comparable in all material respects to any such financial statement as of any date or for any period prior to the Effective Date. Subsequent to the Effective Date, the Company elected to change its fiscal year end from June 30 to December 31. For purposes of an analysis of the results of operations, comparisons of the Company's results of operations for 1993 to 1992 are made only when, in management's opinion, such comparisons are meaningful. Prior to the Effective Date, the Company did not employ "fresh start" reporting thereby making comparisons to certain financial statement data prior to such date less meaningful. The financial information set forth below presents the revenues and expenses which can be meaningfully compared. The table excludes the items which were affected by the changes in accounting such as interest expense, occupancy and other operating expense and depreciation expense for 1992 and 1993. The financial information below should be read in conjunction with the Consolidated Financial Statements of the Company included elsewhere in this Prospectus and incorporated by reference. Since the Company changed its fiscal year in 1992, management has compiled unaudited data for the calendar year ended December 31, 1992. 21 23 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 1992 and 1993.
COMPARABLE OWNED TOTAL HOTELS(1) --------------------- ------------------- 1992 1993 1992 1993 -------- -------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR) Revenues: Room............................................ $ 62,379 $ 69,487 $51,679 $55,219 Food and Beverage............................... 13,062 12,270 9,549 10,055 Management Fees................................. 11,452 10,831 Interest on Mortgages and Notes Receivable...... 20,063 14,765 Rental and Other................................ 2,232 1,507 -------- -------- Total Revenues............................... 109,188 108,860 Direct Hotel Operating Expenses: Room............................................ 17,858 19,456 14,003 14,848 Food and Beverage............................... 11,402 10,230 8,278 8,480 Selling and General............................. 22,119 20,429 16,004 16,200 General and Administrative........................ 17,162 15,685 Operating Expense Margins: Room, as a percentage of room revenue........... 28.6% 28.0% 27.1% 26.9% Food and Beverage, as a percentage of food and beverage revenue............................. 87.3% 83.4% 86.7% 84.3% Selling and General, as a percentage of room and food and beverage revenue.................... 29.3% 25.0% 26.1% 24.8% General and Administrative, as a percentage of total revenue................................ 15.7% 14.4% Other Data: ADR............................................. $ 64.70 $ 66.66 $ 54.66 $ 55.96 REVPAR.......................................... $ 42.97 $ 46.88 $ 37.23 $ 40.38 Occupancy....................................... 66.4% 70.3% 68.11% 72.15% Gross Operating Profit.......................... $ 24,062 $ 31,642 $22,943 $25,746
- --------------- (1) For purposes of this discussion of results of operations for the year ended December 31, 1993 compared to the year ended December 31, 1992, Comparable Owned Hotels refers to the 29 Owned Hotels that were owned or leased by the Company during all of 1993 and 1992. Room revenue increased by $7.1 million, or 11.4%, from $62.4 million in 1992 to $69.5 million in 1993. This increase was primarily due to incremental room revenues of $10.9 million from hotels acquired or built during 1993 and 1992 and increased occupancy and ADR at comparable hotels. The increase was partially offset by a decrease in room revenues of $7.4 million resulting from the divestiture of four hotels in 1992 and 1993. Room revenues for comparable Owned Hotels increased by $3.5 million, or 6.8%, in 1993 compared to 1992, primarily due to an increase in occupancy of 5.9% for 1993, reflecting improved economic conditions and continued limited new room supply. ADR increased $1.30, or 2.4%, in 1993. Food and beverage revenues decreased by $792,000, or 6.1%, from $13.1 million in 1992 to $12.3 million in 1993. The decrease was primarily due to the loss of food and beverage operations at divested hotels which was partially offset by an increase in food and beverage revenue at comparable Owned Hotels of $506,000, or 5.3%, in 1993. Management and other fees decreased by $621,000, or 5.4%, from $11.5 million in 1992 to $10.8 million in 1993. The decrease was primarily attributable to the loss of five management contracts due to property divestitures by independent owners, of which two properties were acquired by the Company. This decrease was 22 24 partially offset by increases in management fees attributable to improved operating results of the Managed Hotels. Interest on mortgages and notes receivable decreased by $5.3 million, or 26.4%, from $20.1 million in 1992 to $14.8 million in 1993. This decrease was primarily due to the Company's early collection of a $58.0 million note receivable in August 1992. The decrease was partially offset by interest income of $1.0 million recognized on cash flow notes in 1993 due to the improved performance of the underlying hotels. Rental and other revenues decreased by $725,000, or 32.5% from $2.2 million in 1992 to $1.5 million in 1993. The decrease was primarily attributable to the loss of rental revenues on properties which the Company converted into operating hotel assets. Direct room expenses increased by $1.6 million, or 8.9%, from $17.9 million in 1992 to $19.5 million in 1993. As a percentage of room revenue, direct room expenses decreased from 28.6% in 1992 to 28.0% in 1993, primarily due to increases in ADR which had minimal corresponding increases in expenses. Direct room expenses for comparable Owned Hotels increased by $845,000, or 6.0%, but decreased as a percentage of room revenue from 27.1% in 1992 to 26.9% in 1993. Direct food and beverage expenses decreased by $1.2 million, or 10.3%, from $11.4 million in 1992 to $10.2 million in 1993. As a percentage of food and beverage revenue, direct food and beverage expenses decreased from 87.3% in 1992 to 83.4% in 1993 which reflected an increase in higher margin beverage sales. For comparable hotels, direct food and beverage expenses increased by $202,000, or 2.4%, but decreased as a percentage of food and beverage revenue from 86.7% in 1992 to 84.3% in 1993. Direct selling and general expenses decreased by $1.7 million, or 7.6%, from $22.1 million in 1992 to $20.4 million in 1993. As a percentage of hotel revenue, direct selling and general expenses decreased from 29.3% in 1992 to 25.0% in 1993, primarily due to the divestiture of four full-service hotels in 1992 and 1993, which generally required increased overhead costs. For comparable Owned Hotels, direct selling and general expenses decreased as a percentage of hotel revenue from 26.1% in 1992 to 24.8% in 1993, primarily due to the restructuring of the Company's centralized operations which eliminated certain allocated central office charges. These cost savings were offset by higher utility charges as a result of an unusually warm summer in 1993. General and administrative expenses decreased by $1.5 million, or 8.6%, from $17.2 million in 1992 to $15.7 million in 1993. As a percentage of total revenue, general and administrative charges decreased from 15.7% in 1992 to 14.4% in 1993. These decreases were primarily due to the restructuring of the Company's centralized management operations in February 1993 which eliminated approximately $2.5 million of annual costs. Other income in 1993 consisted primarily of a gain on the sale of a hotel of $1.0 million, settlement of closing adjustments of $625,000 related to the sale of a hotel in a prior year, interest of $1.2 million received as part of a federal tax refund and $500,000 received in settlement of prior year's fees on a Managed Hotel. Pretax extraordinary gains of $6.8 million in 1993 relate to the repurchase of debt. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations and capital needs through a combination of cash flow from operations, conversion of non-operating assets to cash and proceeds from mortgage financings. The Company believes that its cash flow from operations is sufficient to fund its anticipated working capital needs, routine capital expenditures and debt service obligations due through 1995. An important component of the Company's growth strategy is to increase its equity ownership in hotels, particularly in the full-service and all-suites segments of the market. The Company intends to actively pursue acquisitions of full-service hotels or hotel portfolios which may also require additional capital for the costs of any necessary renovation or refurbishment. Additionally, the Company plans to expand its AmeriSuites hotel brand by opening or commencing construction on ten AmeriSuites hotels in 1995. The Company plans to fund its development and acquisition program in 1995 with the proceeds of the Offering, mortgage financings of $42.6 million being 23 25 incurred in the first quarter of 1995 and additional mortgage financings on its unencumbered properties, as well as, potentially, on any properties acquired. The Company believes that these sources will be adequate to fund the implementation of its growth strategy in 1995. At December 31, 1994, the Company had cash and cash equivalents of $12.5 million and restricted cash of $9.7 million, which was primarily collateral for various debt obligations. Cash and cash equivalents decreased by $29.0 million during 1994 primarily due to capital expenditures related to the Company's development plan. Cash flow from operations was approximately $28.7 million in 1994 as compared to $19.7 million in 1993. Cash flow from operations was positively impacted by the utilization of net operating loss carryforwards ("NOLs") of $5.9 million and $4.5 million for 1994 and 1993, respectively. At December 31, 1994, the Company had federal NOLs relating to its predecessor, PMI, of approximately $117.5 million which are subject to annual utilization limitations and expire beginning in 2005 and continuing through 2007. The Company's other major sources of cash in 1994 were a settlement of the Rose and Cohen note receivable for $31.2 million, mortgage financing and other borrowings of $19.0 million and other collections of mortgages and notes receivable of $5.0 million. The Company's major uses of cash in 1994 were payments of debt of $43.8 million, capital expenditures of $63.4 million and purchases of debt and other securities of $5.9 million. Debt. During the first quarter of 1994, the Company purchased at a discount $7.2 million of its Senior Secured Notes and Junior Secured Notes for an aggregate purchase price of $7.0 million and retired the debt for a gain of approximately $200,000. In addition, during the first quarter of 1994, the Company purchased through a third party agent approximately $5.2 million of its Senior Secured Notes and Junior Secured Notes for aggregate consideration of $4.8 million. These notes were held by the third party agent and were not retired due to certain restrictions under the note agreements. The purchases were recorded as investments on the Company's balance sheet and gains will not be recorded on these transactions until the notes mature or are redeemed. In April 1994, approximately $1.1 million of these notes were retired with a portion of the proceeds from settlement of the Rose and Cohen note receivable, resulting in a pretax gain of approximately $100,000. In April 1994, the Company retired its Senior Secured Notes, due July 31, 1997, with a prepayment of $26.4 million from proceeds of the settlement of the Rose and Cohen note receivable and other collections from the collateral for the Senior Secured Notes. The Company issued the Senior Secured Notes on July 31, 1992. In July 1994, the Company received the required consents from holders of its Junior Secured Notes to remove certain debt covenants which placed limitations on the Company's hotel development spending. In consideration of the consent to the amendment, the Company agreed to increase the interest rate of the Junior Secured Notes from 9.2% to 10.0% per annum and to shorten the maturity from July 31, 2000 to July 31, 1999. In addition, the designation of the Junior Secured Notes changed to Senior Secured Notes as the original Senior Secured Notes were retired. In November 1994, the Company obtained mortgage financing of $10.8 million on two of its unencumbered properties, the proceeds of which were used for the Company's acquisition and development program in 1994. These notes bear interest at 11.2% and mature in 2004. In February 1995, the Company obtained $39.0 million of mortgage financing on 11 of its unencumbered hotels under two separate loan agreements. Both loans bear interest at variable rates (approximately 10.5% at closing) and have five-year maturities. The funds will be used to finance the Company's acquisition and development program. The Company also expects to incur an additional $3.6 million of debt in connection with the ShoLodge Transaction. See "-- Capital Investments." The Company has $34.9 million of debt obligations related to the Frenchman's Reef due in December 1996. The Company intends to seek an extension of the maturity of such debt or refinance it. The debt is secured by the property which has a book value of $50.0 million. 24 26 At December 31, 1994, as adjusted to give effect to the Offering and the incurrence by the Company of $42.6 million of mortgage debt in the first quarter of 1995, the Company would have had $301.4 million in debt outstanding. Of this debt approximately $83.7 million will bear interest at floating rates. The Company has not entered into interest rate protection agreements with respect to its floating rate debt, and, accordingly, the interest the Company pays on such debt will increase or decrease depending on the movement of interest rates generally. Capital Investments. The Company has implemented a hotel development and acquisition program which focuses on the acquisition of strategically positioned full-service hotels or hotel portfolios and the development of AmeriSuites hotels. The Company spent approximately $51.0 million and assumed $18.7 million of debt in connection with its development and acquisition program in 1994. The cash portion was funded by a combination of existing cash balances, cash flow from operations and mortgage financing. As part of the Company's full-service acquisition program in 1994, the Company acquired four full-service hotels: the 183-room Ramada Inn in Clifton, New Jersey, the 280-room Ramada Inn in Trevose, Pennsylvania (which the Company has since converted to a Radisson hotel), the 340-room Sheraton hotel in Hasbrouck Heights, New Jersey, and the 225-room Sheraton hotel in Mahwah, New Jersey. The Company is continuing to pursue opportunities to acquire full-service hotels or hotel portfolios to the extent that attractive acquisition opportunities are available. During 1994, the Company opened four newly constructed AmeriSuites hotels in Overland Park, Kansas, Columbus, Ohio, Tampa, Florida, and Louisville, Kentucky, and two newly constructed Wellesley Inns in Lakeland and Fort Lauderdale, Florida. The Company has begun developing or has plans to develop AmeriSuites on sites it currently owns in the Atlanta, Greensboro, Miami, Baltimore, Detroit and Cleveland areas and has entered into a contract to purchase an additional AmeriSuites site in the Dallas area. The Company currently plans to spend approximately $70.0 million to open or commence construction on 10 new AmeriSuites hotels in 1995 and has already begun construction at the Atlanta, Greensboro and Miami sites. In February 1995, the Company agreed to purchase an AmeriSuites hotel in Richmond, Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the Company's 12 AmeriSuites hotels. The acquisition is scheduled to close on March 31, 1995. The total consideration payable by the Company in the ShoLodge Transaction is $34.6 million, of which $16.1 million will be paid in three cash installments during 1995, and the remaining $18.5 million will be paid in notes maturing in 1997. The transaction will result in a net increase of $3.6 million of long-term debt as ShoLodge will forgive certain other existing debt on five of the 11 AmeriSuites. As a result of the transaction, the Company will manage these 12 AmeriSuites bringing to 13 the number of AmeriSuites hotels to be owned and operated by the Company. The Company continues to pursue its program of refurbishing certain of its Owned Hotels and repositioning them in order to meet the local market's demand characteristics. In some instances, this may involve a change in franchise affiliation. The refurbishment and repositioning program primarily involves hotels which the Company has recently acquired through mortgage foreclosures or settlements, lease evictions/terminations or acquisitions. During 1993 and 1994, the Company spent approximately $5.0 million and $11.9 million on capital improvements at its Owned Hotels, of which approximately $2.8 million and $8.9 million related to refurbishments and repositionings on 12 Owned Hotels. In 1995, the Company intends to spend approximately $18.0 million on capital improvements, of which $10.8 million relates to the refurbishing and repositioning of recently acquired hotels. Asset Realizations. The Company has pursued a strategy of converting the mortgage notes receivable and other assets that it owns into cash or operating hotel assets. Since July 31, 1992, the Company has received $98.5 million in cash and added seven operating hotel assets through note settlements and lease terminations. During 1994, the Company reduced its long-term mortgage and notes receivable portfolio by $81.8 million to $81.3 million at December 31, 1994. This reduction is primarily attributable to the settlement of the note receivable from Rose and Cohen described below, which carried a book value of $25.0 million, for $31.2 million in cash, and the conversion of the Company's mortgage note receivable secured by the Frenchman's Reef with a book value of $50.0 million into an operating hotel asset. The Company will 25 27 continue to pursue settlement with mortgage and note obligors and will utilize the cash for debt repayments or general corporate purposes. In April 1994, the Company received a favorable ruling from the U.S. Bankruptcy Court for the Southern District of Florida in litigation with Financial Security Assurance, Inc. ("FSA"), with respect to FSA's attempt to recover a payment made to the Company under the Rose and Cohen note receivable. In 1993, the Company reached a settlement with Rose and Cohen of an adversary proceeding regarding a promissory note and personal guarantee. The settlement provided for Rose or his affiliate to pay the Company the sum of $25.0 million, all of which was paid into escrow in February 1994, plus proceeds from the sale of approximately 1.1 million shares of the Company's Common Stock held by Rose. FSA asserted that it was entitled to receive the settlement proceeds under the terms of an intercreditor agreement. Upon receipt of the Bankruptcy Court order in April 1994, the Company used the $25.0 million of settlement proceeds to retire its Senior Secured Notes. On April 21, 1994, FSA filed its notice of appeal of the Bankruptcy Court's order. The appeal was argued before the United States District Court in November 1994 and the decision of the District Court is pending. During 1994, Rose sold approximately 1.0 million shares of the Company's Common Stock under the terms of the settlement for net proceeds of approximately $6.2 million. Subject to further court order, the Company is required to use the stock proceeds principally to retire Senior Secured Notes. As the Rose and Cohen note had a book value of $25.0 million on the Company's balance sheet, approximately $6.2 million was recorded as income in the Company's statement of operations. In December 1994, the Company obtained ownership of the Frenchman's Reef through a pre-negotiated plan of reorganization. The Company had previously reached an agreement in 1993 to restructure its mortgage notes receivable secured by the Frenchman's Reef with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In conjunction with the agreement, FRBA filed a pre-negotiated chapter 11 petition in September 1993. During the reorganization period, the Company continued to receive cash payments on its mortgage notes receivable under a cash collateral order approved by the Bankruptcy Court. Under the plan of reorganization, which was approved by the Bankruptcy Court on November 29, 1994, the Company obtained ownership and control of the hotel. In addition, during 1994, the Company received $2.2 million in settlement of other mortgage notes receivable realizing a gain of $125,000. The Company also sold its fee interests in two hotels in 1994 for a combination of cash and notes of $2.5 million and realized gains of $1.0 million. 26 28 SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY AND ITS PREDECESSOR The Company is the successor in interest to the Company's predecessor, PMI, which emerged from chapter 11 reorganization on the Effective Date, July 31, 1992. PMI had filed for protection under chapter 11 of the United States Bankruptcy Code in September 1990. The Company implemented "fresh start" reporting pursuant to the Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" of the American Institute of Certified Public Accountants, as of the Effective Date. Accordingly, the consolidated financial statements of the Company are not comparable in all material respects to any such financial statement as of any date or any period prior to the Effective Date. Subsequent to the Effective Date, the Company changed its fiscal year end from June 30 to December 31. The table below presents selected consolidated financial data derived from: (i) the Company's historical financial statements for the years ended December 31, 1993 and 1994, (ii) the Company's historical financial statements as of and for the five-month period ended December 31, 1992, (iii) the Company's "fresh start" balance sheet as of the Effective Date, and (iv) the historical consolidated financial statements of PMI for the one month ended July 31, 1992 and for the years ended June 30, 1990, 1991 and 1992. This data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included and incorporated by reference in this Prospectus.
PRE-REORGANIZATION POST-REORGANIZATION --------------------------------------------------- --------------------------------------------- AS OF AND AS OF AND FOR THE FOR THE FOR THE YEAR ENDED AS OF AND FOR THE YEAR ENDED JUNE 30, ONE MONTH FIVE MONTHS ENDED AS OF ENDED DECEMBER 31, -------------------------------------- JULY 31, JULY 31, DEC. 31, ------------------- 1990(1)(2) 1991(1) 1992(1) 1992(1) 1992(1) 1992 1993 1994 ---------- -------- -------------- ---------- -------- ------------ -------- -------- (IN THOUSANDS) (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Total revenues........... $277,239 $205,699 $134,190 $ 8,793 -- $ 41,334 $108,860 $134,303 Valuation writedowns and reserves............... (240,855) (59,149) (62,123) (13,000) -- -- -- -- Reorganization items..... -- (181,655) (23,194) 1,796 -- -- -- -- Income (loss) from continuing operations before extraordinary items(3)............... (280,387) (246,110) (71,965) (10,274) -- 1,393 8,175 18,258 Extraordinary items-gains on discharge of indebtedness (net of income taxes).......... -- -- -- 249,600 -- -- 3,989 172 Net income (loss)........ (267,075) (227,188) (71,965) 239,326 -- 1,393 12,164 18,430 BALANCE SHEET DATA: Total assets............. $934,116 $679,916 $554,118 -- $468,650 $403,314 $410,685 $434,932 Long-term debt, net of current portion........ 368,925 2,851 8,921 -- 204,438 192,913 168,618 178,545 Stockholders' equity (deficiency)........... 66,681 (157,327) (229,292) -- 135,600 137,782 171,364 204,065
- --------------- (1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at which time it owned or managed 141 hotels. During its approximately two-year reorganization, PMI restructured its assets, operations and capital structure. On the Effective Date, the Company emerged from chapter 11 reorganization with 75 Owned or Managed Hotels, $135.6 million of stockholders' equity and $266.4 million of total debt. (2) PMI effectively discontinued the operations of its franchise segment on July 1, 1990 with the sales of the Howard Johnson, Ramada and Rodeway franchise businesses in July, 1990. (3) Approximately $2.3 million, $28.0 million and $25.3 million of contractual interest expense during the one month ended July 31, 1992 and for the fiscal years ended June 30, 1992 and 1991, respectively, was not accrued and was not paid due to the chapter 11 proceeding. 27 29 BUSINESS THE COMPANY Prime is a leading hotel owner/operator with a portfolio of 86 hotels totalling 12,617 rooms. Located primarily in secondary markets in 19 states and the U.S. Virgin Islands, Prime's hotels operate either under franchise agreements with hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson, or under the Company's proprietary brand names, AmeriSuites(R) and Wellesley Inns(R). The Company owns or leases 49 hotels and manages 37 hotels for third parties. Prime holds financial interests in the form of mortgages or profit participations in 17 of the Managed Hotels. In total, the Company has equity or financial interests in 66 hotels containing approximately 10,000 rooms. The Company operates in three major lodging industry segments: full-service, all-suites and limited-service. Approximately 53% of Prime's hotel rooms are in full-service hotels. The AmeriSuites hotels, which comprise approximately 12% of the Company's hotel rooms, are mid-priced, all-suites hotels, situated near office parks and travel destinations in the Southern and Central United States. Prime also competes in the limited-service segment, which comprises approximately 35% of its hotel rooms, primarily through its economically priced Wellesley Inns, which are located in Florida, the Middle Atlantic and the Northeast. Prime is fundamentally committed to hotel equity ownership. Significant elements of Prime's ownership strategy are strong in-house hotel management and control of its proprietary brands, both of which have contributed to improved hotel operating performance. Reflecting Prime's operating strengths, the Company's hotels generated average operating profit margins that exceeded comparable industry averages for 1993, as reported by industry sources, by approximately 25% for full-service hotels, 21% for all-suites hotels and 6% for limited-service hotels. The Company's growth strategy is to: - generate improved results at existing hotels through increased operating efficiencies; - acquire full-service hotels with potential for operating and marketing improvements; and - expand the AmeriSuites hotel brand to meet growing all-suites segment demand. The Company's strategy for improving results at its existing hotels includes using sophisticated operating, marketing and financial systems and capitalizing on the operating leverage inherent in the lodging industry. Implementation of the Company's strategy, together with positive industry trends, has produced significantly improved performance in recent years. Exemplifying the Company's operating leverage, during 1994 room revenues increased 7.4% while net operating income increased 17.0%, as compared to the prior year, for Company-owned comparable hotels, which are hotels that have been open for all of 1993 and 1994. Lodging industry analysts expect further improvement for the lodging sector, and the Company expects to continue to improve the performance of its existing hotels. The Company seeks to capitalize on its strength as a full-service hotel owner/operator and the favorable outlook for the full-service segment by continuing to pursue the acquisition of full-service hotels. In 1994 the Company acquired four full-service hotels with approximately 1,000 rooms. With a continued industry outlook for limited new room supply, steady demand growth and acquisition prices at discounts to replacement cost in the full-service segment, Prime believes that the acquisition of full-service hotels will continue to provide significant growth opportunities. Prime is also committed to developing its AmeriSuites all-suites hotel brand. The Company believes that AmeriSuites provides an excellent guest experience, and offers desirable suite accommodations and other amenities at mid-scale prices. The performance of AmeriSuites improved significantly in 1994 with REVPAR and net operating income for comparable hotels increasing by 13.1% and 19.3% over 1993, respectively. During the first quarter of 1995, the Company will acquire the option of ShoLodge, Inc. to purchase a 50% interest in 11 of the Company's 12 AmeriSuites hotels and will also acquire the only AmeriSuites hotel not already owned by Prime (collectively, the "ShoLodge Transaction"), thereby establishing Prime's exclusive control over the AmeriSuites brand. In 1994 the Company opened four new AmeriSuites. The Company 28 30 currently plans to open or commence construction of ten new AmeriSuites in 1995 with approximately 1,250 rooms. The Company already owns six development sites for new AmeriSuites hotels and has begun construction at sites in Atlanta, Greensboro and Miami. The Company is the successor in interest to Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"), which restructured its operations and capital structure pursuant to a bankruptcy reorganization completed on July 31, 1992. Under its restructuring, PMI recruited new management and directors, reduced its liabilities by $448.8 million, revalued its assets to reflect fair market value, and eliminated unprofitable contract commitments. During the period from July 31, 1992 through December 31, 1994, the Company further reduced its debt by $82.6 million from $266.4 million to $183.8 million, and reduced its portfolio of notes receivable through cash collections and collateral recoveries by $143.4 million from $226.6 million to $83.2 million. In the process, the Company increased its investment in hotel fixed assets by $138.9 million from $160.4 million to $299.3 million, and increased shareholders' equity by $68.5 million from $135.6 million to $204.1 million. With a strengthened balance sheet, a diminished note receivable portfolio and a significantly increased base of Owned Hotels, the Company believes that it is well positioned to implement its growth strategy. LODGING INDUSTRY Overview As a leading owner/operator of hotels, Prime believes that it is well positioned to benefit from the continuing recovery occurring in the lodging industry. The recovery has been driven by a favorable supply/demand imbalance resulting primarily from increased economic activity and the sharp decline in the growth of the supply of new hotel rooms since 1991. Demand growth exceeded new supply growth by 3.0% in 1993 and by 3.3% in 1994. Since 1991, demand growth has outpaced new room supply growth, resulting in an increase in industry-wide occupancy levels from 60.9% in 1991 to 65.2% in 1994. Higher occupancy levels have allowed the industry to increase rates. In 1994, ADR increased by 3.8% over 1993 levels, marking the first inflation-adjusted ADR growth since 1986. REVPAR increased by 7.3% in 1994. Because of the operating leverage inherent in the lodging industry, increases in REVPAR have had a major impact on hotel operating performance, with industry pretax profits growing from breakeven levels in 1992 to approximately $4.6 billion in 1994, as estimated by Smith Travel Research. U.S. Lodging Industry Profile The following table was compiled from industry operating data as reported by Smith Travel Research and highlights industry data for the United States and the regions in which most of the Company's hotels are located: the Middle Atlantic region, which is comprised of New Jersey, New York and Pennsylvania; and the South Atlantic region, which is comprised of Florida, Georgia, South Carolina, North Carolina, Virginia, Maryland and Delaware. The table also includes operating data concerning the three price levels in which the Company competes: upscale, mid-price and economy.
OPERATING PERFORMANCE FOR THE TWELVE MONTHS % CHANGE IN: ENDED DECEMBER 31 --------------------------------------------------------- --------------------------------------------------- ROOM SUPPLY ROOM DEMAND REVPAR OCCUPANCY PERCENTAGE ADR ----------------- ----------------- ----------------- ---------------------- ------------------------ 1993 1994 1993 1994 1993 1994 1992 1993 1994 1992 1993 1994 V. 1992 V. 1993 V. 1992 V. 1993 V. 1992 V. 1993 ---- ---- ---- ------ ------ ------ ------- ------- ------- ------- ------- ------- United States.... 61.9% 63.1% 65.2% $59.62 $61.30 $63.63 1.0% 1.4% 4.0% 4.7% 4.8% 7.3% BY REGION: Middle Atlantic....... 61.8% 64.2% 66.5% $77.03 $78.79 $84.03 0.6% 0.4% 4.8% 4.0% 6.3% 10.5% South Atlantic... 62.7% 64.0% 65.4% $59.29 $60.47 $62.09 0.7% 1.1% 4.1% 3.2% 4.1% 4.9% BY SERVICE (PRICE LEVEL): Upscale.......... 64.7% 66.8% 68.0% $73.11 $72.05 $74.32 0.9% 2.0% 2.9% 3.8% 1.7% 5.0% Mid-Price........ 62.9% 63.9% 65.3% $53.98 $54.99 $56.78 1.4% 2.0% 2.9% 4.2% 3.5% 5.5% Economy.......... 61.4% 61.3% 62.1% $43.76 $42.66 $44.21 0.8% 1.1% 1.6% 2.6% (2.7)% 5.0%
29 31 Lodging industry analysts expect further improvement for the lodging sector. The primary reasons contributing to continued growth include: - Overall supply growth is expected to remain modest in 1995 and 1996 as replacement costs continue to exceed acquisition prices and the availability of construction financing remains limited. However, these disincentives are not equally prevalent in all segments of the industry as evidenced by the new supply growth in the budget and economy price levels. - Room demand growth is expected to continue due to continued economic growth, expected increases in leisure and international travel and favorable demographics. - Higher occupancy rates have provided the industry with pricing power as evidenced by the 3.8% increase in ADR in 1994, which outpaced the growth in the consumer price index. PRIME'S LODGING OPERATIONS The following table sets forth information with respect to the Owned and Managed Hotels as of December 31, 1994:
MANAGED WITH FINANCIAL OWNED(1) INTEREST(2) OTHER MANAGED TOTAL -------------- -------------- -------------- --------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ----- ------ ----- ------ ----- ------ ------ FULL-SERVICE: Marriott.............................. 1 517 0 0 1 525 2 1,042 Radisson.............................. 0 0 1 204 1 192 2 396 Sheraton.............................. 4 927 0 0 0 0 4 927 Holiday Inn........................... 2 362 4 868 0 0 6 1,230 Ramada................................ 9 1,494 4 912 2 277 15 2,683 Howard Johnson........................ 0 0 2 326 1 115 3 441 -- -- -- -- ----- ----- ----- ------ Total Full-Service.......... 16 3,300 11 2,310 5 1,109 32 6,719 ALL SUITES: AmeriSuites(3)........................ 12 1,497 0 0 0 0 12 1,497 LIMITED-SERVICE: Wellesley Inn......................... 14 1,505 5 478 11 1,030 30 3,013 Howard Johnson........................ 6 610 1 149 2 284 9 1,043 Other................................. 1 140 0 0 2 205 3 345 -- -- -- -- ----- ----- ----- ------ Total Limited-Service....... 21 2,255 6 627 15 1,519 42 4,401 Total....................... 49 7,052 17 2,937 20 2,628 86 12,617 ===== ===== ===== ===== ===== ===== ===== ======
- --------------- (1) Of the 49 Owned Hotels, nine are leased. The leases covering the Company's leased hotels provide for fixed lease rents and, in most instances, additional percentage rents based on a percentage of room revenues. The leases also generally require the Company to pay the cost of repairs, insurance and real estate taxes. In addition, some of the Company's Owned Hotels are located on land subject to long-term leases, generally for terms in excess of the depreciable lives of the improvements. (2) Seventeen Managed Hotels in which the Company holds a mortgage or profit participation on the property. (3) Eleven of the AmeriSuites presently owned by the Company are managed by ShoLodge but will be managed by the Company effective March 31, 1995. 30 32 The following table sets forth the location of the Company's hotels as of December 31, 1994:
MANAGED WITH FINANCIAL OWNED(1) INTEREST(2) OTHER MANAGED TOTAL ---------------- ------------------ ---------------- ----------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ----- ------ ----- ------ ----- ------ ------ Arizona............... 1 118 -- -- -- -- 1 118 Arkansas.............. 1 130 -- -- -- -- 1 130 California............ -- -- -- -- 1 95 1 95 Connecticut........... 4 589 -- -- -- -- 4 589 Delaware.............. 1 142 -- -- -- -- 1 142 Florida............... 13 1,417 3 395 5 527 21 2,339 Georgia............... 1 114 -- -- 1 189 2 303 Indiana............... 1 126 -- -- -- -- 1 126 Kansas................ 1 126 -- -- -- -- 1 126 Kentucky.............. 1 126 -- -- -- -- 1 126 Maryland.............. -- -- -- -- 2 609 2 609 Nevada................ 1 201 -- -- -- -- 1 201 New Jersey............ 11 1,691 10 2,021 4 559 25 4,271 New York.............. 4 577 1 99 4 361 9 1,037 Ohio.................. 3 380 -- -- -- -- 3 380 Oregon................ 1 161 -- -- -- -- 1 161 Pennsylvania.......... 1 280 3 422 1 90 5 792 Tennessee............. 2 251 -- -- -- -- 2 251 Virginia.............. 1 106 -- -- 2 198 3 304 Virgin Islands........ 1 517 -- -- -- -- 1 517 -- ----- -- ----- -- ----- -- ------ Total....... 49 7,052 17 2,937 20 2,628 86 12,617 ===== ===== ===== ===== ===== ===== ===== ======
- --------------- (1) Of the 49 Owned Hotels, nine are leased. The leases covering the Company's leased hotels provide for fixed lease rents and, in most instances, additional percentage rents based on a percentage of room revenues. The leases also generally require the Company to pay the cost of repairs, insurance and real estate taxes. In addition, some of the Company's Owned Hotels are located on land subject to long-term leases, generally for terms in excess of the depreciable lives of the improvements. (2) Seventeen Managed Hotels in which the Company holds a mortgage or profit participation on the property. 31 33 The following table sets forth for the five years ended December 31, 1994, annual operating data for the 49 hotels in the Company's portfolio as of December 31, 1994. Operating data for the hotels built or acquired during the five-year period are presented from the date such hotel commenced operations or became an Owned Hotel. For purposes of showing operating trends, the results of six hotels that were managed by the Company prior to their acquisition by the Company during the five-year period are presented as if they had been owned by the Company since the Company began managing the hotels.
MANAGED WITH FINANCIAL OWNED INTEREST OTHER MANAGED TOTAL --------------------------- --------------------------- --------------------------- ------------------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------ 1990...... 33 5,013 16 2,710 17 2,235 66 9,958 1991...... 34 5,143 17 2,957 17 2,234 68 10,334 1992...... 37 5,476 17 2,951 17 2,236 71 10,663 1993...... 42 6,116 17 2,946 18 2,347 77 11,409 1994...... 49 7,052 17 2,937 20 2,628 86 12,617
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------ 1990...... 64.0% $69.99 $44.81 72.6% $58.39 $42.38 68.2% $59.77 $40.78 67.5% $63.88 $43.14 1991...... 64.7 64.45 41.70 64.2 57.95 37.19 65.7 59.79 39.31 64.8 61.61 39.91 1992...... 66.4 64.70 42.97 69.5 60.04 41.75 69.3 59.52 41.24 67.9 62.23 42.26 1993...... 70.3 66.66 46.88 70.8 61.68 43.68 72.5 60.19 43.61 70.9 63.95 45.34 1994...... 68.4 68.80 47.04 70.4 65.96 46.44 72.1 61.88 44.60 69.7 66.51 46.35
Full-Service Hotels The Company currently operates 32 full-service hotels under franchise agreements with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne Plaza), Ramada and Howard Johnson. The full-service hotels are concentrated in the Northeast region of the United States. The hotels are generally positioned along major highways within close proximity to corporate headquarters, office parks, airports, convention or trade centers and other major facilities. The customer base for full-service hotels consists primarily of business travelers and tourists. Consequently, the Company's sales force markets to companies which have a significant number of employees travelling in the Company's operating regions who consistently produce a high volume demand for hotel room nights. In addition, the Company's sales force actively markets meeting and banquet services to groups and individuals for seminars, business meetings, holiday parties and weddings. The Company owns and operates one resort hotel, the Frenchman's Reef in St. Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517-room resort hotel which includes a 421-room eight-story building and 96 rooms in the adjacent Morningstar Beach Resort. The Frenchman's Reef has seven restaurants, extensive convention facilities, complete sports and beach facilities and a self-contained total energy and desalinization system. The Frenchman's Reef is marketed directly through its own sales force in New York City and at the hotel, and through the Marriott reservation system. The Frenchman's Reef markets primarily to tour groups, corporate meetings, conventions and individual vacationers. The full-service hotels generally have between 150 and 300 rooms, pool, restaurant, lounge, banquet and meeting facilities. Other amenities include fitness rooms, room service, remote-control cable television and facsimile services. In order to enhance guest satisfaction, the Company has recently introduced or expanded theme concept lounges such as sports bars, fifties clubs and country and western bars in a number of its hotels. In recent years, the Company has received recognition from various franchisors and associations for its hotel quality and service. 32 34 The following table sets forth for the five years ended December 31, 1994, annual operating data for the 32 full-service hotels in the Company's portfolio as of December 31, 1994. Operating data for the hotels built or acquired during the five-year period are presented from the date such hotel commenced operations. For purposes of showing operating trends, the results of six hotels that were managed by the Company prior to their acquisition by the Company during the five-year period are presented as if they had been owned by the Company since the Company began managing the hotels.
MANAGED WITH FINANCIAL OWNED INTEREST OTHER MANAGED TOTAL --------------------------- --------------------------- --------------------------- ------------------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------ 1990...... 15 3,032 10 2,079 4 992 29 6,103 1991...... 15 3,032 11 2,327 4 992 30 6,351 1992...... 15 3,017 11 2,322 4 995 30 6,334 1993...... 15 3,015 11 2,317 5 1,110 31 6,442 1994...... 16 3,300 11 2,310 5 1,109 32 6,719
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------- ------ --------- ------- ------ --------- ------- ------ --------- ------- ------ 1990...... 61.8% $ 84.41 $52.16 71.6% $ 61.72 $44.17 60.5% $ 84.77 $51.27 65.1% $ 75.55 $49.16 1991...... 63.0 77.76 48.96 62.4 60.81 37.95 61.6 82.44 58.74 62.5 72.55 45.37 1992...... 64.2 79.27 50.89 68.8 62.99 43.30 66.1 82.83 54.81 66.2 73.63 48.72 1993...... 69.8 83.02 57.94 69.7 64.86 45.22 67.2 84.09 56.47 69.4 76.51 53.06 1994...... 67.7 88.33 59.77 70.0 69.79 48.85 69.3 86.69 60.08 68.8 81.26 55.90
The Company believes opportunities exist for acquisitions of full-service hotels at attractive multiples of cash flow or at significant discounts to replacement values. During 1994, the Company acquired the 183-room Ramada Inn in Clifton, New Jersey, the 280-room Ramada Inn in Trevose, Pennsylvania, which the Company has since converted to a Radisson, the 340-room Sheraton in Hasbrouck Heights, New Jersey and the 225-room Sheraton hotel in Mahwah, New Jersey. In addition, the Company obtained ownership of the 517-room Frenchman's Reef hotel through a note receivable settlement in 1994. The Company currently plans to pursue the acquisition of additional full-service hotels in 1995. With a continued outlook for limited new room supply, steady demand growth and acquisition prices at discounts to replacement cost in the full-service segment, Prime believes that the acquisition of full-service hotels will continue to provide significant growth opportunities. The majority of the Company's repositioning efforts have been performed at the full-service hotels. During 1993 and 1994, the Company successfully completed the repositioning of nine of its full-service hotels which included changing the franchise affiliations of four such hotels. The Company is in the process of repositioning two additional full-service hotels, including an $8.5 million project to reposition the recently acquired Hasbrouck Heights Sheraton. All-Suites Hotels The Company currently owns 12 AmeriSuites hotels, which are positioned in the all-suites segment of the lodging industry. AmeriSuites hotels offer guests an attractively designed suite unit with a complimentary continental breakfast in a spacious lobby cafe, remote-control cable television and facsimile/computer service. AmeriSuites is a limited-service concept which offers group meeting space, but does not include restaurant or lounge facilities. AmeriSuites attract customers who typically stay in mid-market limited-service and full-service hotels principally because of the quality of the guest suites, which offer distinct living, sleeping and kitchen areas. AmeriSuites contain approximately 125 suites and two to four meeting rooms. AmeriSuites are 33 35 primarily located near corporate office parks and travel destinations in the Southern and Central parts of the United States. The target customer is primarily the business traveler with an average length of stay of two to three nights. AmeriSuites are marketed on a local level primarily through direct sales and use the ShoLodge reservation system. In February 1995, the Company entered into the agreements pertaining to the ShoLodge Transaction, pursuant to which the Company will acquire the option of ShoLodge to purchase a 50% interest in 11 of the Company's 12 AmeriSuites hotels. As part of this transaction, the Company will also acquire the only remaining AmeriSuites not already owned by Prime, thereby establishing Prime's exclusive control over the AmeriSuites brand. The following table sets forth for the five years ended December 31, 1994, certain data with respect to AmeriSuites hotels owned by the Company.
YEAR ENDED DECEMBER 31, HOTELS ROOMS OCCUPANCY ADR REVPAR - --------------------------------------- ------ ----- --------- ------ ------ 1990................................. 3 367 37.9% $60.23 $22.81 1991................................. 4 497 48.5% 55.33 26.83 1992................................. 6 749 60.0% 54.99 32.97 1993................................. 8 993 64.1% 56.21 36.01 1994................................. 12 1,497 65.9% 59.90 39.50
The Company believes that the all-suites segment will continue to be a high growth segment of the industry. For 1994, REVPAR for the all-suites segment grew by 7.8%. The REVPAR growth at the Company's AmeriSuite hotels exceeded this favorable industry trend. For the six owned AmeriSuites hotels which were opened for all of 1993 and 1994, REVPAR increased by 13.1% in 1994 resulting in a 19.3% increase in operating income. The Company plans to develop the AmeriSuites brand through new construction. All of the AmeriSuites were constructed within the past five years. The Company has historically built AmeriSuites at a cost of approximately $50,000 per room. AmeriSuites have a low cost structure and have generally had stabilization periods of 24 to 36 months after opening. During 1994, the Company opened four newly constructed AmeriSuites hotels in Overland Park, Kansas, Columbus, Ohio, Tampa, Florida, and Louisville, Kentucky. The Company has begun developing or has plans to develop AmeriSuites on sites it currently owns in Atlanta, Greensboro, Miami, Baltimore, Detroit and Cleveland areas and has entered into a contract to purchase an additional AmeriSuites site in the Dallas area. The Company currently plans to open or commence construction on 10 new AmeriSuites hotels in 1995 and has already begun construction at the Atlanta, Greensboro and Miami sites. Limited-Service Hotels The Company's limited service hotels consist of 30 Wellesley Inns and 12 other hotels operated under franchise agreements primarily with Howard Johnson. Of the Company's 30 Wellesley Inns, 16 are located in Florida and the remainder in the Middle Atlantic and Northeast United States. The Company owns and operates 14 Wellesley Inns and manages 16 Wellesley Inns for independent owners. Of the Company-owned Wellesley Inns, ten are located in Florida and four are located in the Middle Atlantic and the Northeast. The Company has developed separate strategies for the Wellesley Inns located in Florida and the Wellesley Inns outside of Florida. In Florida, where the population has grown rapidly and development opportunities continue to exist, it has built a geographically concentrated group of Wellesley Inns thereby developing brand name recognition in Florida. In 1994, the Florida Wellesley Inns average occupancy was approximately 84.7% and gross operating profits averaged over 51% of hotel revenues. The prototypical Florida Wellesley Inn has 105 34 36 rooms and is distinguished by its classic stucco exterior, spacious lobby and amenities such as continental breakfast, remote control cable television and facsimile services. The Florida properties are operated through the Company's Florida regional office. Marketing efforts rely heavily on direct marketing and billboard advertising. In the Middle Atlantic and Northeast where the Company believes new development opportunities are limited, the Company has focused on building the Wellesley Inns system through acquisition and conversion of existing properties. In 1994, the Wellesley Inns outside of Florida had an average occupancy of 71.1% and average gross operating profits of 46.6%. The Company's other limited-service hotels have an average of between 100 and 120 rooms and offer complimentary continental breakfast, remote control cable television, pool facilities and facsimile services, generally with restaurant facilities within a short distance of the hotel. They are designed to appeal primarily to business travelers. The following table sets forth for the five years ended December 31, 1994, annual operating data for the 42 limited-service hotels in the Company's portfolio as of December 31, 1994.
MANAGED WITH FINANCIAL OWNED INTEREST OTHER MANAGED TOTAL --------------------------- --------------------------- --------------------------- ------------------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------ 1990...... 15 1,614 13 1,243 6 631 34 3,488 1991...... 15 1,614 13 1,242 6 630 34 3,486 1992...... 16 1,710 13 1,241 6 629 35 3,580 1993...... 19 2,108 13 1,237 6 629 38 3,974 1994...... 21 2,255 15 1,519 6 627 42 4,401
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------ 1990...... 71.7% $45.82 $32.87 74.3% $43.97 $32.65 76.0% $48.03 $36.49 73.5% $45.55 $33.49 1991...... 71.9 44.03 31.66 69.1 43.68 30.18 70.2 49.17 34.54 70.6 44.83 31.65 1992...... 73.2 44.12 32.31 71.8 42.29 30.35 72.4 49.71 36.01 72.6 44.48 32.28 1993...... 74.3 45.15 33.55 76.8 43.20 33.16 74.8 50.80 38.02 75.2 45.45 34.19 1994...... 70.7 47.08 33.28 74.1 44.94 33.30 72.0 52.26 37.61 72.1 47.06 33.92
The majority of the Florida Wellesley Inns were constructed within the past five years. The Company historically has constructed these properties at a cost of approximately $40,000 per room, depending on land costs. Florida Wellesley Inns have a low cost structure and have had rapid stabilization periods generally within six to twelve months of opening. During 1994, the Company completed construction of Wellesley Inns in Fort Lauderdale and Lakeland, Florida and converted a Howard Johnson's hotel in Penns Grove, New Jersey to a Wellesley Inn. REFURBISHMENT PROGRAM The Company continuously refurbishes its Owned Hotels in order to maintain consistent quality standards. The Company generally spends approximately 4% to 6% of hotel revenue on capital improvements at its Owned Hotels and typically refurbishes each hotel approximately every five years. The Company believes that its Owned Hotels are in generally good physical condition, with over half of the Owned Hotels being five years old or less. The Company recommends the refurbishment and repair projects on its Managed Hotels although spending amounts vary based on the financial strength of the hotel and its owner and the significance of the Company's interest as a mortgagee. 35 37 In addition to making normal capital improvements, the Company reviews on an on-going basis each hotel's competitive position in the local market in order to decide the types of product that will best meet the market's demand characteristics. During the past two years, the Company has implemented a program of repositioning its Owned Hotels. Repositioning a hotel generally requires renovation and refurbishment of the exterior and interior of the building and may result in a change of brand name. In 1993 and 1994, the Company spent $2.8 million and $8.9 million on the repositioning of 12 of its Owned Hotels, which included changing the franchise affiliation of six of such hotels. While the major refurbishment efforts at the Company's existing hotels have substantially been completed, the Company's future refurbishing spending will focus on newly acquired hotels. During 1995, the Company currently plans to spend approximately $10.8 million to reposition or refurbish recently acquired hotels. MORTGAGES AND NOTES RECEIVABLE As of December 31, 1994, mortgages and notes receivable totalled $83.2 million (including current portion) and consisted of an aggregate principal amount of $60.6 million of mortgages and notes secured by Owned and Managed Hotels and $22.6 million of other mortgages and notes secured primarily by other hotels. The Company has pursued a strategy of converting its mortgage and notes receivable into cash or operating hotel assets. Since July 31, 1992, the Company has received $98.5 million in cash and added seven operating hotel assets through note settlements and lease terminations. During 1994, the Company reduced its long-term mortgage and notes receivable portfolio by $81.8 million to $81.3 million at December 31, 1994. This reduction is primarily attributable to the settlement of the Rose and Cohen note receivable, which carried a book value of $25.0 million, for $31.2 million in cash, and the conversion of the Company's mortgage note receivable secured by the Frenchman's Reef with a book value of $50.0 million into an operating hotel asset. The Company will continue to pursue settlements with mortgage and note obligors and will utilize the cash for debt repayments or for general corporate purposes. The Company's mortgage notes secured by hotel properties consist of notes with a book value of $46.5 million secured primarily by mortgages on ten Managed Hotels. These notes currently bear interest at rates ranging from 8.5% to 13.5% per annum and have various maturities through 2017. The mortgages were primarily derived from the sales of hotel properties. The Company has restructured approximately $33.0 million of these mortgages and notes to receive the majority of available cash flow and a participation in the future excess cash flow of such hotel properties. The restructurings generally include senior mandatory- payment notes and junior notes payable annually based on cash flow. The Company believes that these senior, mandatory-payment notes generally do not exceed the current realizable value of the hotels they encumber. However, the Company believes that, taken together, the restructured senior and junior mortgage notes often exceed the value of the properties they encumber. As a result, these junior notes bear many of the characteristics and risks of operating hotel equity investments and are not reflected on the Company's balance sheet. See "Management's Discussion and Analysis of Financial Condition and Results of Operations --Liquidity and Capital Resources." In addition to the mortgage positions referred to above, the Company also holds the junior, accruing or cash flow notes and other interests on other properties managed by the Company. With regard to these properties, third parties generally hold significant senior mortgages. Because there is substantial doubt that the Company will recover any of the value on its junior notes, none of these subordinated financial interests are valued on the Company's balance sheet. In 1994, the Company recognized $15.9 million of interest on mortgages and notes receivable. Approximately $4.6 million, or 28.9%, of the 1994 interest was derived from the Company's note receivable secured by the Frenchman's Reef which was converted into an equity ownership position in December 1994. Approximately $2.0 million or 12.6% of 1994 interest was derived from the junior notes which are not valued on the Company's balance sheet. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 36 38 In addition to mortgages and notes receivable, as of December 31, 1994, the Company had other assets that totalled $16.9 million, which consisted of real property not related to Owned Hotels (approximately $8.0 million of which consisted of an office building). MANAGEMENT AGREEMENTS The Company provides hotel management services to third party hotel owners of 37 Managed Hotels including 16 Wellesley Inns for which the Company provides the brand name. The number of Managed Hotels declined during 1994 due to the sale of ten hotels by independent owners, four of which were acquired by the Company. Management fees are derived from the Managed Hotels based on fixed percentages of the property's total revenues and performance related incentive payments based on certain measures of hotel income. Additional fees are also generated from the rendering of specific services such as accounting services, construction services, design services and sales commissions. The Company's fixed management fee percentages range from 1.0% to 5.0% and average 3.5% of the Managed Hotel's total revenues before giving consideration to performance related incentive payments. The base and incentive fees comprised approximately 59%, or $5.9 million, of the total management and other fees in 1994. Terms of the management agreements vary but the majority are short-term and, therefore, there are risks associated with termination of these agreements. Furthermore, management agreements may be terminated in connection with a change in ownership of the underlying hotels. Although such risks may be limited due to the Company's role as lender or provider of the Wellesley Inn brand name, 18 of the Managed Hotels, including the 16 Wellesley Inns referenced above, are highly leveraged with debt maturing in December 1995. There can be no assurance that such debt can be repaid or restructured by the third party hotel owners in a manner that would permit the Company to continue as manager of such properties. The Company holds financial interests in the form of mortgages or profit participations in 17 of the 37 Managed Hotels and other interests and control rights (primarily brand control) in 13 of the remaining 20 Managed Hotels. OPERATIONS As a leading domestic hotel operating company, the Company enjoys a number of operating advantages over other lodging companies. With 86 hotels covering a number of price points and broad geographic regions, the Company possesses the critical mass to support sophisticated operating, marketing and financial systems. The Company believes that its broad array of central services permits on-site hotel general managers to effectively focus on providing guest services, results in economies of scale and leads to above-market hotel profit margins. As a result of these operating strategies, the Company's hotels generated average operating profit margins that exceeded comparable industry averages for 1993, as reported by industry sources, by approximately 25% for full-service hotels, approximately 21% for all-suites hotels and approximately 6% for limited-service hotels. The Company's operating strategy combines operating service and guidance from its central management team, with decentralized decision-making authority delegated to each hotel's on-site management. The on-site hotel management teams focus on providing guest services and consist of a general manager and, depending on the hotel's size and market positioning, managers of sales and marketing, food and beverage, front desk services, housekeeping and engineering. The Company's operating objective is to exceed guest expectations by providing quality services and comfortable accommodations at the lowest cost consistent with each hotel's market position. On-site hotel management is responsible for efficient expense controls and uses operating standards provided by the Company. Within parameters established in the operating and capital planning process, on-site management possesses broad decision-making authority on operating issues such as guest services, marketing strategies, hiring practices and incentive programs. Each hotel's management team is empowered to take all necessary steps to ensure guest satisfaction within established guidelines. Key on-site personnel participate in an incentive program based on hotel revenues and profits. 37 39 The central management team, located in Fairfield, New Jersey, provides four major categories of services: (i) operations management, (ii) sales and marketing management, (iii) financial reporting and control and (iv) hotel support services. Operations Management. Operations management consists of the development, implementation and monitoring of hotel operating standards and is provided by a network of regional operating officers who are each responsible for the operations of 10 to 15 hotels. They are supported by training, food and beverage and human resources departments, each staffed full-time by specialized professionals. The cornerstone of operations management is employee training, with a staff of professionals dedicated to training in sales, housekeeping, food service, front desk services and leadership. The Company believes these efforts increase employee effectiveness, reduce turnover and improve the level of guest services. The Company's cost-effective centralized management services benefit not only its existing operations but also provide additional opportunities for growth and development from acquisitions. In all of the recently acquired hotels, the Company's headquarters have assumed certain of the operational responsibilities which previously had been performed by the on-site hotel management. In addition, the Company believes it has improved operating efficiencies for each of these hotels that it has acquired. Sales and Marketing Management. Aggressive sales and marketing is a top operating priority. Sales and marketing management is directed by a corporate staff of 20 professionals, including regional marketing directors who are responsible for each hotel's sales and marketing strategies, and the Company's 12-member national sales group, Market Segments, Inc. ("MSI"). In cooperation with the regional marketing and organization staff, on-site sales management develops and implements short- and intermediate-term marketing plans. The Company focuses on yield management techniques, which optimize the relationship between hotel rates and occupancies and seek to maximize profitability. In addition, the Company assumes prominent roles in franchise marketing associations to obtain maximum benefit from franchise affiliations. The Company's in-house creative department creates hotel advertising materials and programs at cost-effective rates. Complementing regional and on-site marketing efforts, MSI's marketing team targets specific hotel room demand generators including tour operators, major national corporate accounts, athletic teams, religious groups and others with segment-specialized sales initiatives. MSI's primary objective is to book hotel rooms at the Company's hotels and its secondary objective is to market its services on a commission basis to major operators throughout the industry. Sales activities on behalf of non-affiliated hotels increase the number of hotels where bookings can be made to support marketing efforts and defray the costs of the marketing organization. Financial Reporting and Control. The Company's system of centralized financial reporting and control permits management to closely monitor decentralized hotel operations without the cost of financial personnel on site. Centralized accounting personnel produce detailed financial and operating reports for each hotel. Additionally, central management directs budgeting and analysis, processes payroll, handles accounts payable, manages each hotel's cash, oversees credit and collection activities and conducts on-site hotel audits. Hotel Support Services. The Company's hotel support services combine a number of technical functions in central, specialized management teams to attain economies of scale and minimize costs. Central management handles purchasing, directs construction and maintenance and provides design services. Technical staff teams support each hotel's information and communication systems needs. Additionally, the Company directs safety/risk management activities and provides central legal services. 38 40 FRANCHISE AGREEMENTS The Company enters into non-exclusive franchise licensing agreements with various franchisors, which agreements typically have a ten year term and allow the Company to benefit from franchise brand recognition and loyalty. The non-exclusive nature of the franchise agreement allows the Company the flexibility to continue to develop properties with the brands that have shown success in the past or to develop in conjunction with other brand names. This flexibility also plays an important role in the Company's repositioning strategy for continued earnings growth which emphasizes proper positioning of its properties within these respective markets to maximize their return on investment. Over the past two years, the Company has repositioned several hotels that were either owned or managed or recently acquired. These repositionings include the Portland, Oregon Crowne Plaza (formerly Howard Johnson), the Las Vegas, Nevada Crowne Plaza (formerly Howard Johnson), the Saratoga Springs, New York Sheraton (formerly Ramada Renaissance), the Fairfield, New Jersey Radisson (formerly Sheraton), the Orlando, Florida Shoney's Inn (formerly Howard Johnson), and the Trevose, Pennsylvania Radisson (formerly Ramada). The Company believes its relationships with numerous nationally recognized franchisors provides significant benefits for both its existing hotel portfolio and prospective hotel acquisitions. While the Company currently enjoys good relationships with its franchisors, there can be no assurance that a desirable replacement would be available if any of the franchise agreements were to be terminated. The franchise agreements require the Company to pay annual fees, to maintain certain standards and to implement certain programs which require additional expenditures by the Company such as remodeling or redecorating. The payment of annual fees, which typically total 7% to 8% of room revenues, cover royalty fees and the costs of marketing and reservation services provided by the franchisors. The use of franchisor reservation systems typically result in increased occupancy. Franchise agreements, when initiated, generally provide for an initial fee in addition to annual fees payable to the franchisor. 39 41 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the names, ages and positions of the directors and executive officers of the Company:
NAME AGE POSITION - ------------------------------------------- ---- -------------------------------------------- David A. Simon............................. 42 President, Chief Executive Officer and Chairman of the Board of Directors John M. Elwood............................. 40 Executive Vice President, Chief Financial Officer and Director Howard M. Lorber(1)........................ 46 Director Herbert Lust, II(1)........................ 66 Director Jack H. Nusbaum............................ 54 Director Allen J. Ostroff(1)........................ 58 Director A.F. Petrocelli(1)......................... 50 Director Paul H. Hower.............................. 60 Executive Vice President Timothy E. Aho............................. 51 Senior Vice President/Development Denis W. Driscoll.......................... 50 Senior Vice President/Human Resources John H. Leavitt............................ 41 Senior Vice President/Sales and Marketing Joseph Bernadino........................... 48 Senior Vice President, Secretary and General Counsel Richard T. Szymanski....................... 37 Vice President and Corporate Controller Douglas W. Vicari.......................... 35 Vice President and Treasurer
- --------------- (1) Member of the Compensation and Audit Committee. The following is a biographical summary of the experience of the directors and executive officers of the Company: David A. Simon has been President, Chief Executive Officer and a Director since 1992 and Chairman of the Board of Directors of the Company since 1993. Mr. Simon was a director of PMI from 1990 to 1992. Mr. Simon was the Chief Executive Officer of PMI from 1990 to 1992 and was an executive officer in September 1990 when PMI filed for protection under chapter 11 of the United States Bankruptcy Code. John M. Elwood has been a Director and Executive Vice President of the Company since 1992 and Chief Financial Officer since 1993. Mr. Elwood was the Director of Reorganization of PMI from September 1990, when PMI filed for protection under chapter 11 of the United States Bankruptcy Code, through the Effective Date, and during 1990 was the Director of Reorganization of Allegheny International, Inc. prior to its emergence from chapter 11 bankruptcy protection that year. Howard M. Lorber has been a Director and a member of the Compensation and Audit Committee since 1994. Mr. Lorber is Chairman of the Board of Directors of Nathan's Famous, Inc., Hallman & Lorber, Inc. and Skybox International, Inc., and a director of New Valley Corporation, United Capital Corp. and Alpine Lace Brands, Inc. Mr. Lorber has been Chief Executive Officer of Hallman & Lorber, Inc. for more than the past five years, President and Chief Operating Officer of New Valley Corporation since 1994, and Chief Executive Officer of Nathan's Famous, Inc. since 1993. Mr. Lorber has also been a general partner or shareholder of a corporate general partner of various limited partnerships organized to acquire and operate real estate properties. Several of these partnerships filed for protection under the federal bankruptcy laws in 1990 and 1991. Herbert Lust, II has been a Director since 1992 and Chairman of the Compensation and Audit Committee of the Company since 1993. Mr. Lust was a member of the Committee of Unsecured Creditors of PMI from 1990 to 1992. Mr. Lust has been a private investor and President of Private Water Supply Inc. for more than the past five years. Mr. Lust is a director of BRT Realty Trust. 40 42 Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum has been a senior partner and Co-Chairman of the law firm of Willkie Farr & Gallagher for more than the past five years. He also is a director of W.R. Berkley Corporation, The Topps Company, Inc., GEV Corporation, Signet Star Holdings, Inc., Republic New York Securities Corporation, and a director and a member of the Executive Committee of the New York City Economic Development Corporation. Allen J. Ostroff has been a Director since 1992 and a member of the Compensation and Audit Committee since 1993. Mr. Ostroff has been a Senior Vice President of the Prudential Realty Group, a subsidiary of the Prudential Insurance Company of America, for more than the last five years. A.F. Petrocelli has been a Director since 1992 and a member of the Compensation and Audit Committee since 1993. Mr. Petrocelli has been the Chairman of the Board of Directors and Chief Executive Officer of United Capital Corp. for more than the past five years. Paul H. Hower has been an Executive Vice President of the Company since 1993. Mr. Hower was President of Integrity Hospitality Services from 1992 to 1993 and Vice President and Hotel Division Manager of B.F. Saul Co. from 1990 to 1991. Timothy E. Aho has been a Senior Vice President of the Company since 1994. Mr. Aho was a Senior Vice President of Development for Boykin Management Company from 1993 to 1994 and Vice President of Development for Interstate Hotels Corporation from 1990 to 1993. Denis W. Driscoll has been a Senior Vice President of the Company since 1993. Mr. Driscoll was President of Driscoll Associates, a human resources consulting organization, from 1990 to 1993. John H. Leavitt has been a Senior Vice President of the Company since 1992. Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a Senior Vice President of Medallion Hotel corporation from 1990 to 1991. Joseph Bernadino has been Senior Vice President, Secretary and General Counsel of the Company since 1992. Mr. Bernadino was an Assistant Secretary and Assistant General Counsel of PMI from 1990 to 1992 and held such position when PMI filed for chapter 11 bankrupcty protection. Richard T. Szymanski has been a Vice President and Corporate Controller of the Company since 1992. Mr. Szymanski was Corporate Controller of PMI from 1990 to 1992 and held such position when PMI filed for chapter 11 bankrupcty protection. Douglas W. Vicari has been a Vice President and Treasurer of the Company since 1992 and was Vice President and Treasurer of PMI during 1992. Mr. Vicari was the Director of Budget and Financial Analysis of PMI from 1990 to 1992 and held such position when PMI filed for chapter 11 bankrupcty protection. 41 43 DESCRIPTION OF NOTES The Notes are to be issued under an Indenture, to be dated as of April , 1995 (the "Indenture"), between the Company and Bank One, Columbus, N.A., as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this prospectus is a part. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms. References in italics are to the Indenture. Wherever particular Sections, Articles or defined terms of the Indenture are referred to, such Sections, Articles or defined terms are incorporated herein by reference. As used in this "Description of Notes," the "Company" refers to Prime Hospitality Corp. and does not include its subsidiaries. GENERAL The Notes will be unsecured subordinated obligations of the Company, will be limited to an aggregate principal amount of $75,000,000 (subject to increase in the event of the exercise of the Underwriters' over-allotment option) and will mature on April 15, 2002. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of initial issuance, or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on April 15 and October 15 of each year, commencing October 15, 1995, to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the Regular Record Date for such interest, which shall be April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Interest on the Notes will be paid on the basis of a 360-day year of twelve 30-day months. (Sections 3.1, 3.7 and 3.10) Principal of and premium, if any, and interest on the Notes will be payable, and the transfer of Notes will be registrable, at the office or agency of the Company maintained for such purposes in the Borough of Manhattan, The City of New York, and the Corporate Trust Office of the Trustee located in Columbus, Ohio. In addition, payment of interest may, at the option of the Company, be made by check mailed to the address of the Person entitled thereto as it appears in the Notes Register. (Sections 3.1, 3.5 and 10.2) The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiples thereof. (Section 3.2) No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company is not required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption and ending at the close of business on the date of such mailing, or (ii) to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part. (Section 3.5) All monies paid by the Company to the Trustee or any Paying Agent for the payment of principal of and premium, if any, and interest on any Note which remain unclaimed for two years after such principal, premium or interest becomes due and payable may be repaid to the Company. Thereafter, the Holder of such Note may, as an unsecured general creditor, look only to the Company for payment thereof. (Section 10.3) The Indenture does not contain any provisions that would provide protection to Holders of the Notes against a sudden and dramatic decline in credit quality of the Company resulting from any takeover, recapitalization or similar restructuring, except as described below under "Repurchase at Option of Holders Upon a Risk Event." CONVERSION RIGHTS The Notes will be convertible into Common Stock of the Company at any time up to and including the maturity date (subject to prior redemption by the Company on not less than 15 nor more than 60 days' notice) at the principal amount thereof, initially at the conversion price stated on the cover page of this Prospectus (subject to adjustment as described below). The right to convert Notes called for redemption or delivered for 42 44 repurchase will terminate at the close of business on the last Trading Day prior to the Redemption Date or the Repurchase Date, unless the Company defaults in making the payment due upon redemption or repurchase. (Section 13.1) For information as to notices of redemption, see "-- Optional Redemption." The conversion price will be subject to adjustment in certain events, including: (i) dividends (and other distributions) payable in Common Stock on any class of capital stock of the Company, (ii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock at less than the Current Market Price, (iii) subdivisions, combinations and reclassifications of Common Stock, (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, cash or other assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to above and excluding dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in (iv) above or cash distributed upon a merger or consolidation to which the second succeeding paragraph applies) to all holders of Common Stock in an aggregate amount that, combined together with (a) all other such all-cash distributions made within the preceding 12 months in respect to which no adjustment has been made and (b) any cash and the fair market value of other consideration paid or payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 12.5% of the Company's market capitalization (defined as being the product of the Current Market Price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution, and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that, together with (a) any cash and the fair market value of any other consideration paid or payable in any other tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (b) the aggregate amount of any such all-cash distributions referred to in (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Company's market capitalization on the expiration of such tender offer. There will be no upward adjustment in the conversion price except in the event of a reverse stock split. No adjustment in the conversion price shall be required unless such adjustment (plus any adjustments not previously made) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this sentence are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (Section 13.4) In addition to the foregoing adjustments, the Company will be permitted to make such reduction in the conversion price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend or distribution of stock or stock rights will not be taxable to the holders of the Common Stock. (Section 13.4) Subject to the rights of Holders of Notes described below under "Repurchase at Option of Holders Upon a Risk Event," in case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, each Note then outstanding would, without the consent of any Holders of Notes, become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such Note might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). (Section 13.11) Fractional shares of Common Stock will not be issued upon conversion, but, in lieu thereof, the Company will pay a cash adjustment based upon market price. (Section 13.1) Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except Notes called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive. In the case of any Note that has been converted after any Regular Record Date but on or before the next Interest Payment Date, interest whose Stated Maturity is on such Interest Payment Date will be payable on such Interest Payment Date notwithstanding such conversion, 43 45 and such interest will be paid to the Holder of such Note on such Regular Record Date. Except as described above, no interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion. (Sections 3.7 and 13.2) If at any time the Company makes a distribution of property to its shareholders that would be taxable to such shareholders as a dividend for Federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the antidilution provisions of the Indenture, the conversion price of the Notes is reduced, such reduction may be deemed to be the payment of a taxable dividend to Holders of Notes. If the Company voluntarily reduces the conversion price for a period of time, Holders of the Notes may, in certain circumstances, have taxable income equal to the value of the reduction in the conversion price. Holders of Notes could, therefore, have taxable income as a result of an event pursuant to which they received no cash or property that could be used to pay the related income tax. SUBORDINATION The payment of the principal of and premium, if any, and interest on, the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or any bankruptcy, insolvency or similar proceedings of the Company, the holders of all Senior Indebtedness will be first entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on, the Notes. In the event of the acceleration of the maturity of any Notes, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment upon the principal of or premium, if any, or interest on, the Notes. In the event and during the continuation of (i) any default in the payment of principal of or premium, if any, or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto or (ii) any other event of default with respect to any Senior Indebtedness permitting the holders of such Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, upon written notice thereof to the Company and the Trustee by any holders of Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) (the "Default Notice"), unless and until such event of default shall have been cured or waived and such acceleration shall have been rescinded or annulled, or (iii) any judicial proceeding shall be pending with respect to any such default in payment or event of default, then no payment may be made in respect of principal or premium, if any, or interest on the Notes or to acquire or repurchase the Notes for cash or property or on account of the repurchase provisions of the Indenture provided such payments may not be prevented under clause (ii) above for more than 179 days after an applicable Default Notice has been received by the Trustee unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety, in which case no such payment may be made until such acceleration has been rescinded or annulled or such Senior Indebtedness has been paid in full. No event of default which existed or was continuing on the date of any Default Notice may be made the basis for the giving of a second Default Notice and only one such Default Notice may be given in any 365 day period. (Article Twelve) By reason of such subordination, in the event of insolvency, creditors of the Company who are not holders of Senior Indebtedness or of the Notes may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the Notes. "Senior Indebtedness" is defined in the Indenture as (i) all indebtedness of the Company for money borrowed, other than the Notes, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, except any such other indebtedness that by the terms of the instrument or instruments by which such indebtedness was created or incurred expressly provides that it (a) is junior in right of payment to the Notes or (b) ranks pari passu in right of payment with the Notes, and (ii) any 44 46 amendments, renewals, extensions, deferrals, modifications, refinancings and refundings of any of the foregoing. The term "indebtedness for money borrowed" when used with respect to the Company is defined to mean (a) any obligation of the Company for the repayment of borrowed money (including, without limitation, fees, penalties, expenses, collection expenses, interest yield amounts and other obligations in respect thereof, and, to the extent permitted by applicable law, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code whether or not allowed as a claim in such proceeding), whether or not evidenced by bonds, debentures, notes or other written instruments, and any other obligation evidenced by notes, bonds, debentures or similar instruments, (b) any deferred payment obligation of the Company for the payment of the purchase price of property or assets evidenced by a note or similar instrument (excluding any obligations for trade payables or constituting the deferred purchase price of assets incurred in the ordinary course of business), (c) any obligation of the Company for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (d) all obligations of the Company due and payable under interest rate and currency swaps, floors, caps or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (e) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit and (f) all obligations of others of the kinds described in the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of any such obligations. (Section 1.1) The Notes will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's subsidiaries. Any right of the Company to receive assets of any such subsidiary upon the liquidation or reorganization of any such subsidiary (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. The Indenture does not prohibit or limit the incurrence of additional Senior Indebtedness. At December 31, 1994, the Company's Senior Indebtedness aggregated approximately $131.2 million, excluding accrued interest, and the Company's subsidiaries had approximately $52.6 million of indebtedness. The Company and its subsidiaries are expected to incur an additional $42.6 million in indebtedness during the first quarter of 1995, and the Company and its subsidiaries expect from time to time to incur additional indebtedness, including Senior Indebtedness. OPTIONAL REDEMPTION The Notes will be redeemable at the Company's option, in whole or from time to time in part, upon not less than 15 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Security Register, on any date on or after April 17, 1998 and prior to maturity. The Redemption Prices (expressed as percentage of principal amount) are as follows for the 12-month period beginning April 15 (or April 17, in the case of 1998) of the years indicated:
1998............................................... % 1999............................................... 2000............................................... 2001...............................................
and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) (Sections 2.3, 11.1, 11.5, and 11.7). No sinking fund is provided for the Notes. 45 47 EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (i) failure to pay principal of or premium, if any, on any Note when due, whether or not such payment is prohibited by the subordination provisions of the Indenture; (ii) failure to pay any interest on any Note when due, continued for 30 days, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iii) default in the payment of the Repurchase Price in respect of any Note on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iv) failure to perform any other covenant of the Company in the Indenture, continued for 60 days after written notice as provided in the Indenture; (v) a default under any indebtedness for money borrowed by the Company or any Significant Subsidiary in an amount, together with all other such indebtedness, exceeding $5,000,000, which default (a) shall constitute a failure to pay any principal or interest with respect to any such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto or (b) shall have resulted in such indebtedness in an amount exceeding $5,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, if such indebtedness is not discharged, or such acceleration is not annulled, within 10 days after written notice as provided in the Indenture; (vi) a final judgment or final judgments for payment of money against the Company or any Significant Subsidiary which remains undischarged for a period of 60 days, provided that the aggregate of all such outstanding judgments exceeds $5,000,000 (excluding any amounts covered by insurance as to which the insurer has not denied liability); and (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. (Section 5.1) Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 6.3) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 5.12) If any Event of Default shall occur and be continuing, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. (Sections 5.2 and 5.13) For information as to waiver of defaults, see "Modification and Waiver" below. No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously (i) given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings, (ii) such Holder has offered to the Trustee reasonable indemnity, (iii) the Trustee for 60 days after receipt of such notice has failed to institute any such proceeding and (iv) no direction inconsistent with such request shall have been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Notes. (Section 5.7) However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of (a) payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note, (b) the right to require repurchase of such Note or (c) the right to convert such Note in accordance with the Indenture. (Section 5.8) The Indenture provides that the Company will deliver to the Trustee, within 60 days after the end of each fiscal year, an officers' certificate, stating as to each signer thereof that he or she is familiar with the affairs of the Company and whether or not to his or her knowledge the Company is in default in the performance and observance of any of the Company's obligations under the Indenture and if the Company shall be in default, specifying all such defaults of which he has knowledge and the nature and status thereof. (Section 10.4) 46 48 CONSOLIDATION, MERGER AND SALE OF ASSETS The Company, without the consent of the Holders of any of the Notes under the Indenture, may consolidate with or merge into any other Person or convey, transfer or lease its assets substantially as an entirety to any Person, provided that (i) the successor is a Person, organized under the laws of any domestic jurisdiction; (ii) the successor Person, if other than the Company, assumes the Company's obligations on the Notes and under the Indenture; (iii) after giving effect to the transaction no Event of Default, and no event which, after notice or lapse of time, would become an Event of Default, shall have occurred and be continuing; and (iv) certain other conditions are met. (Section 8.1 and 8.2) MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Note affected thereby, (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note; (ii) reduce the principal amount of, or the premium or interest on, any Note; (iii) change the place of payment where, or currency in which, any Note or any premium or interest thereof is payable; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any Note; (v) adversely affect the right to convert the Notes; (vi) adversely affect the right to cause the Company to repurchase the Notes; (vii) modify the subordination provisions in a manner adverse to the Holders of the Notes; (viii) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture; or (ix) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. (Section 9.2) The Holders of a majority in aggregate principal amount of Outstanding Notes may waive compliance by the Company of certain restrictive provisions of the Indenture. (Section 10.08) The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive any past default or right under the Indenture, except (i) a default in payment of principal, premium or interest, (ii) the right of a Holder to redeem or convert the Note or (iii) with respect to any covenant or provision of the Indenture that requires the consent of the Holder of each Outstanding Note affected. (Section 5.13) REPURCHASE AT OPTION OF HOLDERS UPON A RISK EVENT The Indenture provides that if a Risk Event (as defined below) occurs, each Holder of Notes shall have the right, at the Holder's option, to require the Company to repurchase all of such Holder's Notes, or any portion thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 calendar days after the date of the Company Notice (as defined below), for cash at a price equal to 100% of the principal amount of such Notes to be repurchased (the "Repurchase Price"), together with accrued interest to the Repurchase Date. (Section 14.1) Within 15 calendar days after the occurrence of a Risk Event, the Company is obligated to mail to all Holders of record of the Notes a notice (the "Company Notice") of the occurrence of such Risk Event and of the repurchase right arising as a result thereof. The Company must deliver a copy of the Company Notice to the Trustee and cause a copy or a summary of such notice to be published in a newspaper of general circulation in The City of New York. To exercise the repurchase right, a Holder of such Notes must deliver on or before the fifth day preceding the Repurchase Date irrevocable written notice to the Trustee of the Holder's exercise of such right (except that the right of the Holders to convert such Notes shall continue until the close of business on the last Trading Day preceding the Repurchase Date), together with the Notes with respect to which the right is being exercised, duly endorsed for transfer to the Company. (Section 14.2) A Risk Event will be deemed to have occurred at such time as: (i) any Person (including any syndicate or group deemed to be a "Person" under Section 13(d)(3) of the Exchange Act, other than the Company, any subsidiary of the Company or any current or future employee or director benefit plan of the Company or any subsidiary of the Company or any entity holding 47 49 capital stock of the Company for or pursuant to the terms of such plan, or an underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company) is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (ii) the Company adopts a plan relating to the liquidation or dissolution of the Company; (iii) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sales or transfers of all or substantially all of the assets of the Company to another Person (other than a merger (a) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock or (b) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock); or (iv) a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the twelve-month period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the shareholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; provided, however, that a Risk Event shall not be deemed to have occurred if the closing price per share of the Common Stock for any five Trading Days within the period of ten consecutive Trading Days ending immediately before the Risk Event shall equal or exceed 105% of the conversion price of such Notes in effect on each such Trading Day. A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. (Section 14.3) The right to require the Company to repurchase Notes as a result of the occurrence of a Risk Event could create an event of default under Senior Indebtedness as a result of which any repurchase could, absent a waiver, be blocked by the subordination provisions of the Notes. See "Subordination" above. Failure of the Company to repurchase the Notes when required would result in an Event of Default with respect to the Notes whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the Holders of Notes upon a repurchase may be limited by certain financial covenants contained in the Company's credit agreements. Rule 13e-4 under the Exchange Act requires among other things the dissemination of certain information to security holders in the event of any issuer tender offer and may apply in the event that the repurchase option becomes available to Holders of the Notes. The Company will comply with this rule to the extent applicable at that time. The repurchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and the removal of incumbent management. The foregoing provisions would not necessarily afford Holders of the Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. Subject to the limitation on mergers and consolidations described above, the Company could, in the future, enter into certain transactions, including certain recapitalizations, the sale of all or substantially all of its assets, or the liquidation of the Company, that would not constitute a Risk Event under the Indenture, but that would increase the amount of Senior Indebtedness (or any other indebtedness) outstanding at such time or substantially reduce or eliminate the Company's assets. There are no restrictions in the Indenture on the creation of Senior Indebtedness (or any other indebtedness) and, under certain circumstances, the incurrence 48 50 of significant amounts of additional indebtedness could have an adverse effect on the Company's ability to service its indebtedness, including the Notes. If a Risk Event were to occur, no assurance can be given that the Company would have sufficient funds to repurchase all Notes tendered by the Holders thereof or to make any principal, premium, if any, or interest payment otherwise required by the Notes. As noted above, one of the events that constitutes a Risk Event under the Indenture is a sale or other transfer of all or substantially all of the assets of the Company. The Indenture will be governed by New York law, and the definition under New York law of "substantially all" of the assets of a corporation varies according to the facts and circumstances of the transaction. Accordingly, if the Company were to engage in a transaction in which it disposed of less than all of its assets, a question of interpretation could arise as to whether such disposition was of "substantially all" of its assets and whether the transaction was a Risk Event. SATISFACTION AND DISCHARGE The Company may discharge its obligations under the Indenture while Notes remain Outstanding if (i) all Outstanding Notes will become due and payable at their scheduled maturity within one year or (ii) all Outstanding Notes are scheduled for redemption within one year, and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all Outstanding Notes on the date of their scheduled maturity or the scheduled date of redemption. (Section 4.1) GOVERNING LAW The Indenture and Notes will be governed by and construed in accordance with the laws of the State of New York, without giving effect to such State's conflicts of laws principles. INFORMATION CONCERNING THE TRUSTEE Bank One, Columbus, N.A. is the Trustee under the Indenture. A successor Trustee may be appointed in accordance with the terms of the Indenture. The Trustee's duties are set forth in the Trust Indenture Act, as amended (the "Trust Indenture Act"), and in the Indenture. The Trust Indenture Act imposes certain limitations on the right of the Trustee, in the event it becomes a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect to any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, if it acquires any conflicting interest within the meaning of Section 310 of the Trust Indenture Act, it must generally either eliminate such conflict or resign. Prior to an Event of Default, the Trustee is responsible to perform only such duties as are specifically set out in the Indenture. In case an Event of Default shall occur (and shall not be cured), the Trust Indenture Act requires that the Trustee use the degree of care of a prudent person in the conduct of its own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders of Notes, unless they shall have offered to the Trustees reasonable security or indemnity. (Section 6.3) 49 51 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock. COMMON STOCK At March 8, 1995, 30,556,385 shares of Common Stock were issued and outstanding. Holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the Company's stockholders, including the election of directors. The Common Stock does not have cumulative voting rights. Subject to the preferential rights of any outstanding series of Preferred Stock, the holders of Common Stock will be entitled to such dividends as may be declared from time to time by the Board of Directors from funds legally available therefor, and will be entitled to receive pro rata all assets of the Company available for distribution to such holders upon liquidation. No shares of Common Stock have any preemptive or conversion rights, or the benefit of any sinking fund. All shares of Common Stock are fully paid and non-assessable. PREFERRED STOCK The Board of Directors has authority to establish the designations, liquidation preferences, dividend rights, terms of redemption, conversion rights, sinking fund terms and all other preferences and rights (including voting rights) of any series of Preferred Stock. The ability of the Board of Directors to issue Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting powers of holders of Common Stock and, under certain circumstances, may discourage an attempt by others to gain control of the Company. WARRANTS Warrants to purchase 2,106,383 shares of the Company's Common Stock were issued to former shareholders of the Company's predecessor, PMI, in partial settlement of their bankruptcy interests. The warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per share. The exercise price was determined from the average per share daily closing price of the Company's Common Stock during the year following the Effective Date. As of December 31, 1994, warrants to purchase 250,497 shares of Common Stock had been exercised. ANTI-TAKEOVER PROVISIONS Certain provisions of the Certificate of Incorporation and Bylaws of the Company summarized below may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including an attempt that might result in a premium over the market price for the shares held by stockholders. Staggered Board of Directors. The Certificate of Incorporation and the Bylaws provide that the Board of Directors will be divided into three classes of Directors, each class constituting approximately one-third of the total number of Directors and with the classes serving staggered three-year terms. The classification of Directors will have the effect of making it more difficult for shareholders to change the composition of the Board of Directors. The Company believes, however, that the longer time required to elect a majority of a classified Board of Directors will help to ensure continuity and stability of the Company's management and policies. The classification provisions could also have the effect of discouraging a third party from accumulating large blocks of the Company's stock or attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. Accordingly, stockholders could be deprived of certain opportunities to sell their shares of Common Stock at a higher market price than might otherwise be the case. Fair Price Provisions. Provisions of the Certificate of Incorporation (the "Fair Price Provisions") limit the ability of an Interested Stockholder (defined as the beneficial owner of 20% of outstanding voting shares) 50 52 to effect certain transactions involving the Company. Unless the Fair Price Provisions are satisfied, an Interested Stockholder may not engage in a business combination involving the Company unless approved by 75% of the Company's outstanding voting shares or a majority of the Disinterested Directors (as defined therein). A business combination includes a merger, consolidation, sale of assets valued at over $25.0 million or issuance or transfer of securities valued at over $25.0 million, or a similar transaction. In general, the Fair Price Provisions require that an Interested Shareholder pay shareholders at least the same amount of cash or the same amount and type of consideration paid by the Interested Shareholder when it initially acquired the Company's shares. The Fair Price Provisions are designed to discourage attempts to take over the Company in non-negotiated transactions utilizing two-tier pricing tactics, which typically involve the accumulation of a substantial block of the target corporation's stock followed by a merger or other reorganization of the acquired company on terms determined by the purchaser. Due to the difficulties of complying with the requirements of the Fair Price Provisions, the Fair Price Provisions generally discourage attempts to obtain control of the Company. LIMITATIONS ON DIRECTORS' LIABILITY The Company's Certificate of Incorporation provides that no director of the Company shall be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or redemptions or repurchases pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. These provisions will not limit the liability of directors under Federal securities laws. CERTAIN PROVISIONS OF DELAWARE LAW REGARDING AN INTERESTED STOCKHOLDER Section 203 of the Delaware General Corporation Law prohibits certain transactions between a Delaware corporation and an "interested stockholder," which is defined as a person who, together with any affiliates or associates of such person, beneficially owns, directly or indirectly, 15% or more of the outstanding voting shares of a Delaware corporation. This provision prohibits certain business combinations (defined broadly to include mergers, consolidations, sales or other dispositions of assets having an aggregate value in excess of 10% of the consolidated assets of the corporation, and certain transactions that would increase the interested stockholder's proportionate share ownership in the corporation) between an interested stockholder and a corporation for a period of three years after the date the interested stockholder becomes an interested stockholder, unless (i) the business combination is approved by the corporation's board of directors prior to the date the interested stockholder becomes an interested stockholder; (ii) the interested stockholder acquired at least 85% of the voting stock of the corporation (other than stock held by directors who are also officers or by certain employee stock plans) in the transaction in which it becomes an interested stockholder; or (iii) the business combination is approved by a majority of the board of directors and by the affirmative vote of 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. 51 53 UNDERWRITING The Underwriters named below have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company, the respective principal amounts of Notes set forth opposite their names below. The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the Notes are subject to certain conditions precedent, and that the Underwriters are committed to purchase all of the Notes if they purchase any of the Notes.
PRINCIPAL UNDERWRITER AMOUNT --------------------------------------------------------------- ----------- Montgomery Securities.......................................... $ Smith Barney Inc............................................... ----------- Total........................................... $75,000,000 ==========
The Underwriters have advised the Company that they propose initially to offer the Notes to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow to selected dealers a commission of not more than % of the principal amount of Notes, and the Underwriters may allow, and such dealers may reallow a discount of not more than % of the principal amount of the Notes to other dealers. The public offering price and the concession and discount to dealers may be changed by the Underwriters after the initial public offering of the Notes. The Notes are offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted the Underwriters an option for 30 days to purchase up to an additional $11,250,000 principal amount of Notes solely to cover over-allotments, if any, at the same price per Note as the initial $75,000,000 principal amount of Notes to be purchased by the Underwriters. To the extent the Underwriters exercise this option, each of the Underwriters will be committed to purchase such additional Notes in approximately the same proportion as set forth in the above table. The Underwriting Agreements provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act or will contribute to payments the Underwriters may be required to make in respect thereof. The Notes are a new issue of securities for which there is currently no public market. The Company is applying to have the Notes listed on the New York Stock Exchange. However, no assurance can be given as to the liquidity of or trading market for the Notes. Directors and executive officers of the Company, who in the aggregate own shares (including options to purchase shares) of Common Stock, have agreed not to offer for sale, sell, distribute or otherwise dispose of any shares of Common Stock, or any securities convertible into or warrants to purchase shares of Common Stock, now owned or hereafter acquired for a period of approximately 90 days after the date of this Prospectus without prior written consent of the Underwriters. LEGAL MATTERS Certain legal matters with respect to the legality of the Notes offered hereby will be passed upon for the Company by Willkie Farr & Gallagher, New York, New York. Certain legal matters relating to the Offering will be passed upon for the Underwriters by Latham & Watkins, Washington, D.C. Jack H. Nusbaum, a Director of the Company, is a partner in the law firm of Willkie Farr & Gallagher. EXPERTS The consolidated financial statements incorporated by reference in this Prospectus and elsewhere in the Registration Statement, to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP and J.H. Cohn & Company, independent public accountants, and are included herein in reliance upon the authority of said firms as experts in giving said reports. 52 54 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will file reports and other information with the Securities and Exchange Commission (the "Commission"). The reports and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates. The Company's Common Stock is listed on the New York Stock Exchange. Reports, proxy materials and other information concerning the Company may also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S-3 under the Securities Act with respect to the Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain portions of which are omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Notes, reference is made to the Registration Statement, including the exhibits and schedules. The Registration Statement, together with its exhibits and schedules thereto, may be inspected, without charge, at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20459, and also at the regional offices of the Commission listed above. Copies of such material may also be obtained from the Commission upon the payment of prescribed fees. Statements contained in the Prospectus as to any contracts, agreements or other documents filed as an exhibit to the Registration Statement are not necessarily complete, and in each instance reference is hereby made to the copy of such contract, agreement or other document filed as an exhibit to the Registration Statement for a full statement of the provisions thereof, and each such statement in the Prospectus is qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by the Company with the Commission are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended December 31, 1994; and 2. All other reports filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year ended December 31, 1994. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and before the termination of the Offering shall be deemed incorporated herein by reference, and such documents shall be deemed to be a part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement as so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, on the request of any such person, a copy of any or all of the above documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the documents that this Prospectus incorporates). Requests should be directed to Prime Hospitality Corp., 700 Route 46 East, Fairfield, New Jersey 07004, Attention: Joseph Bernadino, Senior Vice President, Secretary and General Counsel, (201) 882-1010. 53 55 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- FINANCIAL STATEMENTS: Report of Arthur Andersen LLP....................................................... F-2 Consolidated: Balance Sheets at December 31, 1993 and 1994..................................... F-3 Statements of Income for the Five Months Ended December 31, 1992 and the Years Ended December 31, 1993 and 1994................................................ F-4 Statements of Stockholders' Equity for the Five Months Ended December 31, 1992 and the Years Ended December 31, 1993 and 1994.................................. F-5 Statements of Cash Flows for the Five Months Ended December 31, 1992 and the Years Ended December 31, 1993 and 1994.......................................... F-6 Notes to Consolidated Financial Statements.......................................... F-7
F-1 56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Hospitality Corp.: We have audited the accompanying consolidated balance sheets of Prime Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as of December 31, 1994 and 1993 and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended and the five months ended December 31, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Prime Hospitality Corp. and subsidiaries as of December 31, 1994 and 1993 and the results of their operations and their cash flows for the years then ended and the five months ended December 31, 1992 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Roseland, New Jersey February 2, 1995 F-2 57 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1994 (IN THOUSANDS, EXCEPT SHARE DATA)
1993 1994 -------- -------- ASSETS Current assets: Cash and cash equivalents............................................ $ 41,569 $ 12,524 Restricted cash...................................................... 10,993 9,725 Accounts receivable, net of reserves................................. 6,266 7,819 Current portion of mortgages and notes receivable.................... 2,275 1,925 Accrued interest receivable.......................................... 3,954 1,539 Other current assets................................................. 3,145 5,657 -------- -------- Total current assets......................................... 68,202 39,189 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization........................................ 172,786 299,291 Mortgages and notes receivable, net of current portion................. 163,033 81,260 Other assets........................................................... 6,664 15,192 -------- -------- TOTAL ASSETS................................................. $410,685 $434,932 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt.............................................. $ 19,282 $ 5,284 Other current liabilities............................................ 22,445 23,904 -------- -------- Total current liabilities.................................... 41,727 29,188 Long-term debt, net of current portion................................. 168,618 178,545 Other liabilities...................................................... 28,976 23,134 -------- -------- Total liabilities............................................ 239,321 230,867 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued....................................................... -- -- Common stock, par value $.01 per share; 50,000,000 shares authorized 29,988,674 and 30,409,371 shares issued and outstanding in 1993 and 1994, respectively............................................ 300 304 Capital in excess of par value....................................... 157,507 171,774 Retained earnings.................................................... 13,557 31,987 -------- -------- Total stockholders' equity................................... 171,364 204,065 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $410,685 $434,932 ======== ========
See Accompanying Notes to Consolidated Financial Statements. F-3 58 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1992 1993 1994 ------------ ------------ ------------ Revenues: Room................................................ $ 24,639 $ 69,487 $ 88,753 Food and beverage................................... 4,598 12,270 18,090 Management and other fees........................... 5,000 10,831 10,021 Interest on mortgages and notes receivable.......... 6,335 14,765 15,867 Rental and other.................................... 762 1,507 1,572 ------------ ------------ ------------ Total revenues.............................. 41,334 108,860 134,303 ------------ ------------ ------------ Costs and expenses: Direct hotel operating expenses: Room............................................. 6,952 19,456 24,539 Food and beverage................................ 4,027 10,230 13,886 Selling and general.............................. 7,811 20,429 26,733 Occupancy and other operating....................... 4,351 11,047 11,261 General and administrative.......................... 5,929 15,685 15,089 Depreciation and amortization....................... 2,918 7,117 9,427 ------------ ------------ ------------ Total costs and expenses.................... 31,988 83,964 100,935 ------------ ------------ ------------ Operating income...................................... 9,346 24,896 33,368 Interest income on cash investments................... 693 1,267 1,966 Interest expense...................................... (7,718) (16,116) (13,993) Other income.......................................... -- 3,809 9,089 ------------ ------------ ------------ Income before income taxes and extraordinary items.... 2,321 13,856 30,430 Provision for income taxes............................ 928 5,681 12,172 ------------ ------------ ------------ Income before extraordinary items..................... 1,393 8,175 18,258 Extraordinary items -- gains on discharges of indebtedness (net of income taxes of $2,772 and $120)............................................... -- 3,989 172 ------------ ------------ ------------ Net income............................................ $ 1,393 $ 12,164 $ 18,430 ========== ========== ========== Net income per common share: Income before extraordinary items................... $ .05 $ .27 $ .57 Extraordinary items................................. -- .13 .01 ------------ ------------ ------------ Net income per common share........................... $ .05 $ .40 $ .58 ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements. F-4 59 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK CAPITAL IN ------------------- EXCESS OF RETAINED SHARES AMOUNT PAR VALUE EARNINGS TOTAL ---------- ------ ---------- -------- -------- Balance August 1, 1992........................ 29,912,794 $299 $ 135,301 $ -- $135,600 Net income.................................... -- -- -- 1,393 1,393 Utilization of net operating loss carryforwards............................... -- -- 789 -- 789 ---------- ------ ---------- -------- -------- Balance December 31, 1992..................... 29,912,794 299 136,090 1,393 137,782 Net income.................................... -- -- -- 12,164 12,164 Utilization of net operating loss carryforwards............................... -- -- 4,525 -- 4,525 Federal income tax refund..................... -- -- 16,462 -- 16,462 Compensation expense related to stock option plan........................................ -- -- 225 -- 225 Proceeds from exercise of stock options....... 30,000 -- 81 -- 81 Proceeds from exercise of stock warrants...... 45,880 1 124 -- 125 ---------- ------ ---------- -------- -------- Balance December 31, 1993..................... 29,988,674 300 157,507 13,557 171,364 Net income.................................... -- -- -- 18,430 18,430 Utilization of net operating loss carryforwards............................... -- -- 5,861 -- 5,861 Amortization of pre-fresh start tax basis differences........................... -- -- 6,954 -- 6,954 Federal income tax refund..................... -- -- 200 -- 200 Compensation expense related to stock option plan........................................ -- -- 60 -- 60 Proceeds from exercise of stock options....... 216,080 2 640 -- 642 Proceeds from exercise of stock warrants...... 204,617 2 552 -- 554 ---------- ------ ---------- -------- -------- Balance December 31, 1994..................... 30,409,371 $304 $ 171,774 $ 31,987 $204,065 ========= ====== ======== ======= ========
See Accompanying Notes to Consolidated Financial Statements. F-5 60 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FIVE MONTHS ENDED DECEMBER YEAR ENDED YEAR ENDED 31, DECEMBER 31, DECEMBER 31, 1992 1993 1994 ----------- ------------ ------------ Cash flows from operating activities: Net income.............................................. $ 1,393 $ 12,164 $ 18,430 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 2,918 7,117 9,427 Gain on settlement of note receivable................ -- -- (6,224) Utilization of net operating loss carryforwards...... 789 4,525 5,861 Amortization of pre-fresh start tax basis differences........................................ -- -- 6,954 Deferred income taxes................................ -- 1,541 (205) Gains on discharges of indebtedness.................. -- (6,761) (292) Gains on disposals of assets......................... -- (1,769) (1,099) Compensation expense related to stock options........ -- 225 60 Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable.................................. 320 269 (1,945) Other current assets................................. (1,445) (1,791) 127 Other liabilities.................................... (248) 4,208 (2,422) ----------- ------------ ------------ Net cash provided by operating activities............ 3,727 19,728 28,672 ----------- ------------ ------------ Cash flows from investing activities: Proceeds from mortgages and other notes receivable...... 46,165 10,861 36,198 Disbursements for mortgages and other notes receivable........................................... -- (515) (1,100) Proceeds from sales of property, equipment and leasehold improvements......................................... -- 3,715 1,480 Purchases of property, equipment and leasehold improvements......................................... (1,803) (14,346) (63,360) Decrease in restricted cash............................. 9,939 1,903 1,268 Proceeds from retirement of debt securities............. -- -- 1,116 Purchase of debt and other securities................... -- -- (5,885) Other................................................... (506) 663 (3,965) ----------- ------------ ------------ Net cash provided by (used in) investing activities......................................... 53,795 2,281 (34,248) ----------- ------------ ------------ Cash flows from financing activities: Payments of debt........................................ (56,592) (30,890) (43,771) Proceeds from issuance of debt.......................... -- 2,771 19,026 Proceeds from the exercise of stock options and warrants............................................. -- 206 1,196 Principal proceeds from federal income tax refund....... -- 16,462 200 Reorganization items after emergence from bankruptcy.... (3,807) (5,605) (120) ----------- ------------ ------------ Net cash used in financing activities................ (60,399) (17,056) (23,469) ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents...... (2,877) 4,953 (29,045) Cash and cash equivalents at beginning of period.......... 39,493 36,616 41,569 ----------- ------------ ------------ Cash and cash equivalents at end of period................ $36,616 $ 41,569 $ 12,524 ========= ========== ==========
See Accompanying Notes to Consolidated Financial Statements. F-6 61 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1992, 1993 AND 1994 NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITIES: Prime Hospitality Corp. (the "Company") is a hotel owner/operator with ownership or management of hotels in the United States and the U.S. Virgin Islands. The Company's hotels primarily provide moderately priced, quality accommodations in secondary markets, and operate under franchise agreements with national hotel chains or under the Company's proprietary Wellesley Inns or AmeriSuites brand names. The Company emerged from the Chapter 11 reorganization proceeding of its predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"), which consummated its Plan of Reorganization ("the Plan") on July 31, 1992 (the "Effective Date"). PMI and certain of its subsidiaries had filed for protection under Chapter 11 of the United States Bankruptcy Code in September of 1990. During the reorganization, PMI re-negotiated most of its leases, management agreements and debt commitments, resulting in the elimination of a substantial number of unprofitable contract relationships and excessive debt obligations. BASIS OF PRESENTATION: Pursuant to the American Institute of Certified Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start reporting as of July 31, 1992. Under fresh start reporting, the reorganization value of the entity was allocated to the reorganized Company's assets on the basis of the purchase method of accounting. The reorganization value (the approximate fair value) of the assets of the emerging entity was determined by consideration of many factors and various valuation methods, including discounted cash flows and price/earnings and other applicable ratios believed by management to be representative of the Company's business and industry. Liabilities were recorded at face values, which approximate the present values of amounts to be paid determined at appropriate interest rates. Under fresh start reporting, the consolidated balance sheet as of July 31, 1992 became the opening consolidated balance sheet of the emerging Company. In accordance with SOP 90-7, financial statements covering periods prior to July 31, 1992 are not presented because such statements have been prepared on a different basis of accounting and are thus not comparable. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. CASH EQUIVALENTS: Cash equivalents are highly liquid unrestricted investments with a maturity of three months or less when acquired. F-7 62 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESTRICTED CASH: Restricted cash consists primarily of highly liquid investments that serve as collateral for debt obligations due within one year. MORTGAGES AND NOTES RECEIVABLE: Mortgages and notes receivable are reflected at their fair value as of July 31, 1992, adjusted for payments and other advances since that date. The amount of interest income recognized on mortgages and notes receivable is generally based on the stated interest rate and the carrying value of the notes. The Company has a number of subordinated or junior mortgages which remit payment based on hotel cash flow. Because there is substantial doubt that the Company will recover their face value, these mortgages have not been valued in the Company's consolidated financial statements. Interest on cash flow mortgages and delinquent loans is generally recognized when cash is received. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Property, equipment and leasehold improvements that the Company intends to continue to operate are stated at their fair market value as of July 31, 1992 plus the cost of acquisitions subsequent to that date less accumulated depreciation and amortization from August 1, 1992. Provision is made for depreciation and amortization using the straight-line method over the estimated useful lives of the assets. Properties identified for disposal are stated at their estimated net realizable value. INCOME TAXES: The Company and its subsidiaries file a consolidated Federal income tax return. For financial reporting purposes, the Company follows Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 ("FAS 109"). In accordance with FAS 109, as well as SOP 90-7, income taxes have been provided at statutory rates in effect during the period. Tax benefits associated with net operating loss carryforwards and other temporary differences that existed at the time fresh start reporting was adopted are reflected as a contribution to stockholders' equity in the period in which they are realized. NET INCOME PER COMMON SHARE: Net income per common share is computed based on the weighted average number of common shares and common share equivalents outstanding during each period. The weighted average number of common shares used in computing primary net income per share was 29,913,000 for the five months ended December 31, 1992 and 30,721,000 and 32,022,000 for the years ended December 31, 1993 and 1994, respectively. Net income per common shares was restated for all periods to reflect a 9.4% reduction in the number of shares distributed under PMI's Plan (See Note 10). The dilutive effect of stock warrants and options during the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 was not material (see Note 10). RECLASSIFICATIONS: Certain reclassifications have been made to the December 31, 1992 and 1993 consolidated financial statements to conform them to the December 31, 1994 presentation. F-8 63 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of the following (in thousands):
DECEMBER 31, --------------------- 1993 1994 ------- ------- Cash........................................................... $ 3,013 $ 5,953 Commercial paper and other cash equivalents.................... 38,556 6,571 ------- ------- Totals............................................... $41,569 $12,524 ======= =======
NOTE 3 -- MORTGAGES AND NOTES RECEIVABLE Mortgages and notes receivable are comprised of the following (in thousands):
DECEMBER 31, ---------------------- 1993 1994 -------- ------- Properties operated by the Company(a)......................... $ 65,323 $60,609 Other(b)...................................................... 24,985 22,576 Frenchman's Reef resort hotel(c).............................. 50,000 -- Rose and Cohen entities(d).................................... 25,000 -- -------- ------- Total............................................... 165,308 83,185 Less current portion.......................................... (2,275) (1,925) -------- ------- Long-term portion............................................. $163,033 $81,260 ======== =======
- --------------- (a) The Company is the holder of mortgage notes receivable with a book value of $46,497,000 secured primarily by 10 hotel properties operated by the Company under management agreements and $14,112,000 in mortgages secured primarily by 4 properties operated under lease agreements. These notes currently bear interest at rates ranging from 8.5% to 13.5% and mature through 2017. The mortgages were primarily derived from the sales of hotel properties. Many of the managed properties were unable to pay in full the annual debt service required under the terms of the original mortgages. The Company has restructured approximately $33,000,000 of these loans to pay based upon available cash and a participation in the future excess cash flow of such hotel properties. The restructurings generally include a "senior portion" featuring defined payment terms, and a "junior portion" payable annually based on cash flow. The junior portion represents the difference between the original mortgage and the new senior portion and provides the Company the opportunity to recover that difference if the hotel's performance improves. In addition to the junior portion of the restructured mortgages, the Company holds junior or other cash flow mortgages and subordinated interests in other hotel properties operated by the Company under management agreements. The Company's consolidated balance sheets do not reflect any value related to the junior portions of the restructured notes or the junior mortgages and subordinated interests on the other hotels as there is substantial doubt that the Company will recover any of their face value. During 1993 and 1994, the Company recognized $976,000 and $2,000,000, respectively, of interest income related to these mortgages. (b) Other notes receivable currently bear interest at effective rates ranging from 4% to 10.5%, mature through 2011 and are secured primarily by hotel properties not currently managed by the Company. (c) The mortgage notes secured by the Frenchman's Reef Resort Hotel ("Frenchman's Reef") consisted of first and second mortgages with face values of $53,383,000 and $25,613,000, respectively, with final scheduled principal payments of $51,976,000 and $25,613,000 due on July 31, 1995. In connection with the adoption of fresh start reporting, the Company valued the notes at $50,000,000. F-9 64 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the five months ended December 31, 1992, and years ended December 31, 1993 and 1994 the Company recognized $1,770,000, $4,250,000 and $4,586,000 of interest income on these notes, respectively, based on the level of cash flow generated from the hotel property available to service the notes. In December 1994, the Company obtained ownership of Frenchman's Reef in satisfaction of the mortgage note receivable through a pre-negotiated plan of reorganization. The Company had previously reached an agreement in 1993 to restructure its mortgage notes receivable secured by Frenchman's Reef with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In conjunction with the agreement, FRBA filed a pre-negotiated chapter 11 petition in September 1993. During the reorganization period, the Company continued to receive cash payments on its mortgage notes receivable under a cash collateral order approved by the Bankruptcy Court. Under the plan of reorganization, which was approved by the Bankruptcy Court on December 16, 1994, the Company obtained ownership and control of the hotel. As a result of obtaining this control, the Company reallocated its basis in the mortgage note receivable to the various operating assets acquired (principally land, hotel building and furniture and fixtures) based upon their respective fair market value. (d) The note receivable from Rose and Cohen represented the estimated fair market value as of July 31, 1992 of certain amounts loaned by PMI to entities controlled by Allan Rose and Arthur Cohen ("Rose and Cohen"). During 1993, the Company reached a settlement with Rose and Cohen of an adversary proceeding regarding a promissory note and personal guarantee, commenced by a subsidiary of PMI during 1991. The settlement provided for Rose or his affiliate to pay the Company the sum of $25 million, plus proceeds from approximately 1.1 million shares of the Company's common stock held by Rose. Financial Security Assurance, Inc. ("FSA") asserted that it was entitled to receive the settlement proceeds under the terms of a certain intercreditor agreement. In April 1994, the Court approved the settlement and ruled that the Company had an exclusive right to the settlement proceeds. Upon receipt of the order, the Company used the $25 million of settlement proceeds to retire certain senior secured notes (see Note 6). On April 21, 1994, FSA filed its notice of appeal of the Court's order. During 1994, Rose sold approximately 1.0 million shares of the Company's common stock under the terms of the settlement for net proceeds of approximately $6.2 million. Since the Rose and Cohen note had a book value of $25 million at the time of the settlement, approximately $6.2 million was recorded as income in the Company's statement of operations. All proceeds received pursuant to the settlement after April 21, 1994 have been held in escrow until an order on the appeal is received. The Company believes that FSA is unlikely to prevail on its claim, and as a result, does not believe it will have a material impact on the accompanying consolidated financial statements. Upon receipt of a favorable order from the Court, substantially all of the net proceeds are required to be used to retire additional debt (see Note 6). F-10 65 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consist of the following (in thousands):
DECEMBER 31, --------------------- YEARS OF 1993 1994 USEFUL LIFE -------- -------- ----------- Land and land leased to others..................... $ 29,407 $ 49,438 Hotels............................................. 109,671 200,706 20 to 40 Furniture, fixtures and autos...................... 21,879 46,021 3 to 10 Leasehold improvements............................. 10,222 11,336 3 to 40 Construction in progress........................... 2,555 1,457 Properties held for sale........................... 8,355 8,898 -------- -------- Sub-total........................................ 182,089 317,856 Less accumulated depreciation and amortization... (9,303) (18,565) -------- -------- Totals................................... $172,786 $299,291 ======== ========
At December 31, 1994, the Company was the lessor of land and certain restaurant facilities in Company-owned hotels with an approximate aggregate book value of $8,074,000 pursuant to noncancelable operating leases expiring on various dates through 2013. Minimum future rentals under such leases are $10,132,000, of which $3,961,000 is scheduled to be received in the aggregate during the five-year period ending December 31, 1999. Depreciation and amortization expense on property, equipment and leasehold improvements was $2,784,000 for the five months ended December 31, 1992 and $7,015,000 and $9,300,000 for the years ended December 31, 1993 and 1994, respectively. During the years ended December 31, 1993 and 1994, the Company capitalized $0 and $836,000, respectively, of interest related to borrowings used to finance hotel construction. NOTE 5 -- OTHER CURRENT LIABILITIES Other current liabilities consist of the following (in thousands):
DECEMBER 31, ------------------- 1993 1994 ------- ------- Accounts payable................................................. $ 2,025 $ 4,436 Interest......................................................... 4,454 3,115 Accrued payroll and related benefits............................. 2,190 2,490 Accrued expenses................................................. 1,592 4,182 Insurance reserves............................................... 6,206 5,123 Other............................................................ 5,978 4,558 ------- ------- Totals................................................. $22,445 $23,904 ======= =======
F-11 66 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- DEBT Debt consists of the following (in thousands):
DECEMBER 31, --------------------- 1993 1994 -------- -------- Secured notes(a)............................................... $ 86,683 $ 52,580 Mortgages and other notes payable(b)........................... 99,946 131,249 Borrowings under credit agreement.............................. 1,271 -- -------- -------- Total debt..................................................... 187,900 183,829 Less current maturities........................................ (19,282) (5,284) -------- -------- Debt, net of current portion.............................. $168,618 $178,545 ======== ========
- --------------- (a) Pursuant to the Plan, the Company issued two classes of Secured Notes which are identified as "Senior Secured Notes" and "Junior Secured Notes". The aggregate principal amount of Senior Secured Notes issued under the Plan was $91,300,000, comprised of $30,100,000 of 8.20% Fixed Rate Senior Secured Notes and $61,200,000 of Adjustable Rate Senior Secured Notes. The aggregate principal amount of Junior Secured Notes issued under the Plan was approximately $70,000,000. During 1994, the Company repurchased $6,527,000 of its Adjustable Rate Senior Secured Notes, $217,000 of its 8.20% Senior Secured Notes and $461,000 of its 9.20% Junior Secured Notes for an aggregate purchase price of $7,018,000. The repurchases resulted in pretax extraordinary gains of $187,000. In April 1994, the Company retired its Senior Secured Notes with a pre-payment of $26,408,000. In addition to the repurchases described above, during 1994 the Company purchased through a third party agent approximately $5,200,000 of its Senior Secured Notes and Junior Secured Notes for aggregate consideration of approximately $4,800,000. These notes are currently held by the third party agent and have not been retired due to certain restrictions under the note agreements. The purchases were recorded as investments on the Company's balance sheet and no gain will be recorded on these transactions until the notes mature or are redeemed. In April 1994, approximately $1,100,000 of the notes were retired from the proceeds of the Rose and Cohen settlement (See Note 3) resulting in a pretax extraordinary gain of approximately $100,000. In August 1994, approximately $37,000 was retired resulting in a pretax extraordinary gain of $5,000. As of December 31, 1994, the Company had unrecognized holding gains of approximately $295,000 related to these securities. In 1994, the Company received consents from the required holders of its Junior Secured Notes to remove certain debt covenants which placed limitations on the Company's hotel development spending. In consideration of the amendment consent, the Company agreed to increase the coupon interest rate from 9.2% to 10.0% and to shorten the maturity by one year, from July 31, 2000 to July 31, 1999. In addition, the designation of these notes was changed from Junior Secured Notes to Senior Secured Notes, as the original Senior Secured Notes were retired. The collateral for the Secured Notes consists primarily of mortgages and notes receivable and real property, net of related liabilities (the "Secured Note Collateral"), with a book value of $92,215,000 as of December 31, 1994. Interest on the Secured Notes is payable semi-annually. The Secured Notes require that 85% of the cash proceeds from the Secured Note Collateral be applied first to interest then to prepayment of principal. Aggregate principal payments on the Secured Notes are required in order that one-third of the principal balance outstanding on December 31, 1996 is paid by July 31, 1998 and all of the balance is paid by July 31, 1999. To the extent the cash proceeds from the Secured Note Collateral are insufficient to pay F-12 67 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest or required principal payments on the Secured Notes, the Company will be obligated to pay any deficiency out of its general corporate funds. The Secured Notes contain covenants which, among other things, require the Company to maintain a net worth of at least $100,000,000, and preclude cash distributions to stockholders, including dividends and redemptions, until the Secured Notes have been paid in full. (b) The Company has mortgage and other notes payable of approximately $74,713,000 that are secured by mortgage notes receivable and hotel properties with a book value of $110,476,000. Principal and interest on these mortgages and notes are generally paid monthly. At December 31, 1994 these notes bear interest at rates ranging from 4.68% to 12.45% and mature through 2008. At December 31, 1994, the Company has outstanding loans in the amount of $39,896,000 payable to ShoLodge, Inc. ("ShoLodge"). The foregoing loans are secured by AmeriSuites hotel properties with an aggregate book value of $63,824,000. The notes bear interest at 10.25% and mature in April 1997. The Company expects to incur an additional $3,600,000 of debt in the first quarter of 1995 in connection with its purchase of ShoLodge's option to acquire a 50% interest in Suites of America, Inc., a wholly owned subsidiary of the Company (see Note 9). The Company has $11,614,000 of notes restructured under the Plan which bear interest at rates ranging from 8.00% to 9.20% per annum payable semi-annually. Prior to maturity, principal amounts outstanding will be paid semi-annually based on a thirty-year amortization schedule. Each note matures on July 31, 2002 and is secured by a lien on mortgage notes receivable and hotel properties with a book value of $11,129,000 at December 31, 1994. The Company has other notes of $3,156,000, which bear interest at rates ranging from 8.0% to 8.2% and mature through 1999. In February 1995, the Company obtained $39 million of mortgage financing secured by hotels under two separate loan agreements. Both loans bear interest at variable rates (approximately 10.50% at December 31, 1994) and mature in 2000. Maturities of long-term debt for the next five years ending December 31 are as follows (in thousands): 1995...................................................... $ 5,284 1996...................................................... 41,073 1997...................................................... 45,687 1998...................................................... 3,617 1999...................................................... 54,717 Thereafter................................................ 33,451 -------- Total..................................................... $183,829 ========
NOTE 7 -- LEASE COMMITMENTS AND CONTINGENCIES Leases The Company leases various hotels under lease agreements with initial terms expiring at various dates from 1995 through 2022. The Company has options to renew certain of the leases for periods ranging from 1 to 99 years. Rental payments are based on minimum rentals plus a percentage of the hotel properties' revenues in excess of stipulated amounts. F-13 68 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a schedule, by year, of future minimum lease payments required under the remaining operating leases that have terms in excess of one year as of December 31, 1994 (in thousands): 1995...................................................... $ 4,630 1996...................................................... 4,597 1997...................................................... 4,565 1998...................................................... 4,533 1999...................................................... 4,500 Thereafter................................................ 95,638 -------- Total..................................................... $118,463 ========
Rental expense for all operating leases, including those with terms of less than one year, consist of the following for the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):
DECEMBER 31, ---------------------------- 1992 1993 1994 ------ ------ ------ Rentals.................................................. $1,844 $5,009 $4,654 Contingent rentals....................................... 266 764 823 ------ ------ ------ Rental expense................................. $2,110 $5,773 $5,477 ====== ====== ======
Employee Benefits The Company does not provide any material post employment benefits to its current or former employees. Contingent Claims The Company is involved in various other proceedings incidental to the normal course of its business. The Company believes that the resolution of these contingencies will not have a material adverse effect on the Company's consolidated financial position or results of operations. Financial Instruments and Concentration of Credit Risk The Company's accounts receivable and mortgages and other notes receivable (see Note 3) are derived primarily from and are secured by hotel properties, which constitutes a concentration of credit risk. These notes are subject to many of the same risks as the Company's operating hotel assets. A significant portion of the collateral is located in the Northeastern and Southeastern United States. In addition to the hotel property related receivables referred to above, the Company's financial instruments include (i) assets; cash and cash equivalents and restricted cash investments and (ii) liabilities; trade and notes payable and long-term debt (see Note 6). As described in Note 1, in connection with the adoption of fresh start accounting as of July 31, 1992, the Company revalued its assets and liabilities at amounts approximating fair market value. Since there have been no substantive adverse changes in market conditions since the date of the revaluation and on the basis of market quotes and experience on recent redemption offers for the Company's long-term debt, the Company believes that the carrying amount of these financial instruments approximated their fair market value as of December 31, 1993 and 1994. As a result of the reorganization proceedings and the rejection of certain leases, management contracts and other guarantees, the Company has no other material off-balance-sheet liabilities or credit risk as of December 31, 1994. F-14 69 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- INCOME TAXES The provision for income taxes (including amounts applicable to extraordinary items) consisted of the following for the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):
DECEMBER 31, ---------------------------- 1992 1993 1994 ---- ------- -------- Current: Federal................................................. $ -- $ 2,167 $ 970 State................................................... 139 220 28 ---- ------- -------- 139 2,387 998 Deferred: Federal................................................. 789 5,049 9,780 State................................................... -- 1,017 1,514 ---- ------- -------- 789 6,066 11,294 ---- ------- -------- Total........................................... $928 $ 8,453 $ 12,292 ==== ====== =======
Income taxes are provided at the applicable federal and state statutory rates. The tax effects of the temporary differences in the areas listed below resulted in deferred income tax provisions for the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):
DECEMBER 31, --------------------------- 1992 1993 1994 ---- ------- ------- Utilization of net operating loss......................... $789 $ 4,525 $ 5,861 Amortization of pre-fresh start basis differences -- properties and notes............................................... -- 1,322 5,632 Depreciation.............................................. -- 144 200 Leasehold reserves........................................ -- -- 450 Property transactions..................................... -- -- 320 Other..................................................... -- 75 (1,169) ---- ------- ------- Total........................................... $789 $ 6,066 $11,294 ==== ====== =======
At December 31, 1994, the Company had available federal net operating loss carryforwards of approximately $117,500,000 which will expire beginning in 2005 and continuing through 2007. Of this amount, $104,800,000 is subject to an annual limitation of $8,735,000 under the Internal Revenue Code due to a change in ownership of the Company upon consummation of the Plan. The Company also has potential state income tax benefits relating to net operating loss carryforwards of approximately $9,262,000 which will expire during various periods from 1995 to 2006. Certain of these potential benefits are subject to annual limitations similar to federal requirements due to factors such as the level of business conducted in each state and the amount of income subject to tax within each state's carryforward period. In accordance with FAS 109, the Company has not recognized the future tax benefits associated with the net operating loss carryforwards or with other temporary differences. Accordingly, the Company has provided a valuation allowance of approximately $41,000,000 against the deferred tax asset as of December 31, 1994. To the extent any available carryforwards or other tax benefits are utilized, the amount of tax benefit realized will be treated as contribution to stockholders' equity and will have no effect on the income tax provision for F-15 70 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial reporting purposes. For the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 the Company recognized $789,000, $4,525,000 and $5,861,000, respectively, of such tax benefits as a contribution to stockholders' equity. Additionally, the Company recognized $6,954,000 as a contribution to stockholders' equity for the years ended December 31, 1994, which represents the amortization of pre-fresh start tax basis differences related to properties and notes receivable. NOTE 9 -- RELATED PARTY TRANSACTIONS The following summarizes significant financial information with respect to transactions with present and former officers, directors, their relatives and certain entities they control or in which they have a beneficial interest for the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):
DECEMBER 31, ------------------------- 1992 1993 1994 ---- ---- ------- Management and other fee income(a).......................... $312 $810 $ 1,165 Interest income(a).......................................... 72 14 1,283 Management fee expense(b)................................... 162 222 679 Interest expense(b)......................................... 332 475 461 Reservation fee expense(b).................................. 101 468 317
- --------------- (a) The Company manages 15 hotels for partnerships in which related parties own various interests. The income amounts shown above primarily include transactions related to these hotel properties. (b) In 1991, the Company entered into an agreement with ShoLodge, a company controlled by a former director, whereby ShoLodge was appointed the exclusive agent to develop and manage certain hotel properties. The Company had loans payable to ShoLodge of $39,896,000 at December 31, 1994 related to the development of hotels. The Company also uses the ShoLodge reservation system for its Wellesley and AmeriSuites properties. In February 1995, the Company entered into an agreement to acquire ShoLodge's option to purchase a 50% interest in 11 of the Company's AmeriSuites hotels and will also acquire the only remaining AmeriSuites hotel not already owned by the Company. The total consideration payable by the Company in this transaction is $34,600,000 of which $16,100,000 will be paid in three cash installments during 1995 and the remaining $18,500,000 will be paid in notes maturing in 1997. As a result of this transaction, which is scheduled to close on March 31, 1995, the Company will take over the management of these hotels. NOTE 10 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS Pursuant to the Plan, on July 31, 1992 the Company began distributing shares of common stock to certain claimants and holders of PMI stock. The Plan provided for issuance of up to 33,000,000 shares of common stock; however, the number of shares ultimately distributed were 29,913,000. The consolidated financial statements had previously given full effect to the issuance of the maximum amount of 33,000,000 shares under the Plan. During 1994, when the Company resolved the final share distribution, it restated net income for all prior periods to reflect the 9.4% reduction in the number of shares. In addition to the shares distributed under the Plan, warrants to purchase 2,106,000 shares of the Company's common stock were issued to former shareholders of the Company's predecessor, PMI, in partial settlement of their bankruptcy interests. The warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per share and expire five years after the date of grant. The exercise price was determined from the average per share daily closing price of the Company's common stock during the year following its reorganization on July 31, 1992. As of December 31, 1994 warrants to purchase 250,497 shares have been exercised. F-16 71 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On July 31, 1992, the Company adopted various stock option and performance incentive plans under which options to purchase up to 1,650,000 shares of common stock may be granted to directors, officers or key employees under terms determined by the Board of Directors. During 1992, options to purchase 350,000 shares were granted to officers and directors, 240,000 of which are exercisable at December 31, 1994. In addition, options to purchase 330,000 shares were granted to a former officer in 1992. Such options are currently exercisable and expire on July 31, 1995. At December 31, 1994, 180,000 of these options were exercised. The exercise prices of the above options are based on the average market price one year from the date of grant which was determined to be $2.71 per share. Based on this exercise price, the amount of compensation expense attributable to these options was $225,000 and $60,000 for the years ended December 31, 1993 and 1994, respectively. In June 1993, options to purchase 393,000 shares of common stock were granted to employees under the Company's stock option plan. The options were granted at $3.63, which approximates the fair market value at the date of grant. Generally, options can be exercised during a participant's employment with the Company in equal annual installments over a three-year period and expire six years after the date of grant. During 1994, 41,080 shares were exercised. In August 1993, options to purchase 315,000 shares of common stock were granted to the members of the Company's Board of Directors. The options were granted at $3.20, which approximates the fair market value at the date of grant. One-third of these options became exercisable at the date of grant and the remaining options can be exercised in equal annual installments over a two-year period. The options expire six years after the date of grant. During 1994, 25,000 shares were exercised. In January 1994, options to purchase 50,000 shares of common stock were granted to a member of the Company's Board of Directors. The options were granted at $7.375, which approximates the fair market value at the date of grant. The options can be exercised in equal annual installments over a four year period. The options expire six years after the date of grant. In August 1994, options to purchase 317,100 shares of common stock were granted to employees under the Company's performance incentive plan. The options were granted at $7.625, which approximates the fair market value at the date of grant. Generally, options can be exercised during a participant's employment with the Company in equal annual installments over a three-year period and expire six years after the date of grant. In December 1994, options to purchase 30,000 shares of common stock were granted to new members of the Company's Board of Directors. The options were granted at $7.125, which approximates the fair market value at the date of grant. One-third of these options became exercisable at the date of grant and the remaining options can be exercised in equal annual installments over a two year period. The options expire six years after the date of grant. F-17 72 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of the various stock option plans:
OPTION NUMBER PRICE OF SHARES PER SHARE --------- ----------- Outstanding -- December 31, 1992............................ 680,000 $2.71 Granted..................................................... 728,000 $2.71-$3.63 Exercised................................................... (30,000) $2.71 Cancelled................................................... (77,000) $2.71-$3.63 --------- Outstanding at December 31, 1993............................ 1,301,000 --------- Granted..................................................... 397,000 $7.38-$7.63 Exercised................................................... (216,000) $2.71-$3.63 Cancelled................................................... (40,000) $3.63-$7.63 --------- Outstanding at December 31, 1994............................ 1,442,000 ======== Exercisable at December 31, 1994............................ 700,000 $2.71-$7.63 ========
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION The following summarizes non-cash investing and financing activities for the five months ended December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):
DECEMBER 31, ----------------------------- 1992 1993 1994 ------ ------ ------- Hotels acquired in exchange for the assumption of mortgage notes payable......................................... $ -- $9,161 $18,718 Hotels received in settlement of mortgage notes receivable............................................ 7,800 3,500 54,521 Sale of hotel in exchange for a mortgage note receivable............................................ $ -- $6,500 $ 1,497
Cash paid for interest was $2,981,000 for the five months ended December 31, 1992 and $16,347,000 and $15,503,769 for the years ended December 31, 1993 and 1994, respectively. Cash paid for income taxes was $0 for the five months ended December 31, 1992 and $2,697,000 and $1,900,000 for the years ended December 31, 1993 and 1994, respectively. F-18 73 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN OR PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY OF ANY SECURITIES OTHER THAN THE NOTES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 4 Risk Factors.......................... 10 Use of Proceeds....................... 14 Price Range of Common Stock and Dividend Policy..................... 14 Capitalization........................ 15 Recent Consolidated Financial and Other Data.......................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 18 Selected Consolidated Financial Data of the Company and its Predecessor......................... 27 Business.............................. 28 Management............................ 40 Description of Notes.................. 45 Description of Capital Stock.......... 52 Underwriting.......................... 54 Legal Matters......................... 55 Experts............................... 55 Available Information................. 55 Incorporation of Certain Documents by Reference........................... 56 Index to Financial Statements......... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $75,000,000 [LOGO] PRIME HOSPITALITY CORP. % CONVERTIBLE SUBORDINATED NOTES DUE 2002 --------------------- PROSPECTUS --------------------- MONTGOMERY SECURITIES SMITH BARNEY INC. - ------------------------------------------------------ - ------------------------------------------------------ 74 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the Notes being registered which will be paid solely by the Company. All the amounts shown are estimates, except the Securities and Exchange Commission registration fee: SEC Registration Fee..................................................... $ 29,742 NASD Fee................................................................. 9,125 Trustee Fees and Expenses................................................ 15,000 Printing and Engraving Expenses.......................................... 130,000 Legal Fees and Expenses.................................................. 250,000 Accounting Fees and Expenses............................................. 50,000 Blue Sky Fees and Expenses............................................... 20,000 Rating Agency Fees....................................................... 50,000 Miscellaneous Expenses................................................... 21,133 -------- Total.......................................................... $575,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. A corporation may, in advance of the final disposition of any civil, criminal, administrative or investigative action, suit or proceeding, pay the expenses (including attorneys' fees) incurred by any officer, director, employee or agent in defending such action, provided that the director or officer undertake to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. A corporation may indemnify such person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys' fees) which he or she actually and reasonably incurred in connection therewith. The indemnification provided is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any corporation's by-law, agreement, vote or otherwise. In accordance with Section 145 of the DGCL, Article 8 of the Company's Restated Certificate of Incorporation (the "Restated Certificate") and the Company's By-Laws (the "By-Laws") provide that the Company shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request II-1 75 of the Company as director, officer, trustee, employee or agent of or in any other capacity with another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The indemnification provided by the Restated Certificate and the By-Laws shall not be deemed exclusive of any other rights to which any of those seeking indemnification or advancement of expenses may be entitled under any other contract or agreement between the Company and any officer, director, employee or agent of the Company. Expenses incurred in defending a civil or criminal action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Company) or may (in the case of any action, suit or proceeding against an officer, trustee, employee or agent) be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors of the Company upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company. Subparagraph (d) of Article 8 of the Restated Certificate provides that neither the amendment or repeal of, nor the adoption of any provision inconsistent with, the above-referenced provisions of the Restated Certificate shall eliminate or reduce the effect of such provisions in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of action, suit or claim relating to any such matter which would have given rise to a right of indemnification or right to receive expenses pursuant to such provisions if any such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted. Subparagraph (e) of Article 8 of the Restated Certificate provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or any amendment thereto or successor provision thereto, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. II-2 76 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBIT REPORT OR REGISTRATION STATEMENT IN NUMBER DESCRIPTION WHICH DOCUMENT IS CONTAINED -------------------------------------- ------------------------------------ 1.1 -- Form of Underwriting Agreement Filed herewith 2.1 -- Disclosure Statement for Debtors' Second Amended Joint Plan of Reorganization dated January 16, 1992, which includes the Debtors' Second Amended Plan of Reorganization as an exhibit thereto Filed as Exhibit 2(c) to the Company's Form 8A dated July 9, 1992 4.1 -- Specimen Note Contained in Exhibit 4.2 4.2 -- Form of Indenture, between the Company and Bank One, Columbus, N.A., as the Trustee Filed herewith 5.1 -- Opinion of Willkie Farr & Gallagher To be filed by amendment 12.1 -- Statement re: Computation of Ratios Filed herewith 23.1 -- Consent of Willkie Farr & Gallagher Contained within Exhibit 5.1 23.2(a) -- Consent of Arthur Andersen LLP Filed herewith 23.2(b) -- Consent of Arthur Andersen LLP Filed herewith 23.3 -- Consent of J.H. Cohn & Company Filed herewith 24.1 -- Power of Attorney Included on signature page hereto 25.1 -- Statement of Eligibility of Trustee Filed herewith
ITEM 17. UNDERTAKINGS (1) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to its Certificate, By-laws, the Underwriting Agreement or otherwise, the Registrant had been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (2) The Registrant hereby undertakes that: (a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and this Offering of such securities at that time shall be deemed to be the initial bona fide Offering thereof. (3) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-3 77 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 10th day of March, 1995. PRIME HOSPITALITY CORP. By: /s/ DAVID A. SIMON --------------------------------- David A. Simon, Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY The undersigned officers and directors of Prime Hospitality Corp., hereby severally constitute and appoint David A. Simon and John M. Elwood, and each of them, attorneys-in-fact for the undersigned, in any and all capacities, with the power of substitution, to sign any amendments to this Registration Statement (including post-effective amendments), and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all interests and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons, in the capacities and on the dates indicated.
NAME TITLE DATE - ------------------------------------------ -------------------------------------------------- /s/ DAVID A. SIMON Chairman of the Board, President, March 10, 1995 - ------------------------------------------ Chief Executive Officer David A. Simon and Director (principal executive officer) /s/ JOHN M. ELWOOD Chief Financial Officer, March 10, 1995 - ------------------------------------------ Executive Vice President John M. Elwood and Director /s/ HERBERT LUST, II Director March 10, 1995 - ------------------------------------------ Herbert Lust, II /s/ JACK H. NUSBAUM Director March 10, 1995 - ------------------------------------------ Jack H. Nusbaum /s/ ALLEN J. OSTROFF Director March 10, 1995 - ------------------------------------------ Allen J. Ostroff Director March , 1995 - ------------------------------------------ A.F. Petrocelli Director March , 1995 - ------------------------------------------ Howard M. Lorber
II-4 78 APPENDIX I This Registration Statement contains spaces for the following graphic and image materials: (i) photographs, on the front inside cover of the Prospectus, (ii) a map, on the inside cover of the Prospectus, (iii) photographs on the back inside cover of the Prospectus and (iv) the Company's logo on the front and back covers of the Prospectus. At the time of the filing the graphic and image materials and the Company's logo were not part of the Registration Statement. When they are inserted into the Prospectus, an appendix with a narrative description of the photographs, map and logo will be included therein. A-1 79 EXHIBIT INDEX (A) EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------------------------------------------------------------- -------- 1.1 -- Form of Underwriting Agreement* 2.1 -- Disclosure Statement for Debtors' Second Amended Joint Plan of Reorganization dated January 16, 1992, which includes the Debtors' Second Amended Plan of Reorganization as an exhibit thereto** 4.1 -- Specimen Note*** 4.2 -- Form of Indenture, between the Company and Bank One, Columbus, N.A., as the Trustee* 5.1 -- Opinion of Willkie Farr & Gallagher**** 12.1 -- Statement re: Computation of Ratios* 23.1 -- Consent of Willkie Farr & Gallagher***** 23.2(a) -- Consent of Arthur Andersen LLP* 23.2(b) -- Consent of Arthur Andersen LLP* 23.3 -- Consent of J.H. Cohn & Company* 24.1 -- Power of Attorney****** 25.1 -- Statement of Eligibility of Trustee*
- ------------------ * Filed herewith. ** Filed as Exhibit 2(c) to the Company's Form 8A, dated July 9, 1992. *** Contained in Exhibit 4.2. **** To be filed by amendment. ***** Contained in Exhibit 5.1. ****** Included on signature page hereto. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 $75,000,000 PRIME HOSPITALITY CORP. ___% Convertible Subordinated Notes Due 2002 UNDERWRITING AGREEMENT __________________, 1995 MONTGOMERY SECURITIES SMITH BARNEY INC. c/o Montgomery Securities 600 Montgomery Street San Francisco, California 94111 Dear Sirs: SECTION 1. Introductory. Prime Hospitality Corp., a Delaware corporation (the "Company"), proposes to issue and sell $75,000,000 principal amount (the "Firm Notes") of its ___% Convertible Subordinated Notes Due 2002 (the "Notes") to be issued under an indenture, to be dated as of _____________, 1995 (the "Indenture"), between the Company and ___________________, as Trustee, to Montgomery Securities and Smith Barney Inc. (the "Underwriters") and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than an additional $11,250,000 principal amount (the "Option Notes") of the Notes as provided in Section 6 hereof. The Firm Notes and, to the extent such option is exercised, the Option Notes are herein collectively called the "Notes." The Underwriters have advised the Company that they propose to make a public offering of their respective portions of the Notes on the effective date of the registration statement hereinafter referred to, or as soon thereafter as in their judgment is advisable. The Company hereby confirms its agreements with respect to the purchase of the Notes by the Underwriters as follows: SECTION 2. Representations and Warranties of the Company. The Company hereby represents and warrants to the Underwriters that: (a) A registration statement on Form S-3 (Registration No. 33-___________) with respect to the Notes, including a preliminary form of prospectus, has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the 2 "Commission") thereunder and has been filed with the Commission; one or more amendments to such registration statement may have been so prepared and may have been, or may be, so filed, including either (i) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (ii) after effectiveness of such registration statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4) under the Act. Copies of such registration statement and amendments, each related preliminary prospectus (the "Preliminary Prospectus") (including three fully executed copies of the registration statement and each amendment thereto) and the pre-effective prospectus or final form of prospectus have been delivered to the Underwriters. Such registration statement as amended at the time it becomes effective or, if a post-effective amendment is filed with respect thereto, as amended by such post- effective amendment at the time of its effectiveness, including in each case information incorporated by reference therein and financial statements and exhibits, and the information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be a part of the registration at the time of its effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement;" and such prospectus as then amended including such information incorporated by reference therein, or first used to confirm sales, whether or not filed with the Commission pursuant to Rule 424(b) under the Act, is herein after referred to as the "Prospectus." (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, or to the knowledge of the Company, has been threatened to be issued. (c) Each part of the Registration Statement, when such part became or becomes effective, each Preliminary Prospectus, on the date of filing thereof with the Commission, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission, or as first used to confirm sales, and at the Closing Date (as hereinafter defined), conformed or will conform in all material respects with the requirements of the Act, the Trust Indenture Act and the Rules and Regulations; each part of the Registration Statement, when such part became or becomes effective, did not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; each Preliminary Prospectus, on the date of filing thereof with the Commission, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission, or when first used to confirm sales, and at the Closing Date, did not or will not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing shall not apply to statements in or omissions from any such document in reliance upon, and in conformity with, written information relating to the Underwriters furnished to the Company by the Underwriters, specifically for use in the preparation thereof. The documents incorporated by reference in the Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 2 3 (d) The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 22 to the Registration Statement. The Company and each of the Company's subsidiaries has been duly incorporated and is an existing corporation in good standing under the laws of its respective jurisdiction of incorporation, has full power and authority (corporate and other) to conduct its business as described in the Registration Statement and Prospectus and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business requires such qualification except where the failure to be so qualified, considering all such cases in the aggregate, would not have a material adverse effect on the condition (financial or other), business, property or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). (e) The Company has an authorized and outstanding capital stock as set forth under the heading "Capitalization" in the Prospectus; the issued and outstanding shares of the common stock of the Company (the "Common Stock") have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof contained in the Prospectus. All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable and (except as otherwise stated in the Registration Statement) are owned beneficially by the Company subject to no security interest, other encumbrance or adverse claim. Except as disclosed in or contemplated by the Prospectus and the financial statements of the Company, and the related notes thereto, included in the Prospectus, neither the Company nor any subsidiary has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (f) Each of the Indenture and the Notes have been duly authorized by the Company, the Indenture has been duly qualified under the Trust Indenture Act and when duly executed and delivered will constitute, and the Notes, when duly executed, authenticated, issued and delivered as contemplated hereby and by the Indenture, will constitute, valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (g) The Notes are convertible into Common Stock in accordance with the terms of the Indenture; the shares of such Common Stock initially issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus. 3 4 (h) This Agreement has been duly authorized, executed and delivered by the Company. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any agreement or instrument to which the Company or any of its subsidiaries is a party or by which it is bound or to which any of the property of the Company or any of its subsidiaries is subject, the charter or by-laws of the Company or any of its subsidiaries, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties; no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Notes by the Company, except such as may be required under the Act, the Trust Indenture Act or state securities laws; and the Company has full power and authority to authorize, issue and sell the Notes as contemplated by this Agreement. (i) Arthur Andersen LLP are independent public accountants with respect to the Company as required by the Act. (j) The financial statements and schedules of the Company and the related notes thereto, included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the respective dates of such financial statements and schedules, and the results of operations and changes in financial position of the Company or the respective periods covered thereby. Such statements, schedules and related notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis as certified by the independent accountants named in Section 2(i). No other financial statements or schedules are required to be included in the Registration Statement. The selected financial data set forth in the Prospectus under the captions "Capitalization," "Summary Recent Financial and Other Data," "Recent Consolidated Financial Data," and "Selected Consolidated Financial Data of the Company and its Predecessor", fairly present the information set forth therein on the basis stated in the Registration Statement. (k) The Company is not in violation of its charter or by-laws or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture, mortgage, deed of trust or other contract, lease or other instrument to which the Company is a party or by which it or its property is bound, or to which any of the property or assets of the Company is subject except for any such violation or default that could not have a Material Adverse Effect. (l) The descriptions in the Registration Statement and the Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown and there are no legal or governmental proceedings required to be described in the Registration Statement or the Prospectus that are not described as required. There are no contracts or documents of the Company or any of its subsidiaries that are required to be filed as exhibits to the Registration Statement by the Act, the Trust Indenture Act or by the Rules and Regulations that have not been so filed. 4 5 (m) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, none of the Company or any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into any transactions, not in the ordinary course of business, that are material to the Company and its subsidiaries, and there has not been any material adverse change, on a consolidated basis, in the capital stock, short-term debt or long-term debt of the Company and its subsidiaries, or any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or other), business, net worth or results of operations of the Company and its subsidiaries. (n) There is (i) no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending, threatened, or to the knowledge of the Company, contemplated to which the Company or any of its subsidiaries is or may be a party or to which the business or property of the Company or any of its subsidiaries is or may be subject, (ii) no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body (other than Blue Sky laws, regulations or orders), or (iii) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction to which the Company or any of its subsidiaries is or may be subject issued and outstanding that, in the case of clauses (i), (ii) and (iii) above, (1) is required to be disclosed in the Registration Statement or the Prospectus and that is not so disclosed, (2) might suspend the effectiveness of the Registration Statement, (3) might prevent or suspend the use of any Preliminary Prospectus in any jurisdiction, (4) except as disclosed in the Registration Statement or the Prospectus, might have a Material Adverse Effect, (5) would interfere with or adversely affect the issuance of the Notes, or (6) might in any manner invalidate or question the validity of any provisions of this Agreement, the Indenture or the Notes. (o) Except as otherwise disclosed in the Prospectus or such as are not material to the condition (financial or other), business, net worth or results of operations of the Company and its subsidiaries, taken as a whole, the Company and each of its subsidiaries has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions, except liens for taxes not yet due and payable, to all property and assets described in the Prospectus as being owned by it. (p) Since the respective dates as of which information is given in the Registration Statement and Prospectus, and except as described in or specifically contemplated by the Prospectus: (i) the Company and its subsidiaries have not incurred any material liabilities or obligations, direct, indirect or contingent, or entered into any material verbal or written agreement or other transaction which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company and its subsidiaries; (ii) the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance; (iii) the Company has not paid or declared any dividends or other distributions with respect to its capital stock and the Company and its subsidiaries are not in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the capital stock or indebtedness (other than the Notes) material to the Company and its subsidiaries (other than in the ordinary course of business); and (v) there 5 6 has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company and its subsidiaries. (q) Except as disclosed in or specifically contemplated by the Prospectus, the Company and its subsidiaries have sufficient trademarks, trade names, patent rights, mask works, copyrights, licenses, approvals and governmental authorizations to conduct their businesses as now conducted; the expiration of any trademarks, trade names, patent rights, mask works, copyrights, licenses, approvals or governmental authorizations would not have a Material Adverse Effect; and the Company has no knowledge of any material infringement by it or its subsidiaries of trademark, trade name, patent, mask works, copyrights, licenses, trade secret or other similar rights of others, and there is no claim being made against the Company or its subsidiaries regarding trademark, trade name, patent, mask work, copyright, license, trade secret or other infringement which could have a Material Adverse Effect. (r) The Company has not been advised, and has no reason to believe, that either it or any of its subsidiaries is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business. None of the Company or any of its subsidiaries is in violation of any safety or similar law applicable to its business, nor any federal, state or foreign law relating to discrimination in the hiring, promotion or pay of employees, nor any applicable federal, state or foreign wages and hours laws, nor any provisions of the Employee Retirement Income Security Act, as amended, or the rules and regulations promulgated thereunder ("ERISA"), which in each case could have a Material Adverse Effect. (s) Neither the Company nor any of its subsidiaries is involved in any material labor dispute nor, to the best of the knowledge of the Company and its subsidiaries, is any material labor dispute threatened which, if such dispute were to occur, would have a Material Adverse Effect. (t) In the ordinary course of business, employees of the Company conduct periodic reviews of the effect of Environmental Laws (as defined below) on the business operations and properties of the Company and its subsidiaries, in the ordinary course of which they seek to identify and evaluate associated costs and liabilities. Except as disclosed in the Registration Statement, the Company and its subsidiaries are in compliance with all applicable existing federal, state, local and foreign laws and regulations relating to the protection of human health or the environment or imposing liability or requiring standards of conduct concerning any Hazardous Materials ("Environmental Laws"), except for such instances of noncompliance which, either singly or in the aggregate, would not have a Material Adverse Effect. The term "Hazardous Material" means (a) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (b) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. There is no alleged liability, or to the best knowledge and information of the Company potential liability (including, without limitation, alleged or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) of the Company or any of its subsidiaries arising out of, based on or resulting from (i) the presence or release into 6 7 the environment of any Hazardous Material at any location at which the Company or any of its subsidiaries has previously conducted or is currently conducting any business (whether or not owned by the Company or any of its subsidiaries) or has previously owned or currently owns any property or (ii) any violation or alleged violation of any Environmental Law, in either case (x) which alleged or potential liability is required to be disclosed in the Registration Statement, other than as disclosed therein, or (y) which alleged or potential liability, singly or in the aggregate, would have a Material Adverse Effect. (u) All tax returns required to be filed by the Company and each of its subsidiaries in any jurisdiction have been filed, and all material taxes (including, but not limited to, withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from any taxing authority) have been paid other than those (i) being contested in good faith and for which adequate reserves have been provided or (ii) currently payable without penalty or interest. (v) The Company is not an "investment company" under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (w) The Company has not distributed and will not distribute prior to the First Closing Date any offering material in connection with the offering and sale of the Notes other than the Prospectus, the Registration Statement and the other materials permitted by the Act. (x) The Company and each of its subsidiaries maintain adequate insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks as are adequate in accordance with customary industry practice to protect the Company and each of its subsidiaries and their respective businesses. (y) Neither the Company nor any of its subsidiaries has at any time (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (z) The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Notes. (aa) Neither the issuance, sale and delivery of the Notes, nor the application of the proceeds thereof by the Company and its subsidiaries as set forth in the Prospectus, will violate Regulations G, T, U or X promulgated by the Board of Governors of the Federal Reserve System. (ab) Any material real property leases to which the Company or any of its subsidiaries is a party are valid and binding and no default has occurred and is continuing thereunder which would result in any Material Adverse Effect, and the Company and its subsidiaries enjoy peaceful and undisturbed possession under all such material real property leases to which any of them is 7 8 party as lessee with such exceptions as do not materially interfere with the use made of such property by the Company or such subsidiary. (ac) Other than as contemplated by this Agreement, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder's fee or other fee or commission as a result of any of the transactions contemplated by this Agreement. (ad) No consent, approval, authorization or order of, or filing or qualification with, any governmental agency or body or any court is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement or in connection with the sale of the Notes by the Company pursuant to this Agreement, except such as have been obtained and made under the Act and such as may be required under state securities law. (ae) The Company has complied with all provisions of Section 517.075 Florida Statutes, relating to doing business with the Government of Cuba or with any person or any affiliate located in Cuba. (af) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide assurance that: (1) transactions are executed in accordance with management's general or specific authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management's general or specific authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (ag) Prior to and immediately after the issuance of the Notes, (1) the present fair salable value of the assets of the Company exceeded and will exceed the amount that will be required to be paid on, or in respect of, the Company's debts and other liabilities (including contingent liabilities) as they become absolute and matured, (2) the Company does not have and will not have unreasonably small capital to carry out its business as conducted or as proposed to be conducted and (3) the Company does not intend to, and does not believe that it will, incur debts or other liabilities beyond its ability to pay such debts and liabilities as they mature. The Company does not intend to permit any of its subsidiaries to incur debts or other liabilities beyond their respective ability to pay such debts and liabilities as they mature. (ah) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement, or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (ai) The order confirming the Company's (or its predecessor's) plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Code") is a valid and binding order (i) as to which a notice of appeal or petition for certiorari can no longer be timely filed and as 8 9 to which no timely-filed appeal or certiorari proceeding is pending and (ii) which has not been overturned by a court of competent jurisdiction. There has been "substantial consummation" (as defined in Section 1101(2) of the Code) of the Plan. (aj) The Notes and the Common Stock into which the Notes are convertible have been approved for listing on the New York Stock Exchange. (ak) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. SECTION 3. Representations and Warranties of the Underwriters. The Underwriters represent and warrant to the Company that the information set forth (i) on the cover page of the Prospectus with respect to price, underwriting discounts and commissions and terms of offering and (ii) under "Underwriting" in the Prospectus was furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement and the Prospectus and is correct in all material respects. SECTION 4. Purchase, Sale and Delivery of Notes. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of _____% of the principal amount thereof, the respective principal amount of Firm Notes set forth opposite the name of such Underwriter in Schedule A hereto. Delivery of certificates for the Firm Notes to be purchased by the Underwriters and payment therefor shall be made at the offices of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or such other place as may be agreed upon by the Company and the Underwriters) at such time and date, not later than the fifth full business day following the first date that any of the Notes are released by the Underwriters for sale to the public, as the Underwriters shall designate by at least 48 hours prior notice to the Company (or at such other time and date, not later than one week after such fifth full business day as may be agreed upon by the Company and the Underwriters) (the "First Closing Date"); provided, however, that if the Prospectus is at any time prior to the First Closing Date recirculated to the public, the First Closing Date shall occur upon the later of the fifth full business day following the first date that any of the Notes are released by the Underwriters for sale to the public or the date that is 48 hours after the date that the Prospectus has been so recirculated. Delivery of certificates for the Firm Notes shall be made by or on behalf of the Company to the Underwriters against payment by the Underwriters of the purchase price therefor by certified or official bank checks payable in next day funds to the order of the Company. The certificates for the Firm Notes shall be registered in such names and denominations as the Underwriters shall have requested at least two full business days prior to the First Closing Date, and shall be made available for checking and packaging on the business day preceding the First Closing Date at a location in New York, New York, as may be designated by the Underwriters. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. 9 10 In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, upon written notice from Montgomery Securities, the Underwriters may purchase, severally and not jointly, all or less than all of the Option Notes at a purchase price of ____% of the principal amount thereof. The Company agrees to sell to the Underwriters the principal amount of Option Notes specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Option Notes. Such Option Notes shall be purchased for the account of each Underwriter in the same proportion as the principal amount of Firm Notes set forth opposite such Underwriter's name on Schedule A hereto bears to the total amount of Firm Notes (subject to adjustment by the Underwriters to round purchases to the nearest $1,000 principal amount) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Notes. Certificates for the Optional Notes will be made available for checking and packaging on the business day preceding the Second Closing Date (as defined below) at a location in New York, New York, as may be designated by the Underwriters. The manner of payment for and delivery of the Optional Notes shall be the same as for the Firm Notes purchased from the Company as specified in the two preceding paragraphs. Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the "Second Closing Date," shall be determined by the Underwriters, but if at any time other than the First Closing Date shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. At any time before lapse of the option, the Underwriters may cancel such option by giving written notice of such cancellation to the Company. If the option is cancelled or expires unexercised in whole or in part the Company will deregister under the Act the number of Option Shares as to which the option has not been exercised. Subject to the terms and conditions hereof, the Underwriters propose to make a public offering of their respective portions of the Notes as soon after the effective date of the Registration Statement as in the judgment of the Underwriters is advisable and at the public offering price set forth on the cover page of and on the terms set forth in the Prospectus. SECTION 5. Covenants of the Company. The Company covenants and agrees that: (a) The Company will cause the Prospectus to be filed with the Commission as required by Section 2(a) hereof (but only if the Underwriters have not reasonably objected thereto by notice to the Company after having been furnished a copy a reasonable time prior to filing) and will notify the Underwriters promptly of such filing; the Company will notify the Underwriters promptly of the time when any subsequent amendment to the Registration Statement has become effective or any supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or for additional information; the Company will prepare and file with the Commission, promptly upon the Underwriters' request, any amendments or supplements to the Registration Statement or Prospectus that, in the Underwriters' opinion, may be necessary or advisable in connection with the distribution of the Notes by the Underwriters; and the Company will file no amendment or supplement to the Registration Statement or Prospectus to which the Underwriters shall reasonably object by notice to the Company after having been furnished a copy a reasonable time prior to the filing. (b) The Company will advise the Underwriters, promptly after it shall have received notice or obtained knowledge thereof, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of 10 11 the Notes for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and the Company will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued. (c) Within the time during which a prospectus relating to the Notes is required to be delivered under the Act, the Company will comply as far as it is able with all requirements imposed upon it by the Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Notes as contemplated by the provisions hereof and the Prospectus. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act, the Company will promptly notify the Underwriters and will amend the Registration Statement or supplement the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (d) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company's current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period beginning after the effective date of the Registration Statement that shall satisfy the provisions of Section 11(a) of the Act. (e) The Company will furnish to the Underwriters copies of the Registration Statement (three of which will be signed and will include all exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Underwriters may from time to time reasonably request. (f) The Company will use its best efforts to qualify the Notes for sale under the securities laws of such jurisdictions as the Underwriters reasonably designate and to continue such qualifications in effect so long as required for the distribution of the Notes but in no event for more than 180 days, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or to subject itself to general taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will also arrange for the determination of the eligibility for investment of the Notes under the laws of such jurisdictions as the Underwriters reasonably request. (g) During the period of five years hereafter, the Company will furnish to the Underwriters: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other report filed by the Company with the Commission the National Association of Securities Dealers, Inc. ("NASD") or any securities 11 12 exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its Common Stock. (h) During the period of 90 days after the first date that any of the Notes are released by the Underwriters for sale to the public, without the prior written consent of Montgomery Securities (which consent may be withheld at the sole discretion of Montgomery Securities), the Company will not, and will obtain the agreement of each of the directors and executive officers of the Company listed under the heading "Management" contained in the Prospectus not to issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities or any other securities convertible into or exchangeable with its Common Stock or other equity security. (i) The Company will apply the net proceeds from the sale of the Notes to be sold by it hereunder for the purposes set forth in the Prospectus. (j) The Company will use its best efforts to qualify or register its Common Stock for sale in non- issuer transactions under (or obtain exemptions from the application of) the Blue Sky laws of the State of California (and thereby permit market making transactions and secondary trading in the Company's Common Stock in California), will comply with such Blue Sky laws and will continue such qualifications, registrations and exemptions in effect for a period of five years after the date hereof. (k) The Company will use its best efforts to list subject to official notice of issuance, on the New York Stock Exchange, the Stock to be issued on exchange of the Notes. The Underwriters, may, in their sole discretion waive in writing the performance by the Company of any one or more of the foregoing covenants or extend the time for their performance. SECTION 6. Payment of Expenses. The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective under the provisions of Section 13(a) hereof or is terminated, will pay all expenses incident to the performance of its obligations hereunder, will pay the expenses of printing all documents relating to the offering, and will reimburse the Underwriters for any expenses (including reasonable fees and disbursements of counsel) incurred by the Underwriters in connection with the matters referred to in Section 5(f) hereof and the preparation of memoranda relating thereto and for any filing fee of the NASD relating to the Notes. If the sale of the Notes provided for herein is not consummated by reason of the Company having failed, refused or been unable, at or prior to the Closing Date, to perform any agreement on its part to be performed hereunder or because any other condition of the Underwriters' obligations hereunder required to be fulfilled by the Company is not fulfilled, the Company will reimburse the Underwriters for all reasonable out-of-pocket disbursements (including reasonable fees and disbursements of counsel) incurred by the Underwriters in connection with the Underwriters' investigation, preparing to market and marketing the Notes or in contemplation of performing the Underwriters' obligations hereunder. The Company shall not in any event be liable to the Underwriters for loss of anticipated profits from the transactions covered by this Agreement. 12 13 SECTION 7. Conditions of the Obligations of the Underwriters. The obligations of the Underwriters to purchase and pay for the Firm Notes on the First Closing Date and the Optional Notes on the Second Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company herein set forth as of the date hereof and as of the First Closing Date or the Second Closing Date, as the case may be, to the accuracy of the statements of Company's officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., Washington, D.C. time, on the date of this Agreement or at such later time as shall have been consented to by the Underwriters; if the filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall have been filed in the manner and within the time period required by Rule 424(b) of the Rules and Regulations; and prior to such Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company or the Underwriters, shall be contemplated by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or otherwise, shall have been complied with to the Underwriters' satisfaction. (b) The Underwriters shall be satisfied that since the respective dates as of which information is given in the Registration Statement and Prospectus, (i) there shall not have been any change in the capital stock of the Company or any of its subsidiaries or any material change in the indebtedness (other than as a result of the sale of the Notes or in the ordinary course of business) of the Company or any of its subsidiaries, (ii) except as set forth or contemplated by the Registration Statement or the Prospectus, no material verbal or written agreement or other transaction shall have been entered into by the Company or any of its subsidiaries, which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company and its subsidiaries, (iii) no loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries shall have been sustained which could have a Material Adverse Effect, (iv) no legal or governmental action, suit or proceeding affecting the Company or any of its subsidiaries which is material to the Company and its subsidiaries or which affects or may affect the transactions contemplated by this Agreement shall have been instituted or threatened, and (v) there shall not have been any material change in the condition (financial or otherwise), business, management results of operations or prospects of the Company and its subsidiaries which makes it impractical or inadvisable in the judgment of the Underwriters to proceed with the public offering or purchase of the Notes as contemplated hereby. (c) There shall have been furnished to the Underwriters on each Closing Date, in form and substance satisfactory to the Underwriters, except as otherwise expressly provided below: (i) An opinion of Willkie Farr & Gallagher, counsel for the Company, addressed to the Underwriters and dated the First Closing Date, or the Second Closing Date, as the case may be, to the effect that: 13 14 (a) The Company and each of the Company's subsidiaries has been duly incorporated and is an existing corporation in good standing under the laws of its respective jurisdiction of incorporation, has full power and authority (corporate and other) to conduct its business as described in the Registration Statement and Prospectus and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which the conduct of its business requires such qualification except where the failure to be so qualified, considering all such cases in the aggregate, does not involve a material adverse risk to the business, properties, financial position or results of operations of the Company and the Company's subsidiaries. (b) Each of the Indenture and the Notes have been duly authorized by the Company, the Indenture has been duly qualified under the Trust Indenture Act and when duly executed and delivered will constitute, and the Notes, when duly executed, authenticated, issued and delivered as contemplated hereby and by the Indenture, will constitute, valid and legally binding obligations of the Company, enforceable in accordance with their terms and, in the case of the Notes, entitled to the benefits of the Indenture, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The Notes are convertible into Common Stock of the Company in accordance with the terms of the Indenture; the shares of such Common Stock initially issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion in accordance with the terms of the Indenture, will be validly issued, fully paid and nonassessable and will conform in all material respects to the description thereof contained in the Prospectus; the outstanding shares of such Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and conform in all material respects to the description thereof contained in the Prospectus; the Company has authorized and outstanding capital stock as set forth under "Capitalization" and "Description of Capital Stock" in the Prospectus; and the stockholders of the Company have no preemptive rights created by the Delaware General Corporation Law or by the Certificate of Incorporation or By-laws of the Company with respect to the Notes or the Common Stock. (d) The Registration Statement has become effective under the Act; the Prospectus has been filed with the Commission as required by Section 2(a) hereof and to the best knowledge of such counsel no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of such counsel, threatened by the Commission. (e) Each part of the Registration Statement, when such part became effective, and the Prospectus, and any amendment or supplement thereto, as of the respective date thereof, complied as to form in all material respects with the requirements of the Act, the Trust Indenture Act and the Rules and Regulations. (f) The descriptions in the Registration Statement and Prospectus of statutes, legal and governmental proceedings, contracts and other documents are accurate 14 15 and fairly present the information required to be shown; and such counsel does not know of any statutes or legal or governmental proceedings required to be described in the Prospectus that are not described as required, or of any contracts or documents of a character required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described and filed as required. (g) The Company is not an "investment company" under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (h) There is (i) no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending or threatened, to which the Company or any its subsidiaries is or may be a party or to which the business or property of the Company or any of its subsidiaries is or may be subject, and (ii) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction to which the Company or any of its subsidiaries is or may be subject issued that, in the case of clauses (i) and (ii) above, (a) is required to be disclosed in the Registration Statement or the Prospectus and that is not so disclosed, (b) might suspend the effectiveness of the Registration Statement, (c) to such counsel's knowledge, might prevent or suspend the use of any preliminary prospectus in any jurisdiction, (d) except as disclosed in the Registration Statement or the Prospectus, would have a Material Adverse Effect, (e) would interfere with or adversely affect the issuance of the Notes, or (f) would in any manner invalidate any provisions of this Agreement, the Indenture or the Notes. (i) The statements contained in the Prospectus under the caption "Description of Notes" insofar as they purport to describe the terms of the Notes, constitute accurate summaries thereof in all material respects; (j) Neither the issuance, sale and delivery of the Notes, nor the application of the proceeds thereof by the Company and its subsidiaries as set forth in the Prospectus, will violate Regulations G, T, U or X promulgated by the Board of Governors of the Federal Reserve System. (k) No consent, approval, authorization or order of, or filing or qualification with, any governmental agency or body or any court is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement or in connection with the sale of the Notes by the Company pursuant to this Agreement, except such as have been obtained and made under the Act and such as may be required under state securities law. (l) This Agreement has been duly authorized, executed and delivered by the Company. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute or any agreement or instrument filed as an exhibit to the Registration Statement, the charter or by-laws of the Company, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties; no consent, approval, 15 16 authorization or order of, or filing with, any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Notes by the Company, except such as may be required under the Act, the Trust Indenture Act or state securities laws; and the Company has full power and authority to authorize, issue and sell the Notes as contemplated by this Agreement. Such counsel shall also include a statement to the effect that nothing has come to such counsel's attention that would lead such counsel to believe that either at the effective date of the Registration Statement or at the applicable Closing Date, the Registration Statement or the Prospectus, or any such amendment or supplement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) An opinion of Joseph Bernadino, Esq., Senior Vice President, Secretary and General Counsel of the Company, addressed to the Underwriters and dated the First Closing Date, or the Second Closing Date, as the case may be, to the effect that: (a) To the best knowledge of such counsel, none of the Company or any of its subsidiaries is in violation of any safety or similar law applicable to its business, nor any federal, state or foreign law relating to discrimination in the hiring, promotion or pay of employees, nor any applicable federal, state or foreign wages and hours laws, nor any provisions of ERISA, which in each case would have a Material Adverse Effect. (b) To his knowledge, except as set forth in the Registration Statement, the Company and its subsidiaries are in compliance with all applicable existing federal, state, local and foreign laws and regulations relating to Environmental Laws, except for such instances of noncompliance which, either singly or in the aggregate, would not have a Material Adverse Effect. There is no alleged liability, or, to the best of his knowledge, potential liability (including, without limitation, alleged or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) of the Company or any of its subsidiaries arising out of, based on or resulting from (i) the presence or release into the environment of any Hazardous Material at any location at which the Company or any of its subsidiaries has previously conducted or is currently conducting any business (whether or not owned by the Company or any of its subsidiaries) or has previously owned or currently owns any property or (ii) any violation or alleged violation of any Environmental Law, in either case (x) which alleged or potential liability is required to be disclosed in the Registration Statement, other than as disclosed therein, or (y) which alleged or potential liability, singly or in the aggregate, would have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries is involved in any material labor dispute nor, to the best of his knowledge, is any material labor dispute threatened which, if such dispute were to occur, would have a Material Adverse Effect. 16 17 (d) Except as would not have a Material Adverse Effect, neither the Company nor any of its subsidiaries is in violation of its charter or by-laws and, to the best of his knowledge, neither the Company nor any of its subsidiaries is in default in the performance of any obligation, agreement or condition contained in any of the agreements filed as an exhibit to the Registration Statement. (e) All of the outstanding shares of capital stock of each such subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and (except as otherwise stated in the Registration Statement), to the best of his knowledge, are owned beneficially by the Company subject to no security interest, other encumbrance or adverse claim. (f) The Notes are convertible into Common Stock in accordance with the terms of the Indenture; the shares of such Common Stock initially issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus. (iii) Such opinion or opinions of Latham & Watkins, counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the validity of the Notes, the Registration Statement, the Prospectus and other related matters as you reasonably may request, and such counsel shall have received such papers and information as they reasonably request to enable them to pass upon such matters. (iv) A certificate of the Company executed by the Chairman of the Board or President and the chief financial or accounting officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) The representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date; (2) The Commission has not issued any order preventing or suspending the use of the Prospectus or any Preliminary Prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the best of the knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the Act; (3) Each of the respective signers of the certificate has carefully examined the Registration Statement and the Prospectus; in his opinion and to the best of his knowledge, the Registration Statement and the Prospectus and any amendments or supplements thereto contain all statements required to be stated 17 18 therein regarding the Company and its subsidiaries; and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (4) Since the initial date on which the Registration Statement was filed, no agreement, written or oral, transaction or event has occurred which should have been set forth in an amendment to the Registration Statement or in a supplement to or amendment of any prospectus which has not been disclosed in such a supplement or amendment; (5) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as disclosed in or contemplated by the Prospectus, there has not been any material adverse change or a development involving a material adverse change in the condition (financial or otherwise), business, properties, results of operations, management or prospects of the Company and its subsidiaries; and no legal or governmental action, suit or proceeding is pending or threatened against the Company or any of its subsidiaries which is material to the Company and its subsidiaries, whether or not arising from transactions in the ordinary course of business, or which may adversely affect the transactions contemplated by this Agreement; since such dates and except as so disclosed, neither the Company nor any of its subsidiaries has entered into any verbal or written agreement or other transaction which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company or incurred any material liability or obligation, direct, indirect or contingent, made any change in its capital stock, made any material change in its short-term debt or funded debt or repurchased or otherwise acquired any of the Company's capital stock; and the Company has not declared or paid any dividend, or made any other distribution, upon its outstanding capital stock payable to stockholders of record on a date prior to the First Closing Date or Second Closing Date; and (6) Since the respective dates as of which information is given in the Registration Statement and the Prospectus and except as disclosed in or contemplated by the Prospectus, the Company and its subsidiaries have not sustained a material loss or damage by strike, fire, flood, windstorm, accident or other calamity (whether or not insured). (v) On the date this Agreement is executed and also on the First Closing Date and the Second Closing Date, a letter addressed to you, as Representatives of the Underwriters, from Arthur Andersen LLP, independent accountants, the first one to be dated the date of this Agreement, the second one to be dated the First Closing Date and the third one (in the event of a Second Closing) to be dated the Second Closing Date, in form and substance satisfactory to you. (vi) On or before the First Closing Date, letters from each of the directors and executive officers of the Company listed under the heading "Management" contained in 18 19 the Prospectus, in form and substance satisfactory to the Underwriters, confirming that for a period of 90 days after the first date that any of the Notes are released by the Underwriters for sale to the public, such person will not directly or indirectly sell or offer to sell or otherwise dispose of any shares of Common Stock or any right to acquire such shares without the prior written consent of Montgomery Securities, which consent may be withheld at the sole discretion of Montgomery Securities, as the case may be. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to you and to Latham & Watkins, counsel for the Underwriters. The Company shall furnish you with such manually signed or conformed copies of such opinions, certificates, letters and documents as you request. Any certificate signed by any officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the statements made therein. If any condition to the Underwriters' obligations hereunder to be satisfied prior to or at the First Closing Date is not so satisfied, this Agreement at the Underwriters' election will terminate upon notification by the Underwriters to the Company without liability on the part of any Underwriter or the Company except for the expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 7 hereof and except to the extent provided in Section 10 hereof. SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding any other provisions hereof, if this Agreement shall be terminated by you pursuant to Section 7, or if the sale to the Underwriters of the Notes at the First Closing is not consummated because of any refusal, inability or failure on the part of the Company to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse the Underwriters upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Underwriters and them in connection with the proposed purchase and the sale of the Notes, including but not limited to fees and disbursements of counsel, printing expenses, travel expenses, postage, telegraph charges and telephone charges relating directly to the offering contemplated by the Prospectus. Any such termination shall be without liability of any party to any other party except that the provisions of this Section. This Section 8, Section 6 and Section 10 shall at all times be effective and shall apply. SECTION 9. Effectiveness of Registration Statement. The Underwriters and the Company will use their and its best efforts to cause the Registration Statement to become effective, to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages, liabilities or expenses, joint or several to which such Underwriter or such controlling person may become subject, under the Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any 19 20 material fact contained in the Registration Statement any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, or arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company contained herein or any failure of the Company to perform its obligations hereunder or under law; and will reimburse each Underwriter and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with the information furnished by the Underwriters to the Company specifically for use in the preparation of the Registration Statement. In addition to its other obligations under this Section 10(a), the Company agrees that as an interim measure during the pendency of any claim action, investigation inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, or any inaccuracy in the representations and warranties of the Company herein or failure to perform its obligations hereunder, all as described in this Section 10(a), it will reimburse each Underwriter on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse each Underwriter for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, each Underwriter shall promptly return it to the Company together with interest compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim reimbursement payments which are not made to an Underwriter within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each person if any, who controls the Company within the meaning of the Act against any losses, claims, damages, liabilities or expenses to which the Company, or any such director, officer, or controlling person may become subject, under the Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the 20 21 statements therein not misleading, in each case to the extent but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with the information furnished by the Underwriters to the Company specifically for use in the preparation of the Registration Statement, and will reimburse the Company, or any such director, officer or controlling person for any legal and other expense reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating defending, compromising or paying any such loss, claim, damage, liability, expense or action. In addition to its other obligations under this Section 10(b), each Underwriter severally agrees that as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission or any alleged statement or omission, described in this Section 10(b) which relates to information furnished by the Underwriters to the Company specifically for use in the preparation of the Registration Statement, it will reimburse the Company (and, to the extent applicable, each officer, director or controlling person) on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action investigation inquiry or other proceeding notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company (and, to the extent applicable, each officer, director or controlling person) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company (and, to the extent applicable, each officer, director or controlling person) shall promptly return it to the Underwriters together with interest compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such 21 22 indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Underwriters in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) If the indemnification provided for in this Section 10 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion, in the case of the Company as the total price paid to the Company for the Notes sold by it to the Underwriters (net of underwriting commissions but before deducting expenses) bears to the total price to the public set forth on the cover of the Prospectus, and in the case of the Underwriters, as the underwriting commissions received by them bears to the total price to the public set forth on the cover of the Prospectus. The relative fault of the Company and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in subparagraph (c) of this Section 10, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in subparagraph (c) of this Section 10 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this subparagraph (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under subparagraph (c) for purposes of indemnification. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined solely by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other 22 23 method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 10, no Underwriter shall be required to contribute any amount in excess of the amount of the total underwriting commissions received by such Underwriter in connection with the Notes underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 10 are several in proportion to their respective underwriting commitments and not joint. (e) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in Sections 10(a) and 10(b) hereof, including the amounts of any requested reimbursement payments and the method of determining such amounts, shall be settled by arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Such an arbitration would be limited to the operation of the interim reimbursement provisions contained in Sections 10(a) and 10(b) hereof and would not resolve the ultimate propriety or enforceability of the obligation to reimburse expenses which is created by the provisions of such Sections 10(a) and 10(b) hereof. SECTION 11. Default of Underwriters. It shall be a condition to this Agreement and the obligation of the Company to sell and deliver the Notes hereunder, and of each Underwriter to purchase the Notes in the manner as described herein, that, except as hereinafter in this paragraph provided, each of the Underwriters shall purchase and pay for all the Notes agreed to be purchased by such Underwriter hereunder upon tender to the Underwriters of all such Notes in accordance with the terms hereof. If either Underwriter defaults in its obligation to purchase Notes hereunder on either the First or Second Closing Date and the aggregate amount of Notes which such defaulting Underwriter agreed but failed to purchase on such Closing Date does not exceed 10% of the total amount of Notes which the Underwriters are obligated to purchase on such Closing Date, the non-defaulting Underwriter shall be obligated to purchase the Notes which such defaulting Underwriter agreed but failed to purchase on such Closing Date. If either Underwriter so defaults and the aggregate amount of Notes with respect to which such default occurs is more than the above percentage and arrangements satisfactory to the non-defaulting Underwriter and the Company for the purchase of such Notes by other persons are not made within 48 hours after such default, this Agreement will terminate without liability on the part of the non-defaulting Underwriter or the Company except for the expenses to be paid by the Company pursuant to Section 6 hereof and except to the extent provided in Section 10 hereof. In the event that Notes to which a default relates are to be purchased by the non-defaulting Underwriter or by another party or parties, the non-defaulting Underwriter or the Company shall have the right to postpone the First or Second Closing Date, as the case may be, for not more than five business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. As used in this Agreement the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 23 24 SECTION 12. Effective Date. This Agreement shall become effective immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other provisions, (i) if at the time of execution of this Agreement, the Registration Statement has not become effective, at 2:00 p.m., California time, on the first full business day following the effectiveness of the Registration Statement, or (ii) if at the time of execution of this Agreement, the Registration Statement has been declared effective, at 2:00 p.m., California time, on the first full business day following the date of execution of this Agreement; but this Agreement shall nevertheless become effective at such earlier time after the Registration Statement becomes effective as the Underwriters may determine on and by notice to the Company or by release of any of the Notes for sale to the public. For the purposes of this Section 12, the Notes shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Notes or upon the release by the Underwriters of telegrams (i) advising the Underwriters that the Notes are released for public offering, or (ii) offering the Notes for sale to securities dealers, whichever may occur first. SECTION 13. Termination. Without limiting the right to terminate this Agreement pursuant to any other provision hereof: (a) This Agreement may be terminated by the Company by notice to the Underwriters or by the Underwriters by notice to the Company at any time prior to the time this Agreement shall become effective as to all its provisions, and any such termination shall be without liability on the part of the Company to any Underwriter (except for the expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to the extent provided in Section 10 hereof) or of any Underwriter to the Company (except to the extent provided in Section 10 hereof). (b) This Agreement may also be terminated by the Underwriters prior to the First Closing Date by notice to the Company (i) if additional material governmental restrictions, not in force and effect on the date hereof, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or on the American Stock Exchange or in the over the counter market by the NASD, or trading in securities generally shall have been suspended on either such Exchange or in the over the counter market by the NASD, or a general banking moratorium shall have been established by federal, New York or California authorities, (ii) if an outbreak of major hostilities or other national or international calamity or any substantial change in political, financial or economic conditions shall have occurred or shall have accelerated or escalated to such an extent, as, in the judgment of the Underwriters, to affect adversely the marketability of the Notes, (iii) if any adverse event shall have occurred or shall exist which makes untrue or incorrect in any material respect any statement or information contained in the Registration Statement or Prospectus or which is not reflected in the Registration Statement or Prospectus but should be reflected therein in order to make the statements or information contained therein not misleading in any material respect, or (iv) if there shall be any action suit or proceeding pending or threatened, or there shall have been any development or prospective development involving particularly the business or properties or securities of the Company or any of its subsidiaries or the transactions contemplated by this Agreement, which, in the reasonable judgment of the Representatives, may materially and adversely affect the Company's business or earnings and makes it impracticable or inadvisable to offer or sell the Notes. Any termination pursuant to this subsection (b) shall be without liability on the part of any Underwriter to the Company or on the 24 25 part of the Company to any Underwriter (except for expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to the extent provided in Section 10 hereof). SECTION 14. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Notes sold hereunder and any termination of this Agreement. SECTION 15. Notices. All communications hereunder shall be in writing and, if sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed to the Underwriters at 600 Montgomery Street, San Francisco, California 94111, Attention: George W. Yandell, III, with a copy to John D. Watson, Esq., Latham & Watkins, 1001 Pennsylvania Avenue, Suite 1300, Washington, D.C. 20004; and if sent to the Company shall be mailed, delivered or telegraphed and confirmed to the Company at 700 Route 46 East, Fairfield, New Jersey 07004 with a copy to William N. Dye, Esq., Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022. The Company or the Underwriters may change the address for receipt of communications hereunder by giving notice to the others. SECTION 16. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 11 hereof, and to the benefit of the officers and directors and controlling persons referred to in Section 10, and in each case their respective successors, personal representatives and assigns, and no other person will have any right or obligation hereunder. No such assignment shall relieve any party of its obligations hereunder. The term "successors" shall not include any purchaser of the Notes as such from any of the Underwriters merely by reason of such purchase. SECTION 17. Partial Unenforceability. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. SECTION 18. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws pertaining to conflicts of laws) of the State of California. SECTION 19. General. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in several counterparts, each one of which shall be an original and all of which shall constitute one and the same document. In this Agreement the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only 25 26 and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company and the Underwriters. [signature page follows] 26 27 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed copies hereof, whereupon it will become a binding agreement between the Company and the Underwriters, all in accordance with its terms. Very truly yours, PRIME HOSPITALITY CORP. By: __________________________ Name: Title: The foregoing Underwriting Agreement is hereby confirmed and accepted by us in San Francisco, California as of the date first above written. MONTGOMERY SECURITIES SMITH BARNEY INC. MONTGOMERY SECURITIES By: _____________________________ Name: Title: 27 28 SCHEDULE A
Principal Amount Underwriter of Firm Securities ----------- ------------------ Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,000,000 ===========
28 EX-4.2 3 FORM OF INDENTURE 1 EXHIBIT 4.2 L&W DRAFT 3/6/95 ================================================================================ PRIME HOSPITALITY CORP. ______________________________ $75,000,000 ___% CONVERTIBLE SUBORDINATED NOTES DUE 2002 ______________________________ ______________________________ INDENTURE Dated as of ____ , 1995 ______________________________ BANK ONE, COLUMBUS, N.A. as Trustee ================================================================================ 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Authenticating Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Board Resolution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Closing Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Company Request" or "Company Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Corporate Trust Office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Holder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Interest Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Note Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Officers' Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Predecessor Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Redemption Date," . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Redemption Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Regular Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Repurchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Repurchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Risk Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Senior Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Significant Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Special Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Stated Maturity," . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Trading Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Trust Indenture Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Vice President" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i 3
Page 1.2 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.3 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4 Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.5 Notices to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.6 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.7 Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.8 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.10 Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.11 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.13 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.14 No Security Interest Created . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.15 Immunity of Incorporators, Stockholders, Officers and Directors . . . . . . . . . . . . . . . . 9 1.16 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 2 NOTE FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.1 Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2 Form of Face of Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.3 Form of Reverse Side of Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.4 Form of Trustee's Certificate of Authentication. . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 3 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.1 Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.3 Execution, Authentication, Delivery and Dating. . . . . . . . . . . . . . . . . . . . . . . . . 20 3.4 Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.5 Registration, Registration of Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . 21 3.6 Mutilated, Destroyed, Lost and Stolen Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.7 Payment of Interest; Interest Rights Preserved. . . . . . . . . . . . . . . . . . . . . . . . . 23 3.8 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.9 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.10 Computation of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 4 SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.1 Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.2 Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.3 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 5 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.2 Acceleration of Maturity; Rescission and Annulment. . . . . . . . . . . . . . . . . . . . . . . 27 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . . 28 5.4 Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ii 4
Page 5.5 Trustee May Enforce Claims Without Possession of Notes. . . . . . . . . . . . . . . . . . . . . 29 5.6 Application of Money Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.7 Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. . . . 30 5.9 Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.10 Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.11 Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.12 Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.13 Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.14 Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.15 Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 6 THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.1 Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.2 Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.3 Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.4 Not Responsible for Recitals or Issuance of Notes. . . . . . . . . . . . . . . . . . . . . . . . 32 6.5 May Hold Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.6 Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.7 Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.8 Disqualification; Conflicting lnterests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.9 Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.10 Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . . . . 33 6.11 Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.12 Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . . . . . . . . . 35 6.13 Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . . . . . . . . 35 6.14 Appointment of Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.1 Company to Furnish Trustee Names and Addresses of Holders. . . . . . . . . . . . . . . . . . . . 36 7.2 Preservation of Information Communications to Holders. . . . . . . . . . . . . . . . . . . . . . 37 7.3 Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.4 Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.1 Company May Consolidate, Etc., Only on Certain Terms. . . . . . . . . . . . . . . . . . . . . . 37 8.2 Successor Substitute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 9 SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.1 Supplemental Indentures Without Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . 38 9.2 Supplemental Indentures with Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . 39 9.3 Execution of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 9.4 Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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Page 9.5 Conformity with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 9.6 Reference in Notes to Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . 40 9.7 Notice of Supplemental Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 10 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.1 Payment of Principal, Premium and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.2 Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.3 Money for Note Payments to Be Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.4 Statement by Officers as to Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10.5 Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10.6 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10.7 Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10.8 Waiver of Certain Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE 11 REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.1 Right of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.2 Applicability Of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.3 Election to Redeem; Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.4 Selection by Trustee of Notes to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.5 Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 11.6 Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.7 Notes Payable on Redemption Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.8 Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 12 SUBORDINATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 12.1 Notes Subordinate to Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 12.2 Payment Over of Proceeds Upon Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 45 12.3 No Payment on Notes in Certain Circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . 46 12.4 Payment Permitted if No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.5 Subrogation to Rights of Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . 47 12.6 Provisions Solely to Define Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 12.7 Trustee to Effectuate Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.8 No Waiver of Subordination Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.9 Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.10 Reliance on Judicial Order or Certificate of Liquidating Agent. . . . . . . . . . . . . . . . . 49 12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . 49 12.12 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. . . . . . 49 12.13 Article Applicable to Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 12.14 Certain Conversions Deemed Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 13 CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 13.1 Conversion Privilege and Conversion Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 13.2 Exercise of Conversion Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
iv 6
Page 13.3 Fraction of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 13.4 Adjustment of Conversion Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 13.5 Notice of Adjustments of Conversion Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 13.6 Notice of Certain Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 13.7 Company to Reserve Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 13.8 Taxes on Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 13.9 Covenant as to Shares of Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 13.10 Cancellation of Converted Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 13.11 Provisions in Case of Consolidation, Merger or Sale of Assets. . . . . . . . . . . . . . . . . . 58 ARTICLE 14 REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A RISK EVENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 14.1 Right to Require Repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 14.2 Notices; Method of Exercising Repurchase Right, Etc. . . . . . . . . . . . . . . . . . . . . . . 59 14.3 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
v 7 CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION - --------------- ----------------- 310 (a)(1) . . . . . . . . . . . . . . . . . . . . 6.9 (a)(2) . . . . . . . . . . . . . . . . . . . . 6.9 (a)(3) . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . 6.8; 6.10 311 (a) . . . . . . . . . . . . . . . . . . . . . 6.13 (b) . . . . . . . . . . . . . . . . . . . . . 6.13 312 (a) . . . . . . . . . . . . . . . . . . . . . . 7.1; 7.2(a) (b) . . . . . . . . . . . . . . . . . . . . . . 7.2(b) (c) . . . . . . . . . . . . . . . . . . . . . 7.2(c) 313 (a) . . . . . . . . . . . . . . . . . . . . . . 7.3(a) (a)(4) . . . . . . . . . . . . . . . . . . . . 1.1 (b) . . . . . . . . . . . . . . . . . . . . . . 7.3(a) (c) . . . . . . . . . . . . . . . . . . . . . . 7.3(a) (d) . . . . . . . . . . . . . . . . . . . . . . 7.3(b) 314 (a) . . . . . . . . . . . . . . . . . . . . . 7.4 (b) . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . 1.2 (c)(2) . . . . . . . . . . . . . . . . . . . . 1.2 (c)(3) . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . 1.2 315 (a) . . . . . . . . . . . . . . . . . . . . . . 6.1 (b) . . . . . . . . . . . . . . . . . . . . . . 6.2 (c) . . . . . . . . . . . . . . . . . . . . . 6.1 (d) . . . . . . . . . . . . . . . . . . . . . . 6.1 (e) . . . . . . . . . . . . . . . . . . . . . . 5.14 316 (a) . . . . . . . . . . . . . . . . . . . . . . 1.1 (a)(1)(A) . . . . . . . . . . . . . . . . . . . 5.2; 5.12 (a)(1)(B) . . . . . . . . . . . . . . . . . 5.13 (a)(2) . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . 5.8 (c) . . . . . . . . . . . . . . . . . . . . . 1.4(c) 317 (a)(1) . . . . . . . . . . . . . . . . . . . 5.3 (a)(2) . . . . . . . . . . . . . . . . . . . . 5.4 (b) . . . . . . . . . . . . . . . . . . . . . 10.3 318 (a) . . . . . . . . . . . . . . . . . . . . . . 1.7
N.A. means not applicable. _______________ *THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE. 8 INDENTURE, dated as of ____________, 1995, between Prime Hospitality Corp., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 700 Route 46 East, Fairfield, New Jersey 07004, and Bank One, Columbus, N.A., a national banking association, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture). RECITALS The Company has duly authorized the creation of an issue of its ____% Convertible Subordinated Notes Due 2002 (herein called the "Notes") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the promises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1.1 Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to then in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to then in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and 9 (5) "or" is not exclusive. "Act" when used with respect to any Holder, has the meaning specified in Section 1.4. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Notes. "Beneficial owner" shall have the meaning specified in Section 14.3(a). "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close or to be closed. "Closing Price" has the meaning specified in Section 13.4(h). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 13.11, shares issuable on conversion of Notes shall include only shares of the class designated as Common Stock of the Company at the date of this instrument or shares of any class or classes resulting from any reclassification or reclassification thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassification bears to the total number of shares of all such classes resulting from all such reclassifications. 2 10 "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. As of the date hereof, the Corporate Trust Office of the Trustee is located at Columbus, Ohio. "Corporation" means a corporation, association, company, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 3.7. "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Holder" means a Person in whose name a Note is registered in the Note Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and to govern this instrument and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Maturity," when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Note" has the meaning specified in the Recitals of the Company to this Indenture. "Note Register" and "Note Registrar" have the respective meanings specified in Section 3.5. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 10.4 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. 3 11 "Outstanding," when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Notes which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands such Notes are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost, or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. 4 12 "Regular Record Date" for the interest payable on any Interest Payment Date means the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Repurchase Date" has the meaning specified in Section 14.1. "Repurchase Price" has the meaning specified in Section 14.1. "Risk Event" has the meaning specified in Section 14.3(c). "Senior Indebtedness" means the principal of (and premium, if any) and interest on (a) all indebtedness of the Company for money borrowed, other than the Notes, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, except any such indebtedness that, by the terns of the instrument or instruments by which such indebtedness was created or incurred, expressly provides that it (i) is junior in right of payment to the Notes or (ii) ranks in right of payment with the Notes, and (b) any amendments, renewals, extensions, deferrals, modifications, refinancings and refundings of any such indebtedness. For the purposes of this definition, "indebtedness for money borrowed," when used with respect to the Company, means (u) any obligation of the Company for the repayment of borrowed money (including, without limitation, fees, penalties, expenses, collection expenses, interest yield amounts and other obligations in respect thereof, and, to the extent permitted by applicable law, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code, whether or not allowed as a claim in such proceeding), whether or not evidenced by bonds, debentures, notes or other written instruments, and any other obligations evidenced by notes, bonds, debentures or similar instruments, (v) any deferred payment obligation of the Company for the payment of the purchase rice of property or assets evidenced by a note or similar instrument (excluding any obligations for trade payables or constituting the deferred purchase price of assets incurred in ordinary course of business), (w) any obligation of the for the payment of rent or other amounts under a lease of property or assets which obligation in required to be classified and accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (x) any obligation of the Company due and payable under interest rate and currency swaps, floors, caps or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (y) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit, and (z) any obligations of others of the kinds described in the preceding clauses (u), (v), (w), (x) or (y) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of such obligations. "Significant Subsidiary" means, with respect to any person, a Subsidiary of such Person that would constitute a "significant subsidiary" as such term in defined under Rule 1.02(v) of Regulation S-X of the Securities and Exchange Commission. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity," when used with respect to any Note or any installment of interest thereon, means the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest, as applicable, is due and payable. 5 13 "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable securities exchange or in the applicable securities market. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". 1.2 Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate (other than certificates provided pursuant to Section 10.4) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. 1.3 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that 6 14 all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 1.4 Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.1) prior to such first solicitation or vote, as the case may be. With regard to any record date, only 7 15 the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Notes shall be proved by the Note Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. 1.5 Notices to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company, Attention: Chief Financial Officer. 1.6 Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Note Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification to every purpose hereunder. 1.7 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. 8 16 1.8 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 1.9 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 1.10 Separability Clause. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 1.11 Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. 1.12 Governing Law. This Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. 1.13 Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Note or the last date on which a Holder has the right to convert his Notes shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of interest or principal (and premium, if any) or conversion of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, or on such last day for conversion, provided that no additional interest shall accrue an a result of such delayed payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. 1.14 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its Subsidiaries is located. 1.15 Immunity of Incorporators, Stockholders, Officers and Directors. No recourse shall be had for the payment of the principal of (and premium, if any), or the interest, if any, on any Note, or for any claim based thereon, or upon any obligation, covenant or agreement of this Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise; it being expressly agreed and understood that this Indenture and all of the Notes are solely corporate obligations, and that no personal liability whatever shall attach to, or is incurred by, any incorporator, stockholder, officer or director, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, because of the incurring of the indebtedness hereby authorized or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in the Notes, or to be implied herefrom or therefrom; and that all such personal liability is hereby expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture and the issuance of the Notes. 9 17 1.16 Acceptance by Trustee. The Trustee hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions set forth herein. ARTICLE 2 NOTE FORMS 2.1 Forms Generally. The Notes and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange on which the Notes may be listed or as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of the Notes. The definitive Notes shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. 2.2 Form of Face of Note. No. _______ $_______ Prime Hospitality Corp. ___% Convertible Subordinated Note Due 2002 CUSIP ______________ Prime Hospitality Corp., a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the principal sum of ______________ Dollars on _____________, 2002, and to pay interest thereon from ___________, 1995 or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on April 15 and October 15 in each year, commencing October 15, 1995, at the rate of ____% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is, registered at the close of business on the Regular Record Date for such interest, which shall be April 1 or October 1 (whether or not a Business Day), an the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which shall be given to Holders of Notes not less than ten (10) days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided 10 18 in said Indenture. Payment of the principal of (and premium, if any) and interest on this Note will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trust referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: PRIME HOSPITALITY CORP. TRUSTEE'S CERTIFICATE OF BY: ____________________ AUTHENTICATION President This is one of the Notes referred to in the within- ATTEST: ________________ mentioned Indenture. Secretary BANK ONE, COLUMBUS, N.A., as Trustee BY: ______________________________ Authorized Signatory 2.3 Form of Reverse Side of Note. PRIME HOSPITALITY CORP. ____% CONVERTIBLE SUBORDINATED NOTE DUE 2002 11 19 This Note is one of a duly authorized issue of Notes of the Company designated as its ___% Convertible Subordinated Notes Due 2002 (herein called the "Notes"), limited in aggregate principal amount to $75,000,000 (subject to increase as provided in the Indenture up to $86,250,000 aggregate principal amount), issued and to be issued under an Indenture, dated as of ___________, 1995 (herein called the "Indenture"), between the Company and Bank One, Columbus, N.A. as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Note is entitled, at his option, at any time on or before the close of business on April 15, 2002, or in case this Note or a portion hereof is called for redemption or submitted for repurchase upon the occurrence of a Risk Event, then in respect of this Note or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the last Trading Day prior to the Redemption Date or Repurchase Date, respectively, to convert this Note (or any portion of the principal amount hereof which is $1,000 or an integral multiple thereof), at the principal amount hereof, or of such portion, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at a conversion price equal to $ aggregate principal amount of Notes for each share of Common Stock (or at the current adjusted conversion price if an adjustment has been made as provided in the Indenture) by surrender of this Note, duly endorsed or assigned to the Company or in blank, to the Company at its office or agency maintained for that purpose in the Borough of Manhattan, The City of New York, accompanied by written notice to the Company in the form provided in this Note (or such other notice as is acceptable to the Company) that the Holder hereof elects to convert this Note, or if less than the entire principal amount hereof in to be converted, the portion hereof to be converted, and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (unless this Note or the portion thereof being converted has been called for redemption on a Redemption Date within such period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Note then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Note (or any Predecessor Note) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no payment or adjustment is to be made on conversion for interest accrued hereon or for dividends on the Common Stock issued on conversion. No fractional shares or scrip representing fractional shares will be issued on conversion, but instead of any fractional share the Company shall pay a cash adjustment as provided in the Indenture. The conversion price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain reclassifications, consolidations or mergers to which the Company is a party or the sale or transfer of substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any Holders of Notes, so that this Note, if then outstanding, will be convertible thereafter, during the period this Note shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which this Note might have been converted immediately prior to such consolidation, merger or 12 20 transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). The Notes are subject to redemption upon not less than fifteen (15) nor more than sixty (60) days' notice by mail, at any time on or after April 17, 1998, as a whole or in part, at the election of the Company, at the following Redemption Prices' (expressed as percentages of the principal amount): If redeemed during the twelve (12) month period beginning April 15 (or April 17, in the case of 1998) of the years indicated,
Year Redemption Price 1998 . . . . . . . . . . % 1999 . . . . . . . . . . % 2000 . . . . . . . . . . % 2001 . . . . . . . . . . %
and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Notes, or one or more Predecessor Notes, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Indenture provides that if a Risk Event (as defined therein) occurs, each Holder of Notes shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase all of such Holder's Notes, or any portion thereof that is an integral multiple of $1,000, for cash at a price equal to 100% of the principal amount of such Notes to be repurchased together with accrued interest to the Repurchase Date. In the event of redemption, conversion or repurchase of this Note in part only, a new Note or Notes for the portion hereof not redeemed, converted or repurchased will be issued in the name of the Holder hereof upon the cancellation hereof. The indebtedness evidenced by this Note is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Note is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. 13 21 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made up this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Note as provided in the Indenture. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Note Register, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York, duly endorsed by or accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, in each case, with an appropriate signature guarantee, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject certain limitations therein set forth, Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith (except as provided in the Indenture). Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal, premium, if any, or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment 14 22 or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ABBREVIATIONS The following abbreviations, when used in the inscription the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the ________ Custodian _______ entireties (Cust) (Minor) JT TEN - as joint tenants with Under Uniform Gifts to right of survivorship Minors Act ___________ and not as tenants in (State) common Additional abbreviations may also be used though not in above list. 15 23 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE TO PRIME HOSPITALITY CORP. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of the Company in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Note. Dated:______________________ Signature(s) Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange if shares of Common Stock are to be delivered, or Notes to be issued, other than to and in the name of the registered owner. - --------------------------- Signature Guarantee Fill in for registration of shares of Common Stock if they are to be delivered, or Notes if they are to be issued, other than to and in the name of the registered owner: Register: __ Common Stock - --------------------------- (Name) __ Notes - --------------------------- (Street Address) (Check appropriate line(s))
16 24 Principal amount to be converted - --------------------------- (if less than all): (City, State and Zip Code) (Please print name and address) $____________,000 --------------------------- Social Security or Other Taxpayer Identification Number
17 25 [FORM OF OPTION TO ELECT REPAYMENT UPON A RISK EVENT] OPTION TO ELECT REPAYMENT UPON A RISK EVENT TO PRIME HOSPITALITY CORP. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from the Company as to the occurrence of a Risk Event with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture, together with accrued interest to such date, to the registered holder hereof. ---------------------------------- Date: ------------- ---------------------------------- Signature(s) ---------------------------------- Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $___________,000 NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever.
18 26 ASSIGNMENT ---------------------------------- Date: ------------- ---------------------------------- Signature(s) ---------------------------------- Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $___________,000 NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever.
2.4 Form of Trustee's Certificate of Authentication. This is one of the Notes referred to in the within-mentioned Indenture. BANK ONE, COLUMBUS, N.A., as Trustee By ---------------------- Authorized Signatory 19 27 ARTICLE 3 THE NOTES 3.1 Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to (a) $75,000,000 plus (b) such additional aggregate principal amount (which may not exceed $11,250,000 principal amount) of Notes as may be purchased by the Underwriters pursuant to the Underwriting Agreement, dated ___________, 1995, between the Company, Montgomery Securities and Smith Barney Inc., as Underwriters, solely to cover over-allotments, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 3.4, 3.5, 3.6, 9.6, 11.8 or 13.2. The Notes shall be known and designated as the "____% Convertible Subordinated Notes Due 2002" of the Company. Their Stated Maturity shall be April 15, 2002, and they shall bear interest at the rate of ____% per annum, from the date of initial issuance or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on April 15 and October 15, commencing October, 1995, until the principal thereof is paid or made available for payment. The principal of (and premium, if any) and interest on the Notes shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register. The Notes shall be redeemable as provided in Article 11. The Notes shall be subordinated in right of payment to Senior Indebtedness as provided in Article 12. The Notes shall be convertible as provided in Article 13. The Notes shall be subject to repurchase by the Company, at the election of Holders, as provided in Article 14. 3.2 Denominations. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. 3.3 Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with 20 28 a Company Order for the authentication and delivery of such Notes; and the Trustee in accordance with such Company Order shall authenticate and deliver such Notes as in this Indenture provided and not otherwise. Each Note shall be dated the date of its authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. 3.4 Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as evidenced by their execution of such Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. 3.5 Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes collectively referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Trustee is hereby appointed "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. 21 29 All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Sections 3.4, 9.6, 11.8 or 13.2 not involving any transfer. The Company shall not be required (i) to issue, register transfer of or exchange any Note during a period beginning at the opening of business fifteen (15) days before day of the mailing of a notice of redemption of Notes selected for redemption under Section 11.4 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 3.6 Mutilated, Destroyed, Lost and Stolen Notes. If any mutilated Note is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, or theft of any Note and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute, and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. 22 30 3.7 Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Note Register, not less than ten (10) days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. In the case of any Note which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Note whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or 23 31 not punctually paid or duly provided for) shall be paid to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Note which is converted, interest whose Stated Maturity is after the date of conversion of such Note shall not be payable. 3.8 Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.7) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. 3.9 Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be disposed of as directed by a Company Order. 3.10 Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE 4 SATISFACTION AND DISCHARGE 4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Notes herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid an provided in Section 3.6 and (ii) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one (1) year, or 24 32 (iii) are to be called for redemption within one (1) year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. 4.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 4.1 (and held by it or any Paying Agent) for the payment of Notes subsequently converted shall be returned to the Company upon Company Request. 4.3 Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article 4 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article 4 until such time as the Trustee or Paying Agent is permitted to apply all money held in trust with respect to the Notes; provided, however, that if the Company makes any payment of principal of or any premium or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders to receive such payment from the money so held in trust. ARTICLE 5 REMEDIES 5.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or 25 33 involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of (or premium, if any, on) any Note at its Maturity, whether or not such payment is prohibited by the provisions of Article 12; or (2) default in the payment of any interest upon any Note when it becomes due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is prohibited by the provisions of Article 12; or (3) a default in the payment of the Repurchase Price in respect of any Note on the Repurchase Date therefor in accordance with the provisions of Article 14, whether or not such payment is prohibited by the provisions of Article 12; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of sixty (60) days after there has been given, by registered or certified mail, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Notes, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any of its Significant Subsidiaries or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Significant Subsidiary in an amount, together with all other such indebtedness, exceeding $5,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay any portion of principal or interest on such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in such indebtedness in an amount exceeding $5,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of ten (10) days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Notes a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any Significant Subsidiary which remains undischarged for a period (during which execution shall not be effectively stayed) of sixty (60) days, provided that the aggregate of all such outstanding judgments exceeds $5,000,000 (excluding any amounts covered by insurance as to which the insurer has not denied liability); or 26 34 (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or a Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or a Subsidiary bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of sixty (60) consecutive days; or (8) the commencement by the Company or any Significant Subsidiary of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action. 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Notes may declare the principal of all the Notes to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal shall become immediately due and payable. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes, (B) the principal of (and premium, if any, on) any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes, and 27 35 (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any interest on any Note when such interest becomes due and payable and such default continues for a period of thirty (30) days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 5.4 Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Notes), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, 28 36 adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 5.5 Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. 5.6 Application of Money Collected. Subject to Article 12, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; and SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any) and interest, respectively. 5.7 Limitation on Suits. No Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such sixty (60) day period by the Holders of a majority in principal amount of the Outstanding Notes. It being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other 29 37 Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date), to have such Note repurchased in accordance with Article 14 and to convert such Note in accordance with Article 13 and to institute suit for the enforcement of any such payment, right to require repurchase and right to convert, and such rights shall not be impaired without the consent of such Holder. 5.9 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 5.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, an the case may be. 5.12 Control by Holders. The Holders of a majority in principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. 30 38 5.13 Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 5.14 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to convert any Note in accordance with Article 13. 5.15 Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 6 THE TRUSTEE 6.1 Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. 6.2 Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder known to the Trustee as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.1(4), no such notice to Holders shall be given until at least thirty (30) days after the occurrence thereof. For the purpose of 31 39 this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. 6.3 Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein pacifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. 6.4 Not Responsible for Recitals or Issuance of Notes. The recitals contained herein and in the Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. 6.5 May Hold Notes. The Trustee, any Paying Agent, any Note Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of 32 40 Notes and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Note Registrar or such other agent. 6.6 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. 6.7 Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. 6.8 Disqualification; Conflicting lnterests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. 6.9 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 6.10 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. 33 41 (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six (6) months, or (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (I) the Company by a Board Resolution may remove the Trustee, or (II) subject to Section 5.14, any Holder who has been a bona fide Holder of a Note for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within ninety (90) days after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. 6.11 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. 34 42 No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 6.12 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. 6.13 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). 6.14 Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Notes issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 3.6, and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Whenever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustees certificate of authentication, such references shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it say be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. 35 43 An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first- class mail, postage prepaid, to all Holders as their names and addresses appear in the Note Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an appointment is made pursuant to this Section, the Notes may have endorsed thereon, in addition to the Trustees certificate of authentication, an alternative certificate of authentication in the following form: This in one of the Notes described in the within mentioned Indenture. BANK ONE, COLUMBUS, N.A., as Trustee By ---------------------------------- as authorized agent By: ---------------------------------- as Authenticating Agent By: ---------------------------------- Authorized Signatory ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY 7.1 Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than fifteen (15) days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within thirty (30) days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished; 36 44 excluding from any such list names and addresses received by the Trustee in its capacity as Note Registrar. 7.2 Preservation of Information Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Note Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Notes, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. 7.3 Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Notes are listed, with the Commission and with the Company. The Company will notify the Trustee when the Notes are listed on any stock exchange. 7.4 Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE 8.1 Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: 37 45 (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company in merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Notes and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 13.11; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. 8.2 Successor Substitute. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.1, the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Notes. ARTICLE 9 SUPPLEMENTAL INDENTURES 9.1 Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Notes; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; provided, however, that in respect of any such additional covenant such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other 38 46 defaults) or may provide for immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; or (3) to secure the Notes; or (4) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 13.11; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (6) to add any additional Events of Default; or (7) to cure any ambiguity, to correct or supplement any provision herein or any supplemental indenture which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this Clause (7) shall not adversely affect the interests of the Holders in any material respect. 9.2 Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby, (1) change the Stated Maturity of, the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Note or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or adversely affect the right to convert any Note as provided in Article 13 (except as permitted by Section 9.1(4)), or adversely affect the right to cause the Company to repurchase any Note pursuant to Article 14, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section or Section 5.13 or Section 10.8, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby. 39 47 It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 9.3 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. 9.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such-supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. 9.5 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. 9.6 Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, Notes so modified as to conform, in the opinion of Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Notes. 9.7 Notice of Supplemental Indenture. Promptly after execution by the Company and the Trustee of any supplemental indenture pursuant to Section 9.2, the Company shall transmit to the Holders a notice setting forth the substance of such supplemental indenture. ARTICLE 10 COVENANTS 10.1 Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Notes (including the Repurchase Price) in accordance with the terms of the Notes and this Indenture. 10.2 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange, where Notes may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made 40 48 or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission of any change in the location of any such other office or agency. 10.3 Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Notes, aggregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Notes) in the making of any payment in respect of the Notes, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Note and remaining unclaimed for two (2) years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of the Company cause to be published once, in a paper published in the English language, customarily published on each Business Day and 41 49 of general circulation in City of New York, notice that such money remains unclaimed that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then remaining will be paid to the Company. 10.4 Statement by Officers as to Default. The Company will deliver to the Trustee, within sixty (60) days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating as to each signer thereof that he or she is familiar with the affairs of the Company and whether or not to his or her knowledge the Company is in default in the performance and observance of the terms, provisions or conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which he or she may have knowledge. 10.5 Existence. Subject to Article 8, the Company will cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises and the existence, rights (charter and statutory) and franchises of each Significant Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries and that the loss thereof is not disadvantageous in any material respect to the Holders. 10.6 Maintenance of Properties. The Company will cause properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business and the business of its Subsidiaries and not disadvantageous in any material respect to the Holders. 10.7 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property he Company or any Significant Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Significant Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. 10.8 Waiver of Certain Covenants. The Company need not in any particular instance comply with any covenant or condition set forth in Section 10.5, 10.6 or 10.7, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Notes shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. 42 50 ARTICLE 11 REDEMPTION OF NOTES 11.1 Right of Redemption. The Notes may be redeemed at the election of the Company, as a whole or from time to in part, at any time on or after April 17, 1998, at the Redemption Prices specified in the form of Note hereinbefore set forth, together with accrued interest to the Redemption Date. 11.2 Applicability Of Article. Redemption of Notes at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article. 11.3 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 11.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Notes, the Company shall, at least sixty (60) days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Notes to be redeemed. 11.4 Selection by Trustee of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the Trustee, from the Outstanding Notes not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Notes of a denomination larger than $1,000. If any Note selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Note so selected, the converted portion of such Note shall be deemed (so far as may be) to be the portion selected for redemption. Notes which have been converted during a selection of Notes to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Note Registrar in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Notes redeemed or to be redeemed only in part, to the portion of the principal amount of such Notes which has been or is to be redeemed. 11.5 Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than fifteen (15) nor more than sixty (60) days prior to the Redemption Date, to each Holder of Notes to be redeemed, at his address appearing in the Note Register. All notices of redemption shall state: (1) the Redemption Date, 43 51 (2) the Redemption Price, (3) if less than all the Outstanding Notes are to be redeemed, the identification (and, in the case of partial redemption of any Notes, the principal amounts) of the particular Notes to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Note to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the conversion price, the date on which the right to convert the Notes to be redeemed will terminate and the place or places where such Notes may be surrendered for conversion, and (6) the place or places where such Notes are to be surrendered for payment of the Redemption Price. Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at Company's request, by the Trustee in the name and at the expense of the Company. 11.6 Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Notes which are to be redeemed on that date other than Notes called for redemption on that date which have been converted prior to the date of such deposit. If any Note called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or segregated and held in trust for the redemption of such Note shall (subject to any right of the Holder of such Note or any Predecessor Note to receive interest as provided in the last paragraph of Section 3.7) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. 11.7 Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. Upon surrender of such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 3.7. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Note. 44 52 11.8 Notes Redeemed in Part. Any Note which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company or the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. ARTICLE 12 SUBORDINATION OF NOTES 12.1 Notes Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Note, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article 4), the payment of the principal of (and premium, if any) and interest on each and all of the Notes (including any repurchases or payments pursuant to Article 14) are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. 12.2 Payment Over of Proceeds Upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary whether or not involving insolvency or bankruptcy, or any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the Holders of the Notes are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of principal of (or premium, if any) or interest on the Notes or on account of any purchase (including any repurchase pursuant to Article 14) or other acquisition of Notes by the Company or any Subsidiary of the Company (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "Notes Payment"), and to that end the holders of all Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any Notes Payment which may be payable or deliverable in respect of the Notes in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Note shall have received any Notes Payment before all Senior Indebtedness is paid in full or payment thereof provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, and if such fact shall, at or prior to the time of such Notes Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Notes Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. 45 53 For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as the Notes are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution or the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article 8 shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, all, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article 8. 12.3 No Payment on Notes in Certain Circumstances. In the event that any Notes are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Indebtedness outstanding at the time such Notes so become due and payable shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Senior Indebtedness, before the Holders of the Notes are entitled to receive any Notes Payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Notes). In the event and during the continuation of (i) any default in the payment of principal of (or premium, if any) or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto, or (ii) any other event of default with respect to any Senior Indebtedness shall have occurred and be continuing permitting the holders of such Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, upon written notice thereof to the Company and the Trustee by any holders of Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) (the "Default Notice"), unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (iii) any judicial proceeding shall be pending with respect to any such default payment or event of default, then no Notes Payment shall be made; provided, however, that clause (ii) of this paragraph shall not prevent the making of any Notes Payment for more than 179 days after a Default Notice shall have been received by the Trustee unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety in which case no such payment may be made until such acceleration has been rescinded or annulled or such Senior Indebtedness has on paid in full. Notwithstanding the foregoing, no event of default which existed or was continuing on the date of any Default Notice shall be made the basis for the giving of a second Default Notice; provided, further, however, that only one such Default Notice may be given in any 365 day period. In the event that, notwithstanding the foregoing, the Company shall make any Notes Payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such Notes Payment, have been made known to the Trustee or, as the 46 54 case may be, such Holder, then and in such event such Notes Payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any Notes Payment with respect to which Section 12.2 would be applicable. 12.4 Payment Permitted if No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Notes shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 12.2 or under the conditions described in Section 12.3, from making Notes Payments, or (b) the application by the Trustee of any money deposited with it hereunder to Notes Payments or the retention of such Notes Payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such Notes Payment would have been prohibited by the provisions of this Article. 12.5 Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Indebtedness, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the Holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of he Senior Indebtedness of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. 12.6 Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Notes, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of the Notes the principal of (and premium, if any) and interest on, and to make any repurchases required by Article 14 of, the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Notes and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. 47 55 12.7 Trustee to Effectuate Subordination. Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. 12.8 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness, any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 12.9 Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least three (3) Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on, or amounts payable upon repurchase of, any Note), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may received by it within three (3) Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by 48 56 such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. 12.10 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. 12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. 12.12 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. 12.13 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 12.12 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. 12.14 Certain Conversions Deemed Payment. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article 13 shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of such Note. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company, (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated 49 57 as provided in this Article and (c) securities into which the Notes become convertible pursuant to Section 13.11. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article 13. ARTICLE 13 CONVERSION OF NOTES 13.1 Conversion Privilege and Conversion Price. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Note or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the conversion price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on April 15, 2002. In case a Note or portion thereof is called for redemption at the election of the Company or delivered for repurchase pursuant Article 14, such conversion right in respect of the Note or portion so called shall expire at the close of business on the last Trading Day prior to the Redemption Date or the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "conversion price") shall be initially $___________ per share of Common Stock. The conversion price shall be adjusted in certain instances as provided in this Article 13. 13.2 Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Note to be converted shall surrender such Note, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 10.2, accompanied by written notice to the Company (in form and substance satisfactory to the Company) at such office agency that the Holder elects to convert such Note or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Notes or portions thereof which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Notes being surrendered for conversion. Subject to the provisions Section 3.7 relating to the payment of Defaulted Interest by the Company, the interest payment with respect to a Note called for redemption on a Redemption Date during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall be payable on such Interest Payment Date to the Holder of such Note at the close of business on such Regular Record Date notwithstanding the conversion of such Note after such Regular Record Date and prior to such Interest Payment Date, and the Holder converting such Note need not include a payment of such interest payment amount upon surrender of such Note for conversion. Except as provided in the preceding sentence and subject to the final paragraph of Section 3.7, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Notes surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion. 50 58 Notes shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Notes for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Notes as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Company shall issue and shall deliver at such office or agency a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 13.3. In the case of any Note which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Note or Notes of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Note. 13.3 Fraction of Shares. No fractional shares of Common Stock shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Note or Notes (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the fraction of the daily Closing Price per share of Common Stock (consistent with Section 13.4(h) below) at the close of business on the day of conversion. 13.4 Adjustment of Conversion Price. (a) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the conversion price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (b) Subject to the provisions of paragraph (g) of this Section, in case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (determined as provided in paragraph (h) of this Section) on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than pursuant to a dividend reinvestment plan), the conversion price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of 51 59 the offering price of the total number of shares of Common Stock offered for subscription or purchase would purchase at such Current Market Price and the denominator shall be the number shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or repurchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) Subject to the last sentence of this paragraph (d) and the provisions of paragraph (g) of this Section, in case the Company shall, by dividend or otherwise, distribute to all holders of the Common Stock evidences of its indebtedness, shares of any class of its capital stock, cash or other assets (including securities, but excluding any rights, options or warrants referred to in paragraph (b) of this Section, excluding any dividend or distribution paid exclusively in cash and excluding any dividend or distribution referred to in paragraph (a) of this Section), the conversion price shall be reduced by multiplying the conversion price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in paragraph (h) of this Section) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the evidences of indebtedness, shares of capital stock, cash and other assets to be distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following such date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (d) by reference to the actual or when-issued trading market for any securities comprising part or all of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to paragraph (h) of this Section, to the extent possible. For purposes of this paragraph (d), any dividend or distribution that includes shares of Common Stock, rights, options or warrants to subscribe for or purchase shares of Common stock or securities convertible into or exchangeable for shares of Common Stock shall be deemed to be (x) a dividend or distribution of the evidences of indebtedness, cash, assets or shares of capital stock other than such shares of Common Stock, such rights, options or warrants or such convertible or exchangeable securities (making any conversion price reduction required by paragraph (d)) immediately followed by (y) in the case of such shares of Common Stock or such rights, options or warrants, dividend or distribution thereof (making any further conversion price reduction required by (a) and (b) of this Section, except any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at close of business on the date fixed for such determination" within the meaning 52 60 of paragraph (a) of this Section), or (z) in the case of such convertible or exchangeable securities, a dividend or distribution of the number of shares of Common Stock as would then be issuable upon the conversion or exchange thereof, whether or not the conversion or exchange of such securities is subject to any conditions (making any further conversion price reduction required by paragraph (a) of this Section, except the shares deemed to constitute such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of paragraph (a) of this Section). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 13.11 applies or as part of a distribution referred to in paragraph (d) of this Section) in an aggregate amount that, combined together with (1) the aggregate amount of any other distributions to all holders of its Common Stock exclusively in cash within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this paragraph (e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration paid or payable in respect of any tender offer by the Company or any Subsidiary for all or any portion the Common Stock concluded within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to paragraph (f) of this Section has been made, exceeds 12.5% of the product of the Current Market Price (determined as provided in paragraph (h) of this Section) on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the conversion price shall be reduced so that same shall equal the price determined by multiplying the conversion price in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the Current Market Price (determined as provided in paragraph (h) of this Section) on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 1% and (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the Current Market Price (determined as provided in paragraph (h) of this Section) on such date for determination. (f) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration paid or payable in respect of any other tender offer, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (f) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (e) of this Section has been made, exceeds 12.5% of the product of the Current Market Price (determined as provided in paragraph (h) of this Section) as of the last time (the "Expiration Time") tenders could have been 53 61 made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the Current Market Price (determined as provided in paragraph (h) of this Section) on the date of the Expiration Time and (II) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares, and (ii) the denominator of which shall be equal to the product of (A) the Current Market Price (determined as provided in paragraph (h) of this Section) as of the Expiration Time and (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed to be accepted up to any such maximum, being referred to as the "Purchased Shares"). (g) The reclassification of Common Stock into securities, including securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 13.11 applies), shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (d) of this Section), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (c) of this Section). Rights, options or warrants issued by the Company to all holders of the Common Stock entitling the holders thereof to subscribe for or purchase shares of Common Stock (either initially or under certain circumstances), which rights, options or warrants (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or vents ("Trigger Event"), shall for purposes of paragraphs (b) and (d) above not be deemed issued until the occurrence of the earliest Trigger Event. Notwithstanding any provision of paragraphs (b) and (d) above to the contrary, no adjustment shall be made pursuant to paragraphs (b) or (d) above for any dividend, distribution or issuance of rights, options or warrants to all holders of Common Stock if the Company makes proper provision so that each Holder of a Note who converts such Note (or any portion thereof) after the date fixed for the determination of stockholders entitled to such issuance, dividend or distribution, shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, that number of rights, options or warrants as would have been issuable to a holder of a number of shares of Common Stock equal to the number of shares to which the Notes were convertible as of the date fixed for such issuance, dividend or distribution (with adjustments to the rights and privileges under such rights, options or warrants given effect as if such rights, options or warrants had been issued as of such date), provided that the foregoing provisions set forth in this sentence shall only apply to the extent (and so long as) such rights, options or warrants receivable upon conversion of the Notes would be exercisable without any loss of rights or privileges for a period of at least 90 days following conversion of the Notes. In addition, in the event of any 54 62 issuance or distribution of rights, options or warrants, or any Trigger Event with respect thereto, which shall have resulted in an adjustment to the conversion price with respect to the Notes under paragraphs (b) or (d) above, (a) in the case of any such rights, options or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the conversion price shall be readjusted upon such final redemption or repurchase to give effect to such issuance or distribution (or Trigger Event, as the case may be) as though a cash distribution had been made to all of the holders of Common Stock equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to the rights, options or warrants received by such holder (assuming such holder had retained such rights, options or warrants), and (b) in the case of any such rights, options or warrants all of which shall have expired without exercise by any holder thereof, the conversion price with respect to the Notes shall be readjusted as if such issuance had not occurred. (h) For the purpose of any computation under this paragraph and paragraphs (b), (d) and (e) of this Section, the current market price per share of Common Stock (the "Current Market Price") on any date shall be deemed to be the average of the daily Closing Prices (as hereinafter defined) for the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than the date in question; provided, however, that (i) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after the 20th Trading Day prior to the date in question and prior to the "ex" date for the issuance or distribution requiring such computation, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the conversion price is so required to be adjusted as a result of such other event, (ii) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after the "ex" date for the issuance or distribution requiring such computation and on or prior to the date in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the conversion price is so required to be adjusted as a result of such other event, and (iii) if the "ex" date for the issuance or distribution requiring such computation is on or prior to the date in question, after taking into account any adjustment required pursuant to this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value on the date in question (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of paragraph (d) or (e) of this Section, whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For the purpose of any computation under paragraph (f) of this Section, the Current Market Price on any date shall be deemed to be the average of the daily Closing Prices for the 5 consecutive Trading Days selected by the Company commencing on or after the latest (the "Commencement Date") of (i) the date 20 Trading Days before the date in question, (ii) the date of commencement of the tender offer requiring such computation, and (iii) the date of the last amendment, if any, of such tender offer involving a change in the maximum number of shares for which tenders are sought or a change in the consideration offered, and ending not later than the Expiration Time of such tender offer; provided, however, that if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after the Commencement Date and prior to the Expiration Time for the tender offer requiring such computation, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such 55 63 Closing Price by the same fraction by which the conversion price is so required to be adjusted as a result of such other event. The closing price for any Trading Day (the "Closing Price") shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading or, if not listed or admitted to trading on such exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. The term "'ex' date," (i) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Prices were obtained without the right to receive such issuance or distribution, (ii) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (iii) when used with respect to any tender offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the last time that tenders may be made pursuant to such tender offer (as it shall have been amended). (i) No adjustment in the conversion price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (i) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (i) shall be made to the nearest percent. (j) No upward adjustment in the conversion price will be made other than in the event of a reverse stock split. (k) The Company may make such reductions in the conversion price, in addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this Section, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (j) and its actions in so doing shall be final and conclusive. (l) Notwithstanding any other provision of this Section 13.4, no adjustment to the conversion price shall reduce the conversion price below the then par value per share the Common Stock, and any such purported adjustment shall instead reduce the conversion price to such par value. The Company hereby covenants not to take any action to increase par value per share of the Common Stock. 13.5 Notice of Adjustments of Conversion Price. Whenever conversion price is adjusted as herein provided: (a) the Company shall compute the adjusted conversion price in accordance with Section 13.4 and shall prepare a certificate signed by the Treasurer of the Company setting forth the adjusted 56 64 conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Notes pursuant to Section 10.2; and (b) a notice stating that the conversion price has been adjusted and setting forth the adjusted conversion price shall forthwith be required, and as soon as practicable after it is required, such notice shall be mailed by the Company to all Holders at their last addresses as they shall appear in the Note Register. 13.6 Notice of Certain Corporate Action. In case: (a) the Company shall declare a dividend (or any other distribution) payable (i) otherwise than exclusively in cash (ii) exclusively in cash in an amount that would require a conversion price adjustment pursuant to paragraph (e) of Section 13.4; or (b) the Company shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, or share exchange to which the Company is a party and which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Notes pursuant to Section 10.2, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Note Register, at least twenty-one (21) days (or eleven days in any case specified in clause (a), (b) or (c) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, share exchange, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (a) through (e) of this Section 13.6. 13.7 Company to Reserve Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Notes, the full number of shares of Common Stock then issuable upon the conversion of all outstanding Notes. 57 65 13.8 Taxes on Conversions. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Notes pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Note or Notes to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or established to the satisfaction of the Company that such tax has been paid. 13.9 Covenant as to Shares of Common Stock. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and nonassessable and, except as provided in Section 13.8, the Company will pay all taxes, liens and charges with respect to the issue thereof. 13.10 Cancellation of Converted Notes. All Notes delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. 13.11 Provisions in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, change or cancellation of outstanding shares of Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Note then outstanding shall have the right thereafter, during the period such Note shall be convertible as specified in Section 13.1, to convert such Note only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Note might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Company is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent Person"), or an Affiliate of a constituent Person, and failed to exercise his rights of election, if any, to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by others than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purpose of this Section the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales or transfers. 58 66 ARTICLE 14 REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A RISK EVENT 14.1 Right to Require Repurchase. In the event that a Risk Event (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Notes, or any portion of the principal amount thereof that is an integral multiple of $1,000, on the date (the "Purchase Date") that is forty-five (45) calendar days after the date of the Company Notice (as defined in Section 14.2) for cash at a purchase price equal to 100% of the principal amount the Notes to be repurchased (the "Repurchase Price"), together in each case with accrued interest to the Repurchase Date. Such right to require the repurchase of the Notes shall not continue after a discharge of the Company from its obligations with respect to the Notes in accordance with Article 4, unless a Risk Event shall have occurred prior to such discharge. 14.2 Notices; Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have theretofore called for redemption all of the Outstanding Notes, on or before the fifteenth (15th) calendar day after the occurrence of a Risk Event, the Company or, at the request of the Company, the Trustee, shall mail to all Holders a notice (the "Company Notice") of the occurrence of the Risk Event and of the purchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee and cause a copy of such Notice of a repurchase right, or a summary of the information contained therein, to be published in a newspaper of general circulation in The City of New York. Each notice of a repurchase right shall state: (1) the Repurchase Date, (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, (4) a description of the procedure which a Holder must follow to exercise a repurchase right, and (5) the conversion price then in effect, the date which the right to convert the principal amount of the Notes to be repurchased will terminate and the place or places where Notes may be surrendered for conversion. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a purchase right or affect the validity of the proceedings for the repurchase of Notes. If any of the foregoing provisions are inconsistent with applicable law, such law shall govern. 59 67 (b) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the close of business on the fifth day preceding the Repurchase Date (i) written notice of the Holder's exercise of such right, which notice shall set forth the name the Holder, the principal amount of the Notes to be repurchased, a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Notes with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company. Such written notice shall be irrevocable, except that the right of the Holder to convert the Notes with respect to which the repurchase right is being exercised shall continue until the close of business on the last Trading Day preceding the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the Repurchase Price in cash to the Holder on Repurchase Date, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Notes to which the purchase right has been exercised; provided, however, that installments of interest that mature on or prior the Repurchase Date shall be payable in cash to the Holders of such Notes, or one or more predecessor Notes, registered as such at the close of business on the relevant Regular Record Date according to the terms and provisions of Article 3. (d) If any Note surrendered for repurchase shall be so paid on the Repurchase Date, the principal shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate borne by the Note and each Note shall remain convertible into Common Stock until the principal of such Note shall have been paid or duly provided for. (e) Any Note which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, containing identical terms and conditions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Note so surrendered. (f) Prior to the Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Repurchase Price of the Notes that are to be repaid on the Repurchase Date. 14.3 Certain Definitions. For purposes of this Article 14, (a) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the final execution of this Indenture, promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; (b) the term "Person" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in effect on the date of the original execution of this Indenture; and (c) a "Risk Event" shall be deemed to have occurred at such time as: 60 68 (i) any Person (other than the Company, any Subsidiary of the Company or any current or future employee or director benefit plan of the Company or any subsidiary of the Company or any entity holding capital stock of the Company for or pursuant to the terms of such plan or any underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company) is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors (any shares of voting stock of which such person or group is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage); or (ii) the Company adopts a plan relating to the liquidation or dissolution of the Company; (iii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of all or substantially all of the assets of the Company to another Person (other than a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common stock or (y) which is affected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of Common Stock); or (iv) a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the twelve-month period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office. provided, however, that a Risk Event shall not be deemed to have occurred if the closing price per share of Common Stock for any five (5) Trading Days within the period of ten (10) consecutive Trading Days ending immediately before the Risk Event shall equal or exceed 105% of the conversion price of such Notes in effect on each such Trading Day. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 61 69 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. PRIME HOSPITALITY CORP. By ------------------------------ Title: -------------------------- Attest: ------------------------- BANK ONE, COLUMBUS, N.A., as Trustee By ------------------------------ Authorized Signatory Attest: ------------------------- 62 EX-12.1 4 STATEMENT RE: COMPUTATION OF RATIOS 1 EXHIBIT 12.1 PRIME HOSPITALITY CORP. STATEMENT RE: COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES (S-K SECTION 503(D))
PRE-REORGANIZATION POST REORGANIZATION --------------------------------------------- ------------------------------------------ FOR THE YEAR ENDED JUNE 30, FOR THE ------------------------ ONE MONTH FIVE MONTHS FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED -------------------------------- JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1990 1991 1992 1992 1992 1993 1994 --------- --------- -------- ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Computation of earnings: Pre-tax income (loss) from continuing operation........... $(290,392) $(260,456) $(70,965) $(10,274) $ 2,321 $ 13,856 $ 30,430 Less: Interest Capitalized........... -- -- -- -- -- -- 836 Total earnings................... $(290,392) $(260,456) $(70,965) $(10,274) $ 2,321 $ 13,856 $ 29,594 ========== ========== ========= =========== ============ ============ ============ Computation of fixed charges: For interest................... $ 56,811 $ 19,331 $ 8,245 $ 779 $ 7,718 $ 16,116 $ 13,993 For capitalized interest....... 836 For interest on rentals........ 17,855 8,091 2,540 189 703 1,924 1,826 --------- --------- -------- ---------- ------------ ------------ ------------ Total fixed charges.............. $ 74,666 $ 27,422 $ 10,785 $ 968 $ 8,421 $ 18,040 $ 16,655 ========== ========== ========= =========== ============ ============ ============ Total earnings and fixed charges........................ $(215,726) $(233,034) $(60,180) $ (9,306) $ 10,742 $ 31,896 $ 46,249 ========== ========== ========= =========== ============ ============ ============ Ratio............................ -- -- -- -- 1.28 1.77 2.78 ========== ========== ========= =========== ============ ============ ============
EX-23.2A 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Hospitality Corp. As independent public accountants, we hereby consent to the use of our reports covering the Company's consolidated financial statements for the years ended December 31, 1994 and 1993 and the five months ended December 31, 1992 and to all references to our firm included in or made a part of this Registration Statement. ARTHUR ANDERSEN LLP Roseland, New Jersey March 7, 1995 EX-23.2B 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2(B) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Prime Hospitality Corp. As independent public accountants, we hereby consent to the incorporation by reference of our reports included in the Company's Form 10-K for the year ended December 31, 1994, into this Registration Statement. ARTHUR ANDERSEN LLP Roseland, New Jersey March 7, 1995 EX-23.3 7 CONSENT OF J.H. COHN & COMPANY 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this Registration Statement on Form S-3 being filed by Prime Hospitality Corp. (formerly Prime Motor Inns, Inc.) of our report dated September 24, 1992 (appearing in the Annual Report on Form 10-K for the fiscal year ended December 31, 1994 of Prime Hospitality Corp.) on the consolidated financial statements of Prime Motor Inns, Inc. and Subsidiaries (Debtors-in-Possession). J. H. COHN & COMPANY Roseland, New Jersey March 7, 1995 EX-25.1 8 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------- FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE BANK ONE, COLUMBUS, N.A. ---------------------------- Not Applicable 31-4148768 (State of Incorporation (I.R.S. Employer if not a national bank) Identification No.) 100 East Broad Street, Columbus, Ohio 43271-0181 (Address of trustee's principal (Zip Code) executive offices)
Stephen W. Boughton c/o Bank One Trust Company, NA 100 East Broad Street Columbus, Ohio 43271-0181 (614) 248-5948 (Name, address and telephone number of agent for service) ---------------------------- PRIME HOSPITALITY CORP. (Exact name of obligor as specified in its charter) Delaware 22-2640625 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 700 Route 46 East 07004 Fairfield, New Jersey (Zip Code) (Address of principal executive offices)
PRIME HOSPITALITY CORP. __% CONVERTIBLE SUBORDINATED NOTES DUE 2002 (Title of the Indenture securities) ================================================================================ 2 GENERAL 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of the Currency, Washington, D.C. Federal Reserve Bank of Cleveland, Cleveland, Ohio Federal Deposit Insurance Corporation, Washington, D.C. The Board of Governors of the Federal Reserve System, Washington, D.C. (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee. 16. LIST OF EXHIBITS LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION. (EXHIBITS IDENTIFIED IN PARENTHESES, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS EXHIBITS HERETO.) Exhibit 1 - A copy of the Articles of Association of the trustee as now in effect. Exhibit 2 - A copy of the Certificate of Authority of the trustee to commence business, see Exhibit 2 to Form T-1, filed in connection with Form S-3 relating to Wheeling-Pittsburgh Corporation 9 3/8% Senior Notes due 2003, Securities and Exchange Commission File No. 33-50709. Exhibit 3 - A copy of the Authorization of the trustee to exercise corporate trust powers, see Exhibit 3 to Form T-1, filed in connection with Form S-3 relating to Wheeling-Pittsburgh Corporation 9 3/8% Senior Notes due 2003, Securities and Exchange Commission File No. 33-50709. Exhibit 4 - A copy of the Bylaws of the trustee as now in effect. Exhibit 5 - Not applicable. Exhibit 6 - The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended. Exhibit 7 - Report of Condition of the trustee as of the close of business on December 31, 1994, published pursuant to the requirements of the Comptroller of the Company. Exhibit 8 - Not applicable. Exhibit 9 - Not applicable. Items 3 through 15 are not answered pursuant to General Instruction B which requires responses to Item 1, 2 and 16 only, if the obligor is not in default. 2 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Bank One, Columbus, NA, a national banking association organized under the National Banking Act, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in Columbus, Ohio, on March 7, 1995. Bank One, Columbus, NA By: ------------------------- Stephen W. Boughton Authorized Signer 3 4 EXHIBIT 6 Securities and Exchange Commission Washington, D.C. 20549 CONSENT The undersigned, designated to act as Trustee under the Indenture for Prime Hospitality Corp., described in the attached Statement of Eligibility and Qualification, does hereby consent that reports of examinations by Federal, State, Territorial, or District Authorities may be furnished by such authorities to the Commission upon the request of the Commission. This Consent is given pursuant to the provision of Section 321(b) of the Trust Indenture Act of 1939, as amended. Bank One, Columbus, NA Dated: March 7, 1995 By: --------------------------- Stephen W. Boughton Authorized Signer Exhibit 1 BANK ONE, COLUMBUS, NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION For the purpose of organizing an association to carry on the business of banking under the laws of the United States, the following Articles of Association are entered into: FIRST. The title of this Association shall be BANK ONE, COLUMBUS, NATIONAL ASSOCIATION. SECOND. The main office of the Association shall be in Columbus, County of Franklin, State of Ohio. The general business of the Association shall be conducted at its main office and its branches. THIRD. The Board of Directors of this Association shall consist of not less than five nor more than twenty-five Directors, the exact number of Directors within such minimum and maximum limits to be fixed and determined from time-to-time by resolution of the shareholders at any annual or special 5 meeting thereof, provided, however, that the Board of Directors, by resolution of a majority thereof, shall be authorized to increase the number of its members by not more than two between regular meetings of the shareholders. Each Director, during the full term of his directorship, shall own, as qualifying shares, the minimum number of shares of either this Association or of its parent bank holding company in accordance with the provisions of applicable law. Unless otherwise provided by the laws of the United States, any vacancy in the Board of Directors for any reason, including an increase in the number thereof, may be filled by action of the Board of Directors. FOURTH. The annual meeting of the shareholders for the election of Directors and the transaction of whatever other business may be brought before said meeting shall be held at the main office of this Association or such other place as the Board of Directors may designate, on the day of each year specified therefor in the By-Laws, but if no election is held on that day, it may be held on any subsequent business day according to the provisions of law; and all elections shall be held according to such lawful regulations as may be prescribed by the Board of Directors. FIFTH. The authorized amount of capital stock of this Association shall be 2,073,750 shares of common stock of the par value of Ten Dollars ($10) each; but said capital stock may be increased or decreased from time-to-time, in accordance with the provisions of the laws of the United States. No holder of shares of the capital stock of any class of the Association shall have the preemptive or preferential right of subscription to any share of any class of stock of this Association, whether now or hereafter authorized or to any obligations convertible into stock of this Association, issued or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors, in its discretion, may from time-to-time determine and at such price as the Board of Directors may 9/13/91 -5- 6 from time-to-time fix. This Association, at any time and from time-to-time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. SIXTH. The Board of Directors shall appoint one of its members President of the Association, who shall be Chairman of the Board, unless the Board appoints another director to be the Chairman. The Board of Directors shall have the power to appoint one or more Vice Presidents and to appoint a Secretary and such other officers and employees as may be required to transact the business of this Association. The Board of Directors shall have the power to define the duties of the officers and employees of this Association; to fix the salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of this Association shall be made; to manage and administer the business and affairs of this Association; to make all By-Laws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a Board of Directors to do and perform. SEVENTH. The Board of Directors shall have the power to change the location of the main office to any other place within the limits of the City of Columbus, Ohio, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency; and shall have the power to establish or change the location of any branch or branches of this Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. -6- 7 NINTH. The Board of Directors of this Association, or any three or more shareholders owning, in the aggregate, not less than 10 percent of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place and purpose of every annual and special meeting of the shareholders shall be given by first-class mail, postage prepaid, mailed at least ten days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of this Association. TENTH. Every person who is or was a Director, officer or employee of the Association or of any other corporation which he served as a Director, officer or employee at the request of the Association as part of his regularly assigned duties may be indemnified by the Association in accordance with the provisions of this paragraph against all liability (including, without limitation, judgments, fines, penalties and settlements) and all reasonable expenses (including, without limitation, attorneys' fees and investigative expenses) that may be incurred or paid by him in connection with any claim, action, suit or proceeding, whether civil, criminal or administrative (all referred to hereafter in this paragraphs as "Claims") or in connection with any appeal relating thereto in which he may become involved as a party or otherwise or with which he may be threatened by reason of his being or having been a Director, officer or employee of the Association or such other corporation, or by reason of any action taken or omitted by him in his capacity as such Director, officer or employee, whether or not he continues to be such at the time such liability or expenses are incurred, provided that nothing contained in this paragraph shall be construed to permit indemnification of any such person who is adjudged guilty of, or liable for, willful misconduct, gross neglect of duty or criminal acts, unless, at the time such indemnification is sought, such indemnification in such instance is permissible under applicable law and regulations, including published rulings of the Comptroller of the Currency or other appropriate supervisory or regulatory authority, and provided further that there shall be no indemnification of directors, officers, or -7- 8 employees against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by an appropriate regulatory agency which proceeding or action results in a final order assessing civil money penalties or requiring affirmative action by an individual or individuals in the form of payments to the Association. Every person who may be indemnified under the provisions of this paragraph and who has been wholly successful on the merits with respect to any Claim shall be entitled to indemnification as of right. Except as provided in the preceding sentence, any indemnification under this paragraph shall be at the sole discretion of the Board of Directors and shall be made only if the Board of Directors or the Executive Committee acting by a quorum consisting of Directors who are not parties to such Claim shall find or if independent legal counsel (who may be the regular counsel of the Association) selected by the Board of Directors or Executive Committee whether or not a disinterested quorum exists shall render their opinion that in view of all of the circumstances then surrounding the Claim, such indemnification is equitable and in the best interests of the Association. Among the circumstances to be taken into consideration in arriving at such a finding or opinion is the existence or non-existence of a contract of insurance or indemnity under which the Association would be wholly or partially reimbursed for such indemnification, but the existence or non-existence of such insurance is not the sole circumstance to be considered nor shall it be wholly determinative of whether such indemnification shall be made. In addition to such finding or opinion, no indemnification under this paragraph shall be made unless the Board of Directors or the Executive Committee acting by a quorum consisting of Directors who are not parties to such Claim shall find or if independent legal counsel (who may be the regular counsel of the Association) selected by the Board of Directors or Executive Committee whether or not a disinterested quorum exists shall render their opinion that the Director, officer or employee acted in good faith in what he reasonably believed to be the best interests of the Association or such other corporation and further in the case of any criminal action or proceeding, that the Director, officer or employee reasonably believed his -8- 9 conduct to be lawful. Determination of any Claim by judgment adverse to a Director, officer or employee by settlement with or without Court approval or conviction upon a plea of guilty or of nolocontendere or its equivalent shall not create a presumption that a Director, officer or employee failed to meet the standards of conduct set forth in this paragraph. Expenses incurred with respect to any Claim may be advanced by the Association prior to the final disposition thereof upon receipt of an undertaking satisfactory to the Association by or on behalf of the recipient to repay such amount unless it is ultimately determined that he is entitled to indemnification under this paragraph. The rights of indemnification provided in this paragraph shall be in addition to any rights to which any Director, officer or employee may otherwise be entitled by contract or as a matter of law. Every person who shall act as a Director, officer or employee of this Association shall be conclusively presumed to be doing so in reliance upon the right of indemnification provided for in this paragraph. ELEVENTH. These Articles of Association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Association, unless the vote of the holders of a greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. -9- 10 Exhibit 4 BY-LAWS OF BANK ONE, COLUMBUS, NATIONAL ASSOCIATION ARTICLE I MEETING OF SHAREHOLDERS SECTION 1.01. ANNUAL MEETING. The regular annual meeting of the Shareholders of the Bank for the election of Directors and for the transaction of such business as may properly come before the meeting shall be held at its main banking house, or other convenient place duly authorized by the Board of Directors, on the third Monday of January of each year, or on the next succeeding banking day, if the day fixed falls on a legal holiday. If from any cause, an election of directors is not made on the day fixed for the regular meeting of shareholders or, in the event of a legal holiday, on the next succeeding banking day, the Board of Directors shall order the election to be held on some subsequent day, as soon thereafter as practicable, according to the provisions of law; and notice thereof shall be given in the manner herein provided for the annual meeting. Notice of such annual meeting shall be given by or under the direction of the Secretary or such other officer as may be designated by the Chief Executive Officer by first-class mail, postage prepaid, to all shareholders of record of the Bank at their respective addresses as shown upon the books of the Bank mailed not less than ten days prior to the date fixed for such meeting. SECTION 1.02. SPECIAL MEETINGS. A special meeting of the shareholders of this Bank may be called at any time by the Board of Directors or by any three or more shareholders owning, in the aggregate, not less than ten percent of the stock of this Bank. The notice of any special meeting of the shareholders called by the Board of Directors, stating the time, place and purpose of the meeting, shall be given by or under the direction of the Secretary, or such other officer as is designated by the Chief Executive Officer, by first-class mail, postage prepaid, to all shareholders of record -10- 11 of the Bank at their respective addresses as shown upon the books of the Bank, mailed not less than ten days prior to the date fixed for such meeting. Any special meeting of shareholders shall be conducted and its proceedings recorded in the manner prescribed in these By-Laws for annual meetings of shareholders. SECTION 1.03. SECRETARY OF SHAREHOLDERS' MEETING. The Board of Directors may designate a person to be the Secretary of the meetings of shareholders. In the absence of a presiding officer, as designated in these By-Laws, the Board of Directors may designate a person to act as the presiding officer. In the event the Board of Directors fails to designate a person to preside at a meeting of shareholders and a Secretary of such meeting, the shareholders present or represented shall elect a person to preside and a person to serve as Secretary of the meeting. The Secretary of the meetings of shareholders shall cause the returns made by the judges and election and other proceedings to be recorded in the minute book of the Bank. The presiding officer shall notify the directors-elect of their election and to meet forthwith for the organization of the new board. The minutes of the meeting shall be signed by the presiding officer and the Secretary designated for the meeting. SECTION 1.04. JUDGES OF ELECTION. The Board of Directors may appoint as many as three shareholders to be judges of the election, who shall hold and conduct the same, and who shall, after the election has been held, notify, in writing over their signatures, the secretary of the shareholders' meeting of the result thereof and the names of the Directors elected; provided, however, that upon failure for any reason of any judge or judges of election, so appointed by the directors, to serve, the presiding officer of the meeting shall appoint other shareholders or their proxies to fill the 1/18/94 - 11 - 12 vacancies. The judges of election at the request of the chairman of the meeting, shall act as tellers of any other vote by ballot taken at such meeting, and shall notify, in writing over their signatures, the secretary of the Board of Directors of the result thereof. SECTION 1.05. PROXIES. In all elections of Directors, each shareholder of record, who is qualified to vote under the provisions of Federal Law, shall have the right to vote the number of shares of record in his name for as many persons as there are Directors to be elected, or to cumulate such shares as provided by Federal Law. In deciding all other questions at meetings of shareholders, each shareholder shall be entitled to one vote on each share of stock of record in his name. Shareholders may vote by proxy duly authorized in writing. All proxies used at the annual meeting shall be secured for that meeting only, or any adjournment thereof, and shall be dated, and if not dated by the shareholder, shall be dated as of the date of receipt thereof. No officer or employee of this Bank may act as proxy. SECTION 1.06. QUORUM. Holders of record of a majority of the shares of the capital stock of the Bank, eligible to be voted, present either in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of shareholders, but shareholders present at any meeting and constituting less than a quorum may, without further notice, adjourn the meeting from time to time until a quorum is obtained. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the Articles of Association. ARTICLE II DIRECTORS SECTION 2.01. MANAGEMENT OF THE BANK. The business of the Bank shall be managed by the Board of Directors. Each director of the Bank shall be the beneficial owner of a substantial number of shares of BANC ONE CORPORATION and shall be employed either in the position of Chief Executive Officer or - 12 - 13 active leadership within his or her business, professional or community interest which shall be located within the geographic area in which the Bank operates, or as an executive officer of the Bank. A director shall not be eligible for nomination and re-election as a director of the Bank if such person's executive or leadership position within his or her business, professional or community interests which qualifies such person as a director of Bank terminates. The age of 70 is the mandatory retirement age as a director of the Bank. When a person's eligibility as director of the Bank terminates, whether because of change in share ownership, position, residency or age, within 30 days after such termination, such person shall submit his resignation as a director to be effective at the pleasure of the Board provided, however, that in no event shall such person be nominated or elected as a director. Provided, however, following a person's retirement or resignation as a director because of the age limitations herein set forth with respect to election or re-election as a director, such person may, in special or unusual circumstances, and at the discretion of the Board, be elected by the directors as a Director Emeritus of the Bank for a limited period of time. A Director Emeritus shall have the right to participate in board meetings but shall be without the power to vote and shall be subject to re-election by the Board at its organizational meeting following the Bank's annual meeting of shareholders. SECTION 2.02. QUALIFICATIONS. Each director shall have the qualification prescribed by law. No person elected a director may exercise any of the powers of his office until he has taken the oath of such office. SECTION 2.03. TERM OF OFFICE/VACANCIES. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to his prior death, resignation, or removal from office. Whenever any vacancy shall occur among the directors, the remaining directors shall constitute the directors of the Bank until such vacancy is filled by the remaining directors, and any director so appointed shall hold office for the unexpired term of his or her - 13 - 14 successor. Notwithstanding the foregoing, each director shall hold office and serve at the pleasure of the Board. SECTION 2.04. ORGANIZATION MEETING. The directors elected by the share- holders shall meet for organization of the new board at the time fixed by the presiding officer of the annual meeting. If at the time fixed for such meeting there is no quorum present, the Directors in attendance may adjourn from time to time until a quorum is obtained. A majority of the number of Directors elected by the shareholders shall constitute a quorum for the transaction of business. SECTION 2.05. REGULAR MEETINGS. The regular meetings of the Board of Directors shall be held on the third Monday of each calendar month excluding March and July, which meeting will be held at 4:00 p.m. When any regular meeting of the Board falls on a holiday, the meeting shall be held on such other day as the Board may previously designate or should the Board fail to so designate, on such day as the Chairman of the Board of President may fix. Whenever a quorum is not present, the directors in attendance shall adjourn the meeting to a time not later than the date fixed by the Bylaws for the next succeeding regular meeting of the Board. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held at the call of the Chairman of the Board or President, or at the request of two or more Directors. Any special meeting may be held at such place in Franklin County, Ohio, and at such time as may be fixed in the call. Written or oral notice shall be given to each Director not later than the day next preceding the day on which special meeting is to be held, which notice may be waived in writing. The presence of a Director at any meeting of the Board shall be deemed a waiver of notice thereof by him. Whenever a quorum is not present the Directors in attendance shall adjourn the special meeting from day to day until a quorum is obtained. SECTION 2.07. QUORUM. A majority of the Directors shall constitute a - 14 - 15 quorum at any meeting, except when otherwise provided by law; but a lesser number may adjourn any meeting, from time-to-time, and the meeting may be held, as adjourned, without further notice. When, however, less than a quorum as herein defined, but at least one-third and not less than two of the authorized number of Directors are present at a meeting of the Directors, business of the Bank may be transacted and matters before the Board approved or disapproved by the unanimous vote of the Directors present. SECTION 2.08. COMPENSATION. Each member of the Board of Directors shall receive such fees for, and transportation expenses incident to, attendance at Board and Board Committee Meetings and such fees for service as a Director irrespective of meeting attendance as from time to time are fixed by resolution of the Board; provided, however, that payment hereunder shall not be made to a Director for meetings attended and/or Board service which are not for the Bank's sole benefit and which are concurrent and duplicative with meetings attended or board service for an affiliate of the Bank for which the Director receives payment; and provided further, that payment hereunder shall not be made in the case of any Director in the regular employment of the Bank or of one of its affiliates. SECTION 2.09. EXECUTIVE COMMITTEE. There shall be a standing committee of the Board of Directors known as the Executive Committee which shall possess and exercise, when the Board is not in session, all powers of the Board that may lawfully be delegated. The Executive Committee shall also exercise the powers of the Board of Directors in accordance with the Provisions of the "Employees Retirement Plan" and the "Agreement and Declaration of Trust" as the same now exist or may be amended hereafter. The Executive Committee shall consist of not fewer than four board members, including the Chairman of the Board and President of the Bank, one of whom, as hereinafter required by these By-laws, shall be the Chief Executive Officer. The other members of the Committee shall be appointed by the Chairman of the Board or by the President, with the approval of the Board and shall continue as members of - 15 - 16 the Executive Committee until their successors are appointed, provided, however, that any member of the Executive Committee may be removed by the Board upon a majority vote thereof at any regular or special meeting of the Board. The Chairman or President shall fill any vacancy in the Committee by the appointment of another Director, subject to the approval of the Board of Directors. The regular meetings of the Executive Committee shall be held on a regular basis as scheduled by the Board of Directors. Special meetings of the Executive Committee shall be held at the call of the Chairman or President or any two members thereof at such time or times as may be designated. In the event of the absence of any member or members of the Committee, the presiding member may appoint a member or members of the Board to fill the place or places of such absent member or members to serve during such absence. Not fewer than three members of the Committee must be present at any meeting of the Executive Committee to constitute a quorum, provided, however that with regard to any matters on which the Executive Committee shall vote, a majority of the Committee members present at the meeting at which a vote is to be taken shall not be officers of the Bank and, provided further, that if, at any meeting at which the Chairman of the Board and President are both present, Committee members who are not officers are not in the majority, then the Chairman of the Board or President, which ever of such officers is not also the Chief Executive Officer, shall not be eligible to vote at such meeting and shall not be recognized for purposes of determining if a quorum is present at such meeting. When neither the Chairman of the Board nor President are present, the Committee shall appoint a presiding officer. The Executive Committee shall keep a record of its proceedings and report its proceedings and the action taken by it to the Board of Directors. SECTION 2.10 COMMUNITY REINVESTMENT ACT AND COMPLIANCE POLICY COMMITTEE. There shall be a standing committee of the Board of Directors known as the Community Reinvestment Act and Compliance Policy Committee the duties of which shall be, at least once in each calendar year, to review, develop and recommend policies and programs related to the Bank's Community Reinvestment - 16 - 17 Act Compliance and regulatory compliance with all existing statutes, rules and regulations affecting the Bank under state and federal law. Such Committee shall provide and promptly make a full report of such review of current Bank policies with regard to Community Reinvestment Act and regulatory compliance in writing to the Board, with recommendations, if any, which may be necessary to correct any unsatisfactory conditions. Such Committee may, in its discretion, in fulfilling its duties, utilize the Community Reinvestment Act officers of the Bank, Banc One Ohio Corporation and Banc One Corporation and may engage outside Community Reinvestment Act experts, as approved by the Board, to review, develop and recommend policies and programs as herein required. The Community Reinvestment Act and regulatory compliance policies and procedures established and the recommendations made shall be consistent with, and shall supplement, the Community Reinvestment Act and regulatory compliance programs, policies and procedures of Banc One Corporation and Banc One Ohio Corporation. The Community Reinvestment Act and Compliance Policy Committee shall consist of not fewer than four board members, one of whom shall be the Chief Executive Officer and a majority of whom are not officers of the Bank. Not fewer than three members of the Committee, a majority of whom are not officers of the Bank, must be present to constitute a quorum. The Chairman of the Board or President of the Bank, whichever is not the Chief Executive Officer, shall be an ex officio member of the Community Reinvestment Act and Compliance Policy Committee. The Community Reinvestment Act and Compliance Policy Committee, whose chairman shall be appointed by the Board, shall keep a record of its proceedings and report its proceedings and the action taken by it to the Board of Directors. SECTION 2.11. TRUST COMMITTEES. There shall be two standing Committees known as the Trust Management Committee and the Trust Examination Committee appointed as hereinafter provided. SECTION 2.12. OTHER COMMITTEES. The Board of Directors may appoint such special committees from time to time as are in its judgment necessary in the interest of the Bank. - 17 - 18 - 18 - 19 ARTICLE III OFFICERS, MANAGEMENT STAFF AND EMPLOYEES SECTION 3.01. OFFICERS AND MANAGEMENT STAFF. (a) The officers of the Bank shall include a President, Secretary and Security Officer and may include a Chairman of the Board, one or more Vice Chairmen, one or more Vice Presidents (which may include one or more Executive Vice Presidents and/or Senior Vice Presidents) and one or more Assistant Secretaries, all of whom shall be elected by the Board. All other officers may be elected by the Board or appointed in writing by the Chief Executive Officer. The salaries of all officers elected by the Board shall be fixed by the Board. The Board from time-to-time shall designate the President or Chairman of the Board to serve as the Bank's Chief Executive Officer. (b) The Chairman of the Board, if any, and the President shall be elected by the Board from their own number. The President and Chairman of the Board shall be re-elected by the Board annually at the organizational meeting of the Board of Directors following the Annual Meeting of Shareholders. Such officers as the Board shall elect from their own number shall hold office from the date of their election as officers until the organization meeting of the Board of Directors following the next Annual Meeting of Shareholders, provided, however, that such officers may be relieved of their duties at any time by action of the Board in which event all the powers incident to their office shall immediately terminate. (c) Except as provided in the case of the elected officers who are members of the Board, all officers, whether elected or appointed, shall hold office at the pleasure of the Board. Except as - 19 - 20 otherwise limited by law or these By-laws, the Board assigns to Chief Executive Officer and/or his designees the authority to appoint and dismiss any elected or appointed officer or other member of the Bank's management staff and other employees of the Bank, as the person in charge of and responsible for any branch office, department, section, operation, function, assignment or duty in the Bank. (d) The management staff of the Bank shall include officers elected by the Board, officers appointed by the Chief Executive Officer, and such other persons in the employment of the Bank who, pursuant to written appointment and authorization by a duly authorized officer of the Bank, perform management functions and have management responsi- bilities. Any two or more offices may be held by the same person except that no person shall hold the office of Chairman of the Board and/or President and at the same time also hold the office of Secretary. (e) The Chief Executive Officer of the Bank and any other officer of the Bank, to the extent that such officer is authorized in writing by the Chief Executive Officer, may appoint persons other than officers who are in the employment of the Bank to serve in management positions and in connection therewith, the appointing officer may assign such title, salary, responsibilities and functions as are deemed appropriate by him, provided, however, that nothing contained herein shall be construed as placing any limitation on the authority of the Chief Executive Officer as provided in this and other sections of these By-Laws. SECTION 3.02. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Bank shall have general and active management of the business of the Bank and shall see that all orders and resolutions of the Board of Directors are carried into effect. Except as otherwise prescribed or limited by these - 20 - 21 By-Laws, the Chief Executive Officer shall have full right, authority and power to control all personnel, including elected and appointed officers, of the Bank, to employ or direct the employment of such personnel and officers as he may deem necessary, including the fixing of salaries and the dismissal of them at pleasure, and to define and prescribe the duties and responsibility of all Officers of the Bank, subject to such further limitations and directions as he may from time-to-time deem proper. The Chief Executive Officer shall perform all duties incident to his office and such other and further duties, as may, from time-to-time, be required of him by the Board of Directors or the shareholders. The specification of authority in these By-Laws wherever and to whomever granted shall not be construed to limit in any manner the general powers of delegation granted to the Chief Executive Officer in conducting the business of the Bank. The Chief Executive Officer or, in his absence, the Chairman of the Board or President of the Bank, as designated by the Chief Executive Officer, shall preside at all meetings of shareholders and meetings of the Board. In the absence of the Chief Executive Officer, such officer as is designated by the Chief Executive Officer shall be vested with all the powers and perform all the duties of the Chief Executive Officer as defined by these By-Laws. When designating an officer to serve in his absence, the Chief Executive Officer shall select an officer who is a member of the Board of Directors whenever such officer is available. SECTION 3.03. POWERS OF OFFICERS AND MANAGEMENT STAFF. The Chief Executive Officer, the Chairman of the Board, the President, and those officers so designated and authorized by the Chief Executive Officer are authorized for an on behalf of the Bank, and to the extent permitted by law, to make loans and discounts; to purchase or acquire drafts, notes, stock, bonds, and other securities for investment of funds held by the Bank; to execute and purchase acceptances; to appoint, empower and direct all necessary agents and attor- neys; to sign and give any notice required to be given; to demand payment and/or to declare due for any default any debt or obligation due or payable to the Bank upon demand or authorized to be declared due; to foreclose any - 21 - 22 mortgages, to exercise any option, privilege or election to forfeit, terminate, extend or renew any lease; to authorize and direct any proceedings for the collection of any money or for the enforcement of any right or obligation; to adjust, settle and compromise all claims of every kind and description in favor of or against the Bank, and to give receipts, releases and discharges therefor; to borrow money and in connection therewith to make, execute and deliver notes, bonds or other evidences of indebtedness; to pledge or hypothecate any securities or any stocks, bonds, notes or any property real or personal held or owned by the Bank, or to rediscount any notes or other obligations held or owned by the Bank, to employ or direct the employment of all personnel, including elected and appointed officers, and the dismissal of them at pleasure, and in furtherance of and in addition to the powers hereinabove set forth to do all such acts and to take all such proceedings as in his judgment are necessary and incidental to the operation of the Bank. Other persons in the employment of the Bank, including but not limited to officers and other members of the management staff, may be authorized by the Chief Executive Officer, or by an officer so designated and authorized by the chief Executive Officer, to perform the powers set forth above, subject, how- ever, to such limitations and conditions as are set forth in the authorization given to such persons. SECTION 3.04. SECRETARY. The Secretary or such other officers as may be designated by the Chief Executive Officer shall have supervision and control of the records of the Bank and, subject to the direction of the Chief Executive Officer, shall undertake other duties and functions usually performed by a corporate secretary. Other officers may be designated by the Chief Executive Officer or the Board of Directors as Assistant Secretary to perform the duties of the Secretary. SECTION 3.05. EXECUTION OF DOCUMENTS. The Chief Executive Officer, Chairman of the Board, President, any officer being a member of the Bank's - 22 - 23 management staff who is also a person in charge of and responsible for any department within the Bank and any other officer to the extent such officer is so designated and authorized by the Chief Executive Officer, the Chairman of the Board, the President, or any other officer who is a member of the Bank's management staff who is in charge of and responsible for any department within the Bank, are hereby authorized on behalf of the Bank to sell, assign, lease, mortgage, transfer, deliver and convey any real or personal property now or hereafter owned by or standing in the name of the Bank or its nominee, or held by this Bank as collateral security, and to execute and deliver such deeds, contracts, leases, assignments, bills of sale, transfers or other papers or documents as may be appropriate in the circumstances; to execute any loan agreement, security agreement, commitment letters and financing statements and other documents on behalf of the Bank as a lender; to execute purchase orders, documents and agreements entered into by the Bank in the ordinary course of business, relating to purchase, sale, exchange or lease of services, tangible personal property, materials and equipment for the use of the Bank; to execute powers of attorney to perform specific or general functions in the name of or on behalf of the Bank; to execute promissory notes or other instruments evidencing debt of the Bank; to execute instruments pledging or releasing securities for public funds, documents submitting public fund bids on behalf of the Bank and public fund contracts; to purchase and acquire any real or personal property including loan portfolios and to execute and deliver such agreements, contracts or other papers or documents as may be appropriate in the circumstances; to execute any indemnity and fidelity bonds, proxies or other papers or documents of like or different character necessary, desirable or incidental to the conduct of its banking business; to execute and deliver settlement agreements or other papers or documents as may be appropriate in connection with a dismissal authorized by Section 3.01(c) of these By-laws; to execute agreements, instruments, documents, contracts or other papers of like or difference character necessary, desirable or incidental to the conduct of its banking business; and to execute and deliver partial releases from and discharges or assignments of mortgages, financing statements and - 23 - 24 assignments or surrender of insurance policies, now or hereafter held by this Bank. The Chief Executive Officer, Chairman of the Board, President, any officer being a member of the Bank's management staff who is also a person in charge of and responsible for any department within the Bank, and any other officer of the Bank so designated and authorized by the Chief Executive Officer, Chairman of the Board, President or any officer who is a member of the Bank's management staff who is in charge of and responsible for any department within the Bank are authorized for and on behalf of the Bank to sign and issue checks, drafts, and certificates of deposit; to sign and endorse bills of exchange, to sign and countersign foreign and domestic letters of credit, to receive and receipt for payments of principal, interest, dividends, rents, fees and payments of every kind and description paid to the Bank, to sign receipts for property acquired by or entrusted to the Bank, to guarantee the genuineness of signatures on assignments of stocks, bonds or other securities, to sign certifications of checks, to endorse and deliver checks, drafts, warrants, bills, notes, certificates of deposit and acceptances in all business transactions of the Bank. Other persons in the employment of the Bank and of its subsidiaries, including but not limited to officers and other members of the management staff, may be authorized by the Chief Executive Officer, Chairman of the Board, President or by an officer so designated by the Chief Executive Officer, Chairman of the Board, or President to perform the acts and to execute the documents set forth above, subject, however, to such limitations and conditions as are contained in the authorization given to such person. SECTION 3.06. PERFORMANCE BOND. All officers and employees of the Bank shall be bonded for the honest and faithful performance of their duties for such amount as may be prescribed by the Board of Directors. - 24 - 25 ARTICLE IV TRUST DEPARTMENT SECTION 4.01. TRUST DEPARTMENT. Pursuant to the fiduciary powers granted to this Bank under the provisions of Federal Law and Regulations of the Comp- troller of the Currency, there shall be maintained a separate Trust Department of the Bank, which shall be operated in the manner specified herein. SECTION 4.02. TRUST MANAGEMENT COMMITTEE. There shall be a standing Committee known as the Trust Management Committee, consisting of at least five members, a majority of whom shall not be officers of the Bank. The Committee shall consist of the Chairman of the Board who shall be Chairman of the Committee, the President, and at least three other Directors appointed by the Board of Directors and who shall continue as members of the Committee until their successors are appointed. Any vacancy in the Trust Management Committee may be filled by the Board at any regular or special meeting. In the event of the absence of any member or members, such Committee may, in its discretion, appoint members of the Board to fill the place of such absent members to serve during such absence. Three members of the Committee shall constitute a quorum. Any member of the Committee may be removed by the Board by a majority vote at any regular or special meeting of the Board. The Committee shall meet at such times as it may determine or at the call of the Chairman, or President or any two members thereof. The Trust Management Committee, under the general direction of the Board of Directors, shall supervise the policy of the Trust Department which shall be formulated and executed in accordance with Law, Regulations of the Comptroller of the Currency, and sound fiduciary principles. SECTION 4.03. TRUST EXAMINATION COMMITTEE. There shall be a standing Commit- tee known as the Trust Examination Committee, consisting of three - 25 - 26 directors appointed by the Board of Directors and who shall continue as members of the committee until their successors are appointed. Such members shall not be active officers of the Bank. Two members of the Committee shall constitute a quorum. Any member of the Committee may be removed by the Board by a majority vote at any regular or special meeting of the Board. The Committee shall meet at such times as it may determine or at the call of two members thereof. This Committee shall, at least once during each calendar year and within fifteen months of the last such audit, or at such other time(s) as may be required by Regulations of the Comptroller of the Currency, make suitable audits of the Trust Department or cause suitable audits to be made by auditors responsible only to the Board of Directors, and at such time shall ascertain whether the Department has been administered in accordance with Law, Regula- tions of the Comptroller of the Currency and sound fiduciary principles. The Committee shall promptly make a full report of such audits in writing to the Board of Directors of the Bank, together with a recommendation as to what action, if any, may be necessary to correct any unsatisfactory condition. A report of the audits together with the action taken thereon shall be noted in the Minutes of the Board of Directors and such report shall be a part of the records of this Bank. SECTION 4.04. MANAGEMENT. The Trust Department shall be under the management and supervision of an officer of the Bank or of the trust affiliate of the Bank designated by and subject to the advice and direction of the Chief Executive Officer. Such officer having supervisory responsibility over the Trust Department shall do or cause to be done all things necessary or proper in carrying on the business of the Trust Department in accordance with provi- sions of law and applicable regulations. SECTION 4.05. HOLDING OF PROPERTY. Property held by the Trust Department - 26 - 27 may be carried in the name of the Bank in its fiduciary capacity, in the name of Bank, or in the name of a nominee or nominees. SECTION 4.06. TRUST INVESTMENTS. Funds held by the Bank in a fiduciary capacity awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account and shall be invested in accordance with the instrument establishing a fiduciary relationship and local law. Where such instrument does not specify the character or class of investments to be made and does not vest in the Bank any discretion in the matter, funds held pursuant to such instrument shall be invested in any investment which corporate fiduciaries may invest under local law. The investments of each account in the Trust Department shall be kept separate from the assets of the Bank, and shall be placed in the joint custody or control of not less than two of the officers or employees of the Bank or of the trust affiliate of the Bank designated for the purpose by the Trust Management Committee. SECTION 4.07. EXECUTION OF DOCUMENTS. The Chief Executive Officer, Chairman of the Board, President, any officer of the Trust Department, and such other officers of the trust affiliate of the Bank as are specifically designated and authorized by the Chief Executive Officer, the President, or the officer in charge of the Trust Department, are hereby authorized, on behalf of this Bank, to sell, assign, lease, mortgage, transfer, deliver and convey any real property or personal property and to purchase and acquire any real or personal property and to execute and deliver such agreements, contracts, or other papers and documents as may be appropriate in the circumstances for property now or hereafter owned by or standing in the name of this Bank, or its nominee, in any fiduciary capacity, or in the name of any principal for whom this Bank may now or hereafter be acting under a power of attorney, or as agent and to execute and deliver partial releases from any discharges or assignments or mortgages and assignments or surrender - 27 - 28 of insurance policies, to execute and deliver deeds, contracts, leases, assignments, bills of sale, transfers or such other papers or documents as may be appropriate in the circumstances for property now or hereafter held by this Bank in any fiduciary capacity or owned by any principal for whom this Bank may now or hereafter be acting under a power of attorney or as agent; to execute and deliver settlement agreements or other papers or documents as may be appropriate in connection with a dismissal authorized by Section 3.01(c) of these By-laws; provided that the signature of any such person shall be attested in each case by any officer of the Trust Department or by any other person who is specifically authorized by the Chief Executive Officer, the President or the officer in charge of the Trust Department. The Chief Executive Officer, Chairman of the Board, President, any officer of the Trust Department and such other officers of the trust affiliate of the Bank as are specifically designated and authorized by the Chief Executive Officer, the President, or the officer in charge of the Trust Department, or any other person or corporation as is specifically authorized by the Chief Executive Officer, the President or the officer in charge of the Trust Department, are hereby authorized on behalf of this Bank, to sign any and all pleadings and papers in probate and other court proceedings, to execute any indemnity and fidelity bonds, trust agreements, proxies or other papers or documents of like or different character necessary, desirable or incidental to the appointment of the Bank in any fiduciary capacity and the conduct of its business in any fiduciary capacity; also to foreclose any mortgage, to execute and deliver receipts for payments of principal, interest, dividends, rents, fees and payments of every kind and description paid to the Bank; to sign receipts for property acquired or entrusted to the Bank; also to sign stock or bond certificates on behalf of this Bank in any fiduciary capacity and on behalf of this Bank as transfer agent or registrar; to guarantee the genuineness of signatures on assignments of stocks, bonds or other securities, and to authenticate bonds, debentures, land or lease trust certificates or other forms of security issued pursuant to any indenture under which this Bank now or - 28 - 29 hereafter is acting as Trustee. Any such person, as well as such other persons as are specifically authorized by the Chief Executive Officer or the officer in charge of the Trust Department, may sign checks, drafts and orders for the payment of money executed by the Trust Department in the course of its business. SECTION 4.08. VOTING OF STOCK. The Chairman of the Board, President, any officer of the Trust Department, any officer of the trust affiliate of the Bank and such other persons as may be specifically authorized by Resolution of the Trust Management Committee or the Board of Directors, may vote shares of stock of a corporation of record on the books of the issuing company in the name of the Bank or in the name of the Bank as fiduciary, or may grant proxies for the voting of such stock of the granting if same is permitted by the instrument under which the Bank is acting in a fiduciary capacity, or by the law applicable to such fiduciary account. In the case of shares of stock which are held by a nominee of the Bank, such shares may be voted by such person(s) authorized by such nominee. - 29 - 30 ARTICLE V STOCKS AND STOCK CERTIFICATES SECTION 5.01. STOCK CERTIFICATES. The shares of stock of the Bank shall be evidenced by certificates which shall bear the signature of the Chairman of the Board, the President, or a Vice President (which signature may be engraved, printed or impressed), and shall be signed manually by the Secretary, or any other officer appointed by the Chief Executive Officer for that purpose. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by the Bank with the same effect as if such officer had not ceased to be such at the time of its issue. Each such certificate shall bear the corporate seal of the Bank, shall recite on its fact that the stock represented thereby is transferable only upon the books of the Bank properly endorsed and shall recite such other information as is required by law and deemed appropriate by the Board. The corporate seal may be facsimile engraved or printed. SECTION 5.02. STOCK ISSUE AND TRANSFER. The shares of stock of the Bank shall be transferable only upon the stock transfer books of the Bank and except as hereinafter provided, no transfer shall be made or new certificates issued except upon the surrender for cancellation of the certificate or certificates previously issued therefor. In the case of the loss, theft, or destruction of any certificate, a new certificate may be issued in place of such certificate upon the furnishing of any affidavit setting forth the circumstances of such loss, theft, or destruction and indemnity satisfactory to the Chairman of the Board, the President, or a Vice President. The Board of Directors, or the Chief Executive Officer, may authorize the issuance of a new certificate therefor without the furnishing of indemnity. Stock Transfer Books, in which all transfers of stock shall - 30 - 31 be recorded, shall be provided. The stock transfer books may be closed for a reasonable period and under such conditions as the Board of Directors may at any time determine for any meeting of shareholders, the payment of dividends or any other lawful purpose. In lieu of closing the transfer books, the Board may, in its discretion, fix a record date and hour constituting a reasonable period prior to the day designated for the holding of any meeting of the shareholders or the day appointed for the payment of any dividend or for any other purpose at the time as of which shareholders entitled to notice of and to vote at any such meeting or to receive such dividend or to be treated as shareholders for such other purpose shall be determined, and only shareholders of record at such time shall be entitled to notice of or to vote at such meeting or to receive such dividends or to be treated as shareholders for such other purpose. - 31 - 32 ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.01. SEAL. The impression made below is an impression of the seal adopted by the Board of Directors of BANK ONE, COLUMBUS, NATIONAL ASSOCIATION. The Seal may be affixed by any officer of the Bank to any document executed by an authorized officer on behalf of the Bank, and any officer may certify any act, proceedings, record, instrument or authority of the Bank. SECTION 6.02. BANKING HOURS. Subject to ratification by the Executive Committee, the Bank and each of its Branches shall be open for business on such days and during such hours as the Chief Executive Officer of the Bank shall, from time to time, prescribe. SECTION 6.03. MINUTE BOOK. The organization papers of this Bank, the Articles of Association, the returns of the judges of elections, the By-Laws and any amendments thereto, the proceedings of all regular and special meetings of the shareholders and of the Board of Directors, and reports of the committees of the Board of Directors shall be recorded in the minute book of the Bank. The minutes of each such meeting shall be signed by the presiding officer and attested by the secretary of the meetings. SECTION 6.04. AMENDMENT OF BY-LAWS. These By-Laws may be amended by vote of a majority of the Directors. - 32 - 33 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM OMB NUMBER: 7100-0036 FEDERAL DEPOSIT INSURANCE CORPORATION OMB NUMBER: 3064-0052 OFFICE OF THE COMPTROLLER OF THE CURRENCY OMB NUMBER: 1557-0081 EXPIRES JULY 31, 1995 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL - -------------------------------------------------------------------------------- PLEASE REFER TO PAGE i, TABLE OF CONTENTS, FOR --- [LOGO] THE REQUIRED DISCLOSURE 1 OF ESTIMATED BURDEN. --- - -------------------------------------------------------------------------------- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031 (941231) ---------- REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1994 (RCRI 9999) This report is required by law: 12 U.S.C. section 324 (State member banks); 12 U.S.C. section 1817 (State nonmember banks); and 12 U.S.C. section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. - -------------------------------------------------------------------------------- NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, Richard D. Nadler, Controller ------------------------------------------------ Name and title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ Richard D. Nadler - ---------------------------------------------- Signature of Officer Authorized to Sign Report January 26, 1995 - ---------------------------------------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ Michael J. McMennamin - ------------------------- Director(Trustee) /s/ Robert G. Davis - ------------------------- Director(Trustee) /s/ William M. Bennett - ------------------------- Director(Trustee) - -------------------------------------------------------------------------------- FOR BANKS SUBMITTING HARD COPY REPORT FORMS: STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal Reserve District Bank. STATE NONMEMBER BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. NATIONAL BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - -------------------------------------------------------------------------------- FDIC Certificate Number | | | | | | ----------- (RCRI 9050) CALL NO. 190 31 12-31-94 CERT: 06559 00088 STBK 39-1580 BANK ONE, COLUMBUS, NATIONAL ASSOCIA 100 EAST BROAD STREET COLUMBUS, OH 43271 Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 34 FFIEC 031 PAGE i --- 2 --- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES - -------------------------------------------------------------------------------- TABLE OF CONTENTS
SIGNATURE PAGE COVER REPORT OF INCOME Schedule RI--Income Statement ........................................ RI-1,2,3 Schedule RI-A--Changes in Equity Capital ............................. RI-3 Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses ........................................... RI-4,5 Schedule RI-C--Applicable Income Taxes by Taxing Authority ........... RI-5 Schedule RI-D--Income from International Operations................... RI-6 Schedule RI-E--Explanations .......................................... RI-7,8 REPORT OF CONDITION Schedule RC--Balance Sheet............................................ RC-1,2 Schedule RC-A--Cash and Balances Due From Depository Institutions..... RC-3 Schedule RC-B--Securities ............................................ RC-4,5 Schedule RC-C--Loans and Lease Financing Receivables: Part I. Loans and Leases ......................................... RC-6,7 Part II. Loans to Small Businesses and Small Farms (included in the forms for June 30 only) ..................................... RC-7a,7b Schedule RC-D--Trading Assets and Liabilities (to be completed only by selected banks) ................................................. RC-8 Schedule RC-E--Deposit Liabilities ................................... RC-9,10 Schedule RC-F--Other Assets .......................................... RC-11 Schedule RC-G--Other Liabilities...................................... RC-11 Schedule RC-H--Selected Balance Sheet Items for Domestic Offices ..... RC-12 Schedule RC-I--Selected Assets and Liabilities of IBFs ............... RC-13 Schedule RC-K--Quarterly Averages .................................... RC-13 Schedule RC-L--Off-Balance Sheet Items ............................... RC-14,15 Schedule RC-M--Memoranda ............................................. RC-16,17 Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets ............................................................. RC-18,19 Schedule RC-O--Other Data for Deposit Insurance Assessments .......... RC-20,21 Schedule RC-R--Risk-Based Capital .................................... RC-22,23 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income .................................... RC-24 Special Report (to be completed by all banks) Schedule RC-J--Repricing Opportunities (sent only to and to be completed only by savings banks)
DISCLOSURE OF ESTIMATED BURDEN The estimated average burden associated with this information collection is 30.7 hours per respondent and is estimated to vary from 15 to 200 hours per response, depending on individual circumstances. Burden estimates include the time for reviewing instructions, gathering and maintaining data in the required form, and completing the information collection, but exclude the time for compiling and maintaining business records in the normal course of a respondent's activities. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503, and to one of the following: Secretary Board of Governors of the Federal Reserve System Washington, D.C. 20551 Legislative and Regulatory Analysis Division Office of the Comptroller of the Currency Washington, D.C. 20219 Assistant Executive Secretary Federal Deposit Insurance Corporation Washington, D.C. 20429 For information or assistance, national and state nonmember banks should contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C. 20429, toll free on (800) 688-FDIC (3342), Monday through Friday between 8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their Federal Reserve District Bank. 35
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-1 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- CONSOLIDATED REPORT OF INCOME FOR THE PERIOD JANUARY 1, 1994-DECEMBER 31, 1994 ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS. SCHEDULE RI--INCOME STATEMENT ---------- | I480 | <- ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - -------------------------------------------------------------------------------------------------------------------| | 1. Interest income: | ////////////////// | a. Interest and fee income on loans: | ////////////////// | (1) In domestic offices: | ////////////////// | (a) Loans secured by real estate.................................................. | 4011 75,942 | 1.a.(1)(a) (b) Loans to depository institutions ............................................. | 4019 0 | 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers .......... | 4024 537 | 1.a.(1)(c) (d) Commercial and industrial loans .............................................. | 4012 28,124 | 1.a.(1)(d) (e) Acceptances of other banks ................................................... | 4026 0 | 1.a.(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// | (1) Credit cards and related plans ........................................... | 4054 295,823 | 1.a.(1)(f)(1) (2) Other .................................................................... | 4055 108,165 | 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions ....................... | 4056 0 | 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political | ////////////////// | subdivisions in the U.S.: | ////////////////// | (1) Taxable obligations ...................................................... | 4503 88 | 1.a.(1)(h)(1) (2) Tax-exempt obligations ................................................... | 4504 1,840 | 1.a.(1)(h)(2) (i) All other loans in domestic offices .......................................... | 4058 28,722 | 1.a.(1)(i) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs .................... | 4059 0 | 1.a.(2) b. Income from lease financing receivables: | ////////////////// | (1) Taxable leases ................................................................... | 4505 47,155 | 1.b.(1) (2) Tax-exempt leases ................................................................ | 4307 650 | 1.b.(2) c. Interest income on balances due from depository institutions:(1) | ////////////////// | (1) In domestic offices .............................................................. | 4105 0 | 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs .................... | 4106 2,279 | 1.c.(2) d. Interest and dividend income on securities: | ////////////////// | (1) U.S. Treasury securities and U.S. Government agency and corporation obligations .. | 4027 45,731 | 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// | (a) Taxable securities ........................................................... | 4506 0 | 1.d.(2)(a) (b) Tax-exempt securities ........................................................ | 4507 4,976 | 1.d.(2)(b) (3) Other domestic debt securities ................................................... | 3657 764 | 1.d.(3) (4) Foreign debt securities .......................................................... | 3658 152 | 1.d.(4) (5) Equity securities (including investments in mutual funds) ........................ | 3659 222 | 1.d.(5) e. Interest income from assets held in trading accounts ................................. | 4069 333 | 1.e. ----------------------
- ------------ (1) Includes interest income on time certificates of deposit not held in trading accounts. 3 36
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-2 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RI--CONTINUED ---------------- Dollar Amounts in Thousands | Year-to-date | - ----------------------------------------------------------------------------------------------------- | 1. Interest income (continued) | RIAD Bil Mil Thou | f. Interest income on federal funds sold and securities purchased | ////////////////// | under agreements to resell in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs ..................... | 4020 17,090 | 1.f. g. Total interest income (sum of items 1.a through 1.f) ................. | 4107 658,593 | 1.g. 2. Interest expense: | ////////////////// | a. Interest on deposits: | ////////////////// | (1) Interest on deposits in domestic offices: | ////////////////// | (a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// | telephone and preauthorized transfer accounts) ............... | 4508 7,140 | 2.a.(1)(a) (b) Nontransaction accounts: | ////////////////// | (1) Money market deposit accounts (MMDAs) .................... | 4509 21,667 | 2.a.(1)(b)(1) (2) Other savings deposits ................................... | 4511 35,944 | 2.a.(1)(b)(2) (3) Time certificates of deposit of $100,0O0 or more ......... | 4174 9,807 | 2.a.(1)(b)(3) (4) All other time deposits .................................. | 4512 51,480 | 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// | subsidiaries, and IBFs ........................................... | 4172 18,641 | 2.a.(2) b. Expense of federal funds purchased and securities sold under | ////////////////// | agreements to repurchase in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs .............. | 4180 42,357 | 2.b. c. Interest on demand notes issued to the U.S. Treasury and on | ////////////////// | other borrowed money .......................................... | 4185 34,034 | 2.c. d. Interest on mortgage indebtedness and obligations under | ////////////////// | capitalized leases ............................................ | 4072 733 | 2.d. e. Interest on subordinated notes and debentures ................. | 4200 11,384 | 2.e. f. Total interest expense (sum of items 2.a through 2.e) ......... | 4073 233,187 | 2.f. | |--------------------------- 3. Net interest income (item 1.g minus 2.f) ................................ | ////////////////// | RIAD 4074 | 425,406 | 3. | |--------------------------- 4. Provisions: | ////////////////// |--------------------------- a. Provision for loan and lease losses .................................. | ////////////////// | RIAD 4230 | 42,146 | 4. b. Provision for allocated transfer risk ................................ | ////////////////// | RIAD 4243 | 0 | 4. | |--------------------------- 5. Noninterest income: | ////////////////// | a. Income from fiduciary activities ..................................... | 4070 8,114 | 5.a. b. Service charges on deposit accounts in domestic offices .............. | 4080 30,383 | 5.b. c. Trading gains (losses) and fees from foreign exchange transactions ... | 4075 1,285 | 5.c. d. Other foreign transaction gains (losses) ............................. | 4076 292 | 5.d. e. Gains (losses) and fees from assets held in trading accounts ......... | 4077 0 | 5.e. f. Other noninterest income: | ////////////////// | (1) Other fee income ................................................. | 5407 318,677 | 5.f.(1) (2) All other noninterest income* .................................... | 5408 92,450 | 5.f.(2) | |--------------------------- g. Total noninterest income (sum of items 5.a through 5.f) .............. | ////////////////// | RIAD 4079 | 451,201 | 5. 6. a. Realized gains (losses) on held-to-maturity securities ............... | ////////////////// | RIAD 3521 | 32 | 6. b. Realized gains (losses) on available-for-sale securities ............. | ////////////////// | RIAD 3196 | (38,630)| 6. | |--------------------------- 7. Noninterest expense: | ////////////////// | a. Salaries and employee benefits ....................................... | 4135 117,971 | 7.a. b. Expenses of premises and fixed assets (net of rental income) | ////////////////// | (excluding salaries and employee benefits and mortgage interest) ..... | 4217 20,976 | 7.b. c. Other noninterest expense* ........................................... | 4092 499,459 | 7.c. | |--------------------------- d. Total noninterest expense (sum of items 7.a through 7.c) ............. | ////////////////// | RIAD 4093 | 638,406 | 7. | |--------------------------- 8. Income (loss) before income taxes and extraordinary items and other | ////////////////// | | |--------------------------- adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d) | ////////////////// | RIAD 4301 | 157,457 | 8. 9. Applicable income taxes (on item 8) ..................................... | ////////////////// | RIAD 4302 | 52,276 | 9. | |--------------------------- 10. Income (loss) before extraordinary items and other adjustments | ////////////////// | | |--------------------------- (item 8 minus 9) ........................................................ | ////////////////// | RIAD 4300 | 105,181 | 10. -------------------------------------------------
- ------------ *Describe on Schedule RI-E--Explanations. 4 37
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-3 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RI--CONTINUED ---------------- | Year-to-date | ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - --------------------------------------------------------------------------------------------------- 11. Extraordinary items and other adjustments: | ////////////////// | a. Extraordinary items and other adjustments, gross of income taxes* .. | 4310 0 | 11.a. b. Applicable income taxes (on item 11.a)*............................. | 4315 0 | 11.b. c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |--------------------------- (item 11.a minus 11.b).............................................. | ////////////////// | RIAD 4320 | 0 | 11.c. 12. Net income (loss) (sum of items 10 and 11.c)........................... | ////////////////// | RIAD 4340 | 105,181 | 12. ------------------------------------------------- ---------------- Memoranda | Year-to-date | ---------------------- Dollar Amount in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------ 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// | August 7, 1986, that is not deductible for federal income tax purposes ........................... | 4513 59 | M.1. 2. Fee income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// | (included in Schedule RI, item 5.g) .............................................................. | 8431 576 | M.2. 3. Estimated foreign tax credit included in applicable income taxes, items 9 and 11.b above.......... | 4309 0 | M.3. 4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Taxable equivalent adjustment to "Income (loss) before income taxes and extraordinary | ////////////////// | items and other adjustments" (item 8 above)....................................................... | 1244 3,776 | M.4. 5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number | nearest whole number) ............................................................................ | 4150 3,010 | M.5. ----------------------
SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL
Indicate decreases and losses in parentheses. ----------- | I483 | <- ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------ 1. Total equity capital originally reported in the December 31, 1993, Reports of Condition | ////////////////// | and Income ...................................................................................... | 3215 485,887 | 1. 2. Equity capital adjustments from amended Reports of Income, net*................................... | 3216 0 | 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................. | 3217 485,887 | 3. 4. Net income (loss) (must equal Schedule RI, item 12) .............................................. | 4340 1O5,181 | 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net ............................... | 4346 0 | 5. 6. Changes incident to business combinations, net ................................................... | 4356 0 | 6. 7. LESS: Cash dividends declared on preferred stock ................................................. | 4470 0 | 7. 8. LESS: Cash dividends declared on common stock .................................................... | 4460 62,639 | 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// | for this schedule) ............................................................................ | 4411 0 | 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule).. | 4412 3,297 | 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities ................. | 8433 (330)| 11. 12. Foreign currency translation adjustments ......................................................... | 4414 0 | 12. 13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ......... | 4415 1,828 | 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// | item 28) ......................................................................................... | 3210 533,224 | 14. ----------------------
- --------------------- *Describe on Schedule RI-E--Explanations. 5 38
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-4 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses Part I. Charge-offs and Recoveries on Loans and Leases Part I excludes charge-offs and recoveries through the allocated transfer risk reserve. ------- |I486 | <- ------------------------------------------- | (Column A) | (Column B) | | Charge-offs | Recoveries | ------------------------------------------- | calendar year-to-date | ------------------------------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------ 1. Loans secured by real estate: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ....................................... | 4651 4,418 | 4661 3,103 | 1.a. b. To non-U.S. addressees (domicile).................................... | 4652 0 | 4662 0 | 1.b. 2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository institutions ................ | 4653 0 | 4663 0 | 2.a. b. To foreign banks .................................................... | 4654 0 | 4664 0 | 2.b. 3. Loans to finance agricultural production and other loans to farmers .... | 4655 7 | 4665 2 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ....................................... | 4645 2,007 | 4617 668 | 4.a. b. To non-U.S. addressees (domicile) ................................... | 4646 0 | 4618 0 | 4.b. 5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures: | ////////////////// | ////////////////// | a. Credit cards and related plans ...................................... | 4656 80,852 | 4666 11,985 | 5.a. b. Other (includes single payment, installment, and all student loans) . | 4657 30,997 | 4667 13,994 | 5.b. 6. Loans to foreign governments and official institutions ................. | 4643 0 | 4627 0 | 6. 7. All other loans ........................................................ | 4644 182 | 4628 88 | 7. 8. Lease financing receivables: | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ....................................... | 4658 1,105 | 4668 191 | 8.a. b. Of non-U.S. addressees (domicile) ................................... | 4659 0 | 4669 0 | 8.b. 9. Total (sum of items 1 through 8) ....................................... | 4635 119,568 | 4605 30,031 | 9. ------------------------------------------- ------------------------------------------- | Cumulative | Cumulative | | Charge-offs | Recoveries | | Jan. 1, 1986 | Jan. 1, 1986 | Memoranda | through | through | Dollar Amounts in Thousands | Dec. 31, 1989 | Report Date | - --------------------------------------------------------------------------- ------------------------------------------- To be completed by national banks only. | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ------------------------------------------- 1. Charge-offs and recoveries of Special-Category Loans, as defined for | ////////////////// | ////////////////// | this Call Report by the Comptroller of the Currency .................... | ////////////////// | 4784 351 | M.1. ------------------------------------------- ------------------------------------------- | (Column A) | (Column B) | Memorandum items 2 and 3 are to be completed by all banks. | Charge-offs | Recoveries | ------------------------------------------- 2. Loans to finance commercial real estate, construction, and land | calendar year-to-date | ------------------------------------------- development activities (not secured by real estate) included in | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ------------------------------------------- Schedule RI-B, part I, items 4 and 7, above ............................ | 5409 203 | 5410 2 | M.2. 3. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// | Schedule RI-B, part I, item 1, above): | ////////////////// | ////////////////// | a. Construction and land development ................................... | 3582 156 | 3583 3 | M.3.a. b. Secured by farmland ................................................. | 3584 5 | 3585 17 | M.3.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit .................... | 5411 715 | 5412 8 | M.3.c.(1) (2) All other loans secured by 1-4 family residential properties ..... | 5413 628 | 5414 425 | M.3.c.(2) d. Secured by multifamily (5 or more) residential properties ............ | 3588 0 | 3589 1,323 | M.3.d. e. Secured by nonfarm nonresidential properties ......................... | 3590 2,914 | 3591 1,327 | M.3.e. -------------------------------------------
6 39
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-5 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RI-B--CONTINUED PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES AND IN ALLOCATED TRANSFER RISK RESERVE ------------------------------------------- | (Column A) | (Column B) | | Allowance for | Allocated | | Loan and Lease | Transfer Risk | | Losses | Reserve | ------------------------------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------------- 1. Balance originally reported in the December 31, 1993, Reports of | ////////////////// | ////////////////// | Condition and Income ...................................................... | 3124 168,045 | 3131 0 | 1. 2. Recoveries (column A must equal part I, item 9, column B above) ........... | 4605 30,031 | 3132 0 | 2. 3. LESS: Charge-offs (column A must equal part I, item 9, column A above) .... | 4635 119,568 | 3133 0 | 3. 4. Provision (column A must equal Schedule RI, item 4.a; column B must | ////////////////// | ////////////////// | equal Schedule RI, item 4.b) .............................................. | 4230 42,146 | 4243 0 | 4. 5. Adjustments* (see instructions for this schedule) ......................... | 4815 0 | 3134 0 | 5. 6. Balance end of current period (sum of items 1 through 5) (column A must | ////////////////// | ////////////////// | equal Schedule RC, item 4.b; column B must equal Schedule RC, | ////////////////// | ////////////////// | item 4.c) ................................................................. | 3123 120,654 | 3128 0 | 6. -------------------------------------------
- ------------ *Describe on Schedule RI-E--Explanations. SCHEDULE RI-C--APPLICABLE INCOME TAXES BY TAXING AUTHORITY SCHEDULE RI-C IS TO BE REPORTED WITH THE DECEMBER REPORT OF INCOME.
-------- | I489 | <- ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------------- 1. Federal .............................................................................................. | 4780 51,232 | 1. 2. State and local....................................................................................... | 4790 1,044 | 2. 3. Foreign .............................................................................................. | 4795 0 | 3. 4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ................... | 4770 52,276 | 4. -------------------------------------- 5. Deferred portion of item 4 ........................................| RIAD 4772 | 21,231 | ////////////////// | 5. -----------------------------------------------------------
7 40
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC O31 Address: 100 East Broad Street Page RI-6 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |O|6|5|5|9| ----------- SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income. PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS -------- | I492 | <- ---------------- | Year-to-date | ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------- 1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// | and IBFs: | ////////////////// | a. Interest income booked ........................................................................ | 4837 2,432 | 1.a. b. Interest expense booked ....................................................................... | 4838 18,641 | 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// | (item 1.a minus 1.b) .......................................................................... | 4839 (16,209)| 1.c. 2. Adjustments for booking location of international operations: | ////////////////// | a. Net interest income attributable to international operations booked at domestic offices ...... | 4840 0 | 2.a. b. Net interest income attributable to domestic business booked at foreign offices .............. | 4841 0 | 2.b. c. Net booking location adjustment (item 2.a minus 2.b) ......................................... | 4842 0 | 2.c. 3. Noninterest income and expense attributable to international operations: | ////////////////// | a. Noninterest income attributable to international operations .................................. | 4097 0 | 3.a. b. Provision for loan and lease losses attributable to international operations ................. | 4235 0 | 3.b. c. Other noninterest expense attributable to international operations ........................... | 4239 0 | 3.c. d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// | minus 3.b and 3.c) ............................................................................. | 4843 0 | 3.d. 4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// | adjustment (sum of items 1.c, 2.c, and 3.d) .................................................... | 4844 (16,209)| 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// | the effects of equity capital on overall bank funding costs ................................... | 4845 0 | 5. 6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// | adjustment (sum of items 4 and 5) ............................................................. | 4846 (16,209)| 6. 7. Income taxes attributable to income from international operations as estimated in item 6 ........ | 4797 (5,673)| 7. 8. Estimated net income attributable to international operations (item 6 minus 7) .................. | 4341 (10,536)| 8. ----------------------
Memoranda
---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------- 1. Intracompany interest income included in item 1.a above ......................................... | 4847 0 | M.1. 2. Intracompany interest expense included in item 1.b above ........................................ | 4848 0 | M.2. ----------------------
PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S. INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS
---------------- | Year-to-date | ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------- 1. Interest income booked at IBFs .................................................................. | 4849 0 | 1. 2. Interest expense booked at IBFs ................................................................. | 4850 0 | 2. 3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs): | ////////////////// | a. Gains (losses) and extraordinary items ....................................................... | 5491 0 | 3.a. b. Fees and other noninterest income ............................................................ | 5492 0 | 3.b. 4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// | domestic offices (excluding IBFs) ............................................................... | 4852 0 | 4. 5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs) ................................................................................ | 4853 0 | 5. ----------------------
8 41
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RI-7 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RI-E--EXPLANATIONS Schedule RI-E is to be completed each quarter on a calendar year-to-date basis. Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.) ------- |I495 | <- ---------------- | Year-to-date | ---------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------- 1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// | Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// | a. Net gains on other real estate owned ........................................................ | 5415 0 | 1.a. b. Net gains on sales of loans ................................................................. | 5416 0 | 1.b. c. Net gains on sales of premises and fixed assets ............................................. | 5417 0 | 1.c. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 5.f.(2): | ////////////////// | ------------- d. | TEXT 4461 | Card Processing Income | 4461 79,275 | 1.d. ------------------------------------------------------------------------------------------------ e. | TEXT 4462 | | 4462 | 1.e. ------------------------------------------------------------------------------------------------ f. | TEXT 4463 | | 4463 | 1.f. ------------------------------------------------------------------------------------------------ 2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// | a. Amortization expense of intangible assets.................................................... | 4531 5,008 | 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// | b. Net losses on other real estate owned ....................................................... | 5418 0 | 2.b. c. Net losses on sales of loans ................................................................ | 5419 0 | 2.c. d. Net losses on sales of premises and fixed assets ............................................ | 5420 0 | 2.d. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 7.c: | ////////////////// | ------------- e. | TEXT 4464 | Card Processing Expense | 4464 90,105 | 2.e. ------------------------------------------------------------------------------------------------ f. | TEXT 4467 | Affiliate Revenue Sharing | 4467 56,692 | 2.f. ------------------------------------------------------------------------------------------------ g. | TEXT 4468 | Card Servicing Expense | 4468 51,043 | 2.g. ------------------------------------------------------------------------------------------------ 3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// | applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// | all extraordinary items and other adjustments): | ////////////////// | ------------- a. (1) | TEXT 4469 | | 4469 | 3.a.(1) -------------------------------------------------------------------------------------------- (2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2) ------------- ------------------------------------------------------------ b. (1) | TEXT 4487 | | 4487 | 3.b.(1) -------------------------------------------------------------------------------------------- (2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2) ------------- ------------------------------------------------------------ c. (1) | TEXT 4489 | | 4489 | 3.c.(1) -------------------------------------------------------------------------------------------- (2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2) ------------------------------------------------------------ 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// | item 2) (itemize and describe all adjustments): | ////////////////// | ------------- a. | TEXT 4492 | | 4492 | 4.a. ------------------------------------------------------------------------------------------------ b. | TEXT 4493 | | 4493 | 4.b. ------------------------------------------------------------------------------------------------ 5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// | Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// | ------------- a. | TEXT 4494 | | 4494 | 5.a. ------------------------------------------------------------------------------------------------ b. | TEXT 4495 | | 4495 | 5.b. ------------------------------------------------------------------------------------------------ 6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// | item 10) (itemize and describe all corrections): | ////////////////// | ------------- a. | TEXT 4496 | Pushdown Accounting Adiustment (see explanation) | 4496 3,297 | 6.a. ------------------------------------------------------------------------------------------------ b. | TEXT 4497 | | 4497 | 6.b. ----------------------------------------------------------------------------------------------------------------------
9 42
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-158O FFIEC 031 Address: 100 East Broad Street Page RI-8 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |O|6|5|5|9| ----------- SCHEDULE RI-E--CONTINUED ---------------- | Year-to-date | ----------------------- Dollar Amounts in Thousands | RIAD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------ 7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// | (itemize and describe all such transactions): | ////////////////// | ------------- a. | TEXT 4498 | Capital Contribution by Parent | 4498 1,828 | 7.a. ---------------------------------------------------------------------------------------------- b. | TEXT 4499 | | 4499 | 7.b. ---------------------------------------------------------------------------------------------- 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// | item 5) (itemize and describe all adjustments): | ////////////////// | ------------- a. | TEXT 4521 | | 4521 | 8.a. ---------------------------------------------------------------------------------------------- b. | TEXT 4522 | | 4522 | 8.b. ---------------------------------------------------------------------------------------------- ----------------------- 9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | <- ---------------------- at its option, any other significant items affecting the Report of Income): --- No comment | | (RIAD 4769) --- Other explanations (please type or print clearly): (TEXT 4769)
CORRECTION IS TO ACCURATELY REFLECT ON THE BANK'S BOOKS, PURSUANT TO OCC BULLETIN 94-23, THE PURCHASE ACCOUNTING ADJUSTMENTS RELATED TO ACQUISITIONS PRIOR TO 1O/1/89 AND ORIGINALLY RECORDED ON THE BALANCE SHEET OF THE HOLDING COMPANY. 10 43
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-1 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for December 31, 1994 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET -------- | C400 | <- ---------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- ASSETS | ////////////////// | 1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// | a. Noninterest-bearing balances and currency and coin(1) ...................................... | 0081 501,379 | 1.a. b. Interest-bearing balances(2) ............................................................... | 0071 329,996 | 1.b. 2. Securities: | ////////////////// | a. Held-to-maturity securities (from Schedule RC-B, column A) ................................. | 1754 99,819 | 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) ............................... | 1773 762,243 | 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// | of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// | a. Federal funds sold ....................................................................... | 0276 587,389 | 3.a. b. Securities purchased under agreements to resell ............................................ | 0277 156,233 | 3.b. 4. Loans and lease financing receivables: | ////////////////// | --------------------------- a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 4,845,401 | ////////////////// | 4.a. b. LESS: Allowance for loan and lease losses......................... | RCFD 3123 | 120,654 | ////////////////// | 4.b. c. LESS: Allocated transfer risk reserve............................. | RCFD 3128 | 0 | ////////////////// | 4.c. --------------------------- d. Loans and leases, net of unearned income, | ////////////////// | allowance, and reserve (item 4.a minus 4.b and 4.c) ........................................ | 2125 4,724,747 | 4.d. 5. Assets held in trading accounts ............................................................... | 3545 0 | 5. 6. Premises and fixed assets (including capitalized leases) ...................................... | 2145 57,052 | 6. 7. Other real estate owned (from Schedule RC-M) .................................................. | 2150 2,511 | 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ...... | 2130 0 | 8. 9. Customers' liability to this bank on acceptances outstanding .................................. | 2155 12,388 | 9. 10. Intangible assets (from Schedule RC-M) ........................................................ | 2143 45,532 | 10. 11. Other assets (from Schedule RC-F) ............................................................. | 2160 330,675 | 11. 12. Total assets (sum of items 1 through 11) ...................................................... | 2170 7,609,964 | 12. ----------------------
- ------------ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts. 11 44
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-2 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC -- CONTINUED --------------------------- Dollar Amounts in Thousands | ///////// Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES | /////////////////////// | 13. Deposits: | /////////////////////// | a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ....... | RCON 2200 3,881,391 | 13.a. ------------------------ (1) Noninterest-bearing(1)..................................... | RCON 6631 1,092,834 | /////////////////////// | 13.a.(1) (2) Interest-bearing .......................................... | RCON 6636 2,788,557 | /////////////////////// | 13.a.(2) ------------------------ b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// | part II) .......................... ................................................... | RCFN 2200 1,188,550 | 13.b. ------------------------ (1) Noninterest-bearing........................................ | RCFN 6631 0 | /////////////////////// | 13.b.(1) (2) Interest-bearing........................................... | RCFN 6636 1,188,550 | /////////////////////// | 13.b.(2) ------------------------ 14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// | a. Federal funds purchased ............................................................... | RCFD 0278 738,331 | 14.a. b. Securities sold under agreements to repurchase......................................... | RCFD 0279 0 | 14.b. 15. a. Demand notes issued to the U.S. Treasury............................................... | RCON 2840 29,026 | 15.a. b. Trading liabilities ................................................................... | RCFD 3548 0 | 15.b. 16. Other borrowed money: | /////////////////////// | a. With original maturity of one year or less ............................................ | RCFD 2332 738,676 | 16.a. b. With original maturity of more than one year .......................................... | RCFD 2333 1,135 | 16.b. 17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 4,484 | 17. 18. Bank's liability on acceptances executed and outstanding.................................. | RCFD 2920 12,388 | 18. 19. Subordinated notes and debentures......................................................... | RCFD 3200 189,159 | 19. 2O. Other liabilities (from Schedule RC-G).................................................... | RCFD 2930 293,600 | 20. 21. Total liabilities (sum of items 13 through 20)............................................ | RCFD 2948 7,076,740 | 21. | /////////////////////// | 22. Limited-life preferred stock and related surplus.......................................... | RCFD 3282 0 | 22. EQUITY CAPITAL | /////////////////////// | 23. Perpetual preferred stock and related surplus............................................. | RCFD 3838 0 | 23. 24. Common stock ............................................................................. | RCFD 3230 20,738 | 24. 25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 107,356 | 25. 26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 405,460 | 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (330)| 26.b. 27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27. 28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 533,224 | 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// | and 28) .................................................................................. | RCFD 3300 7,609,964 | 29. --------------------------- Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes Number the most comprehensive level of auditing work performed for the bank by independent --------------------------- external auditors as of any date during 1993 ............................................. | RCFD 6724 N/A | M.1. ---------------------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
(1) Includes total demand deposits and noninterest-bearing time and savings deposits. 12 45
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-3 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS EXCLUDE ASSETS HELD IN TRADING ACCOUNTS. -------- | C405 | <- ------------------------------------------| | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | |--------------------|--------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// | coin ....................................................................... | 0022 385,972 | ////////////////// | 1. a. Cash items in process of collection and unposted debits ................. | ////////////////// | 0020 340,172 | 1.a. b. Currency and coin ....................................................... | ////////////////// | 0080 45,800 | 1.b. 2. Balances due from depository institutions in the U.S. ...................... | ////////////////// | 0082 30,359 | 2. a. U.S. branches and agencies of foreign banks (including their IBFs)....... | 0083 0 | ////////////////// | 2.a. b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// | in the U.S. (including their IBFs)....................................... | 0085 30,359 | ////////////////// | 2.b. 3. Balances due from banks in foreign countries and foreign central banks...... | ////////////////// | 0070 2,068 | 3. a. Foreign branches of other U.S. banks..................................... | 0073 320,000 | ////////////////// | 3.a. b. Other banks in foreign countries and foreign central banks............... | 0074 2,068 | ////////////////// | 3.b. 4. Balances due from Federal Reserve Banks..................................... | 0090 92,976 | 0090 92,976 | 4. 5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// | Schedule RC, sum of items 1.a and 1.b)...................................... | 0010 831,375 | 0010 511,375 | 5. ------------------------------------------- ---------------------- Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// | column B above)................................................................................... | 0050 20,363 | M.1. ----------------------
13 46
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-4 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC - B - - SECURITIES ExcLude assets held in trading accounts. --------- | C410 | <- ------------------------------------------------------------------------------------- | Held-to-maturity | Available-for-sale | |-----------------------------------------------------------------------------------| | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | |--------------------|--------------------|--------------------|--------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. U.S. Treasury securities........ | 0211 0 | 0213 0 | 1286 113,371 | 1287 113,301 | 1. 2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | ment agencies(2)............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a. b. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | ment-sponsored agencies(3)... | 1204 29,053 | 1295 28,109 | 1297 557,484 | 1298 557,829 | 3. Securities issued by states | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and political subdivisions | ////////////////// | ////////////////// | ///////////////// | ////////////////// | in the U.S.: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. General obligations.......... | 1676 12,492 | 1677 15,566 | 1678 0 | 1679 0 | 3.a. b. Revenue obligations.......... | 1681 32,591 | 1686 31,194 | 1690 0 | 1691 0 | 3.b. c. Industrial development | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and similar obligations...... | 1694 10,872 | 1695 10,987 | 1696 0 | 1697 0 | 3.c. 4. Mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities (MBS): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Pass-through securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Guaranteed by | ////////////////// | ////////////////// | ////////////////// | ////////////////// | GNMA..................... | 1698 0 | 1699 0 | 1701 0 | 1702 0 | 4.a.(1) (2) Issued by FNMA | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and FHLMC................ | 1703 598 | 1705 621 | 1706 0 | 1707 0 | 4.a.(2) (3) Privately-issued......... | 1709 1,137 | 1710 1,112 | 1711 6,670 | 1713 6,214 | 4.a.(3) b. CMOs and REMICs: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Issued by FNMA | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and FHLMC................ | 1714 9,095 | 1715 9,069 | 1716 21,154 | 1717 20,827 | 4.b.(1) (2) Privately-issued | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and collateralized | ////////////////// | ////////////////// | ////////////////// | ////////////////// | by MBS issued or | ////////////////// | ////////////////// | ////////////////// | ////////////////// | guaranteed by | ////////////////// | ////////////////// | ////////////////// | ////////////////// | FNMA, FHLMC, or | ////////////////// | ////////////////// | ////////////////// | ////////////////// | GNMA..................... | 1718 0 | 1719 0 | 1731 0 | 1732 0 | 4.b.(2) (3) All other privately- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | issued................... | 1733 0 | 1734 0 | 1735 284 | 1736 283 | 4.b.(3) 5. Other debt securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Other domestic debt | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities................... | 1737 1,231 | 1738 1,246 | 1739 60,000 | 1741 60,000 | 5.a. b. Foreign debt | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities................... | 1742 2,750 | 1743 2,750 | 1744 0 | 1746 0 | 5.b. -------------------------------------------------------------------------------------
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than pass-through securities, CMOs, and REMICs) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 14 47
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-5 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-B--CONTINUED ------------------------------------------------------------------------------------- | Held-to-maturity | Available-for-sale | |-----------------------------------------|-----------------------------------------| | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | |--------------------|--------------------|--------------------|--------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - -------------------------------------------------------------------------------------------------------------------------- 6. Equity securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Investments in mutual | ////////////////// | ////////////////// | ////////////////// | ////////////////// | funds........................ | ////////////////// | ////////////////// | 1747 0 | 1748 0 | 6.a. b. Other equity securities | ////////////////// | ////////////////// | ////////////////// | ////////////////// | with readily determin- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | able fair values............. | ////////////////// | ////////////////// | 1749 0 | 1751 0 | 6.b. c. All other equity | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities(1)................ | ////////////////// | ////////////////// | 1752 3,789 | 1753 3,789 | 6.c. 7. Total (sum of items 1 | ////////////////// | ////////////////// | ////////////////// | ////////////////// | through 6) (total of | ////////////////// | ////////////////// | ////////////////// | ////////////////// | column A must equal | ////////////////// | ////////////////// | ////////////////// | ////////////////// | Schedule RC, item 2.a) | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (total of column D must | ////////////////// | ////////////////// | ////////////////// | ////////////////// | equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// | ////////////////// | item 2.b)....................... | 1754 99,819 | 1771 100,654 | 1772 762,752 | 1773 762,243 | 7. -------------------------------------------------------------------------------------
--------- Memoranda | C412 | <- ---------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | - -------------------------------------------------------------------------------------------------------------------------- 1. Pledged securities(2).......................................................................... | 0416 769,487 | M.1. 2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status): | ////////////////// | a. Fixed rate debt securities with a remaining maturity of: | ////////////////// | (1) Three months or less.................................................................... | 0343 498,408 | M.2.a.(1) (2) Over three months through 12 months..................................................... | 0344 114,172 | M.2.a.(2) (3) Over one year through five years........................................................ | 0345 39,525 | M.2.a.(3) (4) Over five years......................................................................... | 0346 46,466 | M.2.a.(4) (5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4))...... | 0347 698,571 | M.2.a.(5) b. Floating rate debt securities with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently............................................................ | 4544 155,815 | M.2.b.(1) (2) Annually or more frequently, but less frequently than quarterly......................... | 4545 2,750 | M.2.b.(2) (3) Every five years or more frequently, but less frequently than annually.................. | 4551 0 | M.2.b.(3) (4) Less frequently than every five years................................................... | 4552 1,137 | M.2.b.(4) (5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4))... | 4553 159,702 | M.2.b.(5) c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// | securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// | debt securities included in Schedule RC-N, item 9, column C)................................ | 0393 858,273 | M.2.c. 3. Not applicable | ////////////////// | 4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// | in Schedule RC-B, items 3 through 5, column A, above).......................................... | 5365 0 | M.4. 5. Not applicable | ////////////////// | 6. Floating rate debt securities with a remaining maturity of one year or less(2) (included in | ////////////////// | Memorandum item 2.b.(5) above)................................................................. | 5519 0 | M.6. 7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// | trading securities during the calendar year-to-date............................................ | 1778 0 | M.7. ----------------------
- -------------- (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. (2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (4) Memorandum item 2 is not applicable to savings banks that must complete supplemental Schedule RC-J. 15 48
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-6 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES PART I. LOANS AND LEASES Do not deduct the allowance for loan and lease losses from amounts -------- reported in this schedule. Report total loans and leases, net of unearned | C415 | <- income. Exclude assets held in trading accounts. ------------------------------------------- | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | ----------------------------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------- 1. Loans secured by real estate.............................................. | 1410 983,564 | ////////////////// | 1. a. Construction and land development...................................... | ////////////////// | 1415 95,726 | 1.a. b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// | improvements).......................................................... | ////////////////// | 1420 7,289 | 1.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit...................... | ////////////////// | 1797 306,820 | 1.c.(1) (2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (a) Secured by first liens......................................... | ////////////////// | 5367 131,893 | 1.c.(2) (b) Secured by junior liens........................................ | ////////////////// | 5368 96,253 | 1.c.(2) d. Secured by multifamily (5 or more) residential properties.............. | ////////////////// | 1460 54,835 | 1.d. e. Secured by nonfarm nonresidential properties........................... | ////////////////// | 1480 290,748 | 1.e. 2. Loans to depository institutions: | ////////////////// | ////////////////// | a. To commercial banks in the U.S......................................... | ////////////////// | 1505 23 | 2.a. (1) To U.S. branches and agencies of foreign banks..................... | 1506 0 | ////////////////// | 2.a.(1) (2) To other commercial banks in the U.S............................... | 1507 23 | ////////////////// | 2.a.(2) b. To other depository institutions in the U.S............................ | 1517 174 | 1517 174 | 2.b. c. To banks in foreign countries.......................................... | ////////////////// | 1510 0 | 2.c. (1) To foreign branches of other U.S. banks............................ | 1513 0 | ////////////////// | 2.c.(1) (2) To other banks in foreign countries................................ | 1516 0 | ////////////////// | 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers....... | 1590 6,256 | 1590 6,256 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile).......................................... | 1763 718,023 | 1763 718,023 | 4.a. b. To non-U.S. addressees (domicile)...................................... | 1764 0 | 1764 0 | 4.b. 5. Acceptances of other banks: | ////////////////// | ////////////////// | a. Of U.S. banks.......................................................... | 1756 0 | 1756 0 | 5.a. b. Of foreign banks....................................................... | 1757 0 | 1757 0 | 5.b. 6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures (i.e., consumer loans) (includes purchased paper)............ | ////////////////// | 1975 2,391,115 | 6. a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// | revolving credit plans)................................................ | 2008 1,655,177 | ////////////////// | 6.a. b. Other (includes single payment, installment, and all student loans).... | 2011 735,938 | ////////////////// | 6.b. 7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// | foreign central banks).................................................... | 2081 0 | 2081 0 | 7. 8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// | subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// | obligations).............................................................. | 2107 49,166 | 2107 49,166 | 8. 9. Other loans............................................................... | 1563 89,062 | ////////////////// | 9. a. Loans for purchasing or carrying securities (secured and unsecured).... | ////////////////// | 1545 8,905 | 9.a. b. All other loans (exclude consumer loans)............................... | ////////////////// | 1564 80,157 | 9.b. 10. Lease financing receivables (net of unearned income)...................... | ////////////////// | 2165 610,980 | 10. a. Of U.S. addressees (domicile).......................................... | 2182 610,980 | ////////////////// | 10.a. b. Of non-U.S. addressees (domicile)...................................... | 2183 0 | ////////////////// | 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above........... | 2123 2,962 | 2123 2,962 | 11. 12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// | 10 minus item 11) (total of column A must equal Schedule RC, item 4.a).... | 2122 4,845,401 | 2122 4,845,401 | 12. -------------------------------------------
16 49
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC O31 Address: 100 East Broad Street Page RC-7 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-C--CONTINUED PART I. CONTINUED ----------------------------------------------- | (Column A) | (Column B) | | Consolidated | Domestic | Memoranda | Bank | Offices | |----------------------|----------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. Commercial paper included in Schedule RC-C, part I, above ............... | 1496 0 | 1496 0 | M.1. 2. Loans and leases restructured and in compliance with modified terms | //////////////////// | //////////////////// | (included in Schedule RC-C, part I, above): | //////////////////// | //////////////////// | a. Loans secured by real estate: | //////////////////// | //////////////////// | | |----------------------- (1) To U.S. addressees (domicile)..................................... | 1687 0 | M.2.a.(1) (2) To non-U.S. addressees (domicile) ................................ | 1689 0 | M.2.a.(2) b. Loans to finance agricultural production and other loans to farmers... | 1613 0 | M.2.b. c. Commercial and industrial loans: | //////////////////// | (1) To U.S. addressees (domicile) .................................... | 1758 0 | M.2.c.(1) (2) To non-U.S. addressees (domicile)................................. | 1759 0 | M.2.c.(2) d. All other loans (exclude loans to individuals for household, | //////////////////// | family, and other personal expenditures) ............................. | 1615 0 | M.2.d. e. Lease financing receivables: | //////////////////// | (1) Of U.S. addressees (domicile) .................................... | 1789 0 | M.2.e.(1) (2) Of non-U.S. addressees (domicile) ................................ | 1790 0 | M.2.e.(2) f. Total (sum of Memorandum items 2.a through 2.e)....................... | 1616 0 | M.2.f. 3. Maturity and repricing data for loans and leases(1) (excluding those | //////////////////// | in nonaccrual status): | //////////////////// | a. Fixed rate loans and leases with a remaining maturity of: | //////////////////// | (1) Three months or less ............................................. | O348 212,665 | M.3.a.(1) (2) Over three months through 12 months .............................. | 0349 225,451 | M.3.a.(2) (3) Over one year through five years.................................. | 0356 1,154,389 | M.3.a.(3) (4) Over five years .................................................. | 0357 264,149 | M.3.a.(4) (5) Total fixed rate loans and leases (sum of | //////////////////// | Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 1,856,654 | M.3.a.(5) b. Floating rate loans with a repricing frequency of: | //////////////////// | (1) Quarterly or more frequently ..................................... | 4554 2,680,504 | M.3.b.(1) (2) Annually or more frequently, but less frequently than quarterly... | 4555 269,946 | M.3.b.(2) (3) Every five years or more frequently, but less frequently than | //////////////////// | annually ......................................................... | 4561 8,150 | M.3.b.(3) (4) Less frequently than every five years ............................ | 4564 0 | M.3.b.(4) (5) Total floating rate loans (sum of Memorandum items 3.b.(1) | //////////////////// | through 3.b.(4)) ................................................. | 4567 2,958,600 | M.3.b.(5) c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | //////////////////// | (must equal the sum of total loans and leases, net, from | //////////////////// | Schedule RC-C, part I, item 12, plus unearned income from | //////////////////// | Schedule RC-C, part I, item 11, minus total nonaccrual loans and | //////////////////// | leases from Schedule RC-N, sum of items 1 through 8, column C) ....... | 1479 4,815,254 | M.3.c. 4. Loans to finance commercial real estate, construction, and land | //////////////////// | development activities (not secured by real estate) included in | //////////////////// | Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ............ | 2746 31,482 | M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, above) | 5369 0 | M.5. 6. Adjustable rate closed-end loans secured by first liens on 1-4 family | //////////////////// |----------------------- residential properties (included in Schedule RC-C, part I, item | //////////////////// | RCON Bil Mil Thou | 1.c.(2)(a), column B, page RC-6) ........................................ | //////////////////// | 5370 73,635 | M.6. -----------------------------------------------
- ------------------- (1) Memorandum item 3 is not applicable to savings banks that must complete supplemental Schedule RC-J. (2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. 17 50
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-8 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of interest rate, foreign exchange rate, and other commodity and equity contracts (as reported in Schedule RC-L, items 11, 12, and 13). ----------- | C420 | <- ----------------------------- Dollar Amounts in Thousands | ///////// Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------ ASSETS | ///////////////////////// | 1. U.S. Treasury securities in domestic offices............................................... | RCON 3531 0 | 1. 2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | ///////////////////////// | backed securities)......................................................................... | RCON 3532 0 | 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices .... | RCON 3533 0 | 3. 4. Mortgage-backed securities in domestic offices: | ///////////////////////// | a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ................... | RCON 3534 0 | 4.a. b. CMOs and REMICs issued by FNMA or FHLMC ................................................ | RCON 3535 0 | 4.b. c. All other .............................................................................. | RCON 3536 0 | 4.c. 5. Other debt securities in domestic offices ................................................. | RCON 3537 0 | 5. 6. Certificates of deposit in domestic offices................................................ | RCON 3538 0 | 6. 7. Commercial paper in domestic offices ...................................................... | RCON 3539 0 | 7. 8. Bankers acceptances in domestic offices.................................................... | RCON 3540 0 | 8. 9. Other trading assets in domestic offices................................................... | RCON 3541 0 | 9. 10. Trading assets in foreign offices.......................................................... | RCFN 3542 0 | 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | ///////////////////////// | contracts: | ///////////////////////// | a. In domestic offices .................................................................... | RCON 3543 0 | 11.a. b. In foreign offices...................................................................... | RCFN 3544 0 | 11.b. 12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5).......... | RCFD 3545 0 | 12. ----------------------------- ----------------------------- LIABILITIES | ///////// Bil Mil Thou | 13. Liability for short positions.............................................................. | RCFD 3546 0 | 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | ///////////////////////// | contracts.................................................................................. | RCFD 3547 0 | 14. 15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b)..... | RCFD 3548 0 | 15. -----------------------------
18 51
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-9 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-E--DEPOSIT LIABILITIES PART I. DEPOSITS IN DOMESTIC OFFICES ----------- | C425 | <- ---------------------------------------------------------------------- | | Nontransaction | | Transaction Accounts | Accounts | ---------------------------------------------------------------------- | (Column A) | (Column B) | (Column C) | | Total transaction | Memo: Total | Total | | accounts (including | demand deposits | nontransaction | | total demand | (included in | accounts | | deposits) | column A) | (including MMDAs) | ---------------------------------------------------------------------- Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------- Deposits of: | //////////////////// | //////////////////// | //////////////////// | 1. Individuals, partnerships, and corporations .. | 2201 1,243,452 | 2240 912,705 | 2346 2,402,765 | 1. 2. U.S. Government .............................. | 2202 10,706 | 2280 10,706 | 2520 0 | 2. 3. States and political subdivisions in the U.S.. | 2203 52,766 | 2290 40,940 | 2530 40,314 | 3. 4. Commercial banks in the U.S. ................. | 2206 88,266 | 2310 88,266 | //////////////////// | 4. a. U.S. branches and agencies of foreign banks | //////////////////// | //////////////////// | 2347 0 | 4.a. b. Other commercial banks in the U.S. ........ | //////////////////// | //////////////////// | 2348 2,905 | 4.b. 5. Other depository institutions in the U.S...... | 2207 5,600 | 2312 5,600 | 2349 0 | 5. 6. Banks in foreign countries ................... | 2213 3,239 | 2320 3,239 | //////////////////// | 6. a. Foreign branches of other U.S. banks ...... | //////////////////// | //////////////////// | 2367 0 | 6.a. b. Other banks in foreign countries .......... | //////////////////// | //////////////////// | 2373 0 | 6.b. 7. Foreign governments and official institutions | //////////////////// | //////////////////// | //////////////////// | (including foreign central banks) ............ | 2216 0 | 2300 0 | 2377 0 | 7. 8. Certified and official checks................. | 2330 31,378 | 2330 31,378 | //////////////////// | 8. 9. Total (sum of items 1 through 8) (sum of | //////////////////// | //////////////////// | //////////////////// | columns A and C must equal Schedule RC, | //////////////////// | //////////////////// | //////////////////// | item 13.a) ................................... | 2215 1,435,407 | 2210 1,092,834 | 2385 2,445,984 | 9. ----------------------------------------------------------------------
------------------------ Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------- 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | //////////////////// | a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ..................... | 6835 231,420 | M.1.a. b. Total brokered deposits ................................................................. | 2365 3,377 | M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): | //////////////////// | (1) Issued in denominations of less than $100,000 ......................................... | 2343 96 | M.1.c.(1) (2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | //////////////////// | and participated out by the broker in shares of $100,000 or less ...................... | 2344 2,583 | M.1.c.(2) d. Total deposits denominated in foreign currencies ........................................ | 3776 0 | M.1.d. e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | //////////////////// | reported in item 3 above which are secured or collateralized as required under state law) | 5590 90,996 | M.1.e. 2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | //////////////////// | equal item 9, column C above): | //////////////////// | a. Savings deposits: | //////////////////// | (1) Money market deposit accounts (MMDAs) ............................................... | 6810 696,967 | M.2.a.(1) (2) Other savings deposits (excludes MMDAs) ............................................. | 0352 644,678 | M.2.a.(2) b. Total time deposits of less than $100,O00 ............................................... | 6648 996,364 | M.2.b. c. Time certificates of deposit of $100,000 or more ........................................ | 6645 107,975 | M.2.c. d. Open-account time deposits of $100,000 or more .......................................... | 6646 0 | M.2.d. 3. All NOW accounts (included in column A above) .............................................. | 2398 342,573 | M.3. ------------------------
19 52
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-10 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-E--CONTINUED PART I. CONTINUED Memoranda (continued) - ----------------------------------------------------------------------------------------------------------------------------------- | Deposit Totals for FDIC Insurance Assessments(1) ------------------------ | | Dollar Amounts in Thousands | RCON Bil Mil Thou | | |------------------------------------------------------------------------------------------------------------------------- | | 4. Total deposits in domestic offices (sum of item 9, column A and item 9, column C) | //////////////////// | | | (must equal Schedule RC, item 13.a) ....................................................... | 2200 3,881,391 | M.4. | | | //////////////////// | | | a. Total demand deposits (must equal item 9, column B) .................................... | 2210 1,092,834 | M.4.a. | | b. Total time and savings deposits(2) (must equal item 9, column A plus item 9, column C | //////////////////// | | | minus item 9, column B) ................................................................ | 2350 2,788,557 | M.4.b. | | ------------------------ | |------------------ | | (1) An amended Certified Statement should be submitted to the FDIC if the deposit totals reported in this item are amended | | after the semiannual Certified Statement originally covering this report date has been filed with the FDIC. | | (2) For FDIC insurance assessment purposes, "total time and savings deposits" consists of nontransaction accounts and all | | transaction accounts other than demand deposits. | | | - -----------------------------------------------------------------------------------------------------------------------------------
------------------------ Dollar Amounts in Thousands | RCON Bil Mil Thou | - -------------------------------------------------------------------------------------------------------------------------- 5. Time deposits of less than $100,000 and open-account time deposits of $100,000 or more | //////////////////// | (included in Memorandum items 2.b and 2.d above) with a remaining maturity or repricing | //////////////////// | frequency of:(1) | //////////////////// | a. Three months or less...................................................................... | 0359 73,263 | M.5.a. b. Over three months through 12 months (but not over 12 months).............................. | 3644 330,685 | M.5.b. 6. Maturity and repricing data for time certificates of deposit of $100,000 or more:(1) | //////////////////// | a. Fixed rate time certificates of deposit of $100,000 or more with a remaining maturity of: | //////////////////// | (1) Three months or less.................................................................. | 2761 66,605 | M.6.a.(1) (2) Over three months through 12 months................................................... | 2762 15,534 | M.6.a.(2) (3) Over one year through five years ..................................................... | 2763 22,996 | M.6.a.(3) (4) Over five years....................................................................... | 2765 2,840 | M.6.a.(4) (5) Total fixed rate time certificates of deposit of $100,000 or more (sum of | //////////////////// | Memorandum items 6.a.(1) through 6.a.(4)) ............................................ | 2767 107,975 | M.6.a.(5) b. Floating rate time certificates of deposit of $100,000 or more with a repricing | //////////////////// | frequency of: | //////////////////// | (1) Quarterly or more frequently ......................................................... | 4568 0 | M.6.b.(1) (2) Annually or more frequently, but less frequently than quarterly ...................... | 4569 0 | M.6.b.(2) (3) Every five years or more frequently, but less frequently than annually ............... | 4571 0 | M.6.b.(3) (4) Less frequently than every five years ................................................ | 4572 0 | M.6.b.(4) (5) Total floating rate time certificates of deposit of $100,000 or more (sum of | //////////////////// | Memorandum items 6.b.(1) through 6.b.(4)) ............................................ | 4573 0 | M.6.b.(5) c. Total time certificates of deposit of $100,000 or more (sum of Memorandum items 6.a.(5) | //////////////////// | and 6.b.(5)) (must equal Memorandum item 2.c. above) ..................................... | 6645 107,975 | M.6.c. ------------------------ - ------------------- (1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
20 53
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-11 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-E--CONTINUED PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND AGREEMENT SUBSIDIARIES AND IBFS) ------------------------ Dollar Amounts in Thousands | RCFN Bil Mil Thou | - -----------------------------------------------------------------------------------------------------|----------------------| Deposits of: | //////////////////// | 1. Individuals, partnerships, and corporations..................................................... | 2621 1,188,550 | 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................. | 2623 0 | 2. 3. Foreign banks (including U.S. branches and | //////////////////// | agencies of foreign banks, including their IBFs) ............................................... | 2625 0 | 3. 4. Foreign governments and official institutions (including foreign central banks)................. | 2650 0 | 4. 5. Certified and official checks .................................................................. | 2330 0 | 5. 6. All other deposits ............................................................................. | 2668 0 | 6. 7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) ........................... | 2200 1,188 550 | 7. ------------------------
Schedule RC-F--Other Assets ----------- | C430 | <- ------------------------------ Dollar Amounts in Thousands | ////////// Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. Income earned, not collected on loans..................................................... | RCFD 2164 35,099 | 1. 2. Net deferred tax assets(1)................................................................ | RCFD 2148 0 | 2. 3. Excess residential mortgage servicing fees receivable..................................... | RCFD 5371 0 | 3. 4. Other (itemize amounts that exceed 25% of this item) ..................................... | RCFD 2168 295,576 | 4. ------------- ------------------------| | a. | TEXT 3549 | Cash Surrender Value of Life Insurance | RCFD 3549 | 125,836 | ////////////////////////// | 4.a. -----------------------------------------------------------------| | | | b. | TEXT 3550 | | RCFD 3550 | | ////////////////////////// | 4.b. -----------------------------------------------------------------| | | | c. | TEXT 3551 | | RCFD 3551 | | ////////////////////////// | 4.c. -----------------------------------------------------------------------------------------| | 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ....................... | RCFD 216O 330,675 | 5. ------------------------------
Memorandum ------------------------------ Dollar Amounts in Thousands | ////////// Bil Mil Thou | - ----------------------------------------------------------------------------------------------------------------------------- 1. Deferred tax assets disallowed for regulatory capital purposes ........................... | RCFD 5610 0 | M.1. ------------------------------
SCHEDULE RC-G--OTHER LIABILITIES
----------- | C435 | <- ------------------------------ Dollar Amounts in Thousands | ////////// Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------- 1. a. Interest accrued and unpaid on deposits in domestic offices(2) .......................... | RCON 3645 24,580 | 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable) ............... | RCFD 3646 103,503 | 1.b. 2. Net deferred tax liabilities(1) ............................................................ | RCFD 3049 29,794 | 2. 3. Minority interest in consolidated subsidiaries ............................................. | RCFD 3000 0 | 3. 4. Other (itemize amounts that exceed 25% of this item) ....................................... | RCFD 2938 135,723 | 4. ------------- ------------------------ | | a. | TEXT 3552 | Deferred Fees Received on Swaps | RCFD 3552 | 48,933 | ////////////////////////// | 4.a. -----------------------------------------------------------------| | | | b. | TEXT 3553 | Trade Date Accounting Entry | RCFD 3553 | 60,000 | ////////////////////////// | 4.b. -----------------------------------------------------------------| | | | c. | TEXT 3554 | | RCFD 3554 | | ////////////////////////// | 4.c. ----------------------------------------------------------------------------------------- | | 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ......................... | RCFD 2930 293,600 | 5. ------------------------------
- ------------- (1) See discussion of deferred income taxes in Glossary entry on "income taxes." (2) For savings banks, include "dividends" accrued and unpaid on deposits. 21 54
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-12 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES ---------- | C440 | <- ---------------------- | Domestic Offices | ---------------------- Dollar Amounts in Thousands | RCON Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------| 1. Customers' liability to this bank on acceptances outstanding..................................... | 2155 12,388 | 1 2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 12,388 | 2. 3. Federal funds sold and securities purchased under agreements to resell........................... | 1350 743,622 | 3. 4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 738,331 | 4. 5. Other borrowed money ............................................................................ | 3190 739,811 | 5. EITHER | ////////////////// | 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6. OR | ////////////////// | 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 864,207 | 7. 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) .................................................... | 2192 7,284,914 | 8. 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)..................................................... | 3129 5,887,483 | 9. ---------------------- Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ---------------------- | RCON Bil Mil Thou | ---------------------- 10. U.S. Treasury securities ....................................................................... | 1779 113,301 |10. 11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// | securities)..................................................................................... | 1785 586,882 |11. 12. Securities issued by states and political subdivisions in the U.S............................... | 1786 55,955 |12. 13. Mortgage-backed securities: | ////////////////// | a. Pass-through securities: | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA............................................. | 1787 598 |13.a.(1) (2) Privately-issued......................................................................... | 1869 7,351 |13.a.(2) b. CMOs and REMICs: | ////////////////// | (1) Issued by FNMA and FHLMC ................................................................ | 1877 29,922 |13.b.(1) (2) Privately-issued ........................................................................ | 2253 283 |13.b.(2) 14. Other domestic debt securities.................................................................. | 3159 61,231 |14. 15. Foreign debt securities......................................................................... | 3160 0 |15. 16. Equity securities: | ////////////////// | a. Investments in mutual funds ................................................................. | 3161 0 |16.a. b. Other equity securities with readily determinable fair values ............................... | 3162 0 |16.b. c. All other equity securities ................................................................. | 3169 3,789 |16.c. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16)........... | 3170 859,312 |17. ----------------------
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
---------------------- Dollar Amounts in Thousands | RCON Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------- EITHER | ////////////////// | 1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1. OR | ////////////////// | 2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2. ----------------------
22 55
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-13 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs To be completed only by banks with IBFs and other "foreign" offices. | C445 | <- --------------------- Dollar Amounts in Thousands | RCFN Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------- 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)..................... | 2133 N/A | 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ///////////////// | column A)......................................................................................... | 2076 N/A | 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, coLumn A)........ | 2077 N/A | 3. 4. Total IBF liabilities (component of Schedule RC, item 21)......................................... | 2898 N/A | 4 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ///////////////// | part II, items 2 and 3)........................................................................... | 2379 N/A | 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6)......... | 2381 N/A | 6. ---------------------
SCHEDULE RC-K--QUARTERLY AVERAGES (1) -------- | C455 | <- --------------------------- Dollar Amounts in Thousands | ///////// Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------- ASSETS | /////////////////////// | 1. Interest-bearing balances due from depository institutions................................ | RCFD 3381 158,368 | 1. 2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 745,343 | 2. 3. Securities issued by states and political subdivisions in the U.S.(2)..................... | RCFD 3383 55,846 | 3. 4. a. Other debt securities(2)............................................................... | RCFD 3647 13,203 | 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 3,718 | 4.b. 5. Federal funds sold and securities purchased under agreements to resell in domestic offices | /////////////////////// | of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... | RCFD 3365 377,154 | 5. 6. Loans: | /////////////////////// | a. Loans in domestic offices: | /////////////////////// | (1) Total loans ........................................................................ | RCON 3360 4,602,106 | 6.a.(1) (2) Loans secured by real estate ....................................................... | RCON 3385 980,654 | 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers ................ | RCON 3386 7,360 | 6.a.(3) (4) Commercial and industrial loans..................................................... | RCON 3387 732,569 | 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures ........ | RCON 3388 2,777,627 | 6.a.(5) (6) Obligations (other than securities and leases) of states and political subdivisions | /////////////////////// | in the U.S.......................................................................... | RCON 3389 25 198 | 6.a.(6) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs .............. | RCFN 3360 0 | 6.b. 7. Assets held in trading accounts............................................................ | RCFD 3401 0 | 7. 8. Lease financing receivables (net of unearned income) ...................................... | RCFD 3484 620,466 | 8. 9. Total assets .............................................................................. | RCFD 3368 7,346,857 | 9. LIABILITIES | /////////////////////// | 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// | and telephone and preauthorized transfer accounts) (exclude demand deposits) .............. | RCON 3485 329,766 | 10. 11. Nontransaction accounts in domestic offices: | /////////////////////// | a. Money market deposit accounts (MMDAs) .................................................. | RCON 3486 741,088 | 11.a. b. Other savings deposits ................................................................. | RCON 3487 914,210 | 11.b. c. Time certificates of deposit of $100,000 or more ....................................... | RCON 3345 121,973 | 11.c. d. All other time deposits ................................................................ | RCON 3469 955,737 | 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs ... | RCFN 3404 482,092 | 12. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............... | RCFD 3353 910,956 | 13. 14. Other borrowed money ...................................................................... | RCFD 3355 781,400 | 14. ---------------------------
- -------------- (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. 23 56
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date:12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-14 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-L--OFF-BALANCE SHEET ITEMS Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. --------- | C460 | <- ---------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------- 1. Unused commitments: | ////////////////// | a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// | equity lines ............................................................................... | 3814 271,968 | 1.a. b. Credit card lines........................................................................... | 3815 21,276,182 | 1.b. c. Commercial real estate, construction, and land development: | ////////////////// | (1) Commitments to fund loans secured by real estate ....................................... | 3816 87,445 | 1.c.(1) (2) Commitments to fund loans not secured by real estate ................................... | 6550 2,413 | 1.c.(2) d. Securities underwriting..................................................................... | 3817 0 | 1.d e. Other unused commitments ................................................................... | 3818 1,338,218 | 1.e. 2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 512,910 | 2. --------------------------- a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 214,837 | ////////////////// | 2.a. --------------------------- 3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 82,917 | 3. a. Amount of performance standby letters of credit conveyed to --------------------------- | ////////////////// | others ......................................................... | RCFD 3822 | 21,038 | ////////////////// | 3.a. --------------------------- 4. Commercial and similar letters of credit....................................................... | 3411 57,978 | 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// | the reporting bank ............................................................................ | 3428 0 | 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// | (nonaccepting) bank ........................................................................... | 3429 0 | 6. 7. Securities borrowed ........................................................................... | 3432 0 | 7. 8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// | against loss by the reporting bank) ........................................................... | 3433 0 | 8. 9. Mortgages transferred (i.e., sold or swapped) with recourse that have been treated as sold | ////////////////// | for Call Report purposes: | ////////////////// | a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 0 | 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 0 | 9.a.(2) b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2) c. Farmer Mac agricultural mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2) 10. When-issued securities: | ////////////////// | a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a. b. Gross commitments to sell .................................................................. | 3435 0 | 10.b. 11. Interest rate contracts (exclude when-issued securities): | ////////////////// | a. Notional value of interest rate swaps ...................................................... | 3450 23,409,446 | 11.a. b. Futures and forward contracts .............................................................. | 3823 0 | 11.b. c. Option contracts (e.g., options on Treasuries): | ////////////////// | (1) Written option contracts ............................................................... | 3824 3,052,175 | 11.c.(1) (2) Purchased option contracts ............................................................. | 3825 4,829,872 | 11.c.(2) 12. Foreign exchange rate contracts: | ////////////////// | a. Notional value of exchange swaps (e.g., cross-currency swaps) .............................. | 3826 0 | 12.a. b. Commitments to purchase foreign currencies and U.S. dollar exchange (spot, forward, | ////////////////// | and futures) ............................................................................... | 3415 74,675 | 12.b. c. Option contracts (e.g., options on foreign currency): | ////////////////// | (1) Written option contracts ............................................................... | 3827 0 | 12.c.(1) (2) Purchased option contracts ............................................................. | 3828 0 | 12.c.(2) ----------------------
24 57
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-15 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-L--CONTINUED ---------- | C461 | <- ---------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------- 13. Contracts on other commodities and equities: | ////////////////// | a. Notional value of other swaps (e.g., oil swaps) ........................................... | 3829 0 | 13.a. b. Futures and forward contracts (e.g., stock index and commodity--precious metals, | ////////////////// | wheat, cotton, livestock--contracts) ...................................................... | 3830 0 | 13.b. c. Option contracts (e.g., options on commodities, individual stocks and stock indexes): | ////////////////// | (1) Written option contracts............................................................... | 3831 0 | 13.c.(1) (2) Purchased option contracts............................................................. | 3832 0 | 13.c.(2) 14. All other off-balance sheet liabilities (itemize and describe each component of this item | ////////////////// | over 25% of Schedule RC, item 28, "Total equity capital")..................................... | 3430 0 | 14. | ////////////////// | ------------- ----------------------- a. | TEXT 3555 | | RCFD 3555 | | ////////////////// | 14.a. ------------------------------------------------------------------------ b. | TEXT 3556 | | RCFD 3556 | | ////////////////// | 14.b. ------------------------------------------------------------------------ c. | TEXT 3557 | | RCFD 3557 | | ////////////////// | 14.c. ------------------------------------------------------------------------ d. | TEXT 3558 | | RCFD 3558 | | ////////////////// | 14.d. ----------------------------------------------------------------------------------------------- 15. All other off-balance sheet assets (itemize and describe each component of this item | ////////////////// | over 25%. of Schedule RC, item 28, "Total equity capital").................................... | 5591 62,189 | 15. | ////////////////// | ------------- ----------------------- a. | TEXT 5592 | | RCFD 5592 | | ////////////////// | 15.a. ------------------------------------------------------------------------ b. | TEXT 5593 | | RCFD 5593 | | ////////////////// | 15.b. ------------------------------------------------------------------------ c. | TEXT 5594 | | RCFD 5594 | | ////////////////// | 15.c. ------------------------------------------------------------------------ d. | TEXT 5595 | | RCFD 5595 | | ////////////////// | 15.d. ----------------------------------------------------------------------------------------------- Memoranda ---------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | - --------------------------------------------------------------------------------------------------------------------------- 1. Not applicable | ////////////////// | 2. Not applicable | ////////////////// | 3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// | Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// | that are fee paid or otherwise legally binding) ............................................... | 3833 1,011,338 | M.3. a. Participations in commitments with an original maturity | ////////////////// | ------------------------ exceeding one year conveyed to others ................................ | RCFD 3834 | 64,645 | ////////////////// | M.3.a. ------------------------ 4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// | to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above ............. | 3377 0 | M.4. 5. To be completed for the September report only: | ////////////////// | Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// | have been securitized and sold without recourse (with servicing retained), amounts | ////////////////// | outstanding by type of loan: | ////////////////// | a. Loans to purchase private passenger automobiles ............................................ | 2741 N/A | M.5.a. b. Credit cards and related plans ............................................................. | 2742 N/A | M.5.b. c. All other consumer installment credit (including mobile home loans) ........................ | 2743 N/A | M.5.c. ----------------------
25 58
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 03 Address: 100 East Broad Street Page RC-16 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-M--MEMORANDA -------- | C465 | <- ---------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | - ---------------------------------------------------------------------------------------------------------------------------- 1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// | shareholders, and their related interests as of the report date: | ////////////////// | a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// | shareholders, and their related interests...................................................... | 6164 218,932 | 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// | extensions of credit by the reporting bank (including extensions of credit to | ////////////////// | related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// | ---------------------------- ////////////////// | of total capital as defined for this purpose in agency regu(ations. | RCFD 6165 | 9 | ////////////////// | 1.b. ---------------------------- ////////////////// | 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// | and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b)..................... | 3405 0 | 2. 3. Not applicable. | ////////////////// | 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// | (include both retained servicing and purchased servicing): | ////////////////// | a. Mortgages serviced under a GNMA contract ...................................................... | 5500 0 | 4.a. b. Mortgages serviced under a FHLMC contract: | ////////////////// | (1) Serviced with recourse to servicer......................................................... | 5501 0 | 4.b.(1) (2) Serviced without recourse to servicer...................................................... | 5502 0 | 4.b.(2) c. Mortgages serviced under a FNMA contract: | //////////////// / | (1) Serviced under a regular option contract................................................... | 5503 0 | 4.c.(1) (2) Serviced under a special option contract................................................... | 5504 0 | 4.c.(2) d. Mortgages serviced under other servicing contracts............................................. | 5505 0 | 4.d. 5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// | equal Schedule RC, item 9): | ////////////////// | a. U.S. addressees (domicile) .................................................................... | 2103 12,388 | 5.a. b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b. 6. Intangible assets: | ////////////////// | a. Mortgage servicing rights...................................................................... | 3164 0 | 6.a. b. Other identifiable intangible assets: | ////////////////// | (1) Purchased credit card relationships........................................................ | 5506 27,959 | 6.b.(1) (2) All other identifiable intangible assets . ................................................ | 5507 3,581 | 6.b.(2) c. Goodwill....................................................................................... | 3163 13,992 | 6.c. d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10)......................... | 2143 45,532 | 6.d. e. Intangible assets that have been grandfathered for regulatory capital purposes ................ | 6442 0 | 6.e. ---------------------- YES NO ---------------------- 7. Does your bank have any mandatory convertible debt that is part of your Tier 2 capital? .......... | 6167 |///| X | 7. ---------------------- If yes, complete items 7.a through 7.e: | RCFD Bil Mil Thou | ---------------------- a. Total equity contract notes, gross ............................................................ | 3290 N/A | 7.a. b. Common or perpetual preferred stock dedicated to redeem the above notes ....................... | 3291 N/A | 7.b. c. Total equity commitment notes, gross .......................................................... | 3293 N/A | 7 c. d. Common or perpetual preferred stock dedicated to redeem the above notes........................ | 3294 N/A | 7.d. e. Total (item 7.a minus 7.b plus 7.c minus 7.d) ................................................. | 3295 N/A | 7.e. - ---------- ---------------------- (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item.
26 59
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-17 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-M--CONTINUED --------------------------- Dollar Amounts in Thousands | ///////// Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------ 8. a. Other real estate owned: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ........................ | RCFD 5372 0 | 8.a.(1) (2) All other real estate owned: | /////////////////////// | (a) Construction and land development in domestic offices ...................... | RCON 5508 0 | 8.a.(2)(a) (b) Farmland in domestic offices ............................................... | RCON 5509 0 | 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices ...................... | RCON 5510 87 | 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices ......... | RCON 5511 0 | 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices ...................... | RCON 5512 2,424 | 8.a.(2)(e) (f) In foreign offices ......................................................... | RCFN 5513 0 | 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ...... | RCFD 2150 2,511 | 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ........................ | RCFD 5374 0 | 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies .. | RCFD 5375 0 | 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ...... | RCFD 2130 0 | 8.b.(3) c. Total assets of unconsolidated subsidiaries and associated companies ............... | RCFD 5376 0 | 8.c. 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC,... | /////////////////////// | item 23, "Perpetual preferred stock and related surplus" .............................. | RCFD 3778 0 | 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// | proprietary, private label, and third party mutual funds): | /////////////////////// | a. Money market funds ................................................................. | RCON 6441 48 | 10.a. b. Equity securities funds ............................................................ | RCON 8427 3,419 | 10.b. c. Debt securities funds .............................................................. | RCON 8428 734 | 10.c. d. Other mutual funds ................................................................. | RCON 8429 0 | 10.d. e. Annuities .......................................................................... | RCON 8430 1,845 | 10.e. ---------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- | | | ---------------------- | |Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | | - -------------------------------------------------------------------------------------------------------------------------- | |1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | | | a. Reciprocal holdings of banking organizations' capital instruments ......................... | 3836 0 | M.1.a. | | b. Nonreciprocal holdings of banking organizations' capital instruments ...................... | 3837 0 | M.1.b. | | ---------------------- | | | - -----------------------------------------------------------------------------------------------------------------------------------
27 60
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-18 City, State Zip Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS The FFIEC regards the information reported in --------- all of Memorandum item 1, in items 1 through 10, | C470 | <- column A, and in Memorandum items 2 through 4, ---------------------------------------------------------------- column A, as confidential. | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | | accruing | accruing | | ---------------------------------------------------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------------ 1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ...................... | 1245 | 1246 2,019 | 1247 14,569 | 1.a. b. To non-U.S. addressees (domicile) .................. | 1248 | 1249 0 | 1250 0 | 1.b. 2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// | acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// | institutions ....................................... | 5377 | 5378 0 | 5379 0 | 2.a. b. To foreign banks ................................... | 5380 | 5381 0 | 5382 0 | 2.b. 3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// | other loans to farmers ................................ | 1594 | 1597 0 | 1583 683 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ...................... | 1251 | 1252 1,061 | 1253 12,409 | 4.a. b. To non-U.S. addressees (domicile) .................. | 1254 | 1255 0 | 1256 0 | 4.b. 5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// | other personal expenditures: | ////////////////// | ////////////////// | ///////////////// | a. Credit cards and related plans ..................... | 5383 | 5384 18,178 | 5385 0 | 5.a. b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// | and all student loans) ............................. | 5386 | 5387 15,783 | 5388 3,012 | 5.b. 6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// | institutions .......................................... | 5389 | 5390 0 | 5391 0 | 6. 7. All other loans ....................................... | 5459 | 5460 362 | 5461 1,161 | 7. 8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ...................... | 1257 | 1258 228 | 1259 1,275 | 8.a. b. Of non-U.S. addressees (domicile) .................. | 1271 | 1272 0 | 1791 0 | 8.b. 9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// | real estate owned and other repossessed assets) ....... | 3505 | 3506 0 | 3507 15,374 | 9. ----------------------------------------------------------------
==================================================================================================================================== Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8. ---------------------------------------------------------------- 10. Loans and leases reported in items 1 | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ---------------------------------------------------------------- through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// | guaranteed by the U.S. Government ..................... | 5612 | 5613 2,890 | 5614 227 | 10. a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// | included in item 10 above .......................... | 5615 | 5616 2,890 | 5617 184 | 10.a. ----------------------------------------------------------------
28 61
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-19 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-N--CONTINUED -------- | C473 | <- ---------------------------------------------------------------- | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | Memoranda | accruing | accruing | | |--------------------|--------------------|--------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - ---------------------------------------------------- |--------------------------------------------------------------- 1. Restructured loans and leases included in | ////////////////// | ////////////////// | ////////////////// | Schedule RC-N, items 1 through 8, above ....... | 1658 | 1659 | 1661 | M.1. 2. Loans to finance commercial real estate, | ////////////////// | ////////////////// | ////////////////// | construction, and land development activities | ////////////////// | ////////////////// | ////////////////// | (not secured by real estate) included in | ////////////////// | ////////////////// | ////////////////// | Schedule RC-N, items 4 and 7, above ........... | 6558 | 6559 227 | 6560 3,015 | M.2. |--------------------|--------------------|--------------------| 3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou | |--------------------|--------------------|--------------------| (included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// | a. Construction and land development .......... | 2759 | 2769 0 | 3492 2,433 | M.3.a. b. Secured by farmland ........................ | 3493 | 3494 50 | 3495 17 | M.3.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// | 1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// | extended under lines of credit ......... | 5398 | 5399 382 | 5400 854 | M.3.c.(1) (2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// | residential properties | 5401 | 5402 1,363 | 5403 4,084 | M.3.c.(2) d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// | residential properties | 3499 | 3500 0 | 3501 0 | M.3.d. e. Secured by nonfarm nonresidential properties | 3502 | 3503 224 | 3504 7,181 | M.3.e. ---------------------------------------------------------------- ------------------------------------------- | (Column A) | (Column B) | | Past due 30 | Past due 90 | | through 89 days | days or more | |--------------------|--------------------| | RCFD Bil Mil Thou | RCFD Bil Mil Thou | |--------------------|--------------------| 4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// | commodity and equity contracts: | ////////////////// | ////////////////// | a. Book value of amounts carried as assets .... | 3522 | 3528 0 | M.4.a. b. Replacement cost of contracts with a | ////////////////// | ////////////////// | positive replacement cost .................. | 3529 | 3530 0 | M.4.b. -------------------------------------------
29 62
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-20 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-O--OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS An amended Certified Statement should be submitted to the FDIC if the amounts reported in items 1 through 10 of this schedule are amended after the semiannual Certified Statement originally covering this report date has been filed with the FDIC. | C475 | <- --------------------- Dollar Amounts in Thousands | RCON Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------- 1. Unposted debits (see instructions): | ////////////////// | a. Actual amount of all unposted debits ..................................................... | 0030 N/A | 1.a. OR | ////////////////// | b. Separate amount of unposted debits: | ////////////////// | (1) Actual amount of unposted debits to demand deposits .................................. | OO31 0 | 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1) | 0032 0 | 1.b.(2) 2. Unposted credits (see instructions): | ////////////////// | a. Actual amount of all unposted credits .................................................... | 3510 N/A | 2.a. OR | ////////////////// | b. Separate amount of unposted credits: | ////////////////// | (1) Actual amount of unposted credits to demand deposits ................................. | 3512 0 | 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1) .................... | 3514 0 | 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// | deposits in domestic offices) ............................................................... | 3520 0 | 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// | Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// | a. Demand deposits of consolidated subsidiaries ............................................. | 2211 1,762 | 4.a. b. Time and savings deposits(1) of consolidated subsidiaries ................................ | 2351 12,586 | 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries ..................... | 5514 0 | 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// | a. Demand deposits in insured branches (included in Schedule RC-E, Part II) ................. | 2229 0 | 5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) .... | 2383 0 | 5.b. c. Interest accrued and unpaid on deposits in insured branches | ////////////////// | (included in Schedule RC-G, item 1.b) .................................................... | 5515 0 | 5.c. ---------------------- ---------------------- Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// | Federal Reserve to act as pass-through correspondents. | ////////////////// | 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// | behalf of its respondent depository institutions that are also reflected as deposit | ////////////////// | liabilities of the reporting bank: | ////////////////// | a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, | ////////////////// | Memorandum item 4.a) ..................................................................... | 2314 0 | 6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// | Memorandum item 4.b) ..................................................................... | 2315 0 | 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// | a. Unamortized premiums ..................................................................... | 5516 0 | 7.a. b. Unamortized discounts .................................................................... | 5517 0 | 7.b. ---------------------- - ------------------------------------------------------------------------------------------------------------------------------ | | |8. To be completed by banks with "Oakar deposits." ---------------------- | | Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | | | the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 N/A | 8. | | ---------------------- | - ------------------------------------------------------------------------------------------------------------------------------ ---------------------- 9. Deposits in lifeline accounts ............................................................... | 5596 ///////////// | 9. 1O. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// | deposits in domestic offices) ............................................................... | 8432 1,083 | 10. - --------------- ---------------------- (1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits. 30
63
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-21 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-O--CONTINUED Memoranda (to be completed each quarter except as noted) ------------------- Dollar Amounts in Thousands | RCON Bil Mil Thou| - --------------------------------------------------------------------------------------------------------------------- 1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and 1.b.(1) | //////////////////| must equal Schedule RC, item 13.a): | //////////////////| a. Deposit accounts of $100,000 or less: | //////////////////| (1) Amount of deposit accounts of $100,000 or less........................................ | 2702 2,332,400|M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be Number | //////////////////| --------------------- completed for the June report only) ........................ | RCON 3779 | N/A | //////////////////|M.1.a.(2) b. Deposit accounts of more than $100,000: --------------------- | //////////////////| (1) Amount of deposit accounts of more than $100,000 ............. Number | 2710 1,548,991|M.1.b.(1) --------------------- (2) Number of deposit accounts of more than $100,000 ............. | RCON 2722 | 3,524 | //////////////////|M.1.b.(2) ------------------------------------------- 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or procedure for YES NO ---------------------- determining a better estimate of uninsured deposits than the estimate described above......... | 6861| |///| X | M.2.a. ---------------------- b. If the box marked YES has been checked, report the estimate of uninsured deposits | RCON| Bil Mil Thou| ---------------------- determined by using your bank's method or procedure ....................................... | 5597 N/A | M.2.b. ---------------------- - ----------------------------------------------------------------------------------------------------------------------------- Person to whom questions about the Reports of Condition and Income should be directed: | C477 | <- --------- Elizabeth G. Gilliland, Assistant Vice President (614) 248-8563 - ------------------------------------------------ ------------------------------------------------------------------- Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
31 64 Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-22 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-R--RISK-BASED CAPITAL This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1993, must complete items 2 through 9 and Memorandum item 1. Banks with assets of less than $1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below. 1. Test for determining the extent to which Schedule RC-R must be completed. To be completed -------- only by banks with total assets of less than $1 billion. Indicate in the appropriate | C480 | <- -------------- box at the right whether the bank has total capital greater than or equal to eight percent | YES NO | -------------------------- of adjusted total assets .......................................................... | RCFD 6056 | |////| | 1. -------------------------- For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines.
------------------------------------------- | (Column A) | (Column B) | |Subordinated Debt(1)| Other | | and Intermediate | Limited- | Items 2 and 3 are to be completed by all banks. | Term Preferred | Life Capital | | Stock | Instruments | ------------------------------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - -------------------------------------------------------------------------------------------------------------------------- 2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// | weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// | maturity of: | ////////////////// | ////////////////// | a. One year or less ....................................................... | 3780 0 | 3786 0 | 2.a. b. Over one year through two years ........................................ | 3781 0 | 3787 0 | 2.b. c. Over two years through three years ..................................... | 3782 0 | 3788 0 | 2.c. d. Over three years through four years .................................... | 3783 0 | 3789 0 | 2.d. e. Over four years through five years ..................................... | 3784 0 | 3790 0 | 2.e. f. Over five years......................................................... | 3785 189,159 | 3791 0 | 2.f. -------------------------------------------
---------------------- 3. Total qualifying capital (i.e., Tier 1 and Tier 2 capital) allowable under the risk-based | RCFD Bil Mil Thou | ---------------------- capital guidelines ........................................................ | 3792 785,447 | 3. ----------------------
------------------------------------------- | (Column A) | (Column B) | Items 4-9 and Memorandum item 1 are to be completed | Assets | Credit Equiv- | by banks that answered NO to item 1 above and | Recorded | alent Amount | by banks with total assets of $1 billion or more. | on the | of Off-Balance | | Balance Sheet | Sheet Items(2) | ------------------------------------------- | RCFD Bil Mil Thou | RCFD Bil Mil Thou | 4. Assets and credit equivalent amounts of off-balance sheet items assigned ------------------------------------------- to the Zero percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// | guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// | OECD central governments ........................................ | 3794 113,371 | ////////////////// | 4.a.(1) (2) All other ....................................................... | 3795 142,564 | ////////////////// | 4.a.(2) b. Credit equivalent amount of off-balance sheet items ................. | ////////////////// | 3796 0 | 4.b. -------------------------------------------
- -------------- (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.e, "Total." (2) Do not report in column B the risk-weighted amount of assets reported in column A. 32 65
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-23 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- SCHEDULE RC-R--CONTINUED ------------------------------------------- | (Column A) | (Column B) | | Assets | Credit Equiv- | | Recorded | alent Amount | | on the | of Off-Balance | | Balance Sheet | Sheet Items(1) | ------------------------------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------ 5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 20 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// | agencies and other OECD central governments ..................... | 3798 118,231 | ////////////////// | 5.a.(1) (2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// | ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// | securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// | by cash on deposit .............................................. | 3799 0 | ////////////////// | 5.a.(2) (3) All other ....................................................... | 3800 2,081,007 | ////////////////// | 5.a.(3) b. Credit equivalent amount of off-balance sheet items ................. | ////////////////// | 3801 1,014,255 | 5.b. 6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 50 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet................................. | 3802 171,004 | ////////////////// | 6.a. b. Credit equivalent amount of off-balance sheet items.................. | ////////////////// | 3803 3,746 | 6.b. 7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 100 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet................................. | 3804 5,104,950 | ////////////////// | 7.a. b. Credit equivalent amount of off-balance sheet items.................. | ////////////////// | 3805 607,096 | 7.b. 8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// | risk-based capital ratio(2)............................................. | 3806 (509)| ////////////////// | 8. 9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// | items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// | item 12 plus items 4.b and 4.c) ........................................ | 3807 7,730,618 | ////////////////// | 9. -------------------------------------------
------------------------------------------- | (Column A) | (Column B) | | Notional | Replacement | | Principal | Cost | Memorandum | Value | (Market Value) | |--------------------|--------------------- Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | - ------------------------------------------------------------------------------------------------------------------------ 1. Notional principal value and replacement cost of interest rate and | ////////////////// | ////////////////// | foreign exchange rate contracts (in column B, report only those | ////////////////// | ////////////////// | contracts with a positive replacement cost): | ////////////////// | ////////////////// | a. Interest rate contracts (exclude futures contracts) ................. | ////////////////// | 3808 475,285 | M.1.a. (1) With a remaining maturity of one year or less ................... | 3809 7,133,202 | ////////////////// | M.1.a.(1) (2) With a remaining maturity of over one year ...................... | 3810 15,404,062 | ////////////////// | M.1.a.(2) b. Foreign exchange rate contracts (exclude contracts with an original | ////////////////// | ////////////////// | maturity of 14 days or less and futures contracts) .................. | ////////////////// | 3811 412 | M.1.b. (1) With a remaining maturity of one year or less ................... | 3812 74,675 | ////////////////// | M.1.b.(1) (2) With a remaining maturity of over one year ...................... | 3813 0 | ////////////////// | M.1.b.(2) -------------------------------------------
- --------------- (1) Do not report in column B the risk-weighted amount of assets reported in column A. (2) Until a final rule on the regulatory capital treatment of net unrealized holding gains (losses) on available-for-sale securities that is applicable to the reporting bank has taken effect, a bank that has adopted FASB Statement No. 115 should include the difference between the fair value and the amortized cost of its available-for-sale securities in item 8 and report the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. 33 66
Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 FFIEC 031 Address: 100 East Broad Street Page RC-24 City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS REPORTED IN THE REPORTS OF CONDITION AND INCOME at close of business on December 31, 1994 BANK ONE, COLUMBUS, NA Columbus , Ohio - ------------------------------------------------------------- ---------------------------------- -------------------------- Legal Title of Bank City State The management of the reporting bank may, if it wishes, sub- the truncated statement will appear as the bank's statement mit a brief narrative statement on the amounts reported in both on agency computerized records and in computer-file the Reports of Condition and Income. This optional statement releases to the public. will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in re- All information furnished by the bank in the narrative state- sponse to any request for individual bank report data. How- ment must be accurate and not misleading. Appropriate ef- ever, the information reported in column A and in all of forts shall be taken by the submitting bank to ensure the Memorandum item 1 of Schedule RC-N is regarded as confidential statement's accuracy. The statement must be signed, in the and will not be released to the public. BANKS CHOOSING TO space provided below, by a senior officer of the bank who SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE thereby attests to its accuracy. STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES If, subsequent to the original submission, material changes TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN are submitted for the data reported in the Reports of Condi- SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE tion and Income, the existing narrative statement will be NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD deleted from the files, and from disclosure; the bank, at its COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing option, may replace it with a statement, under signature, ap- not to make a statement may check the "No comment" box below propriate to the amended data. and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space The optional narrative statement will appear in agency such phrases as "No statement," "Not applicable," "N/A," records and in release to the public exactly as submitted (or "No comment," and "None." amended as described in the preceding paragraph) by the management of the bank (except for the truncation of state- ments exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY The optional statement must be entered on this sheet. The WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR statement should not exceed 100 words. Further, regardless RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT of the number of words, the statement must not exceed 750 SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS characters, including punctuation, indentation, and standard VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION spacing between words and sentences. If any submission CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL should exceed 750 characters, as defined, it will be truncated APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT at 750 characters with no notice to the submitting bank and SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. - ------------------------------------------------------------------------------------------------------------------------------------ No comment | | (RCON 6979) | C471 | C472 --- ------------- BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) FOR REGULATORY PURPOSES, THE BANK DEFERS THE RECOGNITION OF CERTAIN EXCESS INCOME RELATING TO SECURITIZED LOAN SALES UNTIL CASH IS RECEIVED. THE EFFECT OF THIS ACCOUNTING METHOD HAS DECREASED NET INCOME FOR THE CURRENT YEAR $31,936,000 AND DECREASED RETAINED EARNINGS ON A CUMULATIVE BASIS $73,857,000. /s/ Michael J. McMernon 1-26-95 ------------------------------------------------------- ---------------------------------------- Signature of Executive Officer of Bank Date of Signature
34 67 Legal Title of Bank: BANK ONE, COLUMBUS, NA Call Date: 12/31/94 ST-BK: 39-1580 Address: 1O0 East Broad Street City, State Zip: Columbus, OH 43271-1066 FDIC Certificate No.: |0|6|5|5|9| ----------- THIS PAGE IS TO BE COMPLETED BY ALL BANKS - ---------------------------------------------------------------------------------------------------------------------------------- NAME AND ADDRESS OF BANK | OMB No. For OCC: 1557-0081 OMB No. For FDIC: 3064-0052 CALL NO. 190 31 12-31-94 OMB No. For Federal Reserve: 7100-0036 Expiration Date: 7/31/95 CERT: 06559 00088 STBK 39-1580 SPECIAL REPORT BANK ONE, COLUMBUS, NATIONAL ASSOCIA (Dollar Amounts in Thousands) 100 EAST BROAD STREET COLUMBUS, OH 43271 ----------------------------------------------------------- CLOSE OF BUSINESS | FDIC Certificate Number | | DATE | | C-700 | <- 12/31/94 | |0|6|5|5|9| | | - ---------------------------------------------------------------------------------------------------------------------------------- LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date) - ---------------------------------------------------------------------------------------------------------------------------------- The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and principal shareholders who are not executive officers. - ---------------------------------------------------------------------------------------------------------------------------------- --------------------------------- a. Number of loans made to executive officers since the previous Call Report date ...............| RCFD 3561 | 6 a. --------------------------------- b. Total dollar amount of above loans (in thousands of dollars) .................................| RCFD 3562 | 480 b. c. Range of interest charged on above loans --------------------------------- ------------------------------------------------------------ (example: 9 3/4% = 9.75) | RCFD 7701 | 8.75 | % to | RCFD 7702 | 18.25 | % c. ------------------------------------------------------------ - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year) | /s/ Elizabeth G. Gilliland | 1/27/95 - ---------------------------------------------------------------------------------------------------------------------------------- NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER (TEXT 8904) | Elizabeth G. Gilliland, Assistant Vice President | (614) 248-8563 | - ---------------------------------------------------------------------------------------------------------------------------------- FDIC 8040/53 (9-94)
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