-----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, VhDfW+ZzmlhBmXjYvd8Mq0K/d311IXRdO+2ofgVCsg/Veb+h+/avZ9Ub9ZTLcQMN T68ji8bVLN0Na5vQEf7mog== 0000950144-96-008574.txt : 19961121 0000950144-96-008574.hdr.sgml : 19961121 ACCESSION NUMBER: 0000950144-96-008574 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961006 FILED AS OF DATE: 19961120 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19840 FILM NUMBER: 96669946 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 10-Q 1 SHOLODGE, INC. FORM 10-Q 10/06/96 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------------------------------- For the Third Quarter Ended October 6, 1996 Commission File No. 0-19840 --------------------------------------------- SHOLODGE, INC. (Exact name of registrant as specified in its charter) --------------------------------------------- Tennessee 62-1015641 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 217 West Main Street, Gallatin, Tennessee 37066 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615) 452-7200 --------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. As of November 15, 1996, there were 8,233,318 shares of ShoLodge, Inc. common stock outstanding. 2 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
OCTOBER 6, DECEMBER 31, 1996 1995 (1) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,233,692 $ 2,444,990 Accounts receivable 3,372,723 2,545,108 Construction contracts 542,549 1,726,844 Due from related parties 44,100,071 Less profits not recognized on installment sales (1,681,312) ---------------------------- 42,418,759 Prepaid expenses 1,004,469 385,615 Other current assets 439,734 287,871 Total current assets 8,593,167 49,809,187 DIRECT FINANCING LEASES, less current portion 616,459 661,631 PROPERTY AND EQUIPMENT 244,627,678 176,701,146 Less accumulated depreciation and amortization (31,883,460) (27,021,202) ---------------------------- 212,744,218 149,679,944 DEFERRED CHARGES 3,144,591 3,437,887 SECURITIES HELD TO MATURITY - RESTRICTED 8,108,630 7,618,031 SECURITIES AVAILABLE FOR SALE 1,180,289 2,090,943 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED 3,171,577 3,286,938 OTHER 4,767,701 4,205,151 ---------------------------- TOTAL ASSETS $242,326,632 $220,789,712 ============================
(1) Derived from fiscal year ended December 31, 1995 audited financial statements. See notes to consolidated financial statements. 3 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
OCTOBER 6, DECEMBER 31, 1996 1995 (1) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 13,368,541 $ 7,750,468 Taxes other than on income 1,179,566 689,564 Income taxes payable 4,223,135 2,274,693 Current portion of long-term debt and capitalized lease obligations 36,497,484 34,308,402 ---------------------------- Total current liabilities 55,268,726 45,023,127 LONG-TERM DEBT ASSOCIATED WITH LODGING FACILITIES 37,070,513 33,125,280 OTHER LONG-TERM DEBT 54,084,537 54,112,647 CAPITALIZED LEASE OBLIGATIONS 1,664,894 2,104,765 DEFERRED INCOME TAXES 3,153,751 3,153,751 MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 454,198 533,642 ---------------------------- TOTAL LIABILITIES 151,696,619 138,053,212 ---------------------------- SHAREHOLDERS' EQUITY: Series A redeemable nonparticipating stock (no par value; 1,000 shares authorized, issued and outstanding) - - Common stock (no par value; 20,000,000 shares authorized, 8,233,318 shares issued and outstanding as of October 6, 1996 and 8,228,502 shares issued and outstanding as of December 31, 1995) 1,000 1,000 Additional paid-in capital 44,275,851 44,235,396 Retained earnings 46,041,873 37,966,623 Unrealized gain on securities available for sale (net of tax) 311,289 533,481 ---------------------------- TOTAL SHAREHOLDERS' EQUITY 90,630,013 82,736,500 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $242,326,632 $220,789,712 ============================
(1) Derived from fiscal year ended December 31, 1995 audited financial statements. See notes to consolidated financial statements. 4 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) FOR THE FORTY WEEKS ENDED OCTOBER 6, 1996 AND OCTOBER 1, 1995
12 WEEKS ENDED 40 WEEKS ENDED OCTOBER 6, OCTOBER 1, OCTOBER 6, OCTOBER 1, 1996 1995 1996 1995 -------------------------------------------------------------- REVENUES: Hotel $16,171,522 $11,075,617 $44,392,537 $34,123,161 Construction and development 14,684 1,142,099 529,157 8,838,011 Construction and development - other 575,000 462,113 775,000 13,899,854 Sale of hotels 0 0 0 6,173,500 Profits not Recognized on installment sales 0 0 0 (1,955,791) Franchising 1,060,099 689,164 3,166,037 2,232,618 Management 39,319 49,999 154,855 339,141 Management - previously deferred 0 0 0 2,862,000 -------------------------------------------------------------- Total operating revenues 17,860,624 13,418,992 49,017,586 66,512,494 COSTS AND EXPENSES: Operating expenses: Hotel 8,342,687 6,196,756 23,867,466 19,305,084 Construction and development 409,374 1,599,179 1,100,105 9,184,280 Cost of hotels sold 0 0 0 4,217,709 Franchising 872,974 716,893 2,648,621 2,160,675 -------------------------------------------------------------- Total operating expenses 9,625,035 8,512,828 27,616,192 34,867,748 -------------------------------------------------------------- Gross operating profits 8,235,589 4,906,164 21,401,394 31,644,746 General and administrative 492,053 353,845 1,983,557 1,256,207 -------------------------------------------------------------- Earnings before interest, taxes, depreciation and amortization 7,743,536 4,552,319 19,417,837 30,388,539 Depreciation and amortization 2,099,047 1,356,724 5,919,472 4,136,196 -------------------------------------------------------------- Net operating profit (before interest and taxes) 5,644,489 3,195,595 13,498,365 26,252,343 OTHER INCOME AND EXPENSES: Interest expense 1,306,555 972,942 2,211,629 4,477,318 Interest income 337,806 1,034,310 1,180,352 4,586,109 -------------------------------------------------------------- Net interest expense 968,749 (61,368) 1,031,277 (108,791) Other income 316,348 110,624 750,189 428,257 -------------------------------------------------------------- EARNINGS FROM CONTINUING OPEREATIONS BEFORE INCOME TAXES AND MINORITY INTERESTS 4,992,088 3,367,587 13,217,277 26,789,391 INCOME TAXES 1,807,000 1,209,000 4,769,000 9,900,000 MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARIES & PARTNERSHIPS 143,761 177,551 373,027 268,094 -------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS 3,041,327 1,981,036 8,075,250 16,621,297 DISCONTINUED OPERATIONS INCOME (LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS SEGMENT, net of applicable income taxes & minority interests 0 23,692 0 (21,690) EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, net of income tax benefit 0 (8,464) 0 669,731 -------------------------------------------------------------- NET EARNINGS $ 3,041,327 $ 2,013,192 $ 8,075,250 $15,899,876 ============================================================== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Primary: Earnings from continuing operations $ 0.36 $ 0.23 $ 0.96 $ 1.94 Net Earnings $ 0.36 $ 0.24 $ 0.96 $ 1.86 -------------------------------------------------------------- Fully Diluted: Earnings from continuing operations $ 0.34 $ 0.24 $ 0.93 $ 1.71 Net Earnings $ 0.34 $ 0.24 $ 0.93 $ 1.64 -------------------------------------------------------------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 8,470,358 8,515,546 8,451,077 8,569,562 Fully Diluted 10,786,960 10,832,148 10,767,679 10,886,164 --------------------------------------------------------------
See notes to consolidated financial statements. 5 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASHFLOWS FOR THE FORTY WEEKS ENDED OCTOBER 16, 1996 AND OCTOBER 1, 1995
40 WEEKS ENDED OCTOBER 6, OCTOBER 1 1996 1995 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: $ 8,075,250 $ 15,899,876 NET EARNINGS ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: EXTRAORDINARY LOSS ON EARLY EXTINQUISHMENT OF DEBT 0 1,128,598 DEPRECIATION AND AMORTIZATION 5,919,472 4,136,196 INCREASE IN DEFERRED INCOME TAXES 0 3,700,000 GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE (294,839) 0 GAIN ON SALE OF PROPERTY & EQUIPMENT 0 (4,765) ACCRETION OF DISCOUNT ON SECURITIES HELD TO MATURITY (490,599) (644,969) MINORITY INTERESTS IN EARNINGS ON CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 373,027 176,221 CHANGES IN ASSETS AND LIABILITIES: DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE 356,680 (935,054) (INCREASE) IN PREPAID EXPENSES (618,854) (480,412) (DECREASE) INCREASE PROFITS NOT RECOGNIZED ON INSTALLMENT SALES (1,681,312) (3,633,128) (INCREASE) IN OTHER ASSETS (1,093,293) (1,003,322) (INCREASE) IN DEFERRED CHARGES (33,682) (1,183,308) INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 5,618,073 949,437 INCREASE IN INCOME AND OTHER TAXES 2,438,444 888,872 INCREASE (DECREASE) IN DEFERRED REVENUE 0 (2,862,000) - --------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 18,568,367 16,132,242 CASH FLOWS FROM INVESTING ACTIVITIES: CAPITAL EXPENDITURES (68,026,346) (24,497,571) PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT 0 4,765 MATURITY OF SECURITIES HELD TO MATURITY 0 10,000,000 SALE OF SECURITIES AVAILABLE FOR SALE 847,120 0 - --------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (67,179,226) (14,492,806) CASH FLOWS FROM FINANCING ACTIVITIES: REPAYMENTS FROM (ADVANCES TO) RELATED PARTIES--NET 44,100,071 1,583,355 PROCEEDS FROM DIRECT FINANCING LEASES 45,172 52,185 PROCEEDS FROM LONG-TERM DEBT 63,552,371 32,210,000 PAYMENTS ON LONG-TERM DEBT (57,446,166) (31,518,265) PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS (439,871) (786,704) DISTRIBUTIONS TO MINORITY INTERESTS (452,471) (254,007) EXERCISE OF STOCK OPTIONS 40,455 88,838 - --------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 49,399,561 1,375,402 - --------------------------------------------------------------------------------------------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS $ 788,702 $ 3,014,838 ============================================================================================= CASH AND CASH EQUIVALENTS-BEGINNING PERIOD $ 2,444,990 $ 2,188,185 ============================================================================================= CASH AND CASH EQUIVALENTS-END PERIOD $ 3,233,692 $ 5,203,023 =============================================================================================
See notes to consolidated financial statements. 6 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FORTY WEEKS ENDED OCTOBER 6, 1996 AND OCTOBER 1, 1995 (UNAUDITED)
40 WEEKS ENDED OCTOBER 6, OCTOBER 1, 1996 1995 ----------------------- SUPPLEMENTAL CASH FLOW INFORMATION PROPERTY AND EQUIPMENT ACQUIRED UNDER CAPITALIZED LEASE OBLIGATIONS: 2,310,743 PROPERTY AND EQUIPMENT (2,310,743) CAPITALIZED LEASE OBLIGATION $ 0 $ 0 ======================= SALES OF HOTELS TO RELATED PARTY: (6,173,500) DUE FROM RELATED PARTIES PROFITS NOT RECOGNIZED ON INSTALLMENT 1,955,791 SALES 4,217,709 ----------------------- PROPERTY AND EQUIPMENT $ 0 $ 0 =======================
7 SHOLODGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. The consolidated financial statements have been prepared by the Company without audit. In Management's opinion, the information and amounts furnished in this report reflect all adjustments which are necessary for the fair presentation of the financial position and results of operations for the periods presented. All adjustments are of a normal and recurring nature. It is suggested that these financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the forty weeks ended October 6, 1996. There have been no changes in accounting policies nor has the composition of accounts substantially changed since the year ended December 31, 1995. The fiscal year consists of a 52/53 week year ending the last Sunday of the year. The Company has historically reported lower earnings in the first and fourth quarters of the year due to the seasonality of the Company's business. The results of operations for the quarters ended October 6, 1996 and October 1, 1995 are not necessarily indicative of the operating results for the entire year. B. The net earnings per share is computed by dividing net earnings by the weighted average number of common and common equivalent shares outstanding. 8 ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations For the Fiscal Quarters and Fiscal Year-to-date Periods Ended October 6, 1996 and October 1, 1995 Total operating revenues for the quarter ended October 6, 1996, were $17,861,000, or 33.1% more than the total operating revenues for the third quarter of 1995. For the three quarters ended October 6, 1996, total operating revenues were $49,018,000, for a decrease of 26.3% from the same three quarters in 1995. Revenues from hotel operations in third quarter 1996 increased by $5,096,000, to $16,172,000, or 46.0%, from $11,076,000 in the same period last year. For the 29 same store hotels opened for all of both quarterly periods, an increase of 6.2% in average daily room rates, from $49.54 in third quarter 1995 to $52.60 in third quarter 1996, partially offset by a decline in average occupancy rates on these hotels from 69.8% last year to 66.4% this year, resulted in a net increase in same store hotel revenues of 2.3%, from $10,669,000 in third quarter 1995 to $10,918,000 in third quarter 1996. The four hotels opened during 1995 and the nine hotels opened in first three quarters 1996 contributed $5,254,000 to hotel operating revenues in third quarter this year versus $407,000 in the third quarter last year. Revenues from hotel operations in the first three quarters of 1996 increased by $10,270,000, to $44,393,000, or 30.1%, from $34,123,000 in the same period last year. For the 29 same store hotels opened for all of both year-to-date periods, an increase of 6.1% in average daily room rates, from $48.03 in first three quarters 1995 to $50.95 in first three quarters 1996, partially offset by a decline in average occupancy rates on these hotels from 66.7% last year to 64.2% this year, resulted in a net increase in same store hotel revenues of 2.2%, from $33,098,000 in first three quarters 1995 to $33,812,000 in first three quarters 1996. The 13 hotels opened during 1995 and first three quarters of 1996 contributed $10,581,000 to hotel revenues in first three quarters this year versus $475,000 for the comparable period last year. One hotel which was sold in the first half of 1995 contributed $550,000 to hotel revenues in the first three quarters of 1995. Revenues from regular construction and development activities were $15,000 in third quarter 1996 compared with $1,142,000 for the same period last year. Revenues from this source for the first three quarters of 1996 were $529,000 in contrast to $8,838,000 for the same period last year. 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 three quarters of 1995 compared with only one during the comparable period in 1996. No outside construction contracts are currently in progress, due to the concentration on the Company's own development plans. 9 Revenues of $575,000 from "Construction and development - other" in third quarter 1996, and $775,000 in the first three quarters of 1996, represent a portion of profits not previously recognized on installment sales in connection with the termination of the Company's relationship with Suites of America, Inc. and its parent, Prime Hospitality Corp. in March 1995 (the "AmeriSuites Transaction"). The $462,000 reported for third quarter last year and the $13,900,000 reported for the first three 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 three quarters of 1995 was $4,218,000, net of profits not recognized on installment sales of $1,956,000, representing the sale of one hotel in first quarter 1995 in conjunction with the AmeriSuites Transaction. These net revenues are completely offset by the cost of hotels sold, resulting in no gross operating profit from these transactions. Franchising revenues increased by $371,000, or 53.8%, in third quarter 1996 from third quarter 1995. This was due primarily to a 12.6% increase in franchised hotel revenues upon which royalty and reservation system fees are based. The number of franchised Shoney's Inns at the end of third quarter 1996 increased to 57 from the 49 franchised at the same time last year. Also, initial franchise fees increased by $60,000 from third quarter 1995 to third quarter 1996. Initial franchise fees may vary widely from quarter to quarter. Franchise revenues increased by $933,000, or 41.8%, in first three quarters 1996 from the comparable period last year. This was due to higher royalty and reservation center fees resulting from a 15.7% higher sales level of franchised inns, and to an increase of $88,000 in initial franchise fee revenues. Management contract revenues declined by $11,000, from $50,000 to $39,000, in third quarter 1996 versus third quarter 1995 due to the cancellation of one management contract on one Shoney's Inn in the third quarter of 1996. Management contract revenues for the first three quarters of 1996 were $155,000, or 54.3%, less than for the same period last year, due to the cancellation of management contracts on the one Shoney's Inn in third quarter 1996 and 11 AmeriSuites hotels on March 31, 1995, as a part of the AmeriSuites Transaction. Revenues from "Management - previously deferred" in the first three quarters of 1995 of $2,862,000 represent fees collected in 1993 and 1994 for the Company's relinquishment of its profit participation in four hotels owned by Suites of America, Inc. These profits were previously deferred due to the Company's option to acquire a 50% ownership interest in Suites of America, Inc. In connection with the sale of this option to Suites of America, Inc. in March 1995 as part of the AmeriSuites Transaction, all of this previously deferred revenues was recognized in the first quarter of 1995. This is a non-recurring source of revenue. Operating expenses from hotel operations in the third quarter of 1996 increased by $2,146,000, to $8,343,000, or 34.6%, from $6,197,000 in third quarter 1995, due to operating expenses associated with the 46.0% increase in hotel operating revenues. Operating expenses from hotel operations as a percentage of operating revenues 10 decreased from 55.9% in third quarter 1995 to 51.6% in third quarter 1996. The increase in hotel gross operating profit margin from 44.1% in third quarter 1995 to 48.4% in third quarter 1996 is due to (1) an increase in profit margin on the in third quarter 1995 to 47.3% in third quarter 1996, due to the 6.2% in average daily room rates combined with improved cost control programs, and (2) a profit margin of 50.8% for the 13 new hotels, due to their higher average daily room rates as compared with the older hotels. Nine of these 13 new hotels are the new Sumner Suites all-suite properties which generally command higher room rates than the Shoney's Inn properties and which generally operate at a higher gross operating profit margin. Operating expenses from hotel operations for the first three quarters of 1996 increased by $4,562,000, to $23,867,000, or 23.6%, from $19,305,000 in the first three quarters of 1995, due to operating expenses associated with the 30.1% increase in hotel operating revenues. Operating expenses from hotel operations as a percentage of hotel operating revenues decreased from 56.6% in the first three quarters of 1995 to 53.8% in the first three quarters of 1996, thus increasing the gross profit margin on all hotels from 43.4% in 1995 to 46.2% in 1996. The gross profit margin on same store hotels for the first three quarters of 1996, reflected an increase to 45.3% from the 43.4% level for the same three quarters in 1995. The new hotels, as a group, reflected higher profit margins for the first three quarters of 1996, 49.3%, compared with the same store hotels. Costs and expenses of construction and development in third quarter 1996 were $409,000 versus $1,599,000 in third quarter 1995, and for the first three quarters decreased from $9,184,000 in 1995 to $1,100,000 in 1996. There were three outside construction projects in the first three quarters of 1995 versus only one during the comparable period in 1996. Franchising operating expenses increased by $156,000, or 21.8%, in third quarter 1996 from third quarter 1995, and for the first three quarters of 1996 increased by $488,000, or 22.6%, over the same period last year. The primary reason for these increases was the additional expenses incurred by the reservation center in meeting the added demand from additional properties served by that department, particularly in the areas of personnel costs and telephone expense. For the first three quarters of 1996 the reservation center's operating expenses increased by $411,000, or 35.1%, over the comparable period last year. During the first three quarters of 1996, franchising operating expenses included $860,000 of royalty fees to Shoney's, Inc. As a result of a transaction between the Company and Shoney's, Inc. on October 25, 1996, the Company will no longer be required to pay a portion of its franchise fees to Shoney's, Inc. (see Part II, Item 5 of this report.) General and administrative expense for third quarter 1996 increased by $138,000 over the comparable period last year, and for the three quarters, the increase over the prior year period was $727,000. These increases were due primarily to increased outside professional fees and increased payroll and related expenses associated primarily with increased staffing levels. 11 Depreciation and amortization expense in third quarter 1996 increased by $742,000, or 54.7%, over last year's third quarter. Thirteen hotels were opened during 1995 and first three quarters of 1996, which resulted in $693,000 depreciation and amortization expense in third quarter 1996 versus only $35,000 in third quarter 1995 on one of these hotels which opened during the second quarter of 1995. For the first three quarters of 1996, depreciation and amortization expense increased by $1,783,000, or 43.1%, over the same period last year. Increased depreciation and amortization on the thirteen added hotels was $1,288,000. Also, depreciation due to renovations and other additions to same hotels increased by $534,000 over first three quarters of last year. On October 25, 1996, the Company paid approximately $5,300,000 for the cancellation of Shoney's Inc's right to receive a portion of the Company's franchise fees. (See Part II, Item 5 of this report.) This purchase price is expected to be treated as a deferred asset and amortized over a fixed period of time. Interest expense for the third quarter 1996 increased by $334,000 from 1995's third quarter and interest income declined, by $696,000, for an increase in net interest expense of $1,030,000. For the first three quarters of 1996, the decreases from the same prior year periods in interest expense and interest income were $2,266,000 and $3,406,000, respectively, for an increase in net interest expense of $1,140,000. The primary cause of the decreases in interest income was the collection of the balance of first mortgage notes receivable of approximately $44 million from Suites of America in early first quarter 1996, which resulted in reducing interest income in third quarter 1996 and for the first three quarters of 1996 by $991,000 and $3,219,000, respectively. The $44 million proceeds were used to reduce outstanding debt, significantly reducing interest expense for the first three quarters of 1996 compared with the same prior year period. However, for the third quarter, interest expense reflected an increase due to additional borrowings for new hotels opened in 1996. Other income increased by $206,000 and $322,000 from third quarter 1995 and first three quarters 1995, respectively. Minority interest in earnings and losses of consolidated subsidiaries and partnerships decreased $34,000, or 19.0%, from last year's third quarter due to less profitable consolidated entities which include minority ownership. For the first three quarters of 1996, the $105,000 increase is due to such entities being more profitable for the year-to-date period. The 1995 loss from discontinued operations, net of applicable income taxes and minority interest, was from the restaurant subsidiary of which the Company sold its 60% interest to the 40% owner in the first quarter 1996. The 1995 extraordinary loss, net of income tax benefit, 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. 12 Liquidity and Capital Resources Net cash provided from operations was $31,570,000 in fiscal 1995 and $5,801,000 in fiscal 1994. The Company currently has a total of $54,000,000 in unsecured revolving credit facilities with five banks, of which $47,500,000 expires in January 1997, $5,000,000 expires in February 1997, and $1,500,000 expires in May 1997. Interest rates on these lines of credit are (i) $40,000,000 at the lender's prime rate, or two hundred basis points over 30, 60, or 90 day LIBOR rates, at the Company's option; (ii) $10,000,000 at the lender's prime rate, or one hundred ninety basis points over the 30, 60 or 90 days LIBOR rates, at the Company's option; and (iii) $1,500,000 at the lender's prime rate. As of October 6, 1996, the Company had $34,180,000 outstanding under these credit facilities. On October 25, 1996 the Company incurred $7,300,000 in additional revolving credit facility indebtedness in connection with a transaction with Shoney's, Inc. (see Part II, Item 5 of this report). On November 12, 1996, the Company completed a public offering of $30,000,000 of 9.75% Senior Subordinated Notes due 2006, Series A and applied the net proceeds (approximately $28,600,000) to reduced outstanding borrowings under revolving credit facilities. The Company anticipates seeking a new $50,000,000 to $75,000,000 senior revolving credit facility within the next 60 to 90 days to replace its existing facilities. 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. The Company requires capital principally for the construction and/or acquisition of new lodging facilities and the purchase of equipment and leasehold improvements. Capital expenditures for such purposes were $67,927,000 for the first three fiscal quarters of 1996, $56,174,000 in fiscal 1995 and $47,126,000 in fiscal 1994. To date in 1996, two Shoney's Inns and eight Sumner Suites hotels have opened and three 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 $100,000,000 in additional capital funds will be necessary through fiscal 1997 to fulfill these plans. The Company has principal payments totaling $3,915,000 due under existing debt instruments, in addition to the repayment of the Company's revolving credit facilities, through fiscal 1997. The Company believes that a combination of net proceeds from the offering of 9.75% Senior Subordinated Notes due 2006, Series A, discussed above, 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. 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings There have been no material developments during the quarter. Item 2. Changes in securities Not applicable Item 3. Defaults upon senior securities None. Item 4. Submission of matters to a vote of security holders Not applicable Item 5. Other information On October 25, 1996 the Company repurchased for $2.0 million in cash the warrant held by Shoney's Investments, Inc. an affiliate of Shoney's, Inc. ("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 25, 1996, the warrant entitled 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 paid 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 received 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 franchises. 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 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, 14 Shoney's no longer has the right to designate two members of the Company's board of directors. 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. Franchise operating expenses of the Company will no longer reflect an expense for the royalty fees to Shoney's. The transactions described above are sometimes collectively referred to herein as the "Shoney's Transaction." Item 6. Exhibits and Reports on Form 8-K 6(a) Exhibits- 4.1 Indenture between the Company and Banker's Trust Company dated as of November 15, 1996. 4.2 First Supplemental Indenture between the Company and Banker's Trust Company dated as of November 15, 1996. 10.1 Amendment No. 5 to license agreement between Shoney's Investments, Inc. and ShoLodge Franchise Systems, Inc. dated October 25, 1996. 10.2 Warrant Purchase Agreement between Shoney's Investments, Inc. and ShoLodge, Inc. dated October 25, 1996. 10.3 Fifth Amendment to Loan Agreement between ShoLodge, Inc. and First Union National Bank of Tennessee dated October 18, 1996. 10.4 Sixth Amendment to Loan Agreement between ShoLodge, Inc. and First Union National Bank of Tennessee dated October 24, 1996. 10.5 Loan Agreement between ShoLodge, Inc. and Nations Bank of Tennessee, N.A. dated November 6, 1996. 10.6 First Amendment to Amended and Restated Stock Option Agreement dated as of October 10, 1996 between Leon Moore and Richard L. Johnson. 10.7 First Amendment to Registration Rights Agreement, dated as of October 10, 1996, between the Company and Richard L. Johnson. 11 Computation of per share earnings. 27 Financial Data Schedule (for SEC use only) 15 6(b) Reports on Form 8-K There were no reports on Form 8-K for the quarter ended October 6, 1996: however, a report on Form 8-K was filed on October 21, 1996, regarding the proposed Shoney's Transaction (See Part II, Item 5 of this report for further information). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934. The Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ShoLodge, Inc. Date: November 19, 1996 /s/ Leon Moore --------------------------------------- Leon Moore President, Chairman of the Board and Director (Chief Executive Officer) Date: November 19, 1996 /s/ Bob Marlowe --------------------------------------- Bob Marlowe Secretary, Treasurer and Director (Chief Accounting Officer) Date: November 19, 1996 /s/ Michael A. Corbett --------------------------------------- Michael A. Corbett Chief Financial Officer EX-4.1 2 SHOLODGE INDENTURE 11/15/96 1 EXHIBIT 4.1 SHOLODGE, INC. AND BANKERS TRUST COMPANY, TRUSTEE ------------------------- INDENTURE Dated as of November 15, 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 November 15, 1996, between ShoLodge, Inc. and Bankers Trust Company, Trustee.
TRUST INDENTURE ACT OF 1939 SECTION INDENTURE SECTION - ------------------------------------------ ------------------------------------------------ 310(a)(1)(2)(3) . . . . . . . . . . . . . 11.1 and 11.12 (a)(4) . . . . . . . . . . . . . . . . Not applicable (b) . . . . . . . . . . . . . . . . . 11.8 and 11.9 (c) . . . . . . . . . . . . . . . . . Not applicable 311(c) . . . . . . . . . . . . . . . . . Not applicable 312(a) . . . . . . . . . . . . . . . . . 5.1(a) and (b) (b) . . . . . . . . . . . . . . . . . 5.1(c) (c) . . . . . . . . . . . . . . . . . 5.1(d) 313(a) . . . . . . . . . . . . . . . . . 5.3 (b) . . . . . . . . . . . . . . . . . Not applicable (c) . . . . . . . . . . . . . . . . . 5.3 (d) . . . . . . . . . . . . . . . . . 5.3 314(a) . . . . . . . . . . . . . . . . . 5.2(a) and (b) (b) . . . . . . . . . . . . . . . . . Not applicable (c) . . . . . . . . . . . . . . . . . 14.3 (d) . . . . . . . . . . . . . . . . . Not applicable (e) . . . . . . . . . . . . . . . . . 16.3 315(a) . . . . . . . . . . . . . . . . . 16.2 (b) . . . . . . . . . . . . . . . . . 8.7 (c) . . . . . . . . . . . . . . . . . 11.2(b) (d) . . . . . . . . . . . . . . . . . 11.2(c) (e) . . . . . . . . . . . . . . . . . 8.8 316(a)(1) . . . . . . . . . . . . . . . . 8.6 (a)(2) . . . . . . . . . . . . . . . . Not applicable (b) . . . . . . . . . . . . . . . . . 8.6 317(a) . . . . . . . . . . . . . . . . . 8.2 (b) . . . . . . . . . . . . . . . . . 4.4
3 318(a) . . . . . . . . . . . . . . . . . 16.6 - ---------------
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 "Annual Amount Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 "Five Percent Limitation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
i 5 "Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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" . . . . . . . . . . . . . . . . . . . . . . 6 "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" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 "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 "U.S. Government Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
ii 6 2.5 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.6 Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.7 Exchange and Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.8 Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes. . . . . . . . . . . . . . 12 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
iii 7 4.10 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.11 Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.12 Limitations on Dividends and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.13 Limitation on Other Senior Subordinated Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 23 4.14 Restrictions on Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.15 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 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 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.6 Purchase of Notes at Option of the Holder Upon Change in Control. . . . . . . . . . . . . . . . . . 31 7.7 Redemption of Notes Subject to Article 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 8 REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT iv 8 8.1 Events of Default Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.2 Payment of Notes on Default; Suit Therefor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.3 Application of Moneys Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.4 Limitation on Suits by Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 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 . . . 41 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.2 Acceptance of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 11.3 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.4 Trustee May Own Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 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
v 9 11.11 Cash, Securities, Etc. to be Held by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 11.12 Merger or Consolidation of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 11.13 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 12.4 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 12.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 13 MEETING OF NOTEHOLDERS 13.1 Purposes for Which Meetings May be Called. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.2 Call of Meetings by Trustee; Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.3 Call of Meetings by Trustee; Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.4 Meetings, Notice and Entitlement to be Present . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 13.5 Regulations May be Made by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 13.6 Manner of Voting at Meetings and Record to be Kept. . . . . . . . . . . . . . . . . . . . . . . . . 65 13.7 Evidence of Action by Holders of Specified Percentage of Notes . . . . . . . . . . . . . . . . . . . 65 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. . . . . . . . . . . . . . . . . . . . 67 14.3 Requirements for Execution; Duties and Immunities of Trustee. . . . . . . . . . . . . . . . . . . . 69 14.4 Supplemental Indentures Part of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 14.5 Notes Executed After Supplemental Indenture to be Approved by Trustee . . . . . . . . . . . . . . . 69 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 . . . . . . . . . . . . . . . . . . . . . . . 70 16.2 Deposits for Notes Not Claimed for Specified Period to be Returned to Company on Demand. . . . . . . 70 16.3 Formal Requirements of Certificates and Opinions Hereunder. . . . . . . . . . . . . . . . . . . . . 71 16.4 Evidence of Act of the Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 16.5 Parties to Include Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 16.6 In Event of Conflict with Trust Indenture Act of 1939, Provisions Therein to Control. . . . . . . . 72 16.7 Request, Notices, Etc. to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 16.8 Manner of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 16.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 16.10 Payments Due on Days When Banks Closed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 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 November 15, 1996, between SHOLODGE, INC., a Tennessee corporation (herein called the "Company") and BANKERS TRUST COMPANY, a New York banking corporation (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. "Annual Amount Limitations" has the meaning specified in Section 7.1. "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 7.6. "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 main 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 (if, after making the adjustments described below, the Company's consolidated net income for such period would be a positive number) 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 or losses and (ii) the net income or loss 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 (if, after making the adjustments described below, the Company's consolidated net income for such period would be a negative number) 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 gains or losses and (ii) the net income or 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 3 14 consolidated basis in accordance with generally accepted accounting principles as consistently applied by the Company. "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. 4 15 "Five Percent Limitation" has the meaning specified in Section 7.1. "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 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. 5 16 "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. "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 16.3 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. 6 17 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. "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 Officer," when used with respect to the Trustee, means any officer within the Corporate Trust and Agency Group of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Payment" has the meaning set forth in Section 4.12. 7 18 "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 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" means 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. 8 19 "U.S. Government Obligations" has the meaning provided in Section 12.2(d)(i) hereof. 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. 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 and in the 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. Prior to such authentication the Trustee shall be entitled to receive an executed supplemental indenture, an Officers' Certificate and Opinion of Counsel satisfactory to the Trustee. 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 set forth 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 the applicable supplemental indenture or a Certified Resolution. 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. Notes may be issued at a discount, and shall bear interest, as set forth in the applicable supplemental indenture establishing the form of such Note. 9 20 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 preceding such interest payment date if such interest payment date is the first day of a calendar month. 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). 10 21 (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 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 11 22 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. 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 12 23 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 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 13 24 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 or exchange 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 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 destroy all canceled Notes held by it and deliver a certificate of such destruction to the Company. 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, 14 25 (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 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 15 26 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 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 16 27 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. 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 main 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 on 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. 17 28 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 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. Upon request of the Trustee, the Company will provide it with an Officers' Certificate setting forth the identity of any holder of Senior Indebtedness and the amount of such Senior Indebtedness and the Trustee shall be fully protected in relying upon such Officers' Certificate. 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 18 29 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. 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. 19 30 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. 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 main office. 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 20 31 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. 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, 21 32 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 (determined without regard to any grace period or requirement of notice); and (b) deliver to the Trustee within five days after the occurrence thereof written notice of any event 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 for a period of thirty (30) days beyond any applicable notice and/or cure period. The Company will notify the Trustee of any breach of the covenants contained in this Section 4.8 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, 22 33 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 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, required 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 November 15, 1996 is less than the sum of: (A) $8,500,000, plus (B) 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, (or minus 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 23 34 directly or indirectly liable with respect to or responsible for, 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, 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 cumulative Consolidated Net Income since October 6, 1996. 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 24 35 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 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). 25 36 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; (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 if required pursuant to 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. The Company will notify the Trustee if any Notes are listed. 26 37 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, 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, 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. 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. 27 38 All notices of redemption shall state: (a) The Redemption Date; (b) The redemption price plus accrued interest, if any; (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. 6.4 Deposit of Redemption Price. On or before 10:00 a.m. on 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. 28 39 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 its standard procedures, and the Trustee shall deliver its certificate of destruction thereof to the Company. 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 theretofore 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, each in an aggregate principal amount exceeding $50,000, the Company will redeem such Notes in order of their receipt (except Notes presented for 29 40 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 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 event that a holder or his or her duly authorized representative notifies the Trustee of such person's desire to redeem all or any portion of the Notes pursuant to Section 7.1 of the Indenture, the Trustee shall furnish such person with the form set forth in Exhibit A hereto (for redemptions pursuant to Section 7.1(a) of the Indenture) or Exhibit B hereto (for redemptions pursuant to Section 7.1(b) of the Indenture). Notes may be presented for redemption by delivering to the Trustee by hand delivery or registered mail at its main office: (A) a written request for redemption, in the form provided by the Trustee upon written request, 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. 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(a) and (b) and this Section 7.2, (i) a Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder, (ii) the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder, (iii) a person who is entitled to substantially all of the beneficial interests of ownership of a Note will be deemed to be the holder and (iv) the death of such person will be deemed to be the death of the holder, regardless of the registered holder. For 30 41 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 if the holder certifies 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 or her spouse), and trusts and certain other arrangements where a person has substantially all of 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. The Trustee or the Company may request such information as either of them deems reasonably necessary to determine whether any given request for redemption satisfies the conditions of the Indenture and any applicable supplemental indenture. However, the Trustee shall be entitled to rely upon a written request for redemption in proper form executed by a holder and an Officers' Certificate authorizing the requested redemption. 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 certify that the aggregate amount of requests for redemption tendered by such Qualified Institution on behalf of each 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. Whenever any of the Notes outstanding are to be redeemed pursuant to Section 7.1, the Company's approval of a holder's redemption notice shall be evidenced by an Officer's Certificate and the Company shall give the Trustee at least three (3) business 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. 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 31 42 withdrawal to the Trustee at least three (3) business days 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 Deposit of Redemption Price. On or before 10:00 a.m. on 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. 7.6 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 7.6(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 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 7.6 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 32 43 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 7.6 must be given; (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; 33 44 (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 7.6 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 7.6 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 7.6 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. The Company shall purchase from the holder thereof, pursuant to this Section 7.6, 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 7.6 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. 34 45 (d) Effect of Change in Control Purchase Notice. Upon receipt by the Company of the Change in Control Purchase Notice specified in Section 7.6(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 7.6(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 7.6(c). A Change in Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the main 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 7.6 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 10:00 a.m. on the Change in Control Purchase Date, the Company shall deposit with the Trustee (or, if the Company or a Subsidiary or 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 7.6 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 7.6 to be exercised in the time and in the manner specified in this Section 7.6. 35 46 (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). 7.7 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 (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 36 47 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; 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 37 48 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 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. 38 49 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. 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 39 50 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 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. 40 51 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 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 41 52 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. 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 42 53 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 10.1 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 10.1 have been complied with and the successor corporation is not in default under the provisions of the Indenture; and (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, 43 54 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 7.6, 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 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, 44 55 (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 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 45 56 (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, in the Notes and in any supplemental indenture (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, any supplemental 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 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; 46 57 (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 (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. The Trustee shall not be liable for interest on moneys received by it except as the Trustee may separately agree in writing with the Company. 47 58 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 as separately agreed in writing 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. To secure the Company's obligations under this Section 11.7, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. 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. The obligations of the Company under this Section 11.7 shall survive defeasance and satisfaction and discharge of the Indenture and resignation of the Trustee. 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. 48 59 (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 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 49 60 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 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 50 61 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. (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 51 62 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 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. 52 63 (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 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. 53 64 (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 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. 54 65 (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 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, 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. 55 66 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 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 56 67 from the Company subject to the provisions of Section 11.7. The provisions of Section 9.1, 11.4 and 11.5 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; (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 57 68 (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 Section 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, (a) the Company may, at its option by Certified Resolution, 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 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 58 69 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, any covenants contained in Sections 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 5.2 and any covenants contained 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 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 59 70 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 otherwise 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 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 60 71 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 of Counsel 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 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 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 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 61 72 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 Noteholders of such 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 62 73 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. 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 13.1, 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 and the Trustee may at any time and from time to time, enter into an indenture or indentures supplemental hereto, in form satisfactory to the Trustee, for one or more of the following purposes: 66 77 (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 Company, as set forth in a Company Request 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. 14.2 Modification of Indenture by Written Consent of Noteholders. 67 78 (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 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 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 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 68 79 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 7.6, 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 11.2, 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. 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. 69 80 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 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; 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. 70 81 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 three (3) 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. (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 71 82 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 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. 72 83 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, first class, postage prepaid, 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 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. 73 84 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 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 74 85 hereunto affixed, and this instrument to be signed and sealed by one of its corporate trust officers and its corporate seal to be attested, as of the day and year first written above. SHOLODGE, INC. ATTEST: By: /s/ Michael A. Corbett ---------------------------------- Name: Michael A. Corbett Title: Chief Financial Officer /s/ Bob Marlowe - ---------------------------- Attesting Officer [Seal] BANKERS TRUST COMPANY ATTEST: By: /s/ Susan Johnson ---------------------------------- Name: Susan Johnson Title: Assistant Vice President /s/ Terence Rawlins - --------------------------- Name: Terence Rawlins Title: Assistant Treasurer [Seal] 75 86 Exhibit A to Indenture OPTION TO ELECT REDEMPTION (pursuant to Section 7.1(a) of the Indenture) via hand delivery or registered mail, return receipt requested Bankers Trust Company, Corporate Trust and Agency Group Four Albany St. New York, NY 10006 The undersigned hereby elects to have the Company redeem the enclosed Note pursuant to Section 7.1(a) of the Indenture (REDEMPTIONS NOT INVOLVING THE DEATH OF A HOLDER).(1) If you are effecting this redemption on behalf of a registered holder or beneficial owner of a Note, identify such registered holder or beneficial owner ____________________________.(2) If you wish to redeem less than all of the principal amount of the Note, state the amount that you wish to redeem (which may be $1000 or any integral multiple thereof): _____________________. State the amount of the requested redemption, if any that exceeds the $50,000 per holder Annual Amount Limitation(3) for this annual redemption period ____________. THE UNDERSIGNED HEREBY CERTIFIES THAT: (1) The undersigned hereby elects to redeem the enclosed Note in the principal amount set forth above pursuant to Section 7.1(a) of the Indenture; (2) The Note is free and clear of any liens or encumbrances of any kind; and (3) The undersigned hereby certifies that it has the actual authority to effect this redemption and that such redemption does not exceed the $50,000 Annual Amount Limitations for the current annual redemption period except as and to the extent set forth above. SO CERTIFIED, this the _____ day of ___________, ________. By:_________________________________ Title:_________________________ Signature(s) must be guaranteed by an eligible guarantor institution which is a member of a recognized signature program, i.e., Securities Transfer Agents Medallion Program ("STAMP"), Stock Exchange Medallion Program ("SEMP") or New York Stock Exchange Medallion Signature Program ("MSP"). Sign exactly as your name appears on the Note. ____________________ (1) The undersigned understands and agrees that the Company or the Trustee may request additional information or documentation if necessary to determine the appropriate resolution of this request for redemption. (2) 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 Gift 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 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. (3) Redemptions in any annual period are subject to a $50,000 per holder limitation, among other limitations and restrictions. 76 87 Exhibit B to Indenture OPTION TO ELECT REDEMPTION (pursuant to Section 7.1(b) of the Indenture) via hand delivery or registered mail, return receipt requested Bankers Trust Company, Corporate Trust and Agency Group Four Albany St. New York, NY 10006 The undersigned hereby elects to redeem the enclosed Note pursuant to Section 7.1(b) of the Indenture (REDEMPTIONS INVOLVING THE DEATH OF A HOLDER).(1) The name of the deceased holder or beneficial owner is ________________________. If you are effecting this redemption on behalf of a registered holder or beneficial owner of a Note, identify such registered holder or beneficial owner ____________________________.(2) If you wish to redeem less than all of the principal amount of the Note, state the amount that you wish to redeem (which may be $1000 or any integral multiple thereof): _____________________. State the amount of the requested redemption, if any that exceeds the $50,000 per holder Annual Amount Limitation(3) for this annual redemption period ____________. THE UNDERSIGNED HEREBY CERTIFIES THAT: (1) The undersigned hereby elects to redeem the enclosed Note in the principal amount set forth above pursuant to Section 7.1(b) of the Indenture; (2) The person identified above is a deceased registered holder or beneficial owner of the enclosed Note within the meaning set forth in the Indenture; (3) If executed on behalf of a registered holder or beneficial owner of the Note other than the undersigned, the undersigned hereby certifies that it has the actual authority to effect this redemption and that such redemption does not exceed the $50,000 Annual Amount Limitation for the current annual redemption period except as and to the extent set forth above; (4)The enclosed Note is free and clear of any liens or encumbrances of any kind; (5) Enclosed is a certified true and accurate certificate of death pertaining to such deceased registered holder or beneficial owner; (6) If the undersigned is not a registered holder of the Note, the undersigned has enclosed appropriate evidence of authority to effect this redemption; and (7) The undersigned is the authorized representative of such deceased registered holder or beneficial owner, or a surviving tenant by the entirety, joint tenant or tenant in common of such deceased registered holder. SO CERTIFIED, this the _____ day of ___________, ________. By:_________________________________ Title:_________________________ Signature(s) must be guaranteed by an eligible guarantor institution which is a member of a recognized signature program, i.e., Securities Transfer Agents Medallion Program ("STAMP"), Stock Exchange Medallion Program ("SEMP") or New York Stock Exchange Medallion Signature Program ("MSP"). Sign exactly as your name appears on the Note. _______________________ (1) The undersigned understands and agrees that the Company or the Trustee may request additional information or documentation if necessary to determine the appropriate resolution of this request for redemption. (2) 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 Gift 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 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. (3) Redemptions in any annual period are subject to a $50,000 per holder limitation, among other limitations and restrictions. 77 EX-4.2 3 FIRST SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.2 SHOLODGE, INC. AND BANKERS TRUST COMPANY, TRUSTEE _________________________ FIRST SUPPLEMENTAL INDENTURE Dated as of November 15, 1996 9 3/4% Senior Subordinated Notes due 2006, Series A Supplemental to Indenture dated as of November 15, 1996 2 FIRST SUPPLEMENTAL INDENTURE, dated as of November 15, 1996 (the "First Supplemental Indenture"), to the Indenture, dated as of November 15, 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 a 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 9 3/4% Senior Subordinated Notes due 2006, Series A in the aggregate principal amount of up to $34,500,000, 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 in an aggregate principal amount up to $34,500,000 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. 3 3. Redemption at Option of Holder. In the event that a holder or his or her duly authorized representative notifies the Trustee of such person's desire to redeem all or any portion of a Series A Note pursuant to Section 7.1(a) or (b) of the Indenture, the Trustee shall furnish such holder with the form set forth in Exhibit A to the Indenture (for redemptions pursuant to Section 7.1(a) of the Indenture) or Exhibit B to the Indenture (for redemptions pursuant to Section 7.1(b) of the Indenture). 4. Trustee Disclaimer. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or the Series A Notes, and assumes no responsibility for the recitals contained herein or therein which shall be taken as the statements of the Company. 5. Governing Law. This First Supplemental Indenture and the Series A Notes 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 this First Supplemental Indenture to be signed and acknowledged by its Chairman of the Board, President or one of its 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, and its corporate seal to be affixed hereunto, and the same to be attested; all as of the day and year first above written. SHOLODGE, INC. Attest: /s/ Bob Marlowe By: /s/ Michael A. Corbett -------------------- -------------------------- Secretary Its: Chief Financial Officer ------------------------- [Corporate Seal] BANKERS TRUST COMPANY Attest: /s/ Terence Rawlins By: /s/ Susan Johnson -------------------- -------------------------- Title: Assistant Tresurer Its: Assistant Vice President ------------------------- [Corporate Seal] 4 Exhibit A to First Supplemental Indenture [FORM OF FACE OF NOTES] No. ShoLodge, Inc. $ 9 3/4% 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 November 1, 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 9 3/4% 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 an office or agency of the Company maintained for that purpose in New York, New York or such other office or agency maintained for that purpose; 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 5 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. Dated: SHOLODGE, INC. By: ------------------- Title: ---------------- [CORPORATE SEAL] Attest: - ------------------------ Title: Secretary [FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE] TRUSTEE'S AUTHENTICATION CERTIFICATE This is one of the Notes described in the within-mentioned Indenture. Bankers Trust Company as Trustee By: ---------------------- Authorized Signatory [FORM OF REVERSE OF NOTE] ShoLodge, Inc. 9 3/4% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A This Note is one of a duly authorized issue of Notes of the Company designated as its 9 3/4% Senior Subordinated Notes due 2006, Series A (herein called the "Notes"), limited in aggregate principal amount of up to $34,500,000 (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 and First Supplemental Indenture (such Indenture and First Supplemental Indenture, together with any indenture supplemental thereto, called the "Indenture"), each dated as of November 15, 1996 and 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 6 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. 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 December 1, 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 December 1 in the years indicated below are as follows: General Redemption Prices If redeemed during the 12 month period beginning December 1, 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 under Section 7.1 of the Indenture 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 theretofore 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 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 the holder, regardless of the registered holder. 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 if the holder certifies 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 holder or decedent, or by or for the holder or 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 Note 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 at its main office as defined in the Indenture: (a) a written request for redemption, in the form attached to the Indenture and provided by the Trustee upon written request, signed by the registered holder or his or her duly authorized representative, (b) the Note to be redeemed, (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 and (d) certification that the aggregate requests for prepayment tendered on behalf of a registered holder or beneficial owner do not exceed (or a description of the amount by which such aggregate requests exceed) the $50,000 per holder limitation for the applicable annual redemption period. In addition, any request for prepayment must be delivered to the Trustee by hand or registered mail, return receipt requested. 8 Any Notes tendered or any request for prepayment may be withdrawn by written request received by the Trustee three (3) business days 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 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 Limitation 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 9 provides that such declaration and its consequence may be waived by the holders of a majority in principal amount of the Notes then outstanding. 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 office or agency of the Company in New York, New York or at any other office or agency the Company maintains for that purpose 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. 10 ASSIGNMENT FORM Via Hand Delivery or Registered Mail, Return Receipt Requested Bankers Trust Company, Corporate Trust and Agency Group Four Albany Street New York, NY 10006 To assign this Note, fill in the form below: I or we assign and transfer this Note to (Insert assignee's Soc. Sec. or tax I.D. No.) _______________________ _______________________ _______________________ _______________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. ____________________________________________________________________________ Date________________________ Your signature:_______________________________ ________________________________________________ Signature(s) must be guaranteed by an eligible guarantor institution which is a member of a recognized signature program, i.e., Securities Transfer Agents Medallion Program ("STAMP"), Stock Exchange Medallion Program ("SEMP") or New York Stock Exchange Medallion Signature Program ("MSP"). Sign exactly as your name appears on the Note. If the Assignment Form is executed by a person other than a registered holder, enclose appropriate evidence of your authority to effect the assignment. ______________________________________________________________________________ TO REDEEM A NOTE PURSUANT TO SECTION 7.1 OF THE INDENTURE, REQUEST A REDEMPTION FORM AND PROVIDE YOUR NAME AND MAILING ADDRESS, VIA HAND DELIVERY OR REGISTERED MAIL, RETURN RECEIPT REQUESTED TO: BANKERS TRUST COMPANY CORPORATE TRUST AND AGENCY GROUP FOUR ALBANY STREET NEW YORK, NY 10006 EX-10.1 4 AMENDMENT NO. 5 TO LICENSE AGREEMENT 1 Exhibit 10.1 AMENDMENT NO. 5 TO LICENSE AGREEMENT THIS AMENDMENT NO. 5 TO LICENSE AGREEMENT (the "Amendment") is entered into this 25th day of October, 1996, by and between SHONEY'S INVESTMENTS, INC., a Nevada corporation with offices at Suite 1400, 300 South Fourth Street, Las Vegas, Nevada 89101 ("Licensor"), and SHOLODGE FRANCHISE SYSTEMS, INC. (formerly known as Shoney's Lodging, Inc.), a Tennessee corporation with offices at 217 West Main Street, Gallatin, Tennessee 37066 ("Licensee"). SHOLODGE, INC. (formerly known as Gulf Coast Development, Inc.), a Tennessee corporation with offices at 217 West Main Street, Gallatin, Tennessee 37066 and the parent corporation of Licensee ("ShoLodge"), is executing this Amendment for the purposes set forth in the Existing License Agreement (as hereinafter defined) as amended hereby. W I T N E S S E T H: WHEREAS, Licensor and Licensee entered into that certain License Agreement on October 25, 1991 (the "Original License Agreement") pursuant to which Licensor granted to Licensee a license to use the service mark SHONEY'S INN (and design) which was registered on February 16, 1982 with the United States Patent and Trademark Office (the "USPTO") at Registration No. 1,190,289; and WHEREAS, Licensor and Licensee entered into that certain Amendment No. 1 to License Agreement on September 16, 1992 (the "First Amendment") pursuant to which Licensor added the service mark SHONEY'S INN (block letters) which was registered by Licensor on August 4, 1992 with the USPTO at Registration No. 1,705,676 to be licensed to Licensee pursuant to the terms and conditions of the Original License Agreement; and WHEREAS, Licensor and Licensee entered into that certain Amendment No. 2 to License Agreement on March 18, 1994 (the "Second Amendment") pursuant to which certain Tennessee counties were added to the "Territory" covered by the Original License Agreement; and WHEREAS, Licensor and Licensee entered into that certain Amendment No. 3 to License Agreement on March 31, 1995 (the "Third Amendment") pursuant to which Licensor added the service mark 2 SHONEY'S SUITES (block letters) for which an intent-to-use application was filed with the USPTO on January 23, 1995 and the service mark SHONEY'S INN & SUITES (block letters) for which an intent-to-use application was filed with the USPTO on February 6, 1995 to be licensed to Licensee pursuant to the terms and conditions of the Original License Agreement; and WHEREAS, Licensor and Licensee entered into that certain Amendment No. 4 to License Agreement on June 26, 1996 (the "Fourth Amendment") (the Original License Agreement as amended by the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment is hereinafter referred to as the "Existing License Agreement") pursuant to which, among other things, the parties revised certain provisions of Section 4.5(d) of the Original License Agreement regarding the provision of food items to guests at Motels operated or licensed by Licensee; WHEREAS, the parties hereto desire to modify and amend the Existing License Agreement in certain other respects as set forth herein; NOW, THEREFORE, in consideration of the premises and covenants contained herein and in the Existing License Agreement, the payment by Licensee to Licensor of the sum of Five Million Two Hundred Fifty Thousand and No/100 Dollars ($5,250,000) on even date herewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Licensor and Licensee agree as follows: 1. The Existing License Agreement is hereby amended by: (a) deleting the existing Section 1.5 in its entirety. (b) deleting the existing Section 4.1 in its entirety. (c) deleting the existing Section 4.2 in its entirety. (d) deleting the text of existing Section 4.4(a) in its entirety and inserting in lieu thereof the following: (a) Licensee shall display and shall require that its franchisees display the Licensed Mark only in the styles, shapes, -2- 3 colors and forms set forth in Schedule 1, attached hereto and incorporated herein by reference, in all signs, literature, packages, labels, artwork, advertising or promotional materials prepared by or for Licensee or its franchisees. Any alteration or deviation from the displays set forth in Schedule 1 must be approved in advance by Licensor. Licensor shall have thirty (30) days to approve or disapprove such alterations or deviations. If Licensor fails to notify Licensee in writing of its objection to such alterations or deviations within such thirty (30) day period, such alterations or deviations shall be deemed to have been approved. Licensee shall require that each of its franchisees agree to allow Licensor or its authorized representative at any time to enter upon the premises of any Motel and remove any signs or advertising materials that display the mark in a manner that has not been approved. Licensee agrees to refrain, and to require its franchisees to refrain, from using the Licensed Mark in any fashion which would cast disfavor upon the Licensor. Licensee will permit, and require its franchisees to permit, Licensor or its authorized representatives to inspect the premises of all Motels during business hours for the purpose of ascertaining or determining compliance with the terms of the Agreement. (e) deleting the existing Section 4.4(b) in its entirety. (f) deleting the existing Section 4.4(c) in its entirety. -3- 4 (g) deleting the phrase "subject to the limitations set forth below" as it appears in the second sentence of Section 4.4(d). (h) deleting the fourth sentence of Section 4.4(d) in its entirety and inserting the following in lieu thereof: Licensor shall not object to a form of agreement, offering circular or other promotional items because of the fees, royalties, advertising fees or similar financial obligations proposed to be charged thereunder. (i) inserting the words "Upon Licensor's request" at the beginning of the first sentence in Section 4.5(a). (j) deleting the words "their execution" as they appear in the first sentence of Section 4.5(a) and inserting in lieu thereof the words "such request." (k) deleting the second, third, fourth and fifth sentences of Section 4.5(a). (l) deleting the words "no more than three (3) breakfast `breads' such as donuts, bagels, muffins, sweet rolls, danish and similar items and one bowl containing one type of fresh whole fruit, and (iii) so long as Licensee or its franchisee (as applicable) shall have first offered the catering work to the adjacent `Shoney's Restaurant' operator, if any," as they appear in the second sentence of Section 4.5(d) and inserting the following language in lieu thereof: "hot or cold continental breakfast foods consisting of breads, fruits, cereals, waffles, pancakes, poptarts and other items popularly known as `continental breakfast' foods; provided, however, that, except as provided above, in no event shall the term `continental -4- 5 breakfast foods' be deemed to include any other hot breakfast foods including, without limitation: (a) any meat or meat products (including pork and pork products); and (b) eggs, and (iii)" (m) deleting the third sentence in Section 4.5(d) in its entirety and inserting in lieu thereof the following: No food products showing brand names (such as Dunkin' Donuts) shall be allowed, although brand name products may be used as long as the brand name itself is not displayed. (n) deleting the fifth sentence in Section 4.5(d) in its entirety and inserting in lieu thereof the following: Licensee agrees, and shall require its franchisees to agree, to place menus for the adjacent "Shoney's Restaurant," if any, (which must be approved by Licensor and any expense borne by the adjacent restaurant operator) in each guest room of all Motels and shall not allow any other restaurant or food service organization to place promotional material in the guest rooms of any Motels adjacent to a "Shoney's Restaurant" without the prior written consent of Licensor. For purposes of this Section 4.5(d) the term "adjacent to" shall mean within a one mile radius." (o) deleting the text of existing Section 4.10 in its entirety and inserting in lieu thereof the following: Section 4.10. Assignment. (a) Licensee shall not sublicense (except to a franchisee as permitted -5- 6 herein), sell, assign, transfer, convey or encumber its rights and obligations hereunder or suffer or permit any such assignment, transfer or encumbrance to occur by operation of law without the prior express written consent of Licensor. In the event Licensee is a corporation, limited partnership, business trust, partnership or similar association, the shareholders, limited partners, beneficiaries, partners or investors, as the case may be, may not sell, assign or otherwise transfer their shares or interests in such corporation, limited partnership, business trust, partnership or similar association, without the prior written consent of Licensor. In the event Licensee is a corporation, all stock certificates shall have conspicuously endorsed upon them a legend in substantially the following form: "A transfer of this stock is subject to the terms and conditions of a License Agreement between Shoney's Investments, Inc. and ShoLodge Franchise Systems, Inc. (then known as Shoney's Lodging, Inc.) dated the 25th day of October, 1991, as amended. Licensor agrees that it will not unreasonably withhold its consent to a sale, assignment, transfer or conveyance contemplated by this paragraph to a person or entity who has experience in the operation of motels and who is, in the sole judgment of Licensor, of good character and reputation and capable, financially and otherwise, of performing the duties and obligations of Licensee hereunder. Any approval by Licensor of -6- 7 such transfer or assignment shall be subject to the assignee's agreement in writing to assume and perform all of the transferor's duties and obligations hereunder. (b) In the event of the death of the Licensee or if the Licensee is a corporation or similar entity, then in the event of the death of any stockholder, investor or similar person of Licensee, Licensor shall not unreasonably withhold its consent to a transfer or assignment of Licensee's interest herein, or if Licensee is a corporation, the transfer of the deceased stockholder's stock in such corporation to a descendant, heir or legatee of the decedent, who shall in the sole judgment of Licensor be capable of performing the duties and obligations of Licensee hereunder, or to a responsible bona fide purchaser acceptable to Licensor. Any approval by Licensor of such transfer or assignment shall be subject to the assignee's agreement in writing to assume and perform all of the transferor's duties and obligations hereunder. (c) In the event that a sale, assignment, transfer or conveyance of the stock of Licensee by the shareholder of Licensee is approved in accordance with Section 4.10(a) above, Licensor will (i) amend this Agreement to delete (A) the provisions of Section 7.2 hereof pertaining to defaults caused by Gulf (now known as ShoLodge, Inc.) and (B) all other references to Gulf, including, without limitation, those in Sections 6.1, 6.2, 6.4, 6.6, and 7.3 hereof, and to make conforming amendments in connection with such deletions, and (ii) terminate and cancel the Guaranty Agreement except for obligations guaranteed by Gulf thereunder relating to events occurring -7- 8 prior to the effective date of such sale, assignment, transfer or conveyance. (p) deleting the phrase "that consent may be given by any of Licensor's representatives to the board of directors of Gulf or Licensee" as it appears in Section 4.11(b) and inserting in lieu thereof the words "a request for consent shall be made by Licensee in writing addressed to the Secretary of Licensor's parent corporation Shoney's, Inc. and written approval may be given by the Secretary, Treasurer or Chief Financial Officer of Licensor's parent corporation Shoney's, Inc." (q) deleting the existing Section 5.1 in its entirety. (r) deleting the date "October 27, 1991" as it appears in Section 5.2 and inserting in lieu thereof the date "October 25, 1996." (s) inserting the words ", as amended" immediately following the words "attached hereto" as they appear in the second line of Section 5.3. (t) deleting the existing Section 5.4 in its entirety. (u) deleting the existing Section 5.5 in its entirety. (v) inserting the words "subject to the provisions of Section 4.10" immediately before the words "Gulf will continue" as they appear in the third line of Section 6.1 and deleting the parenthetical "(except any security interests granted to Licensor herein)" as it appears in the sixth and seventh lines of Section 6.1. (w) deleting the second and third sentences of Section 6.3. (x) deleting Section 6.5 in its entirety. (aa) deleting the words ", as modified by Section 5.1 hereof" as they appear in the last line of Section 6.6. -8- 9 (bb) deleting the words "(except for the payment of any royalty fees) or any other agreement between Licensor and Licensee (including, without limitation, the Security Agreement) executed contemporaneously with the execution of this Agreement" as they appear in Section 7.1(a). (cc) deleting the existing Section 7.1(f) in its entirety. (dd) deleting the existing Section 7.1(g) in its entirety. (ee) deleting the word "report" as it appears in Section 7.1(h) and inserting in lieu thereof the word "document." (ff) deleting the term "ten (10)" as it appears in Section 7.1(j) and inserting the term "thirty (30)" in lieu thereof. (gg) deleting the words "and the Stock Pledge Agreement" as they appear in the parenthetical in the fourth line of Section 7.2(a). (hh) deleting the existing Section 7.2(f) in its entirety. (ii) deleting the existing Section 7.2(g) in its entirety. (jj) deleting the term "ten (10)" as it appears in Section 7.2(i) and inserting the term "thirty (30)" in lieu thereof. (kk) deleting the parenthetical "(with the exception of those set forth in Section 7.4(f) hereof)" as it appears in the third and fourth lines of Section 7.4(a). (ll) deleting the words "assignment of all agreements then existing between Licensee and any franchisee, assignment of any leases for Motels in existence on the date hereof and" as they appear in the -9- 10 parenthetical in the last sentence of Section 7.4(a). (mm) deleting the existing Section 7.4(c) in its entirety. (nn) deleting the existing Section 7.4(d) in its entirety. (oo) deleting the existing Section 7.4(f) in its entirety. (pp) deleting the address for Licensor as it appears in Section 8.6 and inserting the following address in lieu thereof: Shoney's Investments, Inc. Suite 1400 300 South Fourth Street Las Vegas, Nevada 89101 2. Except as herein specifically amended, all terms and provisions of the Existing License Agreement shall remain in full force and effect. 3. This Amendment may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4. The terms of this Amendment shall be interpreted and construed in accordance with the laws of the State of Nevada. 5. The parties hereto agree that the termination of the royalty payment obligation created by this Amendment pertains only to future royalties accruing after the date of this Amendment and that Licensee and ShoLodge shall be liable for the payment of all royalties accrued through and including October 25, 1996 in accordance with the terms of the Existing License Agreement. Licensee shall pay such royalties to Licensor in such amounts, at such times and otherwise in accordance with the terms of the Existing License Agreement. [SIGNATURES APPEAR ON FOLLOWING PAGE] -10- 11 IN WITNESS WHEREOF, the undersigned have executed this Amendment all as of the day and date first above written. LICENSOR: SHONEY'S INVESTMENTS, INC. By: /s/ John H. Mowbray --------------------------- John H. Mowbray Title: Assistant Secretary LICENSEE: SHOLODGE FRANCHISE SYSTEMS, INC. By: /s/ Leon Moore --------------------------- Title: President ------------------------ SHOLODGE, INC. By: /s/ Leon Moore --------------------------- Title: President ------------------------ -11- EX-10.2 5 WARRANT PURCHASE AGREEMENT 1 Exhibit 10.2 WARRANT PURCHASE AGREEMENT THIS WARRANT PURCHASE AGREEMENT (sometimes herein the "Agreement") is executed this 25th day of October, 1996, between SHONEY'S INVESTMENTS, INC. ("SII") and SHOLODGE, INC. ("ShoLodge"). W I T N E S S E T H: WHEREAS, pursuant to that certain Stock Purchase and Warrant Agreement dated as of October 25, 1991 between ShoLodge (then known as Gulf Coast Development, Inc.) and SII (the "Warrant Agreement"), SII obtained certain warrants to acquire shares of common stock of ShoLodge (the "Warrants"); and WHEREAS, the Warrants are evidenced by that certain Warrant Certificate dated October 25, 1991 (the "Warrant Certificate") executed by ShoLodge (then known as Gulf Coast Development, Inc.) in favor of SII, the Warrant Certificate having been executed and issued pursuant to the Warrant Agreement; and WHEREAS, SII desires to transfer the Warrants to ShoLodge for the sum of $2,050,000 in good and collected funds, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Except as specified otherwise, when used in this Agreement, the following terms shall have the meanings specified: "Agreement" shall mean this Warrant Purchase Agreement, as the same shall be amended from time to time in accordance with the terms hereof. "Warrants" shall mean the warrants to acquire common stock of ShoLodge evidenced by the Warrant Certificate and to be acquired by ShoLodge from SII pursuant to this Agreement. 1.2 Singular/plural; gender. Where the context so requires or permits, the useof the singular form includes the plural, and use of the plural form includes the singular, and the 2 use of any gender includes any and all genders. ARTICLE II PURCHASE AND SALE OF THE WARRANTS 2.1 Purchase and Sale of the Warrants. SII hereby sells, assigns and delivers to ShoLodge the Warrants, and ShoLodge hereby purchases the Warrants from SII. Simultaneously with the execution of this Agreement, SII has delivered, or caused to be delivered, to ShoLodge a Lost Warrant Certificate Affidavit, which includes a transfer of rights of SII to the Warrant Certificate. 2.2 Purchase Price for Warrants. In consideration of the aforesaid sale, assignment and delivery of the Warrants, ShoLodge, in full payment for the aforesaid sale, assignment and delivery, has paid to SII in immediately available funds the sum of Two Million Fifty Thousand Dollars ($2,050,000), the receipt of which is hereby acknowledged. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SII SII hereby represents and warrants to ShoLodge as follows, which representations and warranties shall survive the closing of the transaction contemplated by this Agreement: 3.1 Title to the Warrant Certificate. SII is the true and lawful owner and holder of the Warrant Certificate and the Warrants evidenced thereby. 3.2 Transfer of Warrant Certificate. SII has good right and lawful authority to transfer and convey the Warrants and to execute the Lost Warrant Certificate Affidavit to ShoLodge, and the Warrant Certificate and the Warrants evidenced thereby have not been previously transferred, conveyed or endorsed to any other person. 3.3 No Liens on Warrant Certificate. The Warrant Certificate and the Warrants evidenced thereby are free and clear of any and all liens, encumbrances or security interests of any kind. 3.4 Valid and Binding Agreement. This Agreement constitutes a valid and binding agreement of SII, enforceable in accordance with its terms, subject as to enforceability to bankruptcy, insolvency and similar laws affecting creditors' rights generally and to the availability of equitable remedies. 3.5 No Violation. Neither the execution and delivery of this Agreement nor the -2- 3 consummation by SII of the transactions contemplated hereby violates or conflicts with any agreement or other restriction of any kind to which either SII is a party or by which SII is bound. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SHOLODGE ShoLodge hereby represents and warrants to SH as follows, which representations and warranties shall survive the closing of the transaction contemplated by this Agreement: 4.1 Valid and Binding Agreement. This Agreement constitutes a valid and binding agreement of ShoLodge, enforceable in accordance with its terms, subject as to enforceability to bankruptcy, insolvency and similar laws affecting creditors' rights generally and to the availability of equitable remedies. 4.2 No Violation. Neither the execution and delivery of this Agreement nor the consummation by ShoLodge of the transactions contemplated hereby violates or conflicts with any agreement or other restriction of any kind to which Sholodge is as a party or by which ShoLodge is bound. ARTICLE V MISCELLANEOUS 5.1 Expenses. All fees and expenses incurred by SII in connection with this Agreement shall be paid by SII. All fees and expenses incurred by ShoLodge in connection with this Agreement will be paid by ShoLodge. 5.2 Further Assurances. From time to time, at the request of either party, and without further consideration, SII will execute and deliver to ShoLodge or ShoLodge will execute and deliver to SII, as the case may be, such documents and take such action as may reasonably be requested in order to consummate more effectively the transactions contemplated hereby. 5.3 Parties in Interest. Except as otherwise expressly provided herein, all the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of, and shall be enforceable by the respective heirs, beneficiaries, personal and legal representatives, successors and assigns of the parties hereto. 5.4 Entire Agreement, Amendments. This Agreement contains the entire understanding of the parties with respect to this subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended only by a written instrument -3- 4 duly executed by the parties or their respective successors or assigns. 5.5 Headings, etc. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretations of this Agreement. 5.6 Notices. All notices, requests, demands and other communications hereunder ("Notices") shall be in writing and shall be deemed to have been duly given if hand- delivered, sent via overnight delivery service or mailed (registered or certified mail, postage prepaid, return receipt requested) as follows: As to SII: Suite 1400 300 South Fourth Street Las Vegas, NV 89101 With a copy to: Tuke, Yopp & Sweeney 414 Union Street Suite 1100 Nashville, TN 37219 Attn: Robert P. Felber, Jr., Esq. As to ShoLodge: 217 West Main Street Gallatin, TN 37066 With a copy to: Boult, Cummings, Conners & Berry, PLC 414 Union Street Suite 1600 Nashville, TN 37219 Attn: Patrick L. Alexander, Esq. or to such other address as any party may have furnished to the other in writing in accordance herewith, except that Notices of change of address shall only be effective upon receipt. All Notices shall be deemed received on the date of delivery or, if mailed, on the date appearing on the return receipt therefore -4- 5 5.7 Counterparts. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 5.8 Severability. If any provision, clause or part of this Agreement or the application thereof under certain circumstances is held invalid, the remainder of this Agreement or the application of such provision, clause or part under other circumstances shall not be affected thereby. 5.9 No Reliance. No third party is entitled to rely on any of the representations, warranties and agreements of any party contained in this Agreement; the parties to this Agreement assume no liability to any third party because of any reliance on the representations, warranties and agreements contained in this Agreement. 5.10 Time of Essence. Time is of the essence in this Agreement, and all dates and time periods specified herein shall be strictly observed. 5.11 Enforcement Expenses. The prevailing party in any action commenced due to the breach hereof shall be entitled to recover its costs, expenses and reasonable attorney's fees incurred in the enforcement of this Agreement. -5- 6 IN WITNESS WHEREOF, this, Agreement has been duly executed and by the parties hereto on the date first above written. SHONEY'S INVESTMENTS, INC By: /s/ John H. Mowbray ---------------------------- Title: Assistant Secretary ------------------------- SHOLODGE, INC. By: /s/ Leon Moore ---------------------------- Title: President ------------------------ -6- EX-10.3 6 FIFTH AMENDMENT TO LOAN AGREEMENT 1 Exhibit 10.3 FIFTH AMENDMENT TO LOAN AGREEMENT THIS FIFTH AMENDMENT TO LOAN AGREEMENT made and entered into as of this 18th day of October, 1996, ("this Fifth Amendment"), by and between SHOLODGE, INC., a Tennessee corporation ("Borrower"); SHONEY'S INN OF LEBANON, INC., a Tennessee corporation; SHONEY'S INN, INC., a Tennessee corporation; NASHVILLE AIR ASSOCIATES, INC., a Tennessee corporation; MOORE AND ASSOCIATES, INC., a Tennessee corporation; SUNSHINE INNS, INC. (successor by change of name to PenTal Inns, Inc. and successor by merger to Tampa Inn, Inc.), a Tennessee corporation; LAFLA INN, INC., a Tennessee corporation; SOUTHEAST TEXAS INNS, INC., a Tennessee corporation; DELAWARE INNS, INC., a Tennessee corporation; ALABAMA LODGING CORPORATION (successor by change of name to Birmingham Inn, Inc.), a Tennessee corporation; CAROLINA INNS, INC., a Tennessee corporation; MIDWEST INNS, INC., a Tennessee corporation; FAR WEST INNS, INC., a Tennessee corporation; SHONEY'S INN OF BATON ROUGE, a Tennessee general partnership; and FRONT RANGE SUITES, INC., a Tennessee corporation (individually and collectively "Co-Obligors"); and FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking corporation ("Lender"). RECITALS WHEREAS, Borrower and Lender entered into that certain Loan Agreement dated January 7, 1994 ("the Loan Agreement"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower and Lender entered into that certain First Amendment to Loan Agreement dated March 21, 1994 ("the First Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Second Amendment to Loan Agreement dated June 20, 1994 ("the Second Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Third Amendment to Loan Agreement dated August 17, 1995 ("the Third Amendment"), the terms of which are incorporated herein by this reference; 2 WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Fourth Amendment to Loan Agreement dated November 14, 1995 ("the Fourth Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Co-Obligors are Subsidiaries (as defined in the Loan Agreement) of Borrower and Co-Obligors have and will directly or indirectly benefit from extensions of credit made by Lender to Borrower; WHEREAS, Borrower and Co-Obligors have requested that Lender consent to a series of Twenty Five Million to Fifty Million Dollar ($25,000,000 - $50,000,000) offerings of retail debt from a shelf registration in the maximum aggregate amount of One Hundred Twenty Five Million Dollars ($125,000,000), which is to be structured as senior subordinated unsecured Indebtedness, which is prohibited under the terms of the Loan Agreement, as amended; WHEREAS, in order to induce Lender to consent to the above described issuance of senior unsecured subordinated Indebtedness and amend the Loan Agreement, as amended, as outlined in this Fifth Amendment, Borrower and Co-Obligors have made certain representations to Lender; and WHEREAS, Lender, in reliance on representations and inducements of Borrower and Co-Obligors, has agreed to further amend the Loan Agreement as outlined in this Fifth Amendment. NOW, THEREFORE, for and in consideration of the agreement of Lender to amend the Loan Agreement as set out in this Fifth Amendment, the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender, relying on the representations and warranties contained in the Loan Agreement, as amended, agrees to further amend the Loan Agreement as follows: 1. Definitions. All terms used herein will be further defined in the Loan Agreement, as amended. The defined terms "Fixed Charge Coverage Ratio," "Obligations," "Pro Forma Debt Service," and "Solvent" will be deleted in their entirety and the following will be substituted in lieu thereof: 2 3 "Fixed Charge Coverage Ratio" will mean the quotient obtained by dividing (a) the sum of net after tax income, net interest, depreciation, amortization, and net rental expenses, by (b) the sum of net interest, net rents, the current maturities of long term Indebtedness (including any indebtedness of any consolidated Affiliate), and capitalized leases. "Obligations" will mean and include the Note and all loans, advances, Indebtedness, liabilities, obligations, covenants, and duties owing by Borrower to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty, or other instrument, arising under this Agreement or under the Note whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, lease, guaranty, indemnification, or in any other manner, whether direct or indirect, absolute or contingent, due or to become due, including without limitation, all interest, charges, expenses, fees, attorneys' fees, and any other sums chargeable to Borrower under this Agreement or any of the other Loan Documents. "Pro Forma Debt Service" will mean the sum of current principal maturities of long term Indebtedness and capitalized leases plus assumed amortization of the average principal of all outstanding revolving credit and line of credit facilities based on a seven (7) year amortization. "Solvent" will mean, as to any Person, that such Person has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is able to pay any of its Indebtedness, or indebtedness, as applicable, as it matures and owns property having a value, at fair market value, greater than the amount required to pay its Indebtedness, or indebtedness, as applicable. Section 1 of the Loan Agreement is hereby amended to include the following additional defined terms: 3 4 "Funded Debt" will mean all Indebtedness evidenced by any promissory note or other debenture, and obligations or liabilities created or arising under any lease if capitalized for General Accepted Accounting Principles. "Total Capitalization" will mean Funded Debt of Borrower plus Tangible Net Worth of Borrower, on a consolidated basis. 2. Borrower's Representations and Warranties. Section 3.5 of the Loan Agreement, as amended, is hereby deleted in its entirety and the following is substituted in lieu thereof: 3.5 Financial Condition. The financial statements of Borrower dated July 14, 1996, ("the Financial Statements") which have been delivered to Lender present fairly the financial condition of Borrower as of the date or dates thereof and are true and correct in all material respects, have been prepared in accordance with Generally Accepted Accounting Principles consistently applied, and present fairly the financial condition of Borrower at the date(s) or for the period or periods therein stated. No material adverse change has occurred in the financial condition of Borrower since the date(s) thereof and no additional borrowings have been made since the date thereof, except as disclosed in writing to Lender, or otherwise allowed under the provisions of this Agreement. Section 3.21 of the Loan Agreement, as amended, (including Exhibit C referenced therein and attached to the Loan Agreement, as amended) is hereby deleted in its entirety and the following is substituted in lieu thereof: 3.21 Subsidiaries. Attached as Exhibit C is a correct and complete list as of the date of the Fifth Amendment of all Subsidiaries of Borrower showing, as to each Subsidiary, its name, the type of entity, the jurisdiction of its incorporation, or organization, and the ownership of the capital stock or partnership interest of such Subsidiary owned by Borrower. 4 5 3. Borrower's Covenants and Agreements. The last sentence of Paragraph (a) of Section 4.2 of the Loan Agreement, as amended, and the last sentence of Paragraph (b) of Section 4.2 of the Loan Agreement, as amended, are hereby deleted in their entirety and the following is substituted in lieu thereof: The failure of Borrower to keep, observe, perform, or fulfill any financial covenant set out in Sections 4.7, 4.8, 4.18, 4.19, 4.20, 4.21, 4.22, 4.24, 4.26, or 4.27 will be a material failure of Borrower to perform. Sections 4.7 and 4.8 of the Loan Agreement, as amended, are hereby deleted in their entirety and the following is substituted in lieu thereof: 4.7 Indebtedness. Without the express prior written consent of Lender, except for: (i) additional subordinated unsecured Indebtedness not in excess of Fifty Seven Million Five Hundred Thousand Dollars ($57,500,000), in the aggregate (Fifty Four Million Dollars ($54,000,000) of which has been incurred as of the date of the Fifth Amendment); (ii) additional senior subordinated unsecured Indebtedness not in excess of One Hundred Twenty Five Million Dollars ($125,000,000), in the aggregate; provided, that, Borrower will allow Lender an opportunity to review the Form S-3 Registration Statement, and any supplements or amendments thereto, related to this Indebtedness prior to closing and will deliver a draft of this documentation to Lender on October 18, 1996, and will deliver any revisions thereto to Lender no later than one (1) day following the filing of same with the Securities and Exchange Commission; (iii) additional unsecured Indebtedness not in excess of Three Million Five Hundred Thousand Dollars ($3,500,000) to the Bank of Nashville and pursuant to terms and conditions no more restrictive than the terms and conditions of the Loan (One Million Five Hundred Thousand Dollars ($1,500,000) of which has been incurred as of the date of the Fifth Amendment); (iv) additional acquisition Indebtedness that is secured by the assets purchased and is not in excess of the lesser of Five Million Dollars ($5,000,000), in the aggregate, or seventy five percent (75%) of the total aggregate purchase price; and (v) 5 6 additional acquisition Indebtedness incurred to acquire the furniture, fixtures, equipment, and other personal property located in any hotel owned by Borrower, or any Subsidiary of Borrower, Borrower will not, during the term of the Loan, create, incur, assume, or permit to exist (except as otherwise allowed by the Loan Agreement) any Indebtedness for borrowed money of any description whatsoever (excluding: (a) the Obligations; (b) the endorsement of negotiable instruments payable to Borrower, or any consolidated Affiliate of Borrower, for deposit or collection in the ordinary course of business; and (c) long term (a maturity of more than one (1) year) mortgage loans the proceeds of which are used to repay the Loan, or any portion thereof. The following will not be considered Indebtedness for purposes of the calculations in this Section 4.7: (x) any additional Indebtedness incurred by Borrower pursuant to advances made under a credit facility or line of credit in existence on July 14, 1996, and shown on the Financial Statements or otherwise disclosed in writing to Lender; (y) any refinancing of any existing Indebtedness, or any Indebtedness that is permitted under the Loan Agreement (so long as the refinanced amount does not increase and the terms of any refinancing do not otherwise violate the terms of the Loan Agreement); and (z) Indebtedness incurred by Borrower pursuant to advances made under a credit facility or line of credit in existence on the date of the Fifth Amendment with First American National Bank (so long as the outstanding maximum principal amount does not exceed Ten Million Dollars ($10,000,000) and/or First Tennessee Bank National Association (so long as the maximum principal amount does not exceed Five Million Dollars ($5,000,000)). The total amount of all obligations guaranteed in accordance with Section 4.8 of the Loan Agreement will not be deemed "Indebtedness" for purposes of making the calculations in this Section 4.7. 4.8 Guaranties; Loans; Investments. Borrower will not guarantee or be liable in any manner, whether directly or indirectly, or make itself liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement for the obligations or indebtedness of any Person or Persons 6 7 whomsoever, except for: (i) the endorsement of negotiable instruments payable to Borrower for deposit or collection in the ordinary course of business; (ii) guaranties of the obligations of Affiliates that are included in Borrower's consolidated Financial Statements; and (iii) long term (a maturity of more than one (1) year) mortgage loans the proceeds of which are used to repay the Loan, or any portion thereof. Borrower may also guarantee the obligations of Persons who are not Affiliates, provided that such guaranties are in the ordinary course of business, are reasonably necessary to promote some portion of Borrower's business or the business of its Affiliates and do not exceed, in the aggregate, the amount of Four Million Dollars ($4,000,000) at any one time. The total amount of all of the obligations so guaranteed will not be deemed "Indebtedness" for purposes of making the calculations in Section 4.7. Guaranties of any obligations which are merely refinances of existing obligations (so long as the refinanced amount does not increase) will not be prohibited by this Section 4.8. Borrower will not make any loan, advance, or extension of credit to any Person who is not an Affiliate in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate (other than a loan in the original principal amount of Eight Hundred Forty Seven Thousand Eight Hundred Ninety Seven Dollars ($847,897) from Borrower to Don Knight). Section 4.9 of the Loan Agreement, as amended, (including Exhibit D referenced therein and attached to the Loan Agreement, as amended) is hereby deleted in its entirety and the following is substituted in lieu thereof: 4.9 Subsidiaries as Co-Obligors. All Subsidiaries of Borrower of which Borrower and/or its Subsidiaries own more than seventy five percent (75%) of the outstanding voting stock or partnership interest, with the exception of Shoney's Inns Group IV, Inc.; Two Seventeen, Inc.; MOBAT, Inc.; MURJAC, Inc.; Security Financial Corporation; Airport Inn, Inc.; ShoLodge Franchise Systems, Inc.; Clearwater Inn, Inc.; Inn Partners, Inc.; Virginia Inns, Inc. (successor by change of name to Richmond Inn, Inc.); Desert Inns, Inc. (successor by 7 8 change of name to CFO, Inc.); ShoLodge Beverage Corporation; and all general partnerships, limited partnership, and joint ventures in existence on the date of the Second Amendment (other than Shoney's Inn of Baton Rouge), will be co-obligors of the Obligations. Borrower and Co-Obligors represent and warrant that as of the date of the Fifth Amendment, these Subsidiaries are as shown on Exhibit D. Section 4.18 of the Loan Agreement, as amended, is hereby deleted in its entirety and the following is substituted in lieu thereof: 4.18 Capital Expenditures. Except in the normal course of business, consistent with past practice, Borrower will not incur any capital expenditures without the consent of Lender other than capital expenditures of no more than Five Million Dollars ($5,000,000) in the aggregate for the acquisition, construction, furnishing, and equipping of new office facilities of Borrower in Hendersonville, Tennessee. For purposes of this covenant, capital expenditures will be computed in accordance with Generally Accepted Accounting Principles. Section 4.19 of the Loan Agreement, as amended, is hereby deleted in its entirety and the following is substituted in lieu thereof: 4.19 Current Ratio. Borrower will at all times maintain, on a consolidated basis, a ratio of Current Assets to Current Liabilities not less than 0 to 1.0, computed quarterly. Provided, however, that for purposes of computing this ratio for the quarter ending July 9, 1995, and for each quarter thereafter through the Maturity Date, all outstanding Indebtedness of Borrower under existing revolving credit and line of credit facilities with Lender, First American National Bank, The Bank of Nashville, and First Tennessee Bank National Association will be excluded from "Current Liabilities." Section 4.21 of the Loan Agreement, as amended, is hereby deleted in its entirety and the following is substituted in lieu thereof: 8 9 4.21 Funded Debt to Total Capitalization Ratio. Borrower will at all times maintain, on a consolidated basis, a ratio of Funded Debt to Total Capitalization equal to or less than .7 to 1.0. The following Section 4.27 is hereby added to the Loan Agreement, as amended: 4.27 Indebtedness to Tangible Net Worth Ratio. Borrower will at all times maintain, on a consolidated basis, a ratio of Indebtedness (including any indebtedness of any consolidated Affiliate), excluding the senior subordinated unsecured Indebtedness permitted under Items (i) and (ii) of Section 4.7, to Tangible Net Worth of less than 0.75 to 1.0. 3. Conditions Precedent. Notwithstanding any other provisions of this Fifth Amendment, it is understood and agreed that Lender will have no obligation to fund at any time unless and until the following conditions have been met and continue to be met, to the reasonable satisfaction of Lender and its counsel: (a) Lender will have received such documents, instruments, and agreements, including, but not limited to, the Fifth Amendment and all modifications and/or amendments thereto, in form satisfactory to Lender, as Lender will reasonably request to evidence the agreement set out herein; (b) A Certificate of Existence of Borrower and each of the Co-Obligors (other than Shoney's Inn of Baton Rouge) issued by the Secretary of State of Tennessee; and (c) Opinion of counsel for Borrower and each of the Co- Obligors in form and substance satisfactory to Lender. 4. Costs. Borrower agrees to pay all reasonable fees and costs incurred by Lender in connection with the preparation, execution, and delivery of all documentation reasonably required to evidence the agreement set out herein, including Lender's counsel fees. 5. Continuing Representation and Warranty by Borrower and Co-Obligors. Borrower and Co-Obligors represent and warrant to 9 10 Lender that all of the covenants, agreements, representations, and warranties made by Borrower and Co-Obligors in the Loan Agreement, as amended, in any writing delivered pursuant to the Loan Agreement, as amended, and in this Fifth Amendment, are true and correct, and have been fully complied with, in all material respects, as of such date. 6. Continuing Effect. Except as specifically set forth in this Fifth Amendment, the Loan Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment, and all of the Loan Documents remain in full force and effect as originally written. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their duly authorized officers effective as of the day and year first above written. LENDER: First Union National Bank of Tennessee By: /s/ Orville W. Kronk ------------------------------ Orville W. Kronk Vice President BORROWER: ShoLodge, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President CO-OBLIGORS: Shoney's Inn of Lebanon, Inc. By: /s/ Leon Moore ------------------------------ 10 11 Leon Moore, President Shoney's Inn, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Nashville Air Associates, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Moore and Associates, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Sunshine Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President LAFLA Inn, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Southeast Texas Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President 11 12 Delaware Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Alabama Lodging Corporation By: /s/ Leon Moore ------------------------------ Leon Moore, President Carolina Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Midwest Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Far West Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President 12 13 Shoney's Inn of Baton Rouge By: Two Seventeen, Inc. General Partner By: /s/ Leon Moore -------------------------- Its: President ------------------------- By: Inn Partners, Inc. General Partner By: /s/ Leon Moore -------------------------- Its: President ------------------------- Front Range Suites, Inc. By: /s/ Leon Moore ----------------------------------- Leon Moore, President EX-10.4 7 SIXTH AMENDMENT TO LOAN AGREEMENT 1 Exhibit 10.4 SIXTH AMENDMENT TO LOAN AGREEMENT THIS SIXTH AMENDMENT TO LOAN AGREEMENT made and entered into as of this 24th day of October, 1996, ("this Sixth Amendment"), by and between SHOLODGE, INC., a Tennessee corporation ("Borrower"); SHONEY'S INN OF LEBANON, INC., a Tennessee corporation; SHONEY'S INN, INC., a Tennessee corporation; NASHVILLE AIR ASSOCIATES, INC., a Tennessee corporation; MOORE AND ASSOCIATES, INC., a Tennessee corporation; SUNSHINE INNS, INC. (successor by change of name to PenTal Inns, Inc. and successor by merger to Tampa Inn, Inc.), a Tennessee corporation; LAFLA INN, INC., a Tennessee corporation; SOUTHEAST TEXAS INNS, INC., a Tennessee corporation; DELAWARE INNS, INC., a Tennessee corporation; ALABAMA LODGING CORPORATION (successor by change of name to Birmingham Inn, Inc.), a Tennessee corporation; CAROLINA INNS, INC., a Tennessee corporation; MIDWEST INNS, INC., a Tennessee corporation; FAR WEST INNS, INC., a Tennessee corporation; SHONEY'S INN OF BATON ROUGE, a Tennessee general partnership; and FRONT RANGE SUITES, INC., a Tennessee corporation (individually and collectively "Co-Obligors"); and FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking corporation ("Lender"). RECITALS WHEREAS, Borrower and Lender entered into that certain Loan Agreement dated January 7, 1994 ("the Loan Agreement"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower and Lender entered into that certain First Amendment to Loan Agreement dated March 21, 1994 ("the First Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Second Amendment to Loan Agreement dated June 20, 1994 ("the Second Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Third Amendment to Loan Agreement dated August 17, 1995 ("the Third Amendment"), the terms of which are incorporated herein by this reference; 2 WHEREAS, Borrower, Lender, and certain of Co-Obligors entered into that certain Fourth Amendment to Loan Agreement dated November 14, 1995 ("the Fourth Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Borrower, Lender, and Co-Obligors entered into that certain Fifth Amendment to Loan Agreement dated October 18, 1996 ("the Fifth Amendment"), the terms of which are incorporated herein by this reference; WHEREAS, Co-Obligors are Subsidiaries (as defined in the Loan Agreement) of Borrower and Co-Obligors have and will directly or indirectly benefit from extensions of credit made by Lender to Borrower; WHEREAS, Borrower and Co-Obligors have requested that Lender make an additional loan to Borrower in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) on the terms and conditions of the Loan Agreement, as amended, and upon the terms and conditions of this Sixth Amendment; WHEREAS, in order to induce Lender to extend the above described additional credit to Borrower and amend the Loan Agreement, as amended, as outlined in this Sixth Amendment, Borrower and Co-Obligors have made certain representations to Lender; and WHEREAS, Lender, in reliance on representations and inducements of Borrower and Co-Obligors, has agreed to make this additional Two Million Five Hundred Thousand Dollars ($2,500,000) loan to Borrower and further amend the Loan Agreement as provided in this Sixth Amendment. NOW, THEREFORE, for and in consideration of the agreement of Lender to amend the Loan Agreement as set out in this Sixth Amendment, the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender, relying on the representations and warranties contained in the Loan Agreement, as amended, agrees to further amend the Loan Agreement as follows: 1. Definitions. All terms used herein will be further defined in the Loan Agreement, as amended. 2 3 2. The Loan. Section 2.1 of the Loan Agreement, as amended, is hereby deleted in its entirety and the following is substituted in lieu thereof: 2.1 Evidence of Indebtedness; Repayment. (a) The Loan will be evidenced by the Note, which will include: (i) Promissory Note dated November 14, 1995, in the original principal amount of Twenty Five Million Dollars ($25,000,000) made and executed by Borrower and Co-Obligors, payable to Lender and having been delivered to Lender by Borrower and Co-Obligors (other than Carolina Inns, Inc., Midwest Inns, Inc., Far West Inns, Inc., Shoney's Inn of Baton Rouge, and Front Range Suites, Inc.); (ii) Addendum to Promissory Note dated December 27, 1995, executed by Carolina Inns, Inc., Midwest Inns, Inc., Far West Inns, Inc., and Shoney's Inn of Baton Rouge, as additional co-obligors; (iii) Second Addendum to Promissory Note dated October 18,1996, executed by Front Range Suites, Inc., as an additional co-obligor; and (iv) First Amendment to Promissory Note of even date, wherein the principal amount of the Note is increased to Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000) made and executed contemporaneously herewith by Borrower and Co- Obligors, payable to Lender and having been delivered to Lender by Borrower and Co-Obligors. Interest on LIBOR Rate Loans will be payable on the earlier of quarterly (i.e. January 1, April 1, July 1, and October 1) or the last day of the Interest Period. Interest on Prime Rate Loans will be payable quarterly (i.e. January 1, April 1, July 1, and October 1). The entire outstanding principal amount of the Note, plus all accrued and unpaid interest, will be due and payable on or before the Maturity Date. The Loan will be repayable in accordance with the additional terms set out in the Note. (b) So long as no Event of Default has occurred and is continuing hereunder, and so long as no event has occurred that with the giving of notice, the passage of time or both, will constitute an Event of Default hereunder, and, subject to the restrictions set forth herein, Borrower may borrow, repay, and re-borrow 3 4 funds under the Loan as needed, so long as the maximum principal amount outstanding does not exceed Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000) during the time period beginning on the date hereof, and except as hereinafter provided, ending on the Maturity Date. Provided, however, Borrower will be required to make a mandatory prepayment in the principal amount of Two Million Five Hundred Thousand ($2,500,000) on November 22,1996; Borrower will not be permitted to re- borrow this Two Million Five Hundred Thousand Dollars ($2,500,000) and thereafter the maximum principal amount that may be outstanding under the Note at anytime will be reduced to Twenty Five Million Dollars ($25,000,000). 3. Conditions Precedent. Notwithstanding any other provisions of this Sixth Amendment, it is understood and agreed that Lender will have no obligation to fund at any time unless and until the following conditions have been met and continue to be met, to the reasonable satisfaction of Lender and its counsel: (a) Lender will have received such documents, instruments, and agreements, including, but not limited to, the Sixth Amendment and all modifications and/or amendments thereto, in form satisfactory to Lender, as Lender will reasonably request to evidence the agreement set out herein, which will include a First Amendment to Promissory Note, in form acceptable to Lender; (b) A Certificate of Existence of Borrower and each of the Co-Obligors (other than Shoney's Inn of Baton Rouge) issued by the Secretary of State of Tennessee; and (c) Opinion of counsel for Borrower and each of the Co- Obligors in form and substance satisfactory to Lender. 4. Costs. Borrower agrees to pay all reasonable fees and costs incurred by Lender in connection with the preparation, execution, and delivery of all documentation reasonably required to evidence the agreement set out herein, including Lender's counsel fees. 5. Continuing Representation and Warranty by Borrower and Co-Obligors. Borrower and Co-Obligors represent and warrant to Lender that all of the covenants, agreements, representations, and 4 5 warranties made by Borrower and Co-Obligors in the Loan Agreement, as amended, in any writing delivered pursuant to the Loan Agreement, as amended, and in this Sixth Amendment, are true and correct, and have been fully complied with, in all material respects, as of such date. 6. Continuing Effect. Except as specifically set forth in this Sixth Amendment, the Loan Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, and the Fifth Amendment, and all of the Loan Documents remain in full force and effect as originally written. IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to be executed by their duly authorized officers effective as of the day and year first above written. LENDER: First Union National Bank of Tennessee By: /s/ Orville W. Kronk ------------------------------ Orville W. Kronk Vice President BORROWER: ShoLodge, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President CO-OBLIGORS: Shoney's Inn of Lebanon, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President 5 6 Shoney's Inn, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Nashville Air Associates, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Moore and Associates, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Sunshine Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President LAFLA Inn, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Southeast Texas Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President 6 7 Delaware Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Alabama Lodging Corporation By: /s/ Leon Moore ------------------------------ Leon Moore, President Carolina Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Midwest Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Far West Inns, Inc. By: /s/ Leon Moore ------------------------------ Leon Moore, President Shoney's Inn of Baton Rouge By: Two Seventeen, Inc. General Partner 7 8 By: /s/ Leon Moore -------------------------- Its: President ------------------------- By: Inn Partners, Inc. General Partner By: /s/ Leon Moore -------------------------- Its: President ------------------------- Front Range Suites, Inc. By: /s/ Leon Moore ----------------------------------- Leon Moore, President 8 9 FIRST AMENDMENT TO PROMISSORY NOTE $27,500,000 Nashville, Tennessee October 24, 1996 WHEREAS, on November 14, 1995, SHOLODGE, INC. ("Borrower"); SHONEY'S INN OF LEBANON, INC., SHONEY'S INN, INC., NASHVILLE AIR ASSOCIATES, INC., MOORE AND ASSOCIATES, INC., SUNSHINE INNS, INC. (successor by name change to PenTal Inns, Inc. and successor by merger to Tampa Inn, Inc.), LAFLA INN, INC., SOUTHEAST TEXAS INNS, INC., DELAWARE INNS, INC., ALABAMA LODGING CORPORATION (successor by name change to Birmingham Inns, Inc.), as co-obligors (individually and collectively "Co-Obligors"), executed a certain Promissory Note in the original principal amount of Twenty Five Million Dollars ($25,000,000),payable to FIRST UNION NATIONAL BANK OF TENNESSEE ("Payee") ("the Note"); WHEREAS, on December 27, 1995, CAROLINA INNS, INC., MIDWEST INNS, INC., FAR WEST INNS, INC., and SHONEY'S INN OF BATON ROUGE, as co-obligors (included in the defined term, individually and collectively, "Co-Obligors"), executed an Addendum to Promissory Note (included in the defined term "the Note"); WHEREAS, on October 18, 1996, FRONT RANGE SUITES, INC., as co-obligor (included in the defined term, individually and collectively, "Co-Obligors"), executed a Second Addendum to Promissory Note (included in the defined term "the Note"); and WHEREAS, Borrower and Co-Obligors have requested that Payee make an additional loan to Borrower in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) on the terms and conditions of that certain Loan Agreement dated January 7, 1994, as amended by: (i) First Amendment to Loan Agreement dated March 21, 1994, (ii) Second Amendment to Loan Agreement dated June 20, 1994 , (iii) Third Amendment to Loan Agreement dated August 17, 1995, (iv) Fourth Amendment to Loan Agreement dated November 14, 1995, (v) Fifth Amendment to Loan Agreement dated October 18, 1996, and (vi)Sixth Amendment to Loan Agreement of even date with this First Amendment to Promissory Note. NOW, THEREFORE, for and in consideration of the agreement of Payee to accept this First Amendment to Promissory Note, the mutual covenants and agreements hereinafter set forth and other good and 10 valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Note is amended as follows: Borrower, Co-Obligors, and Payee hereby delete the first paragraph of the Note in its entirety and substitute the following in lieu thereof: FOR VALUE RECEIVED, the undersigned, SHOLODGE, INC., a Tennessee corporation ("Borrower"); SHONEY'S INN OF LEBANON, INC., a Tennessee corporation; SHONEY'S INN, INC., a Tennessee corporation; NASHVILLE AIR ASSOCIATES, INC., a Tennessee corporation; MOORE AND ASSOCIATES, INC., a Tennessee corporation; SUNSHINE INNS, INC. (successor by change of name to PenTal Inns, Inc. and successor by merger to Tampa Inn, Inc.), a Tennessee corporation; LAFLA INN, INC., a Tennessee corporation; SOUTHEAST TEXAS INNS, INC., a Tennessee corporation; DELAWARE INNS, INC., a Tennessee corporation; ALABAMA LODGING CORPORATION (successor by change of name to Birmingham Inn, Inc.), a Tennessee corporation; FAR WEST INNS, INC., a Tennessee corporation; SHONEY'S INN OF BATON ROUGE, a Tennessee general partnership; and FRONT RANGE SUITES, INC., a Tennessee corporation (individually and collectively "Co- Obligors"), promise to pay to the order of FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking corporation ("Payee"; Payee and/or any subsequent holder(s) hereof, "Holder"), at Payee's address P.O. Box 2648, Nashville, Tennessee 37219-0648, or at such other place as Holder will designate from time to time in writing, the principal sum of Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000), or so much thereof as may have been advanced, together with interest on the unpaid principal balance of such indebtedness from time to time outstanding from the date hereof at the rates hereinafter set forth, in lawful money of the United States of America, such principal and interest being due and payable as provided in the Note. Section 3 of the Note is hereby deleted in its entirety and the following is substituted in lieu thereof: 3. Payment Terms. Interest on LIBOR Rate Loans will be payable the earlier of quarterly (i.e. January 1, April 1, July 1, and October 1) or the last day of each Interest Period. Interest on Prime Rate Loans will be payable 2 11 quarterly (i.e. January 1, April 1, July 1, and October 1). The entire outstanding principal amount of the Note, plus all accrued and unpaid interest, penalties, and fees will be due and payable on or before the Maturity Date. Borrower will be required to make a mandatory prepayment in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) on November 22, 1996; Borrower will not be permitted to re-borrow this Two Million Five Hundred Thousand Dollars ($2,500,000) and thereafter the maximum principal amount that may be outstanding under the Note at anytime will be reduced to Twenty Five Million Dollars ($25,000,000). Except as specifically set out in this First Amendment, the Note will remain in full force and effect as originally written. SIGNED, SEALED, AND DELIVERED, as of the 24th day of October, 1996. BORROWER: ShoLodge, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President CO-OBLIGORS: Shoney's Inn of Lebanon, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Shoney's Inn, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President 3 12 Nashville Air Associates, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Moore and Associates, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Sunshine Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President LAFLA Inn, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Southeast Texas Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Delaware Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Alabama Lodging Corporation 4 13 By: /s/ Leon Moore -------------------------------- Leon Moore, President Carolina Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Midwest Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Far West Inns, Inc. By: /s/ Leon Moore -------------------------------- Leon Moore, President Shoney's Inn of Baton Rouge By: Two Seventeen, Inc. General Partner By: /s/ Leon Moore ---------------------------- Its: President ---------------------------- By: Inn Partners, Inc. General Partner 5 14 By: /s/ Leon Moore ---------------------------- Its: President ---------------------------- Front Range Suites, Inc. By: /s/ Leon Moore --------------------------------- Leon Moore, President The undersigned Payee hereby consents to this First amendment to Promissory Note. PAYEE: First Union National Bank of Tennessee By: /s/ Orville W. Kronk --------------------------------- Orville W. Kronk Vice President 6 EX-10.5 8 LOAN AGREEMENT 1 Exhibit 10.5 LOAN AGREEMENT This Loan Agreement ("Agreement") entered into the 6th day of November, 1996, by and among SHOLODGE, INC., a Tennessee corporation ("Borrower"), SHONEY'S INN OF LEBANON, INC., a Tennessee corporation, SHONEY'S INN, INC., a Tennessee corporation, NASHVILLE AIR ASSOCIATES, INC., a Tennessee corporation, MOORE AND ASSOCIATES, INC., a Tennessee corporation, SUNSHINE INNS, INC., a Tennessee corporation, LAFLA INN, INC., a Tennessee corporation, SOUTHEAST TEXAS INNS, INC., a Tennessee corporation, DELAWARE INNS, INC., a Tennessee corporation, ALABAMA LODGING CORPORATION, a Tennessee corporation, FRONT RANGE SUITES, INC., a Tennessee corporation, MIDWEST INNS, INC., a Tennessee corporation, FAR WEST INNS, INC., a Tennessee corporation, CAROLINA INNS, INC., a Tennessee corporation, and SHONEY'S INN OF BATON ROUGE, a Tennessee general partnership (collectively the "Co-Obligors" and individually a "Co-Obligor"), jointly and severally, and NATIONSBANK OF TENNESSEE, N.A. ("Lender"), a national banking association. W I T N E S S E T H: WHEREAS, to evidence the indebtedness owed by Borrower and Co- Obligors to Lender, Borrower and Co-Obligors executed and delivered to Lender a promissory note, being a Line of Credit Note having an original maximum principal amount of $10,000,000 dated November 6, 1996; and WHEREAS, Lender and Borrower and Co-Obligors hereby enter into a comprehensive agreement setting forth the terms and conditions of Borrower's and Co-Obligor's line of credit; NOW, THEREFORE, as an inducement to cause Lender to extend credit to Borrower and Co-Obligors, and for other valuable consideration, the receipt and sufficiency of which are acknowledged, it is agreed as follows: 1. Line of Credit. Concurrently with the execution of this Agreement, Lender shall make a line of credit (the "Line of Credit") available to Borrower and Co-Obligors under the following terms: 2 a. Amount. The principal indebtedness of Borrower and Co-Obligors to Lender under the Line of Credit shall not exceed Ten Million and No/100 Dollars ($10,000,000). b. Interest Rate. The principal amount outstanding under the Line of Credit shall bear interest at Borrower's option at either (i) the Lender's Prime Rate, as it may change from time to time, or (ii) Lender's LIBOR Rate for 30, 60, or 90-day periods (a "LIBOR Period") plus 190 basis points. As more particularly described below, Borrower may elect that a portion of the outstanding principal balance of the Line of Credit bear interest at the Prime Rate and that a portion bear interest at a LIBOR Rate plus the spread described above. i. As used in this Agreement, Lender's "Prime Rate" is the fluctuating rate of interest established by Lender from time to time as its "Prime Rate", whether or not such rate shall be otherwise published. Such Prime Rate is established by Lender as an index or base rate and may or may not at any time be the best or lowest rate charged by Lender on any loan. If at any time or from time to time the Prime Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the day on which any such increase or decrease of the Prime Rate changes, unless otherwise herein provided. In the event that Lender, during the term hereof, shall abolish or abandon the practice of establishing a Prime Rate, or should the same become unascertainable, Lender shall designate a reasonably comparable reference rate which shall be deemed to be the Prime Rate. ii. For purposes hereof, the "LIBOR Rate" shall mean the rate per annum announced by Lender as its LIBOR Rate for a period equal to the length of such LIBOR Period as adjusted, without duplication, to reflect Lender's reserve requirements, all as calculated and announced from time to time by Lender, whose announcement shall be binding absent manifest error. To elect the LIBOR Rate for a LIBOR Period, Borrower shall deliver a written election to Lender at least three (3) business days in advance of the effective date of such election, which notice shall specify which LIBOR Period is selected and the amount of the Line of Credit that is to bear interest based upon the 2 3 LIBOR Rate. Interest shall be calculated based upon a 360-day year in the case of LIBOR Rate loans and 365 days in the case of Prime Rate loans and actual days elapsed. If the adoption of or change in any applicable legal requirement or any change in the interpretation or administration thereof by any governmental authority or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other governmental authority, shall at any time as a result of any portion of the principal balance of the Line of Credit being maintained on the LIBOR Rate: A. Subject the Lender to any tax (including without limitation any United States Interest Equalization Tax), levy, impost, duty, charge, fee (collectively "Taxes"), other than income and franchise taxes of the United States and its political subdivisions; or B. Change the basis of taxation on payments due from the Borrower and Co-Obligors to the Lender under any LIBOR Rate borrowing (otherwise than by a change in the rate of taxation of the overall net income of the Lender); or C. Impose, modify, increase or make applicable any reserve requirement, special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) against assets held by the Lender, or against deposits or accounts in or for the account of the Lender, or against any loans made by the Lender, or against any other funds, obligations or other property owned or held by Lender; or D. Impose on the Lender any other condition regarding any LIBOR Rate borrowing; and the result of any of the foregoing is to increase the cost to the Lender of agreeing to make or of making, renewing or maintaining such borrowing on the basis of the LIBOR Rate, or reduce the amount of principal or interest received by the Lender, then, upon demand by the Lender, the Borrowers and Co-Obligors shall pay to the Lender, from time to time as specified by the Lender, additional amounts which shall 3 4 reasonably compensate the Lender for such increased cost or reduced amount relating to LIBOR Rate borrowings outstanding after Lender's demand. The Lender's reasonable determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error. (iv) In no event shall the interest rate charged on the Line of Credit exceed the maximum rate allowed under applicable law. Any amounts paid in excess of the maximum lawful rate shall be applied to reduce the principal amount of Borrower's and Co-Obligors' obligations to Lender or shall be refunded to Borrower and Co-Obligors, at Lender's election. After maturity (by acceleration or otherwise), the principal amount under the Line of Credit shall bear interest at the rate of interest in effect immediately before maturity plus four percent (4%). c. Payments. Payment of all obligations arising under the Line of Credit shall be made as follows: (1) Interest. Interest on the outstanding principal balance under the Line of Credit shall be paid in arrears on the 1st day of each quarter beginning on December 1, 1996 except, in the case of a LIBOR Rate borrowing at Borrower and Co-Obligors' option, interest shall be payable on the earlier of the quarter as set forth above or at the end of the applicable LIBOR Period. (2) Voluntary Prepayment. Voluntary prepayments of principal or accrued interest may be made, in whole or in part, at any time without penalty, except, in the case of a LIBOR Rate borrowing, a payment prior to the end of the LIBOR Period will require Borrower and Co-Obligors to pay Lender any breakage costs associated with such prepayment. (3) Mandatory Prepayment. Borrower and Co-Obligors must immediately prepay any amount by which the principal balance of the Line of Credit exceeds $10,000,000. 4 5 (4) All Amounts Due. All remaining principal, interest and expenses outstanding under the Line of Credit shall become due January 31, 1997. d. Use of Proceeds. Advances under the Line of Credit shall be used by Borrower and Co-Obligors for working capital, to finance the construction of new inns and for a one-time repurchase of warrants with a repurchase price not to exceed $7,500,000, and for no other purpose. e. Revolving Loans; Disbursements. During the term of this Agreement, Borrower and Co-Obligors may from time to time request, repay and reborrow advances under the Line of Credit, provided that the total principal amount outstanding under the Line of Credit shall not at any time exceed $10,000,000 and that no Default (as hereinafter defined) or any event which with the giving of notice, the passage of time, or both, would constitute a Default, then exists hereunder. Disbursements shall be made as follows: (1) Disbursement Requests. Lender may honor requests for advances made on Borrower's and Co-Obligors' behalf by Borrower's Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, or other officer designated by Borrower, whether such request is made in person, by telephone, or in writing. Lender may require that requests for advances be submitted in writing, and may also require that Borrower submit with such requests written warranties or other reasonable assurances acceptable to Lender showing that Borrower and Co-Obligors are not then in default hereunder and Borrower is otherwise entitled to receive the requested advance. (2) Funding. As long as Borrower and Co-Obligors meet the conditions for funding stated herein, Lender shall fund advances requested under the Line of Credit within one (1) business day of the actual receipt of Borrower's request by Lender. All funds shall be disbursed directly into an account maintained by Borrower with Lender. Borrower and Co-Obligors agree that if Lender elects to fund any requested advance(s) sooner after requested than is required of Lender hereunder, 5 6 Lender may nevertheless use the entire response period allowed hereunder upon receipt of any subsequent request, at Lender's sole option. (3) Conditions to Funding. Lender shall not be obligated to make any advance under the Line of Credit unless all of the following conditions are satisfied as of the time of the request and of funding. A. All of the Loan Documents (as hereinafter defined) provided for herein (or otherwise requested by Lender pursuant to the "Further Assurances" provision hereof) to evidence the Line of Credit must have been executed and delivered to Lender. B. All warranties made in the Loan Documents must be true as of the dates of the advance request and as of the date of funding thereof except those that by their terms speak of a particular date (the submission of a request for advance by Borrower shall be deemed a reaffirmation of such warranties as of the date of the request). C. All covenants made in the Loan Documents must have been complied with as of the dates of the advance request and funding thereof. D. Borrower and Co-Obligors must not otherwise be in Default hereunder and no condition shall exist which, with the giving of notice, the passing of time, or both, would constitute a Default hereunder. (4) Advance Not Waiver. Lender's making of any advance under the Line of Credit that it is not obligated to make under Paragraph 1e(3) above shall not be construed as a waiver of Lender's right to withhold future advances, declare a Default, or otherwise demand strict compliance with this Agreement. (5) Draws by Debit Memorandum. Lender may, without prior notice, draw amounts available under the Line of 6 7 Credit to pay any obligation of Borrower and Co-Obligors to Lender that is not timely paid. Lender shall notify Borrower within two (2) days of the taking of any such action. (6) LIBOR Rate Election. No more than three (3) LIBOR Rate borrowings may be outstanding at any time. Each LIBOR Rate draw must be at least One Million and 00/100 Dollars ($1,000,000) and, if greater, shall be in $250,000 increments. 2. Loan Documents. Concurrently with the execution hereof, Borrower and Co-Obligors shall deliver to Lender the following documents in form and substance acceptable to Lender (the "Loan Documents"): (a) This Agreement; (b) Line of Credit Note made by Borrower and Co- Obligors in the principal amount of $10,000,000 payable to the order of Lender ("Line of Credit Note"); (c) Certificates of Borrower's and Co-Obligors' (other than Shoney's Inn of Baton Rouge) Good Standing under Tennessee law issued by the Tennessee Secretary of State; (d) Certified copy of resolutions of Borrower's and each Co-Obligor's Board of Directors authorizing a named officer of Borrower and each Co-Obligor to enter into this Agreement and to execute all related documents on Borrower's and Co-Obligors' behalf; (e) The Lender shall have received Borrower's 10Q Report for the period ended July 14, 1996 or such other information as Lender may reasonably require; and (f) Legal opinion executed by Borrower's counsel addressing such matters as Lender shall require. 3. Capacity. Borrower and each Co-Obligor (other than Shoney's Inn of Baton Rouge) warrants that each is and shall remain a duly organized Tennessee corporation in good standing under the 7 8 laws of Tennessee, and that Borrower and each Co-Obligor is and shall remain duly qualified to do business in each state other than Tennessee in which the failure to qualify would result in a material adverse impact on Borrower or any Co-Obligor or their business. Borrower and each Co-Obligor warrants that its execution of and performance under this Agreement and all related documents are permitted under and will not violate any provision of Borrower's and each Co-Obligor's Charter or By-Laws (or, as to Shoney's Inn of Baton Rouge, its partnership agreement) or any agreement to which Borrower or any Co-Obligor is a party or any law, rule, ordinance, regulation or Court Order to which Borrower or any Co-Obligor is subject. Borrower and each Co-Obligor further warrants that the execution of all necessary resolutions and other prerequisites of corporate action or partnership, as applicable, have been duly performed so that the individual executing this Agreement and related documents on behalf of Borrower and each Co-Obligor is duly authorized to bind Borrower and each Co-Obligor by his signature. 4. No Subsidiaries. Except as set forth in Schedule 4, Borrower and Co-Obligors warrant that they presently have no subsidiaries or interests in any partnership or other business entity. 5. Corporate Records. Borrower and each Co-Obligor covenants to maintain current corporate minute books and stock ledgers and agree to allow Lender to inspect the same at any time during normal business hours upon reasonable notice. 6. Accounting. Borrower and Co-Obligors warrant that Borrower's and Co-Obligors' accounting complies with applicable generally acceptable accounting principles ("GAAP") and covenant that they will continue to apply GAAP throughout the life of the loan. 7. ERISA. Borrower and Co-Obligors have not incurred and shall not incur a material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and have not incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto under ERISA) in connection with any retirement plan, and no reportable event has occurred and is continuing or shall occur with respect to any such plans. 8 9 8. Books, Records and Property. Borrower and Co-Obligors covenant to maintain financial books and records in a manner that will allow financial statements to be prepared in accordance with GAAP, consistently applied, and shall allow Lender to inspect such records during normal business hours upon reasonable notice. Lender has full authority to inspect all property of Borrower and Co-Obligors during normal business hours upon reasonable notice. 9. Insurance. In addition to any specific insurance requirements contained herein or in any other document pertaining to the Line of Credit, Borrower and Co-Obligors agree to generally maintain adequate insurance against casualty and liability losses in accordance with customary practices in Borrower's and Co-Obligors' field of enterprise. Borrower and Co-Obligors agree to provide Lender with proof of the existence of such insurance upon demand. 10. Chief Executive Office. Borrower and Co-Obligors warrant that the address designated herein to which notices are to be sent to Borrower and Co-Obligors is Borrower's and Co-Obligors' chief executive office. Borrower and Co-Obligors agree to notify Lender in writing of any change thereof and agree that the same shall not in any event be moved outside Sumner County, Tennessee, without Lender's prior written consent. 11. No Defaults Under Other Agreements. Borrower and Co-Obligors warrant that neither Borrower nor any Co-Obligor, to the best of Borrower's and Co-Obligors' knowledge, information, and belief, nor any other party thereto is presently in default beyond any applicable notice and/or cure periods in any material respect under any material contract or agreement to which Borrower or any Co-Obligor is a party, and no condition presently exists which, with the giving of notice, the passing of time, or both, would cause such a default. 12. Disclosure of Litigation. Except as disclosed on Schedule 12, there are no actions, suits or proceedings pending (including, but not limited to, matters relating to any Environmental Laws), or, to the best of knowledge of Borrower or any Co-Obligor, threatened, against or affecting Borrower or any Co-Obligor or involving the validity or enforceability of any of the Loan Documents, at law or in equity, or before any governmental or administrative agency, except actions, suits and proceedings 9 10 that are covered by insurance in all material respects and that, if adversely determined, would not impair the ability of Borrower or any Co-Obligor to perform each and every one of its obligations under this Agreement; or materially and adversely affect Borrower's or any Co-Obligor's business or Borrower's or any Co-Obligor's ability to carry on its business substantially in the manners now conducted (individually or in the aggregate). 13. Financial Statements. a. Warranties. Borrower and Co-Obligors warrant that Borrower's consolidated quarterly and annual financial statements delivered to Lender in connection with the Line of Credit have been prepared in accordance with generally accepted accounting principles, consistently applied, and present fairly the financial condition of Borrower as of the date or dates thereof and are true and correct in all material respect. Without limiting the foregoing, Borrower and Co- Obligors warrant that such financial statements disclose all known material contingent liabilities as well as material direct liabilities. Borrower and Co-Obligors acknowledge that Lender has advanced (or shall advance) the Line of Credit in reliance upon such financial statements, and Borrower and Co- Obligors warrant that no material adverse change has occurred in the financial condition of Borrower and Co-Obligors as set forth in the most recent financial statements. b. Reporting Requirements. Borrower covenants to furnish Lender annual audited financial statements and annual budget and cash flow projections for the upcoming year within one hundred twenty (120) days of the close of the preceding fiscal year. Each audit must be performed by a certified public accountant reasonably acceptable to Lender, at Borrower's expense. In addition, Borrower covenants to furnish to Lender, on or before the forty-fifth (45th) day following the end of each fiscal quarter, income statements, cash flow statements and balance sheets together with an officer's certificate executed by the chief executive officer, chief financial officer or chief accounting officer of Borrower certifying compliance with the financial covenants set forth herein and further stating that, to the best of his knowledge, information and belief, no Default exists hereunder as of the date of the certification. Borrower and Co-Obligors 10 11 also covenant to furnish to Lender, upon demand, copies of Borrower's and Co-Obligors' tax returns and additional financial information in form and substance acceptable to Lender. 14. Notice of Changes in Financial Condition and Defaults. Borrower and Co-Obligors covenant to give Lender prompt written notice of (i) the creation or discovery of any material additional contingent liability or the occurrence of any other material adverse change in the financial condition of Borrower or Co- Obligors, and (ii) the occurrence of any event, or presence of any condition, which constitutes a Default hereunder or which with the giving of notice, the passing of time, or both, would constitute a Default. Borrower and Co-Obligors covenant that they will not change their fiscal year without obtaining the prior written consent of Lender. 15. No Unpaid Taxes. Borrower and Co-Obligors have filed all tax returns and reports required to be filed and have paid all taxes, assessments, fees and other governmental charges levied upon them or upon any of their properties or income, which are due and payable, including interest and penalties, or have provided adequate reserves for the payment thereof, other than any taxes or assessments that could not impair the ability of Borrower and Co- Obligors to perform each and every one of their obligations hereunder; or materially and adversely affect the ability of Borrower or any Co-Obligor to carry on its business in the manner as now conducted. To the best knowledge of Borrower and each Co- Obligor, no tax liens have been filed against Borrower, any Co- Obligor or any of their properties, that could impair the ability of Borrower or any Co-Obligor to perform each and every one of their obligations hereunder; or materially and adversely affect the business of Borrower or any Co-Obligor. 16. No Untrue or Misleading Representations. Borrower and Co-Obligors warrant that no information, exhibit or report furnished in writing by Borrower or a Co-Obligor to Lender in connection with the Line of Credit contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained therein not misleading in any material respect. 11 12 17. Compliance with Law. To the best of their knowledge, Borrower and Co-Obligors warrant that the business activities of Borrower and each Co-Obligor are conducted in material compliance with all applicable laws and regulations. Borrower and Co-Obligors covenant that such activities shall continue to be so conducted. 18. Assistance in Litigation. Borrower and Co-Obligors covenant to, upon request, cooperatively participate in any proceeding in which Borrower and Co-Obligors are not an adverse party to Lender and which concerns Lender's rights regarding the Line of Credit. 19. Name. Borrower warrants that during the past five (5) years, Borrower has not been known under or done business under any name other than the name used by Borrower in executing this Agreement. Borrower and Co-Obligors agree to give Lender written notice no later than 15 days after a Borrower or Co-Obligor begins using any name other than that used in executing this Agreement. 20. Negative Pledge. Except for any liens permitted under Section 29 hereof, Permitted Encumbrances and easements or minor encumbrances relating to real estate, Borrower and Co-Obligors covenant and agree that they will not suffer, permit or grant any lien, security interest, deed of trust, mortgage, deed to secured debt, pledge, assignment or other collateral assignment of any of their assets in favor of any party other than Lender without the prior written consent of Lender. For purposes of this Agreement, "Permitted Encumbrances" will mean deposits under worker's compensation, unemployment insurance and social security laws or to secure statutory obligations or surety or appeal bonds or performance or other similar bonds in the ordinary course of business; statutory liens of landlords, carriers, warehousemen, mechanics, and materialmen and other similar liens, in respect of liabilities which are not yet due or which are being contested in good faith (and for which adequate reserves have been established in accordance with Generally Accepted Accounting Principles); Liens for taxes not yet due and payable; and liens for taxes due and payable, the validity or amount of which is currently being contested in good faith (and for which adequate reserves have been established in accordance with Generally Accepted Accounting Principles) by appropriate proceedings and as to which foreclosure and other enforcement proceedings will not have been commenced (unless fully bonded or otherwise effectively stayed). 12 13 21. Expenses. Upon demand, Borrower and Co-Obligors will advance to Lender or, at Lender's option, reimburse Lender for, the following expenses: a. Taxes. All taxes (other than income taxes) that Lender may be required to pay because of the Line of Credit; b. Administration. All expenses that Lender may incur in connection with the preparation, execution, or enforcement of this Agreement or of any other document pertaining to the Line of Credit; c. Costs of Collection. All court costs and other costs of collecting any debt, overdraft or other obligation included in the Line of Credit; d. Litigation. All costs arising from any litigation, investigation, or administrative proceeding (whether or not Lender is a party thereto) that Lender may incur as a result of the Line of Credit or as a result of Lender's association with Borrower and Co-Obligors, including, but not limited to, expenses incurred by Lender in connection with a case or proceeding involving Borrower or any Co-Obligor under any chapter of the Bankruptcy Code or any successor statute thereto; e. Attorneys Fees. Reasonable attorneys' fees incurred in connection with any of the foregoing. If Lender pays any of the foregoing expenses, they shall become a part of the Line of Credit and shall bear interest at the rate of interest then in effect. This paragraph shall remain in full effect regardless of the full payment of the Line of Credit, the purported termination of this Agreement, the delivery of the executed original of this Agreement to Borrower and Co-Obligors, or the content or accuracy of any representation made by Borrower and Co-Obligors to Lender; provided, however, Lender may terminate this Paragraph by executing and delivering to Borrower and Co-Obligors a written instrument of termination specifically referring to this Paragraph. 13 14 22. Further Assurances. Borrower and Co-Obligors covenant to execute such other documents that Lender may reasonably deem necessary to further evidence the obligations provided for herein. 23. Default Certificates. Borrower and Co-Obligors covenant to deliver to Lender, within five (5) business days after request, the certificate of Borrower, of Co-Obligors or of Borrower's appropriate representative (as specified by Lender) stating whether, to the best of the person's knowledge, information, and belief and after due investigation, a Default exists under this Agreement. The certificate shall describe with particularity any Default and shall address with particularity any circumstances or subjects described by Lender in its request. Borrower and Co-Obligors covenant that they will promptly forward to Lender a copy of any notice of default Borrowers receives from any party with which any Borrower has a contract, where the amount of such contract exceeds $250,000. 24. Recitals. Borrower and Co-Obligors warrant and agree that the recitals set forth at the beginning of this Agreement are true. 25. No Burdensome Agreements. Borrower and Co-Obligors warrant that Borrower and each Co-Obligor is not a party to any material contract or agreement and is not subject to any material contingent liability that does or may impair the ability of Borrower or any Co-Obligor to perform under the terms of this Agreement. Borrower and Co-Obligors further warrant that the execution and performance of this Agreement will not cause a default, acceleration or other event under any other contract or agreement to which Borrower or any Co-Obligor or any property of Borrower or any Co-Obligor is subject, and will not result in the imposition of any charge, penalty, lien or other encumbrance against any property of Borrower or any Co-Obligor except in favor of Lender. 26. Legal and Binding Agreement. Borrower and Co-Obligors warrant that the execution and performance of this Agreement will not violate any judicial or administrative order or governmental law or regulation, and that this Agreement is valid, binding and enforceable according to its terms, subject to bankruptcy and other laws affecting the rights of creditors generally. 14 15 27. No Consent Required. Borrower and Co-Obligors warrant that Borrower's and Co-Obligors' execution, delivery and performance of this Agreement do not require the consent of or the giving of notice to any third party including, but not limited to, any other lender, governmental body or regulatory authority, which has not been obtained. 28. No Default. Borrower and Co-Obligors warrant that, as of the execution of this Agreement, no Default exits hereunder and no condition exists which, with the giving of notice, the passing of time, or both, would constitute such a Default. 29. Negative Covenants. Without Lender's prior written consent, Borrower and Co-Obligors shall not do any of the following: a. Other Debt. Incur, create, assume or permit to exist any indebtedness for borrowed money except: (1) Indebtedness to Lender. (2) Debts existing as of the execution hereof and disclosed in the financial statements delivered to Lender and any modifications, renewals or extensions thereof and any refinancing of such debt with no increase in the amount of such refinanced debt. (3) Unsecured debts on open account incurred in the ordinary course of business. (4) Up to $55,000,000 of subordinated indebtedness which is subordinated to the obligations owed to Lender hereunder pursuant to an existing subordinated debt offering. (5) Up to $125,000,000 of additional Senior Subordinated Notes which is subordinated to the obligations owed to Lender hereunder and on such terms and conditions that are satisfactory to Lender. (6) Indebtedness incurred to acquire additional assets or entities; provided such purchase money 15 16 indebtedness may be secured by liens in the assets or entities so acquired. (7) Indebtedness arising from the negotiation and deposit of instruments received in the ordinary course of business. (8) Indebtedness incurred by Borrower pursuant to advances made under a credit facility or line of credit in existence on the date hereof or any extension or renewal thereof which does not increase the maximum amount available. (9) Long-term (a maturity of more than one year) mortgage loans which do not exceed in the aggregate $10,000,000. (10) Indebtedness incurred by Borrower which is used to repay the Line of Credit and which permanently reduces the maximum amount available under the Line of Credit dollar for dollar by such paydown. b. Pledge or Mortgage of Assets. Except as allowed under this Agreement, pledge or mortgage any of its existing, or future acquired assets to any other party, except liens that exist on the date hereof, together with renewals, extensions, refinancings and modification thereof. c. Stock Transactions. Redeem any stock, subordinated debt, warrants, or debt securities convertible into stock; provided Borrower may redeem warrants in a one-time transaction having an aggregate cost of no more than $7,500,000 and Borrower may redeem stock in a one-time transaction having an aggregate cost of no more than $2,500,000. d. Reorganization. Enter into any agreement to merge, consolidate, or otherwise reorganize or recapitalize; provided, however, this shall not apply to any transaction where Borrower and/or a Co-Obligor is the surviving corporation. 16 17 e. Disposition of Assets. Sell, lease, or otherwise transfer all or substantially all of its assets in any transaction which is not in the ordinary course of business; provided, this restriction shall not apply to transfers among Borrower and/or any Co-Obligors. f. Guaranties. Guarantee any obligations of any other business or individual, except through the endorsement of items tendered to Borrower and Co-Obligors as payment in the ordinary course of business, where the aggregate of such guaranties exceeds $4,000,000. This guaranty liability shall not be considered as debt for purposes of Paragraph 30a. Any guaranty by Borrower of a debt of a Co-Obligor shall not be counted toward the $4,000,000 so long as the debt of the Co-Obligor is shown on the Borrower's consolidated financial statements. h. Creation of New Subsidiaries. Acquire an interest in any subsidiary corporation unless, within 15 days after the acquisition of such ownership interest, the new subsidiary executes the Line of Credit Note and becomes a party to this Agreement. i.Dividends. Co-Obligors shall not declare any dividends, other than dividends payable to ShoLodge, Inc., without the prior written consent of Lender. 30. Financial Covenants. Borrower and Co-Obligors shall maintain the following financial requirements as determined by GAAP on a consolidated basis (unless otherwise noted): a. Tangible Net Worth. at all times maintain a minimum Tangible Net Worth of not less than $74,000,000 computed quarterly. b. Debt to Tangible-Net-Worth Ratio. From and after January 31, 1997, at all times maintain a ratio of total debt to Tangible Net Worth of not more than 1.75 to 1.00 computed quarterly; provided, however, that for purposes of computing this ratio, "revenue participation bonds" (as those terms are used in Borrower's Financial Statements) will be subtracted from total liabilities, and any minority shareholder interest 17 18 of a subsidiary of Borrower will be excluded from Borrower's total liabilities. c. Current Ratio. From and after January 31, 1997, maintain at all times a ratio of Current Assets to Current Liabilities not less than 1.0 to 1.0, computed quarterly. d. Fixed-Charge Coverage Ratio. Maintain a Fixed-Charge Coverage Ratio of not less than 1.25 to 1.0 computed quarterly based on a trailing four quarters. e. Definitions. For purposes of this Section 31 and this Agreement, the following definitions shall apply: (i) "Current Assets" will have the meaning given in accordance with Generally-Accepted Accounting Principles. (ii) "Current Liabilities" will have the meaning given in accordance with Generally-Accepted Accounting Principles. (iii) "Fixed-Charge Coverage Ratio" will mean the quotient obtained by dividing (a) the sum of net-after- tax income, net interest, depreciation, amortization and net rental expenses by (b) the sum of net interest, net rents, the current maturities of long-term debt and capitalized leases. (iv) "Generally-Accepted Accounting Principles" will mean generally-accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of Borrowers and any predecessors. (v) "Tangible Net Worth" will mean the excess of total assets (excluding intangible assets) over total liabilities (exclusive of capital stock and surplus), all determined in accordance with Generally-Accepted Accounting Principles consistently applied. 18 19 31. Environmental Matters a. Definitions (1) "Environmental Laws" means the Environmental Protection Act, the Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Hazardous Materials Transportation Act and any other federal, state or municipal law, rule or regulation relating to air emissions, water discharge, noise emissions, solid or liquid waste disposal, hazardous or toxic waste or materials, or other environmental or health matters. (2) "Hazardous Materials" means those substances included from time to time within the definition of hazardous substances, hazardous materials, toxic substances, or solid waste under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended, 42 U.S.C. ss. 9601 et seq.; the Resource Conversation and Recovery Act of 1976, 42 U.S.C. ss. 1801 et seq., and in the regulations promulgated pursuant to such acts and laws; and such other substances that are or become regulated under any applicable local, state or federal law or regulation addressing environmental hazards. b. Environmental Law Compliance. Borrower and Co-Obligors warrant and covenant that the conduct of Borrower's and Co-Obligors' business operations do not and will not violate, in any material respect, any federal laws, rules, or ordinance for environmental protection, regulations of the Environmental Protection Agency and any applicable local or state law, rule, regulation, or rule of common law and any judicial interpretation thereof relating primarily to the environmental or Hazardous Materials and Borrower and Co-Obligors will not use or permit any other party to use any Hazardous Materials at any of Borrower's or Co-Obligors' places of business or at any other property owned by Borrower and Co-Obligors except such materials as are incidental to Borrower's and Co-Obligors' normal course of business, maintenance and repairs and which are handled in material 19 20 compliance with all applicable environmental laws. Borrower and Co-Obligors agree to permit Lender, its agents, contractors, and employees to enter and inspect any of Borrower's and Co-Obligors' places of business or any other property of Borrower and Co-Obligors at any reasonable times upon five (5) days prior notice for the purpose of conducting an environmental investigation and audit (including taking physical samples) to insure that Borrower and Co-Obligors are complying with this covenant and Borrower and Co-Obligors shall reimburse Lender on demand for the costs of any such environmental investigation and audit. Borrowers and Co- Obligors shall provide Lender, its agents, contractors, employees, and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Borrower's and Co-Obligors' business operations within five (5) days of the request thereof. c. Notification of Environmental Claims. Borrower and Co-Obligors shall immediately advise Lender in writing of (i) any and all material enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed, or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's and Co-Obligors' business operations; and (ii) all material claims made or threatened by any third party against Borrower or any Co- Obligor relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower and Co-Obligors shall immediately notify Lender of any material remedial action taken by Borrower or any Co-Obligor with respect to Borrower's and Co-Obligors' business operations. d. Indemnification. Borrower and Co-Obligors shall indemnify, defend, and hold Lender and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs, or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, 20 21 arising from Borrower's and Co-Obligors' business operations, any other property owned by Borrower or any Co-Obligor or in the surface or ground water arising from Borrower's or any Co-Obligors' business operations, or gaseous emissions arising from Borrower's or any Co-Obligors' business operations or any other condition existing from Borrower's and Co-Obligors' business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower and Co-Obligors further agree that their indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower or any Co-Obligor, regardless of whether the Borrower or any Co-Obligor has paid the employee under the workmen's compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrower or any Co-Obligor, the Lender, and of any third parties. The Borrower's and Co-Obligors' obligations under this paragraph shall survive the repayment of the Loan. 32. Default Defined. The occurrence of any one or more of the following events shall constitute a Default under this Agreement: a. Monetary Default. The failure of Borrower and Co-Obligors to timely pay any amount due Lender under the Line of Credit or under any other obligation to Lender if such failure continues for ten (10) days after notice of nonpayment from Bank to Borrower and Co-Obligors. b. Breach of Covenant. The failure of Borrower or any Co- Obligor to comply with any of the terms and obligations of this Agreement (other than those addressed in a, c, d, e, f or g hereof) for a period of 20 days; provided, however, that Borrower and Co-Obligors will not be deemed in default hereunder if such failure is curable, but cannot be cured within such 20-day period and Borrower or any Co-Obligor commences to cure such failure within such 20-day period and diligently pursues curing such failure and does in fact cure such failure within a reasonable time, not to exceed 45 days (or such longer period of time if such failure cannot 21 22 reasonably be cured in 45 days and such failure to cure could not materially and adversely affect Lender). c. Breach of Warranty. Lender's discovery that any representation or warranty in connection with this Agreement or the Line of Credit or any other Loan Document was materially false when made. d. Default Under Other Document. Subject to applicable cure periods, the occurrence of a default under the terms of any document evidencing or otherwise pertaining to the Line of Credit, including, without limitation, the Loan Documents. e. Voluntary Bankruptcy. The Borrower or any Co-Obligor shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing. f. Involuntary Bankruptcy. An involuntary case or other proceeding shall be commenced against Borrower or any Co- Obligor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) days; or an order for relief shall be entered against the Borrower and any Co-Obligor under the bankruptcy laws as now or hereafter in effect. g. Default Under Other Loans. Subject to any grace or cure periods, the occurrence of a default under the terms of any 22 23 document or agreement evidencing, securing or otherwise pertaining to the extension of credit by any other party to Borrower or any Co-Obligor, the default, which if not cured, would permit the acceleration of the debt. 33. Remedies Upon Default. Upon a Default under Section 33, Lender may exercise any or all of the following remedies: a. Remedies. Lender may exercise any right that it may have at law or equity, including an action to collect the Line of Credit Loan. All obligations of Bank to advance or readvance under the Line of Credit will terminate. b. Application of Proceeds. All amounts received by Lender for Borrower's or Co-Obligors' account by exercise of its remedies hereunder shall be applied as follows: First, to the payment of all reasonable expenses incurred by Lender in exercising its rights hereunder, including reasonable attorney's fees, and any other expenses due Lender from Borrower and Co-Obligors; Second, to the payment of all interest included in the Line of Credit, in such order as Lender may elect; Third, to the payment of all principal included in the Line of Credit, in such order as Lender may elect; and Fourth, surplus to Borrower, the Co-Obligors or other party entitled thereto. 34. Resolution of Disputes. a. Arbitration. Any controversy or claim between or among the parties to the Loan Documents or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the arbitration of commercial disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "special rules" set forth below. In the event of any inconsistency, the special rules shall control. Judgment upon any arbitration award may be entered in any 23 24 court having jurisdiction. Any party to the Loan Documents may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. b. Special Rules. The arbitration shall be conducted in Nashville, Tennessee and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within 90 days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional 60 days. c. Reservations of Rights. Nothing in foregoing arbitration shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in the Loan Documents; or (ii) be a waiver by Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the rights of Lender under the Loan Documents (a) to exercise self help remedies such as (but not limited to) set-off, or (b) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, or the appointment of a receiver. Lender may exercise such self help rights, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to the Loan Documents. 35. Not Partners; No Third Party Beneficiaries. Nothing contained herein or in any related document shall be deemed to render Lender a partner of Borrower and Co-Obligors for any purpose. This Agreement has been executed for the sole benefit of Lender, Borrower and Co-Obligors and no third party is authorized to rely upon Lender's rights hereunder or to rely upon an assumption that Lender has or will exercise its rights under this Agreement or under any document referred to herein. 36. Regulation U. Borrower and each Co-Obligor warrants that none of the proceeds of the loan evidenced by the Note will be used 24 25 to purchase or carry "margin stock," as defined in Regulation U issued by the Federal Reserve Board. 37. Business Days. If any payment date under the Line of Credit fails on a day that is not a business day of Lender, or if the last day of any notice period falls on such a day, the payment shall be due and the notice period shall end on the next succeeding Lender business day. 38. Notices. Any communications concerning this Agreement or the credit described herein shall be addressed as follows: 25 26 As to Borrower and Co-Obligors: ShoLodge, Inc. Attention: Leon Moore 217 West Main Street Gallatin, TN 37066 With a Copy to: BOULT, CUMMINGS, CONNERS & BERRY, PLC Attention: Patrick L. Alexander 414 Union Street, Suite 1600 Nashville, Tennessee 37219 As to Lender: NationsBank of Tennessee, N.A. Attention: Sam Belk, Vice President One NationsBank Plaza Nashville, Tennessee 37239 With a copy to: Neal & Harwell Attn: James R. Kelley 2000 First Union Tower 150 Fourth Avenue North Nashville, Tennessee 37219 Communications to be given to a party shall be effective when actually or constructively received by such party or three (3) days after when set forth in writing and mailed or delivered to such party's address stated above. Any party may change its address for receipt of notices by submitting the change in writing to the other party. 39. Participations. Prior to a Default, Lender agrees that it will not assign or participate an interest in the Line of Credit Note and this Agreement without the prior approval of Borrower. Thereafter, Lender may, from time to time, in its sole discretion, and without notice to Borrower and Co-Obligors, sell participations in any credit subject hereto to such other investors or financial institutions as it may elect. Such participants will have no 26 27 direct relationship with Borrower and Co-Obligors and will have no right with respect to waivers or amendments or default declarations. Lender may from time to time disclose to any participant or prospective participant such information as Lender may have regarding the financial condition, operations, and prospects of Borrower and Co-Obligors, but Lender shall take reasonable precautions to require such participant or prospective participant to keep such information confidential. 40. Incorporation of Exhibits. All Exhibits referred to in this Agreement are incorporated herein by this reference. 41. Indulgence Not Waiver. Lender's indulgence in the existence of a default hereunder or any other departure from the terms of this Agreement shall not prejudice Lender's rights to declare a default or otherwise demand strict compliance with this Agreement. 42. Cumulative Remedies. The remedies provided Lender in this Agreement are not exclusive of any other remedies that may be available to Lender under any other document or at law or equity. 43. Amendment and Waiver in Writing. No provision of this Agreement can be amended or waived, except by a statement in writing signed by the party against which enforcement of the amendment or waiver is sought. 44. Assignment. This Agreement shall be binding upon and inure to the benefit of the respective heirs, successors and assigns of Borrower and Co-Obligors and Lender, except that Borrower and Co-Obligors shall not assign any rights or delegate any obligations arising hereunder without the prior written consent of Lender. Any attempted assignment or delegation by Borrower and Co-Obligors without the required prior consent shall be void. 45. Entire Agreement. This Agreement and the other written agreements between Borrower, Co-Obligors and Lender represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein. 27 28 46. Severability. Should any provision of this Agreement be invalid or unenforceable for any reason, the remaining provisions hereof shall remain in full effect. 47. Time of Essence. Time is of the essence of this Agreement, and all dates and time periods specified herein shall be strictly observed, except that Lender may permit specific deviations therefrom by its written consent. 48. Applicable Law. The validity, construction and enforcement of this Agreement and all other documents executed with respect to the Line of Credit shall be determined according to the laws of Tennessee applicable to contracts executed and performed entirely within that state, in which state this Agreement has been executed and delivered. 49. Gender and Number. Words used herein indicating gender or number shall be read as context may require. 50. Captions Not Controlling. Captions and headings have been included in this Agreement for the convenience of the parties, and shall not be construed as affecting the content of the respective paragraphs. Executed the date first written above. THE UNDERSIGNED ACKNOWLEDGE A THOROUGH UNDERSTANDING OF THE TERMS OF THIS AGREEMENT AND AGREE TO BE BOUND THEREBY: NATIONSBANK OF TENNESSEE, N.A. By: /s/ John L. Stringfield ---------------------------------- Title: Banking Officer ------------------------------ SHOLODGE, INC. 28 29 By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ SHONEY'S INN OF LEBANON, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ SHONEY'S INN, INC. By: /s/ Leon Moore ---------------------------------- Its: President -------------------------------- 29 30 NASHVILLE AIR ASSOCIATES, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ MOORE AND ASSOCIATES, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ SUNSHINE INNS, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ LAFLA INN, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ SOUTHEAST TEXAS INNS, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ DELAWARE INNS, INC. 30 31 By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ 31 32 ALABAMA LODGING CORPORATION By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ FRONT RANGE SUITES, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ MIDWEST INNS, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ FAR WEST INNS, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ CAROLINA INNS, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------ SHONEY'S INN OF BATON ROUGE, A A TENNESSEE GENERAL PARTNERSHIP By: Two Seventeen, Inc., General Partner 32 33 By: /s/ Leon Moore ----------------------------- Its: President ----------------------------- 33 34 By: Inn Partners, Inc., General Partner By: /s/ Leon Moore ----------------------------- Its: President ----------------------------- 34 35 LINE OF CREDIT NOTE $10,000,000.00 Nashville, Tennessee November 6, 1996 FOR VALUE RECEIVED, SHOLODGE, INC., a Tennessee corporation, SHONEY'S INN OF LEBANON, INC., a Tennessee corporation, SHONEY'S INN, INC., a Tennessee corporation, NASHVILLE AIR ASSOCIATES, INC., a Tennessee corporation, MOORE AND ASSOCIATES, INC., a Tennessee corporation, SUNSHINE INNS, INC., a Tennessee corporation, LAFLA INN, INC., a Tennessee corporation, SOUTHEAST TEXAS INNS, INC., a Tennessee corporation, DELAWARE INNS, INC., a Tennessee corporation, ALABAMA LODGING CORPORATION, a Tennessee corporation, FRONT RANGE SUITES, INC., a Tennessee corporation, MIDWEST INNS, INC., a Tennessee corporation, FAR WEST INNS, INC., a Tennessee corporation, CAROLINA INNS, INC., a Tennessee corporation, and SHONEY'S INN OF BATON ROUGE, a Tennessee general partnership (collectively the "Maker") jointly and severally promise to pay to the order of NATIONSBANK OF TENNESSEE, N.A. ("Payee" or "NationsBank"), the sum of Ten Million and No/100 Dollars ($10,000,000.00), or as much thereof as may be outstanding from time to time, together with interest thereon as set forth below. Advances under this Note shall be governed by that certain Loan Agreement dated November 6, 1996 ("Loan Agreement"). Subject to the provisions of the Loan Agreement, Maker may borrow, repay and reborrow and there is no limit on the number of advances against this Note as long as the total unpaid principal balance at any time outstanding does not exceed Ten Million and No/100 Dollars ($10,000,000.00). Interest shall accrue at either (i) the NationsBank Prime Rate, as it may change from time to time; or (ii) upon Maker's written election, for any given period of 30, 60, or 90 days (a "LIBOR Period") the LIBOR Rate plus 190 basis points. Interest in arrears shall be due and payable on the first (1st) day of each quarter beginning on December 1, 1996, except in the case of a LIBOR Rate Borrowing, interest shall be payable at the earlier of each quarter as set forth above or at the end of the LIBOR Period. 36 All remaining principal and interest shall become due on January 31, 1997. Should Maker elect in writing to use the LIBOR Rate option for a LIBOR Period, the following restrictions will apply. No more than three (3) LIBOR Rate Borrowings may be outstanding at any time. The borrowings will be in minimum amounts of One Million and 00/100 Dollars ($1,000,000.00) each or greater amounts in Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) increments. As used herein, the term "NationsBank Prime Rate" shall mean the fluctuating rate of interest established by NationsBank from time to time as its "Prime Rate", whether or not such rate shall be otherwise published. Such Prime Rate is established by NationsBank as an index or base rate and may or may not at any time be the best or lowest rate charged by NationsBank on any loan. If at any time or from time to time the Prime Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the day on which any such increase or decrease of the Prime Rate changes, unless otherwise herein provided. In the event that NationsBank, during the term hereof, shall abolish or abandon the practice of establishing a Prime Rate, or should the same become unascertainable, NationsBank shall designate a comparable reference rate which shall be deemed to be the Prime Rate for purposes hereof. For purposes hereof, the "LIBOR Rate" shall mean the rate per annum announced by NationsBank as its LIBOR Rate for a period equal to the length of such LIBOR Period and in an amount comparable to the then aggregate unpaid principal balance hereunder (or will be outstanding by the commencement of the LIBOR Period requested by Maker) as adjusted to reflect NationsBank's reserve requirements, all as calculated and announced from time to time by Payee, whose announcement shall be binding absent manifest error. Interest hereunder shall be calculated based upon a 360 day year in the case of LIBOR Rate loans and a 365 day year in the case of Prime Rate loans and actual days elapsed. The interest rate required hereby shall not exceed the maximum rate permissible under applicable law, and any amounts paid in excess of such rate shall be applied to reduce the principal amount hereof or shall be refunded to Maker, at the option of the holder of this Note. 2 37 All amounts due under this Note are payable at par in lawful money of the United States of America, at the principal place of business of Payee in Nashville, Tennessee, or at such other address as the Payee or other holder hereof (herein "Holder") may direct. Any payment not made within fifteen (15) days of its due date will be subject to assessment of a late charge equal to five percent (5%) of such payment. Holder's right to impose a late charge does not evidence a grace period for the making of payments hereunder. The occurrence of a Default under the Loan Agreement shall constitute an event of default under this Note. Upon the occurrence of an event of default, as defined above, Holder may, at its option and without notice, terminate any obligation to advance funds under this Note, declare all principal and interest provided for under this Note, and any other obligations of Maker to Holder, to be presently due and payable, and Holder may enforce any remedies available to Holder under any documents securing or evidencing debts of Maker to Holder. Holder may waive any default before or after it occurs and may restore this Note in full effect without impairing the right to declare it due for a subsequent default, this right being a continuing one. Upon default, at Holder's election, the remaining unpaid principal balance of the indebtedness evidenced hereby and all expenses due Holder shall bear interest at the Prime Rate in effect immediately before the default plus four percent (4%). All amounts received for payment of this Note shall be first applied to any expenses due Holder under this Note or under any other documents evidencing obligations of Maker to Holder relating to the indebtedness evidenced by this Note, then to accrued interest, and finally to the reduction of principal. Prepayment of principal or accrued interest may be made, in whole or in part, at any time without penalty. Maker and all sureties, guarantors, endorsers and other parties to this instrument hereby consent to any and all renewals, waivers, modifications, or extensions of time (of any duration) that may be granted by Holder with respect to this Note and severally waive demand, presentment, protest, notice of dishonor, and all other notices that might otherwise be required by law. All 3 38 parties hereto waive the defense of impairment of collateral and all other defenses of suretyship. Maker's performance under this Note is unsecured. Maker and all sureties, guarantors, endorsers and other parties hereto agree to pay reasonable attorneys' fees and all court and other costs that Holder may incur in the course of efforts to collect the debt evidenced hereby. The validity and construction of this Note shall be determined according to the laws of Tennessee applicable to contracts executed and performed within that state. If any provision of this Note should for any reason be invalid or unenforceable, the remaining provisions hereof shall remain in full effect. The provisions of this Note may be amended or waived only by instrument in writing signed by the Holder and Maker and attached to this Note. Any controversy or claim between or among the parties to this Note or any related loan or collateral agreements or instruments (collectively, "Loan Documents"), including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the arbitration of commercial disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "special rules" set forth below. In the event of any inconsistency, the special rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to the Loan Documents may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The following "Special Rules" shall apply. The arbitration shall be conducted in Nashville, Tennessee and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within 90 days of the demand for arbitration; further, the arbitrator shall only, upon a 4 39 showing of cause, be permitted to extend the commencement of such hearing for up to an additional 60 days. Nothing in foregoing arbitration shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in the Loan Documents; or (ii) be a waiver by NationsBank of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the rights of NationsBank under the Loan Documents (a) to exercise self help remedies such as (but not limited to) set-off, or (b) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, or the appointment of a receiver. NationsBank may exercise such self help rights, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to the Loan Documents. Neither this exercise or self help remedies nor the institution or maintenance of an action for provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Words used herein indicating gender or number shall be read as context may require. SHOLODGE, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- 5 40 SHONEY'S INN OF LEBANON, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- SHONEY'S INN, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- NASHVILLE AIR ASSOCIATES, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- MOORE AND ASSOCIATES, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- SUNSHINE INNS, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- LAFLA INN, INC. 6 41 By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- 7 42 SOUTHEAST TEXAS INNS, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- DELAWARE INNS, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- ALABAMA LODGING CORPORATION By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- FRONT RANGE SUITES, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- MIDWEST INNS, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- FAR WEST INNS, INC. 8 43 By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- 9 44 CAROLINA INNS, INC. By: /s/ Leon Moore ------------------------------------ Title: President ---------------------------------- SHONEY'S INN OF BATON ROUGE, A A TENNESSEE GENERAL PARTNERSHIP By: Two Seventeen, Inc., General Partner By: /s/ Leon Moore ---------------------------- Its: President ---------------------------- By: Inn Partners, Inc. General Partner By: /s/ Leon Moore ---------------------------- Its: President ---------------------------- 10 EX-10.6 9 1ST AMENDMENT TO STOCK OPTION AGREEMENT 1 Exhibit 10.6 FIRST AMENDMENT TO AMENDED AND RESTATED STOCK OPTION AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED STOCK OPTION AGREEMENT (sometimes herein this "Amendment") is made and entered into as of the 10th day of October, 1996, by and between LEON MOORE (hereinafter referred to as "Moore") and RICHARD L. JOHNSON (hereinafter referred to as "Johnson"). W I T N E S S E T H: WHEREAS, ShoLodge, Inc., (formerly Gulf Coast Development, Inc.) (herein "ShoLodge") and Johnson entered into that certain Employment Contract (the "Employment Contract") dated June 15, 1987, but effective as of April 1, 1984; and WHEREAS, pursuant to paragraph 7 of the Employment Contract, ShoLodge granted Johnson the right and option to purchase an aggregate of three hundred thirty-three (333) shares of the authorized, no par value, common stock of ShoLodge; and WHEREAS, by Agreement (the "Prior Agreement") dated June 15, 1987, but effective as of April 1, 1984, between Moore and Johnson, Johnson agreed that prior to exercising any option to acquire shares of ShoLodge pursuant to paragraph 7 of the Employment Contract, he would first offer to acquire such shares from Moore on the same terms and conditions, with a resulting reduction in option shares so that Johnson's option would be for a total of only twenty-five percent (25%) of the shares of common stock of ShoLodge outstanding on June 15, 1987 (adjusted for stock splits and stock dividends); and WHEREAS, Johnson and ShoLodge entered into that certain First Amendment to Employment Contract dated December 11, 1991 whereby they eliminated the option of Johnson to acquire shares of ShoLodge's common stock from ShoLodge; and WHEREAS, Johnson and Moore entered into that certain Stock Option Agreement (the "Stock Option Agreement") dated December 11, 1991, but effective as of April 1, 1984, whereby Moore granted to Johnson an option to acquire five hundred seventy-five thousand (575,000) shares of ShoLodge's common stock from Moore; and WHEREAS, on February 21, 1992, Johnson acquired twelve thousand two hundred twenty-four (12,224) shares of ShoLodge's common stock as a result of the exercise by Johnson of his option under the Stock Option Agreement, resulting in a total of five hundred sixty-two thousand seven hundred seventy-six (562,776) shares of ShoLodge common stock remaining available under the option; and WHEREAS, Moore and Johnson entered into that certain Amended and Restated Stock Option Agreement dated March 9, 1992, but effective as of April 1, 1984 (the "Amended Agreement"), which Amended Agreement amended and restated the Stock Option Agreement; and 2 WHEREAS, on April 28, 1993, Johnson acquired one hundred forty thousand seven hundred sixty-five (140,765) shares of ShoLodge's common stock as a result of the exercise by Johnson of his option under the Amended Agreement, resulting in a total of four hundred twenty-two thousand eleven (422,011) shares of ShoLodge common stock remaining available under the option; and WHEREAS, effective May 14, 1993, ShoLodge effected a stock split in the form of a dividend to holders of its common stock whereby one-quarter (1/4) share of common stock was issued for each share held of record at the close of business on April 30, 1993, resulting in five hundred twenty-seven thousand five hundred fourteen (527,514) shares of ShoLodge common stock remaining available under the option; and WHEREAS, effective March 28, 1994, ShoLodge effected a stock split in the form of a dividend to holders of its common stock whereby one-third (1/3) share of common stock was issued for each share held of record at the close of business on March 14, 1994, resulting in seven hundred three thousand three hundred fifty-two (703,352) shares of ShoLodge common stock remaining available under the option; and WHEREAS, Johnson and Moore desire to amend the Amended Agreement to reflect the stock acquisitions and stock splits as set forth above and in certain other respects as set forth below. NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained, the parties do hereby agree as follows: 1. The Amended Agreement is hereby amended by deleting subparagraph 1(a) thereof in its entirety and substituting in lieu thereof the following: (a) Grant of Option. Moore hereby grants to Johnson the right and option to purchase from Moore, on the terms and conditions following, all or any part of an aggregate of seven hundred three thousand three hundred fifty-two (703,352) shares of the authorized no par value common shares of ShoLodge. The purchase price shall be determined as follows:
Purchase Date Price ------------- ----- If the purchase date occurs $4.72/share after June 30, 1996, but on or before September 30, 1996 If the purchase date occurs $4.82/share after September 30, 1996, but on or before December 31, 1996 If the purchase date occurs $4.92/share
- 2 - 3 after December 31, 1996, but on or before March 31, 1997 If the purchase date occurs $5.02/share after March 31, 1997, but on or before June 30, 1997 If the purchase date occurs $5.12/share after June 30, 1997, but on or before September 30, 1997 If the purchase date occurs $5.23/share after September 30, 1997, but on or before December 11, 1997
Johnson shall be entitled to elect to exercise the option, in whole or in part, at any time prior to December 11, 1997. However, if Johnson does not purchase the full number of shares to which he is entitled, he shall be permitted those remaining shares through and including December 11, 1997. No partial exercise of such option may be for less than twenty-five (25) full shares, without Moore's written consent, and in no event shall Moore be required to transfer fractional shares to Johnson, without Moore's written approval. 2. The Amended Agreement is hereby amended by changing the date "December 11, 1996" in the first and third sentences of subparagraph 1(c) thereof to "December 11, 1997". 3. The Amended Agreement is hereby amended by deleting subparagraph 1(j)(iii) thereof in its entirety and substituting in lieu thereof the following: (iii) Notice. Each stock certificate issued to Johnson as a result of the exercise of the option set forth herein shall be endorsed with the following legend: Notice is hereby given that the sale, assignment, transfer, pledge or other disposition of shares of capital stock represented by this Certificate is subject to a right of first refusal to Leon Moore pursuant to the terms of that certain Amended and Restated Stock Option Agreement dated March 9, 1992, but effective as of April 1, 1984, as amended by that certain First Amendment to Amended and Restated Stock Option Agreement dated as of October 10, 1996, both by and between Leon Moore and Richard L. Johnson. 4. Except as hereby modified and amended, the Amended Agreement shall in all other respects remain in full force and effect. - 3 - 4 IN WITNESS WHEREOF, the parties have executed this First Amendment to Amended and Restated Stock Option Agreement on the day and year first above written. /s/ Leon Moore ------------------------------------ LEON MOORE /s/ Richard L. Johnson ------------------------------------ RICHARD L. JOHNSON - 4 - EX-10.7 10 1ST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.7 FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (sometimes herein this "Amendment") is made and entered into as of the 10th day of October, 1996, by and between SHOLODGE, INC., a Tennessee corporation with its principal place of business at 217 West Main Street, Gallatin, Tennessee 37066 (hereinafter referred to as the "Company"), and RICHARD L. JOHNSON, a resident of the State of Tennessee (hereinafter referred to as "Johnson"). W I T N E S S E T H: WHEREAS, the Company and Johnson entered into that certain Registration Rights Agreement (hereinafter referred to as the "Agreement") dated as of December 11, 1991; and WHEREAS, the Company and Johnson now desire to amend certain provisions of the Agreement as set forth herein. NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained, the parties do hereby agree as follows: 1. The definition of "Stock Option Agreement" in paragraph 1 of the Agreement is hereby deleted in its entirety and the following is hereby inserted in its place: "Stock Option Agreement" means that certain Amended and Restated Stock Option Agreement dated March 9, 1992, but effective as of April 1, 1984, as amended by that certain First Amendment to Amended and Restated Stock Option Agreement dated as of October 10, 1996, both between Leon Moore and Johnson. 2. Paragraph 2(a) of the Agreement is hereby amended by changing the date "December 11, 1996" in the first sentence thereof to "December 11, 1997". 3. Paragraph 2(b) of the Agreement is hereby deleted in its entirety and the following is hereby inserted in its place: (b) The Company shall be obligated to prepare, file and cause to become effective only two (2) registration statements pursuant to this Section 2; provided, however, that the Company shall not be obligated to prepare, file and cause to become effective a registration statement unless the aggregate market value of the Registrable Securities to be registered thereby is at least One Million Dollars ($1,000,000). 4. Paragraph 3(a) of the Agreement is hereby amended by changing the date "December 11, 1996" in the first sentence thereof to "December 11, 1997". 2 5. Paragraph 9(b) of the Agreement is hereby ameded by changing the street address for Patrick L. Alexander as set forth therein from "222 Third Avenue North" to "414 Union Street, Suite 1600". 6. Except as hereby modified and amended, the Agreement shall in all other respects remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this First Amendment to Registration Rights Agreement on the day and year first above written. SHOLODGE, INC. By: /s/ Leon Moore ---------------------------------- Title: President ------------------------------- /s/ Richard L. Johnson -------------------------------------- RICHARD L. JOHNSON - 2 - EX-11 11 COMPUTATION OF EARNINGS 1 EXHIBIT 11 SHOLODGE, INC AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE PRIMARY AND ASSUMING FULL DILUTION
12 WEEKS ENDED 40 WEEKS ENDED ---------------------------------------------------------- OCTOBER 6, OCTOBER 1, OCTOBER 6, OCTOBER 1, 1996 1995 1996 1995 ---------------------------------------------------------- PRIMARY: EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY): FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS 3,041,327 1,981,036 $ 8,075,250 $16,621,297 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES 23,692 (21,690) EXTRAORDINARY INCOME (LOSS), NET OF INCOME TAXES 8,464 (699,731) ---------------------------------------------------------- NET EARNINGS $ 3,041,327 $ 2,013,192 $ 8,075,250 $15,899,876 ========================================================== SHARES: WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,470,358 8,515,546 8,451,077 8,569,562 ========================================================== PRIMARY EARNINGS PER SHARE: FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS $ 0.36 $ 0.23 $ 0.96 $ 1.94 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES $ 0.01 $ (0.00) EXTRAORDINARY LOSS, NET OF INCOME TAXES $ 0.00 $ (0.08) ---------------------------------------------------------- NET EARNINGS $ 0.36 $ 0.24 $ 0.96 $ 1.86 ========================================================== FULLY DILUTED: EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY): FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS $ 3,041,327 $ 1,981,036 $ 8,075,250 $16,621,297 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES 23,692 -21,690 EXTRAORDINARY INCOME (LOSS), NET OF INCOME TAXES 8,464 -699,731 ---------------------------------------------------------- NET EARNINGS $ 3,041,327 $ 2,013,192 $ 8,075,250 $15,899,876 INTEREST (LESS TAX) ON CONVERTIBLE SUBORDINATED DEBENTURES $ 586,278 580,405 $ 1,958,673 1,952,473 ADJUSTED EARNINGS APPLICABLE TO COMMON STOCK: FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS $ 3,627,605 $ 2,561,441 $10,033,923 $18,573,770 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES 23,692 (21,690) EXTRAORDINARY INCOME (LOSS), NET OF INCOME TAXES 8,464 (699,731) ---------------------------------------------------------- NET EARNINGS $ 3,627,605 $ 2,593,597 $10,033,923 $17,852,349 ========================================================== SHARES: WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,470,358 8,515,546 8,451,077 8,569,562 SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE SUBORDINATED DEBENTURES 2,316,602 2,316,602 2,316,602 2,316,602 ---------------------------------------------------------- 10,786,960 10,832,148 10,767,679 10,886,164 ========================================================== FULLY DILUTED EARNINGS PER SHARE: FROM CONTINUING OPERATIONS, BEFORE EXTRAORDINARY ITEMS $ 0.34 $ 0.24 $ 0.93 $ 1.71 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES $ 0.00 $ (0.00) EXTRAORDINARY LOSS, NET OF INCOME TAXES $ 0.00 $ (0.07) ---------------------------------------------------------- NET EARNINGS $ 0.34 $ 0.24 $ 0.93 $ 1.64 ==========================================================
EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY FINANCIAL STATEMENTS FOR THE QUARTER ENDED OCTOBER 6, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 3-MOS JUL-06-1996 DEC-31-1995 OCT-06-1996 3,233,692 0 3,915,272 0 0 8,593,167 244,627,678 31,883,460 242,326,632 55,268,726 92,819,944 0 0 1,000 90,629,013 242,326,632 17,860,624 17,860,624 0 12,216,135 0 0 1,306,555 4,848,327 1,807,000 3,041,327 0 0 0 3,041,327 0.36 0.34
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