-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lu/hpcd87xLMdGqcJpEhhP00lvHmB7FUSwvgqoe6d1DfLWFmKTnKgQskOdOjnl+W Z2tsuZ81PB61ZNGb+eo5FQ== 0000950144-96-007171.txt : 19961021 0000950144-96-007171.hdr.sgml : 19961021 ACCESSION NUMBER: 0000950144-96-007171 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19961018 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOLODGE INC CENTRAL INDEX KEY: 0000881924 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 621015641 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14463 FILM NUMBER: 96645480 BUSINESS ADDRESS: STREET 1: 217 WEST MAIN ST CITY: GALLATIN STATE: TN ZIP: 37066 BUSINESS PHONE: 6154527200 MAIL ADDRESS: STREET 1: 217 WEST MAIN ST CITY: GALLATIN STATE: TN ZIP: 37066 S-3 1 SHOLDGE INC. FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SHOLODGE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TENNESSEE 62-1015641 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------ 217 WEST MAIN STREET GALLATIN, TENNESSEE 37066 (615) 452-7200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JOHN W. TITUS, ESQUIRE BOULT, CUMMINGS, CONNERS & BERRY, PLC P. O. BOX 198062 414 UNION STREET SUITE 1600 NASHVILLE, TENNESSEE 37219 (615) 252-2341 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copy to: J. PAGE DAVIDSON, ESQUIRE BASS, BERRY & SIMS PLC FIRST AMERICAN CENTER NASHVILLE, TENNESSEE 37238 (615) 742-6253 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. 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 only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE(1) FEE - ----------------------------------------------------------------------------------------------------- Senior Subordinated Notes.................... $125,000,000 100% $125,000,000 $37,879 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. ------------------------ 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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE 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 SUPPLEMENT 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 OCTOBER 18, 1996 PRELIMINARY PROSPECTUS SUPPLEMENT (TO PRELIMINARY PROSPECTUS DATED OCTOBER 18, 1996) $35,000,000 [SHONEY'S INN LOGO] SHOLODGE, INC. [SUMNER SUITES LOGO] % SENIOR SUBORDINATED NOTES DUE 2006, SERIES A ------------------------ ShoLodge, Inc. (the "Company") is offering $35,000,000 in aggregate principal amount of its % Senior Subordinated Notes due 2006, Series A (the "Series A Notes"). The Series A Notes mature on , 2006. Interest on the Series A Notes will be payable quarterly on the first day of February, May, August and November of each year commencing February 1, 1997. The Series A Notes will be unsecured and subordinated in right of payment to the prior payment in full of all existing and future Senior Indebtedness, as defined, of the Company and will be senior in right of payment to, or pari passu with, all other subordinated indebtedness of the Company. As of July 14, 1996, after giving pro forma effect to the sale of the Series A Notes and to the application of the net proceeds therefrom to reduce indebtedness under the Company's current credit agreements, as described under "Use of Proceeds," the amount of Senior Indebtedness of the Company would have been approximately $38.1 million. The Company may incur additional Senior Indebtedness subject to the "Restrictions on Additional Indebtedness" covenant in the Indenture, as defined. Upon the occurrence of a Change in Control, as defined, of the Company, the Company will be obligated to purchase the Series A Notes at the holder's option at par plus accrued interest to the date of purchase. The change in control feature may have an anti-takeover effect. See "Description of the Notes -- Repurchase at Holder's Option Upon Change in Control." The Series A Notes also will be redeemable at any time on or after , 1999, at the option of the Company, in whole or in part, at declining premiums, as set forth herein. The Company will redeem Series A Notes tendered by the personal representative or surviving joint tenant, tenant in common or tenant by the entirety of a deceased holder within 60 days of presentation of the necessary documents, up to an annual maximum of $50,000 per holder and up to an annual aggregate maximum amount equal to 5% of the aggregate original principal amount of the Notes of all series issued under the Indenture. The Company will redeem Series A Notes tendered by other beneficial holders commencing December 1, 1999 and on each anniversary thereof subject to the per holder and aggregate limitations. No sinking fund will be established to redeem the Series A Notes. See "Description of the Notes." The Series A Notes will be issued in integral multiples of $1,000 and will be in fully registered form. The Company does not intend to list the Series A Notes on the Nasdaq National Market or any securities exchange. The Underwriters have informed the Company that they intend to make a market in the Series A Notes; however, no assurance can be given that an active trading market for the Series A Notes will develop. See "Underwriting." SEE "RISK FACTORS" APPEARING ON PAGES S-7 THROUGH S-10 OF THIS PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SERIES A 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.
- ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(3) - ------------------------------------------------------------------------------------------------------------------- Per Series A Note................................. 100% % % - ------------------------------------------------------------------------------------------------------------------- Total(4).......................................... $35,000,000 $ $ - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from date of initial issuance. (2) The Company has agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting estimated expenses of $400,000 payable by the Company. (4) The Company has granted the Underwriters an option to purchase up to an additional $5,250,000 in principal amount of Series A Notes to cover over-allotments on the same terms and conditions as set forth above. If all such Series A Notes are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Series A Notes offered by this Prospectus Supplement and accompanying Prospectus are offered by the Underwriters when, as and if issued by the Company, subject to receipt and acceptance by the several Underwriters, prior sale and the right of the Underwriters to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that the Series A Notes will be available for delivery on or about , 1996. ------------------------ J.C BRADFORD & CO. DAIN BOSWORTH INCORPORATED INTERSTATE/JOHNSON LANE CORPORATION , 1996 3 This page contains spaces for the following graphic and image materials: The inside front cover contains a map of a portion of the United States showing the states where the Company's hotels are located or under construction. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial data appearing elsewhere in this Prospectus Supplement and accompanying Prospectus or incorporated by reference herein. The term "Company" as used herein includes the operations of ShoLodge, Inc. and its subsidiaries. Unless otherwise noted, the information in this Prospectus Supplement does not give effect to the exercise of the Underwriters' over-allotment option. THE COMPANY ShoLodge, Inc. develops, owns and operates all-suites hotels under the Sumner Suites brand name and is an operator and the exclusive franchisor of Shoney's Inns and Shoney's Inn & Suites (collectively, "Shoney's Inns"). The Company's ten Sumner Suites are mid-scale, all-suites hotels located in Florida, Georgia, Indiana, New Mexico, Ohio and Texas. The Shoney's Inns lodging system consists of 89 Shoney's Inns containing 9,087 rooms of which 34 Shoney's Inns containing 4,164 rooms are owned or managed by the Company. Shoney's Inns are currently located in 21 states with a concentration in the Southeast. Sumner Suites hotels are marketed primarily to business travelers and, to a lesser extent, leisure travelers by offering an all-suite setting in a convenient location at an attractive price/value relationship. Usually located in or near business or leisure travel destinations in mid-sized and larger metropolitan markets, Sumner Suites offer mid-scale accommodations at rates between $65 and $85 per night. A typical Sumner Suites hotel contains from 110 to 125 rooms, lounge facilities, meeting rooms and an exercise room, and offers a deluxe continental breakfast. The Sumner Suites concept was launched in 1995 with three hotels. From 1990 until 1995, the Company developed and managed 12 mid-scale, all-suites hotels under another brand name before selling its interests in those hotels in March 1995. The Company believes that its experience in developing, constructing and managing mid-scale, all-suites hotels will enable it to expand effectively its development and ownership of the Sumner Suites system. As Sumner Suites has a limited presence in the marketplace, the Company seeks to capitalize on its proprietary reservation system ("INNLINK") to further expand awareness of Sumner Suites. Shoney's Inns operate in the upper economy limited-service segment and are designed to appeal to both business and leisure travelers, with rooms usually priced between $39 and $58 per night. The typical Shoney's Inn includes 100 to 125 rooms and, in most cases, meeting rooms. Although Shoney's Inns do not offer full food service, many offer continental breakfast and 80 of the 89 Shoney's Inns are located adjacent or in close proximity to Shoney's restaurants. Management believes that its strategy of locating most of its Shoney's Inns in close proximity to free-standing Shoney's restaurants has given it a competitive advantage over other limited-service lodging chains by offering guest services approximating those of full-service facilities without the additional capital expenditures and operating costs or higher room rates. In 1991, the Company became the exclusive franchisor of Shoney's Inns, including the then existing Shoney's Inns. Management believes that Shoney's Inns benefit from the association with the Shoney's national brand restaurant system's reputation for consistency and value which provides an opportunity for expansion in both existing and new markets. Shoney's Inns benefit directly from cross-marketing efforts with Shoney's restaurants as well as indirectly from Shoney's restaurant advertising. The Company's strategy is to increase cash flow and earnings by (i) increasing revenue per available room ("REVPAR") while maintaining the Company's attractive suite and room price/value relationships and controlling operating costs, (ii) developing additional Sumner Suites, and (iii) expanding the Shoney's Inn system through the addition of new franchised units and selectively developing Company-owned hotels. The Company has opened seven Sumner Suites in fiscal 1996 and has four Sumner Suites under construction scheduled to open during the remainder of fiscal 1996. The Company intends to open a total of eight to ten Sumner Suites in fiscal 1997, of which two are currently under construction. Based on the Company's experience to date, the capital investment (including land and pre-opening expenses) for a typical 125 suite Sumner Suites is approximately $6.5 million (approximately $52,000 per suite). The principal executive offices of the Company are located at 217 West Main Street, Gallatin, Tennessee 37066. The Company's telephone number is (615) 452-7200. S-3 5 RECENT DEVELOPMENT On October 17, 1996 the Company entered into a letter agreement with Shoney's Investments, Inc., an affiliate of Shoney's, Inc. ("Shoney's") pursuant to which the Company will, subject to the satisfaction of certain conditions, repurchase for $2.0 million in cash the warrant held by Shoney's to acquire 5% of the Company's common stock (the "Common Stock") outstanding on the date of exercise of the warrant, exercisable through February 20, 1997. As of October 16, 1996, the warrant entitles Shoney's to acquire 559,589 shares of common stock, of which 437,703 warrants were in the money at an average price of $9.49. In addition, the Company will pay to Shoney's $5.3 million in cash in exchange for (i) the cancellation of Shoney's right to receive a portion of the franchise fees collected by the Company equal, in substantially all cases, to 1.5% of 52 Shoney's Inns' gross revenues through October 1999 and 0.5% of the remaining and all future Shoney's Inns' gross revenues for the first ten years of their operations; (ii) the repurchase of all of the Company's Series A Redeemable Nonparticipating Stock and all of the Series A Redeemable Nonparticipating Stock of the Company's franchising subsidiary, (iii) the termination of Shoney's right of first refusal with respect to shares of Common Stock owned by Leon Moore, the Company's Chief Executive Officer, if he receives an offer which would result in his owning less than 20% of the Company's outstanding Common Stock and (iv) the amendment of the Company's License Agreement with Shoney's (the "License Agreement")_to terminate certain of Shoney's approval rights over various aspects of the Company's franchise operations, including the selection of franchisees, the location and design of franchised facilities, the termination of individual franchisees, and the maximum fees which the Company may charge franchisees. The Company will continue as the exclusive franchisor of Shoney's Inns and Shoney's will retain certain rights, including the right to approve the styles, shapes, colors and forms in which the "Shoney's Inn" and "Shoney's Inn & Suites" marks are displayed and the terms of the franchise agreements (other than the maximum fees and other financial terms thereof). Further, Shoney's retains the right to terminate the License Agreement under limited circumstances, including the bankruptcy of the Company, the failure to comply with the terms of the License Agreement and the failure to desist from conduct likely to impair Shoney's goodwill and reputation. As a result of the repurchase of the Company's Series A Redeemable Nonparticipating Stock, Shoney's will no longer have the right to designate two members of the Company's board of directors. The letter agreement is subject to final documentation, board approvals and lender approvals. Management expects that the repurchase of the warrants will be treated as a reduction of shareholders' equity and the cancellation of the warrants will reduce the number of common equivalent shares outstanding. The $5.3 million price for the cancellation of Shoney's right to receive a portion of the Company's franchise fees is expected to be treated as a deferred asset and amortized over a fixed period of time. After completion of the transactions referenced in the letter agreement, franchise operating expenses of the Company will no longer reflect an expense for the royalty fees to Shoney's. Management anticipates that the transactions will close by October 25, 1996, but there can be no assurance that the transactions will close by such date, if ever. The transactions referenced in the letter agreement are sometimes collectively referred to herein as the "Shoney's Transaction." THE OFFERING Securities Offered............ $35,000,000 principal amount of % Senior Subordinated Notes due 2006, Series A. See "Description of the Series A Notes." Maturity...................... , 2006 Interest Payment Date......... Quarterly, commencing February 1, 1997 and on each May 1, August 1, November 1 and February 1 thereafter. The first interest payment will represent interest from the date of issuance through February 1, 1997. Denomination.................. $1,000 and any integral multiple thereof. Redemption at Company's Option........................ Not redeemable prior to , 1999. The redemption price for the 12 months beginning , 1999 will be 104% of par S-4 6 plus accrued and unpaid interest, declining 1% each year thereafter to 100% on , 2003. See "Description of the Series A Notes -- Optional Redemption by the Company." Repurchase at Holder's Option upon Change in Control........ The Company is required to repurchase the Series A Notes at 100% of their principal amount together with accrued interest, at the option of the holder, if a Change in Control occurs. See "Description of the Series A Notes -- Certain Provisions Regarding Redemption at Holder's Option" and "Description of the Notes -- Repurchase at Holder's Option Upon Change in Control." Redemption at Holder's Option........................ Upon the Death of a Noteholder: The Series A Notes tendered by the personal representative or surviving joint tenant, tenant by the entirety or tenant in common of a deceased beneficial owner shall be redeemed within 60 days of tender, at par plus accrued interest, subject to the amount limitations set forth below. By other Noteholders: The Series A Notes tendered by November 1 of each year shall be redeemed at par plus accrued interest, subject to the amount limitations set forth below, on December 1 each year, commencing in 1999. Amount Limitations: Of the Series A Notes tendered, the Company is only required to redeem, for any 12 month period ending November 1, an aggregate maximum of 5% of the original aggregate principal amount of all Notes of all series issued under the Indenture, subject to a maximum of $50,000 per beneficial owner. Notes tendered by representatives of deceased beneficial owners will be redeemed prior to Notes tendered by other Noteholders. See "Description of the Notes -- Redemption at Holder's Option." Subordination................. The Notes of all series issued under the Indenture will be unsecured obligations of the Company subordinated in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, and will be senior in right of payment to or pari passu with all other subordinated indebtedness of the Company. The Notes will be effectively subordinated to all indebtedness of the Company's subsidiaries. See "Description of the Notes -- Subordination." Certain Covenants of the Company....................... In the Indenture, the Company agrees to certain limitations on dividends and additional indebtedness and to maintain a certain minimum consolidated net worth. Sinking Fund.................. None. Use of Proceeds............... To reduce certain indebtedness of the Company under its revolving credit facilities incurred (i) to fund development and renovation of lodging facilities and (ii) for general corporate purposes including funding the Shoney's Transaction. See "Use of Proceeds." Risk Factors.................. See "Risk Factors" for a discussion of certain factors that should be considered by prospective purchasers of the Series A Notes. Trustee....................... Bankers Trust Company, New York, New York. S-5 7 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND OPERATING DATA)
TWO FISCAL QUARTERS ENDED FISCAL YEAR ENDED ------------------ -------------------------------------------- JULY DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, 14, 1993 1994 1995(1) 1995(1) 1996(1) ------------ ------------ ------------ ------- ------- STATEMENT OF EARNINGS DATA: Total operating revenues........... $ 40,733 $ 60,776 $ 78,620 $53,094 $31,157 Total operating expenses........... 26,980 43,239 43,137 26,355 17,991 Earnings from continuing operations before income taxes(2).......... 8,316 12,831 28,289 23,331 7,996 Net earnings(2).................... $ 5,198 $ 7,796 $ 16,977 $13,887 $ 5,034 Net earnings per common and common equivalent share(2)............. $ 0.66 $ 0.90 $ 1.80 $ 1.40 $ 0.60 EBITDA(3).......................... $ 12,404 $ 16,159 $ 33,554 $25,836 $11,674 Ratio of earnings to fixed charges(4)...................... 2.43x 2.58x 4.20x 5.86x 2.93x OPERATING DATA: Shoney's Inns system (end of period): Number of units................. 58 73 80 77 88 Number of rooms................. 6,359 7,828 8,584 8,307 9,149 REVPAR(5)....................... $ 26.47 $ 26.43 $ 27.31 $ 27.22 $ 28.79 Company-owned Shoney's Inns (end of period): Number of units................. 20 28 30 29 32 Number of rooms................. 2,536 3,560 3,789 3,675 3,973 REVPAR(5)....................... $ 29.50 $ 30.20 $ 30.97 $ 30.72 $ 31.72 Sumner Suites (end of period)(6): Number of units................. -- -- 3 1 8 Number of rooms................. -- -- 299 55 906
JULY 14, 1996 ------------------------- BALANCE SHEET DATA: ACTUAL AS ADJUSTED(7) -------- -------------- Working capital.................................................... $(35,569) $ (2,611) Total assets....................................................... 227,921 232,119 Long-term debt and capitalized leases.............................. 90,067 125,067 Shareholders' equity............................................... 87,575 87,575
- --------------- (1) The financial results for the fiscal year ended December 31, 1995 and the two fiscal quarters ended July 9, 1995 and July 14, 1996 include $17.7 million, $16.3 million and $200,000, respectively, of pre-tax profits recognized in connection with the AmeriSuites Transaction which are considered to be non-recurring. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." (2) After deducting minority interest in earnings of consolidated subsidiaries and partnerships. (3) EBITDA represents earnings from continuing operations before deducting minority interest in earnings of consolidated subsidiaries and partnerships, net interest expense, income taxes, and depreciation and amortization and before adding other income. EBITDA is not intended to represent net income, cash flow or any other measures of performance in accordance with generally accepted accounting principles, but is included because management believes certain parties find it to be a useful tool for measuring the Company's performance. (4) Earnings used in computing ratio of earnings to fixed charges consist of earnings before minority interest in earnings of consolidated subsidiaries and partnership and income taxes, plus fixed charges. Fixed charges means total interest whether capitalized or expensed (including the portion of rent expense representative of interest costs) on outstanding debt plus debt-related fees and amortization of deferred financing costs. The ratio of earnings to fixed charges on a pro forma basis, giving effect to the offering and the application of the net proceeds therefrom, would have been 3.42x for fiscal 1995 and 2.34x for the two fiscal quarters ended July 14, 1996. (5) REVPAR is defined as revenue per available room, which is equal to total room revenue divided by the number of rooms available for sale. (6) Seven of the eight Sumner Suites open at July 14, 1996 had been in operation as Sumner Suites for less than eight months and had not yet reached stabilized occupancy levels. Therefore, management does not believe that the presentation of REVPAR for Sumner Suites is meaningful. (7) As adjusted to give effect to the offering and the application of the estimated net proceeds therefrom. See "Use of Proceeds." S-6 8 RISK FACTORS Prospective purchasers of the Series A Notes should carefully consider, among other things, the following risk factors before purchasing the Series A Notes offered hereby. This Prospectus Supplement, the accompanying Prospectus and the information incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company's growth strategies and development plans and anticipated trends in the Company's business. These statements are subject to a number of risks and uncertainties, including those described below. Sumner Suites Expansion Risks. In pursuing its business strategy of developing new Sumner Suites hotels, the Company will incur substantial costs relating to pre-opening activities and operating expenses prior to reaching stabilized levels of occupancy and average daily room rates. As the Company opens additional Sumner Suites hotels, such start-up costs may negatively impact the Company's results of operations. While the Company has owned and operated Shoney's Inns and mid-scale, all-suites hotels under another brand name for a number of years, the Company's current suites concept, Sumner Suites, was launched in 1995 with three hotels. Currently, the Company owns and operates ten Sumner Suites. Company-owned or managed hotels have historically attained occupancy and average daily room rate stabilization within approximately 18 months of opening. However, the stabilization rates achieved by such hotels to date may not be indicative of future stabilization rates for Sumner Suites or Shoney's Inns. The Company's ability to pursue its expansion plans will depend on a number of factors, including the hiring and training of sufficiently skilled management and other personnel, the availability of adequate financing and other factors, some of which are beyond the control of the Company. Construction of hotels involves certain risks, including the possibility of construction cost overruns and delays, a lack of attractive sites at acceptable prices, uncertainties as to market potential and market deterioration after commencement of the development. There can be no assurance that the Company will be able to pursue its expansion plans in accordance with its current expectations. The opening of the new Sumner Suites hotels will be contingent upon, among other things, receipt of all required licenses, permits and authorizations. The scope of the approvals required for a new hotel is extensive, including, without limitation, state and local land use and occupancy permits, building and zoning permits and health and safety permits. In addition, unexpected changes or concessions required by local and state regulatory authorities could involve significant additional costs and could delay or prevent the completion of construction or the opening of a new Sumner Suites hotel. There can be no assurance that the necessary permits, licenses and approvals for the construction and operation of the new Sumner Suites hotels will be obtained, or that such permits, licenses and approvals will be obtained within the anticipated time frame. The Sumner Suites concept does not have a large presence in the marketplace and does not have extensive brand awareness. The Company competes with other companies in the all-suites segment, many of which have greater brand recognition and financial and other resources than the Company. As a result, there can be no assurance that the Company can successfully expand the Sumner Suites hotel brand or compete effectively with these other hotel brands. Expansion of the Sumner Suites brand may present operating and marketing challenges that are different from those currently encountered by the Company in its existing markets. There can be no assurance that the Company will anticipate all of the changing demands that expanding operations will impose on its financial resources, management and management information systems or its reservation system. The failure to adapt its systems and procedures could have a material adverse effect on the Company's business. Leverage. As of July 14, 1996, the Company's total long-term debt was $90.1 million, and the Company's earnings exceeded fixed charges by $8.2 million for the two fiscal quarters then ended. In addition, the Company had $30.0 million outstanding as of July 14, 1996 under unsecured credit facility obligations which are set to mature in January, February and May 1997 and which the Company intends to reduce with the net proceeds of this offering. The Company has incurred $4.2 million in additional revolving credit indebtedness as of October 6, 1996 and expects to incur approximately $7.3 million of revolving credit indebtedness in connection with the Shoney's Transaction. The Company is seeking a new $50.0 million to S-7 9 $75.0 million multi-year senior revolving credit facility to replace the Company's existing facilities. There can be no assurance, however, as to the availability or terms of any such financing. The failure to obtain senior revolving credit facility financing on reasonable terms would have a material adverse effect on the Company's results of operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company may in the future issue additional senior subordinated debt financing under the same Indenture under which the Series A Notes are to be issued; however, there can be no assurance as to the availability or terms of any such senior subordinated note financing in the future. The debt service requirements of any additional indebtedness could make it more difficult for the Company to make principal and interest payments on the Series A 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 Series A Notes at maturity or that the Company will be able to refinance the Series A Notes or other indebtedness at maturity. Subordination; Series A Notes Are Unsecured Obligations. The Series A Notes will be unsecured senior subordinated obligations of the Company and will be subordinated in right of payment to all present and future Senior Indebtedness of the Company. The Company operates directly and through subsidiaries which are direct or indirect obligors or guarantors of $24.7 million of the long-term debt of the Company and its consolidated subsidiaries outstanding at July 14, 1996. The Series A Notes will be effectively subordinated in right of payment to all present and future liabilities of the Company's subsidiaries, including indebtedness of the Company for which one or more subsidiaries are co-obligors or guarantors. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Series A 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 Series A Notes then outstanding. As of July 14, 1996, the Company had approximately $68.1 million of outstanding Senior Indebtedness. The Company has incurred $4.2 million in additional Senior Indebtedness as of October 6, 1996 and expects to incur approximately $7.3 million of additional Senior Indebtedness in connection with the Shoney's Transaction. The Company anticipates using a portion of the net proceeds of this offering to reduce Senior Indebtedness. See "Use of Proceeds." In the event of a payment default with respect to the Senior Indebtedness, no payments may be made on account of the Series A Notes until such default has been cured or waived. See "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources" and "Description of the Notes." Dependence on Key Employees. The success of the Company is dependent in part upon certain key personnel, including, in particular, Leon Moore, President and Chief Executive Officer and the founder of the Company. The absence of Mr. Moore would have a material adverse effect on the Company's business and future operations. The Company has no employment or noncompetition agreement with Mr. Moore, who is the Company's largest shareholder of record. Shoney's Transaction and Historical Relationship with Shoney's. Historically, the Company has had extensive working and contractual relationships with Shoney's and has recently entered into a letter agreement which would alter these relations. See "Prospectus Summary -- Recent Development." Shoney's beneficially owns 7.7% of the Company's Common Stock and all of the Company's Series A Redeemable Nonparticipating Stock (the "Series A Stock"). Robert M. Langford and W. Craig Barber are directors of the Company and the Executive Vice President and General Counsel and Secretary of Shoney's, and Senior Executive Vice President and Chief Financial Officer of Shoney's, respectively. Shoney's has a right of first refusal with respect to shares of the Common Stock owned by Leon Moore if he receives an offer which would result in his owning less than 20% of the Company's outstanding Common Stock. The Company has the right to use the service marks "Shoney's Inn" and "Shoney's Inn & Suites" in its development and franchising operations pursuant to the License Agreement with Shoney's. The License Agreement gives Shoney's considerable ongoing control of the use of the marks, including the power to disapprove the Company's decision to grant additional franchises or to terminate existing ones as well as the right to approve sites for Company-owned or franchised Shoney's Inns. Upon the occurrence of certain events, the License Agreement may terminate and S-8 10 the Company may lose its right to continue operations using the Shoney's Inn and Shoney's Inn & Suites marks. The Company believes that the loss of its rights under the License Agreement would have a material adverse effect upon its operations. As a result of the Shoney's Transaction, the Company will repurchase warrants representing approximately 5% of the Company's Common Stock, and all of the Series A Stock. Shoney's right of first refusal and much of Shoney's ongoing control with respect to the Company's franchising operations will be terminated if the Shoney's Transaction is completed. See "Business -- License Agreement with Shoney's." Importance of Franchisee and Other Third Party Relationships. The Company's business strategy calls for the expansion of Shoney's Inns primarily through the opening of additional franchised units. Competition for new franchisees in the lodging industry is intense. There can be no assurance that the Company can successfully attract new franchisees on terms acceptable to the Company or that such new or current franchisees will open new Shoney's Inns. The Company believes its relationships with its major franchisees are satisfactory and the Company has no reason to believe that such relationships will not continue. However, from time to time, the Company has terminated relationships with franchisees for quality or for other reasons and in addition, the Company's franchisees have in certain cases terminated their franchise relationships with the Company. If any of the franchise agreements were terminated by the franchisee, the Company could explore entering into a franchise agreement with another franchisee. There can be no assurance, however, that a desirable replacement relationship would be available. Seven of the Shoney's Inns operated by the Company are held by partnerships with minority interest holders. The Company has management authority over each partnership in which there are minority interest holders and, in most cases, the Company has a right of first refusal to purchase the interest of the other parties in the event that they receive a bona fide offer for their interests in the partnerships. The Company, as owner of majority interests in partnerships in which there are minority interest holders, owes a fiduciary duty to such minority interest holders and may encounter conflicts between the respective interests of the Company and the minority holders. In such cases, the Company's directors are obligated to exercise reasonable, good-faith judgment to resolve the conflicts and may not be free to act solely in the best interest of the Company. Geographic Concentration of Hotels. Most of the Company's hotels are located in the Southeastern United States, 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. While the Company's Sumner Suites expansion may reduce these risks over time, the Company will remain subject to the risks associated with geographic concentration for the foreseeable future. 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, an oversupply of lodging facilities or a reduction in demand for lodging facilities in a geographic area, dependence on tourism, susceptibility to increases in gasoline prices, changes in travel patterns and routes of major highways, adverse use of neighboring land, 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. Competitive factors in the industry include room rates, quality of accommodations, name recognition, supply and availability of alternative lodging facilities, service levels, reputation, reservation systems and convenience of location. There can be no assurance that S-9 11 demographic, economic or other changes in markets will not adversely affect the convenience or desirability of the sites in which the Company's hotels are located. Each of the Company's hotels is located in a developed area that includes competing lodging facilities, and the Company expects that future hotels which it constructs will be located in similar areas. A high concentration of competitive lodging facilities in a particular area could have a material adverse effect on occupancy, average daily room rate and REVPAR of the Company's hotels. See "Business -- Competition." 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 beverages (such as health and liquor license laws) and building and zoning requirements. The Company's results of operations may be adversely affected by increases in the minimum wage or by the enactment in the future of legislation that would increase the cost of employee benefits or increase other employment-related costs. 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. Although the Company believes that it is in substantial compliance with the ADA, a failure to comply with the ADA could result in the imposition of fines or an award of damages to private litigants. 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. 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. 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. Absence of Public Market for the Series A Notes. The Series A Notes are a new issue of securities for which there is currently no public market. There can be no assurance as to the liquidity of the market for the Series A Notes that may develop, the ability of the holders to sell their Series A Notes or the prices at which holders of the Series A Notes would be able to sell their Series A Notes. If a market for the Series A Notes does develop, the Series A Notes may trade at a discount from their initial public offering price, depending upon prevailing interest rates, the market for similar securities, performance of the Company, performance of the lodging sector and other factors. The Underwriters have informed the Company that they currently intend to make a market for the Series A Notes. However, the Underwriters are not obligated to do so and any such market-making may be discontinued at any time without notice. The Company does not intend to apply for listing of the Series A Notes on the Nasdaq National Market or any securities exchange. Therefore, no assurance can be given as to whether an active trading market will develop or be maintained for the Series A Notes. See "Underwriting." S-10 12 USE OF PROCEEDS The net proceeds to the Company from the sale of the Series A Notes offered hereby are estimated to be approximately $33.4 million (approximately $38.4 million if the over-allotment option is exercised in full), after deducting the estimated underwriting discount and offering expenses. The Company intends to use the net proceeds of this offering to reduce borrowings under three unsecured revolving credit facilities with an aggregate outstanding principal balance at October 6, 1996 of $34.2 million. This indebtedness was originally incurred to fund hotel development and other capital improvements. These facilities bear interest at the lender's prime rate or two hundred basis points above the 30, 60 or 90 day LIBOR rates, at the Company's option. The blended rate on these facilities at October 6, 1996 was 7.80%. Although amounts repaid on these facilities would be available for reborrowing on a short-term basis, these amounts would mature, and the facilities would cease to be available, in January and February 1997. In the event the Shoney's Transaction is completed, additional borrowings of $7.3 million will be incurred under the Company's revolving credit facilities. See "Prospectus Summary -- Recent Development." The Company is seeking a new $50.0 million to $75.0 million senior revolving credit facility to replace these facilities following the offering. Borrowings under this new facility will be used to fund development of new Sumner Suites hotels, renovate existing hotels, fund construction of the Company's headquarters and for general corporate purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Pending the above uses of proceeds, net proceeds of the offering will be invested in investment grade, short-term, interest-bearing securities, such as Treasury bills, repurchase agreements, commercial paper and short-term certificates of deposit. CAPITALIZATION The following table sets forth the current portion of long-term debt and capitalized leases and consolidated capitalization of the Company as of July 14, 1996 and as adjusted to reflect the sale of $35,000,000 in aggregate principal amount of Series A Notes offered hereby and application of the estimated net proceeds therefrom. See "Use of Proceeds."
JULY 14, 1996 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Current portion of long-term debt and capitalized leases....... $ 32,052 $ 2,052 ======== ======== Revenue participation bonds due April 2001(1).................. $ 11,355 $ 11,355 Other long-term debt and capitalized leases less current portion...................................................... 24,712 24,712 % Senior subordinated notes due 2006, Series A.............. -- 35,000 7.5% Convertible subordinated debentures due 2004(2)........... 54,000 54,000 Total shareholders' equity..................................... 87,575 87,575 -------- -------- Total capitalization................................. $177,642 $ 212,642 ======== ========
- --------------- (1) The revenue participation bonds are secured by U.S. Treasury securities that upon maturity will fund the complete obligation under the revenue participation bonds. (2) The 7.5% convertible subordinated debentures due 2004 are subordinate to the Series A Notes. S-11 13 SELECTED FINANCIAL DATA The following selected financial data as of and for each of the five fiscal years ended December 31, 1995 have been derived from the Company's audited Consolidated Financial Statements. The financial statements for the three fiscal years ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, and have been incorporated herein by reference. The related financial data as of and for the two fiscal quarters ended July 9, 1995 and July 14, 1996 are derived from the Company's unaudited consolidated financial statements and, in the opinion of management, include all adjustments (consisting of only normal recurring entries) necessary for fair presentation of the financial results of operations for these periods. Operating results for the two fiscal quarters ended July 14, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 1996. The information set forth on the following page should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." S-12 14 SELECTED FINANCIAL DATA
TWO FISCAL QUARTERS FISCAL YEAR ENDED ENDED ------------------------------------------------------------------------ ------------------- DECEMBER 31, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, JULY 14, 1991 1992 1993 1994 1995 1995 1996 ------------ ------------ ------------ ------------ ------------ -------- -------- (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) STATEMENT OF EARNINGS DATA: Revenues: Hotel.......................... $ 24,022 $ 25,598 $29,890 $36,440 $44,144 $23,048 $28,221 Construction and development... 2,690 6,178 -- 6,213 9,214 7,696 514 Construction and development -- other........................ -- -- -- -- 14,827 13,438 200 Sale of hotels................. -- -- 9,080 17,366 6,174 6,174 -- Profits not recognized on installment sales............ -- -- (1,295) (2,782) (1,956) (1,956) -- Franchising.................... 270 1,760 2,079 2,623 2,917 1,543 2,106 Management..................... 469 660 979 916 438 289 116 Management -- previously deferred..................... -- -- -- -- 2,862 2,862 -- ------------ ------------ ------------ ------------ ------------ -------- -------- Total operating revenues............... 27,451 34,196 40,733 60,776 78,620 53,094 31,157 Costs and Expenses: Operating expenses: Hotel........................ 14,786 15,354 17,042 20,938 25,962 13,108 15,525 Construction and development................ 1,330 4,549 -- 5,242 10,096 7,585 691 Cost of hotels sold.......... -- -- 7,785 14,584 4,218 4,218 -- Franchising.................. 304 1,841 2,153 2,475 2,861 1,444 1,775 ------------ ------------ ------------ ------------ ------------ -------- -------- Total operating expenses............... 16,420 21,744 26,980 43,239 43,137 26,355 17,991 ------------ ------------ ------------ ------------ ------------ -------- -------- Gross operating profit......... 11,031 12,452 13,753 17,537 35,483 26,739 13,166 General and administrative..... 905 894 1,349 1,378 1,929 903 1,492 ------------ ------------ ------------ ------------ ------------ -------- -------- Earnings before interest, taxes, depreciation and amortization................. 10,126 11,558 12,404 16,159 33,554 25,836 11,674 Depreciation and amortization................. 2,876 2,944 3,290 4,083 5,638 2,779 3,820 ------------ ------------ ------------ ------------ ------------ -------- -------- Net operating profit..... 7,250 8,614 9,114 12,076 27,916 23,057 7,854 Other Income and Expenses: Interest expense............... 6,966 4,939 4,642 5,525 5,856 3,504 905 Interest income................ 1,935 2,425 3,345 5,311 5,815 3,551 842 ------------ ------------ ------------ ------------ ------------ -------- -------- Net interest expense..... 5,031 2,514 1,297 214 41 (47) 63 Other income................... 1,120 911 1,012 1,263 765 318 434 ------------ ------------ ------------ ------------ ------------ -------- -------- Earnings before income taxes, discontinued operations, minority interest and extraordinary items............ 3,339 7,011 8,829 13,125 28,640 23,422 8,225 Income taxes..................... 1,211 2,533 3,077 4,838 10,529 8,691 2,962 Minority interests in earnings of consolidated subsidiaries & partnerships................... 123 309 513 294 351 91 229 ------------ ------------ ------------ ------------ ------------ -------- -------- Earnings from continuing operations before extraordinary items.......................... 2,005 4,169 5,239 7,993 17,760 14,640 5,034 Discontinued Operations: Income (loss) from operations of restaurant subsidiary disposed of, net of applicable income taxes and minority interest............ (31) (9) (41) 18 (75) (45) -- Extraordinary losses, net of income tax benefit............. -- -- -- (215) (708) (708) -- ------------ ------------ ------------ ------------ ------------ -------- -------- Net earnings..................... $ 1,974 $ 4,160 $ 5,198 $ 7,796 $ 16,977 $ 13,887 $ 5,034 ============ ============ ============ ============ ============ ======== ========
S-13 15 SELECTED FINANCIAL DATA -- (CONTINUED)
TWO FISCAL QUARTERS FISCAL YEAR ENDED ENDED ------------------------------------------------------------------------ ------------------- DECEMBER 31, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, JULY 14, 1991 1992 1993 1994 1995 1995 1996 ------------ ------------ ------------ ------------ ------------ -------- -------- (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) Earnings Per Common And Common Equivalent Share: Primary: Earnings from continuing operations before extraordinary items........ $ 0.52 $ 0.68 $ 0.67 $ 0.92 $ 2.08 $ 1.70 $ 0.60 ============ ============ ============ ============ ============ ======== ======== Net earnings................. $ 0.51 $ 0.68 $ 0.66 $ 0.90 $ 1.99 $ 1.62 $ 0.60 ============ ============ ============ ============ ============ ======== ======== Fully diluted: Earnings from continuing operations before extraordinary items........ $ 0.52 $ 0.68 $ 0.67 $ 0.92 $ 1.87 $ 1.47 $ 0.60 ============ ============ ============ ============ ============ ======== ======== Net earnings................. $ 0.51 $ 0.68 $ 0.66 $ 0.90 $ 1.80 $ 1.40 $ 0.60 ============ ============ ============ ============ ============ ======== ======== Ratio of earnings to fixed charges(1)................. 1.42x 2.14x 2.43x 2.58x 4.20x 5.86x 2.93x Weighted Average Common And Common Equivalent Shares Outstanding: Primary........................ 3,833 6,103 7,872 8,654 8,526 8,592 8,443 ============ ============ ============ ============ ============ ======== ======== Fully diluted.................. 3,833 6,103 7,872 9,946 10,842 10,908 10,760 ============ ============ ============ ============ ============ ======== ======== BALANCE SHEET DATA: Working capital................ $ 1,297 $ 1,223 $ (370) $ 714 $ 4,786 $ (3,330) $(35,569) Total assets................... 85,253 97,395 120,486 180,391 220,790 192,616 227,921 Long-term debt and capitalized leases....................... 68,183 57,323 52,020 87,739 89,343 92,800 90,067 Shareholders' equity........... 5,467 29,177 54,883 65,158 82,737 79,316 87,575
- --------------- (1) The ratio of earnings to fixed charges on a pro forma basis, giving effect to the offering and the application of the net proceeds therefrom, would have been 3.42x for fiscal 1995 and 2.34x for the two fiscal quarters ended July 14, 1996. S-14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company derives revenues primarily from hotel room sales at its Sumner Suites and Company-owned Shoney's Inn hotels. Through March 1995, the Company managed AmeriSuites hotels and earned management fees for such services. The Company also receives management fees for services it performs for two franchised Shoney's Inns. The Company derives additional revenue from franchise fees it receives as the exclusive franchisor of Shoney's Inns. The Company's hotel operations have been supplemented by contract revenues from construction and development of franchised Shoney's Inns and, until March 1995, AmeriSuites hotels for third parties. Revenues from these activities have varied widely from period to period, depending upon whether the Company's construction and development activities were primarily focused on its own facilities or on projects. The Company has generally undertaken construction and development projects for third parties only when its capacity has been underutilized in constructing its own facilities. Construction revenues are recognized on the percentage of completion basis. Because the Company expects to concentrate on the development of Sumner Suites, management does not anticipate generating further significant contract revenues from construction and development. From 1990 through the first quarter of fiscal 1995, the Company developed and owned or managed hotels in the AmeriSuites hotel chain. In March 1995, the Company terminated its relationship with AmeriSuites by (i) selling its option to purchase 50% of the voting stock of Suites of America, Inc. ("Suites of America") to Prime Hospitality Corp. ("Prime Hospitality") for $27.3 million and (ii) conveying to Suites of America its interest in one additional AmeriSuites hotel for $6.2 million. Five million dollars of the aggregate purchase price was paid in cash on closing, while the remaining $28.5 million was paid pursuant to a note that was repaid in January 1996. In connection with the sale of its option in Suites of America, the Company canceled $14.9 million in existing indebtedness of Suites of America to the Company. These transactions, together with the sale of five AmeriSuites hotels in 1993 and 1994 (collectively, the "AmeriSuites Transaction"), have been accounted for as installment sales of real estate in the Company's Consolidated Financial Statements, and a pre-tax gain of $17.9 million has been recognized through July 14, 1996 in connection therewith. The transactions also resulted in the recognition in fiscal 1995 and the first quarter of fiscal 1996 of previously deferred management fee revenue. During the first quarter of fiscal 1996, the Company sold its 60% ownership in five restaurants to the 40% owner. The income or loss from restaurant operations for each of the reported periods is reported as discontinued operations net of applicable income taxes and minority interests. The Company's hotel operations have historically been seasonal in nature, reflecting higher occupancy rates during spring and summer months, which may be expected to cause fluctuations in the Company's quarterly revenues and earnings from hotel operations. The Company's fiscal year ends on the last Sunday of the calendar year. This resulted in fiscal 1995 consisting of 53 weeks as compared with 52 weeks in fiscal 1994. S-15 17 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship of certain items of revenue and expense to the total revenues of the Company.
TWO FISCAL QUARTERS FISCAL YEAR ENDED ENDED ------------------------------------------ ------------------- DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, JULY 14, 1993 1994 1995 1995 1996 ------------ ------------ ------------ -------- -------- Revenues: Hotel.................................... 73.4% 60.0% 56.1% 43.4% 90.6% Construction and development............. -- 10.2 11.7 14.5 1.6 Construction and development-other....... -- -- 18.9 25.3 0.6 Sale of hotels........................... 22.3 28.6 7.9 11.6 -- Profits not recognized on installment sales................................. (3.2) (4.6) (2.5) (3.7) -- Franchising.............................. 5.1 4.3 3.7 2.9 6.8 Management............................... 2.4 1.5 0.6 0.5 0.4 Management -- previously deferred........ -- -- 3.6 5.5 -- ----- ----- ----- ----- ----- Total operating revenues......... 100.0% 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Operating expenses: Hotel................................. 41.8% 34.5% 33.0% 24.7% 49.8% Construction and development.......... -- 8.6 12.8 14.3 2.2 Cost of hotels sold................... 19.1 24.0 5.4 7.9 -- Franchising........................... 5.3 4.0 3.7 2.7 5.7 ----- ----- ----- ----- ----- Total operating expenses......... 66.2 71.1 54.9 49.6 57.7 ----- ----- ----- ----- ----- Gross operating profit........... 33.8 28.9 45.1 50.4 42.3 General and administrative............ 3.3 2.3 2.4 1.7 4.8 ----- ----- ----- ----- ----- Earnings before interest, taxes, depreciation and amortization....... 30.5 26.6 42.7 48.7 37.5 Depreciation and amortization......... 8.1 6.7 7.2 5.3 12.3 ----- ----- ----- ----- ----- Net operating profit (before interest and taxes).............. 22.4 19.9 35.5 43.4 25.2 Earnings before income taxes, discontinued operations, minority interest and extraordinary items...................... 21.7 21.6 36.4 44.1 26.4 Earnings from continuing operations before extraordinary items...................... 12.9 13.2 22.6 27.6 16.2 Net earnings............................... 12.8% 12.8% 21.6% 26.2% 16.2%
For the Fiscal Year-to-date Periods Ended July 14, 1996 and July 9, 1995 For the two fiscal quarters ended July 14, 1996, total operating revenues decreased 41.3% to $31.2 million from $53.1 million for the same period in 1995. Revenues from hotel operations in the first two quarters of 1996 increased 22.4% to $28.2 million from $23.0 million for the same period in 1995. For the 29 same store hotels opened for both year-to-date periods, average daily room rates in the first two quarters of 1996 increased 6.0% to $50.21 from $47.35 in the first two quarters of 1995, and average occupancy rates decreased to 63.3% from 65.4%, resulting in a net increase in same store hotel revenues of 2.1%. The hotels opened during 1995 and the first two quarters of 1996 contributed $5.3 million to hotel revenues in the first two quarters of 1996 compared to $69,000 for the same prior year period. Approximately $3.0 million of the $5.3 million in revenues from the hotels opened since December 25, 1994 related to Sumner Suites hotels. One hotel, which was sold in the first half of 1995, contributed $550,000 to hotel revenues in the first two quarters of 1995. S-16 18 Revenues from regular construction and development activities for the first two quarters of 1996 were $514,000 in contrast to $7.7 million for the same prior year period. Revenues from construction and development can vary widely from quarter to quarter depending upon the volume of outside contract work and the timing of those projects. Three outside construction projects were in progress during the first two quarters of 1995 compared with only one during the comparable period in 1996. No outside construction contracts are currently in progress. Revenues of $200,000 from "Construction and development -- other" in the first two quarters of 1996 represent a portion of profits not previously recognized on installment sales in connection with the AmeriSuites Transaction. The $13.4 million reported for the first two quarters of 1995 represented the earned portion of revenues, a portion of which was deferred from 1993 and 1994, as a result of the consummation of the AmeriSuites Transaction. Revenue from the sale of hotels in the first two quarters of 1995 was $4.2 million, net of profits not recognized on installment sales of $2.0 million, representing the sale of one hotel in the first quarter of 1995 in conjunction with the AmeriSuites Transaction. These net revenues were offset by the cost of hotels sold, resulting in no gross operating profit from these transactions. Franchise revenues in the first two quarters of 1996 increased 36.4% to $2.1 million from $1.5 million for the same prior year period. This increase resulted primarily from higher royalty and reservation center fees resulting from increased revenues in the Shoney's Inn system. The number of franchised Shoney's Inns at the end of the second quarter of 1996 increased to 56 from 48 at the end of the second quarter of 1995. Initial franchise fees may vary widely from quarter to quarter. Management contract revenues for the first two quarters of 1996 decreased 60.0% to $116,000 from $289,000 for the prior year period, due to the cancellation of management contracts on 11 AmeriSuites hotels on March 31, 1995, as a part of the AmeriSuites Transaction. Revenues from "Management -- previously deferred" in the first two quarters of fiscal 1995 of $2.9 million represent fees collected in 1993 and 1994 for the Company's relinquishment of its profit participation in four hotels owned by Suites of America. These profits were previously deferred due to the Company's option to acquire a 50% ownership interest in Suites of America. In connection with the sale of this option to Suites of America in March 1995, all of this previously deferred revenue was recognized in the first quarter of 1995. This is a non-recurring source of revenue. Operating expenses from hotel operations for the first two quarters of 1996 increased 18.4% to $15.5 million in the first two quarters of 1996 from $13.1 million in the first two quarters of 1995 resulting from the 22.4% increase in hotel operating revenues. Operating expenses from hotel operations, expressed as a percentage of hotel operating revenues, decreased to 55.0% in the first two quarters of 1996 from 56.9% in the first two quarters of 1995, thus increasing the gross profit margin on all hotels to 45.0% in the first two quarters of 1996 from 43.1% in the same period of 1995. Hotels opened since 1994 have experienced higher profit margins than hotels opened before 1994 and have generated a 47.8% profit margin in the first two quarters of 1996. Seven of the new hotels are Sumner Suites which generally have higher room rates than Shoney's Inns and generally operate at a higher gross operating profit margin. Costs and expenses of construction and development for the first two quarters of 1996 decreased to $691,000 from $7.6 million for the first two quarters of 1995. There were three outside construction contracts in the first two quarters of 1995 compared to one during the comparable period in 1996. Franchising operating expenses for the first two quarters of 1996 increased 23.0% to $1.8 million from $1.4 million for the same prior year period, primarily due to additional expenses incurred by the reservation center in meeting the added demand from additional properties served by that department. If the Shoney's Transaction is completed, the Company will no longer be required to pay a portion of its franchise fee revenues to Shoney's in the form of royalty fees. See "Prospectus Summary -- Recent Development." During the first two quarters of 1996, franchising operating expenses included $586,000 of royalty fees to Shoney's. S-17 19 General and administrative expense for the first two quarters of 1996 increased 65.3% to $1.5 million from $900,000 for the prior year period, due primarily to increased outside professional fees and increased payroll and related expenses associated with increased staffing levels. For the first two quarters of 1996, depreciation and amortization expense increased 37.5% to $3.8 million from $2.8 million for the same prior year period. Depreciation and amortization on the 11 hotels opened since the end of the fourth quarter of 1994 accounted for $619,000 of the increase while depreciation due to renovations and other additions to the remaining hotels accounted for $285,000 of the increase over the first two quarters of 1995. For the first two quarters of 1996, interest expense and interest income decreased $2.6 million and $2.7 million, respectively, from the prior year period resulting in an increase in net interest expense of $110,000. The decrease in interest income resulted primarily from the collection of the balance of first mortgage notes receivable of approximately $44 million from Suites of America in the first quarter of 1996, which resulted in a reduction of interest income for the first two quarters of 1996 of $2.2 million. The proceeds were used to reduce outstanding debt, significantly reducing interest expense for the first two quarters of 1996 as compared to the same prior year period. The loss from discontinued operations, net of applicable income taxes and minority interest, in the first two quarters of 1995 resulted from the Company's sale of its 60% interest in a restaurant subsidiary to the 40% owner in the first quarter of 1996. The extraordinary loss, net of income tax benefit, in the first two quarters of 1995 represents the extraordinary non-cash write-off of unamortized deferred financing costs, and early redemption premiums paid, associated with the refinancing of certain indebtedness during the first two quarters of 1995. For the Fiscal Years Ended December 31, 1995 and December 25, 1994 For the fiscal year ended December 31, 1995, total operating revenues increased 29.4% to $78.6 million from $60.8 million for the fiscal year ended December 25, 1994. Revenues from hotel operations in fiscal 1995 increased 21.1% to $44.1 million from $36.4 million for fiscal 1994. This increase resulted primarily from more hotels being operated in fiscal 1995 as compared to fiscal 1994. Eleven hotels which opened during fiscal 1994 and fiscal 1995 contributed $7.9 million more to revenues in fiscal 1995 than in fiscal 1994. One hotel was sold during the first quarter of 1995, contributing only $549,000 to hotel revenues in that year compared with $2.3 million in fiscal 1994 when it was owned and operated for the entire fiscal year. Revenues from the 22 same store hotels increased 5.0% to $32.8 million in fiscal 1995 from $31.2 million in fiscal 1994. Average daily room rates from same store hotels increased 6.3% to $47.85 in fiscal 1995 from $45.01 in fiscal 1994, and average occupancy rates on these hotels decreased to 66.6% in fiscal 1995 from 69.1% in fiscal 1994. For all 33 hotels owned at the end of fiscal 1995, total revenues increased 27.8% to $43.6 million in fiscal 1995 from $34.1 million in fiscal 1994. These hotels reflected an increase of 7.0% in average daily room rates to $48.49 in fiscal 1995 from $45.31 in fiscal 1994, and average occupancy rates on these hotels declined to 64.1% in fiscal 1995 from 67.0% in fiscal 1994. Construction and development revenues of $9.2 million in fiscal 1995 and $6.2 million in fiscal 1994 were due to construction activities for third parties. In each year construction work was performed on three outside contracts, but revenues from these activities increased by $3.0 million in fiscal 1995 over fiscal 1994 due to variances in percentages completed each year. Revenues from Construction and development--other and Management--previously deferred, which together totaled $17.7 million in fiscal 1995, resulted from recognizing, in connection with the consummation of the AmeriSuites Transaction, profits deferred from fiscal 1993 and fiscal 1994 relating to the development and management of hotels for Suites of America. The Company's relationship with Suites of America ended on March 31, 1995, allowing the previously deferred management revenues and a portion of the previously deferred construction profit to be recognized in the first fiscal quarter of 1995. Additional previously deferred construction profit was recognized throughout fiscal 1995, with the final portion recognized in the first fiscal quarter of 1996, when the balance of the note receivable from Suites of America was collected. The S-18 20 Company's 100% financing of five hotels developed and managed for Suites of America resulted in the deferral of recognition of these profits from 1993 and 1994 to 1995 and 1996. The revenues from sale of hotels, net of profits not recognized on installment sales, which amounted to $4.2 million in fiscal 1995 and $14.6 million in fiscal 1994, were also part of this arrangement for developing hotels for Suites of America. In fiscal 1994, there were three hotels developed and sold under this arrangement, whereas in fiscal 1995 there was only one hotel which was sold on March 31, 1995. The cost of hotels sold in both years is equal to the net revenues, resulting in no profit to the Company. All the profit on these hotels is recognized in revenues from construction and development -- other. Franchise revenues in fiscal 1995 increased 11.2% to $2.9 million from $2.6 million in fiscal 1994, as a result of an increase in the number of Shoney's Inn franchises sold, combined with franchisees' increased hotel revenues upon which royalty and reservation fees are based. At the end of fiscal 1995 there were 50 franchised Shoney's Inns in operation compared with 45 at the end of fiscal 1994. Management fee revenue in fiscal 1995 decreased 52.2% to $438,000 from $916,000 in fiscal 1994, due to the cancellation of management contracts on 11 hotels during the first fiscal quarter of 1995 as a part of the AmeriSuites Transaction. Hotel operating expenses for fiscal 1995 increased by 24.0% to $26.0 million from $20.9 million in fiscal 1994. The 11 hotels opened during fiscal 1994 and fiscal 1995, which were not in operation during the full year in either fiscal 1994 or fiscal 1995, accounted for 95.3% of the total increase. Additionally, operating expenses for the 22 hotels operated for all of both years increased by $1.1 million, and operating expenses on the hotel sold during the first fiscal quarter of 1995 declined by $904,000. These increases and decreases in operating costs and expenses are related to the corresponding increases and decreases in operating revenues on these hotels. The resulting gross profit margin from hotel operations in fiscal 1995 declined to 41.2% versus 42.5% in fiscal 1994. The gross operating profit margin on the 11 hotels opened during fiscal 1994 and fiscal 1995 improved from 20.5% in fiscal 1994 to 34.3% in fiscal 1995, while the gross profit margin on the 22 hotels operating for all of both years declined from 44.5% in fiscal 1994 to 43.7% in fiscal 1995. Construction and development expenses increased by $4.9 million in fiscal 1995 due to the higher level of construction contract work performed in such year and to cost overruns on certain third party contracts. Cost of hotels sold declined by $10.4 million in fiscal 1995 from fiscal 1994. Franchising expenses in fiscal 1995 increased 15.6% from fiscal 1994, while franchising revenues only increased by 11.2%, due primarily to the decline of initial franchise fee income in fiscal 1995 for which there was no corresponding decrease in operating expenses. General and administrative expense increased 39.9% to $1.9 million in fiscal 1995 from $1.4 million in fiscal 1994, due primarily to additional staffing levels for present and future growth of the Company, and to increased legal and audit fees and expenses incurred. Depreciation and amortization expense increased by 38.1% to $5.6 million in fiscal 1995 from $4.1 million in fiscal 1994, due primarily to the 11 hotels opened during fiscal 1994 and fiscal 1995. Net interest expense in fiscal 1995 declined to $41,000 from $214,000 in fiscal 1994, due to a significant reduction in interest rates on five industrial revenue bond issues in early fiscal 1995 and to increased first mortgage lending in the first fiscal quarter of 1995 in connection with the AmeriSuites Transaction. Other income decreased by $498,000 in fiscal 1995 compared to fiscal 1994 primarily due to a reclassification of certain miscellaneous hotel revenues from other income to hotel operating revenues in fiscal 1995, and to a decline of $81,000 in gains on the sale of property and equipment. The increase in extraordinary charges to $708,000 net of income taxes in fiscal 1995 from $215,000 in fiscal 1994 is due primarily to the write-off of unamortized deferred financing costs associated with the refinancing of five industrial revenue bond issues to substantially lower interest rates in fiscal 1995, compared with similar write-offs of lesser amounts in fiscal 1994. S-19 21 For the Fiscal Years Ended December 25, 1994 and December 26, 1993 For the fiscal year ended December 25, 1994, total operating revenues increased 49.2% to $60.8 million from $40.7 million in 1993. The increase was primarily due to an increase of $6.6 million in revenues from hotel operations, $6.2 million from construction and development, $6.8 million from the sale of hotels, net of deferred profit, and $544,000 from franchising activities. The increase in revenues from hotel operations resulted primarily from an increase in average occupancy rates and average daily room rates for the 21 Company-owned hotels open for the full year in both periods, plus hotel revenues earned on hotels not open for the full two-year period. Same store hotel room revenues increased by 6.6% in fiscal 1994 from fiscal 1993 due to a combination of an increase in average occupancy rates from 70.1% in fiscal 1993 to 70.9% in fiscal 1994 and an increase in average daily room rates of $2.63 from $43.93 in fiscal 1993 to $46.56 in fiscal 1994. One hotel which opened in the middle of fiscal 1993 reported room revenues of $1.0 million for the full fiscal year 1994 versus $361,000 for the partial fiscal year 1993. The eight hotels which opened during fiscal 1994 contributed $3.8 million to fiscal 1994 hotel revenues. All 30 hotels averaged 67.7% occupancy and $46.31 average daily room rates in fiscal 1994. The construction and development revenues of $6.2 million in fiscal 1994 were derived from construction activities for third parties. No third party construction and development activities took place in fiscal 1993. In fiscal 1993 and fiscal 1994, the Company acquired real estate, developed AmeriSuites hotels thereon and sold those hotels, providing 100% financing to the purchaser, deferring profits to future years based upon the installment sales method of accounting. As part of the AmeriSuites Transaction in fiscal 1994, three hotels were developed and sold pursuant to these arrangements for a total sale price of $17.4 million, of which the profits thereon totaling $2.8 million were deferred. In fiscal 1993, two hotels were developed and sold for a total of $9.1 million, of which deferred profits totaled $1.3 million. As of December 25, 1994, all the profit from both fiscal 1993 and fiscal 1994 had been deferred. The increase in franchising revenues was the result of an increase in the number of Shoney's Inn franchises sold combined with franchisees' increased hotel revenues upon which royalty and reservation fees are based. The decrease in management revenues was due to the sale of the Company's profit participation interest in certain AmeriSuites hotels. Profit participation fees earned and included in management fee revenues in fiscal 1993 were $260,000, whereas only $26,000 was earned in fiscal 1994. However, 78.2% of this decrease was offset with management fee increases resulting from managing additional properties for others in fiscal 1994 as compared to fiscal 1993. Total operating expenses for fiscal 1994 increased 60.3% to $43.2 million from $27.0 million in fiscal 1993. Construction and development expenses of $5.2 million in fiscal 1994, of which there were none in fiscal 1993, accounted for 32.2% of this increase, while an additional 41.8% of the increase was from the increase in cost of hotels sold. Hotel operating expenses increased in fiscal 1994 by 22.9% to $20.9 million from $17.0 million in fiscal 1993, due primarily to the eight additional hotels opened during fiscal 1994. These additional costs were incurred in generating additional hotel revenues of $6.6 million. The resulting gross profit margin from hotel operations in fiscal 1994 was 42.5% versus 43.0% in fiscal 1993. The decline in hotel profit margin was due to more new hotel openings (eight versus one) in fiscal 1994 than fiscal 1993. The increase in franchising expenses from fiscal 1993 to fiscal 1994 was due primarily to advertising and marketing expenses incurred in the earning of higher franchising revenues. The increase in franchising expenses represented 59.2% of the increase in revenues from this activity, resulting in a gross operating profit of $148,000 in fiscal 1994 compared to a $74,000 loss in fiscal 1993. Depreciation and amortization expense increased by $793,000 in fiscal 1994 from fiscal 1993. Depreciation and amortization on eight hotels during fiscal 1994 which opened during fiscal 1994, combined with a full year's expense on one hotel which opened in July 1993, resulted in $708,000 additional expense in fiscal 1994. Additionally, amortization of goodwill from the acquisition of minority interest in four hotels in early fiscal 1994 and amortization of deferred charges incurred in fiscal 1994 added an additional $0.2 million to this expense. Certain capital assets became fully depreciated in fiscal 1994. General and administrative expense S-20 22 increased by $29,000, or 2.2%, in fiscal 1994 from fiscal 1993, due primarily to increased administrative payroll costs. Net interest expense declined by 83.5% in fiscal 1994 from fiscal 1993, due to a reduction in levels of high-rate indebtedness and an increase in interest income from additional first mortgage notes receivable on lodging facilities as a result of application of net proceeds received from the Company's issuance of $54.0 million in 7.5% convertible debentures in June 1994. Other income increased by $251,000 in fiscal 1994 compared to fiscal 1993 due primarily to gains on the sale of capital assets in the amount of $293,000 compared to only $17,000 in fiscal 1993. Minority interest in earnings of consolidated subsidiaries and partnerships decreased by $219,000 in fiscal 1994 from fiscal 1993 due primarily to the fact that effective February 15, 1994, the Company acquired a minority interest, owned indirectly by Shoney's, Inc., in three partnerships and one corporation. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operations was $31.6 million in fiscal 1995 and $5.8 million in fiscal 1994. The Company currently has a total of $41.5 million in unsecured revolving credit facilities with four banks, of which $35.0 million expires in January 1997, $5.0 million expires in February 1997, and $1.5 million expires in May 1997. Interest rates on these lines of credit are (i) $40.0 million at the lender's prime rate, or two hundred basis points over the 30, 60 or 90 day LIBOR rates, at the Company's option; and (ii) $1.5 million at the lender's prime rate. As of October 6, 1996, the Company had $34.2 million outstanding under these credit facilities. The Company anticipates incurring $7.3 million in additional revolving credit facility indebtedness in connection with the Shoney's Transaction. The Company expects to use the net proceeds of the offering of the Series A Notes to reduce the outstanding balances under the revolving credit facilities. The Company anticipates seeking a new $50.0 million to $75.0 million senior revolving credit facility following this offering to replace its existing facilities. The Company has obtained a commitment letter from an additional commercial bank for a $10.0 million senior revolving credit facility which is expected to be combined with any new senior revolving credit facility that may be obtained. Management believes that the Company will be able to renew the existing lines of credit or secure a new line of credit prior to January 1997, but there can be no assurance that the Company will be able to do so. See "Risk Factors -- Leverage." The Company requires capital principally for the construction and acquisition of new lodging facilities and the purchase of equipment and leasehold improvements. Capital expenditures for such purposes were $51.0 million for the first two fiscal quarters of 1996, $56.2 million in fiscal 1995 and $47.1 million in fiscal 1994. Through September 1996, two Shoney's Inns and seven Sumner Suites hotels have opened and four Sumner Suites hotels are scheduled to open during the remainder of fiscal 1996. Additionally, renovations of several existing properties are underway, scheduled for completion in fiscal 1996 and early fiscal 1997. The Company also plans to develop and open an additional eight to ten Sumner Suites hotels by the end of fiscal 1997. A new corporate headquarters building is also under construction and is scheduled for completion by early 1997. The Company expects that approximately $100.0 million in additional capital funds will be necessary through fiscal 1997 to fulfill these plans. The Company has principal payments totaling $2.1 million due under existing debt instruments, in addition to the repayment of the Company's revolving credit facilities, through the end of the second fiscal quarter of 1997. The Company believes that a combination of net proceeds from this offering, net cash provided from operations, borrowings under existing or new credit facilities, proceeds from the sale of excess land and available furniture, fixtures and equipment financing packages will be sufficient to fund its scheduled development and debt repayments through fiscal 1997. S-21 23 BUSINESS GENERAL The Company develops, owns and operates all-suites hotels under the Sumner Suites brand name and is an operator and the exclusive franchisor of Shoney's Inns. The Company's ten Sumner Suites are mid-scale, all-suites hotels located in Florida, Georgia, Indiana, New Mexico, Ohio and Texas. The Shoney's Inn lodging system consists of 89 Shoney's Inns containing 9,087 rooms of which 34 containing 4,164 rooms are owned or managed by the Company. Shoney's Inns are currently located in 21 states with a concentration in the Southeast. Sumner Suites hotels are marketed primarily to business travelers and, to a lesser extent, leisure travelers by offering an all-suite setting in a convenient location at an attractive price/value relationship. Usually located in or near business or leisure travel destinations in mid-sized and larger metropolitan markets, Sumner Suites offer mid-scale accommodations at rates between $65 and $85 per night. A typical Sumner Suites contains from 110 to 125 rooms, lounge facilities, meeting rooms and an exercise room, and offers a deluxe continental breakfast. The Sumner Suites concept was launched in 1995 with three hotels. From 1990 until 1995, the Company developed and managed 12 mid-scale, all-suites hotels under another brand name before selling its interests in those hotels in March 1995. The Company believes that its experience in developing, constructing and managing mid-scale, all-suites hotels will enable it to expand effectively its development and ownership of the Sumner Suites system. As Sumner Suites has a limited presence in the marketplace, the Company seeks to capitalize on its proprietary reservation system, INNLINK, to further expand awareness of Sumner Suites. Shoney's Inns operate in the upper economy limited-service segment and are designed to appeal to both business and leisure travelers, with rooms usually priced between $39 and $58 per night. The typical Shoney's Inn includes 100 to 125 rooms and, in most cases, meeting rooms. Although Shoney's Inns do not offer full food service, many offer continental breakfast and 80 of the 89 Shoney's Inns are located adjacent or in close proximity to Shoney's restaurants. Management believes that its strategy of locating most of its Shoney's Inns in close proximity to free-standing Shoney's restaurants has given it a competitive advantage over other limited-service lodging chains by offering guest services approximating those of full-service facilities without the additional capital expenditures, operating costs or higher room rates. In 1991, the Company became the exclusive franchisor of Shoney's Inns, including the then existing Shoney's Inns. Management believes that Shoney's Inns benefit from the association with the Shoney's national brand restaurant system's reputation for consistency and value which provides an opportunity for expansion in both existing and new markets. Shoney's Inns benefit directly from cross-marketing efforts with Shoney's restaurants as well as indirectly from Shoney's restaurant advertising. GROWTH STRATEGY The Company's strategy is to increase cash flow and earnings by (i) increasing REVPAR while maintaining the Company's attractive suite and room price/value relationships and controlling operating costs, (ii) developing additional Sumner Suites and (iii) expanding the Shoney's Inn system through the addition of new franchised units and selectively developing Company-owned hotels. Internal Growth. The Company intends to increase cash flow and earnings from its existing hotels through increases in REVPAR while controlling operating costs. The Company seeks to increase REVPAR by increasing average daily room rates and supporting or increasing occupancy rates through targeted marketing and advertising strategies, employing promotional activities in local markets and capitalizing on the Company's proprietary central reservation system. In addition, the Company is committed to sustaining the quality of its properties through an ongoing renovation and maintenance program in order to increase REVPAR. The Company seeks to minimize costs throughout its operations primarily through the use of an in-house development and construction team and increased economies of scale in purchasing. S-22 24 Development of Additional Sumner Suites. In addition to the two Sumner Suites that were opened in December 1995 and a property that was converted to a Sumner Suites in July 1995, the Company has developed and opened seven Sumner Suites to date in 1996. Currently, four hotels are under construction and are scheduled to open during the remainder of 1996. The Company intends to continue expanding the Sumner Suites chain in 1997 by opening approximately eight to ten additional Sumner Suites hotels, two of which are currently under construction. Expansion of Shoney's Inn System. The Company is expanding the Shoney's Inn system through the addition of new franchises and by selectively opening new Company-owned hotels. The Company opened two Shoney's Inns and added six franchised units to the system in 1995. Through October 9, 1996, the Company has added two Company-owned Shoney Inns and a net total of seven franchised units to the system. The Company targets existing Shoney's Inn franchisees, existing Shoney's restaurant franchisees and contacts within the industry as potential franchisees for additional Shoney's Inns. SUMNER SUITES CONCEPT Sumner Suites are all-suites hotels positioned in the mid-scale segment to appeal primarily to business travelers and, to a lesser extent, leisure travelers. The Sumner Suites hotels are generally located in mid-sized to larger metropolitan markets near business and leisure travel destinations such as business parks, office buildings, local attractions and restaurants. Although daily room rates typically range from $65 to $85, room rates at Sumner Suites vary depending upon a number of factors, including location and competition. For the first two fiscal quarters of 1996, the average daily room rate for the Sumner Suites hotels was $77.62. The Sumner Suites prototype hotel is a five story, interior corridor, stucco building containing 110 to 125 rooms. The bedroom in each suite is furnished with either a king size bed or two double beds, a night stand, vanity, and closet area, and the sitting area contains a sleeper sofa, a desk, chairs and reading lamps. A kitchenette area includes a sink, refrigerator, microwave oven and cabinets that contain kitchen and cooking utensils. The lobby area of each Sumner Suites hotel features marble floors and seating areas with numerous couches, tables and chairs allowing for informal meeting and lounge space. Adjacent to the seating area is a combination buffet and beverage service area. Each Sumner Suites is equipped with large meeting rooms that can be sectioned to meet individual guests' or groups' needs. An exercise facility and swimming pool are additional features. The amenities provided by the hotels include voice mail and facsimile machine services, deluxe continental breakfast and lounge services in the evening. The Company believes that Sumner Suites provides its guests with quality accommodations at an attractive price/value relationship within the all-suites segment. SHONEY'S INNS CONCEPT Shoney's Inns are limited-service hotels positioned in the upper economy segment to appeal to both business and leisure travelers and are located in 21 states in markets ranging from small towns to larger metropolitan areas. Shoney's Inns are generally located in proximity to interstate highways, major streets and highways providing convenient access to business establishments. Eighty of the 89 Shoney's Inns are located adjacent or in close proximity to a Shoney's restaurant. Management believes that its strategy of locating its Shoney's Inns in close proximity to free-standing Shoney's restaurants gives it a competitive advantage over other limited-service lodging chains. Daily room rates at Shoney's Inns range from $39 to $58 and vary depending upon a number of factors, including location, competition and type of room. For the first two fiscal quarters of 1996, the average daily room rate for Company-owned Shoney's Inns was $50.86. Historically, the typical Shoney's Inn has been a two story, exterior corridor, brick veneer building with plate glass fronts, containing 100 to 125 rooms. New prototypes for Shoney's Inns include a four story, interior corridor, brick or stucco building containing 100 to 120 rooms as well as smaller prototype buildings containing 80 rooms. Each room is professionally decorated and is generally furnished with two double beds, a dresser, table and chairs and a color television. S-23 25 Amenities featured at most Shoney's Inns include swimming pools (some indoors or heated), meeting rooms, facsimile machine service and continental breakfast. The Company believes that Shoney's Inns provide its guests with quality accommodations at an attractive price/value relationship within the upper economy segment. HOTEL CONSTRUCTION AND DEVELOPMENT The Company's construction subsidiary has a full time core staff of approximately 20 people who manage, supervise and control the construction of the Company's hotels. Local subcontractors are employed by the Company for most of the major construction components of a new hotel, including plumbing, electrical, and mechanical subcontracts. The Company intends to continue to build its own hotels because it believes that its in-house capabilities provide advantages in controlling costs, quality, and development schedule as compared to using independent contractors. The Company believes that its construction experience and its relationship with many subcontractors will facilitate the effective development of additional hotels. The Company devotes significant resources to the identification and evaluation of potential sites for its hotels. The Company generally targets mid-sized to larger metropolitan markets for locating its Sumner Suites. In identifying cities for possible expansion, the Company typically targets markets with populations of 500,000 or more that have high levels of business development and multiple sources of room demand. The site selection process for Sumner Suites focuses on the competitive environment, including room and occupancy rates and proximity to business parks, office buildings, and high traffic retail and restaurant areas. The Company focuses on sites for its Shoney's Inns in proximity to interstate highway access roads and major streets and highways providing convenient access to local business establishments. The Company anticipates developing Sumner Suites hotels averaging from 110 to 125 suites. Management believes that the development cost of a new Sumner Suites hotel will be approximately $50,000 to $55,000 per suite, depending on the location of the hotel, size of the hotel (number of suites), cost of land, local zoning and permitting costs, construction period and local building costs which are affected by the cost of building materials and construction labor. Based on the Company's experience to date, the capital investment (including land and pre-opening expenses) for a typical 125 suite Sumner Suites is approximately $6.5 million (approximately $52,000 per suite). The Company's Shoney's Inns typically range in cost from approximately $32,000 to $38,000 per room. The construction phase of a hotel generally requires six months after the site and all approvals and permits have been obtained. The Company's experience in selection and acquisition of sites has varied and generally averages six months. The approval and permitting phase can occur simultaneously with site acquisition and generally requires three months. The entire development process generally ranges from 10 to 12 months but may take longer. SALES AND MARKETING The Company directs marketing efforts on behalf of both Sumner Suites and Shoney's Inns primarily to business travelers, whom management believes have represented the largest segment of its customers in recent years. Sumner Suites. Marketing of the Sumner Suites brand is targeted primarily towards the business traveler through a variety of efforts. Initially, pre-opening sales calls are made by the general manager and director of sales of each property in the local market area during the 90 days prior to opening. In addition, advertisements are placed in the Hotel Travel Index, a comprehensive listing of hotels worldwide used by travel agents for booking clients into destination cities. The Sumner Suites toll-free reservation number, 1-800-74-SUITE, is promoted to the travel agents through advertising and direct mailings. The Company believes that approximately one quarter of all Sumner Suites room sales are booked through the reservation center. Finally, Sumner Suites has joined TAC-Lite, an automatic, guaranteed payment system for travel agents, in an effort to continue to expand Sumner Suites brand awareness. Shoney's Inns. All Shoney's Inns participate in the "Sho Business" frequent traveler program, entitling members to receive the lowest available rate, car rental discounts, restaurant coupons, complimentary coffee S-24 26 and newspaper, free room upgrades, express check-in and other privileges upon presentation of a membership card. Approximately 11% of the rooms booked through INNLINK for Shoney's Inns through October 1, 1996 have been reserved by guests who are members of the Sho Business program. Historically, the Company has also marketed its hotels directly to businesses whose employees travel in the southeastern United States. The Company's marketing department gathers information on business prospects, secures accounts and makes referrals to individual hotels for follow up. Additionally, the Company attempts to take advantage of the positive reputation attached to the Shoney's name in the over-50 age group and in the package tour market through advertisement in publications targeting such readers and by encouraging franchisee participation in promotional discounts for frequent customers over 50 and for tour operators. The Company's program for the over-50 age group entitles its members to receive special room rate discounts, complimentary coffee and newspaper and other benefits. The Shoney's Inn system also advertises in the approximately 967 Shoney's restaurants, and individual Shoney's Inns are encouraged to participate in joint mailings and other promotions with local Shoney's restaurants. The Company periodically publishes a Shoney's Inn system directory showing, for each Inn, its address and telephone number, location as indicated on a locator map, a brief description of the facilities, the services and amenities provided and other relevant information. These directories are distributed in each Shoney's Inn and Shoney's restaurant and are provided directly to travel agents, sponsors of group tours, corporate travel departments and other selected potential customers. Most properties have a full-time director of sales whose responsibilities include local marketing and direct and group sales. At the corporate level, a Director of Marketing oversees national marketing plans and provides marketing support for each corporate and franchised property, including smaller corporate properties which may not have a full-time sales person. The Director of Marketing also oversees management of the Shoney's Inn national advertising fund, into which all Shoney's Inns pay 1% of revenue to support national marketing efforts such as the annual system directory. LODGING OPERATIONS Hotel Management. Overall hotel operations are the responsibility of the Vice President of Operations for Shoney's Inns and the Director of Operations for Sumner Suites. Shoney's Inns are further managed by regional managers, who directly supervise the general managers of each property. The Company expects to add regional managers for its Sumner Suites system as it grows its hotel base with each regional manager supervising between four and six hotels on a geographic basis. The general manager of each Shoney's Inns or Sumner Suites is fully responsible for day-to-day operations and is compensated by salary and bonus systems which reward revenue and operating margin performance. Each general manager, in conjunction with senior management, develops the property's operating budget and is held accountable for meeting the goals and objectives of the hotel. Reservation System. The Company's proprietary central reservation system, INNLINK, provides important support for the room reservation process for both Sumner Suites and Shoney's Inns and is marketed to other chains as well. Other chains that contract with the Company for the service include: Country Hearth Inns, Key West Inns and Wilson Inns & Hotels. INNLINK operates 24 hours a day, 7 days a week. The INNLINK system may be accessed by individual travelers as well as by travel agents, tour and group booking agents at 1-800-222-2222 for Shoney's Inns and 1-800-74-SUITE for Sumner Suites. Electronically, INNLINK is accessed through numerous global distribution systems (e.g., SABRE Travel Information Network, Galileo International, System One and WorldSpan). The reservation system includes specially designed hotel reservation software, with adequate capacity, and state of the art hardware and telecommunications devices. The Company believes that approximately one quarter and one fifth of room sales for Sumner Suites and Shoney's Inns, respectively, are made through INNLINK. Quality Control. To ensure quality and consistency, the Company regularly inspects each of its hotels and each Shoney's Inn in the Shoney's Inn system for compliance with facility and service standards. The Company also conducts unannounced visits by unidentified "guests" who report on the quality of services at individual hotels. Generally, in addition to its ongoing refurbishment activities, the Company fully renovates S-25 27 each of the Company-owned Shoney's Inns after approximately seven years of operation and expects a similar renovation schedule for Sumner Suites. In the last 44 months, the Company has renovated 12 of the 20 Company-owned Shoney's Inns opened prior to 1994 and plans to renovate seven Shoney's Inns over the next year. Training. The Company utilizes the services of an "opening team" to assist with hiring and training new staff and opening new Company-owned hotels. The opening team trains local hotel personnel in front desk operations, operational policies, hotel accounting and cash handling procedures, record-keeping, housekeeping and laundry, maintenance and repair, marketing, personnel management, purchasing, quality assurance and sales. Sales training includes a team of direct sales personnel that assists the local staff in the actual pre-selling of rooms. An opening team generally remains on site for one to four weeks depending on the prior experience of the local general manager. FRANCHISE OPERATIONS Franchise Marketing. The Company markets the Shoney's Inn franchise principally to existing Shoney's Inn franchisees, Shoney's restaurant franchisees and other prospects known through management's contacts in the lodging industry. The Company also markets franchises through advertisements in trade publications and participation in trade shows and franchising conventions. Management believes that the Company attracts potential new franchisees by offering a high level of franchisee support services at a lower price than its competitors. Management periodically monitors the initial fee, royalty fee, advertising fee, reservation fee and other charges imposed by other franchisors with whom the Company competes and believes that the fees charged by the Company are competitive and, in many cases, lower than such other franchisors. Fees. Under the standard Shoney's Inn franchise arrangement offered to prospective franchisees, a franchisee pays a $2,500 application fee. Upon approval of the application, the Company and the franchisee enter into a 20-year license agreement, and the franchisee pays a license fee equal to the greater of $250 per room or $25,000. The application fee is applied against the license fee. Under the standard Shoney's Inn franchise arrangement offered to prospective franchisees, the franchisee pays monthly royalties of 3.5% of the licensed hotel's gross sales during the term of the license agreement. Additionally, a marketing cooperative fee of 1% of gross sales and a fee for participation in the Shoney's Inn central reservation system of 1% of gross sales are charged. Franchisee Services. Management believes that the support the Company offers to franchisees is a fundamental ingredient in determining its success as a franchisor and that the Company's successful record as a Shoney's Inn builder, owner and operator evidences valuable experience and abilities which can enhance the franchisee support function. As franchisor, the Company draws on its own operational experience to assist franchisees. Once a Shoney's Inn is constructed, the Company offers the franchisee, for an additional fee, training and "opening teams" similar to those used by the Company when opening one of its own hotels. The Company also makes available some of the most successful Company-owned Shoney's Inns as training centers. The Company inspects every Shoney's Inn at least three times a year, at least two of which are unannounced, through its Quality Standards and Compliance program, using trained field representatives. The Company encourages franchisees to renovate each of the Shoney's Inns after approximately seven years of operations, in the same manner that the Company renovates its own hotels. The Company offers to provide management services to Shoney's Inn franchisees pursuant to contractual arrangements. The Company's fee for these services is a percentage of the managed hotel's gross revenues. Currently, the Company manages two hotels under contract arrangement. S-26 28 LICENSE AGREEMENT WITH SHONEY'S Under the License Agreement, the Company has certain rights to use and to license the use of the service marks "Shoney's Inn" and "Shoney's Inn & Suites" in connection with lodging operations. Under the License Agreement, Shoney's retains extensive approval rights over various aspects of the franchise operation, including all uses of the "Shoney's Inn" and "Shoney's Inn & Suites" marks, the selection of franchisees, the location and design of franchised facilities, the termination of individual franchisees, the nature and extent of on-site food and beverage service and the terms of franchise agreements. The License Agreement also sets certain maximum fees which the Company may charge franchisees. The License Agreement entitles Shoney's to receive a portion of the franchise fees collected by the Company equal, in substantially all cases, to 1.5% of 52 Shoney's Inns' gross revenues through October 1999 and 0.5% of the remaining and all future Shoney's Inns' gross revenues for the first ten years of their operation. The rights in the "Shoney's Inn" and "Shoney's Inn & Suites" marks granted to the Company under the License Agreement may be terminated upon certain occurrences, including the bankruptcy of the Company, the failure to satisfy a judgment of $1,000,000 or more within 30 days after it is final and unappealable, the failure to comply with the terms of the License Agreement or with any applicable law or regulation, and the failure to desist from any conduct likely to impair Shoney's goodwill or reputation. The Company has recently entered into a letter agreement which would alter the Company's relations with Shoney's, in part by terminating Shoney's right to receive a portion of the Company's franchise fees and by terminating much of Shoney's approval rights over various aspects of the franchise operation. See "Prospectus Summary -- Recent Development." LODGING INDUSTRY Smith Travel Research divides lodging chains into five segments based on price. These segments are: upper and lower upscale, mid-scale, and upper and lower economy. Smith Travel Research does not have a specific all-suites segment, but the Company's Sumner Suites hotels would be included in the mid-scale segment based on average daily room rates. The following tables illustrate certain comparative information regarding REVPAR and its components for the years indicated:
AVERAGE AVERAGE DAILY REVPAR OCCUPANCY RATE ROOM RATE(1) ---------------------------- ---------------------- ---------------------------- 1993 1994 1995 1993 1994 1995 1993 1994 1995 ------ ------ ------ ---- ---- ---- ------ ------ ------ Industry-wide............. $39.04 $41.57 $44.04 63.0% 64.6% 65.3% $61.97 $64.35 $67.45 Upper economy segment..... 27.40 28.95 30.59 63.4 64.4 64.4 43.21 44.96 47.50 All Shoney's Inns......... 26.44 26.41 27.30 65.8 63.9 63.1 40.25 41.33 43.27 Company-owned Shoney's Inns.................... 29.49 30.18 30.97 69.8 67.1 64.3 42.25 44.98 48.17 Mid-scale segment(2)...... 34.46 36.06 38.06 63.2 64.2 64.6 54.53 56.17 58.91
- --------------- (1) Room revenues divided by the number of rented rooms. (2) Information with respect to Sumner Suites is unavailable or not meaningful as two of the first three Sumner Suites hotels did not open until late 1995. Source: Smith Travel Accommodation Reports. December year-to-date 1995, for industry-wide, upper economy and mid-scale, and the Company's internal data for all Shoney's Inns statistics. The Company believes that the key elements underlying the improvements in the industry's operating performance and profitability are favorable economic conditions and a rate of room demand growth which exceeds the growth rate of room supply. The rate of room demand growth exceeded the rate of room supply growth in each of 1993, 1994 and 1995. While the growth in room supply has increased and will continue to S-27 29 increase with the development of new hotels, according to Coopers & Lybrand's "Hospitality Directions," industry-wide room demand is projected to exceed room supply through 1998 and industry-wide average daily room rate ("ADR") is expected to continue to increase through 1998 while occupancy is expected to remain relatively flat. Occupancy and ADR have increased consistently throughout the lodging industry from 1993 through 1995. COMPETITION The lodging industry is highly competitive. In franchising the Shoney's Inn system and managing its own lodging facilities, the Company encounters competition from numerous lodging companies, many of which have greater industry experience, name recognition, and financial and marketing resources than the Company. While the actual competition for individual lodging facilities varies by location, the primary competition for Shoney's Inns includes lodging chains such as Holiday Inn Express, La Quinta, Comfort Inns, Drury Inns, Fairfield Inns and Travelodges. The Company's Sumner Suites hotels experience competition from chains such as AmeriSuites, Hampton Inns, Residence Inn, Courtyard by Marriott, Quality Suites, Embassy Suites and Comfort Suites. Each of the Company's hotels is located in a developed area that includes competing lodging facilities, and the Company expects that future hotels which it constructs will be located in similar areas. Management believes that the principal competitive factors in its lodging operations are room rates, quality of accommodations, name recognition, supply and availability of alternative lodging facilities, service levels, reputation, reservation systems and convenience of location. In its franchising operations, the principal competitive factors are fee structure and support services. Management further believes that the Company is presently competitive in all these respects. PROPERTIES The Company's corporate headquarters, owned by the Company, is located in Gallatin, Tennessee and contains approximately 10,000 square feet of office space. Another 5,000 square feet of office space is leased by the Company in close proximity to the headquarters. The Company has purchased a site in Hendersonville, Tennessee and has begun the process of building a new headquarters building that will contain approximately 42,000 square feet of space including storage and food services. Management believes that the new building will contain sufficient space to accommodate the Company's currently anticipated needs. Approximately 37 of the 42 Company-owned hotels are located on sites owned by the Company or a partnership in which the Company holds a majority interest. The remaining hotels are located on sites that are leased pursuant to long-term ground leases. LITIGATION The Company is subject to litigation from time to time in the ordinary course of business. In one case filed during October 1994 the plaintiff, a limited partner in one of the Company's partnerships, claims, among other things, that the Company breached the partnership agreement by not offering the partnership the right to participate in the profits from the management of a neighboring AmeriSuites hotel. In February 1995, the court entered summary judgment in favor of the plaintiff on this claim and referred the issue of damages to a special master of the court. In November 1995, the special master issued her report finding damages on this claim payable to the partnership (of which the Company is a 60% partner) in the amount of approximately $3.0 million. The report of the special master was confirmed by the court in December 1995 and the Company subsequently appealed the judgment in March 1996. If the Company is unsuccessful in its efforts to have the judgment reversed, the Company's earnings could be adversely affected. S-28 30 MANAGEMENT The following table contains certain information concerning the directors and executive officers of the Company which information has been furnished to the Company by the individuals named.
NAME AGE POSITION - -------------------------------- --- ------------------------------------------------------- Leon Moore(1) 55 President, Chief Executive Officer, and Director Richard L. Johnson 55 Executive Vice President, Director Bob Marlowe 57 Chief Accounting Officer, Secretary and Treasurer, Director Earl H. Sadler(1)(2)(3) 73 Director Helen L. Moskovitz(1)(2)(3) 59 Director W. Craig Barber(2) 40 Director Robert M. Langford(3) 44 Director James M. Grout 51 Executive Vice President Michael A. Corbett 44 Chief Financial Officer John C. Buttolph 67 Vice President -- Franchising and Development
- --------------- (1) Executive Committee member. (2) Audit Committee member. (3) Compensation Committee member. The following is a brief summary of the business experience of each of the directors and executive officers of the Company. LEON MOORE founded the Company in 1976 and has served as its President and Chief Executive Officer and a director since that time. Mr. Moore serves as Chairman of the Executive Committee. Mr. Moore has more than 25 years of experience in developing and operating lodging facilities and restaurants, largely involving franchisees of Shoney's. He is also a director of The Bank of Nashville. RICHARD L. JOHNSON has been Executive Vice President and a director of the Company since 1984 and is primarily responsible for strategic planning and development. Before joining the Company in 1984, Mr. Johnson was a Vice President and Manager of the Industrial and Commercial Group -- Municipal Finance Section with J.C. Bradford & Co. BOB MARLOWE has been Chief Accounting Officer, Secretary and Treasurer since November 1995 and a director of the Company since 1984. From 1984 to November 1995 he served as Chief Financial Officer, Secretary and Treasurer. Mr. Marlowe is a certified public accountant. Before joining the Company in 1984, he was the Senior Vice President and director of financial management with United Southern Bank. EARL H. SADLER has been a co-owner of Sadler Brothers Trucking and Leasing Company, Inc. since 1948. Mr. Sadler joined the Company's Board of Directors in 1992, and is Chairman of the Compensation Committee. HELEN L. MOSKOVITZ has been the President of Helen L. Moskovitz & Associates, Inc., a destination management company, since 1979. Mrs. Moskovitz joined the Company's Board of Directors in 1995. W. CRAIG BARBER was elected Senior Executive Vice President and Chief Financial Officer of Shoney's in January 1995. He served as Treasurer of Shoney's from August 1988 until December 1992 when he was elected Vice President -- Finance and Chief Financial Officer. From July 1983 to August 1988 he was Assistant Treasurer of Shoney's. He was elected to the Board of Directors of the Company in January 1995 and serves as a member of the Board elected by the holder of the Series A Stock. ROBERT M. LANGFORD was elected Executive Vice President, General Counsel and Secretary of Shoney's in January 1996. For the five years prior to that time, he was President, Chairman and Chief Executive Officer of Restaurant Management Services, a multi-unit, multi-concept, restaurant company, and owner of Langford Enterprises, a Shoney's restaurant franchisee. He was elected to the Board of Directors of the Company in January 1996 and serves as a member of the Board elected by the holder of the Series A Stock. S-29 31 JAMES M. GROUT was elected Executive Vice President of the Company in April 1995 and is primarily responsible for administration. From March 1995 until April 1995, Mr. Grout was employed by the Company as director of development. He was employed by Shoney's from 1980 until January 1995 in its hotel operating division, most recently as President of Shoney's Division from February 1994 until January 1995. MICHAEL A. CORBETT was elected Chief Financial Officer of the Company in October 1995. He served as Treasurer of Genesco, Inc., a footwear apparel manufacturer, from October 1993 until September 1995. From July 1989 to October 1993, Mr. Corbett was managing director of Highland Capital Corporation, a consulting and advisory company to Fortune 500 clients in the textile, healthcare, technology, insurance and financial service industries. JOHN C. BUTTOLPH was elected Vice President -- Franchising and Development for the Company in May 1993. Prior to that time he was Vice President of Suites of America, Inc. from September 1991. Before joining Suites of America, Inc., he was Vice President of Prime Motor Inns, Inc. from April 1989 to September 1991. DESCRIPTION OF THE SERIES A NOTES The following description of the Series A Notes offered hereby supplements the description of the general terms and provisions of the Notes set forth in the accompanying Prospectus, to which description reference is hereby made. The statements under this caption are summaries of certain other terms applicable to the Series A Notes. Such summaries do not purport to be complete and are qualified in their entirety by the terms of the Indenture. Capitalized terms defined in the Indenture shall have the same meanings herein. The Series A Notes are the initial issue of Notes to be issued under an Indenture dated as of , 1996 by and between the Company and Bankers Trust Company, as Trustee, as supplemented by a First Supplemental Indenture establishing the terms of the Series A Notes. The Indenture, as so supplemented, is referred to herein as the "Indenture." The Series A Notes will be limited in principal amount to $35,000,000, all of which are being offered hereby. The Series A Notes will be issuable as fully registered Notes in denominations of $1,000 and any integral multiple thereof. The Series A Notes will bear interest at the rate per annum set forth on the cover page of this Prospectus Supplement from and after their date of original issuance. Payments of interest will be made quarterly on February 1, May 1, August 1 and November 1 of each year commencing February 1, 1997, to each holder of record as of the close of business on the fifteenth day of the month immediately preceding such interest payment date, by check of the Trustee mailed to each such holder of record, except as provided in the Indenture. The Series A Notes will mature on , 2006, and payments of the principal of the Series A Notes will be made at the main trust office of the Trustee in New York, New York. The Series A Notes are exchangeable and transferable at such office without charge therefor except for any tax or other governmental charge connected therewith, and provided that the Company shall not be required to register a transfer of or to exchange the Series A Notes during the period of 15 days immediately preceding any selection of Series A Notes for redemption. The Series A Notes constitute a separate series of securities for purposes of the Indenture. For a description of the rights of holders of Notes, including the Series A Notes, under the Indenture, see "Description of the Notes" in the accompanying Prospectus. OPTIONAL REDEMPTION BY THE COMPANY The Series A Notes shall be redeemable at any time prior to the Stated Maturity at the option of the Company as a whole at any time, or in part from time to time, commencing , 1999 on not less than 30 nor more than 60 days notice given as provided in the Indenture upon payment of the then applicable redemption price (expressed in percentages of the principal amount) set forth below under the heading "General Redemption Prices," together in each case with accrued and unpaid interest to the date fixed for S-30 32 redemption. The General Redemption Prices (expressed in percentages of the principal amount) applicable during the 12-month period beginning in the years indicated below are as follows: GENERAL REDEMPTION PRICES If redeemed during the 12 month period beginning , 1999..........................104% 2000..........................103% 2001..........................102% 2002..........................101% 2003 and thereafter...........100% In case of the redemption of less than all of the outstanding Series A Notes, the Series A Notes to be redeemed shall be selected by the Trustee by lot or such other method as the Trustee shall deem reasonable, not more than sixty (60) days prior to the Redemption Date, from the outstanding Series A Notes not previously called for redemption, which method may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of such Series A Notes of a principal amount larger than $1,000. In the case of any partial redemption, the Trustee is obligated to notify the Company in writing of the serial numbers (and, in the case of any Series A Note which is to be redeemed in part only, the portion of the principal amount thereof to be redeemed) of the Series A Notes selected for redemption. CERTAIN PROVISIONS REGARDING REDEMPTION AT HOLDER'S OPTION The Series A Notes tendered by the personal representative or surviving joint tenant, tenant by the entirety or tenant in common of a deceased beneficial owner shall be redeemed within 60 days of tender, at par plus accrued interest, subject to the amount limitations described below and in "Description of the Notes -- Redemption at Holder's Option." Series A Notes tendered by November 1 of each year commencing in 1999 shall be redeemed on the following December 1 at par plus accrued interest, subject to the amount limitations and other limitations described below and in "Description of the Notes -- Redemption at Holder's Option." Of the Series A Notes tendered, the Company is only required to redeem, for any twelve month period ending on December 1 of any year, an aggregate maximum of 5% of the aggregate amount of all Notes of all series issued under the Indenture, subject to a maximum of $50,000 per beneficial owner, per period. Notes tendered by representatives of deceased beneficial owners will be redeemed prior to Notes tendered by other Noteholders. S-31 33 UNDERWRITING Pursuant to the Underwriting Agreement and subject to the terms and conditions thereof, the Underwriters named below have each agreed, severally, to purchase from the Company the principal amount of the Series A Notes set forth opposite their respective names below.
PRINCIPAL AMOUNT OF NAME OF UNDERWRITER SERIES A NOTES -------------------------------------------------------------------- ---------------- J.C. Bradford & Co.................................................. $ Dain Bosworth Incorporated.......................................... Interstate/Johnson Lane Corporation................................. ----------- Total..................................................... $ 35,000,000 ===========
In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions therein set forth, to purchase all of the Series A Notes offered hereby, if any are purchased, excluding the Series A Notes covered by the over-allotment option granted to the Underwriters. The Underwriters have advised the Company that they propose initially to offer the Series A Notes to the public at the public offering price set forth on the cover page of this Prospectus Supplement and may offer Series A Notes to certain dealers at such price less a concession of not more than % of the principal amount of the Series A Notes. The Underwriters may allow, and such dealers may reallow, concessions not in excess of % of the principal amount of the Series A Notes to certain other brokers and dealers. After the commencement of this offering, the public offering price, and concessions and reallowances to dealers may be changed by the Underwriters. The offering of the Series A Notes is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The Underwriters reserve the right to reject any order for purchase of the Series A Notes. The Company has granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus Supplement, to purchase up to $5,250,000 of additional aggregate principal amount of Series A Notes to cover over-allotments at the same price per Series A Note to be paid by the Underwriters for the other Series A Notes offered hereby. The Underwriters may purchase such Series A Notes only to cover over-allotments, if any, in connection with the offering made hereby. There is no public market for the Series A Notes, and the Company does not intend to apply for quotation of the Series A Notes on the Nasdaq National Market or any other quotation system or listing of the Series A Notes on any securities exchange. The Company has been advised by the Underwriters that, following the public offering of the Series A Notes, the Underwriters presently intend to make a market in the Series A Notes; however, the Underwriters are not obligated to do so, and any market-making activity with respect to the Series A Notes may be discontinued at any time without notice. There can be no assurances as to the liquidity of the public market for the Series A Notes or that an active public market for the Series A Notes will develop. If an active market does not develop, the market price and liquidity of the Series A Notes may be adversely affected. The Underwriting Agreement provides that the Company will indemnify the Underwriters and controlling persons, if any, against certain liabilities, including certain liabilities under the Securities Act of 1993, as amended, or will contribute to payments which the Underwriters or any such controlling persons may be required to make in respect thereof. LEGAL MATTERS Certain matters regarding the Series A Notes will be passed on for the Company by Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee. Certain legal matters regarding the Series A Notes will be passed on for the Underwriters by Bass, Berry & Sims PLC, Nashville, Tennessee. S-32 34 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 OCTOBER 18, 1996 PRELIMINARY PROSPECTUS $125,000,000 SHOLODGE, INC. SENIOR SUBORDINATED NOTES ------------------ ShoLodge, Inc. (the "Company") may offer from time to time up to $125,000,000 in aggregate principal amount of its Senior Subordinated Notes (the "Notes") at prices and on terms to be determined at the time of sale. The aggregate principal amount, maturity, any premium, any interest rate (which may be fixed or variable), any interest payment dates, any optional or mandatory redemption terms, the initial public offering price and any other terms of the offering of the series of Notes in respect of which this Prospectus is being delivered are set forth in the accompanying Prospectus Supplement (the "Prospectus Supplement"). The Notes will be unsecured and subordinated in right of payment to the prior payment in full of all existing and future Senior Indebtedness, as defined, of the Company and will be senior in right of payment to or pari passu with all other subordinated indebtedness of the Company. The Company may incur additional Senior Indebtedness subject to the "Restriction on Additional Indebtedness" covenant in the Indenture, as defined. Upon the occurrence of a Change in Control, as defined, of the Company, the Company will be obligated to purchase Notes at the holder's option at par plus accrued interest to the date of purchase. The change in control feature may have an anti-takeover effect. See "Description of the Notes -- Repurchase at Holder's Option Upon Change in Control." The Company will redeem Notes tendered by the personal representative or surviving joint tenant, tenant in common or tenant by the entirety of a deceased holder within 60 days of presentation of the necessary documents, up to an annual maximum of $50,000 per holder and up to an annual aggregate maximum amount equal to 5% of the aggregate original principal amount of the Notes of all series issued under the Indenture. The Company will redeem Notes tendered by other beneficial holders commencing on a certain date set forth in the Prospectus Supplement and on each anniversary thereof subject to the per holder and aggregate limitations. No sinking fund will be established to redeem the Notes. See "Description of the Notes." The Notes will be issued in integral multiples of $1,000 and will be in fully registered form. The Company does not intend to list the Notes on the Nasdaq National Market or any securities exchange. ------------------ 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. , 1996 35 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, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission") which may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain Regional Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission, at prescribed rates. In addition, the Commission maintains a Web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the Commission. The Company is required under the Indenture (as hereinafter defined) to file with the Commission quarterly and annual reports required by the Exchange Act and to furnish the holders copies of such reports. If the Company is not subject to the periodic reporting and informational requirements of the Exchange Act, it will provide the holders of the Notes with annual reports containing the information required to be contained in Form 10-K promulgated under the Exchange Act, quarterly reports containing the information required to be contained in Form 10-Q promulgated under the Exchange Act and from time to time such other information as is required to be contained in Form 8-K promulgated under the Exchange Act. The Company has filed a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (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 parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained herein concerning any contract, agreement or other document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such contract, agreement or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference into this Prospectus its (i) Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended April 21, 1996 and July 14, 1996 filed by it with the Commission pursuant to the Exchange Act. In addition, all reports and other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Notes shall be deemed to be incorporated by reference into this Prospectus and to be made a part hereof from the date of the filing of such reports and documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement 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, upon the written or oral request of such person, a copy of the documents which are incorporated by reference in this Prospectus (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Such request should be directed to ShoLodge, Inc., 217 West Main Street, Gallatin, Tennessee 37066, Attention: Michael A. Corbett, Chief Financial Officer. 2 36 THE COMPANY The Company develops, owns and operates all-suites hotels under the Sumner Suites brand name and is an operator and exclusive franchisor of Shoney's Inns and Shoney's Inn & Suites (collectively, "Shoney's Inns"). The Company's ten Sumner Suites are mid-scale, all-suites hotels located in Florida, Georgia, Indiana, New Mexico, Ohio and Texas. The Shoney's Inns lodging system consists of 89 Shoney's Inns containing 9,087 rooms, of which 34 Shoney's Inns containing 4,164 rooms are owned or managed by the Company. Shoney's Inns are currently located in 21 states with a concentration in the Southeast. Sumner Suites hotels are marketed primarily to business travelers and, to a lesser extent, leisure travelers by offering an all-suite setting in a convenient location at an attractive price/value relationship. Usually located in or near business or leisure travel destinations in mid-sized and larger metropolitan markets, Sumner Suites offer mid-scale accommodations at rates between $65 and $85 per night. A typical Sumner Suites hotel contains approximately 110 to 125 rooms, lounge facilities, meeting rooms and an exercise room, and offers a deluxe continental breakfast. Shoney's Inns operate in the upper economy limited-service segment and are designed to appeal to both business and leisure travelers, with rooms usually priced between $39 and $58 per night. The typical Shoney's Inn includes 100 to 125 rooms and, in most cases, meeting rooms. Although Shoney's Inns do not offer full food service, many offer continental breakfast and 80 of the 89 Shoney's Inns are located adjacent or in close proximity to Shoney's restaurants. Management believes that its strategy of locating most of its Shoney's Inns in close proximity to free-standing Shoney's restaurants has given it a competitive advantage over other limited-service lodging chains by offering guest services approximating those of full-service facilities without the additional capital expenditures and operating costs or higher room rates. The Company's strategy is to increase cash flow and earnings by (i) increasing revenue per available room while maintaining the Company's attractive suite and room price/value relationships and controlling operating costs, (ii) developing additional Sumner Suites, and (iii) expanding the Shoney's Inn system through the addition of new franchised units and selectively developing Company-owned hotels. The principal executive offices of the Company are located at 217 West Main Street, Gallatin, Tennessee 37066. The Company's telephone number is (615) 452-7200. USE OF PROCEEDS Except as otherwise described in the Prospectus Supplement, the net proceeds to the Company from the sale of the Notes will be used to fund the development and renovation of lodging facilities and construction of the Company's headquarters, finance the Company's capital expenditures and working capital requirements and reduce outstanding debt incurred for such purposes, as well as other corporate purposes. A description of any indebtedness to be repaid with the proceeds of the Notes will be set forth in the Prospectus Supplement. Pending the above uses, the net proceeds to the Company will be invested in investment grade, short-term, interest-bearing securities, such as Treasury bills, repurchase agreements, commercial paper and short-term certificates of deposit. DESCRIPTION OF THE NOTES GENERAL The Notes are to be issued under an Indenture dated as of , and one or more supplemental indentures (the "Indenture") between the Company and Bankers Trust Company, as trustee (the "Trustee"). The particular terms of any series of Notes offered by any Prospectus Supplement (each such series individually the "Offered Notes") will be described in the Prospectus Supplement relating to such Offered Notes (the "Applicable Prospectus Supplement"). A copy of the Indenture is an exhibit to the Registration Statement of which this Prospectus is a part and a copy of a form of Supplemental Indenture will be filed by the Company with the Commission as an exhibit to a document which will be incorporated by reference herein. The following summaries of certain provisions of the Notes and 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 3 37 Indenture and the applicable supplemental indenture, including the definitions therein of certain terms. Capitalized terms not otherwise defined in this Prospectus shall have the meanings given to them in the Indenture. The Indenture provides that Notes may be issued thereunder from time to time in one or more series in an aggregate principal amount up to $125,000,000. The Notes will be issued as fully-registered Notes only in integral multiples of $1,000, and will be unsecured, subordinated obligations of the Company. The Applicable Prospectus Supplement will describe the following terms of the Offered Notes: (a) the title of the Offered Notes; (b) any limit of the aggregate principal amount of the Offered Notes; (c) the date or dates on which the Offered Notes will mature; (d) the rate or rates per annum at which the Offered Notes will bear interest and the date or dates from which such interest will accrue and the dates on which such interest on the Offered Notes will be payable and the Regular Record Dates for such Interest Payment Dates; (e) the terms of any rights of the Company to redeem the Offered Notes at its option; and (f) any other terms of the Offered Notes. SUBORDINATION The obligations of the Company to make any payment on account of the principal of and premium, if any, and interest on the Notes will be subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness (as defined below). The Notes will rank senior to the Company's 7.5% convertible subordinated debentures due 2004 (the "1994 Debentures") and senior to or pari passu with any other subordinated indebtedness of the Company. No direct or indirect payment or distribution (other than payments or distributions of amounts previously deposited in accordance with the defeasance provisions of the Indenture) shall be made by or on behalf of the Company on account or in respect of principal of or premium, if any, or interest on the Notes or on account or in respect of the purchase, redemption or other acquisition or deposits in trust in respect of defeasance of Notes (including without limitation any purchase of a Note required as a result of a Change in Control), if there shall have occurred and be continuing any default in the payment when due (at maturity, upon acceleration of maturity, upon mandatory prepayment, or otherwise) in respect of any Senior Indebtedness continuing beyond the period of grace, if any, specified in the instrument or agreement creating or evidencing such Senior Indebtedness (a "Payment Default"), unless such default shall have been effectively waived in writing by the holders of such Senior Indebtedness in default or unless the holders of such Senior Indebtedness in default shall have delivered to the Trustee a written notice of waiver of the benefits of this sentence. In addition, if any event of default with respect to any Senior Indebtedness, other than a Payment Default, occurs and is continuing and as a result thereof the maturity of such Senior Indebtedness may be accelerated (such an event of default being referred to herein as a "Covenant Default"), and the Company and the Trustee receive written notice (such notice being herein referred to as a "Deferral Notice") thereof from the holders of at least 10% in principal amount of Senior Indebtedness, then no direct or indirect payment or distribution (other than payments or distributions of amounts previously deposited in accordance with the defeasance provisions of the Indenture) shall be made by or on behalf of the Company on account or in respect of principal of or premium, if any, or interest on the Notes or on account of the purchase, redemption or other acquisition or deposits in trust in respect of defeasance of Notes (including without limitation any purchase of a Note required as a result of a Change in Control) until the earlier to occur of (x) the date such Covenant Default is cured, effectively waived in writing by the holders of such Senior Indebtedness or otherwise ceases to exist in accordance with the terms of the instruments or agreements creating or evidencing such Senior Indebtedness, (y) the date the holders of such Senior Indebtedness or their respective Representatives shall have delivered to the Trustee a written notice of waiver of the benefits of this sentence, or (z) the 179th day after receipt by the Company or the Trustee of such Deferral Notice, if in any such case the subordination provisions of the Indenture otherwise permits such payment at such time; provided, however, that any number of Deferral Notices may be given, but during any 365 consecutive day period only one such period during which such payments on the Notes may not be made may commence and the duration of such period may not exceed 179 days, and provided, further, that no subsequent Deferral Notice relating to the same or any other Covenant Default existing or continuing on the date of receipt of any 4 38 prior Deferral Notice, whether or not such subsequent Deferral Notice is received by the Company or Trustee within 365 days shall further prohibit such payments on the Notes unless all events of default in respect of such Senior Indebtedness shall have been cured or waived after the date of receipt of such prior Deferral Notice for a period of not less than 180 consecutive days. Upon any payment or distribution of assets or securities of the Company in any dissolution, winding up, total or partial liquidation or reorganization of the Company, payment of the principal or, premium, if any, and interest on, and any other amounts in respect of, the Notes will be subordinated, to the extent and in the manner set forth in the Indenture, to the prior payment in full, in cash, of all Senior Indebtedness, including any interest accruing on such Senior Indebtedness subsequent to the commencement of a bankruptcy, insolvency or similar proceeding. By reason of such subordination, in the event of insolvency, holders of the Notes may recover less, ratably, than other creditors of the Company. "Senior Indebtedness" shall mean the following, whether outstanding as of the date hereof or hereafter created, incurred, assumed or guaranteed by the Company or any Subsidiary, (a) indebtedness (other than the Notes and the 1994 Debentures) for the payment of which the Company or any Subsidiary is responsible or liable or the payment of which the Company or any Subsidiary has guaranteed, (b) capital lease obligations of the Company or any Subsidiary determined in accordance with generally accepted accounting principles, (c) any obligation of the Company or any Subsidiary to reimburse banks or others pursuant to letters of credit or guaranties extended by such banks or others, advances made by such banks or others and other credit arrangements entered into with such banks or others in connection with tax-exempt obligations issued for the benefit of the Company or any Subsidiary, (d) any obligation of the Company or any Subsidiary for the deferred purchase price of real or personal property, including any purchase money indebtedness or conditional sales obligations and obligations under title retention agreements, and (e) renewals, extensions, modifications and refundings of any such indebtedness or obligations, provided, however, that Senior Indebtedness shall not include indebtedness which by its terms refers explicitly to the Notes issued hereunder and states that such indebtedness shall not be senior thereto and shall be subordinate to the Notes issued hereunder. REDEMPTION AT HOLDER'S OPTION Unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled, a holder has the right to present Notes for payment prior to their maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder may specify), subject to the following limitations: (a) the Company will have no obligation to redeem any Notes prior to the initial holder's redemption date specified in the Note and the applicable supplemental indenture (the "Initial Holder's Redemption Date"), except on the death of a holder as described below, and (b) the Company will have no obligation to redeem Notes (on the death of a holder or otherwise) in excess of the following annual maximum amounts (collectively, the "Annual Amount Limitations") of (i) $50,000 per holder and (ii) an aggregate amount for all Notes submitted for redemption equal to five percent (5%) of the aggregate original principal amount of the Notes of all series issued under the Indenture (the "Five Percent Limitation"). The Initial Holder's Redemption Date and any subsequent anniversary of such date are each referred to as a "Holder's Redemption Date." Notes submitted for redemption on any Holder's Redemption Date, except for Notes submitted for redemption following the death of a holder, must be submitted by the date specified in the Note and the applicable supplemental indenture with respect to such Holder's Redemption Date. If the $50,000 per holder limitation has been reached and the Five Percent Limitation has not been reached, if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $50,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt), up to the aggregate limitation of five percent (5%) of the aggregate principal amount of the Notes of all series issued under this Indenture, notwithstanding the $50,000 limitation. 5 39 Subject to the Annual Amount Limitations (and unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled), Notes submitted for redemption upon the death of any holder (or any portion of the principal amount of such Notes which is $1,000 or an integral multiple thereof, as the holder may specify), will be redeemed within sixty (60) days following receipt by the Trustee of a written request therefor from such holder's personal representative, or surviving joint tenant(s), tenant by the entirety or tenant(s) in common. The price to be paid by the Company for all Notes presented to it for redemption pursuant to these provisions is 100% of the principal amount thereof to be redeemed, plus accrued but unpaid interest on such principal amount to the date of payment. In the case of Notes registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $50,000 per holder limitation applies to each beneficial owner of Notes held by any Qualified Institution as if such beneficial owner were a separate holder. A Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder, and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial ownership interest of a Note, will be deemed the death of a holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest will normally be deemed to exist in typical cases of street name or nominee ownership, ownership by a custodian for the benefit of a minor under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh plans maintained solely by or for the decedent, or by or for the decedent and his or her spouse) and trusts and certain other arrangements whereby a person has substantially all of the beneficial ownership interests in the Notes during his or her lifetime. Beneficial interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto. Notes may be presented for redemption by delivering to the Trustee: (a) a written request for redemption, in form satisfactory to the Trustee, signed by the registered holder or his or her duly authorized representative, (b) the Note to be redeemed and (c) in the case of a surviving tenant or personal representative of a deceased holder or beneficial owner, appropriate evidence of death and such other additional documents as the Trustee shall require, including, but not limited to, inheritance or estate tax waivers and evidence of authority of the personal representative. In their request for prepayment on behalf of a beneficial owner, Qualified Institutions must submit evidence, satisfactory to the Trustee, that they hold Notes on behalf of such beneficial owner and that the aggregate requests for prepayment tendered by such Qualified Institution on behalf of such beneficial owner per year do not exceed $50,000. In addition, any request for prepayment made by a Qualified Institution on behalf of a beneficial owner must be delivered to the Trustee by registered mail, return receipt requested. Any Notes tendered or any request for prepayment may be withdrawn by written request received by the Trustee prior to the issuance of a check in payment thereof. Notes presented for redemption as set forth above will be redeemed in order of their receipt by the Trustee, except that Notes presented for payment in the event of death of a holder will be given priority in order of their receipt over other Notes. Notes not redeemed in any such period because they have not been presented prior to the date set forth in the Note and the applicable supplemental indenture with respect to any Holder's Redemption Date or because of the Annual Amount Limitations will be held in order of their receipt for redemption during the following twelve (12) month period(s) until redeemed, unless sooner withdrawn by the holder. Holders of Notes presented for redemption shall be entitled to and shall receive scheduled monthly payments of interest thereon on scheduled Interest Payment Dates until their Notes are redeemed. In the case of any Notes which are presented for redemption in part only, upon such redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note(s), of any authorized denomination or denominations as requested 6 40 by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented. The Company may redeem, in acceptance of tenders made pursuant hereto, Notes in excess of the principal amount that the Company is obligated to redeem, and may purchase Notes in the open market. However, the Company may not use any Notes purchased in the open market as a credit against its redemption obligations hereunder. The Company's obligation to prepay Notes properly tendered for prepayment is not cumulative. Although the Company is obligated to prepay in any year up to 5% of the aggregate original principal amount of all series of the Notes issued under the Indenture, it is not required to establish a sinking fund or otherwise set aside funds for that purpose, and the Company has no present intention of setting aside funds for the prepayment of Notes prior to maturity. The Company intends to prepay Notes tendered out of its internally-generated funds or, if necessary, short-term or other long-term borrowings. The obligation to prepay the Notes, however, is an unsecured obligation of the Company. REPURCHASE AT HOLDER'S OPTION UPON CHANGE IN CONTROL In the event of any Change in Control (as defined below), each holder of Notes will have the right, at the holder's option and subject to the terms and conditions of the Indenture, to require the Company to purchase for cash all or any part (provided the principal amount of such part is $1,000 or an integral multiple thereof) of the holder's Notes on the date that is 35 business days after the occurrence of the Change in Control (the "Change in Control Purchase Date") at a price equal to 100% of the principal amount thereof plus accrued interest to the Change in Control Purchase Date (the "Change in Control Purchase Price"). Within 15 business days after the occurrence of a Change in Control, the Company is obligated to mail a written notice of Change in Control to the Trustee and to each holder (and to beneficial owners as required by applicable law) and shall cause a copy of such notice to be published once in The Wall Street Journal or another daily newspaper of national circulation. The notice shall state, among other things, the events causing a Change in Control and the date of such Change in Control, the date by which the Change in Control Purchase Notice (as defined below) must be given, the Change in Control Purchase Date, the Change in Control Purchase Price, the procedures the holder must follow to exercise the holder's rights and the procedures for withdrawing a Change in Control Purchase Notice. A holder may exercise such holder's rights upon delivery of a written notice of purchase (a "Change in Control Purchase Notice") to the Trustee at any time prior to the close of business on the business day immediately prior to the Change in Control Purchase Date, stating, among other things, the certificate number of the Note which the holder will deliver to be purchased, the portion of the principal amount of the Note which the holder will deliver to be purchased, and that such Note will be submitted for purchase on the Change in Control Purchase Date pursuant to the terms and conditions specified in the Notes. Any Change in Control Purchase Notice may be withdrawn by the holder by a written notice of withdrawal delivered to the Trustee or to any other office or agency maintained for such purpose at any time before the close of business on the business day immediately preceding the Change in Control Purchase Date. The notice of withdrawal shall state the principal amount and the certificate numbers of the Notes as to which the withdrawal notice relates and the principal amount, if any, which remains subject to the original Change in Control Purchase Notice. Payment of the Change in Control Purchase Price for a Note for which a Change in Control Purchase Notice has been delivered and not withdrawn is conditioned upon delivery of such Note (together with any endorsements) to the Trustee or to any other office or agency maintained for such purpose, at any time (whether prior to, on or after the Change in Control Purchase Date) after delivery of such Change in Control Purchase Notice. Payment of the Change in Control Purchase Price for such Note will be made promptly following the later of the Change in Control Purchase Date or the time of delivery of such Note. If the Company has deposited with the Trustee, in accordance with the Indenture, money sufficient to pay the Change in Control Purchase Price of such Note on the Change in Control Purchase Date, then, on and after the Change in Control Purchase Date, such Note shall cease to be outstanding and interest on such Note will cease to accrue, whether or not such Note is delivered to the Trustee or to any other office maintained for such 7 41 purpose, and all other rights of the holder shall terminate (other than the right to receive the Change in Control Purchase Price upon delivery of such Note). Under the Indenture, a "Change in Control" shall be deemed to have occurred at such time as either of the following events shall occur: (a) the Company consolidates with or merges into another corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, other than, in any case, a transaction in which the shareholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, at least 50% of the combined voting power of the outstanding Voting Stock of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock of the Company immediately prior to such transaction; or (b) there is a report filed by any person, including its Affiliates and Associates (as defined in the Indenture), other than the Company or its Subsidiaries or employee stock ownership plans or employee benefit plans of the Company or its Subsidiaries, on Schedule 13D or 14D-1 (or any successor schedule, form or report) pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that such person (as defined in the Indenture) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of more than 50% of the voting power of the Company's Voting Stock then outstanding. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase such Notes as a result of conveyance, transfer or lease of less than all of the assets of the Company to another person may be uncertain. Except as described above with respect to a Change in Control, the Indenture does not contain any other provisions that permit the holders of the Notes to require that the Company repurchase the Notes in the event of a takeover or similar transaction. Moreover, a recapitalization of the Company or a transaction entered into by the Company with management or their affiliates would not necessarily be included within the definition of a "Change in Control." Accordingly, while such definition covers a wide variety of arrangements which have traditionally been used to effect highly-leveraged transactions, the Indenture does not afford the holders of Notes protection in all circumstances from highly leveraged transactions, reorganizations, restructurings, mergers or similar transactions involving the Company that may adversely affect holders of Notes. In accordance with the Indenture, no Notes may be purchased pursuant to these provisions if there has occurred and is continuing an Event of Default described under "Defaults and Certain Rights on Default" below (other than a default in the payment of the Change in Control Purchase Price with respect to such Notes). The Change in Control feature of the Notes may, in certain circumstances, make more difficult or discourage a takeover of the Company and thus removal of incumbent management. The Change in Control feature, however, is not the result of management's knowledge of any specific effort to obtain control of the Company or part of a plan by management to adopt a series of antitakeover provisions. To the extent that the right of redemption by a holder in the event of a Change in Control constitutes a tender offer under Section 14(e) of the Exchange Act and the rules thereunder, the Company will comply with all applicable rules under Section 14(e) of the Exchange Act. DEFAULTS AND CERTAIN RIGHTS ON DEFAULT An event of default will be defined in the Indenture as being: (a) default in the payment of any installment of interest upon any of the Notes for a period of 30 days; (b) default in the payment of the principal of and premium, if any, on any of the Notes either at maturity, upon redemption or purchase by the Company by declaration or otherwise; (c) failure on the part of the Company duly to observe or perform in any material respect any other of the covenants contained in the Notes or in the Indenture for a period of 60 days after the date on which written notice of such failure shall have been given to the Company; (d) an event or events of default as defined in any mortgage, bond, indenture, loan agreement or other evidence of 8 42 Indebtedness in excess of $1,000,000 in the aggregate, which default or defaults extend beyond any period of grace provided with respect thereto and which default or defaults relate to (i) the obligation to pay the principal of or interest on any such Indebtedness, or (ii) any other obligation which shall have resulted in the holders of such Indebtedness causing such Indebtedness to become or to be declared due and payable prior to the date on which it would otherwise become due and payable; (e) the entry of a final nonappealable judgment for the payment of money against the Company or any of its subsidiaries by a court having jurisdiction which results in a liability (after provision for the proceeds of any policy of insurance with respect to such liability) in excess of $5,000,000 which remains unpaid for more than 60 days; or (f) certain events of bankruptcy, insolvency, receivership or reorganization. The Indenture will require the Company to file annually with the Trustee a certificate either stating the absence of any default or specifying any default that may exist, and to deliver to the Trustee within five days of the occurrence thereof notice of certain defaults described above. The Indenture will provide that the Trustee shall, within 30 days after the occurrence of a default, give to the Noteholders notice of all uncured defaults known to it; provided that, except in the case of default in the payment of principal of or premium, if any, or interest on any of the Notes, the Trustee shall be protected in withholding such notice if the Trustee in good faith determines that the withholding of such notice is in the interest of the Noteholders. The term "default" for the purpose of this provision only shall mean the happening of any Event of Default specified in the Indenture or any applicable supplemental indenture excluding any notice or grace periods. The Indenture will contain a provision pursuant to which the Company will indemnify the Trustee against any and all losses or liabilities incurred by the Trustee in connection with its execution and performance of the Indenture; provided, however, that such indemnification will not extend to losses resulting from a breach of the Trustee's duties under the Indenture. The Indenture will provide that the holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, subject to certain limitations set forth in the Indenture. The Trustee is not required to take any action at the direction of the holders of the Notes unless such holders have provided the Trustee with a reasonable indemnity. LIMITATION ON DIVIDENDS AND OTHER PAYMENTS The Company has agreed pursuant to the Indenture that it will not make, pay or declare any of the following (each, a "Restricted Payment"): (a) any dividend or other distribution of property or assets in respect of its capital stock other than dividends paid solely in the Company's capital stock, (b) any stock repurchase, (c) any repayment or defeasance of any indebtedness which is subordinate to the Notes (except, so long as the Notes are not in default, scheduled payments of principal or interest thereon) or (d) any exchange of equity for newly issued debt, unless such Restricted Payment, when aggregated with all other Restricted Payments by the Company after , 1996, is less than the sum of: (i) $8,500,000 plus (ii) the excess of 50% of the Company's aggregate Consolidated Net Income (as defined in the Indenture) earned during the period commencing October 7, 1996 and ending on the last day of the fiscal quarter of the Company preceding such Restricted Payment, over 100% of the Company's aggregate Consolidated Net Loss (if any) (as defined in the Indenture) during such period, plus (iii) the aggregate net proceeds (including the fair market value of non-cash proceeds) received by the Company from public or private offerings of equity securities after , 1996 (including the issuance of equity securities upon conversion of convertible debt securities or upon exercise of any options, warrants or rights to acquire equity securities). In addition, the Company is prohibited by the Indenture from making any Restricted Payments if, by doing so, the Company would be in violation of any other provision of the Indenture or any other loan agreement or indenture to which the Company is a party. RESTRICTIONS ON ADDITIONAL INDEBTEDNESS Pursuant to the Indenture, the Company has agreed not to, and has agreed to cause its Subsidiaries not to, incur or otherwise become liable for the payment of any Indebtedness if, at the time of such incurrence, and after giving pro forma effect thereto, the total Indebtedness of the Company and its Subsidiaries, including the Notes, would exceed 70% of the Company's Total Consolidated Capitalization (as defined in the Indenture). 9 43 MINIMUM CONSOLIDATED NET WORTH Under the Indenture, the Company has covenanted to maintain a minimum Consolidated Net Worth of $75,000,000 plus 50% of the Company's cumulative consolidated net income earned since December 29, 1996. MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION The Company has covenanted that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any person, firm or corporation, unless (a) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and premium, if any, and interest on all the Notes, and the due and punctual performance and observance of all of the covenants and conditions of the Indenture and any applicable supplemental indenture to be performed by the Company, and (b) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. The Company's covenants also provide that if at any time there shall be any consolidation or merger or sale or conveyance of property to which the foregoing covenant is applicable, then in any such event the successor corporation will promptly deliver to the Trustee in connection with the closing thereon: (a) an Officers' Certificate stating that as of the time immediately after the effective date of any such transaction the foregoing covenants of the Company have been complied with and the successor corporation is not in default under the provisions of the Indenture; and (b) an Opinion of Counsel stating that in such Counsel's opinion such covenants have been complied with and that any instrument or instruments executed in the performance of such covenants comply with the requirements thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, terminate all of its obligations with respect to any series of outstanding Notes ("Legal Defeasance") except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, issuing Notes to replace, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate its obligations with respect to the covenants that are described in the Indenture with respect to such series of Notes ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to such series of Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to such series of Notes. In order to exercise either Legal Defeasance or Covenant Defeasance with respect to any series of Notes, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the series of Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding series of Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding series of Notes; (ii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit (or greater period of time in which any such deposit of trust funds may remain subject to bankruptcy or insolvency laws insofar as those apply to the deposit by the Company); (iii) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company; (iv) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a 10 44 default under any agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (v) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of outside counsel reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since , 1996, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes of such series will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (vi) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of outside counsel reasonably acceptable to the Trustee confirming that the holders of such series of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (vii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that, as of the date of such opinion, (A) the trust funds will not be subject to any rights of holders of indebtedness of the Company or any of its Subsidiaries other than the series of Notes being defeased thereby and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and assuming no holder of such series of Notes is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effects of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any applicable United States or state law; (viii) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (ix) the Company shall have delivered to the Trustee an officers' certificate and an opinion of outside counsel, each stating that all conditions precedent provided in the Indenture and relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with and (x) the Company shall have delivered to the Trustee an amount sufficient to cover its fees and expenses as Trustee under the Indenture through the term of the series of Notes to be defeased, or made adequate provision therefor to the satisfaction of the Trustee. MODIFICATION OF THE INDENTURE With the consent of the holders of not less than fifty-one percent (51%) in aggregate principal amount of the Notes then outstanding, the Company may modify any provisions of the Indenture, any applicable supplemental indenture or the rights of the Noteholders or the rights and obligations of the Company; provided, however, that no such modification shall, without the consent of the holder of each outstanding Note affected thereby (a) change the Stated Maturity of any Note, or reduce the principal, the rate of interest or any applicable premium payable upon redemption, (b) reduce the percentage(s) of the aggregate principal amount of outstanding Notes, the consent of the holders of which is required for any such modifications or for any waiver provided for in the Indenture, or (c) modify any of the provisions of the Indenture addressing such requirements, except to increase any such percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each Note affected thereby. With respect to changes affecting one or more, but less than all, series of Notes then outstanding, with the consent of the holders of not less than fifty-one percent (51%) in aggregate principal amount of the Notes of such affected series then outstanding, the Company may modify any provisions of the Indenture, any applicable supplemental indenture or the rights of such Noteholders or the rights and obligations of the Company; provided, however, that no such supplemental indenture shall, without the consent of the holder of each outstanding Note of such series affected thereby: (a) change the Stated Maturity of any such series of Notes, or reduce the principal, the rate of interest or any applicable premium payable upon redemption of such series of Notes, (b) reduce the percentage(s) of the aggregate principal amount of outstanding Notes of any such series, the consent of the holders of which is required for any such modifications or for any waiver provided for in the Indenture, or (c) modify any of the provisions of the Indenture addressing such 11 45 requirements pertaining to such series of Notes, except to increase any such percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each Note affected thereby. Notes shall be deemed to be "affected" by a supplemental indenture, if such modification adversely affects or diminishes the rights of holders thereof against the Company or against the property of the Company. Without the consent of the holders of any Notes, the Company and the Trustee may from time to time, subject to the terms of the Indenture, enter into one or more supplemental indentures: (i) to evidence the succession of another corporation to the Company as described above under "--Merger, Consolidation or Sale of Assets; Successor Corporation," (ii) to add to the covenants of the Company, to surrender any rights of the Company or ensure enforcement of the remedies of the Trustee and the Noteholders, (iii) to cure any ambiguity or inconsistency to the extent such modification does not adversely affect the interest of the Noteholders or (iv) provide for the creation of any series of Notes. THE TRUSTEE Bankers Trust Company is the Trustee under the Indenture. Its mailing address is Four Albany Street, New York, New York 10006. PLAN OF DISTRIBUTION The Company may sell the Notes to or through one or more underwriters to be named in the Prospectus Supplement. The Underwriters may include J.C. Bradford & Co. or a group of underwriters represented by such firm or may be one or more other firms. Underwriters may offer and sell the Notes at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of the Notes, Underwriters may be deemed to have received compensation from the Company in the form of underwriting discounts or commissions and may also receive compensation from purchasers of the Notes for whom they may act as agent. Underwriters may sell the Notes to or through dealers and such dealers may receive compensation in the form of discounts, concessions or commissions from the Underwriters or commissions from the purchasers for whom they may act as agent. The Company may enter into underwriting agreements to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. There is no public market for the Notes and the Company does not intend to apply for listing of the Notes on the Nasdaq National Market or any securities exchange. Any Underwriters or agents to or through whom the Notes are sold by the Company may make a market in the Notes, although they will not be under any obligation to do so and may discontinue any market-making at any time. No assurance can be given as to the liquidity of the trading market for the Notes or that an active trading market for the Notes will develop. If an active public market does not develop, the market price and liquidity of the Notes may be adversely affected. LEGAL MATTERS Certain matters regarding the Notes will be passed on for the Company by Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee. EXPERTS The consolidated financial statements and the related supplemental schedule incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 12 46 This page contains spaces for the following graphic and image materials. The inside back cover contains exterior and interior photographs of the Sumner Suites (Riverwalk) San Antonio, Texas and the Shoney's Inn, Birmingham, Alabama. 47 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SERIES A NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ----- PROSPECTUS SUPPLEMENT Prospectus Summary.................... S-3 Risk Factors.......................... S-7 Use of Proceeds....................... S-11 Capitalization........................ S-11 Selected Financial Data............... S-12 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... S-15 Business.............................. S-22 Management............................ S-29 Description of the Series A Notes..... S-30 Underwriting.......................... S-32 Legal Matters......................... S-32 PROSPECTUS Available Information................. 2 Incorporation of Certain Documents by Reference........................... 2 The Company........................... 3 Use of Proceeds....................... 3 Description of the Notes.............. 3 Plan of Distribution.................. 12 Legal Matters......................... 12 Experts............................... 12
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $35,000,000 SHOLODGE, INC. [LOGO] SHONEY'S INN [LOGO] SUMNER SUITES % SENIOR SUBORDINATED NOTES DUE 2006, SERIES A ------------------------ PROSPECTUS SUPPLEMENT ------------------------ J.C. BRADFORD & CO. DAIN BOSWORTH INCORPORATED INTERSTATE/JOHNSON LANE CORPORATION , 1996 - ------------------------------------------------------ - ------------------------------------------------------ 48 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth an itemized statement of all expenses to be paid by the Registrant in connection with the issuance and distribution of the securities being registered, other than underwriting discounts. All of the amounts shown are estimates, except for the SEC registration fee and the NASD filing fee. SEC Registration fee....................................................... $37,879 NASD filing fee............................................................ $ Accounting fees and expenses............................................... $ Blue Sky fees and expenses................................................. $ Legal fees and expenses.................................................... $ Trustee fees and expenses.................................................. $ Printing and engraving costs............................................... $ Miscellaneous.............................................................. $ ------- Total............................................................ $ =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Tennessee Business Corporation Act ("TBCA") provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if (i) the director or officer acted in good faith; (ii) in the case of conduct in his or her official capacity with the corporation, the director or officer reasonably believed such conduct was in the corporation's best interests, (iii) in all other cases, the director or officer reasonably believed that his or her conduct was not opposed to the best interests of the corporation, and (iv) in connection with any criminal proceeding, the director or officer had no reasonable cause to believe that his or her conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as an officer or director of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The TBCA also provides that in connection with any proceeding charging impersonal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that personal benefit was improperly received. Notwithstanding the foregoing, the TBCA provides that a court of competent jurisdiction, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, whether or not he met the standard of conduct set forth above. Section 7 of the Registrant's Amended and Restated Charter (the "Charter") provides that, to the maximum extent permitted by the cited provisions of the TBCA, the Registrant shall indemnify and advance expenses to any person, his heirs, executors and administrators, for the defense of any action or proceeding brought against such person because he is or was a director, and shall indemnify such persons against all fines, judgments, penalties and amounts paid in settlement thereof. The Charter further provides that the Registrant may indemnify and advance expenses to the Registrant's officers, employees and agents to the same extent that the corporation indemnifies its directors as long as such indemnification and advancement of expenses is consistent with public policy, as determined by the Board of Directors. Finally, the Charter provides that the rights to indemnification and advancement of expenses described above are contractual between the Registrant and the persons being indemnified and are nonexclusive of other similar rights which may be granted by law, the Charter, resolutions of the Board of Directors or shareholders, insurance or indemnifica- II-1 49 tion agreements, all of which means of indemnification and advancement of expenses are specifically authorized. The Charter also provides that to the fullest extent permitted by law, no director shall be personally liable to the Company or its shareholders for monetary damages for breach of any fiduciary duty as a director. Under the TBCA, this charter provision relieves the Company's directors from personal liability to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, expect for liability arising from (i) any breach of the director's duty of loyalty to the Company or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) any unlawful distributions. The proposed form of the Underwriting Agreement filed as Exhibit 1 to this Registration Statement contains certain provisions relating to the indemnification of the Company and its controlling persons by the Underwriters and relating to the indemnification of the Underwriters by the Company and its controlling persons. ITEM 16. EXHIBITS (A) EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------------------------------------------------------------------------------------ 1 Form of Underwriting Agreement 4.1 Specimen Series A Note included in Exhibit 4.3 4.2 Form of Indenture, between the Company and 4.3 Form of First Supplemental Indenture 5 Opinion of Boult, Cummings, Conners & Berry, PLC(1) 12 Statement re: Computation of Ratios 23.1 Consent of Boult, Cummings, Conners & Berry, PLC included in Exhibit 5 23.2 Consent of Deloitte & Touche, LLP 24 Power of Attorney, included on signature page hereto 25 Statement of Eligibility of Trustee
- --------------- (1) To be filed by amendment ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-2 50 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has 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. (d) The undersigned Registrant hereby undertakes that: (1) 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 this Registration Statement as of the time it was declared effective. (2) 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 the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (e) 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 (the "TIA") in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the TIA. II-3 51 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, at Nashville, Tennessee, on the 17th day of October, 1996. SHOLODGE, INC. By: /s/ LEON MOORE ----------------------------------- Leon Moore, President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below severally constitutes and appoints Leon Moore, Bob Marlowe and Richard L. Johnson, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments) and any and all Registration Statements filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, 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 intents and purposes as he might or could do in person hereby ratifying and confirming all that such attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ----------------------------------- --------------------------- ----------------- /s/ LEON MOORE President, Chief Executive October 17, 1996 - ----------------------------------- Officer, Director Leon Moore /s/ BOB MARLOWE Secretary, Treasurer, Chief October 17, 1996 - ----------------------------------- Accounting Officer, Bob Marlowe Director /s/ MICHAEL A. CORBETT Chief Financial Officer October 17, 1996 - ----------------------------------- Michael A. Corbett /s/ RICHARD L. JOHNSON Executive Vice President, October 17, 1996 - ----------------------------------- Director Richard L. Johnson /s/ EARL H. SADLER Director October 17, 1996 - ----------------------------------- Earl H. Sadler /s/ HELEN L. MOSKOVITZ Director October 17, 1996 - ----------------------------------- Helen L. Moskovitz /s/ W. CRAIG BARBER Director October 17, 1996 - ----------------------------------- W. Craig Barber /s/ ROBERT M. LANGFORD Director October 17, 1996 - ----------------------------------- Robert M. Langford
II-4 EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 Exhibit 1 SHOLODGE, INC. $35,000,000 __% Senior Subordinated Notes Due 2006, Series A UNDERWRITING AGREEMENT [ ], 1996 J.C. BRADFORD & CO., L.L.C. DAIN BOSWORTH INC. INTERSTATE/JOHNSON LANE CORPORATION As Representatives of the Several Underwriters c/o J.C. Bradford & Co., L.L.C. J.C. Bradford Financial Center 330 Commerce Street Nashville, Tennessee 37201 Ladies and Gentlemen: ShoLodge, Inc., a Tennessee corporation (the "Company"), proposes to sell to the underwriters named in Schedule I hereto (the "Underwriters") for whom you are acting as the representatives (the "Representatives") an aggregate $35,000,000 in principal amount of its __% Senior Subordinated Notes Due 2006, Series A (the "Firm Notes"). The Firm Notes are to be sold to the Underwriters, acting severally and not jointly, in such amounts as are set forth in Schedule I hereto opposite the name of such Underwriter. The Company also proposes to grant to the Underwriters an option to purchase up to $5,250,000 in principal amount of ___% Senior Subordinated Notes Due 2006, Series A of the Company as provided for in Section 3 of this Agreement (the "Option Notes"). The Firm Notes and the Option Notes purchased pursuant to this Agreement are herein called the "Notes." The Notes are to be issued pursuant to an Indenture, to be dated as of [ ] , 1996, between the Company and Bankers Trust Company, New York, New York as trustee (the "Trustee"). Such Indenture, as amended and supplemented, is herein referred to as the "Indenture." 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters that: 2 (a) The Company has filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), a registration statement on Form S-3 (Registration No.333-_______), including the related preliminary prospectus, preliminary prospectus supplement and a Statement of Eligibility on Form T-1 with respect to the Trustee (File No. 22-_______) pursuant to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), has filed such amendment thereto, if any, and such amended preliminary prospectuses and amended preliminary prospectus supplements as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses and prospectus supplements as may hereafter be required, relating to the Notes. The Company has met all of the eligibility requirements for the use of a registration statement on Form S-3. Copies of such registration statement and any amendments, including any post-effective amendments, and all forms of the related prospectuses and prospectus supplements contained therein, any supplements thereto and all documents incorporated by reference therein, have been delivered to you. Such registration statement, including the prospectus, prospectus supplement, Part II, all financial schedules and exhibits thereto, all documents incorporated therein by reference, and all information deemed to be a part of such Registration Statement pursuant to Rule 430A under the Securities Act, as amended at the time when it shall become effective, and any related registration statement that is to be effective upon filing filed pursuant to Rule 462(b) is herein referred to as the "Registration Statement," and the prospectus and prospectus supplement included as part of the Registration Statement on file with the Commission that discloses all the information that was omitted from the prospectus on the effective date pursuant to Rule 430A of the Rules and Regulations (as defined below) and in the form filed pursuant to Rule 424(b) under the Securities Act is herein referred to as the "Final Prospectus." The prospectus and prospectus supplement included as part of the Registration Statement, together with all documents incorporated by reference therein, on the date when the Registration Statement became effective is referred to herein as the "Effective Prospectus." Any prospectus and prospectus supplement included in the Registration Statement and in any amendment thereto prior to the effective date of the Registration Statement, together with all documents incorporated by reference therein, is referred to herein as a "Preliminary Prospectus." For purposes of this Agreement, "Rules and Regulations" means the rules and regulations promulgated by the Commission under either the Securities Act, or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the Trust Indenture Act, as applicable. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus, at the time of filing thereof, complied with the requirements of the Securities Act and the Rules and Regulations, and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing does not apply to statements or omissions made in reliance upon and in 2 3 conformity with written information furnished to the Company by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the last paragraph on the cover page and under the caption "Underwriting" in the Final Prospectus). When the Registration Statement becomes effective and at all times subsequent thereto up to and including the First Closing Date (as hereinafter defined), (i) the Registration Statement, the Effective Prospectus and Final Prospectus and any amendments or supplements thereto will contain all statements which are required to be stated therein in accordance with the Securities Act, the Exchange Act, the Trust Indenture Act and the Rules and Regulations and will comply with the requirements of the Securities Act, the Exchange Act, the Trust Indenture Act and the Rules and Regulations, and (ii) neither the Registration Statement, the Effective Prospectus nor the Final Prospectus nor any amendment or supplement thereto will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading; except that the foregoing does not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the last paragraph on the cover page and under the caption "Underwriting" in the Final Prospectus) or information contained in the Statement of Eligibility and Qualification on Form T-1 of the Trustee other than information furnished to the Trustee by the Company specifically for inclusion therein. (c) The Company and each subsidiary of the Company (as defined herein, the term "subsidiary" includes any corporation, joint venture or partnership in which the Company or any subsidiary of the Company has an ownership interest) is duly organized and validly existing and in good standing under the laws of the respective jurisdictions of their organization or incorporation, as the case may be, with full power and authority (corporate, partnership and other, as the case may be) to own, lease and operate their properties and conduct their businesses as now conducted and are duly qualified or authorized to do business and are in good standing in all jurisdictions wherein the nature of its business or the character of property owned or leased may require it to be qualified or authorized to do business. The Company and its subsidiaries hold all licenses, consents and approvals, and have satisfied all eligibility and other similar requirements imposed by federal and state regulatory bodies, administrative agencies or other governmental bodies, agencies or officials, in each jurisdiction in which the Company has an office and any other jurisdiction in which such license, consent, approval or requirement is material to the conduct of the business in which it is engaged. (d) The outstanding shares of capital stock of the Company and its subsidiaries have been duly authorized and validly issued, fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. Except for ShoLodge Franchise Systems, Inc. of which the Company owns all but the 1000 shares of Series A Redeemable 3 4 Nonparticipating Stock, all of the outstanding stock of each of the Company's corporate subsidiaries is owned by the Company, clear of any lien, encumbrance, pledge, equity or claim of any kind (other than the stock of ShoLodge Franchise Systems, Inc. which is pledged to Shoney's Investments, Inc. pursuant to a Stock Pledge Agreement dated October 28, 1991). The partnership and joint venture interests of each partnership and joint venture subsidiary are duly authorized, validly issued, and are owned by the Company, directly or indirectly, clear of any lien, encumbrance, pledge, equity or claim of any kind, except as may be set forth in the respective partnership or joint venture agreement. (e) The capitalization of the Company as of [July 14], 1996 is as set forth under the caption "Capitalization" in the Effective Prospectus and the Final Prospectus. The Notes have been duly and validly authorized and, when executed, authenticated and delivered in accordance with the Indenture and paid for by the Underwriters pursuant to this Agreement and the Indenture, will constitute legal and binding obligations of the Company entitled to the benefits of the Indenture and will conform in all material respects to the description thereof contained in the Effective Prospectus and the Final Prospectus. The Underwriters will receive good and marketable title to the Notes to be issued and delivered hereunder, free and clear of all liens, encumbrances, claims, security interests, and restrictions, whatsoever. (f) The Company has full legal right, power and authority to enter into this Agreement and the Indenture and to sell and deliver the Notes to be issued and sold by the Company to the Underwriters as provided herein, and this Agreement and the Indenture have been duly authorized, executed and delivered by the Company and constitute valid and binding agreements of the Company enforceable against the Company in accordance with their terms. No consent, approval, authorization or order of any court or governmental agency or body or third party is required for the performance of this Agreement or the Indenture by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except such as have been obtained and such as may be required by the National Association of Securities Dealers, Inc. ("NASD") or under the Securities Act, the Trust Indenture Act or state securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the Underwriters. The issue and sale of the Notes by the Company, the Company's performance of this Agreement and the Indenture and the consummation of the transactions contemplated hereby and thereby will not result in a breach or violation of, or conflict with, any of the terms and provisions of, or constitute a default by the Company or any of its subsidiaries under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or to which the Company or any of its subsidiaries or any of their respective properties is subject, the charter or by-laws of the Company or any of its subsidiaries or the partnership or joint venture agreements of any partnership or joint venture subsidiary or any statute or any judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to the Company or 4 5 any of its subsidiaries or any of their respective properties. Neither the Company nor any of its subsidiaries is in violation of its respective charter, certificate of incorporation, partnership agreement or joint venture agreement, as the case may be, or by-laws or any law, administrative rule or regulation or arbitrators' or administrative or court decree, judgment or order or in violation or default (there being no existing state of facts which with notice or lapse of time or both would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, deed of trust, mortgage, loan agreement, note, lease, agreement or other instrument or permit to which it is a party or by which it or any of its properties is or may be bound. (g) The consolidated financial statements and the related notes of the Company included or incorporated by reference in the Registration Statement, the Effective Prospectus and the Final Prospectus present fairly the consolidated financial position, results of operations and changes in financial position and cash flow of the Company and its subsidiaries, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. The other financial statements and schedules included or incorporated by reference in or as schedules to the Registration Statement conform to the requirements of the Securities Act, the Exchange Act, the Trust Indenture Act and the Rules and Regulations and present fairly the information presented therein for the periods shown. The financial and statistical data set forth in the Effective Prospectus and the Final Prospectus under the captions "Prospectus Summary," "Use of Proceeds," "Capitalization," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business" fairly presents the information set forth therein on the basis stated in the Effective Prospectus and the Final Prospectus. Deloitte & Touche LLP, which has examined certain of the financial statements and schedules as set forth in its reports incorporated by reference into the Registration Statement, Effective Prospectus and the Final Prospectus, are independent accountants as required by the Securities Act and the Rules and Regulations. (h) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and Quarterly Reports on Form 10-Q for the fiscal quarters ended April 21, 1996 and July 14, 1996, at the time of filing with the Commission conformed in all material respects to the requirements of the Securities Act and the Exchange Act and the Rules and Regulations, and none of such documents or statements contained any untrue statement of a material fact or omitted to state a fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made not misleading. (i) Subsequent to December 31, 1995, neither the Company nor any of its subsidiaries has sustained any material loss or interference with its business or properties 5 6 from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which is not disclosed in the Effective Prospectus and the Final Prospectus; and subsequent to the respective dates as of which information is given in the Registration Statement, the Effective Prospectus and the Final Prospectus, (i) neither the Company nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business, and (ii) there has not been any change in the capital stock, partnership interests, joint venture interests, long-term debt, credit facilities, obligations under capital leases or short-term borrowings of the Company or any of its subsidiaries, or any material adverse change, or any development involving a prospective material adverse change, in the general affairs, management, business, prospects, financial position, net worth or results of operations of the Company or any of its subsidiaries, except in each case as described in or contemplated by the Effective Prospectus and the Final Prospectus. (j) There are no legal or governmental proceedings required to be described in the Registration Statement, the Effective Prospectus or the Final Prospectus that are not described as required. Except as described in the Effective Prospectus and the Final Prospectus, there is not pending, or to the knowledge of the Company threatened, any action, suit, proceeding, inquiry or investigation, to which the Company or any of its subsidiaries, or any of their respective officers or directors is a party, or to which the property of the Company or any of its subsidiaries is subject, before or brought by any court or governmental agency or body, wherein an unfavorable decision, ruling or finding could prevent or materially hinder the consummation of this Agreement or result in a material adverse change in the business condition (financial or other), prospects, financial position, net worth or results of operations of the Company or any of its subsidiaries taken as a whole. (k) There are no contracts or other documents required by the Securities Act or by the Rules and Regulations to be described in the Registration Statement, the Effective Prospectus or the Final Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. (l) Except as described in the Effective Prospectus and the Final Prospectus, the Company and its subsidiaries each have good and marketable title to all real and material personal property owned by them, free and clear of all material liens, charges, encumbrances or defects except those reflected in the financial statements hereinabove described. The real and personal property and buildings referred to in the Effective Prospectus and the Final Prospectus which are leased from others by the Company or its subsidiaries are held under valid, subsisting and enforceable leases. The Company and its subsidiaries own or lease all such properties as are necessary to their operations as now conducted. 6 7 (m) The Company's system of internal accounting controls taken as a whole is sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company's financial statements. Except as disclosed in the Effective Prospectus and the Final Prospectus, neither the Company nor any of its subsidiaries, nor to the best of the Company's knowledge any employee or agent of the Company or any subsidiary, director, officer, agent, employee or other person acting on behalf of the Company or any of its subsidiaries has, directly or indirectly used any funds of the Company or any of its subsidiaries for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment; or received or retained any funds in violation of any law, rule or regulation. (n) The Company and its subsidiaries have filed all federal, state and all material local income, excise and franchise tax returns required to be filed through the date hereof and have paid all taxes shown as due therefrom; and there is no tax deficiency that has been, nor does the Company or any subsidiary have knowledge of any tax deficiency which is likely to be, asserted against the Company or any of its subsidiaries, which if determined adversely could materially and adversely affect the earnings, assets, affairs, business prospects or condition (financial or other) of the Company or any of its subsidiaries taken as a whole. (o) The Company and its subsidiaries operate their business in conformity in all material respects with all applicable statutes, common laws, ordinances, decrees, orders, rules and regulations of governmental bodies. Each of the hotels owned, leased, operated or managed, directly or indirectly, by the Company and its subsidiaries is being operated in compliance in all material respects with all applicable laws, orders, rules or regulations and has all licenses, approvals or consents now required to operate as currently being operated, and the Company and its subsidiaries are not aware of any existing or imminent matter which may materially adversely impact the operations or business prospects of any of its hotels other than as specifically disclosed in the Effective Prospectus and the Final Prospectus. (p) The Company and its subsidiaries have filed with the applicable regulatory authorities all statements, reports, information or forms now required by any applicable law, regulation or order; all such filings or submissions were in material compliance with applicable laws when filed and no deficiencies have been asserted by any regulatory commission, agency or authority with respect to such filings or submissions. Neither the Company nor any of its subsidiaries has failed to maintain in full force and effect any material license or permit necessary or proper for the conduct of its business, or received 7 8 any notification that any revocation or limitation thereof is threatened or pending, and, except as disclosed in the Effective Prospectus and the Final Prospectus, there is not pending any change under any law, regulation, license or permit which would materially adversely affect their businesses, operations, property or business prospects. Neither the Company nor any of its subsidiaries has received any notice of violation of or been threatened with a charge of violating and is not, to the best of the Company's knowledge, under investigation with respect to a possible violation of any provision of any law, regulation or order. (q) No labor dispute exists with the employees of the Company and its subsidiaries or is imminent which would materially adversely affect the Company or its subsidiaries taken as a whole. The Company is not aware of any existing or imminent labor disturbance by its employees or by any employees of its subsidiaries which could be expected to materially adversely affect the condition (financial or otherwise), results of operations, properties, affairs, management, business affairs or business prospects of the Company or any of its subsidiaries. (r) Except as disclosed in the Effective Prospectus and the Final Prospectus, the Company and its subsidiaries own or possess, or can acquire on reasonable terms, the patents, licenses, copyrights, trademarks, service marks and trade names presently employed by any of them in connection with the businesses now operated by any of them, including all rights necessary to use and franchise the use of the "Shoney's Inn", "Shoney's Inns & Suites" and "Innlink" and "Sumner Suites" service marks, and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, alone or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in any material adverse change in the condition (financial or otherwise), results of operations, properties, affairs, management, business affairs or business prospects of the Company or any of its subsidiaries. (s) Neither the Company nor any of its subsidiaries nor to the knowledge of the Company any of their respective directors, officers, employees or agents of the Company and its subsidiaries, have taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might be expected to constitute, stabilization or manipulation of the price of the capital stock or other securities of the Company. (t) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which each is engaged; and the Company has no reason to believe that it will not be able to renew such existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a comparable cost. 8 9 (u) Neither the Company nor any of its subsidiaries is or will be as a result of the consummation of the transactions contemplated by this Agreement, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. (v) Neither the Company nor any agent acting on its behalf has taken or will take any action that might cause this Agreement or the sale of the Notes to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. (w) Neither the Company nor any director, officer or holder of five percent or more of any class of securities of the Company or any of its subsidiaries is a member or an associate or affiliate of a member of the "NASD." (x) The Company has filed with the Commission and the NASD all reports, documents and statements required to be filed by the Company pursuant to the Securities Act, the Exchange Act, the Rules and Regulations and all the rules and regulations of the NASD relating to the Company's capital stock, and each of such reports, documents and statements, at the time that they were filed, complied in all material respects with the requirements of the Securities Act, the Exchange Act and the Rules and Regulations. 2. Purchase, Sale and Delivery of the Notes. (a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each of the Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase at a purchase price of $[ ] per $1,000 principal amount, the number of Firm Notes set forth opposite such Underwriter's name in Schedule I hereto. (b) The Company also grants to the Underwriters an option to purchase, solely for the purpose of covering over-allotments in the sale of Firm Notes, all or any portion of the Option Notes at the purchase price set forth above plus accrued interest. The option granted hereby may be exercised as to all or any part of the Option Notes at any time (but only once) within 30 days after the date the Registration Statement becomes effective. The Underwriters shall not be under any obligation to purchase any Option Notes prior to the exercise of such option. The option granted hereby may be exercised by the Underwriters by the Representatives giving written notice to the Company setting forth the amount of Option Notes to be purchased and the date and time for delivery of and payment for such Option Notes and stating that the Option Notes referred to therein are to be used for the purpose of covering over-allotments in connection with the distribution and sale of the Firm Notes. If such notice is given prior to the First Closing Date (as defined herein), the date set forth therein for such delivery and payment shall not be earlier than two full business days thereafter or the First Closing Date, whichever occurs later. If such notice is given on or after the First Closing Date, the date set forth therein for such delivery and 9 10 payment shall not be earlier than three full business days thereafter. In either event, the date so set forth shall not be more than 15 full business days after the date of such notice. The date and time set forth in such notice is herein called the "Option Closing Date." Upon exercise of the option, the Company shall become obligated to sell to the Underwriters, and, subject to the terms and conditions herein set forth, the Underwriters shall become obligated to purchase, for the account of each Underwriter, from the Company, severally and not jointly, the amount of Option Notes specified in such notice. Option Notes shall be purchased for the accounts of the Underwriters in proportion to the amount of Firm Notes set forth opposite such Underwriter's name in Schedule I hereto, except that the respective purchase obligations of each Underwriter shall be adjusted so that no Underwriter shall be obligated to purchase fractional Option Notes. (c) Certificates in definitive form for the Firm Notes which each Underwriter has agreed to purchase hereunder shall be delivered by or on behalf of the Company to the Underwriters for the account of such Underwriter against payment by such Underwriter or on its behalf of the purchase price therefor by certified or official bank check payable in next day funds to the order of the Company at the offices of J.C. Bradford & Co., L.L.C., ("Bradford"), 330 Commerce Street, Nashville, Tennessee 37201, or at such other place as may be agreed upon by Bradford and the Company, at 10:00 A.M., Nashville time, on the third full business day after this Agreement becomes effective, or, at the election of the Representatives, on the fourth full business day after this Agreement becomes effective, if it becomes effective after 4:30 P.M. Eastern time, or at such other time not later than the seventh full business day thereafter as the Representatives and the Company may determine, such time of delivery against payment being herein referred to as the "First Closing Date." The First Closing Date and the Option Closing Date are herein individually referred to as the "Closing Date" and collectively referred to as the "Closing Dates." Certificates in definitive form for the Option Notes which each Underwriter shall have agreed to purchase hereunder shall be similarly delivered by or on behalf of the Company on the Option Closing Date. The certificates in definitive form for the Notes to be delivered will be in good delivery form and in such denominations and registered in such names as Bradford may request not less than 48 hours prior to the First Closing Date or the Option Closing Date, as the case may be. Such certificates will be made available for checking and packaging at a location in New York, New York as may be designated by you, at least 24 hours prior to the First Closing Date or the Option Closing Date, as the case may be. It is understood that you may (but shall not be obligated to) make payment on behalf of any Underwriter or Underwriters for the Notes to be purchased by such Underwriter or Underwriters. No such payment shall relieve such Underwriter or Underwriters from any of its or their obligations hereunder. 3. Offering by the Underwriters. After the Registration Statement becomes effective, the several Underwriters propose to offer for sale to the public the Firm Notes and any Option Notes which may be sold at the price and upon the terms set forth in the Final Prospectus. 10 11 4. Covenants of the Company. The Company covenants and agrees with each of the Underwriters that: (a) The Company shall comply with the provisions of and make all requisite filings with the Commission pursuant to Rules 424 and 430A of the Rules and Regulations and to notify you promptly (in writing, if requested) of all such filings. The Company shall notify you promptly of any request by the Commission for any amendment of or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus or for additional information; the Company shall prepare and file with the Commission, promptly upon your request, any amendments of or supplements to the Registration Statement, the Effective Prospectus or the Final Prospectus which, in your opinion, may be necessary or advisable in connection with the distribution of the Notes; and the Company shall not file any amendment of or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus which is not approved by you after reasonable notice thereof. The Company shall advise you promptly of the issuance by the Commission or any jurisdiction or other regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement, suspending or preventing the use of any Preliminary Prospectus, the Effective Prospectus or the Final Prospectus or suspending the qualification of the Notes for offering or sale in any jurisdiction, or of the institution of any proceedings for any such purpose; and the Company shall use its best efforts to prevent the issuance of any stop order or other such order and, should a stop order or other such order be issued, to obtain as soon as possible the lifting thereof. (b) The Company will take or cause to be taken all necessary action and furnish to whomever you direct such information as may be reasonably required in qualifying the Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Underwriters may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the distribution of the Notes. (c) Within the time during which a Final Prospectus relating to the Notes is required to be delivered under the Securities Act, the Company shall comply with all requirements imposed upon it by the Securities Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as is necessary to permit the continuance of sales of or dealings in the Notes as contemplated by the provisions hereof and the Final Prospectus. If during such period any event occurs as a result of which the Final 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 Final Prospectus to comply with the Securities Act, the Company shall promptly notify you and shall amend the Registration Statement or supplement the Final Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. 11 12 (d) The Company will furnish without charge to the Representatives and make available to the Underwriters copies of the Registration Statement (four of which shall be signed and shall be accompanied by all exhibits, including any which are incorporated by reference, which have not previously been furnished), each Preliminary Prospectus, the Effective Prospectus and the Final Prospectus, and all amendments and supplements thereto, including any prospectus or supplement prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Underwriters may reasonably request. (e) The Company will (i) deliver to you at such office or offices as you may designate as many copies of the Preliminary Prospectus and Final Prospectus as you may reasonably request, and (ii) for a period of not more than nine months after the Registration Statement becomes effective, send to the Underwriters as many additional copies of the Final Prospectus and any supplement thereto as you may reasonably request. (f) The Company shall make generally available to its security holders, in the manner contemplated by Rule 158(b) under the Securities Act as promptly as practicable and in any event no later than 45 days after the end of its fiscal quarter in which the first anniversary of the effective date of the Registration Statement occurs, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement. (g) The Company will apply the net proceeds from the sale of the Notes as set forth under the caption "Use of Proceeds" in the Final Prospectus. (h) During a period of five years from the effective date of the Registration Statement, the Company will furnish to the Representatives copies of all reports and other communications (financial or other) furnished by the Company to its stockholders and, as soon as available, copies of any reports or financial statements furnished or filed by the Company to or with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (i) The Company will, from time to time, after the effective date of the Registration Statement file with the Commission such reports as are required by the Securities Act, the Exchange Act and the Rules and Regulations, and shall also file with state securities commissions in states where the Notes have been sold by you (as you shall have advised us in writing) such reports as are required to be filed by the securities acts and the regulations of those states. (j) If at any time during the 25 day period after the Registration Statement is declared effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which, in your opinion, the market price for the Notes has been 12 13 or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Final Prospectus), the Company will, after written notice from you advising it as to the effect set forth above, prepare, consult with you concerning the substance of and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (k) The Company will not take, directly or indirectly, any action designed to cause or result in, or which might constitute or be expected to constitute, stabilization or manipulation of the price of the Notes or of any other security to facilitate the sale or resale of the Notes. 5. Expenses. The Company agrees with the Underwriters that (a) whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, the Company will pay all fees and expenses incident to the performance of the obligations of the Company hereunder, including, but not limited to, (i) the Commission's registration fee, (ii) the expenses of printing (or reproduction) and distributing the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), each Preliminary Prospectus, the Effective Prospectus, the Final Prospectus, any amendments or supplements thereto, the Indenture and this Agreement and other underwriting documents, including Underwriter's Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memoranda, Selected Dealer Agreements and Agreements Among Underwriters, (iii) fees and expenses of accountants and counsel for the Company, (iv) expenses of registration or qualification of the Notes under state Blue Sky and securities laws, including the fees and disbursements of counsel to the Underwriters in connection therewith, (v) filing fees paid or incurred by the Underwriters and related fees and expenses of counsel to the Underwriters in connection with filings with the NASD, (vi) all travel, lodging and reasonable living expenses incurred by the Company in connection with marketing, dealer and other meetings attended by the Company and the Underwriters in marketing the Notes, (vii) the costs and charges of the Company's transfer agent and registrar and the cost of preparing the certificates for the Notes, (viii) the fees and expenses of the Trustee in connection with the Indenture and the Notes and (ix) all other costs and expenses incident to the performance of the Company's obligations hereunder not otherwise provided for in this Section ; and (b) all out-of-pocket expenses, including counsel fees, disbursements and expenses, incurred by the Underwriters in connection with investigating, preparing to market and marketing the Notes and proposing to purchase and purchasing the Notes under this Agreement, will be borne and paid by the Company if the sale of the Notes provided for herein is not consummated (i) by reason of the termination of this Agreement by the Company pursuant to Section 12(a)(i), (ii) by reason of termination of this Agreement by the Underwriters pursuant to Sections 12(b)(iii), 12(b)(iv) or 12(b)(v), or (iii) because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement. 6. Conditions of the Underwriters' Obligations. The respective obligations of the 13 14 Underwriters to purchase and pay for the Firm Notes shall be subject, in their discretion, to the accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Closing Date as if made on and as of the Closing Date, to the accuracy of the statements of the Company's officers made pursuant to the provisions hereof, to the performance by the Company of all of its covenants and agreements hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective not later than 5:30 P.M., Washington, D.C. time, on the day following the date of this Agreement, or such later time and date as shall have been consented to by the Representatives and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made; 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 threatened or, to the knowledge of the Company or the Underwriters, shall be contemplated by the Commission; any request of the Commission for additional information (to be included in the Registration Statement or the Final Prospectus or otherwise) shall have been complied with to your satisfaction; and the NASD, upon review of the terms of the public offering of the Notes, shall not have objected to such offering, such terms or the Underwriters' participation in the same. (b) No Underwriter shall have advised the Company that the Registration Statement, Preliminary Prospectus, the Effective Prospectus or Final Prospectus, any documents incorporated therein by reference, or any amendment or any supplement thereto, contains an untrue statement of fact which, in your judgment, is material, or omits to state a fact which, in your judgment, is material and is required to be stated therein or necessary to make the statements therein not misleading and the Company shall not have cured such untrue statement of fact or stated a statement of fact required to be stated therein. (c) The Representatives shall have received an opinion, dated the Closing Date, from Boult, Cummings, Conners & Berry, counsel for the Company, to the effect that: (i) The Company has been duly organized and is validly existing in good standing as a corporation under the laws of the State of Tennessee, with all requisite corporate power and authority to own, lease and operate its properties and conduct its business as now conducted, and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the failure to so qualify would have a material adverse effect upon the business of the Company and its subsidiaries taken as a whole. (ii) Each subsidiary of the Company has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or other organization, has all requisite corporate or other 14 15 organizational power and authority to own, lease and operate its properties and to conduct its business; each such subsidiary is duly qualified or authorized to do business as a foreign corporation and is in good standing in all jurisdictions where the failure to so qualify would have a material adverse effect upon the business of the Company and its subsidiaries taken as a whole. Except for ShoLodge Franchise Systems, Inc. of which the corporate records reflect that the Company owns all of the outstanding capital stock except for 1000 shares of Series A Redeemable Nonparticipating Stock, the corporate records reflect that all outstanding stock of each of the corporate subsidiaries is owned beneficially and of record by the Company, free and clear of all liens, encumbrances, equities and claims (other than the stock of ShoLodge Franchise Systems, Inc. which is pledged to Shoney's Investments, Inc. pursuant to a Stock Pledge Agreement dated October 28, 1991). The partnership and joint ventures in which the Company or its subsidiaries are partners or joint venturers were found in accordance with applicable partnership law and, to the knowledge of such counsel, such partnership and joint venture interests are owned clear of any lien, encumbrance, pledge, equity or claim of any kind. To such counsel's knowledge, no options or warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in any of the Company's subsidiaries are outstanding, except such rights as may be set forth in the partnership or joint venture agreements. (iii) The Notes have been duly and validly authorized and, when executed by the Company, authenticated by the Trustee in accordance with the Indenture and delivered in accordance with this Agreement, will constitute legal and binding obligations of the Company entitled to the benefits of the Indenture, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium, fraudulent transfers, fraudulent conveyances or other laws affecting creditor's rights generally. Upon issuance and delivery thereof and payment therefor as provided in the Underwriting Agreement, the Underwriters will receive good and marketable title to the Notes to be issued and delivered pursuant to this Agreement, free and clear of all liens, encumbrances, claims, security interests and restrictions. The Notes conform to the description thereof contained in the Final Prospectus. All offers and sales of the Company's securities prior to the date hereof were at all relevant times duly registered or exempt from the registration requirements of the Securities Act and were duly registered or the subject of an exemption from the registration requirements of applicable state securities or Blue Sky laws. (iv) The Company has all requisite corporate right, power and authority to enter into and perform its obligations under this Agreement and the Indenture and to issue, sell and deliver the Notes to be sold by it to the Underwriters as provided herein, and this Agreement and the Indenture have been duly authorized, 15 16 executed and delivered by the Company and each constitutes the valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the usual and customary exceptions in legal opinions of this nature. (v) No consent, approval, authorization or order of any court or governmental agency or body or third party is required for the performance of this Agreement and the Indenture by the Company or the consummation by the Company of the transactions contemplated hereby and thereby, except (i) such as have been obtained from third parties, (ii) such as have been obtained under the Securities Act and Trust Indenture Act and (iii) such as may be required by the NASD and under state securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the several Underwriters. The performance of this Agreement and the Indenture by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including the use of proceeds from the sale of the Notes as described in the Final Prospectus) will not conflict with or result in a breach or violation by the Company or any of its subsidiaries of any of the terms or provisions of, or constitute a default by the Company under, any material indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or to which the Company, any of its subsidiaries or any of their respective properties is subject, the charter or by-laws of the Company or any of its subsidiaries, any statute, or any judgment, decree, order, rule or regulation of any court or governmental agency or body (other than state securities or blue sky laws, as to which such counsel expresses no opinion) known to such counsel to be applicable to the Company, any of its subsidiaries or any of their respective properties. (vi) Except as described in the Final Prospectus, there is not pending, or to such counsel's knowledge, threatened, any action, suit, proceeding, inquiry or investigation, to which the Company or any of its subsidiaries is a party, or to which the property of the Company or any of its subsidiaries is subject, before or brought by any court or governmental agency or body, which, if determined adversely to the Company or any of its subsidiaries, would result in any material adverse change in the business, financial position, net worth or results of operations, or would materially adversely affect the properties or assets, of the Company and any of its subsidiaries taken as a whole. (vii) To such counsel's knowledge, no default exists, and no event has occurred which with notice or after the lapse of time to cure or both, would constitute a default, in the due performance and observance of any term, covenant or condition of any material indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its 16 17 subsidiaries is a party or to which it or its properties is subject, or of the Charter or by-laws of the Company or any of its subsidiaries which would result in any material adverse change in the business, financial condition, net worth or results of operations, or could materially adversely affect the properties or assets of the Company or any of its subsidiaries taken as a whole. (viii) To such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of its subsidiaries and material to the Company or any of its subsidiaries or any decree of any court or governmental agency or body having jurisdiction over the Company. (ix) The Registration Statement and all post effective amendments thereto have become effective under the Securities Act, and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are threatened, pending or contemplated by the Commission. All filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; the Registration Statement, the Effective Prospectus and Final Prospectus, and any amendments or supplements thereto (except for the financial statements and schedules included therein as to which such counsel need express no opinion), as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; the descriptions in the Registration Statement, the Effective Prospectus and the Final Prospectus of statutes, regulations, legal and governmental proceedings, and contracts and other documents are accurate in all material respects and present fairly the information required to be stated; and such counsel does not know of any pending or threatened legal or governmental proceedings, statutes or regulations required to be described in the Registration Statement or the Final Prospectus which are not described as required or of any contracts or documents of a character required to be described in the Registration Statement or the Final Prospectus or to be filed as exhibits to the Registration Statement which are not described and filed as required. (x) Neither the Company nor any of its subsidiaries is, or will be as a result of the consummation of the transactions contemplated by this Agreement, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, the Effective Prospectus and the Final Prospectus or any amendment or supplement thereto contains an untrue statement of a material fact or omits to state a material 17 18 fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). The opinions to be rendered pursuant to paragraph (c) may be limited to federal law, and as to state law matters, to the laws of the state of Tennessee. Such counsel may also rely on opinion of other counsel as to matters of local law provided that such counsel shall state that they believe both they and you are justified in relying on such opinion. (d) The Underwriters shall have received an opinion or opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel for the Underwriters, with respect to the Registration Statement and the Final Prospectus, and such other related matters as the Underwriters may require, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (e) The Representatives shall have received from Deloitte & Touche LLP, a letter dated the date hereof and, at the Closing Date, a second letter dated the Closing Date, in form and substance satisfactory to the Representatives, stating that they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Securities Act and the applicable Rules and Regulations, and to the effect that: (i) In their opinion, the audited financial statements and financial statement schedules examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the published Rules and Regulations and are presented in accordance with generally accepted accounting principles; and they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the interim financial statements, selected financial data, and/or condensed financial statements derived from audited financial statements of the Company; (ii) The unaudited selected financial information included in the Final Prospectus under the captions "SUMMARY FINANCIAL DATA" and "SELECTED FINANCIAL AND OPERATING DATA" for each of the fiscal years ended December 26, 1993, December 25, 1994 and December 31, 1995, agrees with the corresponding amounts in the audited financial statements incorporated by reference in the Final Prospectus or previously reported on by them; (iii) On the basis of a reading of the latest available interim financial statements (unaudited) of the Company, if any, a reading of the minute books of 18 19 the Company and its subsidiaries, inquiries of officials of the Company responsible for financial and accounting matters and other specified procedures, all of which have been agreed to by the Representatives, nothing came to their attention that caused them to believe that: (A) Any unaudited interim financial statements included or incorporated by reference in the Registration Statement or the Final Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the federal securities laws and the published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited financial statements incorporated by reference in the Registration Statement or in the Final Prospectus; (B) Any other unaudited financial statement data included or incorporated by reference in the Registration Statement or the Final Prospectus do not agree with the corresponding items in the unaudited financial statements from which data was derived and any such unaudited data were not determined on a basis substantially consistent with the basis for the corresponding amounts in the unaudited financial statements included or incorporated by reference in the Registration Statement or the Final Prospectus; (C) At a specified date not more than five days prior to the date of delivery of such respective letter, there was any decline in stockholders' equity or increase in long-term debt of the Company, or other items specified by the Underwriters in each case as compared with amounts shown in the latest balance sheets included or incorporated by reference in the Final Prospectus, except in each case for changes, decreases or increases which the Final Prospectus discloses have occurred or may occur or which are described in such letters; and (D) For the period from the closing date of the latest statements of income included or incorporated by reference in the Effective Prospectus and the Final Prospectus to a specified date not more than five days prior to the date of delivery of such respective letter, there were any decreases in total revenues or net income of the Company, or other items specified by the Underwriters, or any increases in any items specified by the Underwriters, in each case as compared with the corresponding period of the preceding year, except in each case for decreases which the Final Prospectus discloses have occurred or may occur or which are described in such letter. 19 20 (iv) They have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information specified by you which are derived from the general accounting records of the Company, which appear or are incorporated by reference in the Registration Statement and the Final Prospectus and have compared and agreed such amounts, percentages and financial information with the accounting records of the Company or to analyses and schedules prepared by the Company from its detailed accounting records. In the event that the letters to be delivered referred to above set forth any such changes, decreases or increases, it shall be a further condition to the obligations of the Underwriters that the Underwriters shall have determined, after discussions with officers of the Company responsible for financial and accounting matters and with Deloitte & Touche LLP, that such changes, decreases or increases as are set forth in such letters do not reflect a material adverse change in the stockholders' equity or long-term debt of the Company as compared with the amounts shown in the latest balance sheets of the Company included or are incorporated by reference in the Registration Statement or the Final Prospectus, or a material adverse change in total net revenues or net income of the Company, in each case as compared with the corresponding period of the prior year. (f) There shall have been furnished to the Representatives a certificate, dated the Closing Date and addressed to you, signed by the Chief Executive Officer and by the Chief Financial Officer of the Company to the effect that: (i) the representations and warranties of the Company in Section 1 of this Agreement are true and correct, as if made at and as of the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been initiated or are pending, or to their knowledge, threatened under the Securities Act; (iii) all filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; (iv) they have carefully examined the Registration Statement, the Effective Prospectus and the Final Prospectus, the documents incorporated therein by reference and any amendments or supplements thereto, and such documents do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and 20 21 (v) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus which has not been so set forth. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Final Prospectus, and except as stated therein, neither the Company nor any of its subsidiaries has sustained any material loss or interference with its business or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any court or governmental action, order or decree, or become a party to or the subject of any litigation which is material to the Company, nor shall there have been any material adverse change, or any development involving a prospective material adverse change, in the business, properties, key personnel, capitalization, net worth, results of operations or condition (financial or other) of the Company, which loss, interference, litigation or change, in your judgment shall render it unadvisable to commence or continue the offering of the Notes at the offering price to the public set forth on the cover page of the Prospectus or to proceed with the delivery of the Notes. (h) At or prior to the Closing Date, none of the following events shall have occurred: (i) suspension in the trading in securities on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market; (ii) the establishment of minimum or maximum prices on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market; (iii) the declaration of a banking moratorium federal or state authorities; (iv) suspension in the trading of securities of the Company on any exchange or market; or (v) a material change in general economic, political or financial conditions or the effect of international conditions on the financial markets in the United States shall, in your reasonable judgment, make it inadvisable to proceed with the offering of the Notes at the offering price to the public set forth on the cover page of this Final Prospectus or to proceed with the delivery of the Notes. All such opinions, certificates, letters and documents delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory to the Representatives and their counsel. The Company shall furnish to the Representatives such conformed copies of such opinions, certificates, letters and documents in such quantities as the Representatives shall reasonably request. The respective obligations of the Underwriters to purchase and pay for the Option Notes shall be subject, in their discretion, to each of the foregoing conditions to purchase the Firm Notes, except that all references to the "Closing Date" shall be deemed to refer to the Option Closing Date, if it shall be a date other than the Closing Date. 7. Condition of the Company's Obligations. The obligations hereunder of the Company are subject to the condition set forth in Section 6(a) hereof. 21 22 8. Indemnification and Contribution. (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 Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in part upon (i) any inaccuracy in the representations and warranties of the Company contained herein, (ii) any failure of the Company to perform their respective obligations hereunder or under law or (iii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any document incorporated therein by reference or any amendment or supplement thereto, or in any Blue Sky application or other written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Notes under the securities laws thereof (a "Blue Sky Application"). The Company agrees to indemnify and hold harmless each Underwriter, and each person, if any, who controls any Underwriter within the meaning of the Securities Act, against all losses, claims, damages, or liabilities, joint or several, to which such Underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the Company's omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus, any document incorporated therein by reference or any amendment or supplement thereto or any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Preliminary Prospectus, the Effective Prospectus, any document incorporated therein by reference or Final Prospectus or such amendment or such supplement or any Blue Sky Application in reliance upon and in conformity with written information furnished to the Company by any Underwriter specifically for use therein (it being understood that the only information so provided by the Underwriters is the information included in the last paragraph on the cover page and under the caption "Underwriting" in any Preliminary Prospectus and the Final Prospectus and the Effective Prospectus). (b) Each Underwriter will 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 Securities Act against any 22 23 losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or supplement thereto, or any Blue Sky Application, or arise out of or are based upon the omission or the alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any amendment or supplement thereto or any Blue Sky Application a material fact required to be stated therein or necessary to make the 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 reliance upon and in conformity with written information furnished to the Company by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the last paragraph on the cover page and under the caption "Underwriting" in any Preliminary Prospectus,the Effective Prospectus and the Final Prospectus); (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, including governmental proceedings, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8 notify the indemnifying party 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 otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation except that the indemnified party shall have the right to employ separate counsel if, in its reasonable judgment, it is advisable for the indemnified party and any other Underwriter to be represented by separate counsel, and in that event the fees and expenses of separate counsel shall be paid by the indemnifying party. The Company will not, without prior written consent of each Representative, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding (or related cause of action or portion thereof) in respect of which indemnification may be sought hereunder (whether or not such Underwriter is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of such Underwriter from all liability arising out 23 24 of such claim, action, suit or proceeding (or related cause of action or portion thereof). (d) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in the preceding part of this Section 8 is for any reason held to be unavailable to the Underwriters, or the Company or is insufficient to hold harmless an indemnified party, then the Company shall contribute to the damages paid by the Underwriters, and the Underwriters shall contribute to the damages paid by the Company provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative benefits received by each party from the offering of the Notes (taking into account the portion of the proceeds of the offering realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and any other equitable considerations appropriate under the circumstances. The Company and the Underwriters agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Underwriters were treated as one entity for such purpose). No Underwriter or person controlling such Underwriter shall be obligated to make contribution hereunder which in the aggregate exceeds the underwriting discount applicable to the Notes purchased by such Underwriter under this Agreement, less the aggregate amount of any damages which such Underwriter and its controlling persons have otherwise been required to pay in respect of the same or any similar claim. The Underwriters' obligations to contribute hereunder are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section , each person, if any, who controls an Underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, shall have the same rights to contribution as the Company. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Securities Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Securities Act. 9. Default of Underwriters. If any Underwriter defaults in its obligation to purchase Notes hereunder and if the total amount of Notes which such defaulting Underwriter agreed but 24 25 failed to purchase is ten percent or less of the total amount of Notes to be sold hereunder, the non-defaulting Underwriters shall be obligated severally to purchase (in the respective proportions which the amount of Notes set forth opposite the name of each non-defaulting Underwriter in Schedule I hereto bears to the total amount of Notes set forth opposite the names of all the non-defaulting Underwriters), the Notes which such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter so defaults and the total number of Notes with respect to which such default or defaults occur is more than ten percent of the total amount of Notes to be sold hereunder, and arrangements satisfactory to the other Underwriters and the Company for the purchase of such Notes by other persons (who may include the non-defaulting Underwriters) are not made within 36 hours after such default, this Agreement, insofar as it relates to the sale of the Notes, will terminate without liability on the part of the non-defaulting Underwriters or the Company except for (i) the provisions of Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the Company pursuant to Section 5. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 9. Nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the Underwriters set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, any Underwriter or any controlling person, (ii) any termination of this Agreement and (iii) delivery of and payment for the Notes. 11. Effective Date. This Agreement shall become effective at whichever of the following times shall first occur: (i) at 11:30 A.M., Washington, D.C. time, on the next full business day following the date on which the Registration Statement becomes effective or (ii) at such time after the Registration Statement has become effective as the Representatives shall release the Firm Notes for sale to the public; provided, however, that the provisions of Sections 5, 8, 10, and 11 hereof shall at all times be effective. For purposes of this Section 11, the Firm Notes shall be deemed to have been so released upon the release by the Representatives for publication, at any time after the Registration Statement has become effective, of any newspaper advertisement relating to the Firm Notes or upon the release by the Representatives of telegrams offering the Firm Notes for sale to securities dealers, whichever may occur first. 12. Termination. (a) The Company's obligations under this Agreement may be terminated by the Company by notice to the Representatives (i) at any time before it becomes effective in accordance with Section 11 hereof, or (ii) in the event that the condition set forth in Section 7 shall not have been satisfied at or prior to the First Closing Date. (b) This Agreement may be terminated by the Representatives by notice to the Company (i) at any time before it becomes effective in accordance with Section 11 hereof; 25 26 (ii) in the event that at or prior to the First Closing Date the Company shall have failed, refused or been unable to perform any agreement on the part of the Company to be performed hereunder or any other condition to the obligations of the Underwriters hereunder is not fulfilled; (iii) if at or prior to the Closing Date trading in securities on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or materially limited or minimum or maximum prices shall have been established on either of such Exchanges or such market, or a banking moratorium shall have been declared by Federal or state authorities; (iv) if at or prior to the Closing Date trading in securities of the Company shall have been suspended on any exchange or market; or (v) if there shall have been such a material change in general economic, political or financial conditions or if the effect of international conditions on the financial markets in the United States shall be such as, in your reasonable judgment, makes it inadvisable to commence or continue the offering of the Notes at the offering price to the public set forth on the cover page of the Prospectus or to proceed with the delivery of the Notes. (c) Termination of this Agreement pursuant to this Section 12 shall be without liability of any party to any other party other than as provided in Sections 5 and 8 hereof. 13. Notices. All communications hereunder shall be in writing and, if sent to any of the Underwriters, shall be mailed or delivered or telegraphed and confirmed in writing to the Representatives in care of J.C. Bradford & Co., L.L.C., J.C. Bradford Financial Center, 330 Commerce Street, Nashville, Tennessee 37201, Attention: Robert S. Doolittle, or if sent to the Company shall be mailed, delivered or telegraphed and confirmed in writing to the Company at 217 West Main Street, Gallatin, Tennessee 37066, Attention: Michael Corbett. 14. Miscellaneous. This Agreement shall inure to the benefit of and be binding upon the several Underwriters and, the Company and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Company and the several Underwriters and for the benefit of no other person except that (i) the representations and warranties of the Company contained in this Agreement shall also be for the benefit of any person or persons who control any Underwriter within the meaning of Section 15 of the Securities Act, and (ii) the indemnities by the Underwriters shall also be for the benefit of the directors of the Company, officers of the Company who have signed the Registration Statement, any person or persons who control the Company within the meaning of Section 15 of the Securities Act. No purchaser of Notes from any Underwriter will be deemed a successor because of such purchase. The validity and interpretation of this Agreement shall be governed by the laws of the State of Tennessee. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. You hereby represent and warrant to the Company that you have authority to act hereunder on behalf of the 26 27 several Underwriters, and any action hereunder taken by you will be binding upon all the Underwriters. 27 28 If the foregoing is in accordance with your understanding of our agreement, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and each of the several Underwriters. Very truly yours, SHOLODGE, INC. By:_________________________________ Title: _____________________________ Confirmed and accepted as of the date first above written. J.C. BRADFORD & CO., L.L.C. DAIN BOSWORTH INC. INTERSTATE/JOHNSON LANE CORPORATION For themselves and as Representatives of the several Underwriters By:________________________________ Partner 28 29 SCHEDULE I UNDERWRITERS
Principal Amount of Firm Underwriter Notes to Be Purchased J.C. Bradford & Co., L.L.C................................... $___________ Dain Bosworth Inc............................................ $___________ Interstate/Johnson Lane Corporation ......................... $___________ ------------------------------------------------- TOTAL $35,000,000 =================================================
29 EX-4.2 3 FORM OF INDENTURE 1 EXHIBIT 4.2 SHOLODGE, INC. AND BANKERS TRUST COMPANY, TRUSTEE ------------------------- INDENTURE Dated as of ________________ __, 1996 ------------------------- SENIOR SUBORDINATED NOTES 2 ShoLodge, Inc. Senior Subordinated Notes TIE-SHEET of provisions of Trust Indenture Act of 1939 and the Indenture dated as of ______ __, 1996, between ShoLodge, Inc. and _____________, Trustee.
TRUST INDENTURE ACT OF 1939 SECTION INDENTURE SECTION ----------------------------------------- ---------------------- 310(a)(1)(2)(3) . . . . . . . . . . . . . 10.1 and 10.12 (a)(4) . . . . . . . . . . . . . . Not applicable (b) . . . . . . . . . . . . . . . 10.8 and 10.9 (c) . . . . . . . . . . . . . . . Not applicable 311(c) . . . . . . . . . . . . . . . . . Not applicable 312(a) . . . . . . . . . . . . . . . . . 4.1(A) and (B) (b) . . . . . . . . . . . . . . . 4.1(C) (c) . . . . . . . . . . . . . . . 4.1(D) 313(a) . . . . . . . . . . . . . . . . . 4.3 (b) . . . . . . . . . . . . . . . Not applicable (c) . . . . . . . . . . . . . . . 4.3 (d) . . . . . . . . . . . . . . . 4.3 314(a) . . . . . . . . . . . . . . . . . 4.2(A) and (B) (b) . . . . . . . . . . . . . . . Not applicable (c) . . . . . . . . . . . . . . . 15.3 (d) . . . . . . . . . . . . . . . Not applicable (e) . . . . . . . . . . . . . . . 15.3 315(a) . . . . . . . . . . . . . . . . . 10.2(A) (b) . . . . . . . . . . . . . . . 7.2 (c) . . . . . . . . . . . . . . . 10.2(B) (d) . . . . . . . . . . . . . . . 10.2(C) (e) . . . . . . . . . . . . . . . 7.13 316(a)(1) . . . . . . . . . . . . . . . . 7.6 and 7.16 (a)(2) . . . . . . . . . . . . . . Not applicable (b) . . . . . . . . . . . . . . . 7.12 317(a) . . . . . . . . . . . . . . . . . 7.8 and 7.10 (b) . . . . . . . . . . . . . . . 3.2(B) and (C)
3 318(a) . . . . . . . . . . . . . . . . . 15.6 - ---------------
This tie-sheet does not constitute a part of the Indenture. 4 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS 1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "1994 Debentures" . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Accrued Bankruptcy Interest" . . . . . . . . . . . . . . . . . . . 2 "Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "affected" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "applicable supplemental indenture" . . . . . . . . . . . . . . . . 2 "Associate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Authenticating Agent" . . . . . . . . . . . . . . . . . . . . . . . 2 "Bankruptcy Act" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Board of Directors" or "Board" . . . . . . . . . . . . . . . . . . 2 "business day" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "capital stock" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Certified Resolution" . . . . . . . . . . . . . . . . . . . . . . . 3 "Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . 3 "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "common stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Company Order" and "Company Request" . . . . . . . . . . . . . . . 3 "Consolidated Net Income" . . . . . . . . . . . . . . . . . . . . . 3 "Consolidated Net Loss" . . . . . . . . . . . . . . . . . . . . . . 3 "Consolidated Net Worth" . . . . . . . . . . . . . . . . . . . . . . 3 "corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "covenant defeasance" . . . . . . . . . . . . . . . . . . . . . . . 4 "daily newspaper" . . . . . . . . . . . . . . . . . . . . . . . . . 4 "date of this Indenture" . . . . . . . . . . . . . . . . . . . . . . 4 "day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . 4 "Equity Securities" . . . . . . . . . . . . . . . . . . . . . . . . 4 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Executive Officer" . . . . . . . . . . . . . . . . . . . . . . . . 4 "Fair Market Value" . . . . . . . . . . . . . . . . . . . . . . . . 4 "Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
i 5 "Interest Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . 5 "legal defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "main office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "maturity" or "mature," . . . . . . . . . . . . . . . . . . . . . . . . 5 "Note" or "Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Note Register", "Note Co-Registrar" and "Note Registrar" . . . . . . . 5 "Noteholder," "noteholder," "holder of the Notes," "Holder" or "holder". 6 "Officers' Certificate" . . . . . . . . . . . . . . . . . . . . . . . . 6 "Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Original Issue Date" . . . . . . . . . . . . . . . . . . . . . . . . . 6 "outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "paying agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "place of payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "predecessor Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Proceeding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Redeemable Capital Stock" . . . . . . . . . . . . . . . . . . . . . . . 7 "Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Regular Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Responsible Officers" . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Senior Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . 7 "Special Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . 8 "Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 "supplemental indenture" or "indenture supplemental hereto" . . . . . . 8 "Total Consolidated Capitalization" . . . . . . . . . . . . . . . . . . 8 "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 "Trust Indenture Act" or "TIA" . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES 2.1 Designation, Amount and Issue of Notes. . . . . . . . . . . . . . . . . 9 2.2 Form of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.3 Denominations, Dates, Interest Payment and Record Dates. . . . . . . . . 9 2.4 Numbers and Legends on Notes. . . . . . . . . . . . . . . . . . . . . .11 2.5 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . .11 2.6 Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . .11 2.7 Exchange and Registration of Transfer of Notes . . . . . . . . . . . . .11
ii 6 2.8 Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . 2.10 Mutilated, Destroyed, Lost or Stolen Notes. . . . . . . . . . . . . . 12 2.11 Authentication of Notes. . . . . . . . . . . . . . . . . . . . . . . . 13 2.12 Surrender and Cancellation of Notes . . . . . . . . . . . . . . . . . 13 ARTICLE 3 SUBORDINATION OF NOTES 3.1 Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . 14 3.2 Distribution on Dissolution, Liquidation, Bankruptcy or Reorganization. 14 3.3 Default on Senior Indebtedness. . . . . . . . . . . . . . . . . . . . 15 3.4 When Distribution must Be Paid over . . . . . . . . . . . . . . . . . 16 3.5 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.6 Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.7 Payments on Notes Permitted. . . . . . . . . . . . . . . . . . . . . . 17 3.8 Authorization of Noteholders to Trustee to Effect Subordination. . . 17 3.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.10 Trustee as Holder of Senior Indebtedness. . . . . . . . . . . . . . . 18 3.11 Modification of Terms of Senior Indebtedness. . . . . . . . . . . . . 18 3.12 Trustee Not Fiduciary for Senior Indebtedness. . . . . . . . . . . . . 19 3.13 Subordination May Not Be Impaired by Company. . . . . . . . . . . . . 19 ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY 4.1 Payment of Principal of and Premium, If Any, and Interest on Notes . . 19 4.2 Maintenance of Office or Agency for Registration of Transfer, Exchange and Payment of Notes. . . . . . . . . . . . . . . . 19 4.3 Appointment to Fill a Vacancy in the Office of Trustee. . . . . . . . 20 4.4 Provision as to Paying Agent. . . . . . . . . . . . . . . . . . . . . 20 4.5 Maintenance of Corporate Existence. . . . . . . . . . . . . . . . . . 21 4.6 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.7 Officers' Certificate as to Default and Statement as to Compliance. . 21 4.8 Will Pay Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 21 4.9 Will Keep, and Permit Examination of, Records and Books of Account and Will Permit Visitation of Property. . . . . . . . . . . . 22 4.10 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . 22 4.11 Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . 22 4.12 Limitations on Dividends and Other Payments. . . . . . . . . . . . . . 22
iii 7 4.13 Limitation on Other Senior Subordinated Indebtedness. . . . . . . . . 23 4.14 Restrictions on Additional Indebtedness . . . . . . . . . . . . . . . 23 4.15 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 5 NOTEHOLDER LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 5.1 Noteholder Lists, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 24 5.2 Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 6 REDEMPTION OF NOTES AT COMPANY'S OPTION 6.1 Election by Company to Redeem Notes. . . . . . . . . . . . . . . . . 26 6.2 Redemption of Part of Notes. . . . . . . . . . . . . . . . . . . . . . 27 6.3 Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . 27 6.4 Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . 28 6.5 Date on Which Notes Cease to Bear Interest, Etc. . . . . . . . . . . 28 6.6 All Notes Delivered. . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 7 REDEMPTION OF NOTES AT HOLDER'S OPTION 7.1 Redemption Right at Holder's Option. . . . . . . . . . . . . . . . . 29 7.2 Redemption Procedure. . . . . . . . . . . . . . . . . . . . . . . . . 29 7.3 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.4 Redemption Register. . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.5 Purchase of Notes at Option of the Holder Upon Change in Control. . . 31 7.6 Redemption of Notes Subject to Article 6 . . . . . . . . . . . . . . . 35 ARTICLE 8 REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT 8.1 Events of Default Defined. . . . . . . . . . . . . . . . . . . . . . 35 8.2 Payment of Notes on Default; Suit Therefor. . . . . . . . . . . . . . 37 8.3 Application of Moneys Collected by Trustee . . . . . . . . . . . . . . 39 8.4 Limitation on Suits by Holders of Notes . . . . . . . . . . . . . . . 39
iv 8 8.5 Proceedings by Trustee; Remedies Cumulative and Continuing; Delay or Omission Not Waiver of Default. . . . . . . . . . . . . . . . . . . 40 8.6 Rights of Holders of Majority in Principal Amount of Notes to Direct Trustee and to Waive Defaults . . . . . . . . . . . . . . . . . . . . . 40 8.7 Trustee to Give Notice of Defaults Known to It, but May Withhold in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.8 Requirement of an Undertaking to Pay Costs in Certain Suits under the Indenture or Against the Trustee . . . . . . . . . . . . . . . . . 41 8.9 Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . . . . . 41 ARTICLE 9 EVIDENCE OF RIGHTS OF NOTEHOLDERS AND OWNERSHIP OF NOTES 9.1 Evidence of Ownership of Definitive Notes and Temporary Notes Issued Hereunder in Registered Form . . . . . . . . . . . . . . . . . . 42 ARTICLE 10 CONSOLIDATION, MERGER AND SALE 10.1 Company May Merge, Consolidate, Etc., Upon Certain Terms . . . . . . . 42 10.2 Successor Corporation to be Substituted . . . . . . . . . . . . . . . . 43 ARTICLE 11 CONCERNING THE TRUSTEE 11.1 Requirement of Corporate Trustee, Eligibility . . . . . . . . . . . . . 43 11.2 Acceptance of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.3 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 11.4 Trustee May Own Notes. . . . . . . . . . . . . . . . . . . . . . . . . 45 11.5 Trustee May Rely on Certificates, Etc . . . . . . . . . . . . . . . . . 46 11.6 Money Held in Trust Not Required to be Segregated . . . . . . . . . . . 47 11.7 Compensation, Reimbursement, Indemnity, Security . . . . . . . . . . . 47 11.8 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . 48 11.9 Resignation, Removal, Appointment of Successor Trustee . . . . . . . . 53 11.10 Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . 54 11.11 Cash, Securities, Etc. to be Held by Trustee . . . . . . . . . . . . . 54 11.12 Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . 54 11.13 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . 55
v 9 ARTICLE 12 DEFEASANCE; DISCHARGE OF INDENTURE 12.1 Termination of the Company's Obligations . . . . . . . . . . . . . . . 56 12.2 Legal Defeasance and Covenant Defeasance . . . . . . . . . . . . . . . 57 12.3 Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . 61 12.4 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . 61 12.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 12.6 Acknowledgment of Discharge . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 13 MEETING OF NOTEHOLDERS 13.1 Purposes for Which Meetings May be Called. . . . . . . . . . . . . . 63 13.2 Call of Meetings by Trustee; Generally . . . . . . . . . . . . . . . . 64 13.3 Call of Meetings by Trustee; Notice. . . . . . . . . . . . . . . . . . 64 13.4 Meetings, Notice and Entitlement to be Present . . . . . . . . . . . . 64 13.5 Regulations May be Made by Trustee. . . . . . . . . . . . . . . . . . 65 13.6 Manner of Voting at Meetings and Record to be Kept. . . . . . . . . . 66 13.7 Evidence of Action by Holders of Specified Percentage of Notes . . . . 66 13.8 Exercise of Right of Trustee or Noteholders May Not be Hindered or Delayed by Call of Meeting of Noteholders . . . . . . . . . . . . . 66 ARTICLE 14 SUPPLEMENTAL INDENTURES 14.1 Purposes for Which Supplemental Indentures May be Executed by Company and Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 14.2 Modification of Indenture by Written Consent of Noteholders. . . . . 68 14.3 Requirements for Execution; Duties and Immunities of Trustee. . . . . 69 14.4 Supplemental Indentures Part of Indenture . . . . . . . . . . . . . . 70 14.5 Notes Executed After Supplemental Indenture to be Approved by Trustee. 70 14.6 Supplemental Indentures Required to Comply with Trust Indenture Act of 1939. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
vi 10 ARTICLE 15 IMMUNITY OF INCORPORATORS, STOCKHOLDERS,OFFICERS AND DIRECTORS 15.1 Immunity of Certain Persons. . . . . . . . . . . . . . . . . . . . . . 70 ARTICLE 16 MISCELLANEOUS 16.1 Benefits Restricted to Parties and to Holders of Notes . . . . . . . . 71 16.2 Deposits for Notes Not Claimed for Specified Period to be Returned to Company on Demand . . . . . . . . . . . . . . . . . . . 71 16.3 Formal Requirements of Certificates and Opinions Hereunder. . . . . . 71 16.4 Evidence of Act of the Noteholders. . . . . . . . . . . . . . . . . . 72 16.5 Parties to Include Successors and Assigns. . . . . . . . . . . . . . 73 16.6 In Event of Conflict with Trust Indenture Act of 1939, Provisions Therein to Control. . . . . . . . . . . . . . . . . . 73 16.7 Request, Notices, Etc. to Trustee . . . . . . . . . . . . . . . . . . 73 16.8 Manner of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 73 16.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 16.10 Payments Due on Days When Banks Closed. . . . . . . . . . . . . . . . 74 16.11 Backup Withholding Forms. . . . . . . . . . . . . . . . . . . . . . . 74 16.12 Titles of Articles of This Indenture Not Part Thereof. . . . . . . . 74 16.13 Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . . 74 16.14 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
TESTIMONIUM SIGNATURES AND SEALS ACKNOWLEDGMENTS vii 11 This INDENTURE, dated as of ___________, 1996, between SHOLODGE, INC., a Tennessee corporation (herein called the "Company") and BANKERS TRUST COMPANY, a trust company organized under the laws of the State of New York, the mailing address of which is Four Albany Street, New York, NY 10006, (herein, together with each successor as such trustee hereunder, called the "Trustee"). WITNESSETH: WHEREAS, the Company deems it necessary to authorize the issuance from time to time of certain Senior Subordinated Notes (hereinafter sometimes called the "Notes") in one or more series, in an aggregate principal amount up to $125,000,000, to bear such rates of interest, to mature at such time or times and to have such other provisions as shall be provided in this Indenture or in one or more supplemental indentures in accordance herewith; WHEREAS, this Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions; and WHEREAS, all acts and things necessary to make this Indenture a valid agreement according to its terms, have been done and performed, and the execution of this Indenture has in all respects been duly authorized; NOW THEREFORE: That the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows: ARTICLE 1 DEFINITIONS 1.1 The terms defined in this Article 1 shall (except as herein otherwise expressly provided) for all purposes of this Indenture, have the respective meanings specified in this Article and include the plural as well as the singular. Any term defined in the Trust Indenture Act of 1939, either directly or by reference therein, and not defined in this Indenture, unless the context otherwise specifies or requires, shall have the meaning assigned to such term therein as in force on the date of this Indenture. "1994 Debentures" shall mean the Company's 7 1/2 % Convertible Subordinated Debentures due 2004, authenticated and delivered under that certain indenture dated as of June 6, 1994 by and between ShoLodge, Inc. and Third National Bank in Nashville, Trustee. 1 12 "Accrued Bankruptcy Interest" shall mean interest accruing subsequent to any bankruptcy, insolvency, dissolution, liquidation, reorganization, winding up or other event or proceeding referred to in Section 3.02, in accordance with and at the rate (including any rate applicable upon default) specified in the instrument or agreement evidencing or governing the applicable Senior Indebtedness, whether or not the claim for such interest is allowed as a claim in connection with such bankruptcy, insolvency, dissolution, liquidation, reorganization, winding up or other event or proceeding. "Act" when used with respect to any Noteholder has the meaning specified in Section 16.4. "affected" has the meaning specified in Section 14.2. "Affiliate" means any person which directly or indirectly controls, is controlled by, or is under direct or indirect common control with, the Company. A person shall be deemed to control a corporation, partnership or other entity, for the purpose of this definition, if such person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, partnership or other entity, whether through the ownership of voting securities, by contract, or otherwise. "applicable supplemental indenture" means, with respect to any series of Notes, the supplemental indenture which authorized the issuance of such Notes, and any amendments thereto. "Associate" has the meaning specified in Section 7.5. "Authenticating Agent" means the agent of the Trustee which at the time shall be appointed and acting pursuant to Section 11.13. "Bankruptcy Act" means Title I of the Bankruptcy Reform Act of 1978, as amended, and codified at Title 11 of the United States Code, including the Federal Rules of Bankruptcy Procedure as in effect as of the date hereof or as hereafter amended, or any similar federal, state or foreign law for the relief of debtors "Board of Directors" or "Board" means the Board of Directors of the Company or any committee of such Board of Directors, however designated, authorized to exercise the powers of such Board of Directors in respect of the matters in question. "business day" means any day which is not a Saturday, Sunday or other day on which banking institutions in the State in which the Trustee shall maintain its principal office are authorized or obligated by law or required by executive order to close. "capital stock" includes any and all shares, interests, participations or other equivalents (however designated) of corporate stock of any corporation. 2 13 "Certified Resolution" means a copy of a resolution or resolutions certified, by the Secretary or an Assistant Secretary of the corporation referred to, as having been duly adopted by the Board of Directors of such corporation or any committee of such Board of Directors, however designated, authorized to exercise the powers of such Board of Directors in respect of the matters in question and to be in full force and effect on the date of such certification. "Change in Control" has the meaning specified in Section 7.5. "Commission" means the United States Securities and Exchange Commission. "common stock" means any capital stock of a corporation which is not preferred as to the payment of dividends or the distribution of assets on any voluntary or involuntary liquidation over shares of any other class of capital stock of such corporation. "Company" shall mean and include ShoLodge, Inc. until any successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Order" and "Company Request" mean, respectively, a written order or request signed in the name of the Company by its Chairman of the Board, Vice-Chairman of the Board, President or any Vice President and its Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and delivered to the Trustee. "Consolidated Net Income" means, for any period, the Company's consolidated net income for such period as determined in accordance with generally accepted accounting principles as consistently applied by the Company, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary non- operating gains and (ii) the net income of any person combined with the Company or one of its Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination. "Consolidated Net Loss" means, for any period, the Company's consolidated net loss (if any) for such period as determined in accordance with generally accepted accounting principles as consistently applied by the Company, adjusted, to the extent included in calculating such net loss, by excluding, without duplication, (i) all extraordinary non-operating losses and (ii) the net loss of any person combined with the Company or any of its Subsidiaries on a pooling of interests basis attributable to any period prior to the date of combination. "Consolidated Net Worth" means, with respect to the Company and its Subsidiaries as of any date, the net worth of the Company and its Subsidiaries as of such date as determined on a consolidated basis in accordance with generally accepted accounting principles as consistently applied by the Company. 3 14 "corporation" shall mean and include corporations, associations, companies and business trusts. "covenant defeasance" shall have the meaning as set forth in Section 12.2. "daily newspaper" shall mean The Wall Street Journal or another newspaper in the English language of national circulation in New York, New York and customarily published on each business day of the year, whether or not such newspaper is published on Saturdays, Sundays and legal holidays. "date of this Indenture" means the date set forth on the cover page of this Indenture. "day" means a calendar day. "Default" means any act or occurrence of the character specified in Section 8.1, but excluding any notice or lapse of time, or both, specified therein. "Defaulted Interest" has the meaning specified in Section 2.3. "Equity Securities" means any and all shares of the Company's capital stock (other than Redeemable Capital Stock), and any rights (other than Indebtedness convertible into capital stock), warrants or options to acquire the Company's capital stock (other than warrants or options to acquire Redeemable Capital Stock). "Event of Default" means any act or occurrence of the character specified in Section 8.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive Officer" means, with respect to any corporation, the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, any other Vice President or the Treasurer of such corporation. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction; provided, however, that, except with respect to any asset or assets constituting less than $3,000,000, the Fair Market Value shall be required to be determined by the Board of Directors of the Company, acting in good faith, and shall be evidenced by resolutions of the Board of Directors of the Company delivered to the Trustee. "Indebtedness" means (a) indebtedness for money borrowed (other than the Notes) for the payment of which the Company or any Subsidiary is responsible or liable or the payment of which the Company or any Subsidiary has guaranteed, whether such indebtedness is outstanding as of 4 15 the date hereof or thereafter created, incurred, assumed or guaranteed by the Company or any Subsidiary, (b) capital lease obligations of the Company and any Subsidiary determined in accordance with generally accepted accounting principles, (c) any obligation of the Company or any Subsidiary to reimburse banks or others pursuant to letters of credit or guaranties extended by such banks or others, advances made by such banks and other credit arrangements entered into with such banks in connection with tax-exempt obligations issued for the benefit of the Company or any Subsidiary, (d) all liabilities for the deferred purchase price of property or services, or under any conditional sale or title retention agreement, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business and not otherwise constituting Indebtedness under any other clause of this definition, (e) all Redeemable Capital Stock and (f) renewals, extensions, modifications and refundings of any such indebtedness or obligations; provided, however, that the term "Indebtedness" does not include any indebtedness that has been irrevocably defeased in accordance with the applicable terms thereof and an amount in cash or U.S. Government Obligations or any combination thereof sufficient to pay all obligations under such indebtedness when and as due has been irrevocably deposited with a trustee or similar third party in connection therewith. "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. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "legal defeasance" shall have the meaning set forth in Section 12.2. "Lien" means any mortgage, lien, pledge, charge or other security interest or encumbrance of any kind. "main office" with reference to the Trustee shall mean the principal corporate trust office of the Trustee, which office is, on the date of this Indenture, located at Bankers Trust Company, Four Albany Street, New York, NY 10006, Attention: Corporate Trust and Agency Group. "maturity" or "mature," 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 Stated Maturity or by declaration of acceleration, call for redemption at the option of the Company pursuant to Article 6 or presentment for repayment as provided in Article 7 hereof, or otherwise. "Note" or "Notes" mean one or more of the notes comprising the Company's issue of Notes issued, authenticated and delivered under this Indenture or any indenture supplemental hereto creating one or more series of additional notes. "Note Register", "Note Co-Registrar" and "Note Registrar" have the respective meanings specified in Section 2.6. 5 16 "Noteholder," "noteholder," "holder of the Notes," "Holder" or "holder" or other similar terms mean any person in whose name, as of any particular date, a Note is registered on the Note Register. "Officers' Certificate" means a certificate signed by the Chairman of the Board, President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate, to the extent required, shall comply with the provisions of Section 16.3 hereof. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company and who shall be reasonably satisfactory to the Trustee. Each such Opinion of Counsel shall include the statements provided for in Section 16.03 if and to the extent required by the provisions of such Section. "Original Issue Date" with respect to any Note (or portion thereof) means the earlier of (A) the date of such Note or (B) the date of any Note (or portion thereof) for which such Note was issued (directly or indirectly) on registration of transfer, exchange or substitution. "outstanding" means, as of the date of determination, all Notes which theretofore shall have been authenticated and delivered by the Trustee under this Indenture, except (A) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation, (B) Notes or portions thereof for the payment or redemption of which money in the necessary amount shall have been deposited with the Trustee or any paying agent in trust for the holders of the Notes; provided, however, that in the case of redemption, any notice required shall have been given or have been provided for to the satisfaction of the Trustee, and (C) Notes in exchange or substitution for or in lieu of which other Notes have been authenticated and delivered under any of the provisions of this Indenture. Notwithstanding the foregoing provision of this paragraph, Notes in exchange or substitution for or in lieu of which other Notes have been authenticated and delivered under Section 2.10 hereof and which have not been surrendered to the Trustee for cancellation or the payment of which shall not have been duly provided for, shall be deemed to be outstanding. In determining whether the Noteholders of the requisite principal amount of Notes outstanding 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, including any Subsidiary, or such other obligor shall be disregarded and deemed not 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 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 a Subsidiary or such other obligor. "paying agent" means any person authorized by the Company to pay the principal of, premium, if any, and interest on any Notes on behalf of the Company. 6 17 "person" means any individual, partnership, corporation, trust, unincorporated association, joint venture, government or any department or agency thereof, or any other entity. "place of payment" means such place as designated in Section 2.3 hereof. "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 2.10 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note. "Proceeding" means any suit in equity, action at law or other legal, equitable, administrative or similar proceeding. "Redeemable Capital Stock" means any class or series of capital stock of the Company or any of its Subsidiaries (other than any Subsidiary's capital stock owned by the Company) that either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed or is redeemable at the option of the holder thereof or is convertible into or exchangeable for debt securities of the Company or any of its Subsidiaries. "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. "Regular Record Date" has the meaning specified in Section 2.3. "Responsible Officers" of the Trustee means the Chairman of the Board of Directors, every Vice Chairman of the Board of Directors, the President, the Chairman or any Vice Chairman of the Executive Committee of the Board, the Chairman of the Trust Committee, every Vice President, every Assistant Vice President, the Cashier, every Assistant Cashier, the Secretary, every Assistant Secretary, the Treasurer, every Assistant Treasurer, every Trust Officer, every Assistant Trust Officer, the Controller, every Assistant Controller, and every other officer and assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be any such officers and also means, with respect to a particular corporate trust matter, any other officer to whom such corporate trust matter is referred because of such officer's knowledge and familiarity with a particular subject. "Restricted Payment" has the meaning set forth in Section 4.12. "Senior Indebtedness" shall mean the following, whether outstanding as of the date hereof or hereafter created, incurred, assumed or guaranteed by the Company or any Subsidiary, (a) indebtedness (other than the Notes and the 1994 Debentures) for the payment of which the Company or any Subsidiary is responsible or liable or the payment of which the Company or any Subsidiary has guaranteed, (b) capital lease obligations of the Company or any Subsidiary 7 18 determined in accordance with generally accepted accounting principles, (c) any obligation of the Company or any Subsidiary to reimburse banks or others pursuant to letters of credit or guaranties extended by such banks or others, advances made by such banks or others and other credit arrangements entered into with such banks or others in connection with tax-exempt obligations issued for the benefit of the Company or any Subsidiary, (d) any obligation of the Company or any Subsidiary for the deferred purchase price of real or personal property, including any purchase money indebtedness or conditional sales obligations and obligations under title retention agreements, and (e) renewals, extensions, modifications and refundings of any such indebtedness or obligations, provided, however, that SeniorIndebtedness shall not include indebtedness which by its terms refers explicitly to the Notes issued hereunder and states that such indebtedness shall be subordinate to the Notes issued hereunder. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.3. "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 is due and payable. "Subsidiary" means any corporation more than fifty percent (50%) of whose shares of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation irrespective of whether or not at the time stock of any other class or classes shall or might have voting power by reason of the happening of any contingency, is owned or controlled directly or indirectly by the Company. "supplemental indenture" or "indenture supplemental hereto" mean any indenture hereafter duly authorized and entered into in accordance with the provisions of this Indenture. "Total Consolidated Capitalization" means, with respect to the Company and its Subsidiaries as of any date, the sum of (i) the Consolidated Net Worth of the Company and its Subsidiaries as of such date, plus (ii) the total Indebtedness of the Company and its Subsidiaries as of such date. "Trustee" means Bankers Trust Company, and, subject to the provisions of the Indenture, shall also include any successor trustee. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in force at the date as of which this instrument was executed. All accounting terms used in this Indenture shall have the meanings assigned to them in accordance with generally accepted accounting principles and practices employed at the time by the Company. 8 19 ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES 2.1 Designation, Amount and Issue of Notes. The Notes shall be designated as set forth in one or more indentures supplemental hereto. Notes in an aggregate principal amount up to $125,000,000, to bear such rates of interest, to mature at such time or times and to have such other provisions as may be provided in this Indenture, or from time to time in one or more series thereafter pursuant to an applicable supplemental indenture, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its Chairman of the Board, the President or an Executive Vice President or any Vice President, without any further action by the Company hereunder. 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by the Notes shall be substantially in the form as in any supplemental indenture under which such Notes are issued. Any of the Notes may have imprinted thereon such legends or endorsements as the officer or officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture or any supplemental indenture under which the Notes are issued, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Notes may be listed, or to conform to usage. With respect to the Notes of any particular series, the Company may incorporate in, add to or delete from the general title of such Notes any words, letters or figures designed to distinguish that series, pursuant to authority of the Board. 2.3 Denominations, Dates, Interest Payment and Record Dates. The Notes shall be issuable as registered Notes without coupons in the denominations of $1,000 and any integral multiple of $1,000, and shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plan as the officers of the Company executing the same may determine with the approval of the Trustee. The Notes shall be dated the date of authentication thereof by the Trustee and may be issued at a discount and shall bear interest as set forth in the Form of such Note. The term "Regular Record Date" as used with respect to an interest payment date for any series of Notes shall mean such day or days as shall be specified in any supplemental indenture pursuant to which the Notes are issued; provided, however, that in the absence of any such provisions with respect to any series of Notes, such term shall mean (1) the last day of the calendar month preceding such interest payment date if such interest payment date is the fifteenth day of a calendar month; or (2) the fifteenth day of the calendar month next preceding such interest payment date if such interest payment date is the first day of a calendar month. 9 20 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 registered 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 (a) or clause (b) below: (a) 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 (the "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 twenty (20) nor less than ten (10) days prior to the date of the proposed payment and not less than thirty-five (35) 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 Noteholder at his address as it appears in the Note Register, not less than ten (10) days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a Daily Newspaper in each place of payment, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective predecessor Notes) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon 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. The principal of and the premium, if any, and the interest on the Notes shall be paid at the office or agency of the Company which shall be located at the main office of the Trustee (the "place 10 21 of payment") in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that interest on any Notes may be payable, at the option of the Company, by check mailed to the person entitled thereto as such person's address shall appear on the Note Register. 2.4 Numbers and Legends on Notes. Notes may bear such numbers, letters or other marks of identification or designation, may be endorsed with or have incorporated in the text thereof such legends or recitals with respect to transferability or in respect of the Note or Notes for which they are exchangeable, and may contain such provisions, specifications and descriptive words, not inconsistent with the provisions of this Indenture, as may be determined by the Company or as may be required to comply with any law or with any rule or regulation made pursuant thereto. 2.5 Execution of Notes. Each Note shall be signed in the name and on behalf of the Company by one or more of its officers. The signature of an officer of the Company may, if permitted by law, be in the form of a facsimile signature and may be imprinted or otherwise reproduced on the Notes. In case any officer of the Company who shall have signed, or whose facsimile signature shall be borne by, any of the Notes shall cease to be such officer of the Company before the Notes so executed shall be actually authenticated and delivered by the Trustee, such Notes shall nevertheless bind the Company and may be authenticated and delivered as though the person whose signature appears on such Notes had not ceased to be such officer of the Company. 2.6 Registration of Transfer of Notes. The Company shall keep or cause to be kept at the main office of the Trustee books for the registration of transfer of Notes issued hereunder (herein sometimes referred to as the "Note Register") and upon presentation for such purpose at such office the Company will register or cause to be registered the transfer therein, under such reasonable regulations as it may prescribe, of such Notes. The Trustee is hereby appointed "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more "Note Co-Registrars" for such purpose as the Board of Directors may determine where Notes may be presented or surrendered for registration, registration of transfer or exchange and such books, at all reasonable times, shall be open for inspection by the Trustee. 2.7 Exchange and Registration of Transfer of Notes. Whenever any Note shall be surrendered to the Company at an office or agency referred to in Section 4.2 hereof, for registration of transfer or exchange, duly endorsed or accompanied by a proper written instrument or instruments of assignment and transfer thereof or for exchange in form satisfactory to the Company and the Trustee, or any Note Registrar or Note Co-Registrar, duly executed by the holder thereof or his attorney duly authorized in writing, the Company shall execute, and the Trustee shall authenticate and deliver, in exchange therefor, a Note or Notes in the name of the designated transferee, as the case may require, for a like aggregate principal amount and of such authorized denomination or denominations as may be requested. 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. 11 22 The Company, at its option, may require the payment of a sum sufficient to reimburse it for any stamp tax or other governmental charge or expense that may be imposed in connection with any exchange or transfer of Notes other than exchanges pursuant to Section 2.8 or 14.5 not involving any transfer. No service charge will be made for any such transaction. The Company shall not be required to issue or to make registrations of transfer or exchanges of Notes for a period of fifteen (15) days immediately preceding the date of any selection of Notes to be redeemed. The Company shall not be required to issue or to make registrations of transfer or exchanges of any Notes which have been selected for redemption in whole or in part, except in the case of any Note to be redeemed in part, for which the Company shall register transfers and make exchanges of the portion thereof not so to be redeemed. Upon delivery by any Note Co-Registrar of a Note in exchange for a Note surrendered to it in accordance with the provisions of this Indenture, the Note so delivered shall for all purposes of this Indenture be deemed to be duly registered in the Note Register; provided, however, that in making any determination as to the identity of persons who are holders, the Trustee shall, subject to the provisions of Section 11.2, be fully protected in relying on the Note Register kept at the main office of the Trustee. 2.8 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 may be printed, lithographed, typewritten, mimeographed or otherwise reproduced. Temporary Notes shall be issuable in any authorized denomination, and substantially of the tenor of the definitive Notes in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the officers of the Company executing such Notes as evidenced by their execution of such Notes. Every such temporary Note shall be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. If temporary Notes are issued, without unreasonable delay, the Company will execute and deliver to the Trustee definitive Notes and thereupon any and all temporary Notes may be surrendered in exchange therefor, at the offices referred to in Section 4.2, and the Trustee shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes of authorized denominations. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes authenticated and delivered hereunder. 2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes. The Company, the Trustee or any agent of the Company or the Trustee may deem and treat (A) the registered holder of any temporary Note, and (B) the registered holder of any definitive Note, as the absolute owner of such Note in accordance with Section 9.1. 2.10 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, then upon the satisfaction of the conditions hereinafter set forth in this 12 23 Section 2.10 the Company (A) shall, in the case of any mutilated Note, and (B) shall, in the case of any destroyed, lost or stolen Note, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, execute, and upon the written request of the Company, the Trustee shall authenticate and deliver, a new Note of like principal amount bearing a number not contemporaneously outstanding, in exchange and substitution for and upon surrender and cancellation of the mutilated Note or in lieu of and substitution for the Note so destroyed, lost or stolen; provided, however, that if any such mutilated, destroyed, lost or stolen Note shall have become or shall be about to become due and payable, or shall have been selected or called for redemption, the Company may instead of issuing a substituted Note, pay such Note without requiring the surrender thereof, except that such mutilated Note shall be surrendered. The applicant for such substituted Note shall furnish to the Company and to the Trustee evidence satisfactory to them, in their discretion, of the ownership of and the destruction, loss or theft of such Note and shall furnish to the Company and to the Trustee and any Note Registrar such security or indemnity as may be required by them to save each of them harmless, and, if required, shall reimburse the Company for all expenses (including any tax or other governmental charge and the fees and expenses of the Trustee) in connection with the preparation, authentication and delivery of such substituted Note, and shall comply with such other reasonable regulations as the Company, the Trustee, or either of them, may prescribe. Every new Note issued pursuant to this Section 2.10 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 proportionally with any and all other Notes duly issued hereunder. The provisions of this Section 2.10 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. 2.11 Authentication of Notes. Subject to the qualifications hereinbefore set forth, the Notes to be issued hereby shall be substantially of the tenor and effect set forth in the supplemental indenture providing for their issuance, and no Notes shall be entitled to the benefit hereof, or shall be or become valid or obligatory for any purpose unless there shall be endorsed thereon an authentication certificate executed by the Trustee; and such certificate on any Note issued by the Company shall be conclusive evidence and the only competent evidence that it has been duly authenticated and delivered hereunder. 2.12 Surrender and Cancellation of Notes. All Notes surrendered for payment, redemption, transfer, exchange or conversion shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and, if not already canceled, 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 13 24 be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.12, except as expressly permitted by this Indenture. The Trustee shall deliver all canceled Notes held by it to the Company at least annually. ARTICLE 3 SUBORDINATION OF NOTES 3.1 Agreement to Subordinate. The Company, for itself, its successors and assigns, covenants and agrees, and each holder of Notes, by his acceptance thereof, likewise covenants and agrees, that the payment of the principal of and premium, if any, and interest on each and all of the Notes is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness (including Accrued Bankruptcy Interest). This Article 3 constitutes a continuing offer to all persons or entities who become holders of, or continue to hold, Senior Indebtedness, each of whom is an obligee hereunder and is entitled to enforce such holder's rights hereunder, subject to the provisions hereof, without any act or notice of acceptance hereof or reliance hereon. For purposes of this Article 3, (a) no Senior Indebtedness shall be deemed to have been paid in full unless and until all commitments or other obligations of the lenders thereunder to make advances or otherwise extend credit shall have terminated and the holders thereof shall have received payment in full in cash or other consideration accepted by the holders of the Senior Indebtedness, and (b) the term "Representative" shall mean the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. 3.2 Distribution on Dissolution, Liquidation, Bankruptcy or Reorganization. Upon any distribution of assets of the Company upon any total or partial dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Company or otherwise, (a) the holders of all Senior Indebtedness shall be entitled to receive payment in full of the amounts due on or in respect of such Senior Indebtedness before the holders of the Notes are entitled to receive any direct or indirect payment or distribution on or in respect of the Notes; and (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee (except those sums to which the Trustee is entitled under Section 11.7) would be entitled except for the provisions of this Section 3.2 shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise (collectively, a "trustee in 14 25 bankruptcy"), directly to the holders of Senior Indebtedness or their respective Representatives, ratably according to the aggregate amounts remaining unpaid on account of such Senior Indebtedness held or represented by each, for application to or to be held as collateral for the payment or prepayment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article 10 shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Article 3 if such other corporation shall, as a part of such consolidation, merger, sale or conveyance, comply with the conditions stated in Article 10. If the Trustee or any holder of Notes does not file a proper claim or proof of debt in the form required in any proceeding referred to above prior to 30 days before the expiration of the time to file such claim in such proceeding, then the holder of any Senior Indebtedness (or its Representative) is hereby authorized, and has the right, to file an appropriate claim or claims for or on behalf of such holder of Notes. 3.3 Default on Senior Indebtedness. No direct or indirect payment or distribution (other than payments or distributions of amounts previously deposited in accordance with the defeasance provisions of the Indenture) shall be made by or on behalf of the Company on account or in respect of principal of or premium, if any, or interest on the Notes or on account or in respect of the purchase, redemption or other acquisition or deposits in trust in respect of defeasance of Notes (including without limitation any purchase of a Note required as a result of a Change in Control), if there shall have occurred and be continuing any default in the payment when due (at maturity, upon acceleration of maturity, upon mandatory prepayment, or otherwise) in respect of any Senior Indebtedness continuing beyond the period of grace, if any, specified in the instrument or agreement creating or evidencing such Senior Indebtedness (a "Payment Default"), unless such default shall have been effectively waived in writing by the holders of such Senior Indebtedness in default or unless the holders of such Senior Indebtedness in default shall have delivered to the Trustee a written notice of waiver of the benefits of this sentence. In addition, if any event of default with respect to any Senior Indebtedness, other than a Payment Default occurs and is continuing and as a result thereof the maturity of such Senior Indebtedness may be accelerated (such an event of default being referred to herein as a "Covenant Default"), and the Company and the Trustee receive written notice (such notice being herein referred to as a "Deferral Notice") thereof from the holders of at least 10% in principal amount of Senior Indebtedness, then no direct or indirect payment or distribution (other than payments or distributions of amounts previously deposited in accordance with the defeasance provisions of the Indenture) shall be made by or on behalf of the Company on account or in respect of principal of or premium, if any, or interest on the Notes or on account of the purchase, redemption or other acquisition or deposits in trust in respect of defeasance of Notes (including without limitation any purchase of a Note required as a result of a Change in Control) until the earlier to occur of (x) the date such Covenant Default is cured, effectively waived in writing by the holders of such Senior Indebtedness or otherwise ceases to exist in accordance with the terms of the instruments or agreements creating 15 26 or evidencing such Senior Indebtedness, (y) the date the holders of such Senior Indebtedness or their respective Representatives shall have delivered to the Trustee a written notice of waiver of the benefits of this sentence, or (z) the 179th day after receipt by the Company or the Trustee of such Deferral Notice, if in any such case this Article 3 otherwise permits such payment at such time; provided, however, that any number of Deferral Notices may be given, but during any 365 consecutive day period only one such period during which such payments on the Notes may not be made may commence and the duration of such period may not exceed 179 days, and provided, further, that no subsequent Deferral Notice relating to the same or any other Covenant Default existing or continuing on the date of receipt of any prior Deferral Notice, whether or not such subsequent Deferral Notice is received by the Company or Trustee within 365 days shall further prohibit such payments on the Notes unless all events of default in respect of such Senior Indebtedness shall have been cured or waived after the date of receipt of such prior Deferral Notice for a period of not less than 180 consecutive days. The provisions of this Section shall not apply to any payment with respect to which Section 3.2 would be applicable. 3.4 When Distribution must Be Paid over. In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be made to the Trustee or any holder of the Notes that because of this Article 3 should not have been made to it, the Trustee or such holder who receives such payment or distribution shall hold it in trust for, and shall immediately pay it over to, the trustee in bankruptcy or the holders of Senior Indebtedness for application to or to be held as collateral for the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. Upon any payment or distribution of assets of the Company referred to in this Article 3, the Trustee, subject to the provisions of Section 11.2, and the holders of the Notes shall be entitled to conclusively rely upon any order or decree made by a court of competent jurisdiction or upon any certificate of the liquidating trustee or agent or other person making any distribution to the Trustee or the holders of the Notes for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distribution thereon and all other facts pertinent thereto or to this Article 3. 3.5 Subrogation. After all Senior Indebtedness is paid in full and until the Notes are paid in full, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company made on behalf of such Senior Indebtedness until the Notes are paid in full. A distribution made under this Article 3 to holders of Senior Indebtedness which otherwise would have been made to holders of the Notes, and a payment over to the holders of Senior Indebtedness by holders of the Notes, is not, as between the Company and the holders of the Notes and the other creditors of the Company, a payment by the Company on the Senior Indebtedness. 16 27 3.6 Relative Rights. It is understood that the provisions of this Article 3 are and are intended solely for the purpose of defining the relative rights of the holders of the Notes, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article 3 or elsewhere in this Indenture, any supplemental indenture or in the Notes is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holders of the Notes the principal of and premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein, in any supplemental indenture or in the Notes 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 3 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 3.7 Payments on Notes Permitted. Nothing contained in this Indenture, any supplemental indenture or in any of the Notes shall (a) affect the obligation of the Company to make, or prevent the Company from making, at any time, except as provided in Sections 3.2 and 3.3, payments of principal of or premium, if any, or interest on the Notes, or (b) prevent the application by the Trustee of any moneys deposited with it hereunder to the payment of or on account of the principal of or premium, if any, or interest on the Notes, unless a Responsible Officer of the Trustee shall have received at its principal office written notice of the existence of any event prohibiting the making of such payment more than one business day prior to the date of such payment. 3.8 Authorization of Noteholders to Trustee to Effect Subordination. Each holder of Notes by the acceptance thereof authorizes and directs the Trustee in the behalf of such holder to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 3 and appoints the Trustee the attorney-in-fact of such holder for any and all such purposes. 3.9 Notice to Trustee. Notwithstanding the provisions of this Article 3 or any other provisions of this Indenture, neither the Trustee not any paying agent (other than the Company) shall be charged with knowledge of the existence of any Senior Indebtedness or of any event which would prohibit the making of any payment of moneys to or by the Trustee or such paying agent, unless and until the Trustee or such paying agent shall have received (in the case of the Trustee, at its main office) written notice thereof from the Company or from the holder of any Senior Indebtedness, together with proof reasonably satisfactory to the Trustee of such holding of Senior Indebtedness; provided, however, that if at least one business day prior to the date upon which by the terms hereof any such moneys may become payable for any purpose (including without limitation, the payment of either the principal of or premium, if any, or interest on any Note) the Trustee shall not have received with respect to such moneys the notice provided for in this Section 3.9, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall 17 28 not be affected by any notice to the contrary which may be received by it on or after such one business day prior to such date. The Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness to establish that such a notice has been given by a holder of Senior Indebtedness. In the event that the Trustee determines in good faith that further evidence is required with respect to the authority or right of any person as a holder of Senior Indebtedness to deliver notice or participate in any payment or distribution pursuant to this Article 3, then the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the authority of such person, the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the authority or rights of such person under this Article 3 and, if such evidence is not furnished, the Trustee may defer any payment to such person pending judicial determination as to the authority or right of such person to deliver notice or receive such payment. The Company shall promptly deliver an Officer's Certificate notifying the Trustee and each other paying agent of any facts known to the Company that would cause any payment or distribution with respect to the Notes to violate this Article 3, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness provided in this Article 3. 3.10 Trustee as Holder of Senior Indebtedness. Subject to the applicable provisions of the TIA, the Trustee shall be entitled to all the rights set forth in this Article 3 in respect of any Senior Indebtedness at anytime held by it to the same extent as any other holder of Senior Indebtedness. 3.11 Modification of Terms of Senior Indebtedness. Any renewal or extension of the time of payment of any Senior Indebtedness or the exercise by the holders of Senior Indebtedness of any of their rights under any instrument creating or evidencing Senior Indebtedness, including without limitation the waiver of default thereunder, may be made or done all without notice to or assent from the holders of the Notes or the Trustee. No compromise, alteration, amendment, supplement, modification, restructuring, extension, renewal or other change of, and no waiver, consent, release or other disposition of collateral or other security, or other action or inaction in respect of, any liability or obligation under or in respect of any Senior Indebtedness, or of any of the terms, covenants or conditions of any indenture or other instrument or agreement under which any Senior Indebtedness is outstanding, whether or not such action or inaction is in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Article 3 or of the Notes relating to the subordination thereof. The provisions of this Article 3 shall be effective or be automatically reinstated, as the case may be, if at any time any payment of any Senior Indebtedness is rescinded or must otherwise be returned by any holders of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. 18 29 3.12 Trustee Not Fiduciary for Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 3, and no implicit covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. 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 holder if it shall pay over or distribute in good faith to or on behalf of holders of Notes or the Company moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 3 or otherwise, except if such payment or distribution is made as a result of the gross negligence or willful misconduct of the Trustee. 3.13 Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Notes shall be impaired by any act or failure to act of the Company or by its failure to comply with this Indenture. ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY The Company covenants as follows: 4.1 Payment of Principal of and Premium, If Any, and Interest on Notes. The Company will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Notes at the time and place and in the manner provided in the Notes and this Indenture. 4.2 Maintenance of Office or Agency for Registration of Transfer, Exchange and Payment of Notes. So long as any of the Notes shall remain outstanding, the Company will maintain an office or agency, where the Notes may be surrendered for exchange or registration of transfer as in this Indenture provided, and where notices and demands to or upon the Company in respect to the Notes may be served, and where the Notes may be presented or surrendered for payment. The Company may also from time to time designate one or more other offices or agencies where Notes may be presented or surrendered for any and 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 Tennessee for such purposes. The Company will give to the Trustee notice of the location of any such office or agency and of any change of location thereof. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, such surrenders, presentations and demands may be made and notices may be served at the main office of the Trustee, and the Company hereby appoints the Trustee its agent to receive at the aforesaid office all such surrenders, presentations, notices and demands. The Trustee will give the Company prompt notice of any change in location of the Trustee's principal office. 19 30 4.3 Appointment to Fill a Vacancy in the Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 11.9, a Trustee, so that there shall at all times be a Trustee hereunder. 4.4 Provision as to Paying Agent. (a) If the Company appoints a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall undertake, subject to the provisions of this Section 4.4, (1) that it will hold all sums held by it as such agent for the payment of the principal of or premium, if any, or interest on the Notes whether such sums have been paid to it by the Company (or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes and will notify the Trustee of the receipt of sums to be so held, (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of or premium, if any, or interest on the Notes when the same shall be due and payable, and (3) that it will at any time during the continuance of any Event of Default specified in Section 8.1, upon the written request of the Trustee, deliver to the Trustee all sums so held in trust by it. (b) If the Company does not act as its own paying agent, it will, prior to each due date of the principal of or premium, if any, or interest on any Notes, deposit with such paying agent a sum sufficient to pay the principal or premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the holders of Notes entitled to such principal of or premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. (c) If the Company acts as its own paying agent, it will, on or before each due date of the principal of or premium, if any, or interest on the Notes, set aside, segregate and hold in trust for the benefit of the persons entitled thereto, a sum sufficient to pay such principal or premium or interest so becoming due and will notify the Trustee of any failure to take such action. (d) Anything in this Section 4.4 to the contrary notwithstanding, the Company may, for the purpose of obtaining a satisfaction and discharge of this Indenture in accordance with Article 12 hereof but only if and to the extent permitted thereby, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by it, or any paying agent hereunder, as required by this Section 4.4, such sums to be held by the Trustee upon the trusts herein contained. 20 31 4.5 Maintenance of Corporate Existence. So long as any of the Notes shall remain outstanding, the Company will at all times (except as otherwise provided or permitted in this Section 4.5 or elsewhere in this Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and franchises and the corporate existence and franchises of each Subsidiary; provided that nothing herein shall require the Company to continue the corporate existence or franchises of any Subsidiary if in the judgment of the Company it shall be necessary, advisable or in the interest of the Company to discontinue the same. 4.6 Further Assurance. From time to time whenever reasonably demanded by the Trustee the Company will make, execute and deliver or cause to be made, executed and delivered any and all such further and other instruments and assurances as may be reasonably necessary or proper to carry out the intention of or to facilitate the performance of the terms of this Indenture or to secure the rights and remedies hereunder of the holders of the Notes. 4.7 Officers' Certificate as to Default and Statement as to Compliance. The Company will, so long as any of the Notes are outstanding, (a) deliver to the Trustee within 105 days after the end of each fiscal year of the Company, beginning with the fiscal year ending in December, 1996, a brief certificate as to compliance signed by the principal executive officer, principal financial officer or principal accounting officer of the Company, stating that: (1) a review of the activities of the Company during such year and of the Company's performance under this Indenture and any and all supplemental indentures has been made under his or her supervision; and (2) to the best of such officer's knowledge, based on such review, the Company has complied with all conditions and covenants under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition or covenant, specifying each such default known to such officer and the nature and status thereof; and (b) deliver to the Trustee within five days after the occurrence thereof written notice of any acceleration which, with the giving of notice and the lapse of time, would be an Event of Default within the meaning of Section 8.1. 4.8 Will Pay Indebtedness. The Company will pay or cause to be paid all Indebtedness of the Company and of each Subsidiary, as and when same shall become due and payable, and will observe, perform and discharge or cause to be observed, performed or discharged in accordance with their terms all of the covenants, conditions and obligations which are imposed on it by any and all mortgages, indentures and other agreements evidencing or securing Indebtedness of the Company or any Subsidiary or pursuant to which such Indebtedness is issued, so as to prevent the occurrence of any act or omission which is a default thereunder, and which remains uncured or is not waived 21 32 for a period of thirty (30) days. The Company will notify the Trustee of any breach of the covenants contained in this Section 3.3 within ten (10) days after the Company has knowledge of such breach. 4.9 Will Keep, and Permit Examination of, Records and Books of Account and Will Permit Visitation of Property. The Company will (A) keep proper records and books of account in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and each Subsidiary, and (B) permit or cause to permit the Trustee, personally or by its agents, accountants and attorneys, to visit or inspect any of the properties, examine the records and books of account and discuss the affairs, finances and accounts, of the Company and each Subsidiary, with the officers of the Company and Subsidiaries at such reasonable times as may be requested by the Trustee. The Trustee shall be under no duty to make any such visit, inspection or examination. The Company covenants that books of record and account will be kept in which full, true and correct entries will be made of all dealings or transactions of, or in relation to, the properties, business and affairs of the Company. 4.10 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any 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 the connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any Subsidiary from discontinuing the operation and maintenance of any such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company or of the Subsidiary concerned, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the holders of the Notes. 4.11 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, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (ii) 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 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 and the Company shall have set aside on its books adequate reserves with respect thereto (segregated to the extent required by generally accepted accounting principles). 4.12 Limitations on Dividends and Other Payments. The Company will not, and will cause its Subsidiaries not to, directly or indirectly, do any of the following (each, a "Restricted 22 33 Payment"): (i) declare or pay any dividend or other distribution of property or assets in respect of the capital stock of the Company other than a dividend payable solely in shares of capital stock of the Company; (ii) repurchase any shares of the Company's capital stock; (iii) repay or defease any Indebtedness subordinate in right of payment of interest or principal to the Notes (except so long as the Notes are not in default, scheduled payments of principal and interest may be made in accordance with the terms of such subordinated Indebtedness); or (iv) exchange any shares of capital stock of the Company for newly-issued Indebtedness of the Company or any of its Subsidiaries. Notwithstanding the foregoing, the Company (and any of its Subsidiaries) may declare or make a Restricted Payment, if such Restricted Payment when aggregated with all other Restricted Payments made by the Company and its Subsidiaries after ______, 1996 is less than the sum of: (A) $8,500,000, plus (B) the excess of (1) fifty percent (50%) of the Company's aggregate Consolidated Net Income earned in each fiscal quarter during the period commencing on October 7, 1996 and ending on the last day of the fiscal quarter immediately preceding such Restricted Payment, over (2) 100% of the Company's aggregate Consolidated Net Loss (if any) incurred in each fiscal quarter during the period commencing on October 7, 1996 and ending on the last day of the fiscal quarter immediately preceding such Restricted Payment, plus (C) the aggregate net proceeds (including the Fair Market Value of non-cash proceeds) received by the Company from public or private offerings of Equity Securities after the date of this Indenture (including the issuance of Equity Securities upon the conversion of convertible Indebtedness or upon the exercise of options, warrants or rights to acquire Equity Securities) to any person other than a Subsidiary; provided that, notwithstanding the foregoing, the Company will not, and will cause its Subsidiaries not to, make any Restricted Payment if the making of the Restricted Payment would cause the Company or any of its Subsidiaries not to be in compliance with the terms, conditions and provisions of the Indenture or any indenture or loan agreement to which the Company or any of its Subsidiaries is a party. 4.13 Limitation on Other Senior Subordinated Indebtedness. The Company will not, and will cause its Subsidiaries not to, incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for, or permit to remain outstanding, any Indebtedness, other than the Notes, that (i) is expressly by its terms subordinate or junior in right of payment to any Senior Indebtedness and (ii) does not expressly provide by its terms that it is subordinate or junior in right of payment to the Notes. 4.14 Restrictions on Additional Indebtedness. The Company will not, and will cause its Subsidiaries not to, incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for, or permit to remain outstanding, any Indebtedness if, at the time of such incurrence, and after giving pro forma effect thereto, the total Indebtedness of the Company and its Subsidiaries, including the Notes, would exceed seventy percent (70%) of the Company's Total Consolidated Capitalization. 4.15 Minimum Consolidated Net Worth. The Company will not permit its Consolidated Net Worth on the last day of any fiscal quarter to be less than the sum of (i) $75,000,000, plus (ii) fifty percent (50%) of the Company's aggregate Consolidated Net Income since October 7, 1996. 23 34 ARTICLE 5 NOTEHOLDER LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 5.1 Noteholder Lists, Etc. (a) The Company will furnish or cause to be furnished to the Trustee, monthly, not more than fifteen (15) days after each Regular Record Date for any series a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of Notes of such series as of such Regular Record Date, and at such other times, as the Trustee may request in writing, within thirty (30) days after 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; provided, however, that so long as the Trustee is the sole Note Registrar, no such list shall be required to be furnished. (b) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the holders of Notes received by the Trustee in its capacity as Note Registrar contained in the most recent list furnished to it as provided in subsection (a) of this Section 5.1. The Trustee may destroy any list furnished to it as provided in subsection (a) of this Section 5.1, upon receipt of a new list so furnished. (c) In case three (3) or more holders of Notes of any series (hereinafter called "Applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such Applicant has owned a Note for a period of at least six (6) months preceding the date of such application, and such application states that the Applicants desire to communicate with other holders of Notes of such series with respect to their rights under this Indenture, any supplemental indenture or under the Notes, and is accompanied by a copy of the form of proxy or other communication which such Applicants propose to transmit, then the Trustee shall, within five (5) business days after the receipt of such application, at its election, either (1) afford to such Applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (b) of this Section 5.1; or (2) inform such Applicants as to the approximate number of holders of Notes whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subsection (b) of this Section 5.1, and as to the approximate cost of mailing to such Noteholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford to such Applicants access to such information, the Trustee shall, upon the written request of such Applicants, mail to each Noteholder whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (b) of this Section 5.1, a copy of the form of 24 35 proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment or provision for the payment of the reasonable expenses of mailing, unless within five (5) days after such tender the Trustee shall mail to such Applicants and file with the Commission together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Notes, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one (1) or more of such objections, the Commission shall find, after notice and opportunity for a hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Noteholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such Applicants respecting their application. (d) Every holder of the Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee, nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Notes in accordance with the provisions of subsection (c) of this Section 5.1, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (c). 5.2 Reports by Company. The Company covenants and agrees: (a) To file with the Trustee within fifteen (15) days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents, or reports pursuant to either of such Sections, then the Company will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) To file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations; 25 36 (c) To transmit to the holders of the Notes, in the manner and to the extent provided in subsection (c) Section 313 of the TIA, such summaries of any information, documents, and reports required to be filed by the Company pursuant to subsection (a) or subsection (b) as may be required by the rules and regulations promulgated by the Commission; and (d) To furnish to the Trustee with or as a part of each annual report and each other document or report filed with the Trustee pursuant to subsection (a), (b) or (c) of this Section 5.2, an Officers' Certificate stating that in the opinion of each of the signers such annual report or other document or report complies with the requirements of such subsection (a), (b) or (c). Each certificate furnished to the Trustee pursuant to the provisions of this Section 5.2 shall conform to the requirements of Section 16.3 hereof. 5.3 Reports by Trustee. The Trustee shall as provided in TIA Section 313(c), if required thereunder, transmit within sixty (60) days after January 1, 1997 and each January 1 thereafter, a brief report as provided in TIA Section 313(a) to the Noteholders of any series of Notes then outstanding. A copy of each such report shall, at the time of such transmission to the Noteholders, be filed by the Trustee with each stock exchange upon which the Notes are listed and also with the Commission. ARTICLE 6 REDEMPTION OF NOTES AT COMPANY'S OPTION 6.1 Election by Company to Redeem Notes. The Notes of any series shall be redeemable at any time prior to the Stated Maturity thereof, upon notice as provided in this Article 6, as a whole at any time, or in part from time to time (but only in principal amounts of $1,000 or any integral multiple thereof), at the option of the Company, prior to maturity, commencing on the date or dates set forth in the applicable supplemental indenture for each series of Notes , on not less than 30 nor more than 60 days' notice given as provided in the Indenture or any applicable supplemental indenture upon payment of the then applicable redemption price (expressed in percentages of the principal amount) set forth in the applicable supplemental indenture under the heading "General Redemption Prices," together in each case with accrued and unpaid interest to the date fixed for redemption, all subject to the conditions more fully set forth in the applicable supplemental indenture. The election of the Company to redeem any Notes shall be evidenced by an Officer's Certificate. Whenever any of the Notes outstanding are to be redeemed pursuant to this Section 6.1, the Company shall give the Trustee at least sixty (60) days' written notice (or such shorter period of time as is acceptable to the Trustee) prior to the Redemption Date of such Redemption Date and of the principal amount of Notes to be redeemed. 26 37 6.2 Redemption of Part of Notes. In case of the redemption of less than all of the outstanding Notes of any series, the Notes to be redeemed shall be selected by the Trustee by lot or any other method deemed reasonable by the Trustee, not more than sixty (60) days prior to the Redemption Date, from the outstanding Notes not previously called for redemption, which method may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of such series of Notes of a principal amount larger than $1,000. In the case of any partial redemption, the Trustee shall promptly notify the Company in writing of the serial numbers (and, in the case of any Note which is to be redeemed in part only, the portion of the principal amount thereof to be redeemed) of the Notes selected for redemption. 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 Note redeemed or to be redeemed only in part, to the portion of the principal of such Note which has been or is to be redeemed. 6.3 Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, to each holder of Notes to be redeemed, at his last address appearing in the Note Register. All notices of redemption shall state: (a) The Redemption Date; (b) The redemption price; (c) If less than all outstanding Notes of any series are to be redeemed, the serial numbers (and, in the case of any Note which is to be redeemed in part only, the portion of the principal amount thereof to be redeemed) of the Notes to be redeemed; (d) That on the Redemption Date the redemption price of each of the Notes to be redeemed will become due and payable, and that interest thereon shall cease to accrue from and after said date; and (e) The place where such Notes are to be surrendered for payment of the redemption price, which shall be the office or agency of the Company in the place of payment. Notice of redemption of Notes to be redeemed shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Failure to give notice of redemption, or any defect therein, to any holder of any Note selected for redemption shall not impair or affect the validity of the redemption of any other Note. 27 38 6.4 Deposit of Redemption Price. On or before the business day immediately preceding any Redemption 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 4.4(c) hereof) an amount of money sufficient to pay the redemption price of all principal of, and (unless such Redemption Date is an Interest Payment Date) accrued interest on, the Notes which are to be redeemed on that date. 6.5 Date on Which Notes Cease to Bear Interest, Etc. Notice of redemption having been given as aforesaid, the Notes so to be 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) such Notes shall cease to bear interest. Upon surrender of any 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 thereon 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 on the relevant Regular Record Dates according to the terms and provisions of Section 2.3 hereof. 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. Any Note which is to be redeemed only in part shall be surrendered at the office or agency designated pursuant to Section 4.2 hereof (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 of such series of any authorized denomination or denominations as requested by such holder in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. 6.6 All Notes Delivered. All Notes redeemed pursuant to Section 6.1 hereof shall be canceled and destroyed by the Trustee in accordance with the existing regulations of (or those hereafter promulgated by) the Commission, and the Trustee shall deliver its certificate thereof to the Company. 28 39 ARTICLE 7 REDEMPTION OF NOTES AT HOLDER'S OPTION 7.1 Redemption Right at Holder's Option. (a) Unless pursuant to the terms of Section 8.1 the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled, a holder has the right to present Notes for payment prior to their maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder may specify) subject to the following limitations: (1) the Company will have no obligation to redeem any Notes prior to December 1, 1999, except on the death of a holder as described in Section 7.1(b) below and (2) the Company will have no obligation to redeem Notes (on the death of a holder or otherwise pursuant to this Section 7.1) in excess of the following annual maximum amounts (collectively, the "Annual Amount Limitations") of (A) $50,000 per holder and (B) an aggregate amount for all Notes submitted for redemption equal to five percent (5%) of the aggregate original principal amount of the Notes of all series issued under the Indenture (the "Five Percent Limitation"). Notes submitted for redemption pursuant to this Section 7.1, except for Notes submitted for redemption following the death of a holder, must be submitted by November 1 of any year, commencing on November 1, 1999, for redemption on the following December 1. If the $50,000 per holder limitation has been reached and the Five Percent Limitation has not been reached, if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $50,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt), up to the aggregate limitation of five percent (5%) of the aggregate principal amount of the Notes of all series issued under this Indenture, notwithstanding the $50,000 limitation. (b) Subject to the Annual Amount Limitations (and unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled), Notes submitted for redemption upon the death of any holder (or any portion of the principal amount of such Notes which is $1,000 or an integral multiple thereof, as the holder may specify), will be redeemed within sixty (60) days following receipt by the Trustee of a written request therefor from such holder's personal representative, or surviving joint tenant(s), tenant by the entirety or tenant(s) in common. 7.2 Redemption Procedure. Notes presented for redemption pursuant to Section 7.1(a) or (b) will be redeemed in order of their receipt by the Trustee, except that Notes presented for payment in the event of death of a holder pursuant to Section 7.1(b), will be given priority in order of their receipt, over other Notes. Notes not redeemed in any such period because they have not been presented prior to November 1 of that period or because of the Annual Amount Limitations 29 40 will be held in order of their receipt for redemption during the following twelve (12) month period(s) until redeemed, unless sooner withdrawn by the holder. Holders of Notes presented for redemption shall be entitled to and shall receive scheduled monthly payments of interest thereon on scheduled Interest Payment Dates until their Notes are redeemed. Notes may be presented for redemption by delivering to the Trustee: (A) a written request for redemption, in form satisfactory to the Trustee, signed by the registered holder(s) or his or her duly authorized representative, (B) the Note to be redeemed, free and clear of any liens or encumbrances of any kind, and (C) in the case of a request made pursuant to Section 7.1(b), appropriate evidence of such death and, if made by a representative of a deceased holder, appropriate evidence of authority to make such request. No particular forms of request for redemption or authority to request redemption are necessary. The price to be paid by the Company for all Notes or portions thereof presented to it pursuant to the provisions described in this Section 7.1 is 100% of the principal amount thereof to be redeemed, plus accrued but unpaid interest on such principal amount to the date of payment. Any acquisition of Notes by the Company other than by redemption at the option of any holder pursuant to Section 7.1 shall not be included in the computation of Annual Amount Limitations for any period. For purposes of Section 7.1 and this Section 7.2, a Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person, who, during his lifetime, was entitled to substantially all of the beneficial interests of ownership of a Note will be deemed the death of the holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. For purposes of a holder's request for redemption and a request for redemption on behalf of a deceased holder, such beneficial interest shall be deemed to exist in cases of street name or nominee ownership, ownership under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh [H.R. 10] plans maintained solely by or for the holder or decedent or by or for the holder or decedent and his spouse), and trusts and certain other arrangements where a person has substantially all of the beneficial ownership interests in the Notes during his lifetime. Beneficial interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto. In the case of Notes registered in the names of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $50,000 limitation shall apply to each beneficial owner of Notes held by a Qualified Institution and the death of such beneficial owner shall entitle a Qualified Institution to seek redemption of such Notes as if the deceased beneficial owner were the record holder. Such Qualified Institution, in its request for redemption on behalf of such beneficial owners, must submit evidence, satisfactory to the Trustee, that it holds Notes on behalf of such beneficial owner and must certify that the aggregate amount of requests for redemption tendered by such Qualified Institution 30 41 on behalf of such beneficial owner in the initial period or in any subsequent twelve (12) month period does not exceed $50,000. In the case of any Notes which are presented for redemption in part only, upon such redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note(s), of any authorized denomination or denominations as requested by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented. Nothing herein shall prohibit the Company from redeeming, in acceptance of tenders made pursuant hereto, Notes in excess of the principal amount that the Company is obligated to redeem, nor from purchasing any Notes in the open market. However, the Company may not use any Notes purchased in the open market as a credit against its redemption obligations hereunder. 7.3 Withdrawal. Any Notes presented for redemption at the option of the holder may be withdrawn by the person(s) presenting the same upon delivery of a written request for such withdrawal to the Trustee prior to the issuance of a check in payment thereof. 7.4 Redemption Register. The Trustee shall maintain at its main office a register (the "Redemption Register") in which it shall record, in order of receipt, all requests for redemption received by the Trustee under Section 7.2. Unless withdrawn, all such requests shall remain in effect during the period in which they are received and thereafter from period to period, until the Notes which are the subject of such request have been redeemed. 7.5 Purchase of Notes at Option of the Holder Upon Change in Control. (a) If on or prior to maturity, there shall have occurred a Change in Control, each holder shall have the right to cause the Company to purchase all or a portion of the Notes of such holder on the date that is 35 business days after the occurrence of the Change of Control (the "Change in Control Purchase Date"), for a purchase price equal to the outstanding principal amount thereof plus accrued interest thereon to the Change in Control Purchase Date (the "Change in Control Purchase Price") subject to Article 3 and satisfaction by or on behalf of the holder of the requirements set forth in Section 7.5(c) below. A "Change in Control" shall be deemed to have occurred at such time as either of the following events shall occur: (i) The Company consolidates with or merges into another corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, other than, in any case, a transaction in which the shareholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, at least 50% of the combined voting power of the outstanding Voting Stock of the corporation resulting from such transaction in 31 42 substantially the same proportion as their ownership of the Voting Stock of the Company immediately prior to such transaction; or (ii) There is a report filed by any person, including its Affiliates and Associates (as defined herein), other than the Company or its Subsidiaries or employee stock ownership plans or employee benefit plans of the Company or its Subsidiaries, on Schedule 13D or 14D-1 (or any successor schedule, form or report) pursuant to the Exchange Act, disclosing that such person (for the purposes of this Section 7.5 only, the term "person" shall include a "person" within the meaning of Sections 13(d)(3) and 13(d)(5) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 under the Exchange Act) of more than 50% of the voting power of the Company's Voting Stock then outstanding; provided, however, that a person shall not be deemed the beneficial owner of, or to own beneficially, (A) any securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange thereunder, or (B) any securities if such beneficial ownership (1) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act, and (2) is not also then reportable on Schedule 13D (or any successor schedule, form or report) under the Exchange Act. "Voting Stock" means, with respect to any person, the capital stock of such person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Associate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. (b) Within 15 business days after the occurrence of a Change in Control, the Company shall mail a written notice of Change in Control by first-class mail to the Trustee and to each holder (and to beneficial owners as required by applicable law) and shall cause a copy of such notice to be published once in The Wall Street Journal or another daily newspaper of national circulation. The notice shall be accompanied by a form of Change in Control Purchase Notice to be completed by the holder and shall state: (1) the events causing a Change in Control and the date of such Change in Control; (2) the date by which the Change in Control Purchase Notice pursuant to this Section 7.5 must be given; 32 43 (3) the Change in Control Purchase Date; (4) the Change in Control Purchase Price; (5) the name and address of the Trustee and the office or agency referred to in Section 4.2; (6) that the Notes must be surrendered to the Trustee or the office or agency referred to in Section 4.2 to collect payment; (7) that the Change in Control Purchase Price for any Note as to which a Change in Control Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change in Control Purchase Date and the time of surrender of such Note described as in (6); (8) the procedures the holder must follow to exercise rights under this Section 7.5 and a brief description of those rights; and (9) the procedures for withdrawing a Change in Control Purchase Notice. (c) A holder may exercise its rights specified in Section 7.5 upon delivery of a written notice of purchase (a "Change in Control Purchase Notice") to the Trustee or to the office or agency referred to in Section 4.2 at any time prior to the close of business on the business day immediately prior to the Change in Control Purchase Date, stating: (1) the certificate number of the Note which the holder will deliver to be purchased; (2) the portion of the principal amount of the Note which the holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and (3) that such Note will be submitted for purchase on the Change in Control Purchase Date pursuant to the terms and conditions specified in the Notes or in any applicable supplemental indenture. The delivery of the Note, by hand or by registered mail prior to, on or after the Change in Control Purchase Date (together with all necessary endorsements), to the Trustee or to the office or agency referred to in Section 4.2 shall be a condition to the receipt by the holder of the Change in Control Purchase Price therefor; provided, however, that such Change in Control Purchase Price shall be so paid pursuant to this Section 7.5 only if the Note so delivered to the Trustee or such office or agency shall conform in all respects to the description thereof set forth in the related Change in Control Purchase Notice. 33 44 The Company shall purchase from the holder thereof, pursuant to this Section 7.5, a portion of a Note if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note. Any purchase by the Company contemplated pursuant to the provisions of this Section 7.5 shall be consummated by the delivery of the consideration to be received by the holder promptly following the later of the Change in Control Purchase Date and the time of delivery of the Note. (d) Effect of Change in Control Purchase Notice. Upon receipt by the Company of the Change in Control Purchase Notice specified in Section 7.5(c), the holder of the Note in respect to which such Change in Control Purchase Notice was given shall (unless such Change in Control Purchase Notice is withdrawn as specified in the following paragraph) thereafter be entitled to receive solely the Change in Control Purchase Price with respect to such Note. Such Change in Control Purchase Price shall be due and payable as of the Change in Control Purchase Date and shall be paid to such holder promptly following the later of (x) the Change in Control Purchase Date (provided the conditions of Section 7.5(c), as applicable, have been satisfied) and (y) the time of delivery of such Note to the Trustee or to the office or agency referred to in Section 4.2 by the holder thereof in the manner required by Section 7.5(c). A Change in Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Trustee or to the office or agency referred to in Section 4.2 at any time before the close of business on the business day immediately preceding the Change in Control Purchase Date, specifying: (1) the certificate number of the Note or Notes in respect of which such notice of withdrawal is being submitted; (2) the principal amount of the Note or Notes with respect to which such notice of withdrawal is being submitted; and (3) the principal amount, if any, of such Note or Notes which remains subject to the original Change in Control Purchase Notice, and which has been or will be delivered for purchase by the Company. There shall be no purchase of any Notes pursuant to Section 7.5 if there has occurred (prior to, on or after, as the case may be, the giving, by the holders of such Notes, of the required Change in Control Purchase Notice) and is continuing an Event of Default (other than a default in the payment of the Change in Control Purchase Price with respect to such Notes). (e) Deposit of Change in Control Purchase Price. On or prior to the Change in Control Purchase Date, the Company shall deposit with the Trustee (or, if the Company or a Subsidiary or 34 45 an Affiliate of either of them is acting as paying agent, segregate and hold in trust as provided in Section 4.4(c)) an amount of cash in immediately available funds, if expressly permitted hereunder, sufficient to pay the aggregate Change in Control Purchase Price, of all the Notes or portions thereof which are to be purchased. (f) Covenant to comply with securities laws upon purchase of Notes. In connection with any purchase of Notes under this Section 7.5 hereof, the Company shall make all filings required under and comply with all Federal and State securities laws regulating the purchase of the Notes so as to permit the rights and obligations under this Section 7.5 to be exercised in the time and in the manner specified in this Section 7.5. (g) Repayment to the Company. Subject to Section 16.2, the Trustee shall return to the Company any cash, together with interest or dividends, if any, thereon (subject to the provisions of Section 11.6) held by it for the payment of the Change in Control Purchase Price of the Notes, which remains unclaimed; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 7.5(e) exceeds the aggregate Change in Control Purchase Price of the Notes or portions thereof to be purchased, then promptly after the Change in Control Purchase Date the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 11.6). 7.6 Redemption of Notes Subject to Article 6. In the case of any Notes or portion thereof which are presented for redemption pursuant to this Article 7 and which have not been redeemed at the time the Company gives notice of its election to redeem Notes pursuant to Article 6, such Notes or portion thereof shall first be subject to redemption pursuant to Article 6 and if any such Notes or portion thereof are not redeemed pursuant to Article 6 they shall remain subject to redemption pursuant to Article 7. ARTICLE 8 REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT 8.1 Events of Default Defined. In case one or more of the following Events of Default shall have occurred and be continuing: (a) default in the payment, whether or not prohibited by the provisions of Article 3, of any installment of interest upon any of the Notes as and when the same shall become due and payable and continuance of such default for a period of 30 days; or (b) default in the payment, whether or not prohibited by the provisions of Article 3, of the principal of and premium, if any, on any of the Notes as and when the same shall become due and payable either at maturity, upon redemption or purchase by the Company by declaration or otherwise; or 35 46 (c) failure on the part of the Company duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture contained for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given (i) to the Company by the Trustee by registered or certified mail, which the Trustee shall do upon receipt of requests to do so by the holders of at least 25% in principal amount of the Notes at the time outstanding, or (ii) to the Company and the Trustee by the holders of at least 25% in principal amount of the Notes at the time outstanding; or (d) an event or events of default as defined in any mortgage, bond, indenture, loan agreement or other evidence of Indebtedness under which there may be issued or by which there may be secured or evidenced any outstanding Indebtedness of the Company or any Subsidiary in excess of $1,000,000 in the aggregate, which default or defaults extend beyond any period of grace provided with respect thereto and which default or defaults relate to (i) the obligation to pay the principal of or interest on any such Indebtedness, in either case, at the final maturity date set forth in the agreement under which such Indebtedness is issued or (ii) any other obligation which shall have resulted in the holders of such Indebtedness causing such Indebtedness to become or to be declared due and payable prior to the date on which it would otherwise become due and payable; or (e) the entry of a final non-appealable judgment for the payment of money against the Company or any of its Subsidiaries by a court having competent jurisdiction which results in a liability (after provision for the proceeds of any policy of insurance with respect to such liability) in excess of $5,000,000, which remains unpaid for a period of 60 days; or (f) a court having jurisdiction in the premises shall have entered a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall have remained unstayed and in effect for a period of 90 consecutive days; or (g) the Company shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have failed generally to pay its debts as they become due or shall have taken any corporate action in furtherance of any of the foregoing; 36 47 then and in each and every such case, unless the principal of all the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by noteholders), may, and the Trustee shall if requested to do so by the holders of not less than 25% in aggregate principal amount of the Notes then outstanding hereunder, declare to be due and payable immediately the entire amount of principal of and premium, if any, and interest owing and unpaid in respect of the Notes. Upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Indenture, any supplemental indenture or in the Notes to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after such principal amount of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Notes and the principal of and premium, if any, on any and all Notes which shall have become due otherwise than by declaration (with interest on overdue installments of interest to the extent permitted by law, and on such principal and premium, if any, at the rate of interest borne by the Notes to the date of such payment or deposit) and the expenses of the Trustee, and any and all defaults under the Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on Notes which shall have become due by declaration, shall have been remedied, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Company and to the Trustee as provided in Section 16.4, may waive all defaults and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Notes shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. 8.2 Payment of Notes on Default; Suit Therefor. The Company covenants that (1) in case default shall be made in the payment of any installment of interest on any of the Notes as and when the same shall become due and payable and such default shall have continued for a period of 30 days, or (2) in case default shall be made in the payment of the principal of and premium, if any, on any of the Notes when the same shall have become due and payable, whether upon maturity of the Notes or upon redemption or purchase by the Company pursuant to Article 6 or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee for the benefit of the holders of the Notes the whole amount that then shall have become due and payable, on all such Notes for principal of and premium, if any, or interest, or any or all of them, as the case may be, with interest upon the overdue principal and installments of interest (to the extent permitted by law) at the rate of interest borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to 37 48 the Trustee, its agents, attorneys and counsel, and any expense or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor upon the Notes, and collect in the manner provided by law out of the property of the Company or any other obligor upon the Notes wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor upon the Notes under any applicable bankruptcy, insolvency or similar law or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in case of any other similar judicial proceedings relative to the Company or any other obligor upon the Notes, or to creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 8.2, shall be entitled and empowered by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal of and premium, if any, and any interest owing and unpaid in respect of the Notes, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the noteholders allowed in any judicial proceeding relating to the Company or any other obligor upon the Notes, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the noteholders 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 noteholders, to pay to the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, liabilities and counsel fees out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, moneys, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. All rights of action and of asserting claims under this Indenture, any supplemental indenture or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the reasonable expenses, disbursements and compensation of the Trustee, its agents and attorneys, shall be for the ratable benefit of the holders of the Notes. 38 49 8.3 Application of Moneys Collected by Trustee. Any moneys collected by the Trustee pursuant to Section 8.2 shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee pursuant to Section 11.7; SECOND: In case no principal of the outstanding Notes shall have become due and be unpaid, to the payment of interest on the Notes, in the order of the maturity of the installments of such interest, with interest upon the overdue installments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee) at the rate of interest borne by the Notes, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; in case any principal and premium, if any, of the outstanding Notes shall have become due, by declaration or otherwise, to the payment of the whole amount then owing and unpaid upon the Notes for principal and interest, with interest on the overdue principal and premium, if any, and installments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee) at the rate of interest borne by the Notes; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest, without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any installment of interest over any other installments of interest, ratably to the persons entitled thereto, based on the aggregate of such principal, premium, if any, and accrued and unpaid interest; and THIRD: To the payment of the remainder, if any, to the Company, its successors or assigns or to whosoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. 8.4 Limitation on Suits by Holders of Notes. No holder of any Note shall have any right by virtue or by availing of any provision of this Indenture or any supplemental indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinabove provided, and unless also the holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 8.6; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders 39 50 of Notes shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture or any supplemental indenture to affect, disturb or prejudice the rights of the holders of any other of such Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes. For the protection and enforcement of the provisions of this Section 8.4, each and every noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. 8.5 Proceedings by Trustee; Remedies Cumulative and Continuing; Delay or Omission Not Waiver of Default. In case of a default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or any supplemental indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture, any supplemental indenture or by law. All powers and remedies given by this Article 8 to the Trustee or to the noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 8.4, every power and remedy given by this Article 8 or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the noteholders. 8.6 Rights of Holders of Majority in Principal Amount of Notes to Direct Trustee and to Waive Defaults. The holders of a majority in aggregate principal amount of the Notes at the time outstanding 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, however, that subject to the provisions of Section 11.2 the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel shall determine that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unjustly prejudicial to the noteholders. Prior to the declaration of the maturity of the Notes as provided in Section 8.1, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default hereunder and its consequences, except a default in the payment of interest or premium on, or the principal of, any of the Notes or default in respect of a covenant or provision hereof which under Section 14.2 cannot be modified or amended without consent of the holder of each outstanding Note. In the case of any such waiver, the Company, the Trustee and the holders 40 51 of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 8.7 Trustee to Give Notice of Defaults Known to It, but May Withhold in Certain Circumstances. The Trustee shall, within 90 days after the occurrence of a default hereunder of which a Responsible Officer of the Trustee has actual notice, give to the noteholders, in the manner and to the extent provided in Section 5.3 with respect to reports pursuant to Section 5.3, notice of such defaults known to the Trustee unless such defaults shall have been cured or waived before the giving of such notice (the terms "defaults" for the purposes of this Section 8.7 being hereby defined to be the events specified in clauses (a), (b), (c), (d), (e) and (f) of Section 8.1, not including any notice or periods of grace provided for in clauses (a), (c), (d) and (e), respectively, and irrespective of the giving of notice specified in clauses (c) and (d); provided that, except in the case of default in the payment of the principal of or premium, if any, or interest on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the noteholders. 8.8 Requirement of an Undertaking to Pay Costs in Certain Suits under the Indenture or Against the Trustee. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 8.8 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder or group of Noteholders, holding in the aggregate more than ten percent in aggregate principal amount of the Notes outstanding, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Note, on or after the due date expressed in such Note. 8.9 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 benefits or advantages 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. 41 52 ARTICLE 9 EVIDENCE OF RIGHTS OF NOTEHOLDERS AND OWNERSHIP OF NOTES 9.1 Evidence of Ownership of Definitive Notes and Temporary Notes Issued Hereunder in Registered Form. Prior to due presentment for registration of transfer of any Note, the Company, the Trustee, any Note Registrar, or any agent of the Company or the Trustee may deem and treat the person in whose name any Note shall be registered at any given time upon the Note Register as the absolute owner of such Note for the purpose of receiving any payment of, or on account of, the principal, premium, if any, and interest on such Note and for all other purposes whether or not such Note be overdue; and neither the Company nor the Trustee, nor any agent of the Company or the Trustee shall be bound by any notice to the contrary. All such payments made in accordance with the provisions of this Section 9.1 shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Note. ARTICLE 10 CONSOLIDATION, MERGER AND SALE 10.1 Company May Merge, Consolidate, Etc., Upon Certain Terms. The Company covenants that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any person, firm or corporation, unless (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and premium, if any, and interest on all the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture and any applicable supplemental indenture to be performed by the Company, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. If at any time there shall be any consolidation or merger or sale or conveyance of property to which the covenant of this Section 10.01 is applicable, then in any such event the successor corporation will promptly deliver to the Trustee in connection with the closing thereon: (1) an Officers' Certificate stating that as of the time immediately after the effective date of any such transaction the covenants of the Company contained in this Section 10.01 have been complied with and the successor corporation is not in default under the provisions of the Indenture; and 42 53 (2) an Opinion of Counsel stating that in his opinion such covenants have been complied with and that any instrument or instruments executed in the performance of such covenants comply with the requirements thereof. 10.2 Successor Corporation to be Substituted. In case of any such consolidation, merger, sale or conveyance, and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company, and the Company shall thereupon be released from all obligations hereunder and under the Notes and the Company as the predecessor corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of ShoLodge, Inc. any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes which previously shall have been signed and delivered by the officer or officers of the Company to the Trustee for authentication, and any Notes which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. 10.3 Article 10 Subject to Change in Control. The transactions contemplated by Section 10.1 will be subject to the redemption provisions of Section 7.5, if a Change in Control has occurred, notwithstanding compliance with Section 10.1. ARTICLE 11 CONCERNING THE TRUSTEE 11.1 Requirement of Corporate Trustee, Eligibility. There shall at all times be a Trustee hereunder which shall be a banking corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $60,000,000 subject to supervision or examination by Federal or State authority, or any affiliate of such a banking corporation, which also is a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000 subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to 43 54 the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 11.1 the combined capital and surplus of the Trustee 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 11.1, it shall resign immediately in the manner and with the effect hereinafter specified in this Article 11. 11.2 Acceptance of Trust. The Trustee accepts the trusts hereby created upon the terms and conditions in this Indenture specified, to all of which the Company and the holders of Outstanding Notes by their acceptance thereof agree: (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and; (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to it, and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this subdivision shall not be construed to limit the effect of subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it shall be proved that the Trustee was negligent in ascertaining pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Notes at the time Outstanding 44 55 relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture; (4) none of the provisions contained in 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 there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; and (5) the permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default. (d) 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. (e) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Company to cause to be made any of the payments to the Trustee required to be made to the Trustee by any provision hereof or failure by the Company to file with the Trustee any document required by this Indenture to be so filed subsequent to the issuance of the Notes, unless the Trustee shall be specifically notified in writing of such Event of Default by the Company or by the holders of at least twenty-five percent (25%) in aggregate principal amount of outstanding Notes, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the main office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default except as aforesaid. 11.3 Disclaimer. The recitals contained herein and in the Notes (except as contained in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes issued hereunder. The Trustee shall be under no responsibility or duty with respect to the disposition of any Notes authenticated and delivered hereunder or the application or use of the proceeds thereof or the application or use of any moneys paid to the Company under any of the provisions hereof. 11.4 Trustee May Own Notes. The Trustee, the paying agent, the Note Registrar or any Note Co-Registrar or other agent of the Company or of the Trustee may become the owner or pledgee of Notes and, subject to Sections 11.9 and 11.10, if operative, may otherwise deal with the 45 56 Company with the same rights it would have if it were not a Trustee, paying agent, Note Registrar, Note Co-Registrar or other agent of the Company or of the Trustee. 11.5 Trustee May Rely on Certificates, Etc. To the extent permitted by Section 11.2 hereof: (a) The Trustee may rely and shall be protected in acting upon any resolution, certificate, opinion, notice, request, consent, order, appraisal, report, note 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) The Trustee may consult with counsel, who may be of counsel to the Company, 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 or suffered by it hereunder in good faith and in reliance thereon; (c) 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 Certified Resolution; (d) 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 specifically prescribed) may, in the absence of bad faith, rely upon an Officers' Certificate; (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, as the case may be, 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 such document set forth in Section 11.5(a), but the Trustee, in its exercise of discretion, may make such further inquiry or investigation into such facts or matters as may seem necessary, and, if the Trustee shall determine to make such further inquiry or investigation, the Trustee shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (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 hereunder; and 46 57 (h) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. 11.6 Money Held in Trust Not Required to be Segregated. Subject to the provisions of Section 16.2 hereof, all moneys received by the Trustee hereunder or in respect of the Notes shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. Any interest allowed on or income or other return arising from any such moneys shall be paid from time to time to the Company upon Company Order in accordance with the provisions hereof; provided, however, that the Trustee shall not be required to pay to the Company any interest earned by the Trustee on funds received by the Trustee too late in the Trustee's banking day to permit the Trustee to invest such funds overnight for the account of the Company and provided, further, that no such interest, income or return shall be paid to the Company during any period during which an Event of Default has occurred and is continuing. 11.7 Compensation, Reimbursement, Indemnity, Security. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, reasonable compensation for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of all services rendered hereunder, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and except as otherwise expressly provided herein, the Company will upon request of the Trustee reimburse the Trustee for all reasonable advances made or incurred 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 or disbursement as may be attributable to negligence or bad faith). The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending against any claim or liability in connection with the exercise or performance of any of the powers or duties hereunder. If, and to the extent that the Trustee and its counsel and other agents do not receive compensation for services rendered, reimbursements of its advances, expenses and disbursements, or indemnity, as herein provided, as the result of allowances made in any reorganization, bankruptcy, receivership, liquidation or other proceeding or by any plan of reorganization or readjustment of obligations of the Company, the Trustee shall be entitled, in priority to the holders of the Notes, to receive any distributions of any securities, dividends or other disbursements which would otherwise be made to the holders of Notes in any such proceeding or proceedings and the Trustee is hereby constituted and appointed, irrevocably, the attorney in fact for the holders of the Notes and each of them to collect and receive, in their name, place and stead, such distributions, dividends or other disbursements, to deduct therefrom the amounts due to the Trustee its counsel and other agents on account of services rendered, advances, expenses, and disbursements made or incurred, or indemnity, and to pay and distribute the balance, pro rata, to the holders of the Notes. 47 58 11.8 Conflict of Interest. (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 11.8, the Trustee shall within ninety (90) days after ascertaining that there is such conflicting interest, either eliminate such conflicting interest or resign in the manner and with the effect hereinafter specified in this Article 11. (b) In the event that the Trustee shall fail to comply with the provisions of the preceding subsection (a) of this Section 11.8, the Trustee shall within ten (10) days after the expiration of such ninety (90) day period transmit notice of such failure to the Noteholders, in the manner and to the extent provided in Section 5.3. (c) For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest if there is an Event of Default (as defined in Section 8.1 but exclusive of any grace period or notice requirement) and: (1) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company, are outstanding unless such other indenture is a collateral trust indenture under which the only collateral consists of Notes issued under this Indenture; provided, however, that there shall be excluded from the operation of this clause (1) any indenture under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under this Indenture and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture or such other indenture or indentures; (2) the Trustee or any of the directors or executive officers of the Trustee is an obligor upon the Notes or an underwriter for the Company; (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company; (4) the Trustee or any of the directors or executive officers of the Trustee is a director, officer, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee) for the Company who is currently engaged in the business of underwriting, except that (a) one (1) individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of the Company, but may not be at the same time an executive officer of the 48 59 Trustee and the Company; (b) if and so long as the number of directors of any Trustee in office is more than nine (9), one (1) additional individual may be a director or an executive officer, or both, of such Trustee and a director of the Company; and (c) the Trustee may be designated by the Company or by an underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary or in any other similar capacity or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee, whether under an indenture or otherwise; (5) ten percent (10%) or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, or executive officer thereof, or twenty percent (20%) or more of such voting securities is beneficially owned, collectively, by any two (2) or more of such persons; or ten percent (10%) or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director or executive officer thereof, or is beneficially owned, collectively, by any two (2) or more such persons; (6) the Trustee is the beneficial owner of or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) of this Section 10.8 defined), (a) five percent (5%) or more of the voting securities or ten percent (10%) or more of any other class of security of the Company, not including the Notes issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (b) ten percent (10%) or more of any class of securities of an underwriter for the Company; (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) of this Section 10.8 defined), five percent (5%) or more of the voting securities of any person who, to the knowledge of the Trustee owns ten percent (10%) or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company; (8) the Trustee is the beneficial owner of or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) of this Section 11.8 defined), ten percent (10%) or more of any class of securities of any person who, to the knowledge of the Trustee owns fifty percent (50%) or more of the voting securities of the Company; (9) the Trustee owns on the date of any Default on the Notes, or any anniversary of such Default so long as such Default remains uncured in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of twenty-five percent (25%) or more of the voting securities or of any class of security, of any person, the 49 60 beneficial ownership of a specified percentage of which would have constituted a conflicting interest under clause (6), (7) or (8) of this subsection (c). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply for a period of two (2) years from the date of such acquisition, to the extent that such securities included in such estate do not exceed twenty-five percent (25%) of such voting securities or twenty-five percent (25%) of any such class of security. Promptly after the dates of any Default on the Notes and annually in each succeeding year that the Notes remain in Default, the Trustee shall make a check of its or his holdings of such securities in any of the above-mentioned capacities as of January 1. If the Company fails to make payment in full of principal or interest upon the Notes when and as the same becomes due and payable, and such failure continues for thirty (30) days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such thirty-day period and after such date, notwithstanding the foregoing provisions of this clause (9), all such securities so held by the Trustee with sole or joint control over such securities vested in it or him, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of clauses (6), (7) and (8) of this subsection (c); or (10) the Trustee shall be or become a creditor of the Company (except under the circumstances described under paragraphs (1), (3), (4), (5) or (6) of Section 311(b) of the TIA. The specifications of percentages in clauses (5) to (9), inclusive, of this subsection (c) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of clause (3) or (7) of this subsection (c). For the purposes of clauses (6), (7), (8) and (9) of this subsection (c) only, (a) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms or any certificate of interest or participation in any such note or evidence of indebtedness, (b) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for thirty (30) days or more and shall not have been cured; and (c) the Trustee shall not be deemed to be the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as above defined, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any Default hereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity. 50 61 (d) The percentages of voting securities and other securities specified in this Section 11.8 shall be calculated in accordance with the following provisions: (1) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 11.8 (each of whom is referred to as a "person" in this subsection (d)) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (2) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (3) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security. (4) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; or (iv) securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. (5) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of 51 62 indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. (e) For the purposes of this Section 11.8, unless otherwise provided: (1) The term "underwriter" when used with reference to the Company means every person, who, within one (1) year prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or has sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (2) The term "director" means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. (3) The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As used in this clause, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. (4) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (5) The term "Company" means any obligor upon the Notes. (6) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with 52 63 respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. 11.9 Resignation, Removal, Appointment of Successor Trustee. (a) No resignation or removal of the Trustee, and no appointment of a successor Trustee pursuant to this Article 11 shall become effective until the acceptance of appointment by the successor Trustee under this Section 11.9 and Section 11.10. (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. (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 11.8 after written request therefor by the Company or by any Noteholder 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 11.1 and shall fail to resign after written request therefor by the Company or by any such Noteholder, 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, (a) the Company by a Certified Resolution may remove the Trustee or (b) subject to Section 8.8, any Noteholder 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 the Trustee for any cause, the Company, by a Certified Resolution, shall promptly appoint a successor Trustee. If, within one (1) year 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 53 64 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 Noteholders and accepted appointment in the manner hereinafter provided, any Noteholder who has been a bona fide holder of a Note for at least six 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 a Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the holders of Notes in the manner and to the extent provided in of Section 5.3. Each notice shall include the name of the successor Trustee and address of the main office of the successor Trustee. 11.10 Acceptance by Successor Trustee. 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 respective successor Trustee, the respective retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such respective successor Trustee all the rights, powers and trusts of the retiring respective Trustee, and shall duly assign, transfer and deliver to such respective successor Trustee all property and money held by such respective retiring Trustee hereunder. Upon request of any such respective 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. 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 11 to the extent operative. 11.11 Cash, Securities, Etc. to be Held by Trustee. Whenever any moneys, debentures, shares of stock or other obligations are, under any provisions of this Indenture, paid or delivered to or deposited with the Trustee, the same shall be deemed for all purposes hereunder to be part of the security for the Notes issued hereunder, but nothing contained in this Section 11.11 shall be deemed to affect or impair any power or right conferred by any provision of this Indenture upon the Trustee to apply, disburse or otherwise act or deal with respect to any moneys, debentures, shares of stock or other obligations received or held by it as aforesaid. 11.12 Merger or Consolidation of Trustee. Any corporation into which the Trustee may be merged 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 11, 54 65 to the extent operative, without the execution or filing of any paper or the performance of any further act on the part of any other parties hereto, anything herein to the contrary notwithstanding. In case any of the Notes shall have been authenticated, but not delivered, by the Trustee then in office, any such successor to the Trustee by merger, conversion or consolidation may adopt such authentication and deliver the said Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. 11.13 Authenticating Agent. As long as any of the Notes remain outstanding, upon a Company Order there shall be an authenticating agent appointed by the Trustee for such period as the Company shall elect, to act on behalf of the Trustee and subject to its direction in connection with the authentication of the Notes as set forth in this Indenture. Such authenticating agent shall at all times be a banking corporation organized and doing business under the laws of the United States or any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $60,000,000 subject to supervision or examination by Federal or State authority, or an affiliate of such banking corporation, which is also a corporation organized and doing business under the laws of the United States or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000 subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 11.13 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Whenever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee's certificate of authentication, such reference 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. Any corporation in which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any authenticating agent shall be a party, or any corporation succeeding to the corporate agency business of any authenticating agent, shall continue to be the authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or the authenticating agent. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination 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 any authenticating agent shall cease to be eligible in accordance with the provisions of this Section 11.13, the Trustee promptly shall appoint a successor authenticating agent, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of Notes as the names and addresses of such holders appear on the Note Register. Any successor 55 66 authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers, duties and responsibilities of its predecessor hereunder. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section 11.13. The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments from the Company subject to the provisions of Section 11.7. The provisions of Section 9.1, 11.3 and 11.4 shall be applicable to any authenticating agent. ARTICLE 12 DEFEASANCE; DISCHARGE OF INDENTURE 12.1 Termination of the Company's Obligations. Unless otherwise specified in a supplemental indenture as contemplated by Section 2.1 with respect to any series of Notes, the Company may terminate its obligations under this Indenture with respect to any series of Notes, except those obligations referred to in the penultimate paragraph of this Section 12.1, if all Notes of such series previously authenticated and delivered (other than destroyed, lost or stolen Notes which have been replaced or paid or Notes for whose payment money has theretofore been deposited with the Trustee or the paying agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 12.4) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) either (i) pursuant to Article Six, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Noteholder of such series of the redemption of all of the Notes of such series under arrangements satisfactory to the Trustee for the giving of such notice, or (ii) all Notes of such series have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the holders of such series of notes for that purpose, money in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Notes of such series to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such money to the payment of said principal, premium, if any, and interest with respect to such Notes and, provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of any other Senior Indebtedness pursuant to any subordination provision; 56 67 (c) no Default or Event of Default with respect to this Indenture applicable to such series or the Notes of such series shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (d) the Company shall have paid all other sums payable by it hereunder; and (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's obligation under such Notes and this Indenture applicable to such Notes have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under any agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.7, 2.10, 4.1, 4.2, 5.1, 11.7 and 12.1 shall survive until the Notes of such series are no longer outstanding pursuant to Section 12.6. After the Notes are no longer outstanding, the Company's obligations in Sections 8.4, 8.5 and 11.7 shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes of such series and this Indenture applicable to such Notes except for those surviving obligations specified above. 12.2 Legal Defeasance and Covenant Defeasance. (a) Unless otherwise specified in a supplemental indenture as contemplated by Section 2.1 with respect to any series of Notes, the Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, with respect to the Notes of any series, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Notes of such series upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company shall be deemed to have been released and discharged from its obligations with respect to the outstanding Notes of such series on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes of such series, which shall thereafter be deemed to be "outstanding only for the purposes of paragraph (e) below and the other Sections of and matters under this Indenture applicable to such Notes referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Notes and this Indenture applicable to such Notes insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and holders of such Notes and any amounts deposited under paragraph (d) below shall cease to be subject 57 68 to any obligations to, or the rights of, any holder of Senior Indebtedness or under any applicable subordination provisions or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of holders of outstanding Notes of such series to receive solely from the trust fund described in Paragraph (d) below and as more folly set forth in such Paragraph, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to such Notes under Sections 2.7, 2.10 and 4.2, and, with respect to the Trustee, under Section 11.7, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 12.2 and Section 12.5. Subject to compliance with this Section 12.2, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to Notes of any series. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article Ten, any applicable subordination provisions and in Sections 4.7, 4.9, 4.10, 4.13 and 5.2 and in certain other sections with respect to the outstanding Notes of such series identified in any supplemental indenture pursuant to Section 2.1 on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and such Notes shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder and holders of such Notes and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness under any subordination provisions or otherwise. For this purpose, such covenant defeasance means that, with respect to such outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 8.1(c) with respect to such series of Notes, but, except as specified above, the remainder of this Indenture applicable to such Notes and such Notes shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Notes of such series: (i) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 11.1 who shall agree to comply with the provisions of this Section 12.2 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders 58 69 of Notes of such series, (x) money in an amount or (y) direct non-callable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations") maturing as to principal, premium, if any, and interest in such amounts of money and at such times as are sufficient without consideration of any reinvestment of such interest, to pay principal of and interest on the outstanding Notes of such series not later than one day before the due date of any payment, or (z) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge principal of, premium, if any, and interest on the outstanding Notes of such series on the Stated Maturity or redemption date in accordance with the terms of this Indenture and of the Notes of such series; provided, however, that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes of such series; (ii) no Default or Event of Default with respect to such series of Notes or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Notes of such series shall have occurred and be continuing on the date of such deposit or, insofar as Section 8.l(a) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (iii) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any Notes of the Company; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under, this Indenture applicable to such Notes or any other agreement or instrument to which the Company is a party or by which it is bound; (v) in the case of an election under paragraph (b) above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the outstanding Notes of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such legal defeasance and will be subject to Federal income tax on the same 59 70 amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (vi) in the case of an election under paragraph (c) above, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders of the outstanding Notes of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (vii) in the case of an election under either paragraph (b) or (c) above, an Opinion of Counsel to the effect that, (x) the trust funds will not be subject to any rights of any other holders of indebtedness of the Company or any of its Subsidiaries, and (y) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Act; provided, however, that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no Opinion needs to be given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee's possession prior to such court ruling to the extent not paid to holders of Notes of such series, the Trustee will hold, for the benefit of the holders of Notes of such series, a valid and enforceable security interest in such trust funds that is not avoidable in bankruptcy or otherwise, subject only to principles of equitable subordination, (B) the holders of Notes of such series will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used, and (C) no property, rights in property or other interests granted to the Trustee or the holders of Notes of such series in exchange for or with respect to any of such funds will be subject to any prior rights of any other person, subject only to prior Liens granted under Section 364 of Title 11 of the U.S. Bankruptcy Code (or any section of any other Bankruptcy Act having the same effect), but still subject to the foregoing clause (B); (viii) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (ix) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (x) all conditions precedent provided for relating to either the legal defeasance under paragraph (b) above or the covenant defeasance under paragraph (c) above, as the case may be, have been complied with and (y) if any other indebtedness of the Company shall then be 60 71 outstanding or committed, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such indebtedness; and (x) the Company shall have delivered to the Trustee an amount sufficient to cover its fees and expenses as Trustee under the Indenture through the term of the series of Notes to be defeased, or made adequate provision therefor to the satisfaction of the Trustee. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Paragraph (e), the "Trustee") pursuant to paragraph (d) above in respect of the outstanding Notes of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture applicable to such Notes, to the payment, either directly or through any paying agent (other then the Company or any Affiliate of the Company) as the Trustee may determine, to the holders of such Notes of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of the outstanding Notes of such series. Anything in this Section 12.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. 12.3 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 12.1 and 12.2, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Notes of such series. 12.4 Repayment to Company. Subject to Sections 11.7, 12.1 and 12.2, the Trustee shall promptly pay to the Company, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 12.2, held by it at any time. The Trustee and the paying agent shall pay to the Company, upon receipt by the Trustee or the paying agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, Premium, if any, or interest that remains unclaimed for two years after Payment to the Securityholders of such 61 72 series is required; provided, however, that the Trustee and the paying agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a daily newspaper, as defined herein, or mail to each Noteholder of Notes of such series entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Noteholders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned properly law designates another person, and all liability of the Trustee or paying agent with respect to such money shall thereupon cease. 12.5 Reinstatement. If the Trustee or paying agent is unable to apply any money or U.S. Government Obligations to any payment in respect of Notes of any series in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's obligations under this Indenture and the Notes of such series shall be revived and reinstated as though no deposit had been made pursuant to this indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; provided, however, that if the Company has made any payment of principal of, premium, if any, or interest on any Notes of such series because of the reinstatement of its obligations, the Company shall be, subrogated to the rights of the holders of Notes of such series to receive such payment from the money or U.S. Government Obligations held by the Trustee or paying agent. 62 73 ARTICLE 13 MEETING OF NOTEHOLDERS 13.1 Purposes for Which Meetings May be Called. A meeting of the Noteholders may be called at any time and from time to time pursuant to the provisions of this Article 13 for any of the following purposes: (a) To give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any Event of Default hereunder and its consequences, or to take any other action authorized to be taken by the Noteholders pursuant to any of the provisions of Article 8; (b) To remove the Trustee and appoint a successor trustee pursuant to any of the provisions of Article 11; (c) To consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Article 14; or (d) To take any other action authorized to be taken by or on behalf of Noteholders of any specified aggregate principal amount of the Notes under any other provisions of this Indenture, or authorized or permitted by law. 63 74 13.2 Call of Meetings by Trustee; Generally. Meetings of Noteholders may be held at such place or places and at such time or times in any place as the Trustee or, in case of its failure to act, the Company or the Noteholders calling the meeting, shall from time to time determine. 13.3 Call of Meetings by Trustee; Notice. The Trustee may at any time call a meeting of the Noteholders to take any action specified in Section 13.1, to be held at such time and at such place designated in Section 13.2 as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, and specifying each series of Notes which would be affected by the proposed action, shall be mailed by the Trustee at the expense of the Company, first class postage prepaid, to the Noteholders at their last addresses as they shall appear upon the Note Register, not less than twenty (20) nor more than one hundred twenty (120) days prior to the date fixed for the meeting. Any defect in said notice shall not, however, in any way impair or affect the validity of any such meeting. The Trustee may in its discretion determine, subject to the meaning of the term "affected" as set forth in Section 14.2(c), whether or not Notes of any particular series would be affected by action proposed to be taken at a meeting and any such determination shall be conclusive upon the holders of Notes of such series and all other series. Subject to the provisions of Section 11.2, the Trustee shall not be liable for any such determination made in good faith. Any meeting of the Noteholders shall be valid without notice if Noteholders, holding all Notes then outstanding, which would be affected by the action proposed to be undertaken, are present in person or by proxy or have waived notice before or after the meeting by Noteholders, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. In case at any time the Company, pursuant to a Certified Resolution, or Noteholders holding at least ten percent (10%) in aggregate principal amount of the Notes then outstanding, which would be affected by the action proposed to be undertaken, shall have requested the Trustee to call a meeting of the Noteholders to take any action authorized by Section 12.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or Noteholders holding the amount above specified may determine the time and the place for such meeting and may call such meeting for such purpose by giving notice thereof in the manner provided in this Section 13.3. 13.4 Meetings, Notice and Entitlement to be Present. Only Noteholders holding Notes, which would be affected by the action proposed to be undertaken, and persons appointed by an instrument in writing as proxy for such a Noteholder by such a Noteholder are entitled to notice of and to vote at any meeting of the Noteholders. The only persons who shall be entitled to be present or to speak at any meeting of the Noteholders shall be the persons entitled to vote at such meeting 64 75 and their counsel, any representatives of the Trustee and its counsel, and any representatives of the Company and its counsel. 13.5 Regulations May be Made by Trustee. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of the Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Such regulations (a) may provide for the closing of the Note Register for such period as the Trustee may deem necessary or (b) may fix a record and time for determining the record Noteholders of the Notes entitled to vote at such meeting. All Noteholders seeking to attend or vote at a meeting in person or by proxy must, if required by any authorized representative of the Trustee or the Company or by any other Noteholder, produce the Notes claimed to be owned or represented at such meeting, and every one seeking to attend or vote shall, if required as aforesaid, produce such further proof of Note ownership or personal identity as shall be satisfactory to the authorized representative of the Trustee, or if none be present then to the inspectors of votes hereinafter provided for. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by the Noteholders as provided in Section 13.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting may be elected by vote of Noteholders holding a majority in principal amount of the Notes represented at the meeting and entitled to vote. At any meeting each Noteholder or proxy shall be entitled to one vote for each $1,000 principal amount of Notes then outstanding owned by such Noteholder or represented by such proxy; provided, however, that no vote shall be cast or counted at any meeting in respect of any Notes challenged as not outstanding and ruled by the temporary or permanent chairman of the meeting to be not outstanding. The temporary or permanent chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Noteholders. At any meeting of Noteholders, the presence of persons holding or representing Notes in an aggregate principal amount sufficient under the appropriate provision of this Indenture to take action upon the business for the transaction of which such meeting was called shall constitute a quorum. Any meeting of holders duly called pursuant to Section 13.3 may be adjourned from time to time by vote of the holders (or proxies for the holders) of a majority in aggregate principal amount of the Notes represented at the meeting and entitled to vote, whether or not a quorum shall be present; and the meeting may be held as so adjourned without further notice. 65 76 13.6 Manner of Voting at Meetings and Record to be Kept. The vote upon any resolution submitted to any meeting of the Noteholders shall be by written ballots on which shall be subscribed the signatures of the Noteholders or of their representatives by proxy and the principal amount of the Notes voted by the ballot. The temporary or permanent chairman of the meeting shall appoint two (2) inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record at least in duplicate of the proceedings of each meeting of the Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one (1) or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 13.3. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one copy thereof shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 13.7 Evidence of Action by Holders of Specified Percentage of Notes. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes of any series may take any action (including the making of any demand or request, the giving of any notice, consent, or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (A) by any instrument or any number of instruments of similar tenor executed by holders in person or by agent or proxy appointed in writing, or (B) by the record of the holders of Notes voting in favor thereof at any meeting of holders duly called and held in accordance with the provisions of this Article 13, or (C) by a combination of such instrument or instruments and any such record of such a meeting of holders. 13.8 Exercise of Right of Trustee or Noteholders May Not be Hindered or Delayed by Call of Meeting of Noteholders. Nothing in this Article 13 contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of the Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE 14 SUPPLEMENTAL INDENTURES 14.1 Purposes for Which Supplemental Indentures May be Executed by Company and Trustee. Without the consent of the holders of any Notes, the Company, when authorized by a Certified Resolution of its Board of Directors, and the Trustee may at any time and from time to 66 77 time, enter into an indenture or indentures supplemental hereto, in form satisfactory to the Trustee, for one or more of the following purposes: (a) To evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article 10 hereof; (b) To add to the covenants of the Company such further covenants for the protection of the Noteholders, to insure the enforcement of the remedies of the Trustee and Noteholders upon an Event of Default by the Company, or to surrender any right or power herein conferred upon the Company as the Board of Directors shall consider to be necessary for the protection of the Noteholders, and to make the occurrence and continuance of a default under any of such additional covenants a Default permitting the enforcement of all or any of the several remedies provided in this Indenture; 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 Defaults) or may provide for an immediate enforcement of said remedy or remedies upon such default or may limit the remedies available to the Trustee upon such default or may authorize the holders of not less than a majority in aggregate principal amount of the outstanding Notes to waive such default and prescribe limitations on such rights of waiver; (c) To cure any ambiguity or to correct or supplement any provision contained in this Indenture which may be inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture as shall not be inconsistent with the provisions and purposes of this Indenture, provided any such action shall not adversely affect the interest of the Noteholders; or (d) to provide for the creation of any series of Notes. Nothing contained in this Article 14 shall affect or limit the right or obligation of the Company to execute and deliver to the Trustee any instrument of further assurance or other instrument which elsewhere in this Indenture it is provided shall be delivered to the Trustee. The Trustee is hereby authorized and directed to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be herein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which, in its opinion, does not afford adequate protection to the Trustee or adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise or adversely affects the interests of the Noteholders. 67 78 14.2 Modification of Indenture by Written Consent of Noteholders. (a) With the consent (evidenced as provided in Article 13) of the holders of not less than fifty-one percent (51%) in aggregate principal amount of the Notes then outstanding, by Act of said holders delivered to the Company and the Trustee, the Company (when authorized by a Certified Resolution) and the Trustee at any time and from time to time, by entering into an indenture or indentures supplemental hereto, may modify, alter, add to or eliminate in any manner (with the approval of any governmental agency if required by law) any provisions of this Indenture, any applicable supplemental indenture or the rights of the Noteholders or the rights and obligations of the Company; 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 redemption thereof, or the coin or currency in which, any Note or the 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 impair the right to require redemption as set forth in Section 7.5, or (2) reduce the percentage(s) of the aggregate principal amount of outstanding Notes, the consent of the holders of which 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 14.2, 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 Note affected thereby. (b) With respect to changes affecting one or more, but less than all, series of Notes then outstanding, with the consent (evidenced as provided in Article 13) of the holders of not less than fifty-one percent (51%) in aggregate principal amount of the Notes of such affected series then outstanding, by Act of said holders delivered to the Company and the Trustee, the Company (when authorized by a Certified Resolution) and the Trustee at any time and from time to time, by entering into an indenture or indentures supplemental hereto, may modify, alter, add to or eliminate in any manner (with the approval of any governmental agency if required by law) any provisions of this Indenture, any applicable supplemental indenture or the rights of such Noteholders or the rights and obligations of the Company; provided, however, that no such supplemental indenture shall, without the consent of the holder of each outstanding Note of such series affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any Note of such series, or reduce the principal amount thereof or the rate of interest 68 79 thereon or any premium payable upon redemption thereof, or the coin or currency in which, any Note or the 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 impair the right to require redemption as set forth in Section 7.5, or (2) reduce the percentage(s) of the aggregate principal amount of outstanding Notes of such series, the consent of the holders of which 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 14.2, 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 Note of such series affected thereby. (c) Notes shall be deemed to be "affected" by a supplemental indenture, if such supplemental indenture adversely affects or diminishes the rights of holders thereof against the Company or against the property of the Company. The Trustee may in the exercise of its discretion, subject to Section 10.2, determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the holders of all Notes, whether theretofore or thereafter authenticated and delivered hereunder. It shall not be necessary for any Act of Noteholders under this Section 14.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Any supplemental indenture authorized by the provisions of this Section 14.2 shall be executed by the Company and the Trustee in accordance with the terms of Section 14.3. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 14.3, the Company shall mail to the holders of the Notes at their last addresses as they shall appear on the Note Register of the Company a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 14.3 Requirements for Execution; Duties and Immunities of Trustee. Prior to the execution of any supplemental indenture, the Trustee shall receive a Company Request, accompanied by a Certified Resolution authorizing the execution of any supplemental indenture pursuant to Section 14.1 or Section 14.2, and, if pursuant to Section 14.2, evidence filed with the Trustee of the Act of Noteholders as aforesaid. 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 11.2 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 and stating such other matters as the Trustee may reasonably request. 69 80 The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's rights, duties or immunities under this Indenture or otherwise. 14.4 Supplemental Indentures Part of Indenture. Upon the execution of any supplemental indenture pursuant to the provisions of this Article 14, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith and the respective rights, limitations, duties and obligations under this Indenture of the Company, the Trustee and the Noteholders, and each of them, shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be, and shall be deemed to be, part of the terms and conditions of this Indenture for any and all purposes, as if originally contained herein. 14.5 Notes Executed After Supplemental Indenture to be Approved by Trustee. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article 14 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 and the Trustee shall so determine, new Notes modified so as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture, may be prepared by the Company, authenticated by the Trustee and delivered without expense to the holders of the outstanding Notes, upon surrender of such Notes, the new Notes so issued to be in an aggregate principal amount equal to the aggregate principal amount of those so surrendered. 14.6 Supplemental Indentures Required to Comply with Trust Indenture Act of 1939. No supplemental indenture shall be entered into pursuant to any authorization contained in this Indenture which shall not comply with the provisions of the Trust Indenture Act of 1939 as then in effect. ARTICLE 15 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 15.1 Immunity of Certain Persons. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company, contained in this Indenture or in any supplemental indenture, or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; 70 81 it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. ARTICLE 16 MISCELLANEOUS 16.1 Benefits Restricted to Parties and to Holders of Notes. Except as provided herein, nothing in this Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person other than the parties hereto and the holders of the Notes outstanding hereunder any right, remedy, or claim under or by reason of this Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements contained in this Indenture by and on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the Notes outstanding hereunder. 16.2 Deposits for Notes Not Claimed for Specified Period to be Returned to Company on Demand. Any moneys deposited with the Trustee or any paying agent, or 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 six (6) years after the date upon which the principal of and premium, if any, or interest on such Notes shall have become due and payable, shall be paid to the Company upon Company Request, or, if then held by the Company, shall be discharged from such trust; and the holder shall thereafter, as an unsecured general creditor, be entitled to look only to the Company for payment thereof, and all liability of the Trustee or any paying agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that, before being required to make any such payment to the Company, the Trustee, or any paying agent, may, at the expense of the Company, cause to be published once in a Daily Newspaper in such areas as the Trustee, or any paying agent, as the case may be, may deem necessary a notice that such moneys remain unclaimed and that, after a date named in said notice, the balance of such moneys then unclaimed will be returned to the Company. 16.3 Formal Requirements of Certificates and Opinions Hereunder. (a) Each certificate or opinion which is specifically required by the provisions of this Indenture to be delivered to the Trustee with respect to compliance with a condition or covenant herein contained shall include (1) a statement that each person signing such certificate or opinion has read such covenant or condition; (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 opinions are based; (3) a statement that, in the opinion of each such person, 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 or not in the opinion of each such person such condition or covenant has been complied with. 71 82 (b) Every request or application by the Company for action by the Trustee shall be accompanied by an Officers' Certificate stating that all conditions precedent, if any, to such action, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all conditions precedent, if any, to such action, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) have been complied with, except that in the case of any such request or application as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular request or application, no additional certificate or opinion need be furnished. (c) 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 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. 16.4 Evidence of Act of the Noteholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders 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 Noteholders 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 11.2) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. 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 the certificate of any 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 an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, or by a fiduciary, 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. Any request, demand, authorization, direction, notice, consent, waiver or other action by the holder of any Note shall bind every future holder to the same Note and the holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done 72 83 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. 16.5 Parties to Include Successors and Assigns. Subject to the provisions of Articles 9 and 10 hereof, whenever in this Indenture any of the parties hereto is named or referred to, such name or reference shall be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Indenture contained by or on behalf of the Company or by or on behalf of the Trustee shall bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. 16.6 In Event of Conflict with Trust Indenture Act of 1939, Provisions Therein to Control. If any provision of this Indenture limits, qualifies, or conflicts with another provision of this Indenture required to be included herein by any of the provisions of the Trust Indenture Act of 1939 such required provision shall control. Provisions required by said Trust Indenture Act to be included herein which are not included herein are hereby incorporated herein by reference to said Trust Indenture Act. 16.7 Request, Notices, Etc. to Trustee. Any request, demand, authorization, direction, notice, consent, waiver or Act of the Noteholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Noteholder 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 main office, or (b) the Company by the Trustee or by any Noteholders shall be sufficient for every purpose hereunder (except as herein otherwise provided) if in writing and mailed, first-class, postage prepaid, to the Company addressed to it at 217 West Main Street, Gallatin, Tennessee 37066, or at any other address furnished in writing to the Trustee by the Company. 16.8 Manner of Notice. Where this Indenture provides for notice to Noteholders 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 Noteholder affected by such event, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given. 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 73 84 shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Trustee, but such filing shall not be 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 as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. 16.9 Severability. 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. 16.10 Payments Due on Days When Banks Closed. In any case where the date of any Interest Payment Date or Redemption Date, or the Stated Maturity of any Note, or any date on which any Defaulted Interest is proposed to be paid or any date on which any other payment is to be made or any action is to be taken shall not be a business day, then (notwithstanding any other provision of the Notes or this Indenture) payment of the principal of, and premium, if any, or interest on, any Notes or other payment or action need not be made or taken on such date, but may be made or taken on the next succeeding business day with the same force and effect as if made on the nominal date of any such Interest Payment Date or Redemption Date or Stated Maturity or date for the payment of Defaulted Interest or date for any other payment or action, as the case may be, and no interest shall accrue for the period from and after any such nominal date. 16.11 Backup Withholding Forms. The Company shall provide the Trustee with Backup Withholding Forms prescribed by the Internal Revenue Service and shall indemnify the Trustee for any penalties, expenses, costs and liabilities assessed against the Trustee for using improper forms. 16.12 Titles of Articles of This Indenture Not Part Thereof. The titles of the several Articles of this Indenture and the table of contents shall not be deemed to be any part hereof. 16.13 Execution in Counterparts. This Indenture is being executed in several counterparts, each of which shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 16.14 Governing Law. This Indenture and each Note issued hereunder shall be governed by the laws of the State of Tennessee as to all matters affecting the duties, liabilities, privileges, rights and obligations of the Noteholders, the Company and any agents of the foregoing, including but not limited to, matters of validity, construction, effect and performance; however, the duties and responsibilities of the trustee shall be governed by the laws of the state of New York. IN WITNESS WHEREOF, SHOLODGE, INC. has caused its name to be hereunto affixed, and this instrument to be signed by its Chairman of the Board, President or any Vice President and 74 85 its corporate seal to be affixed hereto, and the same to be attested by its Secretary; and Bankers Trust Company, in token of its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents and its corporate seal to be attested by its Secretary, as of the day and year first written above. SHOLODGE, INC. ATTEST: By:________________________________ Chairman of the Board, President or Vice President _________________________ Attesting Officer [Seal] BANKERS TRUST COMPANY ATTEST: By:_______________________________ Authorized Officer _________________________ Attesting Officer [Seal] 75 EX-4.3 4 FORM OF FIRST SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.3 SHOLODGE, INC. AND BANKERS TRUST COMPANY, TRUSTEE _________________________ FIRST SUPPLEMENTAL INDENTURE Dated as of ___________ ____, 1996 __% Senior Subordinated Notes due 2006, Series A Supplemental to Indenture dated as of __________ ____, 1996 2 FIRST SUPPLEMENTAL INDENTURE, dated as of [ ], 1996 (the "First Supplemental Indenture"), to the Indenture, dated as of [ ], 1996 (the "Indenture"), between ShoLodge, Inc., a corporation duly organized under the laws of the State of Tennessee (the "Company"), having its principal office at 217 West Main Street, Gallatin, Tennessee 37066, and Bankers Trust Company, a New York banking corporation (the "Trustee"), having its corporate trust office at Four Albany Street, New York, NY 10006. RECITALS OF THE COMPANY WHEREAS, the Company has duly authorized the execution and delivery of the Indenture to provide for the issuance from time to time of one or more series of its senior subordinated notes (the "Notes") to be issued in one or more series as in the Indenture provided; WHEREAS, the Company desires and has requested the Trustee to join it in the execution and delivery of this First Supplemental Indenture in order to establish and provide for the issuance by the Company of a series of Notes designated as its _____% Senior Subordinated Notes due 2006, Series A in the aggregate principal amount of $35,000,000, substantially in the form attached hereto as Exhibit "A" (the "Series A Notes"), on the terms set forth herein; WHEREAS, Section 14.1 of the Indenture provides that a supplemental Indenture may be entered into by the Company and the Trustee without the consent of any holder of any Notes for such purpose provided certain conditions are met; WHEREAS, the conditions set forth in the Indenture for the execution and delivery of this First Supplemental Indenture have been complied with; and WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of the Company and the Trustee, in accordance with its terms, and a valid amendment of, and supplement to, the Indenture have been done; NOW THEREFORE: In consideration of the premises and the purchase and acceptance of the Series A Notes by the holders thereof the Company mutually covenants and agrees with the Trustee, for the equal and proportionate benefit of all holders of the Series A Notes, that the Indenture is supplemented and amended, to the extent and for the purposes expressed herein, as follows: 1. Establishment of Series A Notes under the Indenture. The Company hereby establishes the Series A Notes in the form of Exhibit A hereto and on the terms set forth therein as a series of Notes under the Indenture pursuant to this First Supplemental Indenture. 2. Optional Redemption by the Company. In accordance with Section 6.1 of the Indenture, the Series A Notes will be subject to optional redemption by the Company as provided in the form of Series A Note attached as Exhibit A hereto. IN WITNESS WHEREOF, SHOLODGE, INC. has caused this First Supplemental Indenture to be signed and acknowledged by its Chairman of the Board, President or one of its 3 Vice Presidents, and its corporate seal to be affixed hereunto, and the same to be attested by its Secretary; and Bankers Trust Company has caused this First Supplemental Indenture to be signed and acknowledged by its President or one of its Vice Presidents, and its corporate seal to be affixed hereunto, and the same to be attested by its Secretary; all as of the day and year first above written. SHOLODGE, INC. Attest: ____________________ By:_______________________ Secretary Its:______________________ [Corporate Seal] BANKERS TRUST COMPANY Attest: ____________________ By:_________________________ Secretary Its:________________________ [Corporate Seal] 4 [FORM OF FACE OF NOTES] No. ShoLodge, Inc. $ [ ]% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A ShoLodge, Inc., a corporation organized and existing under the laws of the State of Tennessee (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture referred to on the reverse side hereof), for value received, hereby promises to pay to[ ], or registered assigns, the sum of [ ] Dollars on or before[ ], 2006, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts, and to pay interest (calculated on the basis of a 360-day year of twelve 30-day months) on the unpaid principal amount hereof in like coin or currency from the Interest Payment Date to which interest hereon has been paid immediately preceding the date hereof (unless the date hereof is an Interest Payment Date to which interest has been paid, in which case from the date hereof) or, if no interest has been paid on this Note since the Original Issue Date hereof, as defined in the Indenture referred to on the reverse side hereof, from such Original Issue Date, at the rate of [ ]% per annum, payable quarterly on February 1, May 1, August 1 and November 1, commencing February 1, 1997, until the principal hereof shall have been paid or duly provided for. The interest so payable on any Interest Payment Date will be paid to the person in whose name this Note is registered at the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date (whether or not such fifteenth day shall be a regular business day), unless the Company shall default in the payment of interest due on such Interest Payment Date, in which case such defaulted interest shall be paid to the person in whose name this Note is registered at the close of business on a Special Record Date for the payment of such defaulted interest established by notice to the registered holders of Notes given by mail to said holders as their names and addresses appear in the Note Register (as defined in the Indenture referred to on the reverse side hereof) not less than 10 days preceding such Special Record Date. The principal hereof and the interest hereon shall be payable at the main office of Bankers Trust Company, Trustee under the Indenture referred to on the reverse side hereof, in New York, New York; provided, however, that the interest on this Note may be payable, at the option of the Company, by check mailed to the person entitled thereto as such person's address shall appear on the Note Register (including the records of any Note Co-Registrar). Reference is hereby made to the further provisions of this Note set forth on the reverse side hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be entitled to any benefit under the Indenture referred to on the reverse side hereof, or be or become valid or obligatory for any purpose, until the authentication certificate endorsed hereon shall have been signed by Bankers Trust Company, Trustee under such Indenture, or a successor trustee thereto under such Indenture. IN WITNESS WHEREOF, SHOLODGE, INC. has caused this Note to be signed in its name by its Chairman of the Board, President or one of its Vice Presidents by his signature or a facsimile thereof, and its corporate seal to be affixed or printed or engraved hereon, or a facsimile thereof, and attested by its Secretary by his signature or a facsimile thereof. 5 Dated: SHOLODGE, INC. By: ____________________________________ Title:__________________________________ [CORPORATE SEAL] Attest: _________________________ Title: Secretary [FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE] TRUSTEE'S AUTHENTICATION CERTIFICATE This Note is one of the Notes described or provided for in the Indenture referred to on the reverse side hereof. Bankers Trust Company as Trustee By:________________ Authorized Officer [FORM OF REVERSE OF NOTE] ShoLodge, Inc. __% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A This Note is one of a duly authorized issue of Notes of the Company designated as its __% Senior Subordinated Notes due 2006, Series A (herein called the "Notes"), limited in aggregate principal amount of $35,000,000 (except for Notes authenticated and delivered upon transfer of, or in exchange for or in lieu of other Notes), all issued and to be issued only in fully registered form without coupons under an indenture (herein, together with any indenture supplemental thereto, called the "Indenture"), dated as of _________, 1996, duly executed and delivered by ShoLodge, Inc. to Bankers Trust Company, New York, New York, Trustee (the Trustee, together with its successors being herein called the "Trustee"), to which Indenture (which is hereby made a part hereof and to all of which the holder by acceptance hereof assents) reference is hereby made for a description of the respective rights of and restrictions upon the Company and the holders of the Notes, and the rights, limitations of rights, duties and immunities of the Trustee in respect thereof. 6 The Notes are redeemable at the option of the Company as a whole at any time, or in part from time to time, prior to maturity, commencing [ ], 1999, on not less than 30 nor more than 60 days' notice given as provided in the Indenture, upon payment of the then applicable redemption price (expressed in percentages of the principal amount) set forth below under the heading "General Redemption Prices," together in each case with accrued and unpaid interest to the date fixed for redemption, all subject to the conditions more fully set forth in the Indenture. The General Redemption Prices (expressed in percentages of the principal amount) applicable during the 12-month period beginning [ ] in the years indicated below are as follows: General Redemption Prices If redeemed during the 12 month period beginning [ ], 1999 ......................... 104% 2000 ......................... 103% 2001.......................... 102% 2002.......................... 101% 2003 and thereafter .......... 100%
Unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled, a holder has the right to present Notes for payment prior to their maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder may specify), subject to the following limitations: (a) the Company will have no obligation to redeem any Notes prior to December 1, 1999, except on the death of a holder as described below, and (b) the Company will have no obligation to redeem Notes (on the death of a holder or otherwise) in excess of the following annual maximum amounts (collectively, the "Annual Amount Limitations") of (i) $50,000 per holder and (ii) an aggregate amount for all Notes submitted for redemption equal to five percent (5%) of the aggregate original principal amount of the Notes of all series issued under the Indenture (the "Five Percent Limitation"). Notes submitted for redemption, except for Notes submitted for redemption following the death of a holder, must be submitted by November 1 of any year, commencing on November 1, 1999, for redemption on the following December 1. If the $50,000 per holder limitation has been reached and the Five Percent Limitation has not been reached, if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $50,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt), up to the aggregate limitation of five percent (5%) of the aggregate principal amount of the Notes of all series issued under this Indenture, notwithstanding the $50,000 limitation. 7 Subject to the Annual Amount Limitations (and unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled), Notes submitted for redemption upon the death of any holder (or any portion of the principal amount of such Notes which is $1,000 or an integral multiple thereof, as the holder may specify), will be redeemed within sixty (60) days following receipt by the Trustee of a written request therefor from such holder's personal representative, or surviving joint tenant(s), tenant by the entirety or tenant(s) in common. The price to be paid by the Company for all Notes presented to it for redemption pursuant to these provisions is 100% of the principal amount thereof to be redeemed, plus accrued but unpaid interest on such principal amount to the date of payment. In the case of Notes registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $50,000 per holder limitation applies to each beneficial owner of Notes held by any Qualified Institution as if such beneficial owner were a separate holder. A Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder, and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person who, during his or her lifetime, was entitled to substantially all of the beneficial ownership interest of a Note, will be deemed the death of a holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest will normally be deemed to exist in typical cases of street name or nominee ownership, ownership by a custodian for the benefit of a minor under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh plans maintained solely by or for the decedent, or by or for the decedent and his or her spouse) and trusts and certain other arrangements whereby a person has substantially all of the beneficial ownership interests in the Notes during his or her lifetime. Beneficial interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto. Notes may be presented for redemption by delivering to the Trustee: (a) a written request for redemption, in form satisfactory to the Trustee, signed by the registered holder or his or her duly authorized representative, (b) the Note to be redeemed and (c) in the case of a surviving tenant or personal representative of a deceased holder or beneficial owner, appropriate evidence of death and such other additional documents as the Trustee shall require, including, but not limited to, inheritance or estate tax waivers and evidence of authority of the personal representative. In their request for prepayment on behalf of a beneficial owner, Qualified Institutions must submit evidence, satisfactory to the Trustee, that they hold Notes on behalf of such beneficial owner and that the aggregate requests for prepayment tendered by such Qualified Institution on behalf of such beneficial owner per year do not exceed $50,000. In addition, any request for prepayment made by a Qualified Institution on behalf of a beneficial owner must be delivered to the Trustee by registered mail, return receipt requested. Any Notes tendered or any request for prepayment may be withdrawn by written request received by the Trustee prior to the issuance of a check in payment thereof. 8 Notes presented for redemption as set forth above will be redeemed in order of their receipt by the Trustee, except that Notes presented for payment in the event of death of a holder will be given priority in order of their receipt over other Notes. Notes not redeemed in any such period because they have not been presented prior to November 1 of that period or because of the Annual Amount Limitations will be held in order of their receipt for redemption during the following twelve (12) month period(s) until redeemed, unless sooner withdrawn by the holder. Holders of Notes presented for redemption shall be entitled to and shall receive scheduled monthly payments of interest thereon on scheduled Interest Payment Dates until their Notes are redeemed. In the case of any Notes which are presented for redemption in part only, upon such redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note or Notes, of any authorized denomination or denominations as requested by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented. The Company may redeem, in acceptance of tenders made pursuant hereto, Notes in excess of the principal amount that the Company is obligated to redeem, and may purchase Notes in the open market. However, the Company may not use any Notes purchased in the open market as a credit against its redemption obligations hereunder. In the event that there shall occur a Change in Control (as defined in the Indenture), the holder of this Note shall have the right, subject to certain conditions stated in the Indenture, to present it for payment prior to maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder shall specify). The $50,000 per holder limitation and the Five Percent Limitations shall not apply to any such redemption. To the extent permitted by, and as provided in, the Indenture, the Company may, by entering into an indenture or indentures supplemental to the Indenture, modify, alter, add to or eliminate in any manner any provisions of the Indenture, or the rights of the holders or the rights and obligations of the Company, upon the consent, as in the Indenture provided, of the holders of not less than fifty-one percent (51%) in principal amount of the Notes then outstanding. Notwithstanding the foregoing, no supplemental indenture shall, without the consent of the holder of each outstanding Note affected thereby, 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, reduce the percentage of the aggregate principal amount of outstanding Notes the consent of the holders of which is required for any supplemental indenture or for any waiver of compliance with certain provisions of the Indenture, or modify any of the provisions of the Indenture relating to the foregoing, all except as provided in the Indenture. If an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of and all interest accrued on all the Notes at any such time outstanding under the Indenture may be declared, and upon such declaration shall become, immediately due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that such declaration and its consequence may be waived by the holders of a majority in principal amount of the Notes then outstanding. 9 The Notes are issuable as registered Notes without coupons in denominations of integral multiples of $1,000. Subject to the provisions of the Indenture, the transfer of this Note is registrable by the registered holder hereof, in person or by his attorney duly authorized in writing, at the corporate trust office of Bankers Trust Company, in New York, New York, on books of the Company to be kept for that purpose at said office, upon surrender and cancellation of this Note duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee, and thereupon a new fully registered Note of the same series, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange therefor; and this Note, with or without others of the same series, may in like manner be exchanged for one or more new fully registered Notes of the same series of other authorized denominations but of the same aggregate principal amount; all as provided in the Indenture. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge or expense that may be imposed in relation thereto. Prior to due presentment for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may deem and treat the person in whose name this Note shall be registered at any given time upon the Note Register as the absolute owner of this Note for the purpose of receiving any payment of, or on account of, the principal and interest on this Note and for all other purposes whether or not this Note be overdue; and neither the Company nor the Trustee, nor any agent of the Company or the Trustee shall be bound by any notice to the contrary. No recourse under any obligation, covenant or agreement contained in the Indenture or in any Note, or because of the creation of the indebtedness represented hereby, shall be had against any incorporator, any past, present or future stockholder, or any officer or director of the Company or any successor corporation, as such under any rule of law, statute or constitution. In any case where the date fixed for the payment of principal or interest on any of the Notes or the date fixed for redemption thereof shall not be a business day, then payment of such principal or interest 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 date fixed for such payment or redemption, and no interest shall accrue for the period from or after such date. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. [END OF FORM OF NOTES] EX-12 5 STATEMENT RE: COMPUTATION OF RATIOS 1 Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES For purposes of computing the following ratios of earnings to fixed charges, earnings represent earnings from operations before income taxes, discontinued operations, minority interests in earnings of consolidated subsidiaries and partnerships, extraordinary items, and fixed charges. Fixed charges represent gross interest on indebtedness, amortization of deferred financing costs and that portion of rent expense which is deemed to be representative of the interest factor. All amounts below, except for the ratios of earnings to fixed charges, are stated in thousands.
Fiscal Year Ended ------------------------------------------------------------------- December 31, December 27, December 26, December 25, December 31, 1991 1992 1993 1994 1995 Earnings Before Income Taxes, Discontinued Operations, Minority Interests and Extraordinary Items...$3,339 $7,011 $8,829 $13,125 $28,640 Fixed Charges: Interest Expense..... 6,966 4,939 4,642 5,525 5,856 Capitalized Interest. 51 66 510 1,892 2,171 Deferred Financing Costs.............. 533 520 394 327 413 Interest Factor of Rent Expense....... 357 647 649 549 514 ------ ------ ------ ------- ------- Total Fixed Charges....... 7,907 6,172 6,195 8,293 8,954 Earnings Before Income Taxes, Discontinued Operations, Minority Interests and extraordinary items and Fixed Charges.... 11,246 13,183 15,024 21,418 37,594 ------ ------ ------ ------- ------- Ratio of Earnings to Fixed Charges........ 1.42x 2.14x 2.43x 2.58x 4.20x ====== ====== ====== ====== ====== Two Fiscal Quarters Ended ------------------------------------- Pro Forma Pro Forma December 31, July 9, July 14, July 14, 1995(1) 1995 1996 1996(1) ----------- ------- ------- --------- Earnings Before Income Taxes, Discontinued Operations, Minority Interests and Extraordinary Items.. $27,225 $23,422 $8,225 $7,423 Fixed Charges: Interest Expense..... 8,169 3,504 905 2,172 Capitalized Interest. 2,171 808 2,946 2,946 Deferred Financing Costs.............. 413 231 223 223 Interest Factor of Rent Expense....... 514 277 185 185 ------ ------ ------ ------ Total Fixed Charges....... 11,267 4,820 4,259 5,526 Earnings Before Income Taxes, Discontinued Operations, Minority Interests and extraordinary items and Fixed Charges.... 13,492 28,242 12,484 12,949 ------ ------ ------ ------ Ratio of Earnings to Fixed Charges........ 3.42x 5.86x 2.93x 2.34x ===== ====== ====== ======
- ------------ (1) To give pro forma effect as though the offering and application of the estimated net proceeds to repay indebtedness, as described under "Use of Proceeds," had occurred as of the first day of the fiscal year presented. EX-23.2 6 CONSENT OF DELOITTE & TOUCHE, LLP 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of ShoLodge, Inc. on Form S-3 of our reports dated March 8, 1996, appearing in the Annual Report on Form 10-K of ShoLodge, Inc. for the year ended December 31, 1995 and to the reference to us under the headings "Selected Financial Data" and "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Nashville, Tennessee October 17, 1996 EX-25 7 STATEMENT OF ELIGIBILTY OF TRUSTEE 1 EXHIBIT 25 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________ -------------------------- BANKERS TRUST COMPANY (Exact name of trustee as specified in its charter) NEW YORK 13-4941247 (Jurisdiction of Incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification no.) FOUR ALBANY STREET NEW YORK, NEW YORK 10006 (Address of principal (Zip Code) executive offices) BANKERS TRUST COMPANY LEGAL DEPARTMENT 130 LIBERTY STREET, 31ST FLOOR NEW YORK, NEW YORK 10006 (212) 250-2201 (Name, address and telephone number of agent for service) -------------------------- SHOLODGE, INC. (Exact name of obligor as specified in its charter) TENNESSEE 62-1015641 (State or other jurisdiction of (I.R.S. employer Incorporation or organization) Identification no.) 217 WEST MAIN STREET GALLATIN, TENNESSEE 37066 (Address of principal executive offices) (Zip Code) SENIOR SUBORDINATED NOTES (Title of the indenture securities) 2 ITEM 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. NAME ADDRESS Federal Reserve Bank (2nd District) New York, NY Federal Deposit Insurance Corporation Washington, D.C. New York State Banking Department Albany, NY (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None. ITEM 3.-15. NOT APPLICABLE ITEM 16. LIST OF EXHIBITS. EXHIBIT 1 - Restated Organization Certificate of Bankers Trust Company dated August 7, 1990 and Certificate of Admendment of the Organization Certificate of Bankers Trust Company dated March 21, 1996, copy attached. EXHIBIT 2 - Certificate of Authority to commence business - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 3 - Authorization of the Trustee to exercise corporate trust powers - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, dated as amended on October 19, 1995. - Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 33-65171. -2- 3 EXHIBIT 5 - Not applicable. EXHIBIT 6 - Consent of Bankers Trust Company required by Section 321(b) of the Act. - Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 22-18864. EXHIBIT 7 - A copy of the latest report of condition of Bankers Trust Company dated as of June 30, 1996. EXHIBIT 8 - Not Applicable. EXHIBIT 9 - Not Applicable. -3- 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Bankers Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 15th day of October, 1996. BANKERS TRUST COMPANY By: /s/ Jenna Kaufman --------------------------- Jenna Kaufman Vice President -4- 5 Legal Title of Bank: Bankers Trust Company Call Date: 6/30/96 ST-BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1 City, State ZIP: New York, NY 10006 11 FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS JUNE 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, reported 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 1,631,000 1.a. b. Interest-bearing balances(2)..................................................... 0071 2,066,000 1.b. 2. Securities: ////////////////// a. Held-to-maturity securities (from Schedule RC-B, column A)....................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)..................... 1773 3,761,000 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 5,162,000 3.a. b. Securities purchased under agreements to resell.................................. 0277 4,192,000 3.b. 4. Loans and lease financing receivables: ////////////////// a. Loans and leases, net of unearned income (from Schedule RC-C). RCFD 2122 24,849,000 ////////////////// 4.a. b. LESS: Allowance for loan and lease losses................... RCFD 3123 923,000 ////////////////// 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 23,926,000 4.d. 5. Assets held in trading accounts...................................................... 3545 33,052,000 5. 6. Premises and fixed assets (including capitalized leases)............................. 2145 858,000 6. 7. Other real estate owned (from Schedule RC-M)......................................... 2150 216,000 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)................................................................. 2130 271,000 8. 9. Customers' liability to this bank on acceptances outstanding......................... 2155 572,000 9. 10. Intangible assets (from Schedule RC-M)............................................... 2143 18,000 10. 11. Other assets (from Schedule RC-F).................................................... 2160 7,612,000 11. 12. Total assets (sum of items 1 through 11)............................................. 2170 83,337,000 12.
- -------------------------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts. 6 Legal Title of Bank: Bankers Trust Company Call Date: 6/30/96 ST-BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2 City, State ZIP: New York, NY 10006 12 FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
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 9,040,000 13.a. (1) Noninterest-bearing(1).....................RCON 6631 3,569,000..... //////////////////////// 13.a.(1) (2) Interest-bearing...........................RCON 6636 5,471,000..... //////////////////////// 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E //////////////////////// part II) RCFN 2200 19,648,000 13.b. (1) Noninterest-bearing........................RCFN 6631 494,000 //////////////////////// 13.b.(1) (2) Interest-bearing...........................RCFN 6636 19,154,000 //////////////////////// 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 2,564,000 14.a. b. Securities sold under agreements to repurchase................................... RCFD 0279 790,000 14.b. 15. a. Demand notes issued to the U.S. Treasury......................................... RCON 2840 0 15.a. b. Trading liabilities.............................................................. RCFD 3548 18,177,000 15.b. 16. Other borrowed money: //////////////////////// / a. With original maturity of one year or less....................................... RCFD 2332 16,421,000 16.a. b. With original maturity of more than one year..................................... RCFD 2333 3,388,000 16.b. 17. Mortgage indebtedness and obligations under capitalized leases....................... RCFD 2910 31,000 17. 18. Bank's liability on acceptances executed and outstanding............................. RCFD 2920 572,000 18. 19. Subordinated notes and debentures.................................................... RCFD 3200 1,227,000 19. 20. Other liabilities (from Schedule RC-G)............................................... RCFD 2930 6,911,000 20. 21. Total liabilities (sum of items 13 through 20)....................................... RCFD 2948 78,769,000 21. //////////////////////// 22. Limited-life preferred stock and related surplus..................................... RCFD 3282 0 22. EQUITY CAPITAL //////////////////////// 23. Perpetual preferred stock and related surplus........................................ RCFD 3838 500,000 23. 24. Common stock......................................................................... RCFD 3230 1,002,000 24. 25. Surplus (exclude all surplus related to preferred stock)............................. RCFD 3839 528,000 25. 26. a. Undivided profits and capital reserves........................................... RCFD 3632 2,915,000 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities........... RCFD 8434 (5,000) 26.b. 27. Cumulative foreign currency translation adjustments.................................. RCFD 3284 (372,000) 27. 28. Total equity capital (sum of items 23 through 27).................................... RCFD 3210 4,568,000 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, //////////////////////// 22, and 28).......................................................................... RCFD 3300 83,337,000 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 the most comprehensive level of auditing work performed for the bank by independent Number external auditors as of any date during 1995......................................... RCFD 6724 N/A M.1
1 - Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 - Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 - Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4 - Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 - Review of the bank's financial statements by external auditors 6 - Compilation of the bank's financial statements by external auditors 7 - Other audit procedures (excluding tax preparation work) 8 - No external audit work - ---------------------------------- (1) Including total demand deposits and noninterest-bearing time and savings deposits. 7 STATE OF NEW YORK, BANKING DEPARTMENT I, PETER M. PHILBIN, Deputy Superintendent of Bank of the State of New York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION 8005 OF THE BANKING LAW," dated March 20, 1996, providing for an increase in authorized capital stock from $1,351,666,670 consisting of 85,166,667 shares with a par value of $10 each designated as Common Stock and 500 shares with a par value of $1,000,000 each designated as Series Preferred Stock to $1,501,666,670 consisting of 100,166,667 shares with a par value of $10 each designated as Common Stock and 500 shares with a par value of $1,000,000 each designated as Series Preferred Stock. WITNESS, my hand and official seal of the Banking Department at the City of New York, this 21ST day of MARCH in the Year of our Lord one thousand nine hundred and NINETY-SIX. Peter M. Philbin Deputy Superintendent of Banks 8 CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST Under Section 8005 of the Banking Law We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing Director and an Assistant Secretary of Bankers Trust Company, do hereby certify: 1. The name of the corporation is Bankers Trust Company. 2. The organization certificate of said corporation was filed by the Superintendent of Banks on the 5th of March, 1903. 3. The organization certificate as heretofore amended is hereby amended to increase the aggregate number of shares which the corporation shall have authority to issue and to increase the amount of its authorized capital stock in conformity therewith. 4. Article III of the organization certificate with reference to the authorized capital stock, the number of shares into which the capital stock shall be divided, the par value of the shares and the capital stock outstanding, which reads as follows: "III. The amount of capital stock which the corporation is hereafter to have is One Billion, Three Hundred Fifty One Million, Six Hundred Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,351,666,670), divided into Eighty-Five Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (85,166,667) shares with a par value of $10 each designated as Common Stock and 500 shares with a par value of One Million Dollars ($1,000,000) each designated as Series Preferred Stock." is hereby amended to read as follows: "III. The amount of capital stock which the corporation is hereafter to have is One Billion, Five Hundred One Million, Six Hundred Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,501,666,670), divided into One Hundred Million, One Hundred Sixty Six Thousand, Six Hundred Sixty-Seven (100,166,667) shares with a par value of $10 each designated as Common Stock and 500 shares with a par value of One Million Dollars ($1,000,000) each designated as Series Preferred Stock." 9 6. The foregoing amendment of the organization certificate was authorized by unanimous written consent signed by the holder of all outstanding shares entitled to vote thereon. IN WITNESS WHEREOF, we have made and subscribed this certificate this 20th day of March , 1996. /s/ James T. Byrne, Jr. ------------------------- James T. Byrne, Jr. Managing Director /s/ Lea Lahtinen ------------------------- Lea Lahtinen Assistant Secretary State of New York ) ) ss: County of New York ) Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant Secretary of Bankers Trust Company, the corporation described in the foregoing certificate; that she has read the foregoing certificate and knows the contents thereof, and that the statements herein contained are true. /s/ Lea Lahtinen ------------------------- Lea Lahtinen Sworn to before me this 20th day of March, 1996. /s/ Sandra L. West ----------------------- Notary Public SANDRA L. WEST Notary Public State of New York No. 31-4942101 Qualified in New York County Commission Expires September 19, 1996 Counterpart filed in the Office of the Superintendent of Banks, State of New York, This 21st day of March, 1996 -----END PRIVACY-ENHANCED MESSAGE-----