<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
KSL RECREATION GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 33-0747103
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
56-140 PGA BOULEVARD
LA QUINTA, CALIFORNIA 92253
(760) 564-1088
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
NOLA S. DYAL, ESQ.
56-140 PGA BOULEVARD
LA QUINTA, CALIFORNIA 92253
(760) 564-1088
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
GARY I. HOROWITZ, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10 1/4% Series B Senior Subordinated Notes due
2007........................................... $125,000,000 100% $125,000,000 $37,878.79
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED JULY 10, 1997
PRELIMINARY PROSPECTUS
, 1997
$125,000,000
[LOGO]
OFFER TO EXCHANGE $125,000,000 OF ITS
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR $125,000,000 OF ITS OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
------------------------
KSL Recreation Group, Inc. (the "Issuer"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange an aggregate of up to $125,000,000 principal amount of 10 1/4% Series B
Senior Subordinated Notes due 2007 (the "Exchange Notes") of the Issuer for an
identical face amount of the issued and outstanding 10 1/4% Senior Subordinated
Notes due 2007 (the "Old Notes" and together with the Exchange Notes, the
"Notes") of the Issuer from the Holders (as defined) thereof. As of the date of
this Prospectus, there is $125,000,000 aggregate principal amount of the Old
Notes outstanding. The terms of the Exchange Notes are identical in all material
respects to the Old Notes, except that the Exchange Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
therefore will not bear legends restricting their transfer and will not contain
certain provisions providing for additional interest in respect of the Old Notes
under certain circumstances described in the Registration Rights Agreement (as
defined), which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer.
The net proceeds from the offering of the Old Notes, together with initial
borrowings under the New Credit Facility (as defined), were used (i) to repay
approximately $265.0 million of outstanding indebtedness of entities that became
subsidiaries of the Issuer as part of the Concurrent Transactions (as defined)
and (ii) to make a loan of approximately $20.8 million to KSL Land Corporation
("KSL Land"), an affiliate of the Issuer, which was used to repay indebtedness
of KSL Land with respect to which one of such subsidiaries was a co-obligor
(collectively, the "Refinancings"). See "Use of Proceeds." The Issuer is a
wholly-owned subsidiary of KSL Recreation Corporation ("Parent"), approximately
96.7% of the Common Stock (84.5% on a fully diluted basis) of which is owned by
partnerships formed at the direction of Kohlberg Kravis Roberts & Co., L.P.
("KKR"), an affiliate of Kohlberg Kravis Roberts & Co.
The Exchange Notes will bear interest from the date of issuance at the rate
of 10.25% per annum, payable semi-annually in arrears on May 1 and November 1 of
each year, commencing on November 1, 1997. The Issuer will not be required to
make any mandatory redemption or sinking fund payment with respect to the
Exchange Notes prior to maturity. The Exchange Notes will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after May 1, 2002
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time prior to May 1, 2001
the Issuer may, at its option redeem up to 50% of the Exchange Notes originally
issued under the Indenture (as defined) on the Issue Date (as defined) at a
redemption price equal to 110.25% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings (as defined); PROVIDED
that at least 50% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture on the Issue Date remain outstanding immediately
after the occurrence of each such redemption; PROVIDED, FURTHER, that such
redemption occurs within 60 days of the date of closing of each such Equity
Offering.
In the event of a Change of Control (as defined), holders of the Exchange
Notes will have the right to require the Issuer to purchase their Exchange
Notes, in whole or in part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase.
The Exchange Notes will be general unsecured obligations of the Issuer,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Issuer, including indebtedness pursuant to the New Credit
Facility. At April 30, 1997, on a pro forma basis as if the Lake Lanier
Transaction (as defined) had occurred on such date, the Issuer would have had
approximately $175.0 million of Senior Indebtedness outstanding. The Exchange
Notes will be effectively subordinated to all liabilities of the Issuer's
subsidiaries. At April 30, 1997, on a pro forma basis as if the Lake Lanier
Transaction had occurred on such date, the Issuer's subsidiaries would have had
approximately $302.1 million of total liabilities.
The Old Notes were issued and sold on April 30, 1997 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Issuer contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the Issuer
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired
in the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes and
neither such holder nor any such other person is engaging in or intends to
engage in a distribution of such Exchange Notes. However, the Issuer has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Notwithstanding the foregoing, each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuer). The Issuer
has agreed to make available for a period ending on the earlier to occur of (i)
the date when all Exchange Notes held by Participating Broker Dealers have been
sold and (ii) 180 days after consummation of the Exchange Offer this Prospectus
to any Participating Broker Dealer and any other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of
Exchange Notes. See "Plan of Distribution."
The Issuer does not intend to apply for listing of the Exchange Notes on any
securities exchange or for inclusion of the Exchange Notes in any automated
quotation system. The Old Notes have been designated for trading in the Private
Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the fourth business day
following the Expiration Date (as defined). Old Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. The
Issuer will not receive any proceeds from the Exchange Offer. The Issuer will
pay all of the expenses incident to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
[The inside front cover and overleaf consists of twelve photographs with various
depictions of the Company's facilities.]
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Issuer and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Issuer is presently subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement, such reports and other information can be inspected
and copied at the Public Reference Section of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at
regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet (http://www.sec.gov).
"PGA WEST" is a trademark licensed to the Company by the Professional
Golfers' Association of America. "TPC" is a trademark licensed to the Company by
PGA Tour, Inc. "Doral," "Doral Golf Resort and Spa" and "The Spa at Doral" are
trademarks licensed to the Company by Carol Management Corporation. "Blue
Monster," "The Club at PGA WEST" and "Quality, Affordable Golf" are registered
trademarks of the Company. See "Business--Licenses and Trademarks."
3
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
HEREIN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
INFORMATION. UNLESS OTHERWISE EXPRESSLY STATED OR THE CONTEXT OTHERWISE
REQUIRES: (I) THE TERM "ISSUER" REFERS TO KSL RECREATION GROUP, INC.; (II) THE
TERM "COMPANY" REFERS TO KSL RECREATION GROUP, INC. AND THE ENTITIES THAT BECAME
SUBSIDIARIES OF THE ISSUER (INCLUDING THEIR RESPECTIVE PREDECESSORS) PURSUANT TO
THE CONCURRENT TRANSACTIONS (AS DEFINED), AND GIVES EFFECT TO THE LAKE LANIER
TRANSACTION (AS DEFINED) AND THE CONCURRENT TRANSACTIONS; AND (III) THE TERM
"PARENT" REFERS TO KSL RECREATION CORPORATION, THE OWNER OF ALL OUTSTANDING
CAPITAL STOCK OF THE ISSUER. THE COMPANY'S FISCAL YEAR ENDS ON OCTOBER 31 OF
EACH YEAR. ADJUSTED EBITDA IS PRESENTED IN THIS PROSPECTUS TO ASSIST IN
UNDERSTANDING THE COMPANY'S OPERATING RESULTS. AS USED HEREIN, "ADJUSTED EBITDA"
IS DEFINED AS NET INCOME BEFORE INCOME TAX EXPENSE (BENEFIT), NET INTEREST
EXPENSE, DEPRECIATION AND AMORTIZATION, LOSS ON SALE OF GOLF FACILITY,
EXTRAORDINARY ITEMS, AND CERTAIN NON-CASH ITEMS, PLUS ADJUSTED NET MEMBERSHIP
DEPOSITS (AS DEFINED). ADJUSTED EBITDA IS NOT INTENDED TO REPRESENT CASH FLOW
FROM OPERATIONS AS DEFINED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO CASH FLOW AS A MEASURE OF
LIQUIDITY OR AS AN ALTERNATIVE TO NET EARNINGS AS AN INDICATOR OF OPERATING
PERFORMANCE. SEE "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS" AND
"BUSINESS."
THE COMPANY
The Company is one of the nation's leading operators of destination resort
businesses and community golf course facilities. The Company's mission is to
become a premier operator of service-based recreation, leisure and hospitality
businesses worldwide, capitalizing on significant growth opportunities in
business and leisure travel and participant recreation. For the twelve months
ended April 30, 1997, on a pro forma basis as defined herein, the Company's
revenues and Adjusted EBITDA were $214.0 million and $55.5 million,
respectively.
The Company's operations currently include world-class resorts and community
golf properties. The resort businesses are comprised of: (i) the internationally
recognized La Quinta Resort & Club ("La Quinta") and PGA WEST facilities ("PGA
WEST"), located in the Palm Springs, California area, which, together,
constitute the Company's "Desert Resorts" operations; (ii) the renowned Doral
Golf Resort and Spa ("Doral"), located near Miami, Florida; and (iii) a hotel
and recreational complex at Lake Lanier near Atlanta, Georgia ("Lake Lanier
Islands"). KSL Fairways ("Fairways"), the Company's community golf division,
owns 22 golf facilities located in six states. The Company believes Fairways is
the nation's third largest owner/operator of community golf courses.
RESORT OPERATIONS
- DESERT RESORTS. Acquired by the Company in December 1993, Desert Resorts
includes 640 "casita"-style hotel rooms, eight championship eighteen-hole
golf courses including the renowned TPC Stadium Course, two private clubs
with approximately 1,930 dues-paying members (as of April 30, 1997),
several nationally recognized golf and tennis instruction programs,
including the Jim McLean Golf Academy at PGA WEST and The Dave Pelz Short
Game School, 49 tennis courts, 25 swimming pools, eight restaurants and
approximately 66,000 square feet of conference space, enabling Desert
Resorts to accommodate multiple large group functions. PGA WEST has
hosted several of the most prestigious events in golf, including the
Skins Game, the Bob Hope Chrysler Classic, The Grand Slam of Golf, the
Diners Club Matches and the Liberty Mutual Legends of Golf. Of Desert
Resorts' championship golf courses, four were designed by Pete Dye, two
by Jack Nicklaus, one by Arnold Palmer and one by Tom Weiskopf. La Quinta
was one of only 20 resorts nationwide and the only resort in southern
California to receive GOLF Magazine's prestigious Gold Medal in November
1996. For the twelve months ended April 30, 1997, revenues and Adjusted
EBITDA for Desert Resorts were $84.0 million and $25.9 million,
respectively.
4
<PAGE>
- DORAL GOLF RESORT AND SPA. Acquired by the Company in December 1993,
Doral includes 646 hotel rooms, four championship eighteen-hole golf
courses including the famed "Blue Monster" golf course which was recently
restored under the direction of noted professional golfer and golf course
designer Raymond Floyd and which is the home of the Doral-Ryder Open, a
nine-hole executive golf course, Jim McLean's nationally recognized golf
instruction program, the Arthur Ashe Tennis Center, featuring 15 courts,
one swimming pool, three restaurants, approximately 75,000 square feet of
conference space and a private club with approximately 400 dues-paying
members (at April 30, 1997). Doral also includes an internationally
acclaimed spa (the "Spa at Doral"), which features an additional 48 hotel
suites, three swimming pools, two restaurants and approximately 85,000
square feet of fitness and spa facilities. Doral also received the Gold
Medal award from GOLF Magazine in November 1996, making Doral one of only
four resorts in Florida to receive this award and making the Company one
of only two resort operators in the world to receive Gold Medals at more
than one facility. For the twelve months ended April 30, 1997, revenues
and Adjusted EBITDA for Doral were $64.7 million and $17.1 million,
respectively.
- LAKE LANIER ISLANDS. Lake Lanier Islands is an approximately 1,040 acre
recreational complex situated at Lake Lanier, Georgia, which is located
approximately 45 miles from downtown Atlanta. Lake Lanier's operations
currently include a 224-room hotel operated by the Company under a
license agreement with Hilton Hotels, an eighteen-hole golf course, three
tennis courts, one swimming pool, two restaurants, approximately 12,500
square feet of conference space, extensive beach and water park
facilities, houseboat and fishing boat rentals, riding stables,
campgrounds, pavilions and an amphitheater. For the period from May 15,
1996 through April 30, 1997, on a pro forma basis after giving effect to
the Lake Lanier Transaction, revenues and Adjusted EBITDA for Lake Lanier
Islands would have been $19.3 million and $4.4 million, respectively.
COMMUNITY GOLF OPERATIONS
- KSL FAIRWAYS. In mid-1993, the Company purchased Fairways, a
then-privately-held owner/ operator of community golf facilities
primarily along the east coast of the United States. During the past
three years, Fairways' operations have grown rapidly and today include a
total of 16 eighteen-hole golf facilities, three 27-hole golf facilities
and three 36-hole golf facilities at 22 locations in the Southeast,
Mid-Atlantic and upper Midwest regions of the United States. These clubs
are a mix of public (or daily fee), semi-private and private golf
facilities, with approximately 8,000 dues-paying members (at April 30,
1997) at the semi-private and private clubs. For the twelve months ended
April 30, 1997, revenues and Adjusted EBITDA for the community golf
operations were $46.0 million and $11.7 million, respectively.
OPERATING ACHIEVEMENTS
The Company was formed in 1993, acquired Fairways in July 1993, acquired
Desert Resorts and Doral in December 1993 and, since July 1993, has acquired an
additional 12 community golf course properties through Fairways. The Company
began operating Lake Lanier Islands pursuant to a management agreement in May
1996. The Company's revenues have increased from $124.2 million in fiscal 1994
to $180.3 million in fiscal 1996, representing a 20.5% compound annual growth
rate. In addition, Adjusted EBITDA has increased from $23.0 million in fiscal
1994 to $43.9 million in fiscal 1996, representing a compound annual growth rate
of 38.0%. Management attributes this growth in revenues and margin improvement
to the successful implementation of a number of initiatives since 1994, the most
significant of which include: (i) a $66.5 million capital spending program at
the Company's resorts; (ii) improvements in service levels and the introduction
of enhanced programs available to the Company's members and guests; (iii)
development of marketing techniques to promote the unique natural beauty and
history of its resort
5
<PAGE>
properties; (iv) implementation of yield management techniques to increase usage
of the Company's facilities; (v) better matching the Company's employee base to
its seasonal labor needs through labor forecasting; (vi) implementation of
combined purchasing programs across the Company's different operations; (vii)
consolidation of certain of the Company's administrative and executive
management functions; and (viii) introduction of new membership programs at its
resorts designed to add new members and convert existing members.
BUSINESS STRATEGY
The Company's management has significant experience in operating resort and
recreation businesses and is focused on maximizing the business potential of the
Company by providing a superior destination resort experience and a quality
recreation product for its guests and members. The Company believes it is
well-positioned to capitalize on the significant growth and consolidation
opportunities that it believes exist in the recreation, leisure and hospitality
industries. The Company's business strategy is to (i) capitalize on high-impact
capital improvements at its resorts, (ii) distinguish and market the uniqueness
and brand names of its resort properties, (iii) continue to grow its membership
business, (iv) expand through strategic acquisitions and (v) enter related
recreation businesses.
- CAPITALIZE ON HIGH-IMPACT CAPITAL IMPROVEMENTS AT ITS RESORTS. The
Company's strategy is to make capital expenditures at its resort
properties that are designed to result in incremental revenues and
Adjusted EBITDA. As a part of this strategy, over the past three years,
the Company has invested approximately $33.5 million at Desert Resorts
to, among other things: (i) build a new 24,000 square foot addition to
the conference facilities at La Quinta; (ii) construct a new championship
golf course designed by Tom Weiskopf at PGA WEST and renovate the
Mountain Course at La Quinta; and (iii) build a new 28,000 square foot
members' clubhouse at the Citrus Course at La Quinta. During the same
period, the Company has invested approximately $33.0 million at Doral to,
among other things: (i) renovate all 646 guest rooms and refurbish all 48
spa guest suites at the resort; (ii) renovate the approximately 75,000
square feet of conference facilities and most of the public reception
areas; and (iii) restore the famed "Blue Monster" Golf Course and rebuild
the Gold Course under the direction of noted professional golfer and golf
course designer Raymond Floyd. The Company believes that as a result of
these capital expenditures: (i) revenue per available room ("RevPAR"), a
common measure of the yield generated by occupancy and room rate, at its
resorts has increased; (ii) its resorts have attracted higher spending
corporate and other group guests; (iii) the number of free independent
traveler ("FIT") guests at its resorts has increased; (iv) the combined
revenue yield of its golf and hotel operations at its resorts has
increased; and (v) the value of its private club membership has been
enhanced. Because many of the capital improvements at Desert Resorts and
Doral have been recently completed, the Company believes that it will
continue to realize additional growth in revenues and Adjusted EBITDA as
a result of those investments.
- DISTINGUISH AND MARKET UNIQUENESS AND BRAND NAMES OF ITS PROPERTIES. The
Company believes that its destination resort facilities offer a unique
combination of luxury hotel accommodations, world class golf and tennis
facilities and conference facilities unmatched by many of its
competitors. The Company seeks to develop and accentuate the unique
aspects of its world-renowned destination resorts in order to attract
repeat customers, encourage group guests to return as FIT guests and
increase rates charged for its services and amenities. Key elements of
this strategy include promoting the independent name of each of the
Company's destination resorts in order to distinguish them from "chain"
competitors, capitalizing on a broad range of promotional events to
enhance the prestige of the Company's resorts and retaining recognized
experts, such as Jim McLean, Dave Pelz and John Austin, to oversee
quality golf and tennis instructional programs at the Company's resorts.
As part of this strategy, the Company sponsors nationally televised
professional golf events. In the last twelve months, the Company has
hosted: (i) the
6
<PAGE>
Doral-Ryder Open, (ii) the Lexus Challenge, (iii) the Diners Club Matches
and (iv) the Liberty Mutual Legends of Golf. In addition, the Bob Hope
Chrysler Classic will be played at PGA WEST for the next three years. The
Company believes that the national television exposure for its resorts
resulting from these tournaments provides a significant marketing benefit
to the Company.
- CONTINUE TO GROW MEMBERSHIP BUSINESS. By expanding the number and type of
its membership programs, developing new membership facilities and
implementing more sophisticated and effective sales and marketing
programs, the Company believes that it enhances the value of its resort
and community golf club memberships which, in turn, should continue to
increase the number of its members and the annual growth in membership
revenue. To achieve this goal, the Company has (i) engaged senior
management experienced in developing new membership programs; (ii)
upgraded the training and increased the number of its sales and marketing
staff; (iii) adopted more sophisticated direct mail marketing techniques
and member-referral programs; (iv) developed programs to cross-sell club
memberships, primarily to its resort guests; and (v) implemented programs
to facilitate the conversion of new home buyers in communities
surrounding Desert Resorts into new members at one or more of Desert
Resorts' private clubs. From January 1, 1994 to April 30, 1997, the
Company has, after attrition, added or converted approximately 2,330
members at Doral and Desert Resorts. In addition, the Company believes
that the recent capital improvements at its destination resorts should
enable the clubs at La Quinta, PGA WEST and Doral to accommodate a
significant number of additional golf members.
- EXPAND THROUGH STRATEGIC ACQUISITIONS. The Company intends to engage in
strategic acquisitions to increase revenues and Adjusted EBITDA. In the
community golf industry, the Company expects to continue to seek
acquisitions designed to increase marketing synergies and cost
efficiencies arising out of its strategy of forming "clusters" of courses
within geographic areas in order to create economies of scale and to
promote reciprocity among clubs for the members within those "clusters."
Because the community golf industry is highly fragmented, the Company
believes that the high cost of operating and maintaining competitive golf
courses, competition for a limited supply of experienced golf operating
managers and the cost efficiencies afforded by ownership and operation of
multiple golf courses will result in continued industry consolidation.
The Company believes that its access to capital and professional
management will enable it to capitalize on future acquisition
opportunities which may arise as the result of this expected industry
consolidation. In the resort industry, the Company expects to continue to
acquire unique resorts that offer a combination of quality accommodations
and superior recreational amenities and/or conference facilities. Because
the resort industry is characterized by a large number of independent
owners, high capital demands and ownership by "enthusiasts" rather than
professional managers, the Company believes that acquisition
opportunities in the resort industry will be available to the Company.
- ENTER RELATED RECREATION BUSINESSES. Consistent with the Company's
service-based recreation emphasis, the Company's strategy includes
selectively expanding into related recreation businesses. In May 1996,
the Company entered into an agreement with Lake Lanier Islands
Development Authority ("LLIDA"), a State of Georgia agency, to manage
Lake Lanier Islands as the first step to closing the privatization of the
facility pursuant to a long-term sublease. In addition to hotel and golf
operations, Lake Lanier Islands generates significant revenues from daily
ticketed attractions, including extensive beach and water park
facilities, houseboat and fishing boat rental operations, riding stables,
campgrounds, pavilions, an amphitheater, group and social outings and
front gate admissions. The Company intends to seek other daily ticketed
attraction businesses in the future and has recently hired executives
with extensive experience in this area of the recreation industry.
Additionally, the Company expects other privatization
7
<PAGE>
opportunities to emerge as local, state and federal government agencies
seek ways to increase the quality of public recreation facilities while
reducing their financial and other obligations to such facilities. With
its experience in operating recreational facilities and its access to
capital, the Company believes it is well-positioned to benefit from this
trend.
INDUSTRY OVERVIEW
HOTEL LODGING
The Company believes that its destination resorts compete most directly with
chain and independent "luxury resort" hotels. There are approximately 278 luxury
resorts in the United States, consisting of approximately 107,000 rooms. The
Company believes that the development of new resorts has been and will continue
to be constrained by both high initial capital requirements and maintenance
costs. As a result, the supply in the luxury resort segment of the hotel and
lodging industry has been relatively stable from 1992 to 1996. However, both
total revenues and RevPAR for this segment grew at a compound annual rate of
over 5% between 1992 and 1996, which the Company believes reflects increased
demand. The Company believes that demand in the luxury resort sector in general,
and in destination resorts in particular, will continue to increase in the
future as a result of: (i) increases in leisure time and disposable income that
are expected to occur as the "baby boom" generation matures; (ii) the growing
desire of leisure travelers to take more active vacations; and (iii) increased
corporate demand for quality, full service facilities which combine both group
meeting facilities and recreational amenities.
The luxury resort sector is characterized by a large number of independent
owners, with approximately 60% of all luxury resort hotels being operated
independently of chain affiliations. The Company believes that, because of this
fragmentation, as well as the high capital requirements to maintain and operate
luxury resorts acquisition opportunities in the resort industry will be
available.
GOLF
Since 1980, the golf industry has experienced significant growth. According
to industry data, the number of golfers has increased approximately 66% from
1980 to 1995 and the number of rounds played has increased approximately 37%
during the same time period. In the twelve months ended August 1994, the golf
business generated approximately $15.1 billion in revenues in the United States,
of which $10.1 billion was spent on playing fees. The Company believes that
favorable demographics, particularly the aging of the "baby boom" generation,
should result in an increase in the number of rounds played and an increase in
spending per golfer.
The golf industry is highly fragmented, with approximately 14,400 golf
facilities in the United States as of December 31, 1996. The Company believes
that the 15 largest golf course management companies in the United States
collectively manage fewer than 5% of the total number of golf facilities and
that only 11 golf course management companies manage 10 or more golf facilities.
The Company believes that this fragmentation, together with the high cost of
operating and maintaining competitive golf courses, competition for a limited
supply of experienced golf operating managers and the cost efficiencies afforded
by ownership and operation of multiple golf courses, should result in continued
industry consolidation.
MANAGEMENT AND OWNERSHIP
In mid-1993, partnerships formed at the direction of KKR, together with
Michael S. Shannon and Larry E. Lichliter, the former chief executive officer
and former chief operating officer, respectively, of Vail Associates, Inc.
("Vail Associates"), a premier ski resort owner and operator located in Vail,
Colorado, established Parent to capitalize on the attractive economics and the
positive growth fundamentals in certain segments of the service-based recreation
and leisure industries. The Issuer is a wholly-owned subsidiary of Parent,
approximately 96.7% of the Common Stock (84.5% on a fully diluted basis) of
which is owned by partnerships formed at the direction of KKR. See "Management"
and "Beneficial Ownership of Common Stock."
8
<PAGE>
SUMMARY CORPORATE STRUCTURE
The following chart summarizes the corporate structure of the Company after
giving effect to the Lake Lanier Transaction.
[CHART]
- --------------------------
(1) Approximately 96.7% (84.5% on a fully diluted basis) of the capital stock of
Parent is owned by partnerships formed at the direction of KKR and
approximately 3.3% (15.5% on a fully diluted basis) of the capital stock of
Parent is owned by management and one prior owner of courses acquired by
Fairways. See "Management" and "Beneficial Ownership of Common Stock." KSL
Recreation Corporation owns all of the outstanding capital stock of the
Issuer.
(2) On May 15, 1996, the Company entered into an agreement to manage the
facilities at Lake Lanier Islands (the "Lake Lanier Management Agreement")
with the Lake Lanier Islands Development Authority ("LLIDA") which subleases
the property from a department of the State of Georgia which leases the
property from the U.S. Army Corps of Engineers (the "Corps of Engineers").
The Company subsequently executed a 50-year sublease with LLIDA, which is
being held in escrow pending approval of the Company's development plan by
the Corps of Engineers. The Company currently anticipates that it will close
the sublease in July 1997. See "Business-- Properties; Lake Lanier
Transaction."
(3) As of October 31, 1996, KSL Fairways Golf Corporation, a subsidiary of KSL
Golf Holdings, Inc., had an 88.15% partnership interest in The Fairways
Group, L.P. Two entities unaffiliated with the Company, Meridian Venture
Partners and The Fairways Group Associates, L.P., owned a 4.24% partnership
interest and a 7.61% partnership interest, respectively, in The Fairways
Group, L.P. Pursuant to the partnership agreement of The Fairways Group,
L.P., KSL Fairways Golf Corporation serves as the managing general partner
of The Fairways Group, L.P.
9
<PAGE>
THE REFINANCINGS
The gross proceeds from the offering of the Old Notes were $125.0 million
which, together with $100.0 million of term loans under the New Credit Facility
and a $75.0 million drawing under the revolving credit portion of the New Credit
Facility, were used: (i) to repay approximately $265.0 million of outstanding
indebtedness of subsidiaries of the Issuer; (ii) to make a loan of approximately
$20.8 million to KSL Land Corporation ("KSL Land"), an affiliate of the Issuer
which was used to repay indebtedness of KSL Land, with respect to which Desert
Resorts was a co-obligor; (iii) to pay prepayment penalties; (iv) to pay fees
and expenses in connection with the Refinancings; and (v) for general corporate
purposes.
The following table sets forth the sources and uses of funds in connection
with the Refinancings.
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(IN MILLIONS)
SOURCES:
Revolving loan under New Credit Facility(1)............................. $ 75.0
Term loans under New Credit Facility(1)................................. 100.0
The Notes............................................................... 125.0
------
Total sources......................................................... $ 300.0
------
------
USES:
Refinancing of Desert Resorts indebtedness:
Direct repayment of indebtedness...................................... $ 131.7
Loan to KSL Land to repay indebtedness with respect to which Desert
Resorts was a co-obligor............................................ 20.8
Refinancing of Fairways indebtedness.................................... 69.3
Refinancing of Doral indebtedness....................................... 64.0
Prepayment penalties on outstanding indebtedness........................ 1.3
Fees and expenses....................................................... 10.0
General corporate purposes.............................................. 2.9
------
Total uses............................................................ $ 300.0
------
------
</TABLE>
- ------------------------
(1) The New Credit Facility provides for revolving borrowings of up to $175.0
million and term loans of up to $100.0 million. See "Description of Certain
Indebtedness--New Credit Facility."
THE CONCURRENT TRANSACTIONS
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with the
consummation of the Refinancings: (i) Parent contributed the outstanding capital
stock of the parent of Desert Resorts, Doral, Fairways and Lake Lanier Islands
to the Issuer as a result of which they became wholly-owned subsidiaries of the
Issuer; (ii) KSL Landmark Corporation (which owned Desert Resorts and into which
Desert Resorts was merged effective July 1, 1997) dividended to Parent (through
the Issuer) all of the general partnership interests and Class A limited
partnership interests owned by KSL Landmark Corporation in four affiliated
limited partnerships whose principal assets were beneficial interests in
undeveloped commercial and residential real estate parcels in the vicinity of
Desert Resorts, thereby removing ongoing funding obligations of the Company for
holding costs relating to undeveloped land; (iii) the Company sold to KSL Land
at historical cost (which approximated fair market value) the general
partnership interest and Class A limited partnership interest owned by KSL
Landmark Corporation in an additional limited partnership whose principal assets
were residential real estate parcels in the vicinity of Desert Resorts (iv)
Parent, the Company and affiliates settled intercompany balances, which resulted
in an increase in cash to the Company of $46.3 million; (v) the Company
distributed to Parent in cash excess equity funding of $46.3 million contributed
by Parent to
10
<PAGE>
Desert Resorts at the time of acquisition; (vi) the Company distributed $13.9
million in cash to Parent, which was recorded as a return of capital to Parent;
and (vii) certain management, lending and other agreements used to allocate
corporate general and administrative expenses between Parent and its
subsidiaries prior to the Refinancings were cancelled and the Issuer and Parent
entered into a new expense allocation agreement (the "Expense Allocation
Agreement") which has resulted in an increase in corporate general and
administrative expenses of the Company since April 30, 1997 (the transactions
described in clauses (i) through (vii) above being referred to herein as the
"Concurrent Transactions"). See "Unaudited Pro Forma Consolidated Financial
Statements" and "Certain Related Transactions." The Concurrent Transactions did
not reflect possible future dividends by the Company of additional parcels of
land which may occur following the receipt of applicable state and local
government approvals.
11
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................. The Issuer is offering to exchange pursuant to the
Exchange Offer up to $125,000,000 aggregate principal
amount of its new 10 1/4% Series B Senior Subordinated
Notes due 2007 (the "Exchange Notes") for a like
aggregate principal amount of its outstanding 10 1/4%
Senior Subordinated Notes due 2007 (the "Old Notes"
and together with the Exchange Notes, the "Notes").
The terms of the Exchange Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferrable by Holders (as defined) thereof
(other than as provided herein), and are not subject
to any covenant regarding registration under the
Securities Act. See "The Exchange Offer."
Interest Payments.................. Interest on the Exchange Notes shall accrue from the
last interest payment date (May 1 or November 1) on
which interest was paid on the Notes so surrendered
or, if no interest has been paid on such Notes, from
April 30, 1997 (the "Interest Payment Date").
Minimum Condition.................. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered
for exchange.
Expiration Date; Withdrawal
of Tender........................ The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless the Exchange Offer
is extended, in which case the term "Expiration Date"
means the latest date and time to which the Exchange
Offer is extended. Tenders may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer-- Withdrawal
Rights."
Exchange Date...................... The date of acceptance for exchange of the Old Notes
will be the fourth business day following the
Expiration Date.
Conditions to the Exchange Offer... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuer. The
Issuer currently expects that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Certain Conditions
to the Exchange Offer." The Issuer reserves the right
to terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old Each holder of Old Notes wishing to accept the
Notes............................ Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the Old
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set forth
therein. See "The Exchange Offer--Procedures for
Tendering Old Notes" and "Plan of Distribution."
Use of Proceeds.................... There will be no proceeds to the Issuer from the
exchange of Notes pursuant to the Exchange Offer.
Federal Income Tax Consequences.... The exchange of Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax
purposes. See "Certain United States Federal Income
Tax Considerations."
Special Procedures for Beneficial
Owners........................... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and
delivering the Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in
such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take considerable
time. See "The Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures..... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, the
Letter of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange Notes....... The Issuer will accept for exchange any and all Old
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date. See "The
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Exchange Offer--Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes."
Effect on Holders of Old Notes..... As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the Issuer will have
fulfilled a covenant contained in the Registration
Rights Agreement (the "Registration Rights Agreement")
dated April 30, 1997 among the Issuer and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon
Brothers Inc, Credit Suisse First Boston Corporation,
BancAmerica Securities, Inc., Montgomery Securities
and Scotia Capital Markets (the "Initial Purchasers")
and, accordingly, there will be no additional interest
in respect of the Old Notes pursuant to the terms of
the Registration Rights Agreement, and the holders of
the Old Notes will have no further registration or
other rights under the Registration Rights Agreement.
Holders of the Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold such
Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture
between the Issuer and First Trust of New York
National Association relating to the Old Notes and the
Exchange Notes (the "Indenture"), except for any such
rights under the Registration Rights Agreement that by
their terms terminate or cease to have further
effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Old
Notes pursuant to, the Exchange Offer. All untendered
Old Notes will continue to be subject to the
restrictions on transfer provided for in the Old Notes
and in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the
trading market for untendered Old Notes could be
adversely affected.
Consequence of Failure to Holders of Old Notes who do not exchange their Old
Exchange......................... Notes for Exchange Notes pursuant to the Exchange
Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the
legend thereon as a consequence of the offer or sale
of the Old Notes pursuant to an exemption from, or in
a transaction not subject to, the registration
requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may
not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act
and applicable state securities laws. The Issuer does
not currently anticipate that it will register the Old
Notes under the Securities Act.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Exchange Agent..................... First Trust of New York National Association is
serving as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered................. $125.0 million in aggregate principal amount of
10 1/4% Senior Subordinated Notes due 2007 (the
"Exchange Notes").
Maturity Date...................... May 1, 2007.
Interest Payment Dates............. May 1 and November 1, commencing on November 1, 1997.
Mandatory Redemption............... The Issuer will not be required to make mandatory
redemption or sinking fund payments with respect to
the Exchange Notes.
Optional Redemption................ The Exchange Notes will be redeemable at the option of
the Issuer, in whole or in part, at any time on or
after May 1, 2002 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to
the date of redemption.
In addition, at any time or from time to time on or
prior to May 1, 2001 the Issuer may, at its option,
redeem up to 50% of the Exchange Notes originally
issued under the Indenture on the Issue Date at a
redemption price equal to 110.25% of the aggregate
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings;
provided that at least 50% of the aggregate principal
amount of Exchange Notes originally issued under the
Indenture on the Issue Date remain outstanding
immediately after the occurrence of each such
redemption; provided further that such redemption
occurs within 60 days of the date of closing of each
such Equity Offering.
Change of Control.................. In the event of a Change of Control (as defined),
holders of the Exchange Notes will have the right to
require the Issuer to purchase their Exchange Notes at
a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase.
Ranking............................ The Exchange Notes will be general unsecured
obligations of the Issuer subordinated in right of
payment to all existing and future Senior Indebtedness
of the Issuer, including indebtedness pursuant to the
New Credit Facility. At April 30, 1997, on a pro forma
basis as if the Lake Lanier Transaction had occurred
on such date, the aggregate principal amount of
outstanding Senior Indebtedness of the Issuer would
have been $175.0 million. The Exchange Notes will be
effectively subordinated to all liabilities of the
Issuer's subsidiaries. At April 30, 1997, on a pro
forma basis as if the Lake Lanier Transaction had
occurred on such date, the Issuer's subsidiaries would
have had approximately $302.1 million of total
liabilities.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Certain Covenants.................. The indenture governing the Exchange Notes (the
"Indenture") contains covenants that, among other
things:
(i) limit the incurrence by the Issuer and its
Restricted Subsidiaries (as defined) of additional
indebtedness; (ii) limit the issuance by the Issuer of
Disqualified Stock (as defined); (iii) prohibit the
issuance of preferred stock by subsidiaries of the
Issuer; (iv) restrict the ability of the Issuer and
its Restricted Subsidiaries to make dividends and
other restricted payments or investments; (v) limit
transactions by the Issuer and its Restricted
Subsidiaries with affiliates; (vi) limit the ability
of the Issuer and its Restricted Subsidiaries to make
asset sales; (vii) limit the ability of the Issuer and
its Restricted Subsidiaries to incur liens to secure
indebtedness other than Senior Indebtedness; and
(viii) limit the ability of the Issuer to consolidate
or merge with or into, or to transfer all or
substantially all of its assets to, another person.
The foregoing restrictions are subject to a number of
significant exceptions. See "Description of Exchange
Notes."
</TABLE>
RISK FACTORS
Prospective investors in the Exchange Notes should carefully consider the
matters set forth herein under "Risk Factors."
16
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma consolidated
balance sheet data at April 30, 1997 and summary unaudited pro forma
consolidated income statement data of KSL Recreation Group, Inc. and
subsidiaries for the fiscal year ended October 31, 1996, for the six months
ended April 30, 1997 and for the twelve months ended April 30, 1997. The pro
forma consolidated balance sheet data at April 30, 1997 give effect to the Lake
Lanier Transaction as if such transaction had occurred on April 30, 1997. The
pro forma consolidated income statement data and other data for the fiscal year
ended October 31, 1996, for the six months ended April 30, 1997 and for the
twelve months ended April 30, 1997 give effect to the Refinancings and the
Concurrent Transactions as if such transactions had occurred at the beginning of
the earliest period presented and to the Lake Lanier Transaction as if it had
occurred on May 15, 1996.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR SIX MONTHS MONTHS
ENDED ENDED ENDED
OCTOBER 31, APRIL 30, APRIL 30,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL
RATIOS)
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA:
Revenues........................................................................... $ 192,405 $ 128,112 $ 213,966
Operating expenses................................................................. 178,863 101,172 193,837
----------- ----------- -----------
Income from operations............................................................. 13,542 26,940 20,129
Net interest expense............................................................... 29,142 15,924 31,360
Minority interests in losses of subsidiaries....................................... 58 182 162
Income tax expense (benefit)....................................................... (35) 2,138 2,106
Extraordinary gain (loss), net of income tax....................................... 32,120 (3,138) (3,138)
----------- ----------- -----------
Net income (loss).................................................................. $ 16,613 $ 5,922 $ (16,313)
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA CONSOLIDATED OTHER DATA:
Adjusted EBITDA(1)................................................................. $ 44,060 $ 45,396 $ 55,546
Net Membership Deposits(2)......................................................... 4,391 3,593 5,980
Adjusted Net Membership Deposits(3)................................................ 4,391 3,593 5,980
Other non-cash items............................................................... 873 330 1,114
Capital expenditures(4)............................................................ 25,240 7,268 19,478
Adjusted EBITDA margin(5).......................................................... 22.9% 35.4% 26.0%
Adjusted EBITDA/Net interest expense............................................... 1.5x -- 1.8x
Net Debt/Adjusted EBITDA(6)........................................................ -- -- 5.7x
Ratio of earnings to fixed charges(7).............................................. -- 1.7x --
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-------------------
<S> <C>
(IN THOUSANDS)
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 25,427
Working capital............................................................................. 27,062
Total assets................................................................................ 605,611
Long-term debt (including current portion).................................................. 339,733
Total stockholder's equity.................................................................. 178,518
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
17
<PAGE>
- ------------------------
(1) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization,
extraordinary items, and certain non-cash items (consisting of recurring
gains and losses on sale or disposal of fixed assets and accretion of future
membership liabilities), plus Adjusted Net Membership Deposits (as defined
below) and is consistent with the definition that is contained in the
Indenture. Adjusted EBITDA is presented to assist in understanding the
Company's operating results. Adjusted EBITDA is not intended to represent
cash flow from operations as defined by generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to cash
flow as a measure of liquidity or as an alternative to net earnings as an
indicator of operating performance.
(2) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with the initial
conversion of such members to new membership plans at Desert Resorts, were
nonrecurring in nature.
(4) Excludes the effect of the Lake Lanier Transaction for all periods
presented.
(5) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by
revenues, in each case for the applicable period.
(6) Net Debt is defined as the Company's indebtedness, less unrestricted cash
and cash equivalents, in each case as of the applicable date.
(7) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries to earnings before income taxes
and extraordinary items and (ii) fixed charges are comprised of interest
expense, capitalized interest, and the estimated interest portion of rental
expense. The Company's pro forma earnings would have been insufficient to
cover fixed charges by $16,177 and $11,435 for the fiscal year ended October
31, 1996 and the twelve months ended April 30, 1997, respectively.
18
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of the Company at and for the periods indicated. Income statement data for
the three fiscal years ended October 31, 1996 have been derived from
consolidated financial statements of the Company audited by Deloitte & Touche
LLP, independent public auditors. Data for the six months ended April 30, 1996
and at and for the six months ended April 30, 1997 have been derived from
unaudited consolidated financial statements of the Company which, in the opinion
of management, include all adjustments necessary for a fair presentation of the
information. Data at and for the six months ended April 30, 1997 do not purport
to be indicative of results to be expected for the full fiscal year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED OCTOBER 31, APRIL 30,
------------------------------- ------------------------
1994(1) 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
INCOME STATEMENT DATA:
Revenues................................................... $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses......................................... 116,184 153,615 165,493 85,108 92,189
--------- --------- --------- ----------- -----------
Income from operations..................................... 8,026 4,636 14,781 21,443 30,652
Net interest expense....................................... 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility.............................. -- (2,684) -- -- --
Minority interests in losses of subsidiaries............... 458 201 58 78 182
Income tax expense (benefit)............................... -- -- (291) (3) 2,195
Extraordinary gain (loss), net of income tax............... (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- ----------- -----------
Net income (loss).......................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
OTHER DATA:
Adjusted EBITDA(2)......................................... $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
Net Membership Deposits(3)................................. 24,218 6,347 4,391 2,004 3,593
Adjusted Net Membership Deposits(4)........................ 351 234 4,391 2,004 3,593
Other non-cash items....................................... 228 885 873 89 330
Capital expenditures....................................... 15,105 52,639 25,240 13,030 7,268
Revenue growth............................................. -- 27.4% 13.9% -- 15.3%
Adjusted EBITDA margin(5).................................. 18.5% 16.6% 24.3% 32.8% 38.8%
Ratio of earnings to fixed charges(6)...................... -- -- -- 1.6x 1.9x
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-------------------
<S> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 36,325
Working capital............................................................................. 38,063
Total assets................................................................................ 575,246
Long-term debt (including current portion).................................................. 308,582
Total stockholder's equity.................................................................. 178,518
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
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- ------------------------
(1) Desert Resorts and Doral were acquired in December 1993. Accordingly, the
Company's operating results for fiscal 1994 include only ten months of
operations for Desert Resorts and Doral.
(2) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization, loss on sale
of golf facility, extraordinary items and certain non-cash items (consisting
of recurring gains and losses on sale or disposal of fixed assets and
accretion of future membership liabilities), plus Adjusted Net Membership
Deposits (as defined below) and is consistent with the definition that is
contained in the Indenture. Adjusted EBITDA is presented to assist in
understanding the Company's operating results. Adjusted EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an alternative to cash flow as a measure of
liquidity or as an alternative to net earnings as an indicator of operating
performance.
(3) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with initial conversion
of such members to new membership plans at Desert Resorts, were nonrecurring
in nature.
(5) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues, in each case for the applicable period.
(6) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries to earnings before income taxes
and extraordinary items and (ii) fixed charges are comprised of interest
expense, capitalized interest and the estimated interest portion of rental
expense. Earnings for fiscal 1994, 1995 and 1996 were insufficient to cover
fixed charges by $6,064, $17,574 and $13,506, respectively.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH HEREIN, HOLDERS OF OLD NOTES
SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE DECIDING TO TENDER OLD NOTES IN THE EXCHANGE OFFER. THE
RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL
AS THE EXCHANGE NOTES. THE INFORMATION CONTAINED HEREIN CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. A NUMBER OF FACTORS
COULD CAUSE ACTUAL RESULTS, PERFORMANCE, ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPETITIVE ENVIRONMENT IN THE GOLF
AND RESORT INDUSTRY IN GENERAL AND IN THE COMPANY'S SPECIFIC MARKET AREAS;
CHANGES IN PREVAILING INTEREST RATES AND THE AVAILABILITY OF AND TERMS OF
FINANCING TO FUND THE ANTICIPATED GROWTH OF THE COMPANY'S BUSINESS; INFLATION;
CHANGES IN COSTS OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL AND IN
THE COMPANY'S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN OR FAILURE
TO COMPLY WITH FEDERAL, STATE AND/OR LOCAL GOVERNMENT REGULATIONS; LIABILITY AND
OTHER CLAIMS ASSERTED AGAINST THE COMPANY; CHANGES IN OPERATING STRATEGY OR
DEVELOPMENT PLANS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; THE
SIGNIFICANT INDEBTEDNESS OF THE COMPANY; LABOR DISTURBANCES; CHANGES IN THE
COMPANY'S ACQUISITION AND CAPITAL EXPENDITURE PLANS; AND OTHER FACTORS
REFERENCED HEREIN. IN ADDITION, SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY
DEPENDENT UPON ASSUMPTIONS, ESTIMATES AND DATA THAT MAY BE INCORRECT OR
IMPRECISE AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS.
ACCORDINGLY, ANY FORWARD-LOOKING STATEMENTS INCLUDED HEREIN DO NOT PURPORT TO BE
PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT BE REALIZED.
FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL,"
"SHOULD," "SEEKS," "PRO FORMA" OR "ANTICIPATES," "INTENDS" OR THE NEGATIVE
THEREOF, OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY
DISCUSSIONS OF STRATEGY OR INTENTIONS. GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATIONS TO UPDATE ANY SUCH FACTORS OR
TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
Old Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Issuer does not currently intend to register the Old Notes under the
Securities Act. Based on interpretations by the staff of the Commission, the
Issuer believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Old Notes were acquired in the
ordinary course of such Holders' business and such Holders have no arrangement
with any person to participate in the distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes will be adversely affected.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is highly leveraged. At April 30, 1997, on a pro forma basis as
if the Lake Lanier Transaction had occurred on such date, the Company would have
had long-term debt and capital lease
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obligations (including current portions thereof) of $339.7 million. See
"Summary--Summary Pro Forma Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In addition, for the fiscal year ended October 31, 1996 (excluding a $32.1
million extraordinary gain) on a pro forma basis as described herein, the
Company's earnings would have been insufficient to cover fixed charges by $15.6
million. Furthermore, subject to the restrictions contained in the New Credit
Facility, the Company currently has $100.0 million of additional borrowing
availability under the New Credit Facility. See "Description of Certain
Indebtedness--New Credit Facility." Subject to restrictions in the indenture
governing the Notes (the "Indenture") and the New Credit Facility, the Issuer
and its subsidiaries may incur additional indebtedness from time to time and
such indebtedness may be Senior Indebtedness or, under certain circumstances,
effectively senior to the Notes. See "--Holding Company Structure; Effective
Subordination of Notes."
A substantial portion of the Company's cash flow from operations will be
dedicated for the foreseeable future to servicing its indebtedness under the
Notes and New Credit Facility and the payment of other fixed charges, including
capital lease obligations. The Company's high degree of leverage may have
important consequences to the holders of the Notes, including (i) the Company's
high degree of leverage could make it more vulnerable to changes in general
economic conditions or downturns in industry conditions than its competitors;
(ii) since a substantial portion of the Company's cash flow will be committed to
the payments of interest and principal on its indebtedness, the Company's
ability to take advantage of business opportunities, including strategic
acquisitions, could be impaired; (iii) the Company's ability to obtain
additional financing in the future for working capital or capital expenditures
may be limited; and (iv) the Company's indebtedness under the New Credit
Facility is expected to bear interest at variable rates, which would make the
Company vulnerable to increases in interest rates.
The Company's ability to make scheduled payments of principal and interest
on the Notes (and the Company's other indebtedness, including indebtedness under
the New Credit Facility), will depend on the future performance of the Company,
which is, to a certain extent, subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations or that other funds will be available in an amount
sufficient to enable the Company to make such principal and interest payments on
the Notes or on such other Indebtedness. Although the Company believes that its
liquidity, capital resources and cash flows from existing operations will be
sufficient to fund planned capital expenditures, working capital requirements
and interest and principal payments on its indebtedness for the foreseeable
future, a variety of factors could impact the Company's ability to fund planned
capital expenditures, working capital requirements and interest and principal
payments, including a prolonged or severe economic recession in the U.S.,
departures from currently expected demographic trends (for example, if the total
number of golf rounds and golf spending are not as great as currently
anticipated) or the Company's inability to achieve operating improvements at
existing and acquired operations at currently expected levels. Moreover, the
Company currently expects that it will acquire additional resorts, recreational
facilities and golf courses and, in connection therewith, expects to incur
additional indebtedness. In the event that the Company incurs such additional
indebtedness, its ability to make principal and interest payments on its
indebtedness, including the Notes, may be adversely impacted. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Issuer, which will include all obligations
arising under the New Credit Facility. At April 30, 1997, on a pro forma basis
after giving effect to the Lake Lanier Transaction, the aggregate amount of the
Issuer's outstanding Senior Indebtedness would have been approximately $175.0
million (excluding unused commitments). The Indenture limits, but does not
prohibit, the incurrence by the Issuer of additional Senior
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<PAGE>
Indebtedness. In the event of a bankruptcy, liquidation or reorganization of the
Issuer, or in the event of acceleration of any indebtedness of the Issuer, upon
the occurrence of an event of default, the assets of the Issuer would be
available to pay obligations on the Notes only after all then outstanding Senior
Indebtedness of the Issuer has been paid in full in cash or cash equivalents.
See "Description of Exchange Notes-- Subordination."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF NOTES
The Issuer is a holding company with no operations or tangible assets other
than operations conducted through its subsidiaries and capital stock of such
subsidiaries. The Issuer's obligations under the New Credit Facility will be
initially guaranteed by all of its existing and future domestic subsidiaries
(other than The Fairways Group, L.P.). The Notes will not be guaranteed by such
subsidiaries. The Indenture also permits subsidiaries of the Issuer to guarantee
certain other indebtedness of the Issuer in the future. As a result, the Notes
will be effectively subordinated to all obligations of the Issuer's
subsidiaries, including the guarantees by such subsidiaries of the New Credit
Facility. At April 30, 1997, on a pro forma basis after giving effect to the
Lake Lanier Transaction, the Issuer's subsidiaries would have had approximately
$302.1 million of total liabilities. In the event of an insolvency, liquidation
or other reorganization of any of the subsidiaries of the Issuer, the creditors
of the Issuer (including the holders of the Notes), as well as stockholders of
the Issuer, will have no right to proceed against the assets of such
subsidiaries or to cause the liquidation or bankruptcy of such subsidiaries
under federal bankruptcy laws. Creditors of such subsidiaries would be entitled
to payment in full from such assets before the Issuer would be entitled to
receive any distribution therefrom. Except to the extent that the Issuer may
itself be a creditor with recognized claims against such subsidiaries, claims of
creditors of such subsidiaries will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Issuer,
including claims under the Notes.
RESTRICTIONS IMPOSED BY TERMS OF THE ISSUER'S INDEBTEDNESS
The Indenture contains certain covenants that, among other things: (i) limit
the incurrence by the Issuer and its Restricted Subsidiaries of additional
indebtedness; (ii) limit the issuance by the Issuer and its Restricted
Subsidiaries of Disqualified Stock; (iii) prohibit the issuance of preferred
stock by subsidiaries of the Issuer; (iv) restrict the ability of the Issuer and
its Restricted Subsidiaries to make dividends and other restricted payments or
investments; (v) limit transactions by the Issuer and its Restricted
Subsidiaries with affiliates; (vi) limit the ability of the Issuer and its
Restricted Subsidiaries to make asset sales; (vii) limit the ability of the
Issuer and its Restricted Subsidiaries to incur liens to secure indebtedness
other than Senior Indebtedness; and (viii) limit the ability of the Issuer to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person. See "Description of Exchange Notes-- Certain
Covenants." In addition, the New Credit Facility contains additional and more
restrictive covenants and requires the Company to maintain specified financial
ratios and satisfy certain tests relating to its financial condition. See
"Description of Certain Indebtedness--New Credit Facility."
The Issuer's ability to comply with the covenants in the Indenture and the
New Credit Facility may be affected by events beyond its control, including
prevailing economic, financial, competitive, legislative, regulatory and other
conditions. The breach of any such covenants or restrictions could result in a
default under the Indenture and/or the New Credit Facility which would permit
the holders of the Notes and/or the lenders under the New Credit Facility, as
the case may be, to declare all amounts borrowed thereunder to be due and
payable, together with accrued and unpaid interest, and the commitments of the
lenders to make further extensions of credit under the New Credit Facility could
be terminated. If the Issuer were unable to repay its indebtedness to its
lenders under the New Credit Facility, such lenders could proceed against any or
all of the collateral securing the indebtedness under the New Credit Facility,
which collateral is expected to consist of the capital stock of all of the
Issuer's existing direct domestic subsidiaries and 65% of the issued and
outstanding shares of capital stock of each direct foreign subsidiary of the
Issuer, if any.
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<PAGE>
In addition, if the Company fails to comply with the financial and operating
covenants contained in the New Credit Facility, such failure could result in an
event of default thereunder, which could permit the acceleration of the debt
incurred thereunder and, in come cases, cross-acceleration and cross-default of
indebtedness outstanding under other debt instruments of the Company, including
the Notes. See "Description of Exchange Notes" and "Description of Certain
Indebtedness--New Credit Facility."
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
The Company, through its subsidiaries, is, has been and will continue to be,
involved in the investigation and evaluation of potential resort, recreation
facility, golf course and other strategic acquisitions and at any time may be
discussing possible acquisitions. The Company has historically financed its
acquisitions through a combination of borrowings under bank credit facilities
and equity. The Company's future growth and financial success will be dependent
upon a number of factors, including, among others, its ability to (i) identify
acceptable acquisition candidates, (ii) consummate the acquisitions on favorable
terms, (iii) promptly and profitably improve the financial performance of
acquired properties, (iv) integrate the acquired properties into the Company's
operations and (v) attract and retain customers and members at any acquired
operations. Identifying acquisition candidates and integrating acquired entities
requires a significant amount of management time and skill. There can be no
assurance that the Company will be effective in identifying or integrating
acquisitions, or that any failure to identify or integrate acquisitions will not
have a material adverse effect on the Company's business, operating results or
financial condition. Furthermore, there can be no assurance that suitable
resort, recreation facility, golf course or similar acquisition opportunities
will be available or that, because of competition from other purchasers or other
reasons, the Company will be able to consummate such acquisitions on
satisfactory terms. In addition, the acquisition of resort, recreation facility,
golf course and other similar properties may become more expensive in the future
if demand for such properties continues to increase.
The Company's ability to execute its acquisition strategy depends to a
significant degree on its ability to obtain additional long-term debt and equity
capital. Other than the New Credit Facility, the Company has no commitments for
additional borrowings or sales of equity and there can be no assurance that the
Company will be successful in consummating any such future financing
transactions on terms favorable to the Company (or at all) or that such
financing will not result in the incurrence of additional indebtedness. On May
13, 1997, the Company, through Parent, entered into a non-binding letter of
intent to acquire a resort property for a purchase price of $45.0 million. In
the event the Company proceeds with such acquisition, it is expected that the
purchase price would be financed under the revolving credit portion of the New
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition of Operations--Liquidity and Capital Resources."
FACTORS AFFECTING RESORT VISITORS AND GOLF PARTICIPATION
The success of efforts to attract visitors to resorts is dependent upon
discretionary spending by consumers, which may be adversely affected by general
and regional economic conditions. In the case of the Company's resorts, the
regional economies of southern California, southern Florida and Georgia are
significant to its operations, although Desert Resorts and Doral attract
customers from throughout the United States and abroad. See "Business." A
decrease in tourism or in consumer spending on travel and/or recreation could
have an adverse effect on the Company's business, financial condition and
results of operations.
The success of efforts to attract and retain members at a private or
semi-private club and the number of rounds played at a public golf course is
also dependent upon discretionary spending by consumers, which may be adversely
affected by general and regional economic conditions. In the case of the
Company's community golf operations, the regional economies of Florida,
Wisconsin and the Mid-Atlantic United States are particularly important. See
"Business." A decrease in the number of golfers or their
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rates of participation or in consumer spending on golf could have an adverse
effect on the Company's business, financial condition and results of operations.
COMPETITION
The resort industry is highly competitive. The Company's destination resorts
compete with other golf and recreation-based resorts. These include premier
independent resorts as well as national hotel chains. In addition, the Company's
resorts compete with other recreational businesses, such as cruise ships and
gaming casinos. The Company believes that it competes based on brand name
recognition, location, room rates and the quality of its services and amenities.
Golf courses compete for players and members with other golf courses located
in the same geographic areas. The Company's golf courses compete based on the
overall quality of their facilities (including the quality of its customer
service), the maintenance of their facilities, available amenities, location and
overall value. The number and quality of golf courses in a particular area could
have a material effect on the revenue of any of the Company's golf courses,
which could in turn affect the Company's financial performance and results of
operations. The availability of sufficient acreage often limits the number of
competing golf courses, particularly in metropolitan areas. However, the areas
of Florida, Georgia and California in which many of the Company's existing
properties are located have significant open land available, and there has been
continued construction by potential competitors of both public and private golf
facilities in those areas. In addition, the Palm Springs area, which has
approximately 90 golf courses in a relatively concentrated geographic area, is
generally viewed as a particularly competitive area and newer golf courses
frequently become very attractive focal points and may attract golfers who would
otherwise have used the Company's facilities. There can be no assurance that
continued construction of competing facilities, or renewed or strong and
sustained interest in existing competing facilities, will not adversely effect
the Company's future financial performance.
The Company competes for the purchase and lease of golf courses with several
national and regional golf course companies. Certain of the Company's national
competitors have larger staffs and more golf courses currently leased, owned or
under management than the Company. In addition, certain national competitors
have greater capital resources than the Company and some of such competitors may
have access to capital at a lower cost than is currently available to the
Company. There can be no assurance that such competition will not adversely
affect the Company's results of operations or ability to maintain or increase
sales and market share.
ENVIRONMENTAL REGULATION
Operations at the Company's resort and community golf courses involve the
use and storage of various hazardous materials such as herbicides, pesticides,
fertilizers, batteries, solvents, motor oil and gasoline. For instance, one of
the Company's resorts conducts, and has conducted, dry cleaning operations. Dry
cleaners raise environmental concerns, including waste produced from the
cleaning, spotting and pressing processes; machine leaks; chemical spills; and
air emissions. In addition, the Company's resorts and golf courses contain, or
have contained, underground storage tanks ("USTs") for storing fuel and other
materials. All new USTs must be fitted with leak detection and spill prevention
equipment, while older tanks must be retrofitted for such equipment. If any UST
is known to be leaking, it must be removed, and soil and sometimes groundwater
may have to be remediated. If an UST is taken out of use, it must be removed and
any leaks remediated. Under various federal, state and local laws, ordinances
and regulations, an owner or operator of real property may become liable for the
costs of removing hazardous substances that are released on or in its property
and for remediation of its property. Such laws often impose liability regardless
of whether a property owner or operator knew of, or was responsible for, the
release of hazardous materials. In addition, the failure to remediate
contamination at a property may adversely affect the ability of a property owner
to sell such real estate or to pledge such property as collateral for a loan.
See "Business--Governmental Regulation--Environmental Matters."
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<PAGE>
RISKS ASSOCIATED WITH UNINSURABLE LOSSES
The Company currently carries comprehensive liability, fire, flood (for
certain courses) and extended coverage insurance with respect to its resorts and
all of the golf courses owned or leased by it with policy specifications and
insured limits and deductibles customarily carried for similar properties. There
are, however, certain types of losses (such as those losses incurred as a result
of earthquakes, which are of particular concern with respect to Desert Resorts,
or hurricanes, which are of particular concern with respect to the Company's
Florida properties) which may be either uninsurable or not economically
insurable. As a result, in the event of such a loss, the Company could lose both
its capital invested in, and anticipated profits from, one or more of the
Company's resorts and/or golf courses.
The Company also has title insurance policies for each of the properties
currently owned by it. There can be no assurance, however, that the amount of
title insurance coverage for any such properties accurately reflects the current
value of such properties or that title losses would be completely covered by
such insurance.
SEASONALITY
The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands and
the Company's community golf operations offset a portion of the seasonality
associated with Desert Resorts and Doral because they generate a significant
percentage of their revenue and operating income during the last two quarters of
the fiscal year. Seasonal variations in revenue and operating income could
result in the Company borrowing more under the New Credit Facility during
certain periods than others. Failure by the Company to properly manage its cash
flow as a result of such seasonality may result in insufficient cash flow to
meet the Company's obligations under the New Credit Facility, the Notes and/or
any of the Company's other indebtedness.
FACTORS AFFECTING COURSE CONDITIONS
Turf grass conditions must be satisfactory to attract play on the Company's
resort and community golf courses. Severe weather or other factors, including
grass diseases or pestilence, could cause unexpected problems with turf grass
conditions at any golf course or at courses located within the same geographic
area. Turf grass conditions at each of the Company's golf courses also depend to
a large extent on the quality and quantity of available water. The availability
of sufficient water is affected by various factors, many of which are not within
the Company's control. If the quantity of irrigation water were reduced as a
result of a drought or other water shortage, available water would be used first
on selected areas of the affected golf course, such as tees and greens, and then
on remaining areas of the golf course. A severe drought of extensive duration
could adversely affect the operation of one or more of the Company's properties
and, as a result, the financial condition and results of operations of such
properties. While the Company believes that it currently has sufficient access
to water to operate its golf courses in the manner in which they are currently
operated, there can be no assurance that certain conditions, including weather,
governmental regulation or environmental concerns, will not materially adversely
affect the supply of water to a particular golf course or courses in the future.
The Company currently operates golf courses in eight states which may
experience natural conditions which are beyond its control (such as periods of
extraordinarily dry, wet, hot and cold weather, or unforeseen natural events
such as hurricanes, fires, floods, severe storms, tornados or earthquakes).
These conditions may occur at any time and may have a significant impact on the
condition and availability of one or more golf courses for play and on the
number of customers a golf course can attract. The Company is insured against
these potential events in a manner which it believes to be consistent with
industry standards. See "--Risks Associated with Uninsurable Losses." However,
the occurrence or repeated re-
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occurrence of any of such conditions may require increased capital expenditures
by the Company to the extent the Company is not insured and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTROL BY KKR AFFILIATES; CONFLICTS OF INTEREST
Approximately 96.7% (84.5% on a fully diluted basis) of the outstanding
shares of Common Stock of Parent (which owns all of the outstanding capital
stock of the Issuer), is owned by three investment partnerships, Resort
Associates, L.P., Golf Associates, L.P. and KKR Partners II, L.P., of which KKR
Associates, L.P. ("KKR Associates") is the general partner and a number of
institutional and other investors associated with KKR are the limited partners.
Accordingly, KKR Associates controls the Issuer and has the power to elect all
of its directors, appoint new management and approve any action requiring
approval of the Issuer's stockholders, including adopting amendments to the
Issuer's Certificate of Incorporation and approving mergers or sales of
substantially all of the Issuer's assets. There can be no assurance that the
interests of KKR Associates will not conflict with the interests of the holders
of the Notes. See "Beneficial Ownership of Common Stock" and "Certain Related
Transactions."
In addition, Parent has in the past provided funds and management oversight
to its affiliates, including KSL Land, which is also controlled by two of the
three KKR partnerships named above, and it is expected that Parent will continue
to do so in the future. Furthermore, certain members of the Company's management
are also expected to perform services for Parent, KSL Land and other affiliates.
See "Management." There can be no assurance that the interests of Parent, KSL
Land or such other affiliates will not conflict with the interests of the
Company and consequently, the interests of the holders of the Notes.
ABSENCE OF RESTRICTIONS ON PARENT
Parent will not be a guarantor of the Notes, is not a party to the Indenture
under which the Exchange Notes will be issued and, therefore, will not be
subject to the covenants and restrictions set forth therein. Likewise, to the
extent that Parent establishes or acquires subsidiaries which are not also
subsidiaries of the Company (i.e., subsidiaries which Parent does not own
through the Company), those subsidiaries will not be subject to the covenants or
restrictions set forth in the Indenture. In addition, Parent will be a guarantor
of the Company's obligations under the Lake Lanier Islands sublease and, as a
result, actions or inactions by Parent could result in a default under the Lake
Lanier Islands sublease. To the extent that the lessor under the sublease
accelerates all obligations thereunder, such an acceleration would constitute a
default under the New Credit Facility and the Notes. As a result of the
foregoing, there can be no assurance that actions taken by, or circumstances
relating to, Parent will not materially adversely affect the Company.
RISKS ASSOCIATED WITH LICENSE AGREEMENTS
The Company is a party to a license agreement with the Professional Golfers'
Association of America (the "PGA License Agreement") pursuant to which it is
permitted and licensed to use the PGA WEST name and logos in sales, promotion,
advertising, development and/or operations of certain property located in the
City of La Quinta, California, known as "PGA WEST" (the "PGA WEST Property").
The Company believes that the PGA WEST logo is an important aspect of the
Company's business because of the prestige associated with the Professional
Golfers' Association. The PGA License Agreement provides for royalty payments on
an annual basis through 2005, the exact amount of which will be determined by
reference to the number and sales of residential units by KSL Land. KSL Land has
in the past made all royalty payments attributable to its land sales and is
expected to continue to do so in the future; however, KSL Land has not agreed in
writing to do so, is not controlled by the Company and, as a result, no
assurance can be given that KSL Land will pay any future royalty owing under the
PGA License Agreement. Failure to comply with the terms of the PGA License
Agreement, including any failure to pay royalties arising out of land sales by
KSL Land, could result in the payment of monetary damages by the
27
<PAGE>
Company. Such occurrence could have a material adverse effect on the Company.
See "Business-- Licenses and Trademarks."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The New Credit Facility prohibits the Company from purchasing any of the
Notes (except in certain limited amounts) and also provides that certain change
of control events with respect to the Company will constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness (as defined in the Indenture) to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control (as defined in the Indenture) occurs at a time when the Company is
prohibited from purchasing the Notes, the Company could seek the consent of its
lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Notes by the relevant Senior Indebtedness. In such case, the
Company's failure to purchase the tendered Notes would constitute an event of
default under the Indenture which would, in turn, constitute a default under the
New Credit Facility and could constitute a default under other Senior
Indebtedness. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes.
Furthermore, no assurance can be given that the Company will have sufficient
resources to satisfy its repurchase obligation with respect to the Notes
following a Change of Control. See "Description of Exchange Notes--Repurchase at
the Option of Holders."
FRAUDULENT TRANSFER CONSIDERATIONS
Substantially all of the net proceeds of the offering of the Old Notes were
applied to repay indebtedness incurred by the Company in connection with its
acquisition of various properties. Management of the Company believes that such
indebtedness was incurred, and that the indebtedness represented by the Notes
was incurred, for proper purposes and in good faith and that the Company was, at
the time of each such acquisition, currently is, and after the consummation of
the Lake Lanier Transaction will be, solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of the indebtedness relating to any of the
acquisitions or the issuance of the Notes, the Company was insolvent, was
rendered insolvent by reason of such incurrence, was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things: (i) void
all or a portion of the Company's obligations under the Notes, the effect of
which would be that holders of the Notes may not be repaid in full or at all
and/or (ii) subordinate the Company's obligations to other existing and future
indebtedness of the Company, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes.
LACK OF PUBLIC MARKET FOR THE SECURITIES
There is no existing market for the Exchange Notes, and although the Old
Notes have been designated for trading in the PORTAL Market, the National
Association of Securities Dealers' screen-based automated market for trading of
securities eligible for resale under Rule 144A, there can be no assurance as to
the liquidity of any market that may develop for the Exchange Notes, the ability
of holders of the Exchange Notes to sell their Exchange Notes, or the price at
which holders would be able to sell their Exchange Notes. Future trading prices
of the Exchange Notes will depend on many factors, including, among other
things, prevailing interest rates, the Issuer's operating results and the market
for similar
28
<PAGE>
securities. The Issuer does not intend to apply for listing of the Exchange
Notes on any securities exchange or the Nasdaq National Market. The Company has
been advised by the Initial Purchasers that the Initial Purchasers currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so and any market-making activities with respect to the
Exchange Notes may be discontinued at any time without notice. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the
Exchange Notes. There can be no assurance that, if a market for the Exchange
Notes were to develop, such a market would not be subject to similar
disruptions. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of any shelf registration statement.
See "Plan of Distribution."
USE OF PROCEEDS
There will be no proceeds to the Issuer from the exchange of Notes pursuant
to the Exchange Offer.
The gross proceeds from the offering of the Old Notes were $125.0 million
which, together with $100.0 million of term loans under the New Credit Facility
and a $75.0 million drawing under the revolving credit portion of the New Credit
Facility, were used (i) to repay approximately $265.0 million of outstanding
indebtedness of subsidiaries of the Company outstanding at the time of the
offering of the Old Notes, including approximately (a) $131.7 million of Desert
Resorts indebtedness, (b) $69.3 million of Fairways indebtedness and (c) $64.0
million of Doral indebtedness, (ii) to make a loan of approximately $20.8
million to KSL Land, which was used to repay indebtedness of KSL Land with
respect to which Desert Resorts was a co-obligor, (iii) to pay prepayment
penalties and fees and expenses incurred in connection with the Refinancings and
(iv) for general corporate purposes. The New Credit Facility provides for term
loans of $100.0 million and revolving borrowings of up to $175.0 million for
working capital purposes, including acquisitions.
The indebtedness repaid at Desert Resorts accrued interest at an average
effective rate of approximately 11.8% per annum and was to mature in December
1997. The indebtedness repaid at Fairways accrued interest at an average
effective rate of approximately 8.5% per annum and was to mature from June 1998
through December 2009, with the majority of such indebtedness maturing in April
2002; approximately $14.7 million (net of principal repayments) of such
indebtedness was incurred during 1996 to purchase four golf course facilities.
The indebtedness repaid at Doral accrued interest at an average effective rate
of approximately 8.7% per annum and was to mature from December 1999 through
December 2001.
29
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical cash and cash equivalents
and capitalization of the Company at April 30, 1997 and (ii) the cash and cash
equivalents and capitalization of the Company at April 30, 1997, after giving
pro forma effect to the Lake Lanier Transaction as if it had occurred on April
30, 1997. The following pro forma data do not purport to be indicative of the
actual cash and cash equivalents or capitalization that would have occurred had
the transactions and events reflected therein in fact occurred on the date
specified. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-----------------------
<S> <C> <C>
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................. $ 36,325 $ 25,427
---------- -----------
---------- -----------
Long-term debt (including current portion):
New Credit Facility:(1)
Term loans........................................................ $ 100,000 $ 100,000
Revolving loans................................................... 75,000 75,000
The Notes........................................................... 125,000 125,000
Capital lease obligations(2)........................................ 8,582 39,733
---------- -----------
Total long-term debt............................................ 308,582 339,733
---------- -----------
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized; 1,000 shares
issued and outstanding............................................ -- --
Additional paid-in-capital.......................................... 197,361 197,361
Accumulated deficit................................................. (18,843) (18,843)
---------- -----------
Total stockholder's equity...................................... 178,518 178,518
---------- -----------
Total capitalization.................................................. $ 487,100 $ 518,251
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The New Credit Facility provides for term loans of $100.0 million and
revolving borrowings of up to $175.0 million. The Company borrowed the full
amount of the term loans and made a $75.0 million drawing under the
revolving credit portion of the New Credit Facility on April 30, 1997.
Subject to restrictions contained in the New Credit Facility, the Company
has $100.0 million of additional availability under the revolving credit
portion of the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness--New Credit
Facility."
(2) Represents $8.6 million of existing capital lease obligations and, on a pro
forma basis, an additional $31.1 million of capital lease obligations to be
incurred in connection with the Lake Lanier Transaction.
30
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The consolidated income statement data for the period from July 6, 1993
(when a majority interest in Fairways was acquired) through October 31, 1993 and
the consolidated balance sheet data at October 31, 1993 and 1994 are derived
from audited consolidated financial statements of the Company which are not
included in this Prospectus. The consolidated income statement data for the
three fiscal years ended October 31, 1996 and the consolidated balance sheet
data at October 31, 1995 and 1996 are derived from consolidated financial
statements of the Company audited by Deloitte & Touche LLP, independent public
auditors.
Consolidated balance sheet data at April 30, 1996 and 1997 and consolidated
income statement data for the six month periods ended April 30, 1996 and 1997
are derived from unaudited consolidated financial statements of the Company,
included elsewhere herein, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the information. Data at and
for the six months ended April 30, 1997 do not purport to be indicative of
results to be expected for the full year.
The following information should be read in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD ENDED
ENDED FISCAL YEAR ENDED OCTOBER 31, APRIL 30,
OCTOBER 31, ------------------------------- ----------------------
1993(1) 1994(2) 1995 1996 1996 1997
----------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
CONSOLIDATED INCOME STATEMENT DATA:
Revenues................................. $ 8,631 $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses....................... 8,066 116,184 153,615 165,493 85,108 92,189
----------- --------- --------- --------- --------- -----------
Income from operations................... 565 8,026 4,636 14,781 21,443 30,652
Net interest expense..................... 1,074 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility............ -- -- (2,684) -- -- --
Minority interests in losses of
subsidiaries........................... 21 458 201 58 78 182
Income tax expense (benefit)............. -- -- -- (291) (3) 2,195
Extraordinary items, net of income tax... -- (2,202) -- 32,120 32,120 (3,138)
----------- --------- --------- --------- --------- -----------
Net income (loss)........................ $ (488) $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
----------- --------- --------- --------- --------- -----------
----------- --------- --------- --------- --------- -----------
OTHER DATA:
Adjusted EBITDA(3)....................... $ 2,162 $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
Net Membership Deposits(4)............... -- 24,218 6,347 4,391 2,004 3,593
Adjusted Net Membership Deposits(5)...... -- 351 234 4,391 2,004 3,593
Other non-cash items..................... -- 228 885 873 89 330
Capital expenditures..................... 472 15,105 52,639 25,240 13,030 7,268
Revenue growth........................... -- -- 27.4% 13.9% -- 15.3%
Adjusted EBITDA margin(6)................ 25.1% 18.5% 16.6% 24.3% 32.8% 38.8%
Ratio of earnings to fixed charges(7).... -- -- -- -- 1.6x 1.9x
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 6,393 $ 39,393 $ 9,968 $ 9,343 $ 14,257 $ 36,325
Working capital(8)....................... 4,264 36,923 (1,365) (1,771) 14,315 38,063
Total assets............................. 68,420 565,583 578,447 577,922 578,426 575,246
Long-term debt (including current
portion)............................... 37,716 324,343 324,604 271,411 263,085 308,582
Total stockholder's equity............... 27,513 187,966 197,431 221,976 243,543 178,518
</TABLE>
31
<PAGE>
- ------------------------
(1) Reflects operations from July 6, 1993 through October 31, 1993.
(2) Desert Resorts and Doral were acquired in December 1993. Accordingly, the
Company's operating results for fiscal 1994 include only ten months of
operations for Desert Resorts and Doral.
(3) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization, loss on sale
of golf facility, extraordinary items, and certain non-cash items
(consisting of recurring gains and losses on sale or disposal of fixed
assets and accretion of future membership liabilities), plus Adjusted Net
Membership Deposits and is consistent with the definition that is contained
in the Indenture. Adjusted EBITDA is presented to assist in understanding
the Company's operating results. Adjusted EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles ("GAAP") and should not be considered as an
alternative to cash flow as a measure of liquidity or as an alternative to
net earnings as an indicator of operating performance.
(4) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(5) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with initial conversion
of such members to new membership plans at Desert Resorts, were nonrecurring
in nature.
(6) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues, in each case for the applicable period.
(7) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries, to earnings before income
taxes and extraordinary items and (ii) fixed charges are comprised of
interest expense, capitalized interest and the estimated interest portion of
rental expense. Earnings were insufficient to cover fixed charges for the
period ended October 31, 1993, and the fiscal years ended October 31, 1994,
1995 and 1996 by $509, $6,064, $17,574 and $13,506, respectively.
(8) At October 31, 1995 and 1996, the Company's working capital deficit resulted
from the current portion of Doral's indebtedness which totalled $6.0 million
and $4.5 million for 1995 and 1996, respectively.
32
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--
THE PREDECESSORS
The following table sets forth selected historical financial data of (i) the
Hotel at La Quinta (the "Hotel"), (ii) Doral and (iii) Fairways, in each case,
for periods prior to their acquisition by Parent. The income statement data for
the years ended December 31, 1992 and December 31, 1993 and the balance sheet
data at December 31, 1992 and December 31, 1993 exclude the results of
operations and assets of PGA WEST and the club operations at La Quinta (the
"Excluded Assets") because such data are not available for such periods. The
assets and operations that currently comprise the operations of Desert Resorts
were acquired on December 30, 1993 from the Resolution Trust Corporation (the
"RTC"), which was administering the assets and operations of Landmark Land
Company of California ("Landmark California"), including the Excluded Assets.
The RTC maintained a separate Hotel accounting staff and separate financial
records with respect to the Hotel throughout the period during which the RTC
administered the operations and assets at Desert Resorts; however, no such
financial records were maintained with respect to the Excluded Assets. In
addition, the Excluded Assets represented only a portion of the total operations
of Landmark California. Furthermore, since the acquisition of the Excluded
Assets by Parent in December 1993, the operations of the Excluded Assets have
been significantly restructured. Specifically: (i) the golf, tennis and other
membership programs at PGA WEST and La Quinta have been substantially changed;
(ii) the operations of PGA WEST and La Quinta have been integrated into a single
resort operation; and (iii) expenses such as RTC oversight fees, bankruptcy
expenses and costs associated with operations of Landmark California that were
not acquired by Parent are no longer incurred in connection with the Excluded
Assets. As a result of the foregoing, the Company believes that there is a
substantial lack of continuity in the operation of the Excluded Assets and that
any presentation of financial data relating to the Excluded Assets would not be
meaningful to an investor. Accordingly, such data have been excluded from the
following table.
<TABLE>
<CAPTION>
HOTEL AT LA QUINTA DORAL FAIRWAYS
------------------------ ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------ ---------------------- --------------------
<CAPTION>
1992 1993 1992 1993 1992 1993(1)
----------- ----------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................ $33,107 $34,247 $55,994 $55,330 $21,843 $10,692
Operating expenses.............................. 37,921 37,955 54,525 58,996 22,080 10,111
----------- ----------- ---------- ---------- --------- ---------
Operating income (loss)......................... (4,814) (3,708) 1,469 (3,666) (237) 581
Net interest expense............................ 9,083 10,775 4,467 4,470 4,213 2,164
----------- ----------- ---------- ---------- --------- ---------
Net income (loss)............................... $(13,897) $(14,483) $(2,998) $(8,136) $(4,450) $(1,583)
----------- ----------- ---------- ---------- --------- ---------
----------- ----------- ---------- ---------- --------- ---------
Ratio of earnings to fixed charges(2)............. -- -- -- -- -- --
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,951 $ 3,784 $ 2,528 $ 2,357 $ 424 $ --
Working capital................................. (37,981) (6,731) (3,189) 19,212 (2,345) 1,268
Total assets.................................... 90,231 86,054 58,238 128,189 49,191 47,292
Long-term debt (including current portion)...... 114,254 156,667 55,582 75,800 41,566 44,356
Total stockholders' equity (deficit)............ (69,795) (84,277) (18,144) 47,263 1,682 (598)
</TABLE>
- ------------------------
(1) Reflects operations from January 1, 1993 through July 5, 1993 (the date of
acquisition by Parent).
(2) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense and the estimated interest portion of rental expense to
earnings before income taxes and (ii) fixed charges are comprised of
interest expense and the estimated interest portion of rental expense.
Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992 and 1993 for the Hotel at La Quinta by $13,897 and
$14,483, respectively, and for the years ended December 31, 1992 and 1993 at
Doral by $2,998 and $8,136, respectively, and for the year ended December
31, 1992 and the period from January 1, 1993 to July 5, 1993 at Fairways by
$4,450 and $1,583, respectively.
33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") have been derived through the application of
pro forma adjustments to the Company's historical consolidated financial
statements included elsewhere in this Prospectus. The Pro Forma Financial
Statements have been prepared to illustrate the effects of the Refinancings, the
Lake Lanier Transaction and the Concurrent Transactions.
On May 15, 1996, the Company entered into the Lake Lanier Management
Agreement to manage the facilities at Lake Lanier Islands with LLIDA, which
subleases the facilities from the Department of Natural Resources, State of
Georgia, which leases the property from the Corps of Engineers. The Lake Lanier
Management Agreement provides for a monthly fee of $160,000 payable to the
Company. Subsequent to May 15, 1996, the Company executed a 50-year sublease
with LLIDA, with certain rights to extend the sublease a minimum of an
additional ten years upon certain conditions. The sublease is being held in
escrow pending approval of the master development plan by the Corps of
Engineers, a finding of no significant impact under the National Environmental
Policy Act and the completion of exhibits and transfer documents. The Company
currently anticipates that it will close the sublease in July 1997.
The sublease will be accounted for as a capital lease. Accordingly, the
Company will record the net assets acquired pursuant to the sublease and will
recognize the net present value of the related minimum lease payments. In
addition, in connection with the sublease and concurrently with the Refinancings
(as described below), Parent contributed $9.0 million in cash to the Issuer to
fund the purchase by the Company of certain equipment and other assets used in
the operation of the Lake Lanier Islands facilities that will not be leased
pursuant to the sublease.
The Lake Lanier Management Agreement provides that, at the closing of the
sublease, the Company and LLIDA will be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement will terminate. Accordingly, at the closing of the sublease, the
Company will be credited with the net earnings (as defined) of Lake Lanier
Islands from May 15, 1996 to such date less amounts earned by the Company
pursuant to the Lake Lanier Management Agreement. The net amount paid to or by
the Company will be recognized as an adjustment to the recorded values of the
assets acquired pursuant to the sublease. The sublease, together with the
capital contribution and the asset acquisition, is referred to herein as the
"Lake Lanier Transaction." Because the Company expects the sublease to become
effective in 1997, the Pro Forma Financial Statements give effect thereto, as
discussed below. See "Business--Properties; Lake Lanier Transaction."
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with the
consummation of the Refinancings: (i) Parent contributed the outstanding capital
stock of the parent of Desert Resorts, Doral, Fairways and Lake Lanier Islands
to the Issuer, as a result of which they became wholly-owned subsidiaries of the
Issuer; (ii) KSL Landmark Corporation (which owned Desert Resorts and into which
Desert Resorts was merged effective July 1, 1997) dividended to Parent (through
the Issuer) all of the general partnership interests and Class A limited
partnership interests owned by KSL Landmark Corporation in four affiliated
limited partnerships whose principal assets were beneficial interests in
undeveloped commercial and residential real estate parcels in the vicinity of
Desert Resorts, thereby removing ongoing funding obligations of the Company for
holding costs relating to undeveloped land; (iii) the Company sold to KSL Land
at historical cost (which approximated fair market value) the general
partnership interest and Class A limited partnership interest owned by KSL
Landmark Corporation in an additional limited partnership whose principal assets
were residential real estate parcels in the vicinity of Desert Resorts; (iv)
Parent, the Company and affiliates settled intercompany balances, which resulted
in an increase in cash to the Company of $46.3 million; (v) the Company
distributed to Parent in cash excess equity funding of $46.3 million contributed
by Parent to Desert Resorts at the time of acquisition; (vi) the Company
distributed $13.9 million in cash to Parent, which was recorded as a return of
capital to Parent; and (vii) certain management, lending and other
34
<PAGE>
agreements used to allocate corporate general and administrative expenses
between Parent and its subsidiaries prior to the Refinancings were cancelled and
the Issuer and Parent entered into the Expense Allocation Agreement which has
resulted in an increase in corporate general and administrative expenses of the
Company since April 30, 1997 (the transactions described in clauses (i) through
(vii) above being referred to herein as the "Concurrent Transactions"). See
"Certain Related Transactions." The Concurrent Transactions did not reflect
possible future dividends by the Company of additional parcels of land which may
occur following the receipt of applicable state and local government approvals.
The unaudited pro forma consolidated statements of operations for the fiscal
year ended October 31, 1996 and the six months ended April 30, 1997 give effect
to the Refinancings and the Concurrent Transactions as if such transactions had
occurred at the beginning of the earliest period presented and to the Lake
Lanier Transaction, as if it had occurred on May 15, 1996. The unaudited pro
forma consolidated balance sheet as of April 30, 1997 gives effect to the Lake
Lanier Transaction as if such transaction had occurred on April 30, 1997.
The Pro Forma Financial Statements do not purport to present the actual
financial position or results of operations that would have occurred had the
transactions and events reflected therein occurred on the dates specified, nor
do they purport to be indicative of the results of operations or financial
condition the Company may achieve in the future. The Pro Forma Financial
Statements are based on certain assumptions and adjustments described in the
notes hereto and should be read in conjunction therewith.
The Pro Forma Financial Statements should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of the Company
and notes thereto included elsewhere in this Prospectus.
35
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE
LANIER
HISTORICAL TRANSACTION PRO FORMA
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 36,325 (9,000)(A) $ 25,427
(198)(B)
2,619(C)
(1,424)(D)
(2,895)(E)
Restricted cash........................................................ 3,629 (2,619)(C) 1,010
Accounts receivable, net............................................... 20,403 932(D) 21,335
Inventories............................................................ 7,192 317(D) 7,509
Other.................................................................. 6,915 507(D) 7,422
----------- ----------- -------------
Total current assets............................................. 74,464 (11,761) 62,703
Property and equipment, net............................................ 358,352 9,000(A) 400,478
1,777(D)
31,349(F)
Note receivable from KSL Land.......................................... 20,800 20,800
Restricted cash, long term............................................. 127 127
Other.................................................................. 36,899 36,899
Excess of cost over fair value of assets acquired, net................. 84,604 84,604
----------- ----------- -------------
Total assets..................................................... $ 575,246 $ 30,365 $ 605,611
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable....................................................... $ 5,416 $ 551(D) $ 5,967
Accrued expenses....................................................... 16,375 1,197(D) 17,572
Current portion of long term debt...................................... 1,000 1,000
Current portion of obligations under capital leases.................... 3,143 26(F) 3,169
Payable to affiliates.................................................. 31 31
Due to Lake Lanier Islands Development Authority....................... 2,895 (2,895)(E) --
Other.................................................................. 7,541 361(D) 7,902
----------- ----------- -------------
Total current liabilities........................................ 36,401 (760) 35,641
Long-term debt:
Long-term debt, less current portion................................... 299,000 299,000
Obligations under capital leases, less current portion................. 5,439 31,323(F) 36,564
(198)(B)
----------- ----------- -------------
Total long-term debt............................................. 304,439 31,125 335,564
Deferred income taxes.................................................. 16,760 16,760
Member deposits........................................................ 38,920 38,920
Minority interests in equity of subsidiaries........................... 208 208
STOCKHOLDER'S EQUITY:
Common stock and additional paid-in capital............................ 197,361 197,361
Accumulated deficit.................................................... (18,843) (18,843)
----------- ----------- -------------
Total stockholder's equity....................................... 178,518 -- 178,518
----------- ----------- -------------
Total liabilities and stockholder's equity....................... $ 575,246 $ 30,365 $ 605,611
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheets.
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
(A) Reflects the purchase of certain equipment and other assets used in the
operation of the Lake Lanier Islands facilities that will not be leased
pursuant to the sublease.
(B) Reflects the repayment to LLIDA of management fees previously paid to the
Company by LLIDA pursuant to the Lake Lanier Management Agreement ($1,843)
and the payment of rent paid by the Company to LLIDA pursuant to the
sublease ($2,971), offset by the earnings (as defined) of Lake Lanier
Islands for the period from May 15, 1996 to April 30, 1997 ($4,616).
(C) Reflects the reclassification from restricted cash to unrestricted cash of
cash attributable to the operations of Lake Lanier Islands for the period
from May 15, 1996 to April 30, 1997, which was accumulated and held by the
Company in a fiduciary capacity pursuant to the terms of the Lake Lanier
Management Agreement.
(D) Reflects the transfer to the Company by LLIDA of the remaining assets and
liabilities of Lake Lanier Islands and a cash payment to the Company by
LLIDA of the excess of liabilities over the assets to be acquired.
(E) Reflects the repayment by the Company to LLIDA of cash collected and held by
the Company on behalf of LLIDA and amounts due to LLIDA for the period from
May 15, 1996 to April 30, 1997.
(F) Reflects the net assets leased pursuant to the sublease and the net present
value of the related minimum lease payments.
37
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE THE
LANIER PRO FORMA CONCURRENT THE PRO FORMA
HISTORICAL TRANSACTION(A) LAKE LANIER TRANSACTIONS REFINANCINGS THE COMPANY
---------- -------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 180,274 $ 12,131 $ 192,405 $ -- $ -- $ 192,405
Operating expenses..................... 165,493 10,110 175,603 (319)(B) -- 178,863
3,579(C)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) from operations.......... 14,781 2,021 16,802 (3,260) -- 13,542
Interest expense, including
amortization of debt issuance costs,
net.................................. 27,710 1,346 29,056 -- 28,063(D) 29,142
(27,977)(E)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before minority
interests, income taxes and
extraordinary items.................. (12,929) 675 (12,254) (3,260) (86) (15,600)
Minority interests in loss of
subsidiaries......................... 58 -- 58 -- -- 58
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before income taxes and
extraordinary items.................. (12,871) 675 (12,196) (3,260) (86) (15,542)
Income tax expense (benefit)........... (291) 256 (35) -- -- (35)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before extraordinary
items................................ (12,580) 419 (12,161) (3,260) (86) (15,507)
Extraordinary gain on early
extinguishment of debt, net of tax... 32,120 -- 32,120 -- -- 32,120
---------- -------------- ----------- ------------ ------------- -------------
Net income............................. $ 19,540 $ 419 $ 19,959 $ (3,260) $ (86) $ 16,613
---------- -------------- ----------- ------------ ------------- -------------
---------- -------------- ----------- ------------ ------------- -------------
OTHER DATA:
Adjusted EBITDA........................ $ 43,873 $ 44,060
Net Membership Deposits................ 4,391 4,391
Adjusted Net Membership Deposits....... 4,391 4,391
Other non-cash items................... 873 873
Adjusted EBITDA margin................. 24.3% 22.9%
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
38
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE THE
LANIER REFINANCINGS PRO FORMA
HISTORICAL TRANSACTION(A) AND OTHER THE COMPANY
---------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 122,841 $ 5,271 $ 128,112
Operating expenses........................................... 92,189 7,536 1,447(C) 101,172
---------- ------- ------------ -------------
Income (loss) from operations................................ 30,652 (2,265) (1,447) 26,940
Interest expense, including amortization of debt issuance
costs, net.................................................. 15,605 1,438 14,259(D) 15,924
(15,378)(E)
---------- ------- ------------ -------------
Income (loss) before minority interests, income taxes and
extraordinary items......................................... 15,047 (3,703) (328) 11,016
Minority interests in loss of subsidiaries................... 182 -- -- 182
---------- ------- ------------ -------------
Income (loss) before income taxes and extraordinary items.... 15,229 (3,703) (328) 11,198
Income tax expense (benefit)................................. 2,195 (57) -- 2,138
---------- ------- ------------ -------------
Income(loss) before extraordinary items...................... 13,034 (3,646) (328) 9,060
Extraordinary loss on early extinguishment of debt, net of
tax......................................................... (3,138) -- -- (3,138)
---------- ------- ------------ -------------
Net income................................................... $ 9,896 $ (3,646) $ (328) $ 5,922
---------- ------- ------------ -------------
---------- ------- ------------ -------------
OTHER DATA:
Adjusted EBITDA.............................................. $ 47,673 $ 45,396
Net Membership Deposits...................................... 3,593 3,593
Adjusted Net Membership Deposits............................. 3,593 3,593
Other non-cash items......................................... 330 330
Adjusted EBITDA margin....................................... 38.8% 35.4%
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) Reflects the results of operations of Lake Lanier Islands as if the Lake
Lanier Transaction had occurred on May 15, 1996. Also reflects adjustments
to reverse management fees included in the Company's historical revenues
associated with the operation by the Company of Lake Lanier Islands during
the relevant period pursuant to the Lake Lanier Management Agreement.
(B) Reflects the elimination of the historical losses of the limited
partnerships in which the Company ceased to have an ownership interest
following the Concurrent Transactions.
(C) Reflects the increase in corporate general and administrative expenses that
would have occurred under the Expense Allocation Agreement following the
Refinancings and the Lake Lanier Transaction.
(D) Reflects interest expense related to borrowings under the New Credit
Facility and the Exchange Notes as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED APRIL 30,
OCTOBER 31, 1996 1997
---------------- -------------
<S> <C> <C>
Term Loan A of $50,000 under the New Credit Facility (at an assumed
weighted average interest rate of 8.50%)............................. $ 4,309 $ 2,137
Term Loan B of $50,000 under the New Credit Facility (at an assumed
weighted average interest rate of 8.75%)............................. 4,436 2,200
Revolving Loans under the New Credit Facility (based upon outstanding
borrowings of $75,000 at an annual weighted average interest rate of
8.00%)............................................................... 5,506 3,016
The Exchange Notes (at an interest rate of 10.25%).................... 12,812 6,406
------- -------------
27,063 13,759
Amortization of debt issuance cost related to the New Credit Facility
and the Exchange Notes............................................... 1,000 500
------- -------------
Total......................................................... $ 28,063 $ 14,259
------- -------------
------- -------------
</TABLE>
(E) Reflects elimination of interest expense, including amortization of debt
issuance costs, in connection with the Refinancings as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED APRIL 30,
OCTOBER 31, 1996 1997,
---------------- -------------
<S> <C> <C>
Desert Resorts indebtedness........................................... $ 15,623 $ 8,982
Fairways indebtedness................................................. 6,274 3,371
Doral indebtedness.................................................... 6,080 3,025
------- -------------
Total......................................................... $ 27,977 $ 15,378
------- -------------
------- -------------
</TABLE>
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. DOLLAR
AMOUNTS INCLUDED IN THIS SECTION ARE IN THOUSANDS, EXCEPT REFERENCES TO ADR AND
REVPAR (EACH AS DEFINED HEREIN) AND GOLF MEMBERSHIP DEPOSITS, WHICH ARE
REFERENCES TO ACTUAL AMOUNTS.
The information contained herein includes forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause
actual results, performance, achievements of the Company, or industry results to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to: the competitive environments in the golf and resort
industries in general and in the Company's specific market areas; changes in
prevailing interest rates and the availability of and terms of financing to fund
the anticipated growth of the Company's business; inflation; changes in costs of
goods and services; economic conditions in general and in the Company's specific
market areas; demographic changes; changes in or failure to comply with federal,
state and/or local government regulations; liability and other claims asserted
against the Company; changes in operating strategy or development plans; the
ability to attract and retain qualified personnel; the significant indebtedness
of the Company; labor disturbances; changes in the Company's acquisition and
capital expenditure plans; and other factors referenced herein. In addition,
such forward-looking statements are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates," "intends," or the negative thereof, or other variations thereon
or comparable terminology, or by discussions of strategy or intentions. Certain
of the foregoing factors are discussed in more detail elsewhere in this
Prospectus, including, without limitation, under the caption "Risk Factors."
GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
GENERAL
The Company's business currently consists of resort operations and community
golf operations. The Company presently owns and operates Desert Resorts and
Doral, two world-renowned destination resorts, and operates Lake Lanier Islands,
a regional destination resort and recreational facility near Atlanta, Georgia,
pursuant to the Lake Lanier Management Agreement. In addition, through Fairways,
the Company operates 22 golf course properties (21 of which it owns and one of
which it leases).
The Company was formed in mid-1993 and acquired Fairways in July 1993. At
the time it was acquired by the Company, Fairways owned and operated 11 golf
course properties, one of which was subsequently sold. Since July 1993, Fairways
has acquired 12 additional golf course properties. Because of these acquisitions
and dispositions, the Company's results of operations are not comparable from
fiscal period to fiscal period. Of Fairways' 22 facilities, five are private
clubs, 12 are semi-private clubs and five are public (or daily fee) facilities.
The Company's operating strategy for Fairways has been to form "clusters" of
courses within geographic areas in order to create economies of scale in
management and purchasing and to promote reciprocity among clubs for the members
within these clusters. Since the Company acquired Fairways in 1993, revenues and
Adjusted EBITDA for the Company's community golf operations have increased from
$28,742 and $7,282, respectively, for the fiscal year ended October 31, 1994, to
$44,766 and $10,970, respectively, for the fiscal year ended October 31, 1996.
41
<PAGE>
In December 1993, the Company acquired Desert Resorts (consisting of La
Quinta and PGA WEST) and Doral. Prior to their acquisition by the Company, each
of La Quinta and PGA WEST was operated as a separate business unit. Following
their acquisition, La Quinta and PGA WEST were integrated by the Company into a
single destination resort. Since the acquisition of both Desert Resorts and
Doral, the Company has invested significant capital in facilities-related
improvements and has initiated measures designed to achieve operating
efficiencies and reduce costs at its resorts. As a result of these capital
improvements and operating initiatives, revenues and Adjusted EBITDA for the
Company's resort operations have increased from $95,468 and $15,876,
respectively, for the fiscal year ended October 31, 1994, to $134,626 and
$32,108, respectively, for the fiscal year ended October 31, 1996.
On May 15, 1996, the Company began operating Lake Lanier Islands pursuant to
the Lake Lanier Management Agreement. The Lake Lanier Management Agreement
provides for a monthly fee of $160 payable to the Company. Subsequent to May 15,
1996, the Company executed a 50-year sublease with LLIDA, with certain rights to
extend the sublease a minimum of an additional ten years under certain
conditions. The sublease is being held in escrow pending approval of the master
development plan by the Corps of Engineers, a finding of no significant impact
under the National Environmental Policy Act and the completion of exhibits and
transfer documents. The Company currently anticipates that it will close the
sublease in July 1997. In connection with the sublease, concurrently with the
Refinancings, Parent contributed $9,000 in cash to the Issuer to fund the
purchase of fixed assets used in the operation of the Lake Lanier Islands
facilities that will not be leased pursuant to the sublease. See
"Business--Properties; Lake Lanier Transaction."
The Lake Lanier Management Agreement provides that, at the closing of the
sublease, the Company and LLIDA will be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement will terminate. Accordingly, at the closing of the sublease, the
Company will be credited with the net earnings (as defined) of Lake Lanier
Islands from May 15, 1996 to such date less amounts earned by the Company
pursuant to the Lake Lanier Management Agreement. The net amount paid to the
Company will be recognized as a reduction to the recorded values of the assets
acquired pursuant to the sublease. See "Unaudited Pro Forma Consolidated
Financial Statements" and "Business--Properties; Lake Lanier Transaction."
The Company generates revenues at Fairways through non-refundable initiation
fees, membership dues, greens fees, golf cart rentals, retail (pro shop) sales
and food and beverage sales.
The Company generates revenues at Desert Resorts and Doral from room
revenues, greens fees, food and beverage sales and, to a lesser extent,
membership dues and merchandise (pro shop and retail) sales. Revenues at Desert
Resorts and Doral do not include Net Membership Deposits, which are defined as
the amount of refundable membership deposits paid by new and upgraded resort
club members and by existing members who have converted to new membership plans,
in each case in cash, plus principal payments in cash received on notes in
respect thereof, minus the amount of any refunds paid in cash in respect of such
deposits. The price of a full golf membership deposit ranges from between
$42,500 and $50,000 at Desert Resorts, depending on the club and type of
membership, and is $12,500 at Doral. These membership deposits are fully
refundable in thirty years (or sooner under certain circumstances). In
accordance with GAAP, the Company accounts for membership deposits as "cash
provided from financing activities" on its statement of cash flows and reports a
liability on its balance sheet equal to the amount of such membership deposits.
In addition to income statement data in accordance with GAAP, this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes a discussion of the Company's Adjusted EBITDA, which is
defined as net income before income tax expense (benefit), net interest expense,
depreciation and amortization, loss on sale of golf facility, extraordinary
items and other non-cash items, plus Adjusted Net Membership Deposits. Adjusted
Net Membership Deposits is defined as Net Membership Deposits, excluding in
fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million, respectively,
42
<PAGE>
of Net Membership Deposits which, because these amounts were paid by existing
resort club members in connection with initial conversion of such members to new
membership plans at Desert Resorts, were nonrecurring in nature. In fiscal 1994
and 1995, Desert Resorts introduced new membership programs at the PGA WEST and
La Quinta private clubs, respectively. These new programs, which provide for the
payment of a fully refundable (in thirty years, or sooner under certain
circumstances) membership deposit to join one or both of the clubs, and were
offered, on an optional basis, to then existing members of each of the two
private clubs. Accordingly, existing members who chose to convert to the new
membership program paid a new membership deposit. Information regarding Adjusted
EBITDA has been provided because the Company believes that it assists in
understanding the Company's operating results. Adjusted EBITDA is not intended
to represent cash flow from operations as defined by GAAP and should not be
considered as an alternative to cash flow as a measure of liquidity or as an
alternative to net earnings as an indicator of operating performance.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations and other data of the Company.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED OCTOBER 31, APRIL 30,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses.......................................... 116,184 153,615 165,493 85,108 92,189
---------- ---------- ---------- ---------- ----------
Income from operations...................................... 8,026 4,636 14,781 21,443 30,652
Net interest expense........................................ 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility............................... -- (2,684) -- -- --
Minority interests in losses of subsidiaries................ 458 201 58 78 182
Income tax expense (benefit)................................ -- -- (291) (3) 2,195
Extraordinary items, net of income tax...................... (2,202) -- 32,120 32,120 (3,138)
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Adjusted EBITDA(1).......................................... $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
Net Membership Deposits(2).................................. 24,218 6,347 4,391 2,004 3,593
Adjusted Net Membership Deposits(3)......................... 351 234 4,391 2,004 3,593
Non-cash items.............................................. 228 885 873 89 330
</TABLE>
- ------------------------------
(1) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization, loss on sale
of golf facility, extraordinary items, and other non-cash items, plus
Adjusted Net Membership Deposits (as defined below) and is consistent with
the definition that is contained in the Indenture. Adjusted EBITDA is
presented to assist in understanding the Company's operating results.
Adjusted EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an alternative to cash flow
as a measure of liquidity or as an alternative to net earnings as an
indicator of operating performance.
(2) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits.
(3) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995 $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with the initial
conversion of such members to new membership plans at Desert Resorts, were
nonrecurring in nature.
43
<PAGE>
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO THE SIX MONTHS ENDED APRIL 30, 1996
REVENUES. Revenues increased by $16,290, or 15.3%, from $106,551 in the
first two fiscal quarters of 1996 to $122,841 in the first two fiscal quarters
of 1997. This increase reflected increases in revenues at each of the Company's
operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $6,686, or
12.8%, from $52,368 in the first two fiscal quarters of 1996 to $59,054 in
the first two fiscal quarters of 1997. This increase was primarily
attributable to (i) an increase in room revenues of $2,076, or 12.6%, from
$16,515 in the first two fiscal quarters of 1996 to $18,591 in the first two
fiscal quarters of 1997, (ii) an increase in food and beverage sales of
$1,814, or 14.8%, from $12,297 in the first two fiscal quarters of 1996 to
$14,111 in the first two fiscal quarters of 1997 and (iii) an increase in
golf fees and dues of $1,746, or 12.3%, from $14,250 in the first two fiscal
quarters of 1996 to $15,996 in the first two fiscal quarters of 1997. The
increase in room revenues was attributable to (i) an increase in occupancy
rate from 69% in the first two fiscal quarters of 1996 to 77% in the first
two fiscal quarters of 1997 and (ii) an increase in the average daily rate
("ADR") from $203 in the first two fiscal quarters of 1996 to $204 in the
first two fiscal quarters of 1997, resulting in an increase in revenue per
available room ("RevPAR") from $139 in the first two fiscal quarters of 1996
to $157 in the first two fiscal quarters of 1997. The increases in food and
beverage sales and golf fees and dues were primarily attributable to the
increase in occupancy and membership.
DORAL. Revenues at Doral increased by $7,387, or 20.2%, from $36,540 in
the first two fiscal quarters of 1996 to $43,927 in the first two fiscal
quarters of 1997. This increase was primarily attributable to (i) an
increase in room revenues of $2,509, or 16.9%, from $14,820 in the first two
fiscal quarters of 1996 to $17,329 in the first two fiscal quarters of 1997,
(ii) an increase in food and beverage sales of $2,253, or 23.0%, from $9,788
in the first two fiscal quarters of 1996 to $12,041 in the first two fiscal
quarters of 1997 and (iii) an increase in golf fees and dues of $1,563, or
32.1%, from $4,870 in the first two fiscal quarters of 1996 to $6,433 in the
first two fiscal quarters of 1997. The increase in room revenues was
attributable to (i) an increase in occupancy rate from 73% in the first two
fiscal quarters of 1996 to 79% in the first two fiscal quarters of 1997 and
(ii) an increase in the ADR from $156 in the first two fiscal quarters of
1996 to $173 in the first two fiscal quarters of 1997, resulting in an
increase in RevPAR from $114 in the first two fiscal quarters of 1996 to
$137 in the first two fiscal quarters of 1997. The increases in food and
beverage sales and golf fees were primarily attributable to the increase in
occupancy rate.
FAIRWAYS. Revenues at Fairways increased by $1,256, or 7.1%, from
$17,642 in the first two fiscal quarters of 1996 to $18,898 in the first two
fiscal quarters of 1997. This increase was primarily attributable to an
increase in golf fees and dues of $1,530, or 13.1%, from $11,698 in the
first two fiscal quarters of 1996 to $13,228 in the first two fiscal
quarters of 1997, offset by a decrease of $299, or 21.0%, in merchandise
sales from $1,421 in the first two fiscal quarters of 1996 to $1,122 in the
first two fiscal quarters of 1997. The increase in golf fees and dues was
primarily attributable to the full period effect of the acquisition of four
golf facilities during fiscal 1996 and increased play resulting from more
favorable weather in the first two fiscal quarters of 1997. The decrease in
merchandise sales was primarily attributable to reduced sales of lower
margin merchandise.
OPERATING EXPENSES. Operating expenses increased by $7,081, or 8.3%, from
$85,108 in the first two fiscal quarters of 1996 to $92,189 in the first two
fiscal quarters of 1997. Operating expenses, excluding depreciation and
amortization, increased by $5,551, or 7.5%, from $73,722 in the first two fiscal
quarters of 1996 to $79,273 in the first two fiscal quarters of 1997, primarily
as a result of increased activity arising out of the higher occupancy rate at
the Company's resorts and the period effect of the four additional golf
facilities acquired by Fairways in fiscal 1996. The primary components of the
increase were (i) an increase in variable payroll and benefit expenses of
$1,817, or 5.5%, from $32,906 in the first two fiscal quarters of 1996 to
$34,723 in the first two fiscal quarters of 1997, (ii) an increase in supplies,
and maintenance and
44
<PAGE>
repair expenses of $1,372, or 16.2%, from $8,462 in the first two fiscal
quarters of 1996 to $9,834 in the first two fiscal quarters of 1997 and (iii) an
increase in cost of sales of $733, or 5.0%, from $14,524 in the first two fiscal
quarters of 1996 to $15,257 in the first two fiscal quarters of 1997. As a
percentage of revenues, operating expenses, excluding depreciation and
amortization, declined from 69.2% of revenues in the first two fiscal quarters
of 1996 to 64.5% of revenues in the first two fiscal quarters of 1997.
Depreciation and amortization increased by $1,530, or 13.4%, from $11,386 in the
first two fiscal quarters of 1996 to $12,916 in the first two fiscal quarters of
1997. This increase was primarily attributable to the completion of capital
improvements at Desert Resorts and Doral in fiscal 1996, as well as to the
acquisition of four additional golf facilities at Fairways in fiscal 1996.
ADJUSTED EBITDA. Adjusted EBITDA increased by $12,673, or 36.2%, from
$35,000 in the first two fiscal quarters of 1996 to $47,673 in the first two
fiscal quarters of 1997. This increase was primarily attributable to the factors
discussed above and an increase in Adjusted Net Membership Deposits of $1,589,
or 79.3%, from $2,004 in the first two fiscal quarters of 1996 to $3,593 in the
first two fiscal quarters of 1997.
OPERATING INCOME. Operating income increased by $9,209, or 42.9%, from
$21,443 in the first two fiscal quarters of 1996 to $30,652 in the first two
fiscal quarters of 1997 as the result of the factors discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $3,075, or 24.5%,
from $12,530 in the first two fiscal quarters of 1996 to $15,605 in the first
two fiscal quarters of 1997. This increase was primarily attributable to (i)
increases in interest rates on indebtedness at Desert Resorts in the first two
fiscal quarters of 1997 resulting from the refinancing in December 1995 of
indebtedness at Desert Resorts at higher rates than the original financing and
the associated increase in debt issue cost of that refinancing and (ii) an
increase of indebtedness incurred in connection with the acquisition of four
golf facilities at Fairways in fiscal 1996.
EXTRAORDINARY ITEMS. The Company incurred an extraordinary loss of $3,138,
net of income tax effect of $2,007, in the first two fiscal quarters of 1997 due
to a loss on extinguishment of debt consisting of the prepayment penalties and
financing costs associated with the previous borrowings that were refinanced in
April 1997. In the first two fiscal quarters of 1996, the Company and the lender
which provided financing for the acquisition of Desert Resorts entered into a
compromise debt settlement, as a result of which the Company retired
indebtedness and recorded an extraordinary gain, net of income taxes, of
$32,120.
NET INCOME. Net income decreased by $31,218, or 75.9%, from $41,114 in the
first two fiscal quarters of 1996 to $9,896 in the first two fiscal quarters of
1997 as a result of the factors discussed above. Excluding the effect of
extraordinary items, net income would have increased by $4,040, or 44.9%, from
net income of $8,994 in the first two fiscal quarters of 1996 to net income of
$13,034 in the first two fiscal quarters of 1997.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
REVENUES. Revenues increased by $22,023, or 13.9%, from $158,251 in fiscal
1995 to $180,274 in fiscal 1996. This increase reflected increases in revenues
at each of the Company's operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $3,465, or
4.7%, from $73,818 in fiscal 1995 to $77,283 in fiscal 1996. This increase
was primarily attributable to (i) an increase in room revenue of $2,141, or
10.2%, from $21,084 in fiscal 1995 to $23,225 in fiscal 1996, (ii) an
increase in food and beverage sales of $736, or 4.3%, from $17,248 in fiscal
1995 to $17,984 in fiscal 1996 and (iii) an increase in golf fees and dues
of $523, or 2.4%, from $21,719 in fiscal 1995 to $22,242 in fiscal 1996. The
increase in room revenues was attributable to (i) an increase in occupancy
rate from 54% in fiscal 1995 to 57% in fiscal 1996 and (ii) an increase in
ADR from $166 in fiscal 1995 to $170 in fiscal
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1996, resulting in an increase in RevPAR from $89 in fiscal 1995 to $97 in
fiscal 1996. The increases in food and beverage sales and golf fees and dues
were primarily attributable to the increases in occupancy rate.
DORAL. Revenues at Doral increased by $12,044, or 26.6%, from $45,299
in fiscal 1995 to $57,343 in fiscal 1996. This increase was primarily
attributable to (i) the completion of the room renovation program in October
1995, which resulted in lower occupancy rates throughout fiscal 1995, and
(ii) the completion of the rebuilding of the Gold Course in January 1996,
which resulted in lower golf revenues from May 1995 to January 1996. During
fiscal 1996, (i) room revenues increased by $5,753, or 35.2%, from $16,364
in fiscal 1995 to $22,117 in fiscal 1996, (ii) food and beverage sales
increased by $4,072, or 31.4%, from $12,977 in fiscal 1995 to $17,049 in
fiscal 1996, (iii) golf fees and dues increased by $192, or 2.8%, from
$6,892 in fiscal 1995 to $7,084 in fiscal 1996 and (iv) spa revenues
increased by $351, or 12.7% from $2,761 in fiscal 1995 to $3,112 in fiscal
1996. The increase in room revenues was primarily attributable to an
increase in occupancy rate from 49% in fiscal 1995 to 67% in fiscal 1996,
resulting in an increase in RevPAR from $63 in fiscal 1995 to $86 in fiscal
1996. The increases in golf fees and dues and food and beverage sales were
primarily attributable to the increase in occupancy rate and, in the case of
golf fees and dues, the completion of the rebuilding of the Gold Course as
discussed above, offset in part by lower revenues as a result of the
restoration of the "Blue Monster" from April 1996 to December 1996.
FAIRWAYS. Revenues at Fairways increased by $5,632, or 14.4%, from
$39,134 in fiscal 1995 to $44,766 in fiscal 1996. This increase was
primarily attributable to (i) an increase in golf fees and dues at Fairways
of $5,229, or 21.5%, from $24,365 in fiscal 1995 to $29,594 in fiscal 1996
and (ii) an increase in food and beverage sales of $633, or 7.3%, from
$8,672 in fiscal 1995 to $9,305 in fiscal 1996. The increases in golf fees
and dues and food and beverage sales were primarily attributable to the
acquisition of four golf facilities in fiscal 1996.
OPERATING EXPENSES. Operating expenses increased by $11,878, or 7.7%, from
$153,615 in fiscal 1995 to $165,493 in fiscal 1996. Operating expenses,
excluding depreciation and amortization, increased by $8,435, or 6.3%, from
$133,288 in fiscal 1995 to $141,723 in fiscal 1996, primarily as a result of
increased activity resulting from higher occupancy rates at the Company's
resorts and the acquisition of four golf facilities at Fairways in fiscal 1996.
The primary components of the increase were (i) an increase in payroll and
expenses of $3,452, or 7.3%, from $47,542 in fiscal 1995 to $50,994 in fiscal
1996, reflecting increases in staff and changes in incentive programs and (ii)
an increase in supplies, maintenance and repair expenses of $1,440, or 8.8%,
from $16,345 in fiscal 1995 to $17,785 in fiscal 1996, offset in part by a
decrease in benefit expenses of $1,711 or 13.3%, from $12,827 in fiscal 1995 to
$11,116 in fiscal 1996, as a result of changes in benefit programs and lower
workman's compensation losses. As a percentage of revenues, operating expenses,
excluding depreciation and amortization, declined from 84.2% of revenues in
fiscal 1995 to 78.6% of revenues in fiscal 1996. Depreciation and amortization
increased by $3,443, or 16.9%, from $20,327 in fiscal 1995 to $23,770 in fiscal
1996. This increase was primarily attributable to the completion of capital
improvements at Desert Resorts and Doral in fiscal 1996.
ADJUSTED EBITDA. Adjusted EBITDA increased by $17,590, or 66.9%, from
$26,283 in fiscal 1995 to $43,873 in fiscal 1996. This increase was primarily
attributable to the factors described above and an increase in Adjusted Net
Membership Deposits of $4,157 from $234 in fiscal 1995 to $4,391 in fiscal 1996.
OPERATING INCOME. Operating income increased by $10,145, or 219%, from
$4,636 in fiscal 1995 to $14,781 in fiscal 1996 as a result of the factors
discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $9,227, or 49.9%,
from $18,483 in fiscal 1995 to $27,710 in fiscal 1996. This increase was
primarily attributable to (i) the refinancing of indebtedness at Desert Resorts
at higher rates than the original financing and (ii) additional indebtedness
incurred at Fairways to fund the acquisition of three golf facilities in fiscal
1995 and four golf facilities in fiscal 1996,
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partially offset by higher interest income due to higher cash balances and
interest received on a note receivable from an affiliate.
LOSS ON SALE OF GOLF FACILITY AND EXTRAORDINARY ITEMS. The Company incurred
an extraordinary gain, net of income taxes, on the early extinguishment of
indebtedness of $32,120, in fiscal 1996. In fiscal 1995, the Company incurred a
loss of $2,684 in connection with the sale of a golf facility at Fairways.
NET INCOME. Net income increased by $35,870 from a net loss of $16,330 in
fiscal 1995 to net income of $19,540 in fiscal 1996 as a result of the factors
described above. Excluding the effect of the loss on sale of golf facility and
extraordinary items, net loss would have decreased by $1,066, or 7.8%, from
$13,646 in fiscal 1995 to $12,580 in fiscal 1996.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
DESERT RESORTS AND DORAL WERE ACQUIRED IN DECEMBER 1993. ACCORDINGLY,
OPERATING RESULTS FOR FISCAL 1994 INCLUDE ONLY TEN MONTHS OF OPERATIONS FOR SUCH
ENTITIES.
REVENUES. Revenues of the Company increased by $34,041, or 27.4%, from
$124,210 in fiscal 1994 to $158,251 in fiscal 1995. This increase reflected
increases in revenues at each of the Company's operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $17,552, or
31.2%, from $56,266 in fiscal 1994 to $73,818 in fiscal 1995. This increase
was primarily attributable to (i) an increase in room revenues of $4,283, or
25.5%, from $16,801 in fiscal 1994 to $21,084 in fiscal 1995, (ii) an
increase in food and beverage sales of $4,227, or 32.5%, from $13,021 in
fiscal 1994 to $17,248 in fiscal 1995 and (iii) an increase in golf fees and
dues of $4,024, or 22.7%, from $17,695 in fiscal 1994 to $21,719 in fiscal
1995. The increase in room revenues was attributable to an increase in ADR
from $154 in fiscal 1994 to $166 in fiscal 1995, resulting in an increase in
RevPAR from $84 in fiscal 1994 to $89 in fiscal 1995. The increases in food
and beverage sales and golf fees and dues were primarily attributable to the
increase in occupancy rate.
DORAL. Revenues at Doral increased by $6,097, or 15.6%, from $39,202 in
fiscal 1994 to $45,299 in fiscal 1995. This increase was primarily
attributable to (i) an increase in room revenues of $1,112, or 7.3%, from
$15,252 in fiscal 1994 to $16,364 in fiscal 1995, (ii) an increase in food
and beverage sales of $3,591, or 38.3%, from $9,386 in fiscal 1994 to
$12,977 in fiscal 1995 and (iii) an increase in golf fees and dues of
$1,752, or 34.1%, from $5,140 in fiscal 1994 to $6,892 in fiscal 1995. The
increase in room revenues was primarily attributable to twelve months of
operations during fiscal 1995 as compared to ten months of operations during
fiscal 1994, offset by declines in both occupancy rate and ADR in fiscal
1995 as a result of the room renovation program undertaken from May 1994 to
October 1995. The increases in food and beverage sales and golf fees and
dues were primarily attributable to twelve months of operations during
fiscal 1995 as compared to ten months of operations during fiscal 1994,
offset in part by lower revenues as a result of the Gold Course being closed
from May 1995 to January 1996.
FAIRWAYS. Revenues at Fairways increased by $10,392, or 36.2%, from
$28,742 in fiscal 1994 to $39,134 in fiscal 1995. This increase was
primarily attributable to (i) an increase in golf fees and dues of $5,639,
or 30.1%, from $18,726 in fiscal 1994 to $24,365 in fiscal 1995 and (ii) an
increase in food and beverage sales of $2,657, or 44.2%, from $6,015 in
fiscal 1994 to $8,672 in fiscal 1995. These increases were primarily
attributable to the acquisition of three golf facilities in fiscal 1995.
OPERATING EXPENSES. Operating expenses increased by $37,431, or 32.2%, from
$116,184 in fiscal 1994 to $153,615 in fiscal 1995. Operating expenses,
excluding depreciation and amortization, increased by $31,075, or 30.4%, from
$102,213 in fiscal 1994 to $133,288 in fiscal 1995, primarily as a result of the
effects
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of a full twelve months of operations in fiscal 1995 compared to ten months of
operations in fiscal 1994 for Desert Resorts and Doral and the acquisition by
Fairways of five golf facilities in fiscal 1994 and three golf facilities in
fiscal 1995. As a percentage of revenues, operating expenses, excluding
depreciation and amortization, increased from 82.3% of revenues in fiscal 1994
to 84.2% of revenues in fiscal 1995 primarily as a result of the decrease in
occupancy rate and room revenues due to the room renovation program at Doral.
Depreciation and amortization increased by $6,356, or 45.5%, from $13,971 in
fiscal 1994 to $20,327 in fiscal 1995. This increase was primarily attributable
to the completion of the room renovation program at Doral in October 1995.
ADJUSTED EBITDA. Adjusted EBITDA increased by $3,249, or 14.1%, from
$23,034 in fiscal 1994 to $26,283 in fiscal 1995. This increase was primarily
attributable to the factors described above.
OPERATING INCOME. Operating income decreased by $3,390, or 42.2%, from
$8,026 in fiscal 1994 to $4,636 in fiscal 1995 as the result of the factors
discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $4,472, or 31.9%,
from $14,011 in fiscal 1994 to $18,483 in fiscal 1995. This increase was
primarily attributable to an increase in indebtedness incurred in connection
with the acquisition of five golf facilities in fiscal 1994 and three golf
courses in fiscal 1995 and increased interest rates generally.
LOSS ON SALE OF GOLF FACILITY AND EXTRAORDINARY ITEMS. The Company incurred
a loss of $2,684 in fiscal 1995 in connection with the sale of a golf facility
at Fairways. In fiscal 1994, the Company incurred an extraordinary loss on the
early extinguishment of indebtedness of $2,202 in connection with a write-off of
previously deferred financing costs relating to the early retirement of certain
indebtedness at Fairways.
NET LOSS. Net loss increased by $8,601, or 111%, from a net loss of $7,729
in fiscal 1994 to a net loss of $16,330 in fiscal 1995. Excluding the effect of
the loss on sale of golf facility and extraordinary items, net loss would have
increased by $8,119, or 147%, from a net loss of $5,527 in fiscal 1994 to a net
loss of $13,646 in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating requirements
with a combination of operating cash flow, borrowings under the credit
facilities of its operating subsidiaries and equity investments from
partnerships formed at the direction of KKR. The Company has utilized these
sources of funds to make acquisitions, to fund significant capital expenditures
at its properties, to fund operations and to service debt under the credit
facilities of its operating subsidiaries. The Company presently expects to fund
its future capital and operating requirements at its existing operations through
a combination of borrowings under the New Credit Facility and cash generated
from operations.
During the first two fiscal quarters of 1997, cash flow provided by
operating activities was $74,577, compared to $9,598 for the first two fiscal
quarters of 1996. This increase was primarily due to the settlement of
receivables due from Parent and its affiliates of $46,911 and the release of
restricted cash to operating cash of $9,499 due to the New Credit Facility. The
positive impact on cash from the settlement of these receivables was offset by
the cash used in financing activities to provide a dividend and a net return of
capital to Parent of $51,199. During the first two fiscal quarters of 1997, cash
flow used in investing activities was $21,469, compared to cash provided by
investing activities of $4,348 for the first two fiscal quarters of 1996. This
change was primarily attributable to the repayment to the Company of a $23,065
note by an affiliate in the first two fiscal quarters of 1996, as compared to
the issuance of a new $20,800 note by the Company to KSL Land in the first two
fiscal quarters of 1997; offset by a decline in capital expenditures of $15,547
in the first two fiscal quarters of 1997 compared to the first two fiscal
quarters of 1996.
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During the fiscal year ended October 31, 1996, cash flow provided by
operating activities was $14,926, compared to cash flow used in operating
activities of $6,750 for the fiscal year ended October 31, 1995. This change was
primarily attributable to (i) the reduction of a receivable owed by Parent in
1996, (ii) the increase in revenues during fiscal 1996 and (iii) improved
management of accounts payable, offset in part by advances by the Company to KSL
Land. During the fiscal year ended October 31, 1996, cash flow used in investing
activities was $12,250, compared to $48,912 for the fiscal year ended October
31, 1995. This decrease was primarily attributable to a reduction in capital
expenditures of $28,157 in fiscal 1996 compared to fiscal 1995 and the repayment
to the Company of a $23,065 note by an affiliate in 1996, offset by an increase
of $5,112 in fiscal 1996 of funds used to acquire golf courses.
From the beginning of fiscal 1994 to the end of fiscal 1996, the Company
spent approximately $33,500 at Desert Resorts to, among other things: (i) build
a new 24,000 square foot addition to the conference facilities at La Quinta;
(ii) construct a new championship golf course designed by Tom Weiskopf at PGA
WEST and renovate the Mountain Course at La Quinta; and (iii) build a new 28,000
square foot members' clubhouse at the Citrus Course at La Quinta. These
expenditures were funded primarily through operating cash flow. The Company has
budgeted approximately $6,300 in fiscal 1997 at Desert Resorts to fund
additional capital expenditures.
From the beginning of fiscal 1994 to the end of fiscal 1996, the Company
spent approximately $33,000 at Doral to, among other things: (i) renovate all
646 guest rooms and refurbish all 48 spa guest suites at the resort; (ii)
renovate the 75,000 square feet of conference facilities and most of the public
reception areas; and (iii) restore the famed "Blue Monster" Golf Course and
rebuild the Gold Course under the direction of noted professional golfer and
golf course designer Raymond Floyd. These expenditures were funded primarily
through additional capital contributions from Parent. The Company has budgeted
approximately $2,600 in fiscal 1997 at Doral to fund additional capital
expenditures.
The Company has budgeted approximately $2,000 for capital expenditures in
fiscal 1997 at Fairways.
In connection with the Lake Lanier Transaction and concurrently with the
Refinancings, Parent contributed $9,000 in cash to the Issuer to fund the
purchase of certain equipment and other assets used in the operation of the Lake
Lanier Islands facilities that will not be leased pursuant to the sublease. In
addition, the terms of the sublease will require the Company to spend $5,000 for
capital improvements at Lake Lanier Islands over the first five years of the
sublease. The Company may also make additional capital improvements at Lake
Lanier Islands in the future. See "Business--Properties; Lake Lanier
Transaction."
The Company is continually engaged in evaluating potential acquisition
candidates to add to its portfolio of properties at both its resort and
community golf businesses. The Company expects that funding for future
acquisitions may come from a variety of sources, depending on the size and
nature of any such acquisitions. Potential sources of capital include cash
generated from operations, borrowings under the New Credit Facility, additional
equity investments from Parent or partnerships formed at the direction of KKR or
other external debt or equity financings. There can be no assurance that such
additional capital sources will be available to the Company on terms which the
Company finds acceptable, or at all. See "Risk Factors--Acquisition Strategy and
Risks Related to Rapid Growth." On May 13, 1997, the Company, through Parent,
entered into a non-binding letter of intent to acquire a resort property for a
purchase price of $45,000. In the event the Company proceeds with such
acquisition, it is expected that the purchase price would be financed under the
revolving credit portion of the New Credit Facility.
In connection with the Refinancings, the Company entered into the New Credit
Facility providing for aggregate borrowings of up to $275,000. In connection
with the New Credit Facility, the credit agreements at each of Desert Resorts,
Doral and Fairways were repaid and terminated. The New Credit Facility provides
for term loans of $100,000 and revolving loans of $175,000. The term loans were
fully drawn at closing and approximately $75,000 was drawn under the revolving
credit portion of the New Credit Facility at closing. Interest rates on the term
loans and the revolving credit loans will be based, at the Company's
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option, on the Base Rate (as defined) or LIBOR (as defined). The loans under the
term loan facility (the "Term Loans") are comprised of Term A Loans ($50,000),
which have a final maturity of April 30, 2005 and annual interim amortization of
$500 from 1998 to 2004 with a final payment of $46,500 due in 2005, and Term B
Loans ($50,000) which have a final maturity of April 30, 2006 and annual interim
amortization of $500 from 1998 until 2005 with a final payment of $46,000 due in
2006. The revolving credit loan commitment matures on April 30 2004, with
scheduled mandatory reductions in the aggregate commitments thereunder to
$163,750 on April 30, 2000, $152,500 on April 30, 2001, $137,500 on April 30,
2002 and $118,750 on April 30, 2003. The New Credit Facility contains certain
restrictions and limitations, including financial covenants that will require
the Company to maintain and achieve certain levels of financial performance and
limitations on the payment of cash dividends and similar restricted payments.
See "Description of Certain Indebtedness--New Credit Facility."
The Company believes that its liquidity, capital resources and cash flows
from existing operations will be sufficient to fund capital expenditures,
working capital requirements and interest and principal payments on its
indebtedness for the foreseeable future. However, a variety of factors could
impact the Company's ability to fund capital expenditures, working capital
requirements and interest and principal payments, including a prolonged or
severe economic recession in the United States, departures from currently
expected demographic trends (for example, if the total number of golf rounds
played and golf spending are not as great as currently anticipated) or the
Company's inability to achieve operating improvements at existing and acquired
operations at currently expected levels. Moreover, the Company currently expects
that it will acquire additional resorts, golf facilities or other recreational
facilities, and in connection therewith, expects to incur additional
indebtedness. In the event that the Company incurs such additional indebtedness,
its ability to make principal and interest payments on its indebtedness,
including the Notes, may be adversely impacted.
SEASONALITY AND INFLATION
The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands and
the Company's community golf operations offset a portion of the seasonality
associated with Desert Resorts and Doral because they generate a significant
percentage of their revenue and operating income during the summer months which
are recognized in the last two quarters of the fiscal year.
The Company believes that inflation does not materially impact its business
operations.
ACCOUNTING CHANGES
In fiscal 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of. The effects of adopting (SFAS)
No. 121 were not material in relation to the Company's consolidated financial
statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128) which
is effective for financial statements issued for periods ending after December
15, 1997. SFAS 128 simplifies the previous standards for computing earnings per
share and requires the disclosure of basic and diluted earnings per share. For
the year ended October 31, 1996, the amount reported as net income per common
and common equivalent share was not materially different than that which would
have been reported for basic and diluted earnings per share in accordance with
SFAS 128.
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BUSINESS
GENERAL
The Company is one of the nation's leading operators of destination resort
businesses and community golf course facilities. The Company's mission is to
become a premier operator of service-based recreation, leisure and hospitality
businesses worldwide, capitalizing on significant growth opportunities in
business and leisure travel and participant recreation. For the twelve months
ended April 30, 1997, on a pro forma basis as defined herein, the Company's
revenues and Adjusted EBITDA were $214.0 million and $55.5 million,
respectively.
The Company's operations currently include world-class resorts and community
golf properties. The resort businesses are comprised of: (i) the internationally
recognized La Quinta Resort & Club ("La Quinta") and PGA WEST facilities ("PGA
WEST"), located in the Palm Springs, California area, which, together,
constitute the Company's "Desert Resorts" operations; (ii) the renowned Doral
Golf Resort and Spa ("Doral"), located near Miami, Florida; and (iii) a hotel
and recreational complex at Lake Lanier near Atlanta, Georgia ("Lake Lanier
Islands"). KSL Fairways ("Fairways"), the Company's community golf division,
owns 22 golf facilities located in six states. The Company believes Fairways is
the nation's third largest owner/operator of community golf courses.
RESORT OPERATIONS
- DESERT RESORTS. Acquired by the Company in December 1993, Desert Resorts
includes 640 "casita"-style hotel rooms, eight championship eighteen-hole
golf courses including the renowned TPC Stadium Course, two private clubs
with approximately 1,930 dues-paying members (as of April 30, 1997),
several nationally recognized golf and tennis instruction programs
including the Jim McLean Golf Academy at PGA WEST and The Dave Pelz Short
Game School, 49 tennis courts, 25 swimming pools, eight restaurants and
approximately 66,000 square feet of conference space, enabling Desert
Resorts to accommodate multiple large group functions. PGA WEST has hosted
several of the most prestigious events in golf, including the Skins Game,
the Bob Hope Chrysler Classic, The Grand Slam of Golf, the Diners Club
Matches and the Liberty Mutual Legends of Golf. Of Desert Resorts'
championship golf courses, four were designed by Pete Dye, two by Jack
Nicklaus, one by Arnold Palmer and one by Tom Weiskopf. La Quinta was one
of only 20 resorts nationwide and the only resort in southern California
to receive GOLF Magazine's prestigious Gold Medal in November 1996. For
the twelve months ended April 30, 1997, revenues and Adjusted EBITDA for
Desert Resorts were $84.0 million and $25.9 million, respectively.
- DORAL GOLF RESORT AND SPA. Acquired by the Company in December 1993, Doral
includes 646 hotel rooms, four championship eighteen-hole golf courses
including the famed "Blue Monster" golf course which was recently restored
under the direction of noted professional golfer and golf course designer
Raymond Floyd and which is the home of the Doral-Ryder Open, a nine-hole
executive golf course, Jim McLean's nationally recognized golf instruction
program, the Arthur Ashe Tennis Center, featuring 15 courts, one swimming
pool, three restaurants, approximately 75,000 square feet of conference
space, a private club with approximately 400 dues-paying members (at April
30, 1997). Doral also includes an internationally acclaimed spa (the "Spa
at Doral"), which features an additional 48 hotel suites, three swimming
pools, two restaurants and approximately 85,000 square feet of fitness and
spa facilities. Doral also received the Gold Medal award from GOLF
Magazine in November 1996, making Doral one of only four resorts in
Florida to receive this award and making the Company one of only two
resort operators in the world to receive Gold Medals at more
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than one facility. For the twelve months ended April 30, 1997, revenues
and Adjusted EBITDA for Doral were $64.7 million and $17.1 million,
respectively.
- LAKE LANIER ISLANDS. Lake Lanier Islands is an approximately 1,040 acre
recreational complex situated at Lake Lanier, Georgia, which is located
approximately 45 miles from downtown Atlanta. Lake Lanier's operations
currently include a 224-room hotel operated by the Company under a license
agreement with Hilton Hotels, an eighteen-hole golf course, three tennis
courts, one swimming pool, two restaurants, approximately 12,500 square
feet of conference space, extensive beach and water park facilities,
houseboat and fishing boat rentals, riding stables, campgrounds, pavilions
and an amphitheater. For the period from May 15, 1996 through April 30,
1997, on a pro forma basis after giving effect to the Lake Lanier
Transaction, revenues and Adjusted EBITDA for Lake Lanier Islands would
have been $19.3 million and $4.4 million, respectively.
COMMUNITY GOLF OPERATIONS
- KSL FAIRWAYS. In mid-1993, the Company purchased Fairways, a
then-privately-held owner/operator of community golf facilities primarily
along the east coast of the United States. During the past three years,
Fairways' operations have grown rapidly and today include a total of 16
eighteen-hole golf facilities, three 27-hole golf facilities and three
36-hole golf facilities at 22 locations in the Southeast, Mid-Atlantic and
upper Midwest regions of the United States. These clubs are a mix of
public (or daily fee), semi-private and private golf facilities, with
approximately 8,000 dues-paying members (at April 30, 1997) at the
semi-private and private clubs. For the twelve months ended April 30,
1997, revenues and Adjusted EBITDA for the community golf operations were
$46.0 million and $11.7 million, respectively.
The Company's principal executive offices are located at 56-140 PGA
Boulevard, La Quinta, California 92253.
OPERATING ACHIEVEMENTS
The Company was formed in 1993, acquired Fairways in July 1993, acquired
Desert Resorts and Doral in December 1993 and, since July 1993, has acquired an
additional 12 community golf course properties through Fairways. The Company
began operating Lake Lanier Islands pursuant to a management agreement in May
1996. The Company's revenues have increased from $124.2 million in fiscal 1994
to $180.3 million in fiscal 1996, representing a 20.5% compound annual growth
rate. In addition Adjusted EBITDA has increased from $23.0 million in fiscal
1994 to $43.9 million in fiscal 1996, representing a compound annual growth rate
of 38.0%. Management attributes this growth in revenues and margin improvement
to the successful implementation of a number of initiatives since 1994 , the
most significant of which include: (i) a $66.5 million capital spending program
at the Company's resorts; (ii) improvements in service levels and the
introduction of enhanced programs available to the Company's members and guests;
(iii) development of marketing techniques to promote the unique natural beauty
and history of its resort properties; (iv) implementation of yield management
techniques to increase usage of the Company's facilities; (v) better matching
the Company's employee base to its seasonal labor needs through labor
forecasting; (vi) implementation of combined purchasing programs across the
Company's different operations; (vii) consolidation of certain of the Company's
administrative and executive management functions; and (viii) introduction of
new membership programs at its resorts designed to add new members and convert
existing members.
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BUSINESS STRATEGY
The Company's management has significant experience in operating resort and
recreation businesses and is focused on maximizing the business potential of the
Company by providing a superior destination resort experience and a quality
recreation product for its guests and members. The Company believes it is
well-positioned to capitalize on the significant growth and consolidation
opportunities that it believes exist in the recreation, leisure and hospitality
industries. The Company's business strategy is to (i) capitalize on high-impact
capital improvements at its resorts, (ii) distinguish and market the uniqueness
and brand names of its resort properties, (iii) continue to grow its membership
business, (iv) expand through strategic acquisitions and (v) enter related
recreation businesses.
- CAPITALIZE ON HIGH-IMPACT CAPITAL IMPROVEMENTS AT ITS RESORTS. The
Company's strategy is to make capital expenditures at its resort
properties that are designed to result in incremental revenues and
Adjusted EBITDA. As a part of this strategy, over the past three years,
the Company has invested approximately $33.5 million at Desert Resorts to,
among other things: (i) build a new 24,000 square foot addition to the
conference facilities at La Quinta; (ii) construct a new championship golf
course designed by Tom Weiskopf at PGA WEST and renovate the Mountain
Course at La Quinta; and (iii) build a new 28,000 square foot members'
clubhouse at the Citrus Course at La Quinta. During the same period, the
Company has invested approximately $33.0 million at Doral to, among other
things: (i) renovate all 646 guest rooms and refurbish all 48 spa guest
suites at the resort; (ii) renovate the approximately 75,000 square feet
of conference facilities and most of the public reception areas; and (iii)
restore the famed "Blue Monster" Golf Course and rebuild the Gold Course
under the direction of noted professional golfer and golf course designer
Raymond Floyd. The Company believes that as a result of these capital
expenditures: (i) revenue per available room ("RevPAR"), a common measure
of the yield generated by occupancy and room rate, at its resorts has
increased; (ii) its resorts have attracted higher spending corporate and
other group guests; (iii) the number of free independent traveler ("FIT")
guests at its resorts has increased; (iv) the combined revenue yield of
its golf and hotel operations at its resorts has increased; and (v) the
value of its private club membership has been enhanced. Because many of
the capital improvements at Desert Resorts and Doral have been recently
completed, the Company believes that it will continue to realize
additional growth in revenues and Adjusted EBITDA as a result of those
investments.
- DISTINGUISH AND MARKET UNIQUENESS AND BRAND NAMES OF ITS PROPERTIES. The
Company believes that its destination resort facilities offer a unique
combination of luxury hotel accommodations, world class golf and tennis
facilities and conference facilities unmatched by many of its competitors.
The Company seeks to develop and accentuate the unique aspects of its
world-renowned destination resorts in order to attract repeat customers,
encourage group guests to return as FIT guests and increase rates charged
for its services and amenities. Key elements of this strategy include
promoting the independent name of each of the Company's destination
resorts in order to distinguish them from "chain" competitors,
capitalizing on a broad range of promotional events to enhance the
prestige of the Company's resorts and retaining recognized experts, such
as Jim McLean, Dave Pelz and John Austin, to oversee quality golf and
tennis instructional programs at the Company's resorts. As part of this
strategy, the Company sponsors nationally televised professional golf
events. In the last twelve months, the Company has hosted: (i) the
Doral-Ryder Open, (ii) the Lexus Challenge, (iii) the Diners Club Matches
and (iv) the Liberty Mutual Legends of Golf. In addition, the Bob Hope
Chrysler Classic will be played at PGA WEST for the next three years. The
Company believes that the national television exposure for its resorts
resulting from these tournaments provides a significant marketing benefit
to the Company.
53
<PAGE>
- CONTINUE TO GROW MEMBERSHIP BUSINESS. By expanding the number and type of
its membership programs, developing new membership facilities and
implementing more sophisticated and effective sales and marketing
programs, the Company believes that it enhances the value of its resort
and community golf club memberships which, in turn, should continue to
increase the number of its members and the annual growth in membership
revenue. To achieve this goal, the Company has (i) engaged senior
management experienced in developing new membership programs; (ii)
upgraded the training and increased the number of its sales and marketing
staff; (iii) adopted more sophisticated direct mail marketing techniques
and member-referral programs; (iv) developed programs to cross-sell club
memberships, primarily to its resort guests; and (v) implemented programs
to facilitate the conversion of new home buyers in communities surrounding
Desert Resorts into new members at one or more of Desert Resorts' private
clubs. From January 1, 1994 to April 30, 1997, the Company has, after
attrition, added or converted approximately 2,330 members at Doral and
Desert Resorts. In addition, the Company believes that the recent capital
improvements at its destination resorts should enable the clubs at La
Quinta, PGA WEST and Doral to accommodate a significant number of
additional golf members.
- EXPAND THROUGH STRATEGIC ACQUISITIONS. The Company intends to engage in
strategic acquisitions to increase revenues and Adjusted EBITDA. In the
community golf industry, the Company expects to continue to seek
acquisitions designed to increase marketing synergies and cost
efficiencies arising out of its strategy of forming "clusters" of courses
within geographic areas in order to create certain economies of scale and
to promote reciprocity among clubs for the members within those
"clusters." Because the community golf industry is highly fragmented, the
Company believes that the high cost of operating and maintaining
competitive golf courses, competition for a limited supply of experienced
golf operating managers and the cost efficiencies afforded by ownership
and operation of multiple golf courses will result in continued industry
consolidation. The Company believes that its access to capital and
professional management will enable it to capitalize on future acquisition
opportunities which may arise as the result of this expected industry
consolidation. In the resort industry, the Company expects to continue to
acquire unique resorts that offer a combination of quality accommodations
and superior recreational amenities and/or conference facilities. Because
the resort industry is characterized by a large number of independent
owners, high capital demands and ownership by "enthusiasts" rather than
professional managers, the Company believes that acquisition opportunities
in the resort industry will be available to the Company.
- ENTER RELATED RECREATION BUSINESSES. Consistent with the Company's
service-based recreation emphasis, the Company's strategy includes
selectively expanding into related recreation businesses. In May 1996, the
Company entered into an agreement to manage Lake Lanier Islands as the
first step to closing the privatization of the facility pursuant to a
long-term sublease. See "--Properties; Lake Lanier Transaction." In
addition to hotel and golf operations, Lake Lanier Islands generates
significant revenues from daily ticketed attractions, including extensive
beach and water park facilities, houseboat and fishing boat rental
operations, riding stables, campgrounds, pavilions, an amphitheater, group
and social outings and front gate admissions. The Company intends to seek
other daily ticketed attraction businesses in the future and has recently
hired executives with extensive experience in this area of the recreation
industry. Additionally, the Company expects other privatization
opportunities to emerge as local, state and federal government agencies
seek ways to increase the quality of public recreation facilities while
reducing their financial and other obligations to such facilities. With
its experience in operating recreational facilities and its access to
capital, the Company believes it is well-positioned to benefit from this
trend.
54
<PAGE>
INDUSTRY OVERVIEW
HOTEL LODGING
ALL OF THE DATA IN THIS "HOTEL LODGING" SUBSECTION IS STATED AS OF AND FOR
THE YEARS ENDED DECEMBER 31, 1992 AND 1996 AND IS BASED ON INFORMATION COMPILED
BY SMITH TRAVEL RESEARCH ("SMITH TRAVEL"), WHICH THE COMPANY BELIEVES IS A
COMMONLY USED SOURCE OF INDUSTRY DATA BY AND FOR THE HOTEL AND LODGING INDUSTRY.
There are approximately 32,500 hotels in the United States, consisting of
approximately 3.4 million rooms. These hotels are generally segmented by price,
level of service and location. Hotels are also classified as either affiliated
with chains or operated as independent hotels. The Company believes that its
destination resorts compete most directly with chain and independent "luxury
resort" hotels, which consist of hotels (i) whose average daily rate ("ADR") is
in the top 15% of their local markets, (ii) which are located in a resort area
and (iii) which offer some resort amenities.
There are approximately 278 luxury resorts in the United States, consisting
of approximately 107,000 rooms. As the chart below indicates, the supply of
rooms in the luxury sector increased by only 938 rooms between 1992 and 1996,
representing a compound annual growth rate of approximately 0.2%. The Company
believes that the development of new resorts has been and will continue to be
constrained by both high initial capital requirements and maintenance costs.
<TABLE>
<CAPTION>
TOTAL PROPERTIES
ROOM SUPPLY COMPOUND ANNUAL
------------- -------------------- GROWTH RATE
1992 1996 1992 1996 1992-1996
----- ----- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Independent luxury resorts................................. 165 167 50,544 50,982 0.2%
Chain luxury resorts....................................... 110 111 55,469 55,969 0.2%
--- --- --------- ---------
Total luxury resorts....................................... 275 278 106,013 106,951 0.2%
</TABLE>
While supply in the luxury resort segment of the hotel and lodging industry
has been relatively stable since 1992, both total revenues and RevPAR for this
segment grew at a compound annual rate of over 5% between 1992 and 1996. These
increases, which the Company believes provide a measure of increased demand, are
illustrated by the following chart:
<TABLE>
<CAPTION>
TOTAL REVENUE (IN
TOTAL PROPERTIES OCCUPANCY PERCENTAGE
BILLIONS) AVERAGE ROOM RATE
------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1996 1992 1996 1992 1996 1992 1996
----- ----- --------- --------- --------- --------- --------- ---------
Independent luxury resorts.......... 165 167 $ 1.7 $ 2.1 67.0% 70.7% $ 138.67 $ 159.34
Chain luxury resorts................ 110 111 1.8 2.2 70.1% 75.1% 123.54 143.84
--- --- --- ---
Total luxury resorts................ 275 278 $ 3.5 $ 4.3 68.6% 73.0% 130.60 151.00
<CAPTION>
REVPAR*
--------------------
<S> <C> <C>
1992 1996
--------- ---------
Independent luxury resorts.......... $ 92.91 $ 112.65
Chain luxury resorts................ 86.60 108.02
Total luxury resorts................ 89.59 110.23
</TABLE>
- ------------------------
* RevPAR is calculated by multiplying occupancy percentage by average room
rate.
The Company believes that demand in the luxury resort sector in general, and
in destination resorts in particular, will increase in the future as a result
of: (i) increases in leisure time and disposable income that are expected to
occur as the "baby boom" generation matures, (ii) the growing desire of leisure
travelers to take more active vacations and (iii) increased corporate demand for
quality, full service facilities which combine both group meeting facilities and
recreational amenities.
55
<PAGE>
The luxury resort sector is characterized by a large number of independent
owners, with approximately 60% of all luxury resort hotels being operated
independently of chain affiliations. The Company believes that, because of this
fragmentation, as well as the high capital requirements to maintain and operate
luxury resorts and the high proportion of "enthusiast" owners, rather than
professional managers, acquisition opportunities in the resort industry will be
available.
GOLF
EXCEPT AS NOTED, ALL OF THE DATA IN THIS "GOLF" SUBSECTION IS BASED ON
INFORMATION COMPILED BY THE NATIONAL GOLF FOUNDATION, WHICH THE COMPANY BELIEVES
IS A COMMONLY USED SOURCE OF INDUSTRY DATA BY AND FOR THE GOLF INDUSTRY.
Since 1980, the golf industry has experienced significant growth. As the
chart below demonstrates, the number of golfers has increased approximately 66%
from 1980 to 1995 and the number of rounds played has increased approximately
37% during the same time period. In the twelve months ended August 1994, the
golf business generated approximately $15.1 billion in revenues in the United
States, of which $10.1 billion was spent on playing fees.
<TABLE>
<CAPTION>
1980 1995 % INCREASE
--------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Number of golfers.................................................................... 15 25 66%
Rounds played........................................................................ 358 490 37%
</TABLE>
The Company believes that expected future demographic trends should result
in an increase in the number of golf rounds played per year and the amount of
money spent on golf fees and related products per golfer. The average annual
number of rounds played per golfer increases significantly as the golfer ages.
Approximately 16.8 million golfers, or 67% of the total golfers, were between
the ages of 18 and 49 in 1995. While representing the majority of total golfers,
these golfers have historically played substantially fewer rounds per year than
golfers over the age of 50, who typically have more leisure time and disposable
wealth to devote to golf. As the chart below demonstrates, the average rounds
per golfer grows significantly with age, as the 50-59 age group plays nearly
twice as many rounds as the 30-39 age group and 47% more rounds than the 40-49
age group. The United States Census Bureau estimates that the population age 50
and over will increase by 39% between 1996 and 2010 from 69.2 million to 96.4
million. As a result, the Company anticipates that, during the same time period,
the total number of rounds played should increase. The chart below sets forth
the golf participation and annual average rounds per golfer played by age group
in 1995:
<TABLE>
<CAPTION>
NUMBER OF
AGE GROUP GOLFERS % OF TOTAL GOLF PARTICIPATION ANNUAL AVERAGE % OF
(YEARS) (IN THOUSANDS) GOLFERS IN CATEGORY ROUNDS PER GOLFER TOTAL ROUNDS
- ---------------------------------- --------------- ------------- ------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
12-17............................. 2,001 8.0% 8.6% 13.9 5.7%
18-29............................. 5,263 21.0 12.1 11.8 12.7
30-39............................. 6,748 27.0 15.2 13.3 18.3
40-49............................. 4,762 19.0 13.0 17.1 16.6
50-59............................. 2,694 10.8 11.1 25.3 13.9
60-64............................. 933 3.7 9.2 38.4 7.3
65+............................... 2,621 10.5 7.8 47.8 25.5
</TABLE>
In addition to potential increases in the number of rounds played, the aging
of the golf population also has potentially favorable implications for golf
spending patterns. Historically, golfers who are over the age of 50 have spent
more on golf than younger players. For the twelve months ended August 1994,
golfers who
56
<PAGE>
were between the ages of 18 and 49 spent approximately $10.5 billion on the
sport of golf. This translates into approximately $625 per golfer. For the same
time period, golfers who were age 50 and over spent approximately $939 per
golfer. Given this estimated 50% "spending premium" by golfers over the age of
50, the Company believes that spending increases appear favorably correlated to
the aging U.S. population.
Further, more affluent golfers and avid golfers (defined as those golfers
playing at least 25 rounds annually) have historically generated higher per
golfer spending than the average golfer. For example, for the twelve months
ended August 1994, golfers with annual incomes of $75,000 or greater are
estimated to have spent approximately $1,269 per year per golfer and golfers
classified as avid are estimated to have spent approximately $1,710 per year per
golfer. Based on the foregoing, these two segments generated "spending premiums"
of approximately 81% and 143%, respectively, when compared to the average
golfer. The Company targets more affluent and avid golfers at its resorts and
community golf operations.
The Company believes that the golf industry will experience consolidation in
the coming years. The golf industry is highly fragmented, with approximately
14,400 golf facilities in the United States as of December 31, 1996. The Company
believes that the 15 largest golf course management companies in the United
States collectively manage fewer than 5% of the total number of golf facilities
and that only 11 golf course management companies manage 10 or more golf
facilities. The Company believes that this fragmentation, together with the high
cost of operating and maintaining competitive golf courses, competition for a
limited supply of experienced golf operating managers and the cost efficiencies
afforded by ownership and operation of multiple golf courses, should result in
continued industry consolidation.
57
<PAGE>
RESORT OPERATIONS
DESERT RESORTS
Desert Resorts is one of the country's premier golf destination resorts,
strategically located in the City of La Quinta, California. The City of La
Quinta is a growing community located at the eastern end of the Coachella
Valley, a renowned golf and recreation destination anchored at its western end
by Palm Springs.
La Quinta is a historic hotel of traditional Spanish adobe design which has
been a leading resort destination since it opened in 1926. La Quinta currently
offers 640 "casita"-style hotel rooms (Spanish-style cottages) spread over
approximately 45 acres of grounds. Its indigenous architecture and campus-like
setting provide, in the Company's opinion, significant competitive advantages
over newer resorts, both in the Coachella Valley and throughout the United
States. La Quinta was one of only 20 resorts nationwide and the only resort in
southern California to receive GOLF Magazine's prestigious Gold Medal in
November 1996. Desert Resorts also includes PGA WEST, which attracts golfers
from around the world, as well as from southern California and the Palm Springs
area. Desert Resorts has eight championship golf courses, six clubhouses with
over 161,000 square feet of space and 49 hard, clay and grass tennis courts.
Desert Resorts' tennis facilities offer instruction by former Wimbledon
mixed-doubles champion John Austin and were rated a Top Ten Tennis Resort by
Tennis Magazine in 1996.
Prior to their acquisition by the Company in December 1993, La Quinta and
PGA WEST were operated as separate businesses. Since the acquisitions, the
Company has (i) consolidated executive management and back office operations at
Desert Resorts, (ii) promoted and marketed the two properties as a single resort
and (iii) accommodated the cross utilization of the two properties by guests and
members through programs such as master charging privileges, centralized tee
time reservation systems and the sale of golf, membership and retail products
associated with PGA WEST to La Quinta guests. As a result, the Company believes
that it has realized management efficiencies and marketing synergies in the
operation of the two facilities and created "seamless" access for guests and
members to both facilities.
For the fiscal year ended October 31, 1996, La Quinta's hotel operations
recorded an occupancy rate of 57.2% and an average daily rate of $170, resulting
in RevPAR of $97, and total net room revenues of $22.7 million. This compares to
an occupancy rate of 54.5% and an average daily room rate of $154, resulting in
RevPAR of $84, and total net room revenues of $16.3 million in fiscal 1994.
Approximately 67% of total occupied room nights at La Quinta during fiscal 1996
consisted of corporate and other group guests, while the remaining 33% reflected
usage by FIT guests. The Company believes a mix of group and FIT business
substantially in these proportions optimizes the revenues of the hotel
facilities.
The following tables set forth certain information relating to the
facilities at Desert Resorts:
DESERT RESORTS FACILITIES
<TABLE>
<CAPTION>
ACRES ROOMS GOLF COURSES TENNIS COURTS CONFERENCE SPACE RETAIL SPACE RESTAURANTS
- --------- ----------- ------------------- ----------------- ---------------- -------------- -----------------
<C> <C> <C> <C> <S> <C> <C>
1,490.... 640 8 49 66,000 sq. ft. 19,500 sq. ft. 8
<CAPTION>
ACRES SWIMMING POOLS SPAS/HOT TUBS
- --------- ------------------- -------------------
<C> <C> <C>
1,490.... 25 38
</TABLE>
58
<PAGE>
DESERT RESORTS GOLF FACILITIES
GOLF COURSES:
<TABLE>
<CAPTION>
NAME ARCHITECT AWARDS/EVENTS
- ------------------------------ -------------- -----------------------------------------------------------------
<S> <C> <C>
Mountain Course Pete Dye Host of PGA Club Professional Championship (1995)
Rated among America's 100 Best Modern Golf Courses by GolfWeek
Dunes Course Pete Dye Host of NCAA Women's National Championship (1996)
Citrus Course Pete Dye Host of Lexus Challenge (1996, 1995)
Previously Rated among 100 Most "Women-Friendly" Courses in the
United States by Golf for Women
TPC Stadium Course Pete Dye Host of Liberty Mutual Legends of Golf (1996, 1995)
Rated among America's 100 Best Modern Golf Courses by GolfWeek
Jack Nicklaus Tournament Jack Nicklaus Host of Diners Club Matches (1996, 1995, 1994)
Course Host of Wendy's 3 Tour Challenge (1994)
Tom Weiskopf Private Course Tom Weiskopf Host of Rolex National Collegiate Match Play Team Championship
(1996)
Host of PGA Club Professional Championship (1996)
Arnold Palmer Private Course Arnold Palmer Host of Liberty Mutual Legends of Golf (1997)
Host of PGA Club Professional Championship (1996)
Host of Bob Hope Chrysler Classic (1994)
Jack Nicklaus Private Course Jack Nicklaus Host of PGA Club Professional Championship (1996, 1995)
</TABLE>
GOLF SCHOOLS:
<TABLE>
<CAPTION>
NAME AWARDS/RECOGNITION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Jim McLean Golf Academy at PGA WEST Jim McLean named 1994 Teacher of the Year by Golf Digest
Staff Instructor for GOLF Magazine
Dave Pelz Short Game School at PGA WEST Staff Instructor for GOLF Magazine
</TABLE>
La Quinta's private club operation provides golf and tennis facilities, golf
and tennis instruction, special events, dining and social activities to its
members. At April 30, 1997, La Quinta had approximately 385 golf members and
approximately 160 other members. A full golf membership at La Quinta currently
requires a $42,500 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of $4,740. In fiscal 1996,
Adjusted Net Membership Deposits at La Quinta were approximately $881,000.
PGA WEST's private club operation provides golf and tennis facilities, golf
and tennis instruction, special events, dining and social activities to its
membership. At April 30, 1997, PGA WEST had approximately 1,285 golf members and
approximately 95 other members. A full golf membership at PGA WEST currently
requires a $50,000 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of $5,580. In fiscal 1996,
Adjusted Net Membership Deposits at PGA WEST were approximately $3.2 million.
Desert Resorts is located approximately 160 miles from Los Angeles and
approximately 175 miles from San Diego. The Palm Springs Regional Airport, which
is located approximately 20 miles from Desert Resorts, and Ontario International
Airport, which is located approximately 60 miles from Los Angeles and
approximately 100 miles from Desert Resorts, together provide direct air access
from most major U.S. cities. In 1996, total passenger traffic at Palm Springs
Regional Airport was approximately 1.1 million passengers, representing an 18%
increase over 1995. In 1996, Ontario International Airport accommodated
approximately 6.4 million passengers and has recently begun a $300 million
expansion program to
59
<PAGE>
add two new terminals by 1999 and plans to undertake further improvements
expected to increase capacity by approximately 60% to 10.0 million passengers by
the year 2005.
DORAL GOLF RESORT AND SPA
Doral is a premier golf destination resort located approximately 15 miles
from downtown Miami, Florida and approximately 10 miles from Miami International
Airport. The Company believes that this proximity gives Doral a competitive
advantage in attracting both corporate and other group and FIT business.
The Company acquired Doral in December 1993. Prior to the Company's
acquisition of Doral, it had been under family ownership since it opened in
1961, during which time it had gained national recognition for its championship
golf facilities and convenience for East Coast travelers. By 1993, however, its
facilities and operations had deteriorated and, as a result, following its
acquisition, the Company initiated a $33 million renovation program for all 646
hotel rooms and all 48 spa guest suites, a substantial portion of the common
areas and conference space and two golf courses, and undertook major restaffing
and repositioning efforts in an attempt to re-establish Doral's reputation for
high-end service and appeal. As a result of these efforts, in November 1996,
Doral received GOLF Magazine's prestigious Gold Medal Resort award.
Doral includes 646 hotel rooms, four championship eighteen-hole golf courses
including the famed "Blue Monster" golf course, the home of the Doral-Ryder
Open, which was recently restored and the Gold Course which was recently rebuilt
under the direction of noted professional golfer and golf course designer
Raymond Floyd, a nine-hole executive golf course, Jim McLean's nationally
recognized golf instruction program, the Arthur Ashe Tennis Center, featuring 15
courts, one swimming pool, three restaurants, approximately 75,000 square feet
of conference space and a private club with approximately 400 dues-paying
members (at April 30, 1997).
Facilities at Doral also include the Spa at Doral, which has developed
international recognition independent of Doral's other amenities. The Spa at
Doral includes 48 guest suites, approximately 85,000 square feet of fitness and
spa facilities, 25 massage rooms, seven facial rooms, three swimming pools, two
saunas and two restaurants. The Spa at Doral offers a variety of services,
including personal fitness training, massage therapy, health and beauty
amenities and stress reduction and nutrition training.
In fiscal 1996, Doral's hotel operations generated total net room revenues
of $21.7 million, compared to total net room revenues of $15.3 million in fiscal
1994 due to increased levels of occupancy and average daily rate from 1994 to
1996. Approximately 61% of total occupied room nights at Doral during fiscal
1996 consisted of corporate and other group guests, while the remaining 39%
reflected usage by FIT guests. The Company believes a mix of group and FIT
business substantially in these proportions optimizes the revenue of the hotel
facilities.
The following tables set forth certain information relating to the
facilities at Doral:
DORAL FACILITIES
<TABLE>
<CAPTION>
ACRES ROOMS GOLF COURSES TENNIS COURTS CONFERENCE SPACE RETAIL SPACE RESTAURANTS
----- ----------- ------------------- ----------------- ---------------- ------------ -----------------
<C> <C> <C> <C> <S> <C> <C>
650....... 694 5 15 75,000 sq. ft 8,500 sq. ft 5
<CAPTION>
ACRES SWIMMING POOLS
----- ---------------------
<C> <C>
650....... 4
</TABLE>
60
<PAGE>
NOTABLE DORAL FACILITIES
<TABLE>
<CAPTION>
NAME AWARDS/EVENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Blue Course (the "Blue Monster") Host of Doral-Ryder Open (1962-1997)
Doral Golf Learning Center with Jim McLean Jim McLean named 1994 Teacher of the Year by Golf Digest
Staff Instructor for GOLF Magazine
The Spa at Doral Rated a Top U.S. Spa by Conde Nast Traveler
Rated a Top Spa Destination in United States by Zagat
Survey, U.S. Hotels and Restaurants
</TABLE>
Doral's private club operation provides golf and tennis facilities, golf and
tennis instruction, special events, dining and social activities to its members.
At April 30, 1997, Doral had approximately 250 golf members and approximately
150 other members. A full golf membership at Doral currently requires a $12,500
deposit which is fully refundable in thirty years (or sooner under certain
circumstances), and annual dues of approximately $3,600. In fiscal 1996, Net
Membership Deposits at Doral were approximately $330,000.
The Miami area continues to grow and tourism by domestic and international
travelers to south Florida has also been steadily increasing. The area
surrounding Doral serves as the corporate headquarters for several prominent
corporations and the Company has benefited from the use of its facilities by
employees of these corporations.
LAKE LANIER ISLANDS
Lake Lanier Islands, a regional destination resort and recreational complex
for the Southeast, is located approximately 45 miles from downtown Atlanta. Lake
Lanier Islands is situated on Lake Lanier, an approximately 38,000 acre lake
with approximately 520 miles of shoreline and numerous lakeside primary and
secondary homes. Lake Lanier Islands was initially developed and operated by
agencies of the State of Georgia under a long-term lease agreement with the
Corps of Engineers. In 1996, the Company was the successful bidder in a
privatization initiative by the State of Georgia. See "--Properties; Lake Lanier
Transaction."
Lake Lanier Islands features a 224-room hotel, 12,500 square feet of
conference space, three retail outlets, two restaurants, one swimming pool, one
golf course, three tennis courts and several daily ticketed attractions,
including extensive beach and water park facilities, houseboat and fishing boat
rental operations, riding stables, campgrounds, pavilions, an amphitheater,
group and social outings and front gate admissions.
In the period from May 15, 1996 through October 31, 1996, Lake Lanier
Islands' hotel operations recorded an occupancy rate of 66.0%, an average daily
rate of $115 and total net room revenues of $2.8 million. Approximately 69% of
total occupied room nights at Lake Lanier Islands consisted of corporate and
other groups, while the remaining 31% reflected usage by FIT guests. In addition
to its hotel and golf operations, Lake Lanier Islands generates significant
revenues from daily attractions, including the water park, boat rental
operation, group and social outings, front gate admissions for access to the
Islands, and special events. In the period from May 15, 1996 through October 31,
1996, these daily attractions and special events generated approximately $4.5
million in revenues.
COMMUNITY GOLF OPERATIONS
Fairways, the community golf operations of the Company, operates 22 golf
course properties (21 owned and one leased), including 16 eighteen-hole
facilities, three 27-hole facilities and three 36-hole facilities. The Company
acquired 12 of the 22 golf course properties after its acquisition of Fairways
in July 1993. Fairways' portfolio includes five private country clubs, 12
semi-private course properties and five public (or daily fee) course properties.
Fairways operates its courses in three geographic clusters: the Mid-
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<PAGE>
Atlantic region (Virginia, Maryland and Pennsylvania) with ten properties, the
Southeastern region (Florida) with eight properties, and the Midwestern region
(Tennessee, Wisconsin) with four properties. As the third largest golf course
owner in the nation (based on number of courses owned during 1996), the Company
is able to (i) realize purchasing efficiencies with respect to both volume and
price, (ii) attract quality management and (iii) create marketing synergies
among the Fairways clubs and between the Fairways clubs and the Company's
resorts. The Company realizes additional management and operating efficiencies
through the use of regional managers who oversee the management of each of the
individual golf course properties within a geographic cluster.
Fairways derives most of its revenue from its golf operations. At its
private clubs, Fairways generates revenue through initiation fees, membership
dues, greens fees, retail (pro shop) sales and food and beverage sales. At its
public (or daily fee) courses, Fairways generates revenue through greens fees,
golf cart rentals, retail (pro shop) sales and food and beverage sales. At April
30, 1997, Fairways' private and semi-private clubs had approximately 8,000
members and, during fiscal 1996, golf members at Fairways' private and
semi-private clubs paid a total of approximately $12.1 million in annual
membership dues, with individual dues ranging from $900 to $4,500 annually.
Approximately 868,600 rounds were played at all Fairways courses in fiscal 1996,
of which members played approximately 368,300 rounds and non-members played
approximately 500,300 rounds.
Many of Fairways' properties offer additional amenities such as tennis
courts, swimming pools, clubhouses and restaurants. These features generally
provide additional revenue by encouraging existing members to utilize Fairways'
clubs and by attracting additional members. Fairways also seeks to position many
of its golf courses and related facilities as social centers by hosting social
events, thereby attracting non-golf members as well. In this regard, the Company
employs an active sales staff to promote Fairways clubs as sites for banquets
and other group events. Fairways also provides other benefits to members of its
clubs such as reciprocal playing privileges at other Fairways' properties and
special vacation packages at the Company's destination resorts. In addition to
encouraging Fairways' members to visit the Company's resorts, management
believes that these promotional activities also benefit the Fairways courses by
associating them with the prestige of the courses at Doral and Desert Resorts.
62
<PAGE>
The following tables set forth certain information regarding Fairways' golf
course properties, including a description of each course and a summary of the
facilities and services available.
<TABLE>
<CAPTION>
DATE
ACQUIRED
BY
COURSE NAME LOCATION TYPE OF COURSE TENNIS POOL FAIRWAYS (1)
- --------------------------- --------------------------- --------------------------- ----------- --- ---------------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC COURSES
Birkdale Golf and C.C...... Richmond, VA 18-Hole semi-private Yes Yes 12/93
Broad Bay C.C.............. Virginia Beach, VA 18-Hole private Yes Yes 7/93
Countryside G.C............ Roanoke, VA 18-Hole public Yes Yes 7/93
Kiln Creek Golf and C.C.... Newport News, VA 27-Hole private Yes Yes 4/94
Marlborough C.C............ Upper Marlboro, MD 18-Hole semi-private Yes Yes 7/93
Monroe Valley G.C.......... Jonestown, PA 18-Hole public No No 7/93
Montclair C.C.............. Dumfries, VA 18-Hole private Yes Yes 7/93
Patuxent Greens C.C........ Laurel, MD 18-Hole private Yes Yes 7/93
Prince William G.C......... Dulles, VA 18-Hole public No No 7/93
Tantallon C.C.............. Fort Washington, MD 18-Hole semi-private Yes Yes 3/96
SOUTHEASTERN COURSES
The Club at Hidden Creek... Navarre, FL 18-Hole semi-private No No 10/95
Indigo Lakes Golf and Daytona Beach, FL 18-Hole semi-private
C.C...................... No No 6/94
Pebble Creek............... Tampa, FL 18-Hole semi-private Yes Yes 10/94
Scenic Hills C.C........... Pensacola, FL 18-Hole semi-private Yes Yes 7/93
Shalimar Pointe Golf and Shalimar, FL 18-Hole semi-private
C.C...................... Yes Yes 7/93
Tiger Point Golf & C.C..... Gulf Breeze, FL 36-Hole semi-private Yes Yes 7/93
Walden Lake Golf and C.C... Plant City, FL 36-Hole semi-private Yes Yes 12/93
Wellington C.C............. Wellington, FL 36-Hole private Yes Yes 12/94
MIDWESTERN COURSES
Lake Windsor G.C........... Windsor, WI 27-Hole public No No 6/96
Memphis Oaks C.C........... Memphis, TN 18-Hole semi-private No Yes 5/95
Mequon C.C................. Mequon, WI 27-Hole semi-private Yes Yes 6/96
Willow Run G.C............. Pewaukee, WI 18-Hole public No No 1/96
</TABLE>
- ------------------------------
(1) Represents the date acquired by the Company or, if different, the date the
Company commenced operations of the courses.
MARKETING/MEMBERSHIP PROGRAMS
The Company attempts to position Desert Resorts and Doral at the premium end
of the specific market segments in which they compete. Lake Lanier Islands is
currently being positioned as an amenity oriented, regional resort setting for
corporate and other groups seeking alternatives to city based conference
centers, as well as "Atlanta's Playground" for daily attractions and special
events. Fairways positions itself as America's leader in "Quality, Affordable
Golf."
To effectively position each property, the Company's operating subsidiaries
use a number of marketing strategies and marketing channels. The marketing
function is largely decentralized to allow managers who are most familiar with
the guest or member population and with the specific property to play an active
role in developing the appropriate marketing strategy. The Company uses a
combination of print media, direct mail, telemarketing, local and national
public relations and, in the case of televised golf tournaments, television, to
develop market awareness, to create a property's image and to market golf,
lodging,
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memberships, food and beverage and special events to targeted consumers.
Although specific marketing activities are largely decentralized, the Company's
corporate office develops and implements national marketing and promotional
programs, controls trademarks and trademark licensing agreements, engages public
relations firms and advertising agencies, coordinates communications with media
sources, develops video materials and develops and manages all televised golf
tournaments. The Company believes that these centralized activities provide
highly effective, complementary programs to the operating subsidiaries'
decentralized marketing efforts.
The Company also attempts to take advantage of numerous cross marketing
opportunities available to it by virtue of its scale and high market recognition
of its facilities. The Company's destination resorts attract guests and members
with similar demographic and economic profiles, including those that may have
visited the Company's other resorts. For example, groups seeking alternative
sites for conferences, particularly those which seek to rotate annual meetings
between east and west coast sites, are targeted by group salespersons at the
destination resorts. Additionally, community club members and daily fee golfers
at the community golf courses provide a valuable database of avid golfers who
can be attracted to the Company's destination resorts. Within the community golf
clubs, the Company believes that reciprocal member privileges among other
Fairways clubs offer an attractive benefit of membership.
A growing component of the Company's marketing and sales efforts, both at
resorts and at community clubs, are focused on membership programs. In all its
clubs, the Company employs salespersons focused exclusively on membership sales
and marketing, as well as persons focused exclusively on member services and
programming. Within its resort clubs, the Company has successfully introduced
new membership programs with enhanced benefits and privileges of membership. The
Company intends to continue to enhance the benefits and privileges of membership
within these and other clubs. Within the community clubs, proactive membership
sales efforts target member referrals, residents within close proximity to the
clubs and prospects generated by various mailing lists.
CUSTOMERS
The Company attracts a broad range of customer to its resort and community
golf facilities. For its destination resort businesses, the Company's customers
typically include FIT guests and corporate and other group participants as well
as active users of recreational services. The Company's destination resort
customers are drawn from an international, national and regional customer base
and often exhibit the higher spending patterns of affluent corporate and leisure
travelers. Desert Resorts' private clubs attract members and non-member guests
on a national scale, with higher concentrations of customers from southern
California. Doral's club typically attracts local corporate and individual golf
and fitness enthusiasts.
Lake Lanier Islands draws customers from Georgia and the southeastern United
States. Its hotel operations draw significant numbers of both corporate and
other group participants and FIT guests. Its other facilities attract a mix of
customers with a wide array of interests, including active golfers and daily
attraction users, such as boaters and water park attendees. The Company believes
that Lake Lanier Islands draws customers from a broad range of socioeconomic
backgrounds.
Each of the Company's community golf facilities attracts members and daily
fee golf participants from the community in which the applicable facility is
located. The Company's community golf club customers include families and
individual golf enthusiasts from a broad range of socioeconomic backgrounds.
COMPETITION
The resort industry is highly competitive. The Company's destination resorts
compete with other golf and recreation-based resorts. These include premier
independent resorts as well as national hotel chains. In addition, the Company's
existing resorts compete with other recreation businesses, such as cruise ships
and gaming casinos. The Company believes that it competes based on brand name
recognition, location, room rates, and the quality of service and amenities.
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Golf courses compete for players and members with other golf courses located
in the same geographic areas. The Company's golf courses compete based on the
overall quality of their facilities (including the quality of its customer
service), the maintenance of their facilities, available amenities, location and
overall value. The availability of sufficient acreage often limits the number of
competing golf courses, particularly in metropolitan areas. However, the areas
of Florida, Georgia and California in which many of the Company's existing
properties are located have significant open land available, and there has been
continued construction by potential competitors of both public and private golf
facilities in those areas. In addition, the Palm Springs area, which has
approximately 90 golf courses in a relatively concentrated geographic area, is
generally viewed as a particularly competitive area and newer golf courses
frequently become very attractive focal points and may attract golfers who would
otherwise have used the Company's facilities.
The Company competes for the purchase and lease of golf courses with several
national and regional golf course companies. Certain of the Company's national
competitors have larger staffs and more golf courses currently leased, owned or
under management than the Company. In addition, certain national competitors
have greater capital resources than the Company and some of such competitors may
have access to capital at a lower cost than is currently available to the
Company. See "Risk Factors-- Competition."
PROPERTIES; LAKE LANIER TRANSACTION
The Company owns Desert Resorts and Doral. The Company owns 21 of its 22
community golf facilities and leases the other. The Company also owns beneficial
interests in three land trusts which hold undeveloped land that may be used for
future golf course development.
On May 15, 1996, the Company entered into the Lake Lanier Management
Agreement to manage the facilities at Lake Lanier Islands with LLIDA, which
subleases the facilities from the Department of Natural Resources, State of
Georgia, which leases the property from the Corps of Engineers. The Lake Lanier
Management Agreement provides for a monthly fee of $160,000 payable to the
Company. Subsequent to May 15, 1996, the Company executed a 50-year sublease
with LLIDA, with certain rights to extend the sublease for a minimum of an
additional ten years upon certain conditions. The sublease is being held in
escrow pending approval of the master development plan by the Corps of
Engineers, a finding of no significant impact under the National Environmental
Policy Act and the completion of exhibits and transfer documents. The Company
currently anticipates that it will close the sublease in July 1997.
The Lake Lanier Management Agreement provides that, at the closing of the
sublease, the Company and LLIDA will be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement will terminate. Accordingly, at the closing of the sublease, the
Company will be credited with the net earnings (as defined) of Lake Lanier
Islands from May 15, 1996 to such date less amounts earned by the Company
pursuant to the Lake Lanier Management Agreement. The net amount paid to the
Company will be recognized as a reduction to the recorded values of the assets
acquired pursuant to the sublease.
In connection with the sublease, concurrently with the Refinancings, Parent
contributed $9.0 million in cash to the Issuer to fund the purchase of certain
equipment and other fixed assets used in the operation of the Lake Lanier
Islands facilities that will not be leased pursuant to the sublease. Under the
terms of the sublease, the Company is required to make monthly base lease
payments of $250,000, or $3.0 million annually. An additional annual payment
equal to 3.5% of gross revenues in excess of $20 million is also payable
pursuant to the sublease, with a minimum of $100,000 in years one through five
and $200,000 annually thereafter. Pursuant to the sublease, the Company is
required to spend 5% of annual gross revenues on capital replacement and
improvements, with carryover provisions allowing all or some portion of these
amounts to be deferred to subsequent years. In addition, the Company has
committed to expend $5.0 million over the first five years of the sublease
following the first year in which gross revenues exceed
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<PAGE>
$20.0 million for the development and construction of new capital projects.
Approximately $3.6 million of capital improvements are currently underway at the
water park and other facilities, which are being funded by the State on a
non-interest bearing advance that will be repaid by the Company upon closing of
the sublease, and approximately $1.8 million will be applied against the
Company's $5.0 million capital investment requirement.
The Company believes that the structure and terms of the Lake Lanier Islands
sublease provide several attractive features for operating and developing Lake
Lanier Islands. For example, the Company has the right to enter into subleases
with either affiliates or third parties, subject to certain terms and
conditions, to separately undertake new projects on undeveloped land.
Non-disturbance agreements with both the Department of Natural Resources, State
of Georgia and the Corps of Engineers have been executed and are presently being
held in escrow, along with the sublease. In addition, the Company will receive
lease payments from the Renaissance Pine Isle Resort ("Renaissance"), a 250-room
hotel with an 18-hole golf course located at Lake Lanier Islands, through the
year 2018. After such date, the sublease in favor of Renaissance (to which the
Company is currently subordinated) will expire and the Company's sublease will
become the primary sublease.
LICENSES AND TRADEMARKS
The Company is a party to the Professional Golfers' Association License
Agreement pursuant to which it is permitted and licensed to use the PGA WEST
name and logos in sales, promotion, advertising, development and/or operations
of certain property located in the city of La Quinta, California, known as "PGA
WEST" (the "PGA WEST Property"). The PGA License Agreement provides the Company
with (i) the exclusive rights in the United States to the name "PGA WEST" in
connection with the PGA WEST Property and (ii) the exclusive rights in the
states of California and Arizona to the names "PGA" and "PGA of America" in
connection with the PGA WEST Property. The term of the PGA License Agreement
extends through the later of (i) the date on which all of the residential units
located on the PGA WEST Property have been sold and (ii) the date on which the
Company ceases to use the name "PGA WEST" in the name of golf clubs, golf
courses, hotels and/or any other commercial, office or residential developments
then located on the PGA WEST Property. The Company believes that the PGA WEST
logo is an important aspect of the Company's business because of the prestige
associated with the Professional Golfers' Association. The PGA License Agreement
provides for royalty payments on an annual basis through 2005, although the
exact amount of any royalty payments with respect to the PGA mark will be
determined by reference to the number and sales of residential units by KSL
Land.
KSL Land has in the past made all royalty payments attributable to its land
sales and is expected to continue to do so in the future; however, KSL Land has
not agreed in writing to do so, is not controlled by the Company and no
assurance can be given that KSL Land will pay any future royalty owing under the
PGA License Agreement. Failure to comply with the terms of the PGA License
Agreement, including any failure to pay royalties arising out of land sales by
KSL Land, could result in the payment of monetary damages by the Company. Such
occurrence could have a material adverse effect on the Company. See "Risk
Factors--Risks Associated with License Agreements."
The Company is also a licensee under a license agreement with the PGA TOUR.
The PGA TOUR license agreement provides the Company with the exclusive rights to
use the names "PGA TOUR" and "TPC" in connection with the sales, promotion,
marketing and operation of PGA WEST. The PGA TOUR agreement is expected to
terminate no earlier than January 1, 2006.
The Company owns the "Blue Monster" name and has obtained from Carol
Management Corporation ("Carol Management"), the former owner of Doral Golf
Resort and Spa, an irrevocable, perpetual license for the "Doral" name in
connection with the Company's operation, marketing and promotion of the
facilities located at Doral. In addition, Carol Management is prohibited from
licensing the "Doral" mark for any purpose anywhere in southern Florida, but
retains the right to license the Doral mark elsewhere. Although failure by the
Company to comply with the terms of the Doral license agreement
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could result in monetary damages, Carol Management does not have the right to
terminate the Doral license agreement in the event of a breach by the Company.
EMPLOYEES
For the year ended October 31, 1996, Desert Resorts, Doral, Lake Lanier
Islands and Fairways employed approximately 1,500 persons, 1,050 persons, 615
persons and 1,350 persons, respectively, during their respective peak seasons
and approximately 950 persons, 975 persons, 225 persons and 700 persons,
respectively, during their respective off-peak seasons. In addition, Parent
employs approximately 25 persons who render services in connection with the
Company's operations at its corporate headquarters. The Company believes that
its employee relations are good. Although none of the Company's employees is
currently represented by a labor union, certain union representatives have
recently sought unsuccessfully to organize certain of the Company's employees at
Desert Resorts and Doral.
GOVERNMENTAL REGULATION
ENVIRONMENTAL MATTERS. Operations at the Company's resort and community
golf courses involve the use and storage of various hazardous materials such as
herbicides, pesticides, fertilizers, batteries, solvents, motor oil and
gasoline. For instance, the Company's resorts conduct, or have conducted, dry
cleaning operations. Dry cleaners raise environmental concerns, including waste
produced from the cleaning, spotting and pressing processes; machine leaks;
chemical spills; and air emissions. In addition, the Company's resorts and golf
courses contain, or have contained, underground storage tanks for storing fuel
and other materials. All new USTs must be fitted with leak detection and spill
prevention equipment, while older tanks must be retrofitted for such equipment.
If any UST is known to be leaking, it must be removed, and soil and sometimes
groundwater may have to be remediated. If an UST is taken out of use, it must be
removed and any leaks remediated. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removing hazardous substances that are released on or in
its property and for remediation of its property. Such laws often impose
liability regardless of whether a property owner or operator knew of, or was
responsible for, the release of hazardous materials. In addition, the failure to
remediate contamination at a property may adversely affect the ability of a
property owner to sell such real estate or to pledge such property as collateral
for a loan.
GENERAL. The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. Some of the Company's
resort and golf course employees receive the federal minimum wage and any
increase in the federal minimum wage would increase the Company's labor costs.
In addition, the Company is subject to certain state "dram-shop" laws, which
provide a person injured by an intoxicated individual the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated individual. The Company is also subject to the Americans with
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to various clubhouses and other facilities at the Company's
properties to meet federally mandated access and use requirements. The cost of
these renovations is not expected to be material to the Company. The Company is
also subject to the Equal Employment Opportunity Act. The Company believes it is
operating in substantial compliance with applicable laws and regulations
governing its operations.
LEGAL PROCEEDINGS; INSURANCE
From time to time, lawsuits are filed against the Company in the ordinary
course of business. The Company is not a party to any litigation that, in the
judgment of management, is likely to have a material adverse effect on the
Company or its business. The Company carries property and casualty insurance and
insurance under umbrella policies in such amounts and with such coverages as the
Company believes to be adequate.
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MANAGEMENT
Set forth below are the names, ages and positions of the directors and
executive officers of the Issuer (unless otherwise specified), together with the
key employees of the Issuer and its subsidiaries. The terms of each of the
directors will expire annually upon the election and qualification at the annual
meeting of shareholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Michael S. Shannon................................... 39 President, Chief Executive Officer and Director
Larry E. Lichliter................................... 54 Executive Vice President and Director
John K. Saer, Jr..................................... 40 Vice President, Chief Financial Officer and Treasurer
Nola S. Dyal......................................... 47 Vice President, General Counsel and Secretary
Bradley T. Quayle.................................... 45 Vice President, Marketing and Corporate Development
Steven F. Elliott.................................... 33 Vice President of Corporate Finance
James E. Wanless..................................... 44 Vice President of Club and Membership Development
Thomas McGrath....................................... 47 Vice President, Merchandising and Events
Emily-May Richards................................... 49 Corporate Controller
Henry R. Kravis...................................... 53 Director
George R. Roberts.................................... 52 Director
Paul E. Raether...................................... 50 Director
Michael T. Tokarz.................................... 47 Director
Scott M. Stuart...................................... 38 Director
Alexander Navab, Jr.................................. 31 Director
OTHER KEY EMPLOYEES:
Eric L. Affeldt...................................... 39 President, The Fairways Group, L.P.
Scott M. Dalecio..................................... 35 President, KSL Desert Resorts, Inc.
Joel B. Paige........................................ 37 President, KSL Hotel Corp.
Raymond C. Williams.................................. 50 President, KSL Lake Lanier, Inc.
</TABLE>
MICHAEL S. SHANNON. Mr. Shannon has been the President and Chief Executive
Officer of the Issuer since its formation. Mr. Shannon was a founding
stockholder of Parent and has served as Parent's President and Chief Executive
Officer since its inception. Prior to forming Parent, Mr. Shannon was President
and Chief Executive Officer of Vail Associates in Vail, Colorado. Mr. Shannon is
a director of ING America Life Insurance Company.
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LARRY E. LICHLITER. Mr. Lichliter has been Executive Vice President of the
Issuer since its formation. Mr. Lichliter was a founding stockholder of Parent
and has served as its Executive Vice President since its inception. He also
served as Chief Operating Officer of Parent from its inception through December
1996. Mr. Lichliter has also served as President of KSL Land Corporation and its
subsidiaries since 1996. Mr. Lichliter began his career as the Controller for
Vail Associates in 1977 before becoming Director of Finance for Beaver Creek
Resort, and later serving as Senior Vice President of Operations for Vail
Associates.
JOHN K. SAER, JR. Mr. Saer has been Vice President, Chief Financial Officer
and Treasurer of the Issuer since its formation. Mr. Saer joined Parent in July
1993 as Director of Finance and Acquisitions. He was later elected to the office
of Vice President of Business Development and Acquisitions in 1994 and now
serves as Vice President, Chief Financial Officer and Treasurer of Parent. From
1990 until joining Parent, Mr. Saer served as a principal of Windermere
Management, Inc. and its affiliate, Jonison Partners, Ltd.
NOLA S. DYAL. Ms. Dyal has been Vice President, General Counsel and
Secretary of the Issuer since its formation. Ms. Dyal joined Parent in November
1993 as Vice President, General Counsel and Secretary. From 1986 to 1993, Ms.
Dyal was Vice President, General Counsel and Secretary of Vail Associates.
BRADLEY T. QUAYLE. Mr. Quayle has been Vice President, Marketing and
Corporate Development of the Issuer since its formation. Mr. Quayle joined
Parent in September 1993 as Vice President, Business Development and Corporate
Communications. He now also serves as Vice President, Marketing and Corporate
Development of Parent. From 1989 to 1993, Mr. Quayle was employed by Vail
Associates as Vice President of Business Development. From 1982 to 1993, Mr.
Quayle was President of Resort Communications Management in Vail, Colorado and
President of Eagle Valley Investments.
STEVEN F. ELLIOTT. Mr. Elliott has been Vice President of Corporate Finance
of the Issuer since its formation. Mr. Elliott joined Parent in 1995 as Director
of Finance and Analysis. In 1996, he was elected Vice President of Corporate
Finance. Prior to joining Parent, Mr. Elliott was Vice President of Corporate
Finance in the Capital Markets Group of Security Capital Group from 1994 to
1995. Prior to that, Mr. Elliott was a Vice President at Dillon, Read & Co. Inc.
JAMES E. WANLESS. Mr. Wanless has been Vice President, Club and Membership
and Development of the Issuer since its formation. Mr. Wanless joined Parent in
September 1996 as Vice President, Club and Membership Development. From 1995 to
1996, Mr. Wanless was a Director and Senior Vice President of Membership
Marketing International. For more than five years prior to joining Parent, Mr.
Wanless was a senior partner of the law firm Hillier and Wanless.
THOMAS MCGRATH. Mr. McGrath has been Vice President, Merchandising and
Events of the Issuer since its formation. Mr. McGrath joined Parent in June 1996
as Vice President, Merchandising and Events. From 1988 until joining Parent, Mr.
McGrath was Vice President of Merchandising for eight years with Silver Dollar
City, Inc. in Branson, Missouri.
EMILY-MAY RICHARDS. Ms. Richards has been Corporate Controller of the
Issuer since its formation. Ms. Richards joined Parent in October 1994 as
Corporate Controller after serving as a private consultant for Parent and its
subsidiaries with Richards Group, P.C., a certified public accounting firm
founded by Ms. Richards in 1986. Ms. Richards owned and operated the Richards
Group, P.C. from 1986 to 1994.
HENRY R. KRAVIS. Mr. Kravis, Founding Partner of KKR, is a Director of
Parent and the Issuer and a managing member of the Executive Committee of the
limited liability company which serves as the general partner of KKR. He is also
a Director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies, Inc., Flagstar Corporation, The
Gillette Company, IDEX Corporation, K-III Communications Corporation, Merit
Behavioral Care Corporation, Newsquest Capital plc., Owens-Illinois Group, Inc.,
Owens-Illinois, Inc., Safeway, Inc., Sotheby's Holdings, Inc., Union Texas
Petroleum Holdings, Inc. and World Color Press, Inc.
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GEORGE R. ROBERTS. Mr. Roberts, Founding Partner of KKR, is a Director of
Parent and the Issuer and a managing member of the Executive Committee of the
limited liability company which serves as the general partner of KKR. He is also
a director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies, Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc., Owens-Illinois Group, Inc., Owens-Illinois,
Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press,
Inc.
PAUL E. RAETHER. Mr. Raether is a Director of Parent and the Issuer and is
a member of the limited liability company which serves as the general partner of
KKR. He is also a Director of Bruno's, Inc., Flagstar Companies, Inc., Evenflo &
Spalding Holding's Corporation, Flagstar Corporation, Fred Meyer, Inc. and IDEX
Corporation. Mr. Raether joined KKR in 1980.
MICHAEL T. TOKARZ. Mr. Tokarz is a Director of Parent and the Issuer and is
a member of the limited liability company which serves as the general partner of
KKR. Prior to 1993, Mr. Tokarz was an Executive at KKR. Mr. Tokarz joined KKR in
1985. He is also a Director of Evenflo & Spalding Holdings Corporation, Flagstar
Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III Communications
Corporation, Safeway, Inc. and Walter Industries, Inc.
SCOTT M. STUART. Mr. Stuart is a Director of Parent and the Issuer and is a
member of the limited liability company which serves as the general partner of
KKR. Prior to 1995, Mr. Stuart was an Executive at KKR. He is also a Director of
Borden, Inc., Newsquest Capital plc and World Color Press, Inc. Mr. Stuart
joined KKR in 1986.
ALEXANDER NAVAB, JR. Mr. Navab is a Director of Parent and the Issuer and
has been an Executive at KKR since 1993. Prior to joining KKR, Mr. Navab was
employed by James D. Wolfensohn Incorporated. He is also a Director of Borden,
Inc., Newsquest Capital plc. and World Color Press, Inc.
ERIC L. AFFELDT. Mr. Affeldt is President and Chief Executive Officer of
The Fairways Group, L.P., a limited partnership through which Fairways
operations are conducted, and a Vice President of KSL Fairways Golf Corporation,
a subsidiary of the Issuer and the managing general partner of Fairways Group,
L.P. Mr. Affeldt joined Parent in July 1992 as Director of Finance. After
serving as Vice President of Acquisitions of The Fairways Group, he became its
President in July 1995. Prior to joining the Company, Mr. Affeldt owned and
operated Vail Financial Planning, a financial advisory firm in Vail, Colorado.
SCOTT M. DALECIO. Mr. Dalecio has been President of KSL Desert Resorts,
Inc., the operating subsidiary which operates both the La Quinta Resort & Club
and PGA WEST in La Quinta, California since March 1996. Prior thereto, Mr.
Dalecio held several management positions with the La Quinta Resort & Club since
joining La Quinta Resort & Club in 1986, including President and General
Manager.
JOEL B. PAIGE. Mr. Paige has been the President of KSL Hotel Corp., the
operating subsidiary which owns Doral, since April 1995. From November 1994
through April 1995, Mr. Paige was General Manager at the Scottsdale Hilton in
Scottsdale, Arizona. From September 1990 until joining the Scottsdale Hilton,
Mr. Paige was employed as General Manager of Doral.
RAYMOND C. WILLIAMS. Mr. Williams has been President of KSL Lake Lanier,
Inc., the operating subsidiary which manages Lake Lanier Islands since July
1996. Prior to July 1996, Mr. Williams was Vice President and Chief Operating
Officer of Arrow Dynamics in Salt Lake City, Utah. From 1973 to 1995, Mr.
Williams was an executive for Six Flags Theme Parks, Inc., holding several
positions, including Senior Vice President, Operational Planning & Strategy.
Messrs. Kravis and Roberts are first cousins.
The business address of Messrs. Kravis, Raether, Tokarz, Stuart and Navab is
9 West 57th Street, New York, New York 10019 and of Mr. Roberts is 2800 Sand
Hill Road, Suite 200, Menlo Park, California 94025.
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Vail Associates filed a petition seeking relief under Chapter 11 of the
federal bankruptcy laws in June 1992 and emerged from bankruptcy in October
1992.
The Company anticipates that during 1997, Mr. Lichliter will spend
approximately 70% of his time on matters related to the operations of Parent,
KSL Land and other affiliates of the Company. The Company anticipates that
during 1997, Mr. Shannon, Ms. Dyal and Mr. Quayle each will spend approximately
10% of his or her time on matters relating to the operations of such other
entities. See "Risk Factors--Control by KKR Affiliates; Conflicts of Interest."
The following directors have been appointed to serve on the Issuer's
Executive Committee during fiscal 1997: Messrs. Kravis, Raether, Tokarz and
Shannon. The following directors have been appointed to serve on the Issuer's
Audit Committee during fiscal 1997: Messrs. Stuart, Navab and Lichliter.
BOARD COMPENSATION
All directors are reimbursed for their usual and customary expenses incurred
in attending all Board and committee meetings. Each director receives an
aggregate annual fee of $25,000 for serving on Parent's and the Company's Boards
of Directors.
EXECUTIVE COMPENSATION
Prior to the formation of the Issuer in March 1997, all current executive
officers of the Issuer were employed by Parent and all compensation for such
officers was paid by Parent. The following table presents certain summary
information concerning compensation paid or accrued by Parent for services
rendered in all capacities for the fiscal year ended October 31, 1996 for (i)
the chief executive officer of the Issuer and (ii) each of the four other most
highly compensated executive officers of the Issuer, determined as of October
31, 1996 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
NAME AND FISCAL OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------------ ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Michael S. Shannon
President and Chief Executive Officer................................. 1996 $ 450,000 $ 615,000 $ 2,864(2)
Larry E. Lichliter
Executive Vice President.............................................. 1996 250,000 175,000 4,737(2)
John K. Saer, Jr.
Vice President, Chief Financial Officer and Treasurer................. 1996 190,000 150,000 --
Nola S. Dyal
Vice President, General Counsel and Secretary......................... 1996 195,000 105,000 --
Bradley T. Quayle
Vice President, Marketing and Corporate Development................... 1996 158,000 60,000 --
</TABLE>
- ------------------------
(1) After the consummation of the Offering, Parent will continue to pay all
compensation for the executive officers named above; however, the Issuer
will reimburse Parent for the amount of all such compensation that is
directly attributable to the operations of the Company. See "Certain Related
Transactions."
(2) Represents cost of premiums for long-term disability insurance.
71
<PAGE>
STOCK OPTIONS OF PARENT
STOCK OPTION PLAN
Parent adopted the KSL Recreation Corporation 1995 Stock Purchase and Option
Plan (the "Plan"), providing for the issuance to certain officers and key
employees (the "Optionees") of up to 77,225 shares of common stock of Parent
("Stock"). Unless sooner terminated by Parent's Board of Directors, the Plan
will expire on June 30, 2005.
The Compensation Committee of Parent's Board of Directors, consisting of
Messrs. Kravis and Tokarz (the "Committee"), administers the Plan. The Committee
has the authority to determine the forms and amounts of awards made to Optionees
(each, a "Grant"). Such Grants may take a variety of forms in the Committee's
sole discretion including "incentive stock options" under Section 422 of the
Code, other Stock options, stock appreciation rights, restricted Stock, purchase
Stock, dividend equivalent rights, performance rights, performance shares or
other stock-based grants.
NON-QUALIFIED STOCK OPTION AGREEMENTS
All options granted under the Plan to date have been non-qualified stock
options granted pursuant to Non-Qualified Stock Option Agreements (the "Stock
Option Agreements"). Under the terms of Stock Option Agreements, the exercise
price of the options granted is $500 per share, and options may be exercised
based upon a schedule which refers to a date set forth in each Optionee's Stock
Option Agreement (the "Option Trigger Date"). Generally, an Optionee's options
will vest one-fifth on each of the following five anniversary dates of such
Optionee's Option Trigger Date. However, certain Stock Option Agreements provide
that certain Optionees' options will vest on the first anniversary date of the
Optionee's Option Trigger Date, one-half on each of the following two
anniversary dates of the Optionee's Option Trigger Date, one-third on each of
the following three anniversary dates of the Optionee's Option Trigger Date or
one-fourth on each of the following four anniversary dates of the Optionee's
Option Trigger Date. Each Stock Option Agreement provides for acceleration of
exercisability of some or all of an Optionee's options immediately prior to a
change of control and immediately upon termination of employment because of
death, permanent disability or retirement (at age 65 or over after three years
of employment) of the Optionee.
Options granted under the Plan pursuant to a Stock Option Agreement expire
upon the earliest of (i) June 30, 2005, (ii) the date the option is terminated
under the circumstances set forth in the Common Stock Purchase Agreement (as
defined below), (iii) the termination of the Optionee's employment because of
criminal conduct (other than traffic violations), (iv) if prior to the fifth
anniversary of the Optionee's Option Trigger Date, the termination of employment
for any reason other than death, disability or retirement after the age of 65
and (v) if the Committee so determines, the merger or consolidation of Parent
into another corporation or the exchange or acquisition by another corporation
of all or substantially all of Parent's assets or 80% of Parent's then
outstanding voting stock, or the reorganization, recapitalization, liquidation
or dissolution of Parent.
Each of the executive officers and the other key employees listed in the
table in this "Management" section has entered into a Stock Option Agreement.
MANAGEMENT COMMON STOCK PURCHASE AGREEMENTS
If an Optionee exercises options under his or her Stock Option Agreement, he
or she is required to enter into a Common Stock Purchase Agreement with Parent.
None of these employees (the "Management Stockholders") has exercised any
options to date. Pursuant to each Common Stock Purchase Agreement, the
Management Stockholder may not transfer any shares of Stock acquired thereby or
upon exercise of vested options granted under the Plan (collectively, the "Plan
Shares") within five years (although certain Management Stockholders may
transfer their Plan Shares after they have been fully vested) after the date set
forth in his or her Common Stock Purchase Agreement (the "Purchase Trigger
Date").
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<PAGE>
Each Common Stock Purchase Agreement provides the Management Stockholder
with the right to require Parent to repurchase all of Management Stockholder's
Plan Shares and pay Management Stockholder (or his or her estate or Management
Stockholder Trust) a stated price for cancellation of options if (a) the
Management Stockholder's employment is terminated as a result of his or her
death or permanent disability, (b) the Management Stockholder dies or becomes
permanently disabled after having retired from Parent at or after age 65 after
having been employed by Parent for at least three years after the Purchase
Trigger Date or (c) with the prior consent of Parent's Board of Directors (which
consent will not be withheld unless the Board reasonably determines that Parent
would be financially impaired if it made such a purchase), the Management
Stockholder retires from Parent on or after age 65 after having been employed by
Parent for at least three years after the Purchase Trigger Date. The Management
Stockholder also has the right, until the later of five years after the Purchase
Trigger Date or the first public offering in which the Partnerships participate,
to have Parent register a stated percentage of his Plan Shares under the
Securities Act in connection with certain public offerings.
Each Common Stock Purchase Agreement also provides Parent with (a) prior to
a public offering, the right of first refusal to buy Plan Shares owned by each
Management Stockholder on essentially the same terms and conditions as such
Management Stockholder proposes in a sale of his Plan Shares to another bona
fide third party purchaser and (b) the right to repurchase all of the Management
Stockholder's Plan Shares and pay him a stated price for cancellation of his
Options if (i) the Management Stockholder's employment is involuntarily
terminated with cause, (ii) the Management Stockholder terminates his or her
employment other than by reason of death, disability or retirement on or after
the age of 65 or (iii) the Management Stockholder effects an unpermitted
transfer of Plan Shares.
Upon a change of control of Parent, the transfer restrictions, right of
first refusal, and certain other rights with respect to sale and repurchase of
the Plan Shares and cancellation of Options as described above will lapse.
The repurchase price of the Plan Shares under the Common Stock Purchase
Agreements depends upon the nature of the event that triggers the repurchase and
whether such repurchase occurs at the election of the Management Stockholder or
Parent. Generally, if the repurchase is at the Management Stockholder's
election, the repurchase price per share will be the book value per share (as
defined in the Common Stock Purchase Agreement) of Stock or, if the Stock is
publicly traded, the market value per share of Stock. Generally, if the
repurchase is at Parent's election, the repurchase price per share will be the
lesser of (a) the book value per share (as defined in the Common Stock Purchase
Agreement) of Stock (or if the Stock is publicly traded, the market value per
share) and (b) $500.
The following table sets forth certain information relating to options to
purchase shares of Stock which were granted to the Named Executive Officers
prior to fiscal 1996. No options were granted to the Named Executive Officers
during the fiscal year ended October 31, 1996. Certain Named Executive Officers
received options and partnership interests in KSL Land and partnerships
affiliated therewith during the fiscal year ended October 31, 1996, but such
options are "out-of-the-money" and no allocation has been made for distribution
of partnership profits with respect to such partnership interests.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND OPTION VALUES AT OCTOBER 31, 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
NUMBER OF SHARES AT OCTOBER 31, 1996 OCTOBER 31, 1996
ACQUIRED ON (EXERCISABLE/ (EXERCISABLE/UNEXERCISABLE)
NAME EXERCISE VALUE REALIZED UNEXERCISABLE) (1)
- --------------------- ------------------------- ------------------- -------------------------- ----------------------------
Michael S. Shannon... -- -- 22,744/ 0 $ 2,472,796/0
Larry E. Lichliter... -- -- 12,646/ 0 1,374,962/0
John K. Saer, Jr..... -- -- 2,673/ 1,782 290,663/193,775
Nola S. Dyal......... -- -- 1,401/ 1,401 152,311/152,311
Bradley T. Quayle.... -- -- 1,988/ 663 216,180/72,060
</TABLE>
- ------------------------------
(1) The Common Stock is not publicly traded and the value of the options
represents management's best judgment of value at October 31, 1996 as
calculated using the "Black-Scholes" model of option valuation.
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<PAGE>
MANAGEMENT INCENTIVE BONUSES
Certain members of management of Parent and the Issuer and its subsidiaries,
including departmental managers and executive officers, including Named
Executive Officers, are eligible to receive cash bonuses in addition to their
annual salary compensation. Such awards are based on the performance of such
individuals as determined by their direct supervisors and other senior
management and the financial performance of Parent, and the Company and its
subsidiaries.
STOCK PURCHASED BY MANAGEMENT
Messrs. Shannon, Lichliter, Saer and Affeldt have purchased 2,053, 1,141,
301 and 53 shares of Stock, respectively, at a purchase price of $500 per share.
In connection with these purchases, Parent loaned $1,026,260, $570,640, $150,720
and $26,715 to Messrs. Shannon, Lichliter, Saer and Affeldt, respectively. Each
loan is evidenced by a promissory note which (i) is due and payable on June 9,
2005, but may be prepaid at any time, without penalty, (ii) bears an annual
interest rate of 5% and (iii) is secured by the Stock purchased by each such
individual.
STOCK RECEIVED IN LIEU OF FEES
In October 1995, Parent entered into Stock Purchase Agreements with Messrs.
Shannon, Lichliter, Saer and Affeldt, pursuant to which Messrs. Shannon,
Lichliter, Saer and Affeldt were issued 6,881, 3,826, 1,011 and 179 shares of
Stock, respectively, in lieu of receiving certain fees otherwise owed to them by
Parent. Such Stock Purchase Agreements are substantially similar to the Common
Stock Purchase Agreements described above except that restrictions on transfer
are in effect for three years (compared with five years, in general, under the
Common Stock Purchase Agreements). Since such Management Stockholders incurred
certain income tax liabilities in connection with the receipt of such Stock,
Parent loaned $1,322,815, $735,529, $194,271 and $31,523 to Messrs. Shannon,
Lichliter, Saer and Affeldt, respectively. Each loan is evidenced by a
promissory note which (i) is due and payable on October 30, 2005, but may be
prepaid at any time, without penalty, (ii) bears an annual interest rate of 5%
and (iii) is secured by the Stock granted to each such individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors participated in deliberations of Parent's board of
directors concerning executive officer compensation during fiscal 1996 and have
been appointed to serve on Parent's Compensation Committee during fiscal 1997:
Messrs. Kravis and Tokarz. During fiscal 1996, no executive officer of Parent
served as a member of the compensation committee of another entity or as a
director of another entity, one of whose executive officers served on the
compensation committee or board of directors of Parent.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of April 30, 1997, certain information
concerning the ownership of shares of Common Stock of Parent by: (i) persons who
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each person who is a director of the Company; (iii) each person who is a Named
Executive Officer; and (iv) all directors and executive officers of the Company
as a group. Parent owns 100% of the common stock of the Issuer. As of April 30,
1997, there were 469,854 shares of common stock of Parent outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT OF
BENEFICIAL SHARES
NAME AND ADDRESS OWNERSHIP OUTSTANDING
- ----------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
KKR Associates, L.P................................................................ 454,409(1) 96.71%
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019(1)
Michael S. Shannon................................................................. 31,677 6.43
Larry E. Lichliter................................................................. 17,613 3.65
John K. Saer, Jr................................................................... 3,985 *
Nola S. Dyal....................................................................... 2,101 *
Bradley T. Quayle.................................................................. 1,988 *
All executive officers and directors as a group (19 persons)(1).................... 60,582 11.76%
</TABLE>
- ------------------------
* Denotes less than one percent.
(1) Shares of Common Stock shown as beneficially owned by KKR Associates, L.P.
are held as follows: approximately 83.7% by Resort Associates L.P.,
approximately 11.9% by Golf Associates L.P. and approximately 1.1% by KKR
Partners II, L.P. (collectively, the "Partnerships"). KKR Associates, L.P.,
a limited partnership, is the sole general partner of each of the
Partnerships and possesses sole voting power with respect to such shares.
The general partners of KKR Associates, L.P. are Henry R. Kravis, George R.
Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, James
H. Greene, Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott
M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts, Raether, Tokarz
and Stuart are also directors of the Company. Alexander Navab, Jr. is a
limited partner of KKR Associates, L.P. and is also a director of the
Company. Each of such individuals may be deemed to share beneficial
ownership of the shares shown as beneficially owned by KKR Associates, L.P.
Each of such individuals disclaims beneficial ownership of such shares.
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<PAGE>
CERTAIN RELATED TRANSACTIONS
TRANSACTIONS WITH KKR
KKR Associates, L.P. beneficially owns approximately 96.7% (84.5% on a fully
diluted basis) of Parent's outstanding shares of Common Stock. The general
partners of KKR Associates, L.P. are Messrs. Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz,
James H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and
Edward A. Gilhuly. Messrs. Kravis, Roberts, Raether, Tokarz and Stuart are also
directors of the Company, as is Alexander Navab, Jr. who is a limited partner of
KKR Associates, L.P. Each of the general partners of KKR Associates, L.P. is
also a member of the limited liability company which serves as the general
partner of KKR and Mr. Navab is an executive of KKR. KKR receives an annual fee
of $500,000 in connection with providing financial advisory services to Parent
and may receive customary investment banking fees for services rendered to
Parent and/or the Company in connection with divestitures, acquisitions and
certain other transactions. In connection with the acquisitions of Desert
Resorts and Doral in 1993, Parent paid fees of approximately $6.3 million to KKR
in fiscal 1994 for services provided in connection therewith. See "Management"
and "Beneficial Ownership of Common Stock."
The limited partners of KKR Associates, L.P. are certain past and present
employees of KKR and partnerships and trusts for the benefit of the families of
the general partners and past and present employees and a former partner of KKR.
Each of the Partnerships has the right to require Parent to register under
the Securities Act shares of Common Stock held by it pursuant to several
registration rights agreements. Such registration rights will generally be
available to each of the Partnerships until registration under the Securities
Act is no longer required to enable it to resell the Common Stock owned by it.
Such registration rights agreements provide, among other things, that Parent
will pay all expenses in connection with the first six registrations requested
by each such Partnership and in connection with any registration commenced by
Parent as a primary offering.
TRANSACTIONS WITH PARENT AND AFFILIATES OF PARENT
In connection with the Refinancings, Issuer and Parent entered into an
Expense Allocation Agreement pursuant to which Parent performs management
services requested by Issuer and Issuer reimburses Parent for all expenses
incurred by Parent and directly attributable to Issuer and its subsidiaries.
The Issuer's liability for taxes is determined based upon a Tax Sharing
Agreement entered into by the members of the affiliated group of corporations
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code")) of which Parent is the common parent (the "Parent
Affiliated Group"). Under the Tax Sharing Agreement, the Issuer and its
subsidiaries are generally responsible for Federal taxes based upon the amount
that would be due if the Issuer and its subsidiaries filed Federal tax returns
as a separate affiliated group of corporations rather than as part of Parent's
consolidated federal tax returns. The allocation of tax liability pursuant to
the Tax Sharing Agreement may not reflect the Issuer's actual tax liability that
would be imposed on the Issuer had it not filed tax returns as part of the
Parent Affiliated Group. The combined state tax liabilities are allocated to the
Issuer and its subsidiaries based on similar principles.
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with or
prior to the consummation of the Refinancings: (i) Parent contributed the
outstanding capital stock of the parent of Desert Resorts, Doral, Fairways and
Lake Lanier Islands to the Issuer as a result of which they became wholly-owned
subsidiaries of the Issuer; (ii) KSL Landmark Corporation (which owned Desert
Resorts and into which Desert Resorts was merged effective July 1, 1997)
dividended to Parent (through the Issuer) all of the general partnership
interests and Class A limited partnership interests owned by KSL Landmark
Corporation in four affiliated limited
76
<PAGE>
partnerships whose principal assets are beneficial interests in undeveloped
commercial and residential real estate parcels in the vicinity of Desert
Resorts, thereby removing ongoing funding obligations of the Company for holding
costs relating to undeveloped land; (iii) the Company sold to KSL Land at
historical cost (which approximated fair market value) the general partnership
interest and Class A limited partnership interest owned by KSL Landmark
Corporation in an additional limited partnership whose principal assets are
residential real estate parcels in the vicinity of Desert Resorts; (iv) Parent,
the Company and affiliates settled intercompany balances, resulting in an
increase in cash to the Company of $46.3 million; (v) the Company distributed to
Parent in cash excess equity funding of $46.3 million contributed by Parent to
Desert Resorts at the time of acquisition; (vi) the Company distributed $13.9
million in cash to Parent, which was recorded as a return of capital to Parent;
and (vii) certain management, lending and other agreements used to allocate
corporate general and administrative expenses between Parent and its
subsidiaries prior to the Refinancings were cancelled and the Issuer and Parent
entered into the Expense Allocation Agreement which has resulted in an increase
in corporate general and administrative expenses of the Company following the
Refinancings. The Concurrent Transactions did not reflect possible future
dividends by the Company of additional parcels of land which may occur following
the receipt of applicable state and local government approvals.
The Company paid management fees of $417,000, $750,000 and $3.2 million to
Parent in fiscal 1994, 1995 and 1996, respectively.
Since 1993, Fairways has paid an annual management fee of $250,000 per annum
directly to Parent. Fairways expects to pay a management fee of $250,000 per
annum to Parent.
TRANSACTIONS WITH MANAGEMENT
Parent has made loans to Messrs. Shannon, Lichliter, Saer and Affeldt (i) in
connection with their purchase of common stock of Parent and (ii) to fund the
tax liability incurred as a result of their receipt of common stock of Parent.
Each of Messrs. Shannon, Lichliter, Saer and Affeldt has delivered promissory
notes to Parent as evidence of such indebtedness. See "Management--Stock Options
of Parent" and "-- Stock Received in Lieu of Fees." In addition, Parent has made
loans to Messrs. Shannon, Lichliter, Saer and Affeldt to fund tax liability
incurred as a result of their receipt of common stock of KSL Land and certain
partnership interests in partnerships affiliated with KSL Land. In connection
with such loans, each of Messrs. Shannon, Lichliter, Saer and Affeldt have
delivered promissory notes in aggregate amounts of $212,461, $122,832, $32,952
and $5,303, respectively.
77
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description of certain provisions of certain indebtedness of
the Issuer does not purport to be complete, and is subject to, and is qualified
in its entirety by reference to, the forms of such instruments, copies of which
may be obtained as described under "Available Information."
NEW CREDIT FACILITY
The New Credit Facility was provided by a syndicate of banks and other
financial institutions (the "Lenders") led by Donaldson, Lufkin & Jenrette
Securities Corporation, as a co-syndication agent and documentation agent, The
Bank of Nova Scotia, as a co-syndication agent and administrative agent (the
"Administrative Agent"), and BancAmerica Securities, Inc., as syndication agent.
The New Credit Facility provides for a term loan facility of $100.0 million (the
"Term Loan Facility") and a revolving credit facility of $175.0 million (the
"Revolving Credit Facility"). The Revolving Credit Facility includes a portion
thereunder for letters of credit, and a portion thereof for short-term
borrowings ("Swingline Loans"). The loans under the Term Loan Facility (the
"Term Loans") are comprised of Term A Loans ($50.0 million), which have a final
maturity of April 30, 2005 and annual interim amortization of $500,000 beginning
in 1998 until 2004, and Term B Loans ($50.0 million) which have a final maturity
of April 30, 2006 and annual interim amortization of $500,000 beginning in 1998
until 2005. The Revolving Credit Facility commitment matures on April 30, 2004,
with scheduled mandatory reductions in the aggregate commitments thereunder to
$163.75 million on April 30, 2000, $152.50 million on April 30, 2001, $137.50
million on April 30, 2002 and $118.75 million on April 30, 2003.
The interest rate for the Term A Loans is, at the option of the Issuer,
LIBOR plus 2.75%, or the alternate base rate ("ABR") plus 1.75%. The interest
rate for the Term B Loans is, at the option of the Company, LIBOR plus 3.00% or
ABR plus 2.00%. The interest rate under the Revolving Credit Facility is
initially, at the option of the Company, LIBOR plus 2.25% or ABR plus 1.25%. The
Issuer may elect interest periods of one, two, three or six months (or nine or
12 months, to the extent available under the relevant Facility) for LIBOR
borrowings. Calculation of interest is based on actual days elapsed in a year of
360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based
on the Prime Rate) and interest is payable at the end of each interest period
and, in any event, at least every three months or 90 days, as the case may be.
ABR is the highest of (i) the Administrative Agent's Prime Rate and (ii) the
Federal Funds Effective Rate plus one-half of 1%. LIBOR will at all times
include statutory reserves to the extent actually incurred.
The Issuer pays a commitment fee at a rate that was initially equal to
one-half of 1% per annum on the undrawn portion of the commitments in respect of
the New Credit Facility, which began to accrue on April 30, 1997, payable
quarterly in arrears. The commitment fees will at all times be calculated based
on the actual number of days elapsed over a 365-day year.
The Issuer pays a letter of credit fee equal to a rate per annum equal to
the margin for LIBOR loans under the Revolving Credit Facility, less one-quarter
of 1%, on the aggregate face amount of outstanding letters of credit under the
Revolving Credit Facility, payable in arrears at the end of each quarter and
upon the termination of the Revolving Credit Facility, in each case for the
actual number of days elapsed over a 365-day year. In addition, the Issuer pays
to the Fronting Bank (as defined in the New Credit Facility), for its own
account, (a) a fronting fee of one-quarter of 1% per annum on the aggregate face
amount of outstanding letters of credit, payable in arrears at the end of each
quarter and upon the termination of the Revolving Credit Facility, in each case
for the actual number of days elapsed over a 365-day year, and (b) customary
issuance, amendment and administration fees.
The New Credit Facility contains provisions under which commitment fees and
interest rates for the Revolving Credit Facility will be adjusted in increments
based on the achievement of certain performance goals.
78
<PAGE>
The Term Loans are subject to mandatory prepayment with (a) 100% of the net
cash proceeds of certain non-ordinary-course asset sales or other dispositions
of property by the Company and its subsidiaries, except to the extent that such
proceeds are reinvested in the business of the Issuer and its subsidiaries
within one year and subject to certain other exceptions, (b) until certain
performance goals are attained, 50% of excess cash flow (as defined in the New
Credit Facility) and (c) 100% of the net proceeds of certain issuances of debt
obligations of the Issuer and its subsidiaries. Voluntary prepayments and
Revolving Credit Facility commitment reductions are permitted in whole or in
part at the option of the Issuer, in minimum principal amounts, without premium
or penalty, subject to reimbursement of certain of the Lenders' costs under
certain conditions.
The Issuer's obligations under the New Credit Facility are secured by a
perfected first priority pledge of and security interest in all the common stock
of each existing and subsequently acquired direct domestic subsidiary of the
Issuer and 65% of the common stock of each existing and subsequently acquired
direct foreign subsidiary and, in certain circumstances, non-cash consideration
received for certain sales of assets. In addition, indebtedness under the New
Credit Facility was initially guaranteed by each existing and subsequently
acquired domestic subsidiary of the Issuer (other then The Fairways Group,
L.P.). See "Description of the Notes--Subordination" and "Risk
Factors--Subordination."
The New Credit Facility provides that the Company must meet or exceed an
interest coverage ratio and a fixed charge ratio and must not exceed a leverage
ratio. The New Credit Facility also contains customary covenants relating to the
delivery of financial statements, reports, notices, and other information,
access to information and properties, maintenance of insurance, payment of
taxes, maintenance of properties, nature of business, corporate existence and
rights, compliance with applicable laws, transactions with affiliates, use of
proceeds, limitations on indebtedness, limitations on liens, limitations on
dividends and other distributions and limitations on debt payments, including
prepayment or redemption of the Notes.
The New Credit Facility includes customary events of default.
79
<PAGE>
THE EXCHANGE OFFER
GENERAL
The Issuer hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $125 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
As of the date of this Prospectus, $125 million aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all holders
of Old Notes known to the Issuer. The Issuer's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "Certain Conditions to the Exchange Offer" below. The Issuer
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on April 30, 1997 in a transaction exempt from the
registration requirements of the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Issuer
entered into the Registration Rights Agreement, which requires the Issuer to
file with the Commission a registration statement relating to the Exchange Offer
and to use its best efforts to cause the registration statement relating to the
Exchange Offer to become effective under the Securities Act within 150 days
after the date of issuance of the Old Notes. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made by the Issuer to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Issuer is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Issuer is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Issuer has not sought its
own interpretive letter and there can be no assurance that the staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Issuer within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were
80
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acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE
The Issuer hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Issuer has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Issuer believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for sale, resold and otherwise transferred
by any holder of such Exchange Notes (other than any such holder that is a
broker-dealer or is an "affiliate" of the Issuer within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a noaction letter, there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Issuer or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from April 30, 1997.
Tendering holders of the Old Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997, unless the Issuer, in its sole discretion, has extended the
period of time for which the Exchange Offer is open (such date, as it may be
extended, is referred to herein as the "Expiration Date"). The Expiration Date
will be at
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least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. The Issuer expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
The Issuer expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "--Certain Conditions to the Exchange Offer" which have not been waived by
the Issuer and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Issuer will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Issuer
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Issuer will exchange the Exchange Notes for the Old Notes
on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth below
and the acceptance thereof by the Issuer will constitute a binding agreement
between the tendering holder and the Issuer upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE ISSUER.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Issuer and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to
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be delivered to an address other than that of the registered holder appearing on
the note register for the Old Notes, the signature in the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Issuer may, at its option, reject the tender.
Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery")
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or not to accept any particular
Old Notes which acceptance might, in the judgment of the Issuer or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be
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final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Issuer shall determine. Neither the Issuer, the
Exchange Agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of Old Notes for
exchange, nor shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Issuer, or if it is an affiliate it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Issuer and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Issuer will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Issuer to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or transfer ownership of
such Old Notes on the account books maintained by a book-entry transfer
facility. The Transferor further agrees that acceptance of any tendered Old
Notes by the Issuer and the issuance of Exchange Notes in exchange therefor
shall constitute performance in full by the Issuer of certain of its obligations
under the Registration Rights Agreement. All authority conferred by the
Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the
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distribution of such Exchange Notes. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. Each Transferor which is a broker-dealer
receiving Exchange Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. By so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
will make available, for a period ending on the earlier to occur of (i) the date
when all Exchange Notes held by Participating Broker Dealers have been sold and
(ii) 180 days after consummation of the Exchange Offer this Prospectus to any
Participating Broker-Dealer and any other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of
Exchange Notes.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Notes to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (vi) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Issuer and such determination will be final and binding on all
parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of
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the Exchange Offer, the Issuer shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Issuer has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuer shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any law, statute, rule or regulation or applicable interpretation of
the staff of the Commission is issued or promulgated which, in the good
faith determination of the Issuer, does not permit the Issuer to effect the
Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Issuer within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(c) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the sole judgment of the Issuer, would prohibit the Issuer from
proceeding with or consummating the Exchange Offer.
The Issuer expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Issuer of properly tendered Old Notes). In addition, the
Issuer may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Issuer may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall
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be deemed an ongoing right which may be asserted at any time and from time to
time. If the Issuer waives or amends the foregoing conditions, it will, if
required by law, extend the Exchange Offer for a minimum of five business days
from the date that the Issuer first gives notice, by public announcement or
otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by the Issuer
concerning the events described above will be final and binding upon all
parties.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Issuer is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
First Trust of New York National Association has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL:
First Trust of New York National Association First Trust of New York National Association
100 Wall Street 100 Wall Street
Suite 2000 Suite 2000
New York, New York 10005 New York, New York 10005
Attn: Frank Gillhaus Attn: Frank Gillhaus
</TABLE>
BY FACSIMILE:
(212) 514-7431
Attn.: Frank Gillhaus
Telephone: (212) 361-2546
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The Issuer
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this and other related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for their customers.
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The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
approximately $240,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuer. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuer since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuer may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Issuer by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
TRANSFER TAXES
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuer upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuer does not currently anticipate that it will
register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
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As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Issuer will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. All untendered Old Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered Old Notes could be adversely affected.
The Issuer may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Issuer has no
present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Issuer is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Issuer has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Issuer within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder who is an "affiliate" of the Issuer or
who has an arrangement or understanding with respect to the distribution of the
Exchange Notes to be acquired pursuant to the Exchange Offer, or any
broker-dealer who purchased Old Notes from the Issuer to resell pursuant to Rule
144A or any other available exemption under the Securities Act (i) could not
rely on the applicable interpretations of the staff and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Issuer has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
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DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under an indenture dated as of April 30, 1997 (the "Indenture") between
the Issuer, as issuer, and First Trust of New York National Association, as
trustee (the "Trustee"). The terms of the Exchange Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
Each of the Indenture and the Registration Rights Agreement is an exhibit to the
Registration Statement of which this Prospectus is a part.
On April 30, 1997, the Issuer issued $125.0 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Old
Notes. Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the Exchange Notes, will be treated as a single
class of securities under the Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Exchange
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old Notes and
Exchange Notes then outstanding.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of the
Shelf Registration Statement, the Indenture will be subject to and governed by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
the provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. For definitions of certain capitalized terms used in the
following summary, see "--Certain Definitions." As used herein, "Company" refers
to KSL Recreation Group, Inc.
GENERAL
The Exchange Notes will mature on May , 2007, will be limited to $125.0
million aggregate principal amount and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate set forth
on the cover page hereof from April 30, 1997, or from the most recent interest
payment date to which interest has been paid or duly provided for, payable on
November 1, 1997, and semiannually thereafter on May 1 and November 1 in each
year until the principal thereof is paid or duly provided for to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the April 15 or October 15 next preceding such interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes will be exchangeable and transferable (subject
to compliance with transfer restrictions imposed by applicable securities laws
for so long as the Exchange Notes are not registered for resale under the
Securities Act), at the office or agency of the Company in the City of New York
maintained for such purposes (which initially will be the Trustee) or, at the
option of the Company, by check mailed to the address of the Person entitled
thereto as such address appears on the security register; provided that all
payments of principal, premium and interest with respect to Exchange Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. The Exchange Notes will be issued
only in fully registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof. No service charge will be made for any
registration of transfer or exchange or redemption
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of Exchange Notes, but the Company may require payment in certain circumstances
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
As discussed under "Exchange Offer; Registration Rights," pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
holders of the Old Notes, at the Company's cost, (i) to effect a registered
Exchange Offer under the Securities Act to exchange the Old Notes for Exchange
Notes, which will have terms identical in all material respects to the Old Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions or interest rate increases as described herein) and (ii) in the
event that any changes in law or applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, or if for any
other reason the Exchange Offer is not consummated within 180 days following the
date of the original issue of the Old Notes, or if any Holder of the Old Notes
(other than the Initial Purchasers) is not eligible to participate in the
Exchange Offer, or upon the request of any Initial Purchasers in certain
circumstances, to register the Old Notes for resale under the Securities Act
through a shelf registration statement (the "Shelf Registration Statement"). In
the event that either (a) the registration statement with respect to the
Exchange Offer (the "Exchange Offer Registration Statement") has not been
declared effective on or prior to the 150th calendar day following the date of
original issue of the Old Notes, (b) the Exchange Offer is not consummated or a
Shelf Registration Statement is not declared effective on or prior to the 180th
calendar day following the date of original issue of the Old Notes, or (c) the
Exchange Offer Registration Statement or (subject to certain black-out periods)
the Shelf Registration Statement is declared effective but thereafter ceases to
be effective or usable, the interest rate borne by the Old Notes shall be
increased by one-quarter of one percent per annum following such 150-day period
in the case of clause (a) above, following such 180-day period in the case of
clause (b) above, or following the date on which such registration statement
ceases to be effective or usable in the case of clause (c) above, which rate
will be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; PROVIDED that
the aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the effectiveness of the Exchange Offer Registration Statement
after the 150-day period described in clause (a) above, (y) the consummation of
the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, after the 180-day period described in clause (b) above, or (z)
the date on which the Exchange Offer Registration Statement or Shelf
Registration Statement is again declared effective or becomes usable, in the
case of clause (c) above, the interest rate borne by the Old Notes from the date
of such effectiveness, consummation or that the applicable registration
statement again becomes effective and usable, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; PROVIDED, HOWEVER, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or (c) above
occurs, the interest rate may again be increased and thereafter decreased
pursuant to the foregoing provisions. In certain circumstances, the Company will
not be required to keep the Shelf Registration Statement effective for a period
not to exceed 30 days in any consecutive twelve-month period. See "--Exchange
Offer; Registration Rights."
Old Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the
date of the Indenture or thereafter incurred. Upon any distribution to creditors
of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities, the
holders of Senior
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Indebtedness will be entitled to receive payment in full in cash or Cash
Equivalents of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the holders of Exchange Notes will be entitled to
receive any payment with respect to the Subordinated Note Obligations, and until
all Senior Indebtedness is paid in full in cash or Cash Equivalents, any
distribution to which the holders of Exchange Notes would be entitled shall be
made to the holders of Senior Indebtedness (except that holders of Exchange
Notes may receive (i) Equity Interests of the Company and any debt securities of
the Company that are subordinated at least to the same extent as the Exchange
Notes to (a) Senior Indebtedness and (b) any Indebtedness issued in exchange for
Senior Indebtedness and (ii) payments made from the trusts described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such Equity Interests or subordinated
debt securities or from the trust described under "--Legal Defeasance and
Covenant Defeasance") if (i) a default in the payment of the principal of,
premium, if any, or interest on, or of unreimbursed amounts under letters of
credit or fees relating to letters of credit and commitments to extend credit
constituting Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "payment default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "non-payment default") and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Exchange Notes, including any missed payments, may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash or Cash Equivalents and (b)
in case of a nonpayment default, the earlier of (x) the date on which such
nonpayment default is cured or waived, (y) 179 days after the date on which the
applicable Payment Blockage Notice is received (each such period, the "Payment
Blockage Period") or (z) the date such Payment Blockage Period shall be
terminated by written notice to the Trustee from the requisite holders of such
Designated Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until (i) 365 days have elapsed since the effectiveness of the immediately
preceding Payment Blockage Notice (provided that, if any Payment Blockage Notice
is given by or on behalf of any holders of Designated Senior Indebtedness (other
than the representative under the New Credit Facility), within such 365 day
period, the representative under the New Credit Facility may give another
Payment Blockage notice within such period and (ii) all scheduled payments of
principal, premium, if any, and interest on the Exchange Notes that have come
due have been paid in full in cash or cash equivalents. In no event, however,
may the total number of days during which any Payment Blockage Period or Periods
is in effect exceed 179 days in the aggregate during any 365 consecutive day
period. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Exchange Notes is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness. At
April 30, 1997, on a pro forma basis after giving effect to the Lake Lanier
Transaction,
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the Company would have had approximately $175.0 million of Senior Indebtedness
outstanding and the Company would have had additional availability of $100.0 for
borrowings under the New Credit Facility, all of which would be Senior
Indebtedness of the Company. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Facility and (ii) any other Senior Indebtedness or
Guarantor Senior Indebtedness permitted under the Indenture the principal amount
of which is $50 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Senior Indebtedness" means (i) the Obligations of the Company under the New
Credit Facility and (ii) any other Indebtedness of the Company permitted to be
incurred by the Company under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes, including, with
respect to (i) and (ii), interest accruing subsequent to the filing of, or which
would have accrued but for the filing of, a petition for bankruptcy, whether or
not such interest is an allowable claim in such bankruptcy proceeding.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (1) any liability for federal, state, local or other taxes owed
or owing by the Company or any of its Subsidiaries, (2) any obligation of the
Company to any of its Subsidiaries, (3) any accounts payable or trade
liabilities arising in the ordinary course of business (including instruments
evidencing such liabilities) other than obligations in respect of bankers'
acceptances and letters of credit under the New Credit Facility, (4) any
Indebtedness that is incurred in violation of the Indenture, (5) Indebtedness
which, when incurred and without respect to any election under Section 1111 (b)
of Title 11, United States Code, is without recourse to the Company, (6) any
Indebtedness, guarantee or obligation of the Company which is subordinate or
junior to any other Indebtedness, guarantee or obligation of the Company, (7)
Indebtedness evidenced by the Notes and (8) Capital Stock of the Company.
"Subordinated Note Obligations" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, redemption, repurchase or other acquisition thereof, together with
and including any amounts received upon the exercise of rights of rescission or
other rights of action (including claims for damages) or otherwise, to the
extent relating to the purchase price of the Notes or amounts corresponding to
such principal, premium, if any, or interest on the Notes.
The Exchange Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company will have no
Subordinated Indebtedness.
SUBSIDIARY GUARANTEES
The Indenture provides that the Company may, at its option, cause any
Restricted Subsidiary to guarantee the Exchange Notes.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Exchange Notes.
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes will not be redeemable at the
Company's option prior to May 1, 2002. On and after May 1, 2002, the Exchange
Notes will be subject to redemption at the option
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of the Company, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the redemption prices (expressed as a percentage of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the twelve-month
period beginning on May 1 of each of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 105.125%
2003............................................................................. 103.417%
2004............................................................................. 101.708%
2005 and thereafter.............................................................. 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to May 1, 2001,
the Company may, at its option, redeem up to 50% of the aggregate principal
amount of Exchange Notes originally issued under the Indenture on the Issuance
Date at a redemption price equal to 110.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of one or more Equity Offerings; PROVIDED that
at least 50% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture on the Issuance Date remains outstanding immediately
after the occurrence of such redemption; PROVIDED further that such redemption
occurs within 60 days of the date of closing of each such Equity Offering. The
Trustee shall select the Exchange Notes to be purchased in the manner described
under "Repurchase at the Option of Holders--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of the Exchange Notes pursuant
to the offer described below (the "Change of Control Offer") at a price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase. The Indenture provides that within 30 days following any Change of
Control, the Company will mail a notice to each Holder of Exchange Notes issued
under the Indenture, with a copy to the Trustee, with the following statements
and/or information: (1) a Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control," and that all Exchange Notes properly
tendered pursuant to such Change of Control Offer will be accepted for payment;
(2) the purchase price and the purchase date, which will be no earlier than 30
days nor later than 60 days from the date such notice is mailed, except as may
be otherwise required by applicable law (the "Change of Control Payment Date");
(3) any Note not properly tendered will remain outstanding and continue to
accrue interest; (4) unless the Company defaults in the payment of the Change of
Control Payment, all Exchange Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Exchange Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Exchange Notes, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Exchange Notes completed, to the paying agent and at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (6) Holders will be entitled to withdraw
their tendered Exchange Notes and their election to require the Company to
purchase such Exchange Notes, provided that the paying agent receives, not later
than the close of business on the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Exchange Notes
tendered for purchase, and a statement that such Holder is withdrawing his
tendered Exchange Notes and his election to have such Exchange Notes purchased;
and (7) that Holders whose Exchange Notes are being purchased only in part will
be issued new Exchange Notes equal in principal amount to the unpurchased
portion of the Exchange Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
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The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Senior Indebtedness, or offer to repay
in full all outstanding Senior Indebtedness and repay the Senior Indebtedness
with respect to which such offer has been accepted, or obtain the requisite
consents, if any, under all outstanding Senior Indebtedness to permit the
repurchase of the Exchange Notes required by this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all
Exchange Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all Exchange Notes or portions
thereof so tendered and (3) deliver, or cause to be delivered, to the Trustee
for cancellation the Exchange Notes so accepted together with an Officers'
Certificate stating that such Exchange Notes or portions thereof have been
tendered to and purchased by the Company. The Indenture will provide that the
paying agent will promptly mail to each Holder of Exchange Notes the Change of
Control Payment for such Exchange Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any; PROVIDED, that
each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable.
The New Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may prohibit, the Company from purchasing any Exchange Notes as a result of a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its lenders
to the purchase of the Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Exchange Notes.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
or Equity Interests issued or sold or otherwise disposed of and (y) at least 75%
of the proceeds from such Asset Sale when received consists of either (I) cash
or Cash Equivalents or (II) property or assets that are used or useful in a
Similar Business, or Capital Stock of any Person primarily engaged in a Similar
Business if, as a
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result of the acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary; PROVIDED that the amount of (1) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Exchange Notes or a
Subsidiary Guarantee, if any) that are assumed by the transferee of any such
assets pursuant to an agreement that releases the Company or such Restricted
Subsidiary from further liability, (2) any notes or other obligations received
by the Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash or Cash
Equivalents within 180 days after such Asset Sale (to the extent of the cash or
Cash Equivalents received) and (3) any Designated Noncash Consideration received
by the Company or any of its Restricted Subsidiaries in such Asset Sale having
an aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (3) that is at that time
outstanding, not to exceed 15% of the Company's Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for the purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the New Credit Facility, other Senior
Indebtedness or Guarantor Senior Indebtedness (and, in each case, to
correspondingly reduce commitments with respect thereto) or to permanently
reduce Pari Passu Indebtedness of the Company or any Subsidiary Guarantor
(provided that if the Company or such Subsidiary Guarantor shall so reduce
Obligations under Pari Passu Indebtedness, it will redeem Exchange Notes with an
aggregate principal amount equal to the proportion that the total aggregate
principal amount of Exchange Notes outstanding bears to the sum of the total
aggregate principal amount of Exchange Notes outstanding plus the total
aggregate principal amount outstanding of such Pari Passu Indebtedness, if the
Exchange Notes are then redeemable or, if the Exchange Notes may not be then
redeemed, the Company shall make an offer (in accordance with the procedures set
forth below for an Asset Sale Offer) to purchase at 100% of the principal amount
thereof the amount of the Exchange Notes that would otherwise be redeemed), (ii)
to an investment in property, capital expenditures or assets that are used or
useful in a Similar Business, or Capital Stock of any Person primarily engaged
in a Similar Business if, as a result of such acquisition by the Company or any
Restricted Subsidiary, such Person becomes a Restricted Subsidiary and/or (iii)
to an investment in properties or assets that replace the properties or assets
that are the subject of such Asset Sale. Pending the final application of any
such Net Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The
Indenture will provide that any Net Proceeds from the Asset Sale that are not
invested as provided and within the time period set forth in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15 million, the Company shall make
an offer to all Holders of Exchange Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Exchange Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Company will commence an
Asset Sale Offer with respect to Excess Proceeds within ten Business Days after
the date that Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Exchange Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Exchange Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Exchange Notes to be purchased in
the manner described under the caption "Selection and Notice" below. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
SELECTION AND NOTICE. If less than all of the Exchange Notes are to be
redeemed at any time, or if more Exchange Notes are tendered pursuant to an
Asset Sale Offer than the Company is required to purchase, selection of such
Exchange Notes for redemption or purchase, as the case may be, will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Exchange Notes are listed, or, if
such Exchange Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate (and in such manner
as complies with applicable legal requirements); PROVIDED that no Exchange Notes
of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Exchange Notes to be purchased or redeemed at
such Holder's registered address. If any Note is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such Note shall
state the portion of the principal amount thereof that has been or is to be
purchased or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date, unless the Company defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Exchange Notes
or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
equity securities issued by a Subsidiary other than a Wholly Owned Restricted
Subsidiary, the Company or a Restricted Subsidiary receives at least its PRO
RATA share of such dividend or distribution in accordance with its Equity
Interests in such class or series of equity securities); (ii) purchase, redeem,
defease or otherwise acquire or retire for value any Equity Interests of the
Company; (iii) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value in each case, prior to any scheduled
repayment, or maturity, any Subordinated Indebtedness; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness under the provisions of the first paragraph of "--Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the Issuance Date (including Restricted Payments permitted by clauses (i), (ii)
(with respect to the payment of dividends on Refunding Capital Stock pursuant to
clause (b) thereof), (iv) (only to the extent that amounts paid pursuant to such
clause are greater than amounts that would have been paid pursuant to such
clause if $5 million and $10 million were substituted in such clause for $10
million and $20 million, respectively), (vi) and (ix) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
fiscal quarter that first begins after the Issuance Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, in the case
such Consolidated Net Income for such period is a deficit, minus 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of marketable
securities received by the Company since the Issuance Date from the issue or
sale of Equity Interests of the Company (including Retired Capital Stock (as
defined below)) or debt securities of the Company that have been converted into
such Equity Interests of the Company (other than, in each case, Refunding
Capital Stock (as defined below), Equity Interests or convertible debt
securities of the Company sold to a Restricted Subsidiary, Disqualified Stock,
debt securities that have been converted into Disqualified Stock, Designated
Preferred Stock and Equity Interests of the Company issued to members of
management, directors or consultants of the Company and its Subsidiaries after
the Issuance Date to the extent such amounts have been applied to Restricted
Payments in accordance with clause (iv) of the next succeeding paragraph), plus
(iii) 100% of the aggregate amount of cash and marketable securities contributed
to the capital of the Company following the Issuance Date (excluding Excluded
Contributions), plus (iv) 100% of the aggregate amount received in cash and the
fair market value of marketable securities (other than Restricted Investments)
received since the Issuance Date from (A) the sale or other disposition (other
than to the Company or a Restricted Subsidiary) of Restricted Investments made
by the Company and its Restricted Subsidiaries (other than Restricted
Investments in an Unrestricted Subsidiary the Investment in which was made by
the Company or a Restricted Subsidiary pursuant to clause (vii) below) or (B) a
dividend from, or the sale (other than to the Company or a Restricted
Subsidiary) of the stock of, an Unrestricted Subsidiary (other than an
Unrestricted Subsidiary the Investment in which was made by the Company or a
Restricted Subsidiary pursuant to clause (vii) below).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at the date of declaration such payment would have complied with the
provisions of the Indenture:
(ii) (a) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity
Interests of the Company (other than any Disqualified Stock) (the "Refunding
Capital Stock"), and (b) if immediately prior to the retirement of Retired
Capital Stock, the declaration and payment of dividends thereon was permitted
under clause (vi) of this paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement; PROVIDED, HOWEVER,
that at the time of the declaration of any such dividends, no Default or Event
of Default shall have occurred and be continuing or would occur as a consequence
thereof;
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(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of the Company or the
Restricted Subsidiary that is the obligor with respect to the Subordinated
Indebtedness being redeemed, repurchased or otherwise acquired or retired so
long as (A) the principal amount of such new Indebtedness does not exceed the
principal amount of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired for value (plus the amount of any premium
required to be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to Senior Indebtedness and/or Guarantor Senior
Indebtedness, if any, the Exchange Notes and/or the Subsidiary Guarantees, if
any, at least to the same extent as such Subordinated Indebtedness so purchased,
exchanged, redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(iv) a Restricted Payment to Parent, which Restricted Payment is applied
solely to pay for the repurchase, retirement or other acquisition or retirement
for value of common Equity Interests of Parent held by any future, present or
former employee, director or consultant of the Company or any of the Company's
Subsidiaries pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; PROVIDED, HOWEVER, that
the aggregate Restricted Payments made under this clause (iv) does not exceed in
any calendar year $10 million (with unused amounts in any calendar year being
carried over to succeeding calendar years subject to a maximum (without giving
effect to the following proviso) of $20 million in any calendar year); PROVIDED
FURTHER that such amount in any calendar year may be increased by an amount not
to exceed (i) the cash proceeds received by the Company from the sale of Equity
Interests of Parent to members of management, directors or consultants of the
Company and its Restricted Subsidiaries that occurs after the Issuance Date (to
the extent the cash proceeds from the sale of such Equity Interest have not
otherwise been applied to the payment of Restricted Payments by virtue of the
preceding paragraph (c)) plus (ii) the cash proceeds of key man life insurance
policies received by the Company and its Restricted Subsidiaries after the
Issuance Date less (iii) the amount of any Restricted Payments previously made
pursuant to clauses (i) and (ii) of this subparagraph (iv); and PROVIDED FURTHER
that cancellation of Indebtedness owing to the Company from members of
management of Company or any of its Restricted Subsidiaries in connection with a
repurchase of Equity Interests of Parent will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of the
Indenture;
(v) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company issued in accordance with the
covenant entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock";
(vi) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) issued
after the Issuance Date (including, without limitation, the declaration and
payment of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (ii)); PROVIDED, HOWEVER, that
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of issuance of
such Designated Preferred Stock, after giving effect to such issuance on a pro
forma basis, the Company and its Restricted Subsidiaries would have had a Fixed
Charge Coverage Ratio of at least 1.5 to 1.00;
(vii) investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at that time outstanding, not to exceed the greater of (A)
$25 million and (B) 5% of the Company's Total Assets at the time of such
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Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise price
of such options;
(ix) the payment of dividends on the Company's Common Stock, following the
first public offering of the Company's Common Stock after the Issuance Date, of
up to 6% per annum of the net proceeds received by the Company in such public
offering, other than public offerings with respect to the Company's Common Stock
registered on Form S-8 or Form S-4;
(x) (a) Restricted Payments made pursuant to the Concurrent Transactions and
the Refinancings and (b) the dividend to Parent of the Specified Property;
PROVIDED, HOWEVER that immediately prior to a dividend of a Specified Property,
the use of such Specified Property shall be substantially similar to the use of
such Specified Property by the Company and/or the Restricted Subsidiaries on the
Issuance Date;
(xi) Investments in Unrestricted Subsidiaries or Joint Ventures that are
made with Excluded Contributions;
(xii) payments to Parent, whether in the form of dividends, the making of
loans or advances or otherwise, for expenses incurred by Parent in its capacity
as a holding company that are directly attributable to the operations of the
Company and its Restricted Subsidiaries, including, without limitation, (a)
customary salary, bonus and other benefits payable to officers and employees of
Parent, (b) fees and expenses paid to members of the Board of Directors of
Parent, (c) general corporate overhead expenses of Parent, (d) foreign, federal,
state or local tax liabilities paid by Parent and (e) management, consulting or
advisory fees paid by Parent to KKR; PROVIDED, HOWEVER, that federal and
California state income tax liabilities shall only be reimbursed pursuant to the
Tax Sharing Agreement or on substantially the same terms as set forth in the Tax
Sharing Agreement;
(xiii) a Corporate Sale Transaction on only one occasion; PROVIDED that
immediately after giving effect to such transaction, the Company's ratio of
Total Net Debt to Pro Forma Consolidated Cash Flow for the four quarters
immediately preceding such transaction is equal to or less than immediately
prior to such transaction;
(xiv) a dividend of the KSL Land Note to Parent; and
(xv) other Restricted Payments in an aggregate amount not to exceed the
greater of (A) $25 million and (B) 5% of the Company's Total Assets at the time
of such Restricted Payment;
PROVIDED, HOWEVER, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix), (x)(b), (xi), (xii), (xiii) and (xv), no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; and PROVIDED FURTHER that for purposes of determining the aggregate
amount expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses (i),
(ii) (with respect to the payment of dividends on Refunding Capital Stock
pursuant to clause (b) thereof), (iv) (only to the extent that amounts paid
pursuant to such clause are greater than amounts that would have been paid
pursuant to such clause if $5 million and $10 million were substituted in such
clause for $10 million and $20 million, respectively), (vi) and (ix) shall be
included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary
to become a Restricted Subsidiary except pursuant to the last sentence of the
definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid in
cash) in the Subsidiary so designated will be deemed to be Restricted Payments
in an amount determined as set forth in the last sentence of the definition of
"Investments." Such designation will only be permitted if a Restricted Payment
in such amount and of such
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nature would be permitted pursuant to the first or second paragraph of this
covenant at such time and if such Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK. The Indenture provides that (i) the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness), (ii) the Company and the Subsidiary Guarantors, if any,
will not issue any Disqualified Stock and (iii) the Company will not permit any
of its Restricted Subsidiaries that are not Subsidiary Guarantors, if any, to
issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company and the
Subsidiary Guarantors, if any, may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if the ratio of Total Net
Debt to Pro Forma Consolidated Cash Flow for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been no greater than 6.75 to 1
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom).
The foregoing limitations will not apply to:
(a) the incurrence by the Company and the Subsidiary Guarantors, if any,
of Indebtedness under the New Credit Facility and the issuance and creation
of letters of credit and banker's acceptances thereunder (with letters of
credit and banker's acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$300 million outstanding at any one time;
(b) the incurrence by the Company of Indebtedness represented by the
Exchange Notes;
(c) Existing Indebtedness (other than Indebtedness described in clauses
(a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) (together with any Refinancing
Indebtedness with respect thereto), does not exceed 15% of the Company's
Total Assets;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash
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proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Exchange Notes; PROVIDED FURTHER
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or another Restricted Subsidiary) shall be deemed, in
each case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Subsidiary Guarantor incurs
such Indebtedness to a Restricted Subsidiary that is not a Subsidiary
Guarantor, such Indebtedness is subordinated in right of payment to the
Subsidiary Guarantee of such Subsidiary Guarantor; PROVIDED FURTHER that any
subsequent issuance or transfer of any Capital Stock of any Restricted
Subsidiary to whom such Indebtedness is owed or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or another Restricted Subsidiary) shall be deemed, in each case
to be an incurrence of such Indebtedness;
(i) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture
to be outstanding or (2) for the purpose of fixing or hedging currency
exchange rate risk with respect to any currency exchanges; PROVIDED that
such agreements do not increase the Indebtedness of the obligor outstanding
at any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder
(j) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(k) Indebtedness of a Subsidiary Guarantor, if any, in respect of such
Subsidiary Guarantor's Subsidiary Guarantee;
(l) Indebtedness of the Company and any of its Restricted Subsidiaries
not otherwise permitted hereunder in an aggregate principal amount, which
when aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (l), does not exceed the
greater of (x) $75 million and (y) 10% of the Total Assets of the Company at
the time of such incurrence; PROVIDED however, that (I) Indebtedness of
Foreign Subsidiaries which, when aggregated with the principal amount of all
other Indebtedness of Foreign Subsidiaries then outstanding and incurred
pursuant to this clause (l), does not exceed the greater of (x) $37.5
million (or the equivalent thereof in any other currency) and (y) 5% of the
Total Assets of the Company at the time of such incurrence, PROVIDED,
FURTHER, that, with respect to any such Foreign Subsidiary, the aggregate
amount of such Indebtedness, together with all other Indebtedness of such
Foreign Subsidiary incurred pursuant to this clause (l), does not exceed 15%
of the Total Assets of such Foreign Subsidiary at the time of such
incurrence by such Foreign Subsidiary and (II) Indebtedness of Restricted
Subsidiaries that are not Foreign Subsidiaries which, when aggregated with
the principal amount of all other indebtedness of Restricted Subsidiaries
that are not Foreign Subsidiaries then outstanding and incurred pursuant to
this clause (l), does not exceed the greater of (x) $37.5 million and (y) 5%
of the Total Assets of the Company at the time of such incurrence; PROVIDED
FURTHER that with respect to any such Restricted Subsidiary that is not a
Foreign Subsidiary, the aggregate amount of such Indebtedness, together with
all other Indebtedness of such Restricted Subsidiary incurred pursuant to
this
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clause (l) does not exceed 15% of the Total Assets of such Restricted
Subsidiary at the time of such incurrence.
(m) any guarantee by the Company of Indebtedness or other obligations of
any of its Restricted Subsidiaries so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture and any Excluded Guarantee (as defined below under
"--Limitation on Guarantees of Indebtedness by Restricted Subsidiaries") of
a Restricted Subsidiary;
(n) the incurrence by the Company or any of its Restricted Subsidiaries
of indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or PARI PASSU
to the Exchange Notes or any Subsidiary Guarantee, such Refinancing
Indebtedness is subordinated or PARI PASSU to the Exchange Notes and/or the
Subsidiary Guarantees at least to the same extent as the Indebtedness being
refinanced or refunded and (iii) shall not include (x) Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor that refinances
Indebtedness of the Company or a Subsidiary Guarantor or (y) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii)
of this clause (n) will not apply to any refunding or refinancing of any
Senior Indebtedness or Guarantor Senior Indebtedness;
(o) Indebtedness or preferred stock of Persons that are acquired by the
Company or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of the Indenture; PROVIDED that such
Indebtedness or preferred stock is not incurred in contemplation of such
acquisition or merger; and PROVIDED FURTHER that after giving effect to such
acquisition, either (i) the Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Total Net Debt to Pro Forma
Consolidated Cash Flow test set forth in the first sentence of this covenant
or (ii) the Company's ratio of Total Net Debt to Pro Forma Consolidated Cash
Flow is no greater than immediately prior to such acquisition.
LIENS. The Indenture provides that the Company will not directly or
indirectly create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness on
any asset or property of the Company or its Restricted Subsidiary, or any income
or profits therefrom, or assign or convey any right to receive income therefrom,
unless the Exchange Notes are equally and ratably secured with the Pari Passu
Indebtedness or Subordinated Indebtedness so secured or until such time as such
Pari Passu Indebtedness or Subordinated Indebtedness is no longer secured by a
Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of
such Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor
or its Restricted Subsidiaries or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Subsidiary Guarantee of
such Subsidiary Guarantor is equally and ratably secured with the Pari Passu
Indebtedness or Subordinated Indebtedness so secured or until such time as such
Pari Passu Indebtedness or Subordinated Indebtedness is no longer secured by a
Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
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of its properties or assets in one or more related transactions to, any Person
unless: (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (the Company or such Person, as the case may be, being herein called the
"Successor Company"); (ii) the Successor Company (if other than the Company)
expressly assumes all the obligations of the Company under the Indenture and the
Exchange Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) immediately
after giving pro forma effect to such transaction, as if such transaction had
occurred at the beginning of the applicable four-quarter period, (A) the
Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Total Net Debt to Pro Forma Consolidated Cash Flow
test set forth in the first sentence of the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock" or
(B) the ratio of Total Net Debt to Pro Forma Consolidated Cash Flow for the
Successor Company and its Restricted Subsidiaries would be no greater than such
ratio for the Company and its Restricted Subsidiaries immediately prior to such
transaction; (v) each Subsidiary Guarantor, if any, unless it is the other party
to the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to such Person's obligations
under the Indenture and the Exchange Notes; and (vi) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. The Successor Company will succeed
to, and be substituted for, the Company under the Indenture and the Exchange
Notes. Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction") involving
aggregate consideration in excess of $5 million, unless:
(a) such Affiliate Transaction is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person; and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $10 million, a
resolution adopted by a majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to KKR and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from an
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Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (a) of the preceding paragraph; (vii) payments or
loans to employees or consultants which are approved by a majority of the Board
of Directors of the Company in good faith; (viii) any agreement as in effect as
of the Issuance Date or any amendment thereto (so long as any such amendment is
not disadvantageous to the holders of the Exchange Notes in any material
respect) or any transaction contemplated thereby; (ix) the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the Issuance Date and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Issuance Date shall only be permitted by this clause (ix)
to the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the holders of the Exchange Notes in any material
respect; (x) the payment of all fees and expenses related to the Refinancings as
disclosed in this Prospectus; and (xi) transactions with customers, clients,
suppliers, or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of the
Indenture which are fair to the Company or its Restricted Subsidiaries, in the
reasonable determination of a majority of the members of the Board of Directors
of the Company or the senior management thereof, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
become effective any consensual encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date, including pursuant to the New Credit Facility and its related
documentation;
(2) the Indenture and the Exchange Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person,
so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
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(7) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Liens" that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(9) other Indebtedness of Foreign Subsidiaries permitted to be incurred
subsequent to the Issuance Date pursuant to the provisions of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock";
(10) customary provisions in joint venture agreements at the time of
creation of such joint venture and other similar agreements entered into in
the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business; and
(12) any encumbrances or restrictions of the type referred to in clauses
(a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (11) above, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt") unless (i) if such Restricted Subsidiary is not a Subsidiary Guarantor,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Exchange Notes by such Restricted Subsidiary, (ii) if the Exchange Notes or
the Subsidiary Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary Guarantee under the
supplemental indenture shall be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the Exchange Notes or the Subsidiary Guarantee are subordinated to the
Guaranteed Debt under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the Exchange Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, any such guarantee
of such Restricted Subsidiary with respect to the Guaranteed Debt shall be
subordinated in right of payment to such Restricted Subsidiary's Subsidiary
Guarantee with respect to the Exchange Notes substantially to the same extent as
the Guaranteed Debt is subordinated to the Exchange Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary, (iv) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; and (v) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that (A) such Subsidiary Guarantee of the
Exchange Notes has been duly executed and authorized and (B) such Subsidiary
Guarantee of the Exchange Notes constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
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contemplation of, such Person becoming a Restricted Subsidiary of the Company
and (y) that guarantees the payment of Obligations of the Company or any
Restricted Subsidiary under the New Credit Facility or any other bank facility
which is designated as Senior Indebtedness and any refunding, refinancing or
replacement thereof, in whole or in part, provided that such refunding,
refinancing or replacement thereof constitutes Senior Indebtedness and is not
incurred pursuant to a registered offering of securities under the Securities
Act or a private placement of securities (including under Rule 144A) pursuant to
an exemption from the registration requirements of the Securities Act, which
private placement provides for registration rights under the Securities Act (any
guarantee excluded by operations of this clause (y) being an "Excluded
Guarantee").
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Subsidiary Guarantee by a Restricted Subsidiary of the Exchange Notes shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) in the case of
a guarantee incurred pursuant to clause (a) of this covenant, the release or
discharge of the guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that the Company will not, and will not permit any Subsidiary Guarantor
to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of the
Company or any Indebtedness of any Subsidiary Guarantor, as the case may be,
unless such Indebtedness is either (a) PARI PASSU in right of payment with the
Exchange Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the case
may be or (b) subordinate in right of payment to the Exchange Notes, or such
Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, in the same
manner and at least to the same extent as the Exchange Notes are subordinate to
Senior Indebtedness or such Subsidiary Guarantor's Subsidiary Guarantee is
subordinate to such Subsidiary Guarantor's Guarantor Senior Indebtedness, as the
case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"), the Indenture will
require the Company to file with the Commission (and provide the Trustee and
Holders with copies thereof, without cost to each Holder, within 15 days after
it files them with the Commission), (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form); (b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any
successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Company would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective purchasers
of Exchange Notes, in addition to providing such information to the Trustee and
the Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act. In addition, the Company and the
Subsidiary Guarantors have agreed that, for so long as any of the Exchange Notes
remain outstanding, they will furnish to holders and prospective purchasers of
the Exchange Notes the information required by Rule 144A(d)(4) under the
Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the
Exchange Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Exchange Notes or any Subsidiary
Guarantee;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Exchange Notes whether or not such payment shall be
prohibited by the subordination provisions relating to the Exchange Notes or
any Subsidiary Guarantee;
(iii) failure by the Company or a Subsidiary Guarantor, if any, for 30
days after receipt of written notice given by the Trustee or the holders of
at least 30% in principal amount of the Exchange Notes then outstanding to
comply with any of its other agreements in the Indenture, the Exchange Notes
or the Subsidiary Guarantees, if any;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $15 million or more at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $15 million, which final judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days
after such judgment becomes final, and in the event such judgment is covered
by insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) any Subsidiary Guarantee shall for any reason cease to be in full
force and effect or be declared null and void or any responsible officer of
the Company or Subsidiary Guarantor denies that it has any further liability
under any such Subsidiary Guarantee or gives notice to such effect (other
than by reason of the termination of the Indenture or the release of any
such Subsidiary Guarantee in accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Exchange Notes may
declare the principal, premium, if any, interest and any other monetary
obligations on all the then outstanding Exchange Notes to be due and payable
immediately; PROVIDED, HOWEVER, that, so long as any Indebtedness permitted to
be incurred pursuant to the New Credit Facility shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the New Credit Facility or (ii) five business days after
the giving of written notice to the Company and the representative under the New
Credit Facility of such acceleration. Upon the
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effectiveness of such declaration, such principal, premium, interest and other
monetary obligations will be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising under clause (vi) of the
first paragraph of this section, all outstanding Exchange Notes will become due
and payable without further action or notice. Holders of Exchange Notes may not
enforce the Indenture or the Exchange Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Exchange Notes may direct the Trustee in its exercise of any
trust or power. The Indenture provides that the Trustee may withhold from
Holders of Exchange Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, if any, or interest) if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to accelerate
the Exchange Notes if in the best judgment of the Trustee acceleration is not in
the best interest of the Holders of such Exchange Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Exchange Notes issued thereunder by notice to the
Trustee may on behalf of the Holders of all of such Exchange Notes waive any
existing Default or Event of Default and its consequences under the Indenture,
except a continuing Default or Event of Default in the payment of interest on,
premium, if any, or the principal of, any such Note held by a non-consenting
Holder.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or a Subsidiary Guarantor, if any, shall have any liability for any obligations
of the Company or the Subsidiary Guarantors, if any, under the Exchange Notes,
the Subsidiary Guarantees, if any, or the Indenture or for any claim based on,
in respect of, or by reason of such obligations or their creation. Each Holder
of the Exchange Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Subsidiary Guarantors, if any, under
the Indenture, the Exchange Notes and the Subsidiary Guarantees, if any, will
terminate (other than certain obligations) and will be released upon payment in
full of all of the Exchange Notes. The Company may, at its option and at any
time, elect to have all of its obligations discharged with respect to the
outstanding Exchange Notes and have each Subsidiary Guarantor's, if any,
obligation discharged with respect to its Subsidiary Guarantee ("Legal
Defeasance") and cure all then existing Events of Default except for (i) the
rights of Holders of outstanding Exchange Notes to receive payments in respect
of the principal of, premium, if any, and interest on such Exchange Notes when
such payments are due solely out of the trust created pursuant to the Indenture,
(ii) the Company's obligations with respect to Exchange Notes concerning issuing
temporary Exchange Notes, registration of such Exchange Notes, mutilated,
destroyed, lost or stolen Exchange Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and each Subsidiary Guarantor, if
any, released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance
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occurs, certain events (not including non-payment on other indebtedness,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Exchange Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Exchange Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest due on the outstanding Exchange Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, or interest on the outstanding Exchange
Notes, and the Company must specify whether the Exchange Notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding
Exchange Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject
to U.S. 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;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Exchange Notes
will not recognize income, gain or loss for U.S. federal income tax purposes
as a result of such Covenant Defeasance and will be subject to such 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;
(iv) no Default or Event of Default (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
shall have occurred and be continuing on the date of such deposit or,
insofar as Events of Default from bankruptcy or insolvency events, at any
time in the period ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Company or a
Subsidiary Guarantor, if any, is a party or by which the Company or a
Subsidiary Guarantor, if any, is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit (which
assumptions and exclusions shall not relate to the operation of Section 547
of the United States Bankruptcy Code or any analogous New York State law
provision), the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally under any applicable U.S. federal or state law,
and that the Trustee has a perfected security interest in such trust funds
for the ratable benefit of the Holders;
(vii) 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 defeating, hindering, delaying or defrauding any creditors of the
Company or a Subsidiary Guarantor, if any, or others; and
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(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Exchange Notes issued thereunder, when either (a) all such Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or (b) (i) all
such Exchange Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or a
Subsidiary Guarantor, if any, has irrevocably deposited or caused to be
deposited with such Trustee as trust funds in trust an amount of money
sufficient to pay and discharge the entire Indebtedness on such Exchange Notes
not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption;
(ii) no Default or Event of Default with respect to the Indenture or the
Exchange Notes 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 or a Subsidiary Guarantor, if any, is a party or by which the
Company or a Subsidiary Guarantor, if any, is bound; (iii) the Company or a
Subsidiary Guarantor, if any, has paid or caused to be paid all sums payable by
it under such Indenture; and (iv) the Company has delivered irrevocable
instructions to the Trustee under such Indenture to apply the deposited money
toward the payment of such Exchange Notes at maturity or the redemption date, as
the case may be. In addition, the Company must deliver an Officers' Certificate
and an opinion of counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Exchange Notes and a Subsidiary Guarantee, if any, issued thereunder may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Exchange Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Exchange
Notes), and any existing default or compliance with any provision of the
Indenture or the Exchange Notes may be waived with the consent of the Holders of
a majority in principal amount of the outstanding Exchange Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Exchange Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Exchange Notes held by a
nonconsenting Holder of the Exchange Notes): (i) reduce the principal amount of
the Exchange Notes whose Holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity of any such
Note or alter or waive the provisions with respect to the redemption of the
Exchange Notes (other than provisions relating to the covenants described under
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of, premium, if any, or interest on the
Exchange Notes (except a rescission of acceleration of the Exchange Notes by the
Holders of at least a majority in aggregate principal amount of such Exchange
Notes and a waiver of the payment default that resulted from such acceleration),
or in respect of a covenant or provision contained in the Indenture or any
Subsidiary Guarantee which cannot be amended or modified without the consent of
all Holders, (v) make any Note payable in money other than that stated in such
Exchange Notes, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders of such Exchange Notes to
receive payments of
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principal of, premium, if any, or interest on such Exchange Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) make any change in the foregoing amendment and
waiver provisions, (ix) impair the right of any Holder of the Exchange Notes to
receive payment of principal of, or interest on such Holder's Exchange Notes on
or after the due dates therefore or to institute suit for the enforcement of any
payment on or with respect to such Holder's Exchange Notes, (x) except as
provided under "Legal Defeasance and Covenant Defeasance" or in accordance with
the terms of any Subsidiary Guarantee, release a Subsidiary Guarantor, if any,
from its obligations under its Subsidiary Guarantee, if any, or make any change
in a Subsidiary Guarantee, if any, that would adversely affect the Holders or
(xi) make any change in the subordination provisions of the Indenture that would
adversely affect the holders of the Exchange Notes.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Exchange Notes, the Company, a Subsidiary Guarantor, if
any (with respect to a Subsidiary Guarantee, if any, or the Indenture to which
it is party), and the Trustee together may amend or supplement the Indenture,
any Subsidiary Guarantee or the Exchange Notes (i) to cure any ambiguity, defect
or inconsistency, (ii) to provide for uncertificated Exchange Notes in addition
to or in place of certificated Exchange Notes, (iii) to comply with the covenant
relating to mergers, consolidations and sales of assets, (iv) to provide for the
assumption of the Company's or any Subsidiary Guarantor's obligations to Holders
of such Exchange Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Exchange Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, (vi)
to add covenants for the benefit of the Holders or to surrender any right or
power conferred upon the Company, (vii) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or (viii) to add a Subsidiary Guarantor under the
Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Exchange Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
will provide that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such
Exchange Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Exchange Notes and the Subsidiary Guarantees, if any,
will be, subject to certain exceptions, governed by and construed in accordance
with the internal laws of the State of New York, without regard to the choice of
law rules thereof.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Adjusted Net Membership Deposits" for any period means, with respect to any
specified Person, the amount of refundable membership deposits paid in such
period to such specified Person or any Restricted Subsidiary of such specified
Person, by new and upgraded private club members and by existing club members
who have converted to new membership plans, in each case in cash, plus principal
payments in cash received by such specified Person or any Restricted Subsidiary
of such Person in such period on notes in respect thereof, minus the amount of
any refunds paid to such specified Person or any Restricted Subsidiary of such
specified Person, in cash in such period in respect of such deposits; PROVIDED,
HOWEVER, that all amounts paid to such specified Person or any Restricted
Subsidiary of such specified Person, in such period by existing private club
members in connection with the conversion of such members to new membership
plans within six months after the introduction of such plans shall be excluded.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents, Investment Grade Securities or
obsolete equipment in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All
Assets" or any disposition that constitutes a Change of Control pursuant
to the Indenture;
(c) any Restricted Payment that is permitted to be made, and is made,
under the covenant described above under "Limitation on Restricted
Payments";
(d) any disposition of assets with an aggregate fair market value of
less than $1 million;
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(e) any disposition of property or assets by a Restricted Subsidiary
to the Company or by the Company or a Restricted Subsidiary to a
Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) any sale leaseback of an asset within 180 days after the
completion of construction or acquisition of such asset;
(h) foreclosures on assets; and
(i) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole; or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of more of the total voting
power of the Voting Stock of the Company than the Permitted Holders and
their Related Parties beneficially own at the time the Company so becomes
aware of such acquisition if, at such time, the Permitted Holders and their
Related Parties do not have the right or the ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (a) provision for taxes based on income or profits of such Person
for such period deducted in computing Consolidated Net Income or, if different,
paid or accrued pursuant to, or on terms substantially similar to those
contained in, the Tax Sharing Agreement, plus (b) Consolidated Interest Expense
of such Person for such period, plus (c) Consolidated Depreciation and
Amortization Expense of such Person for such period, plus (d) Adjusted Net
Membership Deposits (as recorded on the Company's consolidated statement of cash
flows for the applicable period), plus (e) any expenses or charges related to
any Equity Offering or Indebtedness permitted to be incurred by the Indenture
(including such expenses or charges related to the Refinancings) and deducted in
computing Consolidated Net Income, plus (f) the amount of any restructuring
charge deducted in such period in computing Consolidated Net Income, plus (g)
without duplication, any other non-cash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of a cash
reserve for anticipated cash charges for any future period and amortization of a
prepaid cash expense that was paid in a prior period), less, without duplication
(h) non-cash items increasing Consolidated Net Income of such Person for such
period (excluding any items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period).
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, to the extent deducted in computing Consolidated Net
Income, the total amount of depreciation and amortization expense (including the
amortization of deferred financing fees) and other noncash charges (excluding
any noncash item that represents an accrual, reserve or amortization of a cash
expenditure that was paid in a prior period of such Person and its Restricted
Subsidiaries for such period on a consolidated basis and otherwise determined in
accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of: (a) to the extent deducted in computing Consolidated Net
Income, consolidated interest expense of such Person and its Restricted
Subsidiaries for such period (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations and net payments (if any) pursuant to Hedging Obligations, but
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax gains or
losses (less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business (as determined in
good faith by the Board of Directors of the Company) shall be excluded, (iv) the
Net Income of the referent Person attributable to any Person that is not a
Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the
equity method of accounting, shall be included only to the extent of the amount
of dividends or distributions or other payments paid in cash (or to the extent
converted into cash) to the referent Person or a Wholly Owned Restricted
Subsidiary thereof in respect of such period, (v) the Net Income of any Person
acquired in a pooling of interests transaction shall not be included for any
period prior to the date of such acquisition and (vi) the Net Income for such
period of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of its Net Income to the referent Person or a Restricted Subsidiary
thereof is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been legally
waived.
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"Contingent Obligations" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"Corporate Sale Transaction" means any Restricted Payment consisting of the
dividend of Equity Interests of any Subsidiary and/or the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "Restricted Payments" covenant.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Notes; PROVIDED, HOWEVER, that if such Capital Stock is
issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred stock
by the Company (excluding Disqualified Stock) that is registered pursuant to the
Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, and (ii) any private issuance of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
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"Excluded Contribution" means the net cash proceeds received by the Company
after the Issuance Date from (a) contributions to its common equity capital and
(b) the sale (other than to a Subsidiary or to any Company or Subsidiary
management equity plan or stock option plan or any other management or employee
benefit plan or agreement) of Capital Stock of the Company (other than
Disqualified Stock), in each case, designated as Excluded Contributions pursuant
to an Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company on the date such capital
contributions are made or the date such Capital Stock is sold, as the case may
be, the cash proceeds of which are excluded from the calculation set forth in
paragraph (c) of the "Limitation on Restricted Payments" covenant.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Old Notes as described
in this Prospectus.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of Consolidated Cash Flow of such Person for such period to
the Fixed Charges of such Person for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of Indebtedness arising under revolving
credit borrowings, in which case Consolidated Interest Expense shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period) or issues or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the Calculation Date shall be calculated on a pro forma basis assuming that all
such Investments, acquisitions, dispositions, discontinued operations, mergers
and consolidations (and the reduction of any associated fixed charge obligations
and the change in Consolidated Cash Flow resulting therefrom) had occurred on
the first day of the four-quarter reference period. If since the beginning of
such period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Investment, acquisition, disposition,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition had such Person been a Restricted
Subsidiary at the time of such Investment, acquisition, disposition, merger,
consolidation or discontinued operation, then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of the applicable four quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon
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the rate actually chosen, or, if none, then based upon such optional rate chosen
as the Company may designate.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person or its Restricted Subsidiaries.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of Columbia
or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
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 or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, (i) the Obligations of such Subsidiary Guarantor under the New Credit
Facility and (ii) any other Indebtedness of such Subsidiary Guarantor permitted
to be incurred by the under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor, including, with respect to (i) and (ii), interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Indebtedness will not include (1)
any liability for federal, state, local or other taxes owed or owing by any
Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor to the
Company, (3) any accounts payable or trade liabilities arising in the ordinary
course of business (including instruments evidencing such liabilities) other
than obligations in respect of bankers' acceptances and letters of credit under
the New Credit Facility, (4) any Indebtedness that is incurred in violation of
the Indenture, (5) Indebtedness which, when incurred and without respect to any
election under Section 1111 (b) of Title 11, United States Code, is without
recourse to a Subsidiary Guarantor, (6) any Indebtedness, guarantee or
obligation of any Subsidiary Guarantor which is subordinate or junior to any
other Indebtedness, guarantee or obligation of such Subsidiary Guarantor, (7)
Indebtedness evidenced by any Subsidiary Guarantee and (8) Capital Stock of any
Subsidiary Guarantor.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of the Exchange Notes.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person) and (d) the liquidation preference of
all outstanding Disqualified Stock of such Person; PROVIDED, HOWEVER, that
Contingent Obligations incurred in the ordinary course of business shall be
deemed not to constitute Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "--Certain Covenants--Restricted Payments," (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
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net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issuance Date" means the closing date for the sale and original issuance of
the Old Notes under the Indenture.
"Joint Venture" means a corporation, partnership or other entity engaged in
a Similar Business as to which the Company (directly or through one or more
Restricted Subsidiaries) owns an Equity Interest.
"KSL Land Note" means the note payable to the Company by KSL Land evidencing
the approximately $20.8 million loan to KSL Land pursuant to the Refinancings.
"KSL Recreation" means KSL Recreation Corporation, a Delaware corporation,
the corporate parent of the Company, and any successor thereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"Management Group" means the group consisting of the Officers of the
Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the consolidated net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including any
cash proceeds received upon the sale or other disposition of Designated Non-Cash
Proceeds), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and brokerage
and sales commissions), and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of principal, premium (if any)
and interest on Indebtedness required (other than required by clause (i) of the
second paragraph of "--Repurchase at the Option of Holders--Asset Sales") to be
paid as a result of such transaction and any deduction of appropriate amounts to
be provided by the Company as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company after such sale or other disposition thereof, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"New Credit Facility" means that certain credit facility described in this
Prospectus among the Company and the lenders from time to time party thereto,
including any collateral documents, instruments and agreements executed in
connection therewith, and the term New Credit Facility shall also include any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof and any credit facilities that replace, refund or refinance
any part of the loans, other credit facilities or commitments thereunder,
including any such replacement, refunding or refinancing facility that increases
the amount borrowable thereunder or alters the maturity thereof, PROVIDED,
HOWEVER, that there shall not be more than one facility at any one time that
constitutes the New Credit Facility and, if at any time there is more than one
facility which would constitute the New Credit Facility, the Company will
designate to the Trustee which one of such facilities will be the New Credit
Facility for purposes of the Indenture.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Officer" means the Chairman of the Board, the President and any Executive
Vice President of the Company.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
which ranks pari passu in right of payment to the Notes and (b) with respect to
any Subsidiary Guarantee, Indebtedness which ranks pari passu in right of
payment to such Subsidiary Guarantee.
"Permitted Holders" means KKR and any of its Affiliates and the Management
Group.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is engaged in a Similar Business if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
or (ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; (d) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to the provisions of "--Repurchase at the Option of
Holders--Asset Sales" or any other disposition of assets not constituting an
Asset Sale; (e) any Investment existing on the Issuance Date; (f) advances to
employees not in excess of $10 million outstanding at any one time; (g) any
Investment acquired by the Company or any of its Restricted Subsidiaries (i) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (ii) the transfer of title with
respect to any secured investment in default as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to such secured
Investment; (h) Hedging Obligations permitted under the "Limitation of
Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (i) loans
and advances to officers, directors and employees for business-related travel
expenses, moving expenses and other similar expenses, in each case, incurred in
the ordinary course of business; (j) any Investment in a Similar Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (j) that are at the time outstanding, not to exceed the greater of (x)
$50 million and (y) 10% of Total Assets at the time of such Investment (with the
fair market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (k) additional Investments having
an aggregate fair market value, taken together with all other Investments made
pursuant to this clause (k) that at the time outstanding, not to exceed the
greater of (x) $50 million and (y) 10% Total Assets at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value); (l)
Investments the payment for which consists of Equity Interests of the Company
(exclusive of Disqualified Stock); PROVIDED, HOWEVER, that such Equity Interests
will not increase the amount available for Restricted Payments under clause (c)
of the "Restricted Payments" covenant; (m) any guarantees permitted to be made
pursuant to the covenant entitled "Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock"; and (n) any transaction to the extent it
constitutes an investment that is permitted by and made in accordance with the
provisions of the second paragraph of the covenant described under "--Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii) and (vi) of such paragraph).
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity. "preferred
stock" means any Equity Interest with preferential right of payment of dividends
or upon liquidation, dissolution, or winding up.
"Pro Forma Consolidated Cash Flow" means with respect to any Person for any
period the Consolidated Cash Flow of such Person for such period; PROVIDED,
HOWEVER, (i) for purposes of making the computation referred to above,
Investments, acquisitions (including transactions accounted for as
acquisitions), dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the date of calculation shall be calculated on a pro forma basis assuming that
all such Investments, acquisitions, dispositions, discontinued operations,
mergers and consolidations (and the reduction of any associated fixed charge
obligations and the change in Consolidated Cash Flow resulting therefrom) had
occurred on the first day of the four-quarter reference period, and (ii) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, discontinued operation, merger or consolidation that
would have required adjustment pursuant to this definition had such Person been
a Restricted Subsidiary at the time of such investment, acquisition,
disposition, discontinued operation, merger or consolidation, then Pro Forma
Consolidated Cash Flow shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, discontinued
operation, merger or consolidation had occurred at the beginning of the
applicable four quarter period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of the
Company.
"Related Parties" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or any
portion of a Holder's Notes pursuant to the provisions described under the
covenants entitled "--Repurchase at the Option of Holders--Change of Control" or
"--Repurchase at the Option of Holders--Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issuance
Date.
"Similar Business" means any business the majority of whose revenues are
derived from the leasing, ownership and/or operation of recreation, leisure
and/or hospitality facilities, including without limitation, golf courses,
resort facilities, spas and hotels, or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Specified Property" means the items set forth on Annex A to the Indenture.
"Subordinated Indebtedness" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary
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Guarantee, any Indebtedness of the applicable Subsidiary Guarantor which is by
its terms subordinated in right of payment to such Subsidiary Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"Subsidiary Guarantee" means any guarantee of the obligations of the Company
under the Indenture and the Exchange Notes by any Person in accordance with the
provisions of the Indenture.
"Subsidiary Guarantor" means any Person that incurs a Subsidiary Guarantee;
PROVIDED that upon the release and discharge of such Person from its Subsidiary
Guarantee in accordance with the Indenture, such Person shall cease to be a
Subsidiary Guarantor.
"Tax Sharing Agreement" means that certain tax sharing agreement between and
among the Issuer, Parent and each of the entities described on Schedule A
thereto, dated as of the Issue Date.
"Total Assets" means (i) with respect to the Company, the total consolidated
assets of the Company and its Restricted Subsidiaries, as shown on the most
recent balance sheet of the Company or (ii) with respect to any Foreign
Subsidiary, or any Restricted Subsidiary that is not a Foreign Subsidiary, the
total consolidated assets of such Foreign Subsidiary or Restricted Subsidiary,
as the case may be, and its Restricted Subsidiaries, as shown on the most recent
balance sheet of such Foreign Subsidiary or Restricted Subsidiary, as
applicable; PROVIDED, HOWEVER, that, in the case of clauses (i) and (ii), Total
Assets shall not include the Specified Property.
"Total Net Debt" means at any date of determination, an amount equal to (i)
the aggregate amount of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding as of the date of determination less (ii) the aggregate
of all unrestricted cash and Cash Equivalents of the Company and its Restricted
Subsidiaries as of such date.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
PROVIDED that (a) any Unrestricted Subsidiary must be an entity of which a
majority of the voting power of the outstanding Voting Stock is beneficially
owned, directly or indirectly, by the Company, (b) the Company certifies that
such designation complies with the covenants described under "--Certain
Covenants-- Restricted Payments" and (c) each of (I) the Subsidiary to be so
designated and (II) its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness (x) pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries or (y) with respect to which a default (including any
rights that the holders thereof may have to take enforcement action against such
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any
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Indebtedness of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants--Restricted Payments." The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"--Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
EXCHANGE OFFER. The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Issuance Date, pursuant to which the
Company agreed, for the benefit of the holders of the Old Notes, that it will,
at its own expense, (i) file the Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer to exchange the Notes for Exchange
Notes having substantially identical terms in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions or interest rate increases as described herein) as soon as
reasonably practicable after the Issuance Date, (ii) use its best efforts to
cause the Exchange Offer Registration Statement to be declared effective by the
Commission under the Securities Act within 150 calendar days after the Issuance
Date and (iii) use its best efforts to consummate the Exchange Offer within 180
calendar days after the Issuance Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to the holders
of the Old Notes. For each Old Note surrendered to the Company pursuant to the
Exchange Offer, the holder who surrendered such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Old Note surrendered in exchange therefor
or, if no interest has been paid on such Old Note, from the original issue date
of such Old Note. Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes
would generally be freely transferable after the Exchange Offer without further
registration under the Securities Act (subject to certain representations
required to be made by each holder of Old Notes, as set forth below). However,
any purchaser of Old Notes who is an "affiliate" of the Company or who intends
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretations of the staff
of the Commission, (ii) will not be able to tender its Old Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes unless such sale or transfer is made pursuant to an exemption from
such requirements. In addition, in connection with any resales of Exchange
Notes, any broker-dealer (a "Participating Broker-Dealer") which acquired the
Old Notes for its own account as a result of market making or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Old Notes) with the prospectus contained in the Exchange Offer Registration
Statement. The Company has agreed to make available for a period ending on the
earlier to occur of (i) the date when all Exchange Notes held by Participating
Broker Dealers have been sold and (ii) 180 days after consummation of the
Exchange Offer a prospectus meeting the requirements of the Securities Act to
any Participating Broker-Dealer and any other persons, if any, with similar
prospectus delivery requirements, for use in connection with any resale of
Exchange Notes. A Participating Broker-Dealer or any other person that delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations thereunder).
Each holder of the Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes, (iii) it is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company and
(iv) it is not acting on behalf of any person who could not truthfully make the
foregoing representations.
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SHELF REGISTRATION. In the event that (i) any changes in law or the
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any other reason the Exchange
Offer is not consummated within 180 calendar days after the Issuance Date, (iii)
under certain circumstances, if the Initial Purchasers shall so request or (iv)
any holder of Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, the Company will, at its expense, (a) as
promptly as reasonably practicable file the Shelf Registration Statement
covering resales of the Old Notes, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act by the
180th calendar day after the Issuance Date and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of two years from
the Issuance Date (or one year from the date the Shelf Registration Statement is
declared effective if such Shelf Registration Statement is filed upon the
request of any Initial Purchasers pursuant to clause (iii) above) or such
shorter period ending when all Old Notes covered by the Shelf Registration
Statement have been sold in the manner set forth and as contemplated in the
Shelf Registration Statement or when the Old Notes become eligible for resale
pursuant to Rule 144 under the Securities Act without volume restrictions, if
any. The Company, will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes. A
holder of Old Notes that sells its Old Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a holder (including
certain indemnification rights and obligations thereunder). In addition, each
holder of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Notes included in the
Shelf Registration Statement and to benefit from the provisions regarding any
increase in interest applicable to the Old Notes set forth in the following
paragraph.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration statements
will be filed, or, if filed, that they will become effective. In the event that
either (a) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 150th calendar day following the date of original
issue of the Old Notes, (b) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 180th
calendar day following the date of original issue of the Old Notes, or (c) the
Exchange Offer Registration Statement or (subject to certain black-out periods)
the Shelf Registration Statement is declared effective but thereafter ceases to
be effective or usable, the interest rate borne by the Old Notes shall be
increased by one-quarter of one percent per annum following such 150-day period
in the case of clause (a) above, following such 180-day period in the case of
clause (b) above, or following the date on which such registration statement
ceases to be effective or usable in the case of clause (c) above, which rate
will be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; PROVIDED that
the aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the effectiveness of the Exchange Offer Registration Statement
after the 150-day period described in clause (a) above, (y) the consummation of
the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, after the 180-day period described in clause (b) above, or (z)
the date on which the Exchange Offer Registration Statement or Shelf
Registration Statement is again declared effective or becomes usable, in the
case of clause (c) above, the interest rate borne by the Old Notes from the date
of such effectiveness, consummation or that the applicable registration
statement again becomes effective and usable, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; PROVIDED, HOWEVER, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or
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(c) above occurs, the interest rate may again be increased and thereafter
decreased pursuant to the foregoing provisions. Notwithstanding the foregoing,
the Company may issue a notice that the Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction and may issue any
notice suspending use of the Shelf Registration Statement required under
applicable securities laws to be issued and, in the event that the aggregate
number of days in any consecutive twelve-month period for which all such notices
are issued and effective does not exceed 30 days in the aggregate, then the
interest rate borne by the Old Notes will not be increased as described above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which has been filed as an exhibit to which this Prospectus is a part.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for the Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC.
Exchange Notes held by persons who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered certificated form (a "Certificated Exchange Note"). Upon the transfer
of any Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certan other organizations.
Indirect acces to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Note to the
accounts of persons who have accounts with such depository. Such accounts
initially will be designated by or on behalf of the Initial Purchasers.
Ownership of beneficial interests in the Global Exchange Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Exchange Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Notes represented by
such Global Exchange Note for all purposes under the Indenture and the Exchange
127
<PAGE>
Notes. No beneficial owners of an interest in the Global Exchange Note will be
able to transfer that interest except in accordance with DTC's applicable
procedures.
The Issuer understands that, under existing industry practices, in the event
that the Issuer requests any action of Holders, or an owner of a beneficial
interest in such permnent Global Exchange Note desires to give or take any
action (including a suit for repayment of principal, premium or interest) that a
Holder is entitled to give or take under the Notes, DTC woud authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instruction of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Issuer, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Exchange Note
will credit participants' accounts with payments in amounts proportionate to
their respectve beneficial ownership interests in the principal amount of such
Global Exchange Note, as shown on the records of DTC or its nominee. The Issuer
also expects that payments by participants to owners of beneficial interests in
such Global Exchange Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the acounts of customers registered in the names of nominees
for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a Holder requires physical delivery of
Certificated Exchange Notes for any reason, including to sell Exchange Notes to
persons in states which require such delivery of such Exchange Notes or to
pledge such Exchange Notes, such holder must transfer its interest in the Global
Exchange Note, in accordance with the normal procedures of DTC and the
procedures set forth in the Indenture.
Neither the Issuer nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Exchange
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if DTC
is at any time unwilling or unable to continue as a depositary for the Global
Exchange Note and a successor depositary is not appointed by the Issuer within
90 days, the Issuer will issue Certificated Exchange Notes in exchange for the
Global Exchange Note.
128
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes should not constitute
recognition events for federal income tax purposes. Consequently, no gain or
loss should be recognized by Holders upon receipt of the Exchange Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
Exchange Notes, a Holder's basis in Exchange Notes should be the same as such
Holder's basis in the Old Notes exchanged therefor. Holders should be considered
to have held the Exchange Notes from the time of their original acquisition of
the Old Notes.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. To the extent any such broker-dealer participates in
the Exchange Offer and so notifies the Issuer, or causes the Issuer to be so
notified in writing, the Issuer has agreed that during the period ending on the
earlier to occur of (i) the date when all Exchange Notes held by Participating
Broker Dealers have been sold and (ii) 180 days after consummation of the
Exchange Offer it will make this Prospectus as amended or supplemented,
available to any Participating Broker Dealer and any other persons, if any, with
similar prospectus delivery requirements, for use in connection with any resale
of Exchange Notes, and will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers or any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act, and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuer by Simpson Thacher
& Bartlett (a partnership which includes professional corporations), New York,
New York.
129
<PAGE>
EXPERTS
The financial statements as of October 31, 1996 and 1995 and for each of the
three years in the period ended October 31, 1996 included in this prospectus and
the related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Notwithstanding that the Issuer may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Securities and
Exchange Commission, the Issuer will file with the Commission (and provide the
Trustee and Holders with copies thereof, without cost to each Holder, within 15
days after it files them with the Commission), (a) within 90 days after the end
of each fiscal year, annual reports on Form 10-K (or any successor or comparable
form) containing the information required to be contained therein (or required
in such successor or comparable form); (b) within 45 days after the end of each
of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or
any successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Issuer would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Issuer shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Issuer will make available such information to prospective purchasers
of Notes, in addition to providing such information to the Trustee and the
Holders, in each case within 15 days after the time the Issuer would be required
to file such information with the Commission, if it were subject to Sections 13
or 15(d) of the Exchange Act. In addition, the Issuer has agreed that, for so
long as any of the Old Notes remain outstanding, they will furnish to holders
and prospective purchasers of the Old Notes the information required by Rule
144A(d)(4) under the Securities Act.
130
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of October 31, 1995 and 1996 and April 30, 1997 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997 (unaudited)......................................................... F-4
Consolidated Statements of Stockholder's Equity for the years ended October 31, 1994, 1995 and 1996 and the
six months ended April 30, 1997 (unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
KSL Recreation Group, Inc.
We have audited the accompanying consolidated balance sheets of KSL
Recreation Group, Inc. and subsidiaries (the Company) as of October 31, 1995 and
1996, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended October
31, 1996. Our audits also included the financial statement schedule included in
Item 21(b) of the Registration Statement. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KSL
Recreation Group, Inc. and subsidiaries as of October 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Costa Mesa, California
April 9, 1997 (April 30, 1997 as to the first paragraph of Note 1)
F-2
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1996
AND APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 9,968 $ 9,343 $ 36,325
Restricted cash................................................................. 73 5,512 3,629
Trade receivables, net of allowance for doubtful receivables of $569, $1,573 and
$660 (unaudited), respectively................................................ 9,276 11,046 20,403
Inventories (Note 4)............................................................ 6,548 7,266 7,192
Current portion of notes receivable (Note 3).................................... 1,403 1,658 2,171
Other receivables............................................................... 3,359 1,559 1,872
Prepaid expenses and other...................................................... 2,016 2,221 2,872
--------- --------- -----------
Total current assets.......................................................... 32,643 38,605 74,464
PROPERTY AND EQUIPMENT, at cost (Notes 6 and 7):
Land and land improvements...................................................... 181,631 219,014 220,216
Buildings....................................................................... 122,396 134,390 134,902
Furniture, fixtures and equipment............................................... 40,314 52,323 55,447
Construction in progress........................................................ 19,601 1,570 2,641
--------- --------- -----------
363,942 407,297 413,206
Less accumulated depreciation................................................... (26,400) (44,916) (54,854)
--------- --------- -----------
Property and equipment, net................................................... 337,542 362,381 358,352
NOTES RECEIVABLE FROM AFFILIATE (Note 11)....................................... 25,995 -- 20,800
NOTES RECEIVABLE, less current portion (Notes 3, 11 and 13)..................... 3,727 4,015 4,780
RESTRICTED CASH, less current portion........................................... 3,870 7,743 127
RECEIVABLE FROM PARENT (Notes 1 and 11)......................................... 53,807 43,891 --
RECEIVABLES FROM AFFILIATES (Note 11)........................................... -- 3,694 --
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES, net of accumulated
amortization of $6,386, $10,007 and $11,815 (unaudited), respectively......... 89,891 86,411 84,604
OTHER ASSETS, net (Note 5)...................................................... 30,972 31,182 32,119
--------- --------- -----------
$ 578,447 $ 577,922 $ 575,246
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 9,551 $ 7,280 $ 5,416
Accrued liabilities............................................................. 12,282 16,506 16,375
Current portion of long-term debt (Note 6)...................................... 6,080 4,611 1,000
Current portion of obligations under capital leases (Note 7).................... 1,615 2,407 3,143
Customer and other deposits..................................................... 2,459 3,412 3,623
Payable to affiliates........................................................... -- 705 31
Due to Lake Lanier Islands Development Authority (Note 15)...................... -- 3,874 2,895
Deferred income................................................................. 2,021 1,581 3,918
--------- --------- -----------
Total current liabilities..................................................... 34,008 40,376 36,401
LONG-TERM DEBT, less current portion (Note 6)................................... 314,154 260,416 299,000
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 7)................. 2,755 3,977 5,439
--------- --------- -----------
Total long-term debt, less current portion.................................... 316,909 264,393 304,439
MEMBER DEPOSITS................................................................. 29,650 34,026 38,920
DEFERRED INCOME TAXES (Note 8).................................................. -- 16,760 16,760
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES (Note 1)........................... 449 391 208
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDER'S EQUITY (Notes 5 and 9):
Common stock, $.01 par value, 1,000 shares authorized and outstanding........... -- -- --
Additional paid-in capital...................................................... 222,389 227,394 197,361
Accumulated deficit............................................................. (24,958) (5,418) (18,843)
--------- --------- -----------
Total stockholder's equity.................................................... 197,431 221,976 178,518
--------- --------- -----------
$ 578,447 $ 577,922 $ 575,246
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rooms revenue.......................................................... $ 32,194 $ 37,678 $ 45,548 $ 31,414 $ 35,987
Food and beverage sales................................................ 28,423 38,897 44,338 25,707 29,679
Golf fees.............................................................. 25,098 32,646 35,371 19,938 23,480
Dues and fees.......................................................... 16,464 20,330 23,549 10,881 12,178
Merchandise sales...................................................... 9,864 13,416 14,068 8,353 8,959
Spa revenue............................................................ 2,712 2,761 3,112 1,869 2,382
Other.................................................................. 9,455 12,523 14,288 8,389 10,176
--------- --------- --------- --------- ---------
Total revenues..................................................... 124,210 158,251 180,274 106,551 122,841
EXPENSES:
Costs of goods sold:
Food and beverage.................................................... 8,509 12,847 13,671 7,379 7,965
Merchandise.......................................................... 5,431 8,610 8,730 5,092 4,825
Other................................................................ 716 3,591 3,095 2,053 2,467
Payroll................................................................ 39,096 47,542 50,994 26,453 27,658
Benefits............................................................... 9,537 12,827 11,116 6,453 7,065
Supplies............................................................... 8,806 11,532 12,499 5,963 6,882
Utilities.............................................................. 5,754 7,253 8,076 3,692 3,995
Maintenance and repairs................................................ 4,076 4,813 5,286 2,499 2,952
Advertising and marketing.............................................. 2,721 4,250 4,372 2,284 2,345
Real estate taxes...................................................... 3,666 5,035 4,424 2,574 2,437
Other.................................................................. 13,901 14,988 19,460 9,280 10,682
Depreciation and amortization.......................................... 13,971 20,327 23,770 11,386 12,916
--------- --------- --------- --------- ---------
Total expenses..................................................... 116,184 153,615 165,493 85,108 92,189
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS................................................. 8,026 4,636 14,781 21,443 30,652
OTHER INCOME (EXPENSE):
Interest income (Notes 3 and 11)....................................... 3,773 5,462 1,058 538 245
Interest expense....................................................... (17,784) (23,945) (28,768) (13,068) (15,850)
Loss on sale of golf course (Note 13).................................. -- (2,684) -- -- --
--------- --------- --------- --------- ---------
Other expense, net................................................. (14,011) (21,167) (27,710) (12,530) (15,605)
INCOME (LOSS) BEFORE MINORITY INTERESTS, INCOME TAXES AND EXTRAORDINARY
ITEM................................................................. (5,985) (16,531) (12,929) 8,913 15,047
MINORITY INTERESTS IN LOSSES OF SUBSIDIARIES........................... 458 201 58 78 182
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............... (5,527) (16,330) (12,871) 8,991 15,229
INCOME TAX EXPENSE (BENEFIT) (Note 8).................................. -- -- (291) (3) 2,195
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................ (5,527) (16,330) (12,580) 8,994 13,034
EXTRAORDINARY GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT (net of
income tax expense (benefit) of $0, $0, $16,757, $16,757 and
($2,007), respectively) (Note 12).................................... (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- --------- ---------
NET INCOME (LOSS)...................................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE:
Before extraordinary item.............................................. $ (5,527) $ (16,330) $ (12,580) $ 8,994 $ 13,034
Extraordinary gain (loss).............................................. (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- --------- ---------
TOTAL EARNINGS (LOSS) PER SHARE........................................ $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE
EQUIVALENTS.......................................................... 1,000 1,000 1,000 1,000 1,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE November 1, 1993....................................... $ -- $ 28,412 $ (899) $ 27,513
Capital contributions (Note 9)................................. -- 168,182 -- 168,182
Net loss....................................................... -- (7,729) (7,729)
---------- ---------- ------------ ----------
BALANCE, October 31, 1994...................................... -- 196,594 (8,628) 187,966
Capital contributions (Note 9)................................. -- 25,795 -- 25,795
Net loss....................................................... -- -- (16,330) (16,330)
---------- ---------- ------------ ----------
BALANCE, October 31, 1995...................................... -- 222,389 (24,958) 197,431
Capital contributions (Note 9)................................. -- 5,005 -- 5,005
Net income..................................................... -- -- 19,540 19,540
---------- ---------- ------------ ----------
BALANCE, October 31, 1996...................................... -- 227,394 (5,418) 221,976
Capital contributions (unaudited) (Note 9)..................... -- 9,000 -- 9,000
Dividends (unaudited) (Note 9)................................. -- -- (23,321) (23,321)
Capital distributions (unaudited) (Note 9)..................... -- (39,033) -- (39,033)
Net income (unaudited)......................................... -- -- 9,896 9,896
---------- ---------- ------------ ----------
BALANCE, April 30, 1997 (unaudited)............................ $ -- $ 197,361 $ (18,843) $ 178,518
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 13,971 20,327 23,770 11,386 12,916
Extraordinary loss (gain) on debt extinguishment.................. 2,202 -- (48,256) (48,256) 5,145
Deferred income taxes............................................. -- -- 16,760 16,760 --
Provision for losses on trade receivables......................... 435 (3) 1,004 207 (116)
Provision for losses on notes receivable.......................... -- -- 228 -- --
Minority interests in losses of subsidiaries...................... (458) (201) (58) (78) (182)
(Gain) loss on sales of property, net............................. -- 2,516 88 (78) 187
Changes in operating assets and liabilities, net of effects from
investment in subsidiaries and acquisitions of golf course
facilities:
Restricted cash................................................. 13,935 399 (9,311) (5,486) 9,499
Trade receivables............................................... (3,861) (1,615) (2,408) (10,922) (9,241)
Inventories..................................................... (545) (729) (518) (365) 74
Other receivables............................................... (2,534) 1 1,804 2,231 (313)
Prepaid expenses and other...................................... (889) (447) (183) 623 (651)
Notes receivable................................................ (117) 5 (292) -- --
Receivable from Parent.......................................... (38,513) (16,533) 9,916 8,243 43,891
Receivables from affiliates..................................... (185) 1,887 (2,989) (2,923) 3,020
Other assets.................................................... (9,592) (527) 1,536 648 973
Accounts payable................................................ 7,403 449 (2,894) (4,660) (1,864)
Accrued liabilities............................................. 1,411 3,314 4,210 399 (131)
Customer and other deposits..................................... 347 302 360 (1,067) 210
Deferred income................................................. 62 435 (1,255) 1,822 2,243
Due to Lake Lanier Islands Development Authority................ -- -- 3,874 -- (979)
Other current liabilities....................................... (810) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities........... (25,467) (6,750) 14,926 9,598 74,577
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in related subsidiaries, net of cash acquired.......... (336,150) -- -- -- --
Purchases of property and equipment............................... (13,645) (48,782) (20,625) (12,003) (3,729)
Notes receivable from affiliate, net.............................. (26,072) 77 23,065 23,065 (20,800)
Acquisition of golf course facilities............................. (25,162) (10,162) (15,274) (7,273) --
Proceeds from sales of property and equipment..................... -- 1,396 583 150 174
Notes receivable, net............................................. 3,371 8,594 1,908 919 1,780
Investment in partnerships........................................ (782) (571) (1,907) (510) (515)
Proceeds from sale of investment in partnership................... -- -- -- -- 1,621
Deposits and deferred acquisition costs........................... 15,230 536 -- -- --
Receivables from related parties.................................. (1,322) -- -- -- --
Liabilities to related parties.................................... (13,229) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities........... (397,761) (48,912) (12,250) 4,348 (21,469)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance.................................... $ 328,809 $ 8,665 $ 147,370 $ 138,346 $ 300,362
Principal payments on long-term debt and obligations under
capital leases............................................... (57,802) (12,255) (154,945) (150,916) (266,730)
Member deposits, net........................................... 20,846 4,365 2,483 1,127 2,047
Capital contributions from Parent.............................. 168,182 25,795 5,005 5,000 9,000
Capital distributions and dividends to Parent.................. -- -- -- -- (60,199)
Debt financing costs........................................... (3,807) (333) (3,214) (3,214) (10,606)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities............ 456,228 26,237 (3,301) (9,657) (26,126)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 33,000 (29,425) (625) 4,289 26,982
CASH AND CASH EQUIVALENTS, beginning of period................. 6,393 39,393 9,968 9,968 9,343
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period....................... $ 39,393 $ 9,968 $ 9,343 $ 14,257 $ 36,325
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid (net of amounts capitalized)................... $ 15,604 $ 23,440 $ 25,774 $ 10,045 $ 17,229
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid............................................ $ -- $ -- $ -- $ -- $ 424
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases............................... $ 1,460 $ 3,857 $ 4,615 $ 1,027 $ 3,539
Notes receivable issued for member deposits.................... 3,250 1,449 1,892 930 2,848
Note receivable issued from sale of assets..................... -- 1,933 494 -- 211
Trade-in of equipment under capital lease...................... -- -- 397 -- --
Development of golf course from undeveloped land............... -- -- 2,720 -- --
Issuance of long-term debt for acquisition of land............. -- -- 1,711 -- --
Dividend to Parent of investments in partnerships.............. -- -- -- -- 2,155
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1. GENERAL
KSL Recreation Group, Inc. (Group), is a wholly-owned subsidiary of KSL
Recreation Corporation (the Parent). Group and its subsidiaries (collectively,
the Company) are engaged in the ownership and management of golf courses,
private clubs, resorts and activities related thereto. At the completion of
certain financing transactions (as described in Note 6) on April 30, 1997, KSL
Landmark Corporation, KSL Florida Holdings, Inc., KSL Georgia Holdings, Inc. and
KSL Golf Holdings, Inc. became wholly-owned subsidiaries of Group in a
transaction accounted for in a manner similar to a pooling of interests.
As of October 31, 1996, giving effect to the transactions described in Note
6, the Company has four principal investments: (1) through KSL Golf Holdings,
Inc. (Fairways), a Delaware corporation, the Company owns an 88.1% majority
partnership interest in The Fairways Group, L.P. (TFG, L.P.) a Delaware limited
partnership; (2) a 100% interest in KSL Florida Holdings, Inc. (Doral), a
Delaware corporation; (3) a 100% interest in KSL Landmark Corporation (Desert
Resorts), a Delaware corporation; and (4) a 100% interest in KSL Georgia
Holdings, Inc., a Delaware corporation. TFG L.P. and an affiliate own and
operate 22 golf facilities principally in the mid-Atlantic, southeast and
midwestern United States. Fairways, through a subsidiary, is the managing
general partner in TFG L.P. Doral owns and operates the Doral Golf Resort and
Spa in Miami, Florida. Desert Resorts and affiliates own and operate the PGA
WEST golf courses, the La Quinta Resort & Club and related activities in La
Quinta, California. KSL Georgia Holdings, Inc. and its subsidiary (KSL Lake
Lanier, Inc.) manage a resort recreation area of approximately 1,041 acres known
as Lake Lanier Islands, outside of Atlanta, Georgia (Note 15).
During fiscal 1994, the Parent completed significant acquisitions, as
described below, which now constitute the principal operations of the Company.
Each of the acquisitions has been accounted for as a purchase, and the results
of each operation have been included in the accompanying consolidated financial
statements since the date of acquisition. The cost of each acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed based on independent appraisals and on analyses
prepared by management. The excess of the purchase price over the fair value of
the acquired entities (goodwill) has been capitalized and is being amortized on
a straight-line basis over 25 to 30 years.
On December 30, 1993, the Parent acquired 85% of the assets and assumed 85%
of the liabilities of Doral for a purchase price, including acquisition costs,
of approximately $104,200. The purchase price was financed with available cash
of $46,400 and bank financing of approximately $57,800. The principals of the
predecessor company (the Minority Shareholders) contributed certain assets in
exchange for 15% of the outstanding common and preferred stock of Doral. The
purchase price allocation resulted in goodwill of approximately $38,600.
During 1994, Doral terminated its management agreements with its Minority
Shareholders and an affiliate. Pursuant to the terms of the management
agreements, Doral paid approximately $1,080 in termination fees, including
management fees paid through the date of acquisition. These termination fees
have been included in the purchase price of the Doral business.
During 1995, pursuant to a stockholders' agreement between Doral and the
Minority Shareholders, the Minority Shareholders exercised their option to sell
to Doral, and Doral purchased all of the Minority
F-8
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1. GENERAL (CONTINUED)
Shareholders' interest in Doral of approximately $5,465 for $7,303, resulting in
an increase to land and improvements of approximately $1,426 and an increase to
goodwill of approximately $412.
On December 30, l993, the Parent, with its affiliates, acquired certain of
the assets and assumed substantially all of the liabilities of various hotel,
golf and real estate operations located in La Quinta, California for a total
purchase price of approximately $295,200, including certain adjustments
subsequent to the acquisition date, which resulted in goodwill of approximately
$52,550. The seller provided financing of approximately $206,700, which was
collateralized by all the purchased assets. The remaining amount of the purchase
price was financed with available cash.
INTERIM UNAUDITED FINANCIAL INFORMATION--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of various normal accruals) necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows. The
consolidated financial position at April 30, 1997 is not necessarily indicative
of the financial position to be expected at October 31, 1997 and the
consolidated results of operations for the six months ended April 30, 1997 are
not necessarily indicative of the consolidated results of operations to be
expected for the year ending October 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation--The consolidated financial statements include the
accounts of Group and its wholly-owned subsidiaries. Investments in 50%-or-less
owned affiliates in which Company management has significant influence are
accounted for using the equity method of accounting. Under the equity method of
accounting, the investment, is carried at cost, adjusted each year for the
appropriate share of investee income or loss and any cash contributions or
distributions. All significant intercompany transactions and balances have been
eliminated in the accompanying consolidated financial statements.
CASH EQUIVALENTS--The Company considers all highly-liquid investments with
original maturities of three months or less to be cash equivalents.
RESTRICTED CASH--Certain cash balances are restricted primarily to uses for
debt service, capital expenditures, real estate taxes, insurance payments,
letters of credit required for construction in progress, and as provided under
the Lake Lanier Islands management agreement (Note 15).
INVENTORIES--Inventories are stated primarily at the lower of cost,
determined on the first-in, first-out method, or market. Base stock consisting
of china, silver, glassware and linens is recorded using the base stock
inventory method.
PROPERTY AND EQUIPMENT--Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Generally, the estimated useful lives are 15
to 40 years for buildings and improvements and 3 to 10 years for furniture,
fixtures and equipment. Improvements are capitalized while maintenance and
repairs are charged to expense as incurred. Assets under capital leases are
amortized using the straight-line method over the shorter of the lease term or
estimated useful lives of the assets. Depreciation of assets under capital
leases, principally
F-9
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
golf carts and telephone and computer equipment, is included in depreciation and
amortization expense in the accompanying consolidated statements of operations.
LONG-LIVED ASSETS--The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF in fiscal 1996.
The effects of adopting SFAS No. 121 were not material in relation to the
Company's consolidated financial statements.
Management reviews real estate and other long-lived assets, including
certain identifiable intangibles and goodwill, for possible impairment whenever
events or circumstances indicate the carrying amount of an asset may not be
recoverable. If there is an indication of impairment, management prepares an
estimate of future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual disposition. If
these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value. The fair
value is estimated at the present value of future cash flows discounted at a
rate commensurate with management's estimate of the business risks. Real estate
assets, if any, for which management has committed to a plan to dispose of the
assets, whether by sale or abandonment, are reported at the lower of carrying
amount or fair value less cost to sell. Preparation of estimated expected future
cash flows is inherently subjective and is based on management's best estimate
of assumptions concerning expected future conditions.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES--The excess of the cost
over the fair value of acquired entities (goodwill) is capitalized and amortized
on a straight-line basis over 15 to 30 years. Amortization expense related to
goodwill was approximately $2,897, $3,462, $3,616 for fiscal years 1994, 1995,
1996 and $1,821 and $1,808 for the six months ended April 30, 1996 and 1997
(unaudited), respectively. The Company periodically evaluates the recoverability
of goodwill by comparing the carrying value of goodwill to undiscounted
estimated future cash flows from related operations. If it has been determined
that an impairment in value has occurred, the goodwill would be written down to
an amount which will be equivalent to the present value of estimated future
operating cash flows from the related operations.
DEBT ISSUE COSTS--Debt issue costs are amortized over the life of the
related debt.
MEMBER DEPOSITS--Member deposits represent the required deposits for certain
membership plans which entitle the member to the usage of various golf, tennis,
and social facilities and services. Member deposits are refundable, without
interest, in thirty years or sooner, under certain criteria and circumstances.
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES--Minority interests in equity
of subsidiaries represent minority shareholders' proportionate share of the
equity in certain subsidiaries of the Company, principally TFG L.P. The Company
owned approximately 88.1% of TFG L.P. at October 31, 1995 and 1996, and April
30, 1997 (unaudited).
A minority interest partner (the Partner) in TFG L.P. had a partner deficit
balance of approximately $2,961 and $3,065 as of October 31, 1995 and 1996,
respectively. The Company has reduced the minority
F-10
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest allocation of TFG L.P.'s net loss by the Partner's share of $272, $361
and $104 in fiscal years 1994, 1995 and 1996, respectively.
INCOME TAXES--The Company accounts for income taxes under the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability
approach in accounting for income taxes. Under this method, a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences in the recognition of accounting
transactions for tax and reporting purposes and from carryforwards. Measurement
of the deferred items is based on enacted tax laws. In the event the future
consequence of differences result in a deferred tax asset, SFAS No. 109 requires
an evaluation of the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a deferred tax asset
is recorded when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The Company is included in the
consolidated federal and combined state income tax returns filed by the Parent.
Pursuant to the terms of an arrangement between the Company and the Parent,
current and deferred income tax expenses and benefits are provided to the
members of the tax sharing group including the Company based on their allocable
share of the consolidated taxable income or loss. To the extent that the Federal
tax losses of the Company are utilized by the Parent or other of the Parent's
subsidiaries, the Company is compensated. The combined state tax liabilities
will be allocated based on each member's apportioned share of the combined state
tax liabilities. Had the Company's accounting for income taxes been performed
utilizing the separate return basis, the provision (benefit) for income taxes
would have been $0, $(362) and $263 for the years ended October 31, 1994, 1995
and 1996, respectively.
REVENUE RECOGNITION--Revenues related to dues and fees are recognized as
income in the period in which the service is provided. Non-refundable membership
initiation fees are recognized as revenue when billed. Other revenues are
recognized at the time of sale or rendering of service.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and cash
equivalents, trade receivables, other receivables, accounts payable and accrued
liabilities approximate their fair values because of the short maturity of these
financial instruments. Notes receivable approximate fair value as the interest
rates charged approximate currently available market rates. Based on the
borrowing rates currently available to the Company for debt with similar terms
and maturities, the fair value of notes payable and obligations under capital
leases approximate the carrying value of these liabilities.
Member deposits approximate fair value due to the agreed-upon terms of the
financial instrument. The fair value estimates presented herein are based on
pertinent information available as of the balance sheet dates. The Company is
not aware of any factors that would significantly affect the estimated fair
value amounts.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.
F-11
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
3. NOTES RECEIVABLE
Notes receivable of $2,013, $2,316 and $2,356 as of October 31, 1995, 1996
and April 30, 1997 (unaudited), respectively, represent purchase money mortgage
notes received in connection with the sale of a golf facility (Note 13) and
various land parcels. A note of approximately $1,800 is due July 2002 with the
remaining notes due in November 1998.
Notes receivable of $2,441, $2,681 and $3,919 at October 31, 1995, 1996 and
April 30, 1997 (unaudited), respectively, primarily represent notes from members
related to member deposits and bear interest at various rates ranging primarily
from 9% to 11.25%. The majority of these notes are due within three years.
As part of the acquisition of Desert Resorts, the Company acquired the
rights to certain notes receivable. Notes receivable valued at approximately
$8,316, including discounts of $1,702, as of October 31, 1994 were collected in
full in January 1995. The discount is included in interest income for the year
ended October 31, 1995.
The Company, through TFG L.P., has a note receivable from a general partner
of $676 as of October 31, 1995, 1996 and April 30, 1997. The note accrues
interest at 8% and is due upon the earlier of April 2000 or the partner selling
his partnership interest. No principal or interest payments are due on the note
until it matures (Note 11).
4. INVENTORIES
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Merchandise...................................................................... $ 4,395 $ 4,213 $ 4,160
Food and beverage................................................................ 1,148 1,424 1,193
Base stock (china, silver, glassware, linen)..................................... 509 985 949
Supplies and other............................................................... 496 644 890
--------- --------- -----------
$ 6,548 $ 7,266 $ 7,192
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-12
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
5. OTHER ASSETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Undeveloped land............................................................... $ 19,096 $ 16,376 $ 16,376
Debt issue costs, less accumulated amortization of $908, $3,019 and $0
(unaudited), respectively.................................................... 3,837 5,028 9,250
Other intangibles, less accumulated amortization of $188, $342 and $437
(unaudited), respectively.................................................... 2,912 3,628 3,671
Favorable lease, less accumulated amortization $912, $1,303 and $1,498
(unaudited), respectively.................................................... 2,801 2,410 2,215
Investment in partnerships..................................................... 1,353 3,260 --
Other.......................................................................... 973 480 607
--------- --------- -----------
$ 30,972 $ 31,182 $ 32,119
--------- --------- -----------
--------- --------- -----------
</TABLE>
Other intangibles primarily represent costs related to the costs of certain
membership programs which are being amortized over 5 to 30 years using the
straight-line method. The favorable lease asset represents the difference
between the stated lease terms and the estimated fair value of a golf course
lease acquired and is amortized over the lease term. Amortization expense for
these other assets approximated $1,078, $1,362 and $2,661 for 1994, 1995 and
1996, respectively, and $372 and $290 for the six months ended April 30, 1996
and 1997 (unaudited), respectively.
Investment in partnerships represents the Company's general and limited
partner interests in five limited partnerships whose principal assets are
undeveloped commercial and residential real estate parcels. On April 30, 1997
(unaudited), the Company sold one of these land partnership investments at
historical cost of $1,621 (which approximated fair value) to an affiliate for
use in land development. The remaining investments in four land partnerships at
historical cost of $2,155 was provided as a dividend to the Parent (see Note 9).
Accordingly, the Company has no investment in these partnerships as of April 30,
1997.
F-13
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------- APRIL 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Senior subordinated redeemable notes payable, with interest payable
semi-annually at 10.25%, principal due at maturity on May 1, 2007.......... $ -- $ -- $ 125,000
Term notes, payable in annual installments of $1,000 with interest payable
ranging at Prime plus 1.75% to 2.00% or LIBOR plus 2.75% to 3.00% (10.25%
to 10.50% at April 30, 1997--unaudited), $50,000 maturing April 30, 2005
and $50,000 maturing April 30, 2006........................................ -- -- 100,000
Revolving note, total available of $175,000, with interest payable at Prime
plus 1.25% or LIBOR plus 2.25% (9.75% at April 30, 1997 - unaudited),
principal due at maturity on April 30, 2004................................ -- -- 75,000
Note payable of which approximately 60% is interest only at LIBOR plus 3.5%,
(8.9% as of October 31, 1996) payable monthly and approximately 40% is
interest-only at 14.0% payable monthly; principal and accrued interest paid
in April 1997.............................................................. -- 131,289 --
Purchase money promissory notes, interest at rates ranging from 4.0% to 8.5%,
principal and accrued interest paid in December 1995....................... 199,605 -- --
Term notes, payable in installments, with interest payable ranging at LIBOR
plus 2.7%-3.2% (8.2%-8.7% at October 31, 1996), guaranteed by the Parent,
due December 31, 1999 through 2001, paid in April 1997..................... 50,500 49,000 --
Revolving note, total available of $15,000, maturing on December 31, 1999
with interest payable at LIBOR plus 2.7% (8.1% at October 31, 1996), paid
and terminated in April 1997............................................... 15,000 15,000 --
Term loans, interest at either a floating rate or the Eurodollar rate
(ranging from 7.8% to 9.8% at October 31, 1996) as elected by the Company,
principal payable in quarterly installments ending April 30, 2002, paid in
April 1997................................................................. 49,071 63,430 --
Other notes payable, paid in April 1997...................................... 6,058 6,308 --
---------- ---------- ----------
320,234 265,027 300,000
Less current portion......................................................... (6,080) (4,611) (1,000)
---------- ---------- ----------
Long-term portion............................................................ $ 314,154 $ 260,416 $ 299,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In April 1997, the Company offered $125,000 in aggregate principal amount of
senior subordinated redeemable notes (the Notes) and entered into a new credit
facility providing for term loans of up to $100,000 and a revolving credit
portion of up to $175,000. The Notes are redeemable beginning May 2002
F-14
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT (CONTINUED)
at the Company's option at various rates ranging from 105.125% at May 2002,
decreasing to 100% at May 2005 and thereafter. The Company is required to offer
to buy the Notes at 101% upon a change of control, as defined in the Notes
agreement. The terms of the credit facility limit borrowings under the revolving
credit loan to $175,000. The borrowings limitation decreases to $163,750 in May
2000, $152,500 in May 2001, $137,500 in May 2002 and $118,750 in May 2003. The
terms of the credit facility also contain certain financial covenants including
interest coverage, fixed charges and leverage ratios.
The proceeds from the Notes, together with $100,000 of term loans under the
new credit facility and a $75,000 drawing under the revolving credit portion of
the new credit facility (collectively, the Refinancings) were used on April 30,
1997, (i) to repay approximately $265,000 of outstanding indebtedness of the
Company, (ii) to make a loan of approximately $20,800 to KSL Land Corporation
(KSL Land), which was used to repay indebtedness of KSL Land with respect to
which a subsidiary of the Company is a co-obligor, (iii) to pay prepayment
penalties and fees and expenses incurred in connection with the Refinancings and
(iv) for general corporate purposes. The stock of certain subsidiaries has been
pledged to collateralize the new credit facility. Prior to the Refinancings,
long-term debt was collateralized by substantially all of the assets of the
Company.
Certain of the long-term debt agreements, provide that any distributions of
profits must satisfy certain terms and must be approved by the lenders, require
the Company to maintain specified financial ratios and, in some instances,
govern investments, capital expenditures, asset dispositions and borrowings. In
addition, mandatory prepayments are required under certain circumstances,
including the sale of assets. Total nonuse fees of approximately $6, $322, $262,
$184 and $84 were paid in 1994, 1995, 1996 and the six months ended April 30,
1996 and 1997 (unaudited), respectively, on the daily average of the unused
amount of certain revolving and term loan commitments. The Company was in
compliance with or has obtained waivers to secure compliance with the financial
covenants at October 31, 1996 and April 30, 1997 (unaudited).
The Company, through TFG L.P., entered into a credit agreement with certain
financial institutions which provides for periodic term loans up to $90,000
through October 1998 to be used for financing future golf course acquisitions
and other specific purposes. The agreement also provides for a revolving credit
facility of up to $10,000 for working capital needs which expires in April 2002.
As of October 31, 1996, approximately $26,570 was available under the term loan
and $9,648 was available under the revolving credit agreements. As a result of
the Refinancings, the credit agreement was terminated in April 1997.
In December 1995, the Company completed a negotiated compromise debt
settlement (Note 12), and the Company and certain of its affiliates obtained
debt financing of $153,000. As a result of this transaction, the Company was,
through a subsidiary, co-obligor on KSL Land's portion of the debt financing
which had a principal amount outstanding of $20,794, at October 31, 1996. The
Company was released from its co-obligation as a result of the repayment of KSL
Land's indebtedness in April 1997, as described above.
During 1994, 1995 and 1996, the Company capitalized interest of
approximately $79, $1,043 and $577, respectively, related to construction in
progress activities.
F-15
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT (CONTINUED)
Scheduled principal payments on long-term debt as of October 31, 1996 and as
of April 30, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1997
----------- -----------
<S> <C> <C>
(UNAUDITED)
Year ending October 31:
1997.................................................................................. $ 4,611 $ 1,000
1998.................................................................................. 138,785 1,000
1999.................................................................................. 35,574 1,000
2000.................................................................................. 27,399 1,000
2001.................................................................................. 35,418 1,000
Thereafter............................................................................ 23,240 295,000
----------- -----------
$ 265,027 $ 300,000
----------- -----------
----------- -----------
</TABLE>
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company has entered into certain leases for equipment and golf carts
that are classified as capital leases. Property under capital leases is
summarized as follows (see also Note 15):
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Equipment............................................................................. $ 6,620 $ 9,442 $ 12,364
Less accumulated depreciation......................................................... (1,971) (3,176) (3,858)
--------- --------- -----------
$ 4,649 $ 6,266 $ 8,506
--------- --------- -----------
--------- --------- -----------
</TABLE>
Total minimum payments due under capital leases at October 31,1996 are
summarized as follows:
<TABLE>
<S> <C>
Year ending October 31:
1997.............................................................................. $ 2,993
1998.............................................................................. 2,478
1999.............................................................................. 1,400
2000.............................................................................. 435
2001.............................................................................. 82
---------
Total minimum lease payments........................................................ 7,388
Less amounts representing interest.................................................. (1,004)
---------
Present value of minimum lease payments............................................. 6,384
Less current portion................................................................ (2,407)
---------
Long-term portion................................................................... $ 3,977
---------
---------
</TABLE>
F-16
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
The components of the Federal and State income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
Current:
Federal................................................................................... $ -- $ -- $ (359)
State..................................................................................... -- -- 65
--- --- ---------
(294)
Deferred:
Federal................................................................................... -- -- 3
State..................................................................................... -- -- --
--- --- ---------
-- -- 3
--- --- ---------
Total....................................................................................... $ -- $ -- $ (291)
--- --- ---------
--- --- ---------
</TABLE>
Taxes on income vary from the statutory Federal income tax rate applied to
earnings before taxes on income and extraordinary items as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory Federal income tax rate (35%) applied to earnings before income taxes
and extraordinary items......................................................... $ (1,934) $ (5,716) $ (4,505)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefits..................................... (166) (490) (644)
Change in valuation allowance................................................... 1,753 5,481 4,041
Benefits of lower federal income tax rate......................................... 55 163 129
Reduction in state tax carryforwards.............................................. 136 380 299
Other............................................................................. 156 182 389
--------- --------- ---------
$ -- $ -- $ (291)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities arising from differences between
accounting for financial statement purposes and tax purposes, less valuation
reserves at October 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................................... $ 11,338 $ 15,292
Deferred income.......................................................................... 274 431
Investment in partnership interest....................................................... 2,087 1,728
Self-insured employee benefit programs................................................... 689 878
Other.................................................................................... 277 968
--------- ----------
Total deferred tax assets.............................................................. 14,665 19,297
Less valuation reserve..................................................................... (8,158) (12,199)
--------- ----------
Deferred tax assets, net............................................................... 6,507 7,098
Deferred tax liabilities:
Purchase price adjustment (Note 12)...................................................... -- 16,760
Fixed assets............................................................................. 3,652 3,711
Prepaid real property taxes.............................................................. 580 493
Basis difference in partnerships......................................................... 266 302
Amortization of intangibles.............................................................. 1,720 2,046
Capitalized assets....................................................................... 249 278
Other.................................................................................... 40 268
--------- ----------
Total deferred tax liabilities......................................................... 6,507 23,858
--------- ----------
Net deferred tax liability............................................................. $ -- $ (16,760)
--------- ----------
--------- ----------
</TABLE>
The Company has reserved for net deferred tax assets whose realization
depends on future taxable income. The valuation reserve was increased by $5,481
and $4,041, during 1995 and 1996, respectively.
At October 31, 1996, the Company has net operating loss carryforwards
available of approximately $41,000, which will begin to expire in the year
ending October 31, 2009, to offset future federal taxable income. State net
operating loss carryforwards total approximately $37,000 which will begin to
expire in the year ending October 31, 1999.
F-18
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
9. STOCKHOLDER'S EQUITY
During 1994, 1995 and 1996, the Company received capital contributions of
approximately $168,200, $25,800 and $5,000, respectively, from the Parent. The
1994 contributions were used primarily in the acquisitions of Desert Resorts and
Doral. The 1995 and 1996 contributions were used primarily for property
renovations at Doral.
Concurrent with the Refinancings, the Company provided dividends to the
Parent of $23,321 and a return of capital of $39,033, including a transfer of
the Company's $2,155 investment in certain limited partnerships at historical
cost (Note 5). During the period ended April 30, 1997, the Parent provided
capital contributions of $9,000 for purposes of the Lake Lanier Islands sublease
(Note 15).
Earnings per share for the years ended October 31, 1994, 1995 and 1996 and
for the six-month periods ended April 30, 1996 and 1997 are computed by dividing
net income by the weighted average number of outstanding common shares and
common shares equivalent during the respective periods. Common share equivalents
include the effect of dilutive stock options calculated using the treasury stock
method.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE (EPS), which will require the Company to disclose basic
EPS and diluted EPS for all periods for which an income statement is presented,
and which will replace earnings per share disclosures currently being made. The
Company is required to adopt this standard effective November 1, 1997. For pro
forma disclosure purposes, basic EPS and diluted EPS for the current reporting
and comparable periods in the prior years computed in accordance with SFAS No.
128 would be equal to primary and fully diluted EPS, respectively, as included
in the consolidated statements of operations.
10. COMMITMENTS AND CONTINGENCIES
The Company leases a golf course facility, a portion of a second golf course
facility and certain equipment and office space under long-term, noncancelable
operating leases, some of which provide for additional rent based on actual
operating costs, real estate taxes and insurance costs.
Future minimum lease payments under noncancelable operating leases with a
remaining life in excess of one year are as follows at October 31, 1996:
<TABLE>
<S> <C>
Year ending October 31:
1997............................................................................... $ 288
1998............................................................................... 174
1999............................................................................... 74
2000............................................................................... 47
2001............................................................................... 30
Thereafter......................................................................... 29
---------
$ 642
---------
---------
</TABLE>
Rental expense on operating leases approximated $627, $343 and $306 for
1994, 1995 and 1996, respectively.
F-19
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to various litigation matters which are incidental to
its business. Although the results of the litigation cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the Company's consolidated financial
statements.
11. RELATED PARTY TRANSACTIONS
The Company provided financing to an affiliate, KSL Land, of approximately
$26,000 at October 31, 1995. The notes receivable bear interest at rates ranging
from 4% to 8.5%. On December 20, 1995, the Company forgave $2,930 of the notes
receivable (Note 12). The Company recorded interest income of $904, $1,845 and
$87 in 1994, 1995 and 1996, respectively, and $87 and $0 for the six months
ended April 30, 1996 and 1997 (unaudited), respectively, related to these notes
receivable. KSL Land retired the remaining notes payable to the Company in
December 1995, when KSL Land and the Company obtained debt financing of $153,000
(Note 6). As a result of the Refinancings, the Company provided financing to KSL
Land of approximately $20,800 at April 30, 1997. This unsecured note receivable
bears interest at 8% and is payable at maturity in June 1999.
The receivable from Parent of $53,807 and $43,891 at October 31, 1995 and
1996, respectively, related to loans by the Company to the Parent to fund
Parent's operating costs and to fund certain of the Parent's long-term
investments. Management fees of $667, $750 and $3,199 in 1994, 1995 and 1996,
respectively, and $1,625 for each of the six months ended April 30, 1996 and
1997 (unaudited) were paid to the Parent for management advisory services.
Receivables of $3,694 from affiliates as of October 31, 1996, are for
reimbursement of expenses which the Company loaned the affiliates to fund
certain operating costs. These receivables were settled in April 1997.
TFG L.P. has a note receivable from a general partner of $676, which is
included in long-term notes receivable at October 31, 1995 and 1996. The note
accrues interest at 8% and is due upon the earlier of April 2000 or the partner
selling his partnership interest. No principal or interest payments are due on
the note until it matures. TFG L.P. accrued interest income of $54 related to
the note during both 1995 and 1996. In July 1996, the general partner pledged
TFG L.P. partnership units as security for repayment of this note. In July 1996,
the Parent entered into a put/call agreement with one of the minority interest
partners in TFG L.P. to purchase such minority interest at any time through May
1, 2030.
As part of the acquisitions of Desert Resorts and Doral, the Company paid
fees of approximately $6,300 during 1994 to a stockholder of the Parent for
services provided in the acquisitions.
12. EXTRAORDINARY ITEMS
In October 1994, the Company recorded an extraordinary loss of approximately
$2,200 in connection with the early retirement of approximately $34,400
principal amount of notes which were retired from the proceeds of new term
loans. The loss consisted primarily of the write-off of previously deferred
financing costs associated with debt that was retired.
On December 20, 1995, the Company completed a negotiated compromise debt
settlement with the lender which provided financing for the various properties
acquired by Desert Resorts. As a result of this
F-20
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
12. EXTRAORDINARY ITEMS (CONTINUED)
settlement, the Company retired debt totaling $199,687 for a payment of $148,500
which resulted in an extraordinary gain of $51,187, which was offset by $2,930
of debt forgiveness to KSL Land (Note 11). For financial statement purposes,
after net interest forgiveness of $953, transaction costs of $333 and deferred
income taxes of $16,757, the net gain on extinguishment of debt was $32,120. For
federal income taxes, this gain is treated as an adjustment of the original
purchase price of the related assets and, therefore, results in a deferred
long-term income tax liability.
On April 30, 1997, the Company expensed the net deferred financing costs,
prepayment fees and other costs, which aggregated approximately $5,145 related
to the debt that was extinguished as a result of the Refinancings. Such amount
is reflected as an extraordinary loss on early extinguishment of debt, net of
income tax benefit of $2,007, in the accompanying consolidated statements of
operations for the period ended April 30, 1997 (unaudited).
13. LOSS ON SALE OF GOLF COURSE FACILITY
During fiscal 1995, the Company sold one of the golf facilities included in
the Company's original acquisition of T.F.G. L.P. for approximately $2,100
resulting in a loss of approximately $2,700. In connection with the sale, the
Company received a note, collateralized by the facility sold for approximately
$1,900. The note receivable bears interest at prime plus 2% (10.25% at October
31, 1996), with an interest rate cap of 11%. Interest was deferred and added to
principal until January 1996, at which time monthly interest-only payments
began. In October 1996, the note was modified by the parties to defer interest
payments from November 1996 to March 1997 and add accrued interest to principal.
Interest-only payments resumed in April 1997. Monthly principal and interest
payments of $20 are due beginning July 1997 through the maturity date of the
note in July 2002.
F-21
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
14. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ----------
For the year ended October 31, 1996:
Revenues................................................ $ 45,602 $ 60,949 $ 36,256 $ 37,467 $ 180,274
Operating income (loss)................................. 5,103 15,893 (2,862) (3,353) 14,781
Net income (loss)....................................... 31,346 9,769 (10,563) (11,012) 19,540
Earnings (loss) per share............................... 31,346 9,769 (10,563) (11,012) 19,540
For the year ended October 31, 1995:
Revenues................................................ 41,738 53,512 32,714 30,287 158,251
Operating income (loss)................................. 3,293 11,062 (2,719) (7,000) 4,636
Net income (loss)....................................... 281 5,589 (10,321) (11,879) (16,330)
Earnings (loss) per share............................... 281 5,589 (10,321) (11,879) (16,330)
</TABLE>
15. SUBSEQUENT EVENTS
LAKE LANIER TRANSACTION
On May 15, 1996, the Company through its subsidiary, KSL Lake Lanier, Inc.,
entered into a management agreement with Lake Lanier Islands Development
Authority (LLIDA), a State of Georgia agency, to manage the facilities at Lake
Lanier Islands (a golf, hotel and recreation complex) which LLIDA leases from
the United States Army Corps of Engineers (the Corps). LLIDA's intent is to
privatize the management and operation of Lake Lanier Islands through a sublease
arrangement. Due to the need for third party consents and approvals, LLIDA and
the Company entered into the management agreement as an interim step to the
sublease. At the closing of the sublease, the management agreement provides that
LLIDA and the Company will be placed in the same economic position as if the
sublease transaction had closed on May 15, 1996. Accordingly, at the closing of
the sublease, the Company will be credited with the net earnings (as defined) of
the operations from May 15, 1996 to such date less amounts earned by the Company
pursuant to the management agreement. Such net amount to be paid to or by the
Company will be recognized as an adjustment to the recorded values of the assets
leased pursuant to the sublease.
In February 1997, the Company closed in escrow the sublease of Lake Lanier
Islands and an agreement to purchase certain fixed assets for $9,000. The
sublease is being held in escrow pending approval of the Company's master
development plan, a finding of no significant impact under the National
Environmental Policy Act and the completion of exhibits and transfer documents.
The Company currently anticipates that it will close the sublease in July 1997
and the management agreement has been extended to the close of the sublease. The
sublease expires in 2046. The sublease will be accounted for as a capital lease.
Accordingly, the Company will record the net assets acquired pursuant to the
sublease and will
F-22
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
15. SUBSEQUENT EVENTS (CONTINUED)
recognize the net present value of the related minimum lease payments. The
sublease is guaranteed by the Parent.
The minimum payments due under the capital lease, as of the economic
effective date of the sublease, May 15, 1996, are summarized as follows:
<TABLE>
<CAPTION>
UNAUDITED
-----------
<S> <C>
Period from May 15, 1996 to October 31, 1996.......................................................... $ 1,421
Year ending October 31:
1997................................................................................................ 3,100
1998................................................................................................ 3,100
1999................................................................................................ 3,100
2000................................................................................................ 3,100
2001................................................................................................ 3,146
Thereafter.......................................................................................... 142,533
-----------
Total minimum lease payments.......................................................................... 159,500
Less amounts representing interest.................................................................... (128,163)
-----------
Present value of minimum lease payments............................................................... $ 31,337
-----------
-----------
</TABLE>
In April 1997, the Parent contributed $9,000 in cash to the Company to fund
the purchase of certain equipment and other fixed assets used in the operation
of the Lake Lanier Islands facilities that will not be leased pursuant to the
sublease. Under the terms of the sublease, the Company is required to make
monthly base lease payments of $250, or $3,000 annually. An additional annual
payment equal to 3.5% of gross revenues in excess of $20,000 is also payable
pursuant to the sublease, with a minimum of $100 in years one through five and
$200 in years six through 50. Pursuant to the sublease, the Company is required
to spend 5% of annual gross revenues on capital replacement and improvements,
with carryover provisions allowing all or some portion of these amounts to be
deferred to subsequent years. In addition, the Company has committed to expend
$5,000 over the first five years of the sublease for the development and
construction of new capital projects. Approximately $3,600 of capital
improvements are under development as of June 1997 and are being funded by the
State of Georgia on a non-interest bearing advance that will be repaid by the
Company upon closing of the sublease, and approximately $1,765 will be applied
against the Company's $5,000 capital investment requirement.
PLANNED TRANSACTIONS
In May 1997, the Company, through its Parent, entered into a nonbinding
letter of intent to acquire a resort property for a purchase price of $45
million. In the event the Company proceeds with such acquisition, it is expected
that the purchase price would be financed under the revolving credit portion of
the new credit facility.
F-23
<PAGE>
[The inside back cover has a map of the United States and a listing of the
various locations of the Company's properties. The overleaf consists of eleven
photographs with various depictions of the Company's facilities.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO EXCHANGE THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 21
Use of Proceeds........................................................... 29
Capitalization............................................................ 30
Selected Consolidated Historical Financial Data........................... 31
Selected Historical Financial Data--The Predecessors...................... 33
Unaudited Pro Forma Consolidated Financial Statements..................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 41
Business.................................................................. 51
Management................................................................ 68
Beneficial Ownership of Common Stock...................................... 75
Certain Related Transactions.............................................. 76
Description of Certain Indebtedness....................................... 78
The Exchange Offer........................................................ 80
Description of Exchange Notes............................................. 90
Certain U.S. Federal Income Tax Consequences.............................. 129
Plan of Distribution...................................................... 129
Legal Matters............................................................. 129
Experts................................................................... 130
Available Information..................................................... 130
Index to Consolidated Financial Statements................................ F-1
</TABLE>
[LOGO]
OFFER TO EXCHANGE $125,000,000 OF ITS 10 1/4% SERIES B SENIOR SUBORDINATED NOTES
DUE 2007, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR $125,000,000
OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
a. permissive indemnification for expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to litigation other than
stockholder derivative actions if certain conditions are met;
b. permissive indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are parties to
stockholder derivative actions if certain conditions are met;
c. mandatory indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are successful on
the merits or otherwise in defense of litigation covered by a. and b. above;
and
d. that the indemnification provided for by Section 145 is not deemed
exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.
The Registrant's certificate of incorporation, as amended (the "Certificate
of Incorporation") and by-laws provide that the Registrant shall indemnify its
officers, directors, employees and agents to the extent permitted by the
indemnification provisions of the DGCL described above.
The Certificate of Incorporation limits the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of the
duty as a director, other than liability as a director (i) for breach of duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (certain illegal distributions), or
(iv) for any transaction for which the director derived an improper personal
benefit.
The Registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance of
their duties.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b)
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING COST AND NET CREDIT END OF
OF PERIOD EXPENSES LOSSES PERIOD
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
ACCOUNTS RECEIVABLE
Fiscal Year ended October 31, 1994......................... $ 92 477 -- $ 569
Fiscal Year ended October 31, 1995......................... $ 569 425 (425) $ 569
Fiscal Year ended October 31, 1996......................... $ 569 1,433 (429) $ 1,573
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-2
<PAGE>
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed to be underwriters, in addition to the information called for
by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on July 9, 1997.
KSL RECREATION GROUP, INC.
By: /s/ MICHAEL S. SHANNON
-----------------------------------------
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of KSL Recreation Group, Inc., do
hereby constitute and appoint John K. Saer, Jr. and Nola S. Dyal, or either of
them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and on our behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said Corporation to comply with the Securities
Act of 1933 and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto and we do hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on the 9th day of July, 1997 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
/s/ MICHAEL S. SHANNON Executive Officer and
- ------------------------------ Director (Principal
Michael S. Shannon Executive Officer)
Vice President, Chief
/s/ JOHN K. SAER, JR. Financial Officer
- ------------------------------ (Principal Financial and
John K. Saer, Jr. Accounting Officer) and
Treasurer
/s/ HENRY R. KRAVIS
- ------------------------------ Director
Henry R. Kravis
/s/ GEORGE R. ROBERTS
- ------------------------------ Director
George R. Roberts
/s/ PAUL E. RAETHER
- ------------------------------ Director
Paul E. Raether
/s/ MICHAEL T. TOKARZ
- ------------------------------ Director
Michael T. Tokarz
/s/ SCOTT M. STUART
- ------------------------------ Director
Scott M. Stuart
/s/ ALEXANDER NAVAB
- ------------------------------ Director
Alexander Navab
- ------------------------------ Director
Larry E. Lichliter
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
*1 Senior Subordinated Notes Purchase Agreement dated April 30, 1997 among KSL Recreation Group, Inc. and
Donaldson Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, Credit Suisse First Boston
Corporation, BancAmerica Securities, Inc., Montgomery Securities and Scotia Capital Markets.
*3.1 Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company.
*4.1 Senior Subordinated Notes Indenture, dated as of April 30, 1997, among KSL Recreation Group, Inc. and
First Trust of New York National Association, Trustee.
*4.2 Form of 10 1/4% Senior Subordinated Note due 2007. (Included as part of Senior Subordinated Notes
Indenture filed as Exhibit 4.1 hereto).
*4.3 Form of 10 1/4% Series B Senior Subordinated Note due 2007. (Included as part of Senior Subordinated
Notes Indenture filed as Exhibit 4.1 hereto).
*4.4 Senior Subordinated Notes Registration Rights Agreement, dated as of April 30, 1997, by and among KSL
Recreation Group, Inc. and Donaldson Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc,
Credit Suisse First Boston Corporation, BancAmerica Securities, Inc., Montgomery Securities and Scotia
Capital Markets.
*5.1 Opinion of Simpson Thacher & Bartlett.
*10.1 Credit Agreement, dated as of April 30, 1997, among KSL Recreation Group, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, as a co-syndication agent and documentation agent, The Bank of Nova
Scotia, as a co-syndication agent and administrative agent, and BancAmerica Securities, Inc., as
syndication agent.
*10.2 Sublease, executed between Lake Lanier Islands Development Authority and KSL Lake Lanier, Inc.
*10.3 Management Agreement, effective as of May 16, 1996, by and between Lake Lanier Islands Development
Authority and KSL Lake Lanier, Inc.
*10.4 License Agreement, dated March 5, 1984, between The Professional Golfer's Association and LML
Development Corp. of California as assigned by the Assignment and Assumption Agreement, dated December
24, 1993, by and between Landmark Land Company of California, Inc. and KSL Landmark Corporation.
*10.5 Trademark Agreement, dated January 10, 1985, between PGA Tour, Inc. and Landmark Land Company of
California, Inc. as assigned by the Assignment and Assumption Agreement, dated December 24, 1993, by and
between Landmark Land Company of California, Inc. and KSL Landmark Corporation.
*10.6 Assignment and Assumption Agreement, dated December 24, 1993, by and between Landmark Land Company of
California, Inc. and KSL Landmark Corporation.
*10.7 License Agreement, dated December 30, 1993, among Carol Management Corporation, C.A.H. Spa of Florida
Corp., KSL Hotel Corp. and KSL Spa Corp. (subsequently merged into KSL Hotel Corp.).
*10.8 KSL Recreation Corporation 1995 Stock Purchase and Option Plan.
*10.9 Form of KSL Recreation Corporation Common Stock Purchase Agreement.
*10.10 Form of KSL Recreation Corporation Non-Qualified Stock Option Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
*10.11 Expense Allocation Agreement, dated April 30, 1997, between KSL Recreation Corporation and KSL
Recreation Group, Inc.
*10.12 Tax Sharing Agreement and Amendment to Tax Sharing Agreement, dated April 30, 1997, by and between KSL
Recreation Corporation, KSL Recreation Group, Inc., KSL Landmark Corporation, KSL Desert Resorts, Inc.,
KSL Vacation Resorts, Inc., Xochimilco Properties, Inc., Wild West Desert Properties, Inc., KSL Travel,
Inc., KSL Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL Florida Holdings, Inc., KSL Hotel
Corp., KSL Georgia Holdings, Inc., KSL Lake Lanier, Inc., KSL Land Corporation and KSL Land II
Corporation.
*11 Computation of Earnings (Loss) Per Share
*12 Computation of ratio of earnings to fixed charges.
*21 List of Subsidiaries of the Company.
23.1 Consent of Simpson Thacher & Bartlett (Included as part of its opinion filed as Exhibit 5.1 hereto).
*23.2 Consent of Deloitte & Touche LLP, independent auditors.
24 Powers of Attorney (included on page II-4).
*25 Statement of Eligibility of First Trust of New York National Association on Form T-1.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
*Filed herewith.
<PAGE>
Exhibit 1.1
EXECUTION COPY
KSL Recreation Group, Inc.
$125,000,000
10 1/4% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
April 24, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA SECURITIES, INC.
MONTGOMERY SECURITIES
SCOTIA CAPITAL MARKETS (USA) INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
KSL Recreation Group, Inc., a Delaware corporation (the "Issuer"),
proposes to issue and sell $125,000,000 in aggregate principal amount of its 10
1/4% Senior Subordinated Notes due 2007 (the "Securities"). The Securities are
to be issued pursuant to an Indenture (the "Indenture") to be dated the Closing
Date (as defined in Section 3 hereof), between the Issuer and First Trust of New
York, National Association, as trustee (the "Trustee"). The Issuer hereby
confirms its agreement with Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), Salomon Brothers Inc, Credit Suisse First Boston Corporation,
BancAmerica Securities, Inc., Montgomery Securities and Scotia Capital Markets
(USA) Inc. (collectively the "Initial Purchasers") with respect to the sale by
the Issuer of the Securities to the Initial Purchasers, subject to the terms and
conditions set forth in this purchase agreement (the "Agreement").
The proceeds to the Issuer from the sale to the Initial Purchasers of
the Securities, together with a portion of the proceeds from initial borrowings
under the New Credit Facility (as defined in the Offering Memorandum), will be
used to repay outstanding borrowings under (i) that certain credit agreement,
dated April 5, 1996, among and between the various parties listed therein,
including Tiger Desert Funding Corp. and KSL Landmark Corporation, a Delaware
corporation ("KSL Landmark," and together with its subsidiaries, "Desert
Resorts"), as amended (the "Desert Resorts Credit Facility"), (ii) that certain
credit facility, dated December 30, 1993, among and between the various parties
listed therein, including the Bank of Nova Scotia, as agent for the Lenders, and
KSL Florida Holding, Inc., a Delaware corporation ("Florida Holdings," and
together with its subsidiaries, "Doral"), as amended (the "Doral Credit
Facility"), and (iii) that certain credit facility, dated October 20, 1994,
among and between the various parties listed therein, including the Bank of
America N.T. & S.A., as agent for the Lenders (as defined therein) and The
Fairways Group L.P., an 88.15% owned subsidiary of KSL Golf Holdings, Inc., a
Delaware corporation ("Golf Holdings," and together with its subsidiaries,
"Fairways"), as amended (the "Fairways Credit Facility") (the repayments of the
amounts outstanding under the Desert Resorts Credit
<PAGE>
2
Facility, the Doral Credit Facility and the Fairways Credit Facility on the
Closing Date are collectively referred to herein as the "Refinancings") and
otherwise pursuant to the sources and uses table set forth under "Use of
Proceeds" in the Offering Memorandum. As of the date hereof and immediately
prior to the consummation of the Refinancings and the Concurrent Transactions
(as defined in the Offering Memorandum), all of the outstanding common stock of
each of the Issuer, KSL Landmark, Florida Holdings, Golf Holdings and KSL
Georgia Holdings, Inc., a Delaware corporation ("Georgia Holdings" and, together
with its subsidiaries, "Lake Lanier") (the Issuer, Desert Resorts, Doral,
Fairways and Lake Lanier are collectively referred to herein as the "Combined
Group"), is directly owned 100% by KSL Recreation Corporation ("Recreation"). In
connection with the Concurrent Transactions and simultaneously with the
consummation of the Refinancings, Recreation will contribute all of the
outstanding common stock of KSL Landmark, Florida Holdings, Golf Holdings and
Georgia Holdings to the Issuer, resulting in the ownership by the Issuer of 100%
of the outstanding common stock of each of KSL Landmark, Florida Holdings, Golf
Holdings and Georgia Holdings, and Recreation will continue to own 100% of the
outstanding common stock of the Issuer (the "Corporate Reorganization").
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on one or more exemptions therefrom. The Issuer
has prepared a preliminary offering memorandum dated April 9, 1997 (such
preliminary offering memorandum being hereinafter referred to as the
"preliminary offering memorandum") and an offering memorandum dated April 24,
1997 (such offering memorandum, in the form first furnished to the Initial
Purchasers being hereinafter referred to as the "Offering Memorandum"), setting
forth information regarding the Combined Group and the Securities for use in
connection with the offering of the Securities. Copies of the preliminary
offering memorandum have been, and copies of the Offering Memorandum will be,
delivered by the Issuer to the Initial Purchasers pursuant to the terms of this
Purchase Agreement. Any references herein to the preliminary offering memorandum
and the Offering Memorandum shall be deemed to include all amendments and
supplements thereto, unless otherwise noted. The Issuer hereby confirms that it
has authorized the use of the preliminary offering memorandum and the Offering
Memorandum in connection with the offering and sale of the Securities pursuant
hereto.
Holders (including subsequent transferees) of the Securities will
have the registration rights set forth in the Registration Rights Agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as any such Securities constitute
"Registrable Notes" (as defined in the Registration Rights Agreement). Pursuant
to the Registration Rights Agreement, the Issuer will agree to file with the
Securities and Exchange Commission (the "Commission") (i) a registration
statement under the Securities Act (the "Exchange Offer Registration Statement")
registering the issuance of senior subordinated notes (the "Exchange
Securities") identical in all material respects to the Securities (except that
the Exchange Securities will not contain terms with respect to transfer
restrictions) in exchange for the Securities (the "Exchange Offer") and (ii)
under certain circumstances, a shelf registration statement pursuant to Rule 415
under the Securities Act (the "Shelf Registration Statement").
The Issuer is advised by the Initial Purchasers that the Initial
Purchasers will make offers (the "Exempt Resales") of the Securities purchased
by the Initial Purchasers hereunder on the terms set forth in the Offering
Memorandum solely to (i) persons which the Initial Purchasers reasonably believe
to be "qualified institutional buyers" as defined in Rule 144A under the
Securities Act, (ii) a limited number of other institutional "accredited
investors," as defined in Rule 501(a) (1), (2), (3) and (7) under
<PAGE>
3
the Securities Act (an "Accredited Institution"), that make certain
representations and agreements to the Company and (iii) to non-U.S. persons
outside the United States in reliance upon Regulation S under the Securities Act
(such persons specified in clauses (i), (ii) and (iii) being referred to herein
as the "Eligible Purchasers").
Capitalized terms used herein without definition have the respective
meanings specified therefor in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Issuer. The
Issuer represents and warrants to and agrees with the Initial Purchasers as of
the date hereof and as of the Closing Date that:
(a) Each of the preliminary offering memorandum and the Offering
Memorandum, as of its respective date, contains all the information that,
if requested by a prospective purchaser, would be required to be provided
pursuant to Rule 144A(d)(4) under the Securities Act. Each of the
preliminary offering memorandum and the Offering Memorandum, as of its
respective date, did not, and at the Closing Date, the Offering Memorandum
and any amendment or supplement thereto will not, contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The preceding sentence does not
apply to information contained in or omitted from the preliminary offering
memorandum or the Offering Memorandum (or any supplement or amendment
thereto) in reliance upon and in conformity with written information
relating to the Initial Purchasers furnished to the Issuer by or on behalf
of the Initial Purchasers specifically for use therein (the "Initial
Purchasers' Information"). The parties acknowledge and agree that the
Initial Purchasers' Information consists solely of the last paragraph of
text on the cover page of the Offering Memorandum, the stabilization
legend on page six of the Offering Memorandum and the third paragraph, the
fourth, fifth and sixth sentences of the sixth paragraph and the seventh
paragraph under the caption "Plan of Distribution" in the Offering
Memorandum.
(b) Each entity within the Combined Group has been and, after giving
effect to the Concurrent Transactions, each of the Issuer and its
subsidiaries (all of which are listed on Schedule II hereto,
(collectively, the "Subsidiaries")) is duly incorporated or formed, and
validly existing, in good standing under the laws of their respective
jurisdictions of organization. Each entity within the Combined Group is,
and, after giving effect to the Concurrent Transactions each of the Issuer
and the Subsidiaries is, duly qualified to do business and in good
standing as a foreign corporation or limited partnership in each
jurisdiction in which such entity's ownership or leasing of property or
the conduct of such entity's business requires such qualification, and has
and, after giving effect to the Concurrent Transactions, will have, all
power and authority necessary to own or hold such entity's respective
properties and to conduct the business in which such entity is engaged as
described in the Offering Memorandum, except where the failure to so
qualify or have such power or authority would not have, singly or in the
aggregate, a material adverse effect on the financial condition, results
of operations or business of, prior to the Concurrent Transactions, the
Combined Group, taken as a whole, and, after giving effect to the
Concurrent Transactions, the Issuer and the Subsidiaries, taken as a whole
(a "Material Adverse Effect").
3
<PAGE>
4
(c) As of January 31, 1997, the Issuer has and, after giving effect
to the Concurrent Transactions, the Lake Lanier Transactions and the
Refinancings has, the capitalization as set forth in the Offering
Memorandum under the heading "Capitalization," and all the issued shares
of capital stock of the Issuer have been and, after giving effect to the
Concurrent Transactions, have been, duly and validly authorized and issued
and are and, after giving effect to the Concurrent Transactions, are fully
paid and nonassessable and have not been and, after giving effect to the
Concurrent Transactions, have not been issued in violation of any
preemptive or similar rights. The outstanding shares of capital stock of
each Subsidiary (other than The Fairways Group, L.P., a Delaware limited
partnership (the "Fairways Partnership")) have been, and, after giving
effect to the Concurrent Transactions, have been validly authorized and
issued and fully paid and nonassessable, and, after giving effect to the
Concurrent Transactions and the Refinancings, are, owned, directly or
indirectly through one or more Subsidiaries, by the Issuer free and clear
of any lien (other than any lien on such capital stock pursuant to the New
Credit Facility), charge, encumbrance, security interest, restriction upon
voting or transfer or any other claim of any third party and have not been
issued in violation of any preemptive or similar rights. After giving
effect to the Concurrent Transactions, the Issuer owns, directly or
indirectly through one or more Subsidiaries, 88.15% of the outstanding
partnership interests of the Fairways Partnership (the "Fairways
Partnership Interest"); Golf Holdings owns 100% of KSL Fairways Golf
Corporation which is, and after giving effect to the Concurrent
Transactions, is, the only managing general partner of the Fairways
Partnership and owns, and after giving effect to the Concurrent
Transactions, owns an 88.15% partnership interest in the Fairways
Partnership (the "Partnership Interest"); such Partnership Interest is,
and after giving effect to the Concurrent Transactions, is duly authorized
by the partnership agreement with respect to the Fairways Partnership, and
is and, after giving effect to the Concurrent Transactions, is validly
issued and fully paid, and is, and after giving effect to the Concurrent
Transactions, is, owned by KSL Fairways Golf Corporation free and clear of
any lien (other than, after giving effect to the Concurrent Transactions
and the Refinancings, any lien on such partnership interests pursuant to
the New Credit Facility), charge, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third party,
except for limitations on transfer set forth in the partnership agreement
related thereto. With respect to equity interests of the Subsidiaries
(including without limitation the Fairways Partnership Interest) owned
directly or indirectly by the Issuer, there are not and, after giving
effect to the Concurrent Transactions, there are not, any outstanding
subscriptions, rights, warrants, calls, commitments of sale or options to
acquire, or instruments convertible into or exchangeable for any such
equity interests.
(d) Each of this Agreement, the Indenture and the Registration Rights
Agreement has been duly authorized by the Issuer. This Agreement
constitutes, and each of the Indenture and Registration Rights Agreement,
when duly executed and delivered in accordance with their terms by each
party thereto, will constitute, a valid and legally binding agreement of
the Issuer, enforceable against the Issuer in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and to general equitable principles
(regardless of whether enforcement is considered in a proceeding in equity
or at law). At the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
4
<PAGE>
5
(e) On the Closing Date, the Securities will have been duly
authorized by the Issuer, and the Securities, the Indenture and the
Registration Rights Agreement will have been duly executed by the Issuer
and will conform in all material respects to the descriptions thereof
contained in the Offering Memorandum. When the Securities are issued,
authenticated and delivered in accordance with the Indenture and paid for
in accordance with the terms of this Agreement (assuming due
authorization, execution and delivery of the Indenture by the Trustee and
due authentication of the Securities by the Trustee), the Securities will
constitute valid and legally binding obligations of the Issuer,
enforceable against the Issuer in accordance with their terms and entitled
to the benefits of the Indenture, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally, and to
general equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(f) On the Closing Date, the Exchange Securities will have been duly
authorized by the Issuer and will conform in all material respects to the
descriptions thereof contained in the Offering Memorandum. When the
Exchange Securities are issued, authenticated and delivered in accordance
with the Indenture (assuming due authorization, execution and delivery of
the Indenture by the Trustee and due authentication of the Securities by
the Trustee), the Exchange Securities will constitute valid and legally
binding obligations of the Issuer, enforceable against the Issuer in
accordance with their terms and entitled to the benefits of the Indenture,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally, and to general equitable principles
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
(g) The execution, delivery and performance of the Indenture, the
Securities, the Exchange Securities, the Registration Rights Agreement,
the New Credit Facility and this Agreement by the Issuer, the consummation
of the transactions contemplated hereby and thereby and the fulfillment of
the terms hereof or thereof, does not, after giving effect to the
Concurrent Transactions and the Refinancings, conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets (other than any lien pursuant
to the New Credit Facility) of the Issuer or any Subsidiary, pursuant to
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Issuer or any Subsidiary is a party or is bound
or to which any of their respective properties or assets is subject, nor
will such actions result in any violation of the provisions of the charter
or by-laws or similar document of the Issuer or any Subsidiary, or any
statute or any judgment, order, decree, rule or regulation of any court or
arbitrator or governmental agency or body having jurisdiction over the
Issuer or any Subsidiary or any of their respective properties or assets,
except for any such conflict, breach, violation, default, lien, charge or
encumbrance that would not have a Material Adverse Effect; and no consent,
approval, authorization or order of, or filing or registration with, any
such court or arbitrator or governmental agency or body under any such
statute, judgment, order, decree, rule or regulation is required for the
execution, delivery and performance of the Indenture, the Securities, the
Exchange Securities, the Registration Rights Agreement, the New Credit
Facility or this Agreement by the Issuer or any Subsidiary, or the
consummation of the transactions contemplated hereby and thereby which
shall not have been obtained or made on or prior to the Closing Date
(other than such consents, approvals, authorizations or orders of, or
filings or
5
<PAGE>
6
registrations with, the Commission or any state securities regulatory
authorities as may be required to be obtained or made pursuant to this
Agreement or the Registration Rights Agreement).
(h) Deloitte & Touche LLP are independent certified public
accountants with respect to the Combined Group prior to the Concurrent
Transactions and the Issuer and its Subsidiaries after giving effect to
the Concurrent Transactions, (i) within the meaning of Rule 101 of the
Code of Professional Conduct of the American Institute of Certified Public
Accountants ("AICPA") and its interpretations and rulings thereunder and
(ii) as required by the Securities Act and the rules and regulations
thereunder for financial statements included in a definitive prospectus
forming part of a registration statement on Form S-1 under the Securities
Act. The historical financial statements (including the related notes)
included in the preliminary offering memorandum and the Offering
Memorandum comply in all material respects with the requirements
applicable to a Registration Statement on Form S-1 (except that (i) no
financial statement schedules are included therein and (ii) certain
financial information with respect to certain predecessors has been
excluded for 1992 and 1993 with the written approval of the staff of the
Commission (the "Staff"), as set forth in a letter from the Staff to the
Issuer, dated April 4, 1997) and have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
such periods, and fairly present in all material respects, the financial
position of the Combined Group on a combined basis at the respective dates
indicated and the results of their operations and cash flows for the
respective periods indicated, subject in the case of unaudited combined
financial statements to year-end audit adjustments, in accordance with
generally accepted accounting principles consistently applied throughout
such periods, except as otherwise disclosed therein; and the other
historical financial information and financial data set forth in the
Offering Memorandum, including the information set forth under the
captions "Summary--Summary Historical Combined Financial Combined Data,"
"Capitalization," "Selected Combined Historical Financial," Selected
Historical Financial Data--The Predecessors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
derived from the accounting records of the Combined Group (including its
predecessors) and fairly present in all material respects the data
purported to be shown. The other historical financial and statistical
information and data included in the preliminary offering memorandum and
the Offering Memorandum are, in all material respects, accurately
presented.
(i) The pro forma financial statements contained in the preliminary
offering memorandum and the Offering Memorandum have been prepared on a
basis consistent with the historical statements referred to in (h) above,
except for the pro forma adjustments specified therein, and (i) include
all material adjustments to the historical financial data required by Rule
11-02 of Regulation S-X necessary to reflect the Lake Lanier Transaction,
the Concurrent Transactions and the Refinancings, (ii) give effect to the
assumptions made on a reasonable basis, (iii) present fairly in all
material respects in accordance with generally accepted accounting
principles consistently applied throughout such periods, the historical
and proposed transactions contemplated by the preliminary offering
memorandum, the Offering Memorandum and this Agreement and (iv) comply in
all material respects with the requirements of Rule 11-01 and 11-02 of
Regulation S-X (assuming for purposes of this paragraph (i) that such
rules are applicable to the preliminary offering memorandum and the
Offering Memorandum); and the other pro forma financial information and
financial data set forth in the Offering Memorandum, including the
information set forth under the captions "Summary--Summary Pro Forma
Combined Financial
6
<PAGE>
7
Data," "Pro Forma Combined Financial Statements," are derived from the
accounting records of the Combined Group, and fairly present in all
material respects the data shown.
(j) There are no pending actions or suits or judicial, arbitral or
other administrative or other proceedings to which any entity within the
Combined Group is and, after giving effect to the Concurrent Transactions,
the Issuer or any Subsidiary is, a party or of which any property or
assets of any entity within the Combined Group or the Issuer or any
Subsidiary, as applicable, is the subject which, singly or in the
aggregate, if determined adversely to any entity within the Combined Group
are, and, after giving effect to the Concurrent Transactions, the Issuer
or any Subsidiary is, reasonably likely to have a Material Adverse Effect;
and to the Issuer's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or others.
(k) (A) No entity within the Combined Group is and, after giving
effect to the Concurrent Transactions, none of the Issuer or the
Subsidiaries is in violation of its charter or by-laws or similar
document, (B) no entity within the Combined Group is and, after giving
effect to the Concurrent Transactions and the Refinancings, none of the
Issuer or the Subsidiaries is in default in any respect, nor has any event
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which any entity
within the Combined Group is a party or by which such entity is bound or
to which any of their respective property or assets is subject or, after
giving effect to the Concurrent Transactions, to which the Issuer or any
Subsidiary is a party or by which any such entity will be bound or to
which any of their respective property or assets is subject and (C) no
entity within the Combined Group is and, after giving effect to the
Concurrent Transactions, none of the Issuer or the Subsidiaries is in
violation in any respect of any law, ordinance, governmental rule,
regulation or court decree to which any entity within the Combined Group
or their respective property or assets may be subject, or after giving
effect to the Concurrent Transactions, the Issuer or any Subsidiary or
their respective property or assets may be subject, except any violation
or default under clauses (B) or (C) that would not reasonably be expected
to have a Material Adverse Effect.
(l) Each entity within the Combined Group possesses and, after giving
effect to the Concurrent Transactions, the Issuer and the Subsidiaries
possess, all material licenses, certificates, authorizations and permits
issued by, and have made all declarations and filings with, the
appropriate state, federal or foreign regulatory agencies or bodies which
are necessary for the ownership of their respective properties or the
conduct of their businesses as described in the Offering Memorandum,
except where the failure to possess or make the same would not have,
singly or in the aggregate, a Material Adverse Effect, and neither any
entity within the Combined Group has received, and, after giving effect to
the Concurrent Transactions, neither the Issuer nor any Subsidiary have
received, notification of any revocation or modification of any such
license, authorization or permit and none of them has any reasonable basis
to believe that any such license, certificate, authorization or permit
will not be renewed.
(m) No entity within the Combined Group is, and, after giving effect
to the Concurrent Transactions, none of the Issuer or any Subsidiary, is
an "investment company" within the
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8
meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the rules and regulations of the Commission thereunder.
(n) Each entity within the Combined Group maintains and, after giving
effect to the Concurrent Transactions, the Issuer and the Subsidiaries,
maintain, insurance covering their respective properties, operations,
personnel and businesses, which insurance is in amounts and insures
against such losses and risks, in each case as is in accordance with
customary industry practice to protect their respective businesses. No
entity within the Combined Group has received and, after giving effect to
the Concurrent Transactions, neither the Issuer nor any Subsidiary have
received, notice from any insurer or agent of such insurer that capital
improvements or other expenditures will have to be made in order to
continue such insurance.
(o) No entity within the Combined Group has any securities, and,
after giving effect to the Concurrent Transactions, none of the Issuer or
any Subsidiary has any securities, registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or listed on a
national securities exchange or quoted in a U.S. automated inter-dealer
quotation system.
(p) Except as disclosed in the Offering Memorandum (including with
respect to this Agreement), no member of the Combined Group is, and, after
giving effect to the Concurrent Transactions, none of the Issuer or any
Subsidiary is, a party to any contract, agreement or understanding with
any person that would give rise to a valid claim against any entity within
the Combined Group or, after giving effect to the Concurrent Transactions,
the Issuer or any Subsidiary, or the Initial Purchasers for a brokerage
commission, finder's fee or like payment in connection with the offering
of the Securities.
(q) Each entity within the Combined Group owns or possesses, and,
after giving effect to the Concurrent Transactions, the Issuer and the
Subsidiaries own or possess, adequate rights to use all patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, other licenses and
know-how (including trade secrets and other unpatented or unpatentable
proprietary or confidential information, systems or procedures) necessary
for the conduct of their businesses, except where the failure to own or
possess such rights would not have a Material Adverse Effect; and each
entity within the Combined Group has, and, after giving effect to the
Concurrent Transactions, the Issuer and the Subsidiaries have, no
reasonable basis to believe that the conduct of their businesses will
conflict with any such rights of others which would reasonably be expected
to have a Material Adverse Effect, and no entity within the Combined Group
has received, and, after giving effect to the Concurrent Transactions,
none of the Issuer or any Subsidiary, have received, any notice of any
claim of conflict with any such rights of others which, if such assertion
of conflict were sustained, would have a Material Adverse Effect.
(r) Except as provided in the Offering Memorandum, each entity within
the Combined Group has, and, after giving effect to the Concurrent
Transactions, the Issuer and the Subsidiaries, have good and marketable
title, in fee simple to, or have valid rights to lease or otherwise use,
all items of real or personal property material to the business of
Combined Group, taken as a whole, or the Issuer and the Subsidiaries,
taken as a whole, as applicable, in each case free and clear of all liens,
encumbrances, claims, defects and imperfections of title (other than, in
the case
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9
of the Combined Group, pursuant to the Desert Resorts Credit Facility, the
Doral Credit Facility, the Fairways Credit Facility and seller financing
and, in the case of the Issuer and the Subsidiaries, pursuant to the New
Credit Facility) that would reasonably be expected to have a Material
Adverse Effect, it being understood that liens, encumbrances, claims,
defects and imperfections of title that do not materially interfere with
the use made or proposed to be made of such property would not reasonably
be expected to have a Material Adverse Effect.
(s) Except as would not reasonably be expected to have a Material
Adverse Effect, no entity within the Combined Group has and, after giving
effect to the Concurrent Transactions, none of the Issuer or its
Subsidiaries have, any liability for any prohibited transaction or funding
deficiency or any complete or partial withdrawal liability with respect to
any pension, profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which any
entity within the Combined Group or the Issuer or any Subsidiary, as
applicable, makes or ever has made a contribution and in which any
employee of each entity within the Combined Group or the Issuer or any
Subsidiary, as applicable, has ever been a participant. With respect to
such plans, each member of the Combined Group is, and, after giving effect
to the Concurrent Transactions, the Issuer and each of its Subsidiaries,
is in compliance with all applicable provisions of ERISA, except where any
non-compliance would not reasonably be expected to have a Material Adverse
Effect.
(t) There has been no storage, generation, transportation, handling,
treatment, disposal, discharge, emission, or other release of any kind of
toxic or other wastes or other hazardous substances by, due to, or caused
by any entity within the Combined Group or, after giving effect to the
Concurrent Transactions, the Issuer or any Subsidiary (or, to the best of
the Issuer's knowledge, any other entity for whose acts or omissions any
entity within the Combined Group or the Issuer or any Subsidiary, as
applicable, is or may reasonably be expected to be liable), upon any of
the property that is now or was previously owned or leased by any entity
within the Combined Group or that, after giving effect to the Concurrent
Transactions, is owned by the Issuer or any Subsidiary, or upon any other
property, (i) in violation of any statute or any ordinance, rule,
regulation, order, judgment, decree or permit or (ii) which would, under
any statute or any ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability,
except in the case of both clauses (i) and (ii) for any violation or
liability which would not have, singly or in the aggregate with all such
violations and liabilities, a Material Adverse Effect; there has been no
disposal, discharge, emission or other release of any kind onto such
property or into the environment surrounding such property of any toxic or
other wastes or other hazardous substances with respect to which any
entity within the Combined Group has, and, after giving effect to the
Concurrent Transactions, the Issuer or any Subsidiary, has knowledge,
except for any such disposal, discharge, emission or other release of any
kind which would not have, singly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect.
(u) All tax returns or application for extensions in relation to such
tax returns required to be filed by each entity within the Combined Group,
and, after giving effect to the Concurrent Transactions, each of Issuer
and the Subsidiaries in all jurisdictions have been so filed. All taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due or claimed to be due from such entities or that are due
and payable have been paid, other than those
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10
being contested in good faith and for which adequate reserves have been
provided or those currently payable without penalty or interest. There are
no proposed additional (i) state or local income tax or federal tax
assessments against any entity within the Combined Group or their assets
or property, or after giving effect to the Concurrent Transactions, the
Issuer or any Subsidiary or their assets or property or (ii) material
state or local franchise, sales or similar tax assessments against any
entity within the Combined Group or their assets or property, or after
giving effect to the Concurrent Transactions, the Issuer or any Subsidiary
or their assets or property.
(v) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Securities, the application of the
proceeds from the issuance and sale of the Securities and the consummation
of the transactions contemplated thereby as set forth in the Offering
Memorandum, will violate Regulations G, T, U or X promulgated by the Board
of Governors of the Federal Reserve System or analogous foreign laws and
regulations.
(w) Each entity within the Combined Group believes and, after giving
effect to the Concurrent Transactions, the Issuer and each of its
Subsidiaries believe, that all of the indebtedness being repaid in
connection with the Refinancings and the Concurrent Transactions was
incurred, and the indebtedness represented by the Securities is being
incurred, for proper purposes and in good faith and that each entity
within the Combined Group was, at the time of the incurrence of
indebtedness with respect to all acquisitions by such entity, and that
each such entity currently is and, after giving effect to the Concurrent
Transactions, the Refinancings and the Lake Lanier Transaction, the Issuer
and each of its Subsidiaries are, solvent, have sufficient capital for
carrying on each respective entity's business and are able to pay their
respective debts as they mature.
(x) The Issuer has delivered to the Initial Purchasers true and
correct executed copies of the Lake Lanier Islands Management Agreement
and there have been no material amendments, alterations, modifications or
waivers thereto (other than those as to which the Initial Purchasers shall
previously have been advised). The Lake Lanier Islands Management
Agreement is the valid and legally binding obligation enforceable against
Lake Lanier, and to the best of the Issuer's knowledge, each of the other
parties thereto, in accordance with its terms, except as such
enforceability may be limited by the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally, and to general
equitable principles (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(y) The Issuer has delivered to the Initial Purchasers true and
correct copies of the Sublease between Lake Lanier Islands Development
Authority, Sublessor and KSL Lake Lanier, Inc., Sublessee (the "Lake
Lanier Sublease"), substantially in the form of which the Issuer expects
will be in effect upon consummation of the Lake Lanier Transaction and
there have been no material amendments, alterations, modifications or
waivers thereto (other than those as to which the Initial Purchasers shall
previously have been advised). Upon the release from escrow of the
signature pages to the Lake Lanier Sublease, the Lake Lanier Sublease will
be the valid and legally binding obligation of each of the parties set
forth therein, enforceable against Lake Lanier, and to the best of the
Issuer's knowledge, each of the other parties thereto, in accordance with
its
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11
terms, except as such enforceability may be limited by the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights
generally, and to general equitable principles (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(z) Except as permitted by Regulation M under the Exchange Act,
neither any entity within the Combined Group, nor any of their respective
affiliated purchasers (as defined in Regulation M), either alone or with
one or more other persons, has bid for or purchased, for any account in
which it or any of its affiliated purchasers has a beneficial interest,
any Securities, or attempted to induce any person to purchase any
Securities; and neither it nor any of its affiliated purchasers has made
bids or purchases for the purpose of creating actual, or apparent, active
trading in the Securities or of raising the price of the Securities;
(aa) Neither any entity within the Combined Group nor any of their
respective affiliates (as such term is defined in Rule 501(b) under the
Securities Act) has, directly or through any agent, sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
"security" (as defined in the Securities Act), which is or will be
integrated with the sale of the Securities in a manner that would require
the registration of the Securities under the Securities Act.
(ab) Neither any entity within the Combined Group nor any of their
respective affiliates (as such term is defined in Rule 501(b) under the
Securities Act) or any other person acting on their behalf has engaged, in
connection with the offering of the Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act.
(ac) Assuming the accuracy of the Initial Purchasers' representations
in Section 2(b) hereof and their compliance with the agreements set forth
therein, it is not necessary in connection with the issuance and sale of
the Securities and the offer, resale and delivery of the Securities in the
manner contemplated by this Agreement and the Offering Memorandum, to
register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act.
(ad) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(ae) The Issuer has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M of the Exchange Act in
connection with the offering of the Securities.
(af) Except as described or summarized in the Offering Memorandum,
there are no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of
capital stock of or other equity interest in the Issuer.
(ag) Since the date as of which information is given in the Offering
Memorandum, other than as set forth in the Offering Memorandum, (A) there
has been no material adverse change or any development involving a
prospective material adverse change in the financial condition or in the
earnings or business of any entity within the Combined Group, taken as a
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12
whole, whether or not arising in the ordinary course of business and,
after giving effect to the Concurrent Transactions, no such change or
development with respect to the Issuer and the Subsidiaries, taken as a
whole, (B) there have been no transactions entered into by any entity
within the Combined Group which are material with respect to the Combined
Group, taken as a whole, and after giving effect to the Concurrent
Transactions, no such transaction with respect to the Issuer or the
Subsidiaries, taken as a whole, and (C) other than dividends or
distributions contemplated in connection with the Concurrent Transaction,
there has been no dividend or distribution of any kind declared, paid or
made by any entity within the Combined Group and, after giving effect to
the Concurrent Transactions, no dividend or distribution of any kind
declared, paid or made by the Issuer or the Subsidiaries.
(ah) Neither any entity within the Combined Group, nor any of its
affiliates or any person acting on their behalf has engaged or will engage
in any directed selling efforts within the meaning of Regulation S with
respect to the Securities, and each entity within the Combined Group and
their respective affiliates and all persons acting on their behalf have
complied with and will comply with the offering restrictions requirements
of Regulation S in connection with the offering of the Securities outside
the United States.
(ai) The Securities offered and sold in reliance on Regulation S have
been and will be offered and sold only in offshore transactions and such
securities have been and will be represented upon issuance by a global
security that may not be exchanged for definitive securities until the
expiration of the Restricted Period and only upon certification of
beneficial ownership of the securities by a non-U.S. person or a U.S.
person who purchased such securities in a transaction that was exempt from
the registration requirements of the Securities Act, which U.S. person
will acquire an interest in a Registrable Note (as defined in the
Registration Rights Agreement).
(aj) The sale of the Securities pursuant to Regulation S is not part
of a plan or scheme to evade the registration provisions of the Securities
Act.
2. Purchase by the Initial Purchasers. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Issuer agrees to issue and sell to
the Initial Purchasers and the Initial Purchasers, severally and not jointly,
agree to purchase from the Issuer such respective principal amounts of
Securities as are set forth opposite the name of such Initial Purchaser in
Schedule I hereto at a purchase price equal to 97.25% of the principal amount
thereof, plus accrued interest, if any, from April 30, 1997, to the Closing
Date.
The Issuer shall not be obligated to deliver any of the Securities
except upon payment for all of the Securities to be purchased as provided
herein.
(b) Each Initial Purchaser represents and warrants to the Issuer as
follows:
(i) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in
financial and business matters as are necessary in order to evaluate the
merits and risks of an investment in the Securities.
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(ii) Such Initial Purchaser (A) is not acquiring the Securities with
a view to any distribution thereof or with any present intention of
offering or selling any of the Securities in a transaction that would
violate the Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction and (B) will be
reoffering and reselling the Securities only to QIBs in reliance on the
exemption from the registration requirements of the Securities Act
provided by Rule 144A, to not more than ten Accredited Institutions that
execute and deliver a letter containing certain representations and
agreements in the form attached as Annex A to the Offering Memorandum and
to non-U.S. persons outside the United States in offshore transactions in
reliance upon Regulation S under the Securities Act.
(iii) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) has been or will be used by such Initial
Purchaser or any of its representatives in connection with the offer and
sale of any of the Securities, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or
similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or
general advertising.
(iv) Such Initial Purchaser agrees that, in connection with the
Exempt Resales, such Initial Purchaser will solicit offers to buy the
Securities only from, and will offer to sell the Securities only to
Eligible Purchasers. Each Initial Purchaser further agrees that it will
offer to sell the Securities only to, and will solicit offers to buy the
Securities only from, persons who in purchasing such Securities will be
deemed to have represented and agreed (1) if such Eligible Purchaser is a
QIB, that they are purchasing the Securities for their own accounts or
accounts with respect to which they exercise sole investment discretion
and that they or such accounts are QIBs, (2) that the seller of such
Securities may be relying on the exemption from the provisions of Section
5 of the Securities Act provided by Rule 144A thereunder and that such
Securities will not have been registered under the Securities Act and (A)
that such Securities may be resold, pledged or otherwise transferred, only
(i) (w) inside the United States to a person who the seller reasonably
believes is a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of
Rule 144A, (x) in a transaction meeting the requirements of Rule 144 under
the Securities Act, (y) outside the United States in a transaction meeting
the requirements of Rule 903 or 904 of Regulation S under the Securities
Act or (z) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
if the Issuer so requests), (ii) to the Issuer, (iii) or pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction, and (B) the holder will, and each subsequent
holder is required to, notify any purchaser from it of the security
evidenced thereby of the resale restrictions set forth in (A) above.
(v) Such Initial Purchaser agrees that it has offered the Securities
and will offer and sell the Securities (i) as part of its distribution at
any time and (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the Closing Date, only
in accordance with Rule 903 of Regulation S or another exemption from the
registration requirements of the Securities Act. Accordingly, neither such
Initial Purchaser, its affiliates nor any persons acting on its or their
behalf has engaged or will engage in any directed selling efforts within
the
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14
meaning of Rule 901(b) of Regulation S with respect to the Securities, and
such Initial Purchaser, its affiliates and all persons acting on its or
their behalf have complied and will comply with the offering restrictions
requirements of Regulation S.
(vi) Such Initial Purchaser agrees that the Securities offered and
sold in reliance on Regulation S have been and will be offered and sold
only in offshore transactions and that such securities have been and will
be represented upon issuance by a global security that may not be
exchanged for definitive securities until the expiration of the Restricted
Period and only upon certification of beneficial ownership of the
securities by a non-U.S. person or a U.S. person who purchased such
securities in a transaction that was exempt from the registration
requirements of the Securities Act, which U.S. person will acquire an
interest in a Registrable Note (as defined in the Registration Rights
Agreement).
(vii) Such Initial Purchaser agrees that, at or prior to confirmation
of a sale of Securities, it will have sent to each distributor, dealer or
person receiving a selling concession, fee or other remuneration that
purchases Securities from it during the Restricted Period a confirmation
or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered and sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the Offering and the Closing Date,
except in either case in accordance with Regulation S (or Rule 144A
or to Accredited Investors in transactions that are exempt from the
registration requirements of the Securities Act) under the Securities
Act. Terms used above have the meanings assigned to them in
Regulation S."
Such Initial Purchaser further agrees that it has not entered and
will not enter into any contractual arrangement with respect to the
distribution or delivery of the Securities, except with its affiliates or
with the prior written consent of the Issuer.
(viii) Such Initial Purchaser further represents and agrees that (1)
it has not offered or sold and will not offer or sell any Securities to
persons in the United Kingdom prior to the expiry of the period of six
months from the issue date of the Securities, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995, (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be
issued or passed on.
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15
(ix) Such Initial Purchaser agrees that it will not offer, sell or
deliver any of the Securities in any jurisdiction outside the United
States except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its own expense whatever
action is required to permit its purchase and resale of the Securities in
such jurisdictions. Such Initial Purchaser understands that no action has
been taken to permit a public offering in any jurisdiction outside the
United States where action would be required for such purpose.
(x) Such Initial Purchaser agrees not to cause any advertisement of
the Securities to be published in any newspaper or periodical or posted in
any public place and not to issue any circular relating to the Securities,
except such advertisements as include the statements required by
Regulation S.
(xi) The sale of the Securities in offshore transactions pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Securities Act.
(xii) Such Initial Purchaser is not a pension or welfare plan (as
defined in Section 3 of ERISA) and is not acquiring the Securities on
behalf of a pension or welfare plan).
(xiii) Such Initial Purchaser has not taken and will not take,
directly or indirectly, any action prohibited by Regulation M of the
Exchange Act in connection with the offering of the Securities.
Terms used in this Section 2 that have the meanings assigned to them in
Regulation S are used herein as so defined.
Each Initial Purchaser acknowledges that the Issuer, and, for purposes of
the opinions to be delivered to each Initial Purchaser pursuant to Section 5
hereof, counsel to the Issuer and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and each Initial
Purchaser hereby consents to such reliance.
3. Delivery of and Payment for the Securities. Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York, or at such other place as
shall be agreed upon by the Initial Purchasers and the Issuer, at 10:00 a.m.,
New York City time, on April 30, 1997, or at such other time or date, not later
than seven full business days thereafter, as shall be agreed upon by the Initial
Purchasers and the Issuer (such time and date of payment and delivery being
referred to herein as the "Closing Date").
On the Closing Date, payment of the purchase price for the Securities
shall be made to the Issuer by wire or book-entry transfer of same-day funds to
such account or accounts as the Issuer shall specify prior to the Closing Date
or by such other means as the parties hereto shall agree prior to the Closing
Date against delivery to the Initial Purchasers of the certificates evidencing
the Securities. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligations
of the Initial Purchasers hereunder. Upon delivery, the Securities shall be in
global form with respect to certificates delivered for sales to QIBs and
purchasers pursuant to Regulation S, and certificated form with respect to
certificates delivered for sales to Accredited Institutional Investors,
registered in such names and in such denominations as DLJ shall have requested
in writing not less than
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16
two full business days prior to the Closing Date. The Issuer agrees to make one
or more global or certificated certificates evidencing the Securities available
for inspection by DLJ in New York, New York at least 24 hours prior to the
Closing Date.
4. Further Agreements of the Issuer. The Issuer agrees with the
Initial Purchasers:
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading and not to effect such amendment or supplement
without the consent of the Initial Purchasers (such consent not to be
unreasonably withheld); to advise the Initial Purchasers promptly of any
order preventing or suspending the use of the preliminary offering
memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use reasonable best efforts to prevent the issuance of any
such order preventing or suspending the use of the preliminary offering
memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at
the earliest possible time;
(b) to furnish promptly to each of the Initial Purchasers and counsel
for the Initial Purchasers, without charge, as many copies of the
preliminary offering memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested; and the
Issuer hereby consents to the use of the preliminary offering memorandum
and the Offering Memorandum, and any amendments and supplements thereto,
in connection with resales of the Securities;
(c) if the delivery of the Offering Memorandum is required at any
time prior to the consummation of the Registered Exchange Offer or the
effectiveness of an applicable Shelf Registration Statement in connection
with the sale or the resale of the Securities and if at such time any
events shall have occurred as a result of which the Offering Memorandum as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made when the Offering Memorandum is delivered, not misleading, or if
for any other reason it shall be necessary at such time to amend or
supplement the Offering Memorandum in order to comply with any law, to
notify the Initial Purchasers immediately thereof, and to prepare promptly
and furnish to the Initial Purchasers an amended Offering Memorandum or a
supplement to the Offering Memorandum which will correct such statement or
omission or effect such compliance. The Initial Purchasers' delivery of
any such amendment or supplement shall not constitute a waiver of any of
the conditions set forth in Section 5 hereof;
(d) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers
and counsel for the Initial Purchasers and not to effect any such
amendment or supplement to which the Initial Purchasers shall reasonably
object by notice to the Issuer after a reasonable period to review;
provided, however, that
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17
notwithstanding the Initial Purchasers' objection such amendment or
supplement may be effected if counsel to the Issuer reasonably determines
that the Issuer would be adversely affected if such amendment or
supplement is not effected;
(e) for a period of three years following the Closing Date, to
furnish to the Initial Purchasers all public reports and all reports,
documents, information and financial statements furnished by the Issuer to
the Commission pursuant to the Indenture or the Exchange Act or any rule
or regulation of the Commission thereunder;
(f) for so long as it is required to do so under the Indenture and at
any time that it is not subject to Section 13 or 15(d) of the Exchange
Act, upon request of any holder of the Securities, to furnish to such
holder, and to any prospective purchaser or purchasers of the Securities
designated by such holder, information satisfying the requirements of
subsection (d)(4) of Rule 144A under the Securities Act. This covenant is
intended to be for the benefit of the holders from time to time of the
Securities and prospective purchasers of the Securities designated by such
holders;
(g) to use the proceeds from the sale of the Securities in the manner
described in the Offering Memorandum under the caption "Use of Proceeds";
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated PORTAL Market securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the PORTAL Market
and for the Securities to be eligible for clearance and settlement through
The Depository Trust Company ("DTC");
(i) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(j) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to or after the
Closing Date and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(k) except following the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement, as the case may
be, neither the Issuer nor any of its affiliates (as such term is defined
in Rule 501(b) under the Securities Act) will, and the Issuer will not
authorize or knowingly permit any person acting on its or their behalf to,
solicit any offer to buy or offer to sell the Securities by means of any
form of general solicitation or general advertising (as such terms are
used in Regulation D under the Securities Act) or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities
Act;
(l) to not, and to ensure that no affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Issuer will, offer, sell
or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner that would require the
registration of the Securities under the Securities Act;
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(m) to cause each Security to bear the legend set forth in the form
of Security attached as Exhibit A to the Indenture until such legend shall
no longer be required by the Indenture;
(n) promptly to take from time to time such action as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchasers may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Securities; provided, however, that in connection therewith neither the
Issuer nor any Subsidiary shall be required to qualify as a foreign
corporation or to file a general consent to service of process or to
subject itself to taxation in respect of doing business in any
jurisdiction where it is not so qualified or so subject. The Issuer will
promptly advise the Initial Purchasers of the receipt by the Issuer of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose;
(o) to comply with the Registration Rights Agreement and all
agreements set forth in the representation letter of the Issuer to DTC
relating to the approval of the Securities for "book-entry" transfer;
(p) except as permitted by Regulation M under the Exchange Act, in
connection with the Offering, until the Initial Purchasers shall have
notified the Issuer of the completion of the resale of the Securities,
neither the Issuer nor any of its affiliated purchasers (as defined in
Regulation M), either alone or with one or more other persons, will bid
for or purchase, for any account in which it or any of its affiliated
purchasers has a beneficial interest, any Securities, or attempt to induce
any person to purchase any Securities; and neither it nor any of its
affiliated purchasers will make bids or purchases for the purpose of
creating actual, or apparent, active trading in the Securities or of
raising the price of the Securities;
(q) Not to voluntarily claim, and to resist actively any attempt to
claim, the benefit of any usury laws against the holder of the Securities;
(r) without the prior written consent of the Initial Purchasers, to
not, and not permit any of its affiliates (as defined in Rule 144 under
the Securities Act) to, resell any of the Securities that have been
reacquired by them, except for Securities purchased by the Issuer or any
of its affiliates and resold in a transaction registered under the
Securities Act; and
(s) to not take any action prior to the execution and delivery of the
Indenture which, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture.
5. Conditions of Initial Purchasers, Obligations. The respective
obligations of the Initial Purchasers hereunder are subject to the accuracy, on
and as of the date hereof and on the Closing Date, of the representations and
warranties of the Issuer contained herein, to the accuracy of the statements of
officers of the Issuer made in any certificates delivered pursuant to the
provisions hereof, to the performance by the Issuer of its obligations
hereunder, and to each of the following additional terms and conditions:
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(a) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers as promptly as practicable on or
following the date of this Agreement or at such other date and time as to
which the Initial Purchasers may agree; and no stop order suspending the
sale of the Securities or preventing the use of the Offering Memorandum in
any jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of the Indenture, the Securities, the
Exchange Securities, the Registration Rights Agreement, the New Credit
Facility, this Agreement and the Offering Memorandum, and all other legal
matters relating to the Securities, the Exchange Securities, the
Indenture, the Registration Rights Agreement, the New Credit Facility,
this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to the Initial
Purchasers, and the Issuer shall have furnished to the Initial Purchasers
all documents and information that they or their counsel may reasonably
request to enable them to pass upon such matters; and none of the Initial
Purchasers shall have discovered and disclosed to the Issuer on or prior
to the Closing Date that the Offering Memorandum or any amendment or
supplement thereto contains an untrue statement of a fact which, in the
opinion of counsel for the Initial Purchasers, is material or omits to
state any fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
(c) Simpson Thacher & Bartlett, shall have furnished to the Initial
Purchasers its written opinion, as counsel to the Issuer, addressed to the
Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, to the effect that:
(i) The Issuer has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
state of Delaware and has full corporate power and authority to
conduct its business as described in the Offering Memorandum;
(ii) Each Subsidiary listed on Schedule II hereto (other than
the Fairways Partnership, as to which no opinion is given in this
clause (ii) and other than Monroe Valley Associates, L.P., Liberty
Golf Park, Inc. and Mequon Country Club, inc., as to which no opinion
is given) incorporated under the laws of the state of Delaware, has
been duly incorporated and is validly existing as a corporation and
in good standing under the laws of the state of Delaware and each
such Subsidiary has full corporate power and authority to conduct its
business as described in the Offering Memorandum.
(iii) The Fairways Partnership has been duly formed and is
validly existing as a limited partnership under the Delaware Revised
Uniform Limited Partnership Act, as amended (the "Delaware Act"), and
has all partnership power and authority to conduct its business as
described in the Offering Memorandum.
(iv) The outstanding shares of common stock of the Issuer and
each Subsidiary (other than the Fairways Partnership, Monroe
Associates, L.P., Liberty Golf Park, Inc. and Mequon Country Club,
Inc.), after giving effect to the Concurrent Transactions, have been
duly authorized and validly issued and are fully paid and
nonassessable under the General
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Corporation Law of the State of Delaware; after giving effect to the
Concurrent Transactions, the Partnership Interest has been duly
authorized and validly issued and is fully paid and nonassessable
under the Delaware Limited Partnership Act.
(v) The issue and sale of the Notes by the Issuer and the
compliance by the Issuer with all of the provisions of the Purchase
Agreement, the Indenture, the Registration Rights Agreement and the
Notes, after giving effect to the Concurrent Transactions and the
Refinancings, does not result in a default under, or result in the
creation or imposition of any lien, charge or encumbrance on any
property or assets of the Issuer or any Subsidiary pursuant to, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument identified on the annexed Schedule A furnished to such
counsel by the Issuer and which the Issuer has represented lists all
material agreements and instruments to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound or to which any of the property or assets of
the Issuer or any of its Subsidiaries is subject, nor does such
action violate the Certificate of Incorporation or By-laws of the
Issuer or any of its Subsidiaries or any Federal or New York statute
or the Delaware General Corporation Law or any rule or regulation
that has been issued pursuant to any Federal or New York statute or
the Delaware General Corporation Law or any order known to such
counsel issued pursuant to any Federal or New York statute or the
Delaware General Corporation Law by any court or governmental agency
or body that has jurisdiction over the Issuer or any of its
Subsidiaries or any of their respective properties.
(vi) No consent, approval, authorization, order, filing,
registration or qualification of or with any Federal or New York
governmental agency or body or any Delaware governmental agency or
body acting pursuant to the Delaware General Corporation Law or, to
such counsel's knowledge, any Federal or New York court or any
Delaware court acting pursuant to the Delaware General Corporation
Law, is required for the issue and sale of the Notes by the Issuer or
the compliance by the Issuer with all of the provisions of the
Purchase Agreement, the Indenture, the New Credit Facility, the
Registration Rights Agreement and the Notes except for such consents,
approvals, authorizations, orders, filings, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Notes by
the Initial Purchasers and for such registration or qualification as
is contemplated by the Registration Rights Agreement.
(vii) None of the Issuer or any of its Subsidiaries (other than
Monroe Associates, L.P. and Mequon Country Club, Inc., as to which no
opinion is given) is an "investment company" within the meaning of
and subject to regulation under the Investment Company Act of 1940,
as amended.
(viii) The Purchase Agreement has been duly authorized, executed
and delivered by the Issuer.
(ix) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Issuer, and constitutes a valid and
legally binding agreement of the
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21
Issuer, enforceable against the Issuer in accordance with its terms,
except as the enforceability of rights to indemnity and contribution
thereunder may be limited by considerations of public policy.
(x) The Indenture has been duly authorized, executed and
delivered by the Issuer and, assuming due authorization, execution
and delivery thereof by the Trustee, constitutes a valid and legally
binding obligation of the Issuer enforceable against the Issuer in
accordance with its terms.
(xi) The Notes have been duly authorized, executed and issued by
the Issuer and, assuming due authentication of the Notes by the
Trustee and upon payment and delivery in accordance with the Purchase
Agreement, will constitute valid and legally binding obligations of
the Issuer enforceable against the Issuer in accordance with their
terms and entitled to the benefits of the Indenture.
(xii) The statements made in the Offering Memorandum under the
caption "Description of Notes," insofar as they purport to constitute
summaries of certain terms of documents referred to therein,
constitute accurate summaries of the terms of such documents in all
material respects.
(xiii) No registration under the Securities Act of 1933, as
amended, of the Notes, and no qualification of the Indenture under
the Trust Indenture Act of 1939, as amended, is required for the
offer and sale of the Notes by the Issuer to the Initial Purchasers
or the reoffer and resale of the Notes by the Initial Purchasers to
the initial purchasers therefrom solely in the manner contemplated by
the Purchase Agreement, the Indenture and the Offering Memorandum.
The Indenture conforms in all material respect to the requirements of
the Trust Indenture Act.
Such counsel shall also state that such counsel has not independently
verified the accuracy, completeness or fairness of the statements made or
included in the Offering Memorandum and takes no responsibility therefor,
except as and to the extent set forth in paragraph (xi) above. In the
course of the preparation by the Combined Group of the Offering
Memorandum, such counsel participated in conferences with certain officers
and employees of the Combined Group, with representatives of Deloitte &
Touche LLP, independent public accountants for the Combined Group, and
with counsel to the Combined Group. Based upon such counsel's examination
of the Offering Memorandum, such counsel's investigations made in
connection with the preparation of the Offering Memorandum and such
counsel's participation in the conferences referred to above, such counsel
has no reason to believe that the Offering Memorandum as of its date or on
the Closing Date, contained or contains any untrue statement of a material
fact or omitted or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that such counsel need not express
any belief with respect to the financial statements or other financial
data contained in the Offering Memorandum.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of
America, the laws of the State of New York,
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and the General Corporation Law of Delaware and may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Issuer and public officials which are
furnished to the Initial Purchasers.
(d) Nola S. Dyal, Esq., General Counsel of the Issuer, shall have
furnished to the Initial Purchasers her written opinion, addressed to the
Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, to the effect that:
(i) the execution, delivery and performance by the Issuer of the
Indenture, the Securities, the Registration Rights Agreement, the New
Credit Facility and this Agreement and the fulfillment of the terms
hereof and thereof, do not, after giving effect to the Concurrent
Transactions, conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets (other than any lien pursuant
to the New Credit Facility) of the Issuer or any Subsidiary pursuant
to any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which Issuer or its Subsidiaries is a
party, except (a) for any such conflicts, breaches, violations or
defaults which would not reasonably be expected to have a Material
Adverse Effect and (b) that the partnership agreement for Fairways
Group, L.P. may not permit the giving of the guarantee required by
the New Credit Facility, nor after giving effect to the Concurrent
Transactions, will such actions result in any violation of or
conflict with the provisions of any statute, judgment, order, decree,
rule or regulation of any court, governmental agency or body or
arbitrator identified in a schedule thereto;
(ii) After giving effect to the Concurrent Transactions, Golf
Holdings is the only managing general partner of the Fairways
Partnership and owns a 88.15% partnership interest in the Fairways
Partnership (the "Partnership Interest"); after giving effect to the
Concurrent Transactions, such Partnership Interest is owned by KSL
Fairways Golf Corporation free and clear of all liens, encumbrances
or claims of record, other than transfer restrictions under the
parternship agreement with with respect thereto;
(iii) the Issuer is duly qualified to do business and is in good
standing as a foreign corporation in California; KSL Desert Resorts
is duly qualified to do business and is in good standing as a foreign
corporation in California;
(iv) after giving effect to the Concurrent Transactions, neither
the Issuer nor any Subsidiary has any outstanding preferred stock;
all of the issued and outstanding shares of capital stock of each
Subsidiary (other than the Fairways Partnership) are, and after
giving effect to the Concurrent Transactions, will be owned of
record, directly or indirectly, by the Issuer;
(v) after giving effect to the Concurrent Transactions, neither
the Issuer nor any Subsidiary is in violation of any terms or
provisions of its respective charter or by-laws or similar documents;
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(vi) after giving effect to the Concurrent Transactions, no
default exists and no event has occurred which, with notice, lapse of
time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any material
agreement identified by the Issuer to her and which would reasonably
be expected to have a Material Adverse Effect;
Such counsel shall also state that she has not independently verified
the accuracy, completeness or fairness of the statements made or included
in the Offering Memorandum and takes no responsibility therefor. In the
course of the preparation by the Combined Group of the Offering
Memorandum, such counsel participated in conferences with certain officers
and employees of the Combined Group, with representatives of Deloitte &
Touche LLP, independent public accountants for the Combined Group, and
with counsel to the Combined Group. Based upon such counsel's examination
of the Offering Memorandum, such counsel's investigations made in
connection with the preparation of the Offering Memorandum and such
counsel's participation in the conferences referred to above, such counsel
has no reason to believe that the Offering Memorandum as of its date or on
the Closing Date, contained or contains any untrue statement of a material
fact or omitted or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that such counsel need not express
any belief with respect to the financial statements or other financial
data contained in the Offering Memorandum.
In rendering such opinion, such counsel may state that her opinion is
limited to matters governed by the federal laws of the United States of
America and the laws of the States of Florida and California, and to the
extent such counsel deems proper, on certificates of responsible officers
of the Issuer and public officials which are furnished to the Initial
Purchasers.
(e) The Initial Purchasers shall have received from Latham & Watkins
("L&W"), counsel for the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and the Issuer shall have furnished to
such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(f) At the time of the execution of this Agreement, the Issuer shall
have furnished to the Initial Purchasers a letter of Deloitte & Touche
LLP, dated the date hereof (the "Initial Letter"), in form and substance
reasonably satisfactory to the Initial Purchasers, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to initial purchasers with respect to the financial statements
and certain financial information contained in the Offering Memorandum.
(g) On the Closing Date, the Issuer shall have furnished to the
Initial Purchasers a letter (the "bring-down letter") of Deloitte & Touche
LLP, addressed to the Initial Purchasers and dated the Closing Date
confirming, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Offering Memorandum,
as of a date not more than three days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by its Initial Letter.
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(h) The Issuer shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of its Chief Executive Officer and
its Chief Financial Officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, as of its date and
the Closing Date, the Offering Memorandum did not, and does not, include
any untrue statement of a material fact and did not, and does not, omit to
state a material fact required to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
since the date of the Offering Memorandum, no event has occurred which
should have been set forth in a supplement or amendment to the Offering
Memorandum so that the Offering Memorandum (as so amended or supplemented)
as of the Closing Date would not include any untrue statement of a
material fact and would not omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (C) as
of the Closing Date, the representations and warranties of the Issuer in
this Agreement are true and correct in all material respects, the Issuer
has complied with all agreements and satisfied in all material respects
all conditions on its part to be performed or satisfied hereunder on or
prior to the Closing Date, and subsequent to the date of the most recent
financial statements contained in the Offering Memorandum, there has been
no event or development that can reasonably be expected to result in a
Material Adverse Effect, except as set forth in the Offering Memorandum.
(i) No action shall have been taken and no statute, rule, injunction,
regulation or order shall have been enacted, adopted or issued by any
federal or state court of competent jurisdiction or any governmental
agency which would, as of the Closing Date, prevent the issuance or sale
of the Securities or the transactions contemplated by the Concurrent
Transactions.
(j) The Issuer and the Initial Purchasers shall have executed and
delivered the Registration Rights Agreement.
(k) The Securities shall have been approved by the NASD for trading
in the PORTAL Market.
(l) The Indenture shall have been duly executed and delivered by the
Issuer and the Trustee and the Securities shall have been duly executed
and delivered by the Issuer and duly authenticated by the Trustee.
(m) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal
of any rule or regulation under the Securities Act or the Exchange Act by
the Commission or any amendment or proposed amendment thereof by the
Commission which in the judgment of the Initial Purchasers would
materially impair the ability of the Initial Purchasers to purchase, hold
or effect resales of the Securities as contemplated hereby.
(n) At or prior to the Closing Date, the Corporate Reorganization
shall have been consummated and shall conform in all material respects to
the descriptions relating thereto in the Offering Memorandum and the
Initial Purchasers shall have received satisfactory evidence of the
consummation thereof.
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(o) All of the issued and outstanding Series A Preferred Stock, $.01
par value, of KSL Florida Holdings, Inc., a Delaware corporation, held by
Recreation will be retired and cancelled on the Closing Date (immediately
after the Closing) and the Initial Purchasers shall have been provided
with satisfactory evidence thereof.
(p) The Issuer shall have entered into the New Credit Facility (the
form and substance of which shall be reasonably acceptable to the Initial
Purchasers) and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof and of all other material documents and
agreements entered into in connection therewith.
(q) Each condition to the closing contemplated by the New Credit
Facility (other than the issuance and sale of the Securities pursuant
hereto and closing conditions relating to ministerial matters) shall have
been satisfied or, with the Initial Purchasers specific approval, waived;
provided that the Initial Purchasers shall be deemed to have approved any
waivers disclosed to the Initial Purchasers prior to Initial Purchasers'
execution and delivery of this Agreement. There shall exist at and as of
the Closing Date (after giving effect to the transactions contemplated by
the Concurrent Transactions and this Agreement) no conditions that would
constitute a default (or an event that with notice or the lapse of time,
or both, would constitute a default) under the New Credit Facility. At or
prior to the Closing Date, the closing under the New Credit Facility shall
have been consummated on terms that conform in all material respects to
the description thereof in the Offering Memorandum and the Initial
Purchasers shall have received satisfactory evidence of the consummation
thereof.
(r) Prior to the Closing Date, the Issuer shall have furnished to the
Initial Purchasers audited financial statements consisting of, (i) with
respect to the entity which owned the Hotel at La Quinta prior to its
acquisition, income statement data for the years ended December 31, 1992
and 1993, and balance sheet data at December 31, 1992 and December 31,
1993; (ii) with respect to the predecessor to Doral, income statement data
for the years ended December 31, 1992 and 1993, and balance sheet data at
December 31, 1992 and December 31, 1993; and with respect to the entity
that owned Fairways prior to its acquisition, income statement data for
the year ended December 31, 1992 and balance sheet data at December 31,
1992;
(s) At or prior to the Closing Date, each of the Tax Sharing
Agreement, the Expense Allocation Agreement and the KSL Land Note shall
have been entered into (the form and substance of which shall be
reasonably acceptable to the Initial Purchasers and on terms that conform
in all material respects to the descriptions thereof in the Offering
Memorandum) and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(t) the Initial Purchasers shall be satisfied that the Concurrent
Transactions and the Refinancings shall have been consummated or will be
consummated on Closing Date in a manner consistent in all material
respects with the descriptions thereof set forth in the Offering
Memorandum and the Initial Purchasers shall have received satisfactory
evidence of the consummation thereof, including, without limitation, (1)
with respect to the Concurrent Transactions: (i) stock certificates
evidencing ownership by the Issuer of 100% of the outstanding capital
stock of each of KSL Landmark, Florida Holdings, Golf Holdings and KSL
Georgia Holdings; (ii) an acknowledgment from Recreation evidencing the
receipt by Recreation of all of
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the general partnership interest and Class A limited partnership interests
owned by KSL Landmark in the four limited partnerships referenced in the
Offering Memorandum; (iii) a cross-receipt evidencing the sale by KSL
Landmark to KSL Land of the 1% general partnership interest and Class A
limited partnership interest owned by KSL Landmark in the limited
partnership referenced in the Offering Memorandum; (iv) written
acknowledgments from each of Recreation, the Issuer, Desert Resorts,
Doral, Fairways and Lake Lanier of the settlement of all inter-company
account balances, which settlement shall result in a net cash increase to
the Issuer of approximately $46.3 million; (v) written acknowledgement
from Recreation of the receipt of approximately $63 million consisting of
dividends and/or a return of capital from the Issuer; (v) evidence of
cancellation of existing management and other agreements previously used
to allocate corporate general and administrative expenses between
Recreation and entities within the Combined Group (other than the
management agreement with respect to Fairways); and (2) with respect to
the Refinancings, pay-off letters evidencing repayment of all indebtedness
repaid in connection with the Refinancings.
(u) Prior to the Closing Date, the Issuer shall have furnished to the
Initial Purchasers such further information, certificates and documents as
the Initial Purchasers may reasonably request, including any such
information, certificates and documents required in connection with the
legal opinions to be furnished by your counsel as set forth in Section
5(e) above.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory in all material respects to L&W.
6. Effective Date and Termination. (a) This Agreement shall become
effective upon the execution hereof.
(b) This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Issuer if any of the following has
occurred: (i) subsequent to the date on which information is given in the
Offering Memorandum, any material adverse change or development involving a
prospective material adverse change in the condition, financial or otherwise of
the Combined Group, and, after giving effect to the Concurrent Transactions, the
Issuer and the Subsidiaries, in each case, taken as a whole, or the earnings,
affairs, or business prospects of the Combined Group, taken as a whole, and,
after giving effect to the Concurrent Transactions, the Issuer and the
Subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business, which would, in the judgment of DLJ, materially impair the investment
quality of the Securities; (ii) any outbreak or escalation of hostilities or
other national or international calamity or crisis or material adverse change in
the financial markets of the United States or elsewhere if the effect of such
outbreak, escalation, calamity, crisis, material adverse change or emergency
would, in the judgment of DLJ, make it impracticable to market the Securities or
to enforce contracts for sale of the Securities; (iii) any suspension or
material limitation of trading generally in securities on the New York Stock
Exchange or Nasdaq National Market System or any setting of minimum prices for
trading on such exchange or markets; (iv) any declaration of a general banking
moratorium by either federal or New York State authorities; (v) any securities
of the Issuer or any Subsidiaries shall have been downgraded or placed on any
"watch list" for possible downgrading by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g)(2) under the
Securities Act); (vi) the taking of any action by any federal or state
government agency in respect of its
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monetary or fiscal affairs that, in the judgment of DLJ makes it impracticable
to market the Securities or to enforce contracts for the sale of the Securities;
or (vii) the enactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of any court of other governmental
authority which, in the judgment of DLJ would have a Material Adverse Effect.
(c) The indemnities and contribution provisions and other agreements,
representations and warranties of the Combined Group and, after giving effect to
the Concurrent Transactions, the Issuer and the Subsidiaries, their respective
officers and directors and of the Initial Purchasers set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and shall survive delivery of and payment for the Securities, regardless of any
(i) investigation, or statement as to the results thereof, made by or on behalf
of the Initial Purchasers or by or on behalf of the Combined Group and, after
giving effect to the Concurrent Transactions, the Issuer and the Subsidiaries,
their respective officers or directors or controlling persons, (ii) acceptance
of the Securities and payment for them hereunder and (iii) termination of this
Agreement.
(d) If this Agreement shall be terminated by the Initial Purchasers
pursuant to paragraph (b)(i) or (v) of this Section 6, or because of the failure
or refusal on the part of the Issuer to comply with the terms or to fulfill any
of the conditions of this Agreement, the Issuer agrees to reimburse the Initial
Purchasers for all reasonable out-of-pocket expenses (including, without
limitation, the reasonable fees and disbursements of counsel) incurred by the
Initial Purchasers. Notwithstanding any termination of this Agreement, the
Issuer shall be liable (except to a defaulting Initial Purchaser) for all
expenses which its has agreed to pay pursuant to Section 10 hereof.
7. Defaulting Initial Purchasers. (a) If, on the Closing Date, any
Initial Purchaser defaults in the performance of its obligations under this
Agreement, the non-defaulting Initial Purchasers may make arrangements for
non-defaulting Initial Purchasers and make arrangements for the purchase of the
Securities which such defaulting Initial Purchaser agreed but failed to purchase
by other persons satisfactory to the Issuer and the non-defaulting Initial
Purchasers, but if no such arrangements are made within 36 hours after such
default, then, (i) if the principal amount of defaulted Securities does not
exceed 10% of the principal amount of Securities to be purchased on such date,
each of the non-defaulting Initial Purchasers shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions that their
respective obligations hereunder bear to the obligations of all nondefaulting
Initial Purchasers, or (ii) if the principal amount of defaulted Securities
exceeds 10% of the principal, amount of Securities to be purchased on such date,
this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or the Issuer, except that the Issuer will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 10 and the provisions of Section 8 shall not terminate and shall
remain in effect.
As used in this Agreement, the term "Initial Purchaser" includes, for
all purposes of this Agreement unless the context otherwise requires, any party
not listed in Schedule I hereto who, pursuant to this Section 7, purchases
Securities which a defaulting Initial Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial Purchaser
of any liability it may have to the Issuer or any non-defaulting Initial
Purchaser for damages caused by its default. If other persons are obligated or
agree to purchase the Securities of a defaulting Initial Purchaser, either the
non-defaulting Initial Purchasers or the Issuer may postpone the Closing Date
for up to seven full business
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<PAGE>
28
days in order to effect any changes that in the opinion of counsel for the
Issuer or counsel for the Initial Purchasers may be necessary in the Offering
Memorandum or in any other document or arrangement, and the Issuer agrees to
make promptly any amendment or supplement to the Offering Memorandum that
effects any such changes.
8. Indemnification. (a) The Issuer agrees to indemnify and hold harmless
(i) each Initial Purchaser and (ii) each person, if any, who controls (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) the Initial Purchasers (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "Controlling Person"), and (iii) the
respective officers, directors, partners, employees, representatives and agents
of the Initial Purchasers or any controlling person (any person referred to in
clause (i), (ii) or (iii) in such capacity may hereinafter be referred to as an
"Indemnified Person") to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities, judgments, actions and expenses
(including, without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the fees and expenses of counsel to any Indemnified
Person) directly or indirectly caused by, any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum or the
preliminary offering memorandum, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the light of the circumstances under which they were
made) not misleading, except (i) insofar as such losses, claims, damages,
liabilities or expenses are caused by an untrue statement or omission or alleged
untrue statement or omission that is made in reliance upon and in conformity
with information relating to the Initial Purchasers furnished in writing to the
Issuer by or on behalf of the Initial Purchasers through you expressly for use
in the Offering Memorandum or (ii) that, with respect to any such untrue
statement or omission or alleged untrue statement or omission made in the
preliminary offering memorandum, the indemnity agreement contained in this
Section 8 shall not inure to the benefit of the Initial Purchasers from whom the
person asserting any such losses, claims, damages, liabilities and judgments
purchased the Securities if the untrue statement or omission or alleged untrue
statement or omission in the preliminary offering memorandum was corrected in
the Offering Memorandum. The Issuer also agrees to reimburse each Indemnified
Person for any and all fees and expenses (including, without limitation, the
fees and expenses of counsel) as they are incurred in connection with enforcing
such Indemnified Person's rights under this Agreement (including, without
limitation, its rights under this Section 8).
(b) In case any action or proceeding (including any governmental or
regulatory investigation) shall be brought or asserted against any of the
Indemnified Persons with respect to which indemnity may be sought against the
Issuer, such Indemnified Person shall promptly notify the Issuer in writing
(provided, that the failure to give such notice shall not relieve the Issuer of
its obligation pursuant to this Agreement unless such failure materially
prejudices the Issuer) and the Issuer shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person and payment of all fees and expenses (regardless of whether it is
ultimately determined that an Indemnified Person is not entitled to
indemnification hereunder). Such Indemnified Person shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Issuer, (ii) the Issuer shall
have failed to assume the defense and employ counsel or (iii) the named parties
to any such action (including any impleaded parties) include both such
Indemnified Person and the Issuer or any of its Subsidiaries and such
28
<PAGE>
29
Indemnified Person shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the Issuer or any of its Subsidiaries (in which case the
Issuer shall not have the right to assume the defense of such action on behalf
of such Indemnified Person, it being understood, however, that the Issuer shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such Indemnified Persons, which firm shall be designated in writing by the
Initial Purchasers and that all such fees and expenses shall be reimbursed as
they are incurred). The Issuer shall not be liable for any settlement of any
such action or proceeding effected without the Issuer's prior written consent,
but if settled with the written consent of the Issuer, which consent will not be
unreasonably withheld, the Issuer agrees to indemnify and hold harmless any
Indemnified Person from and against any loss, claim, damage, liability or
expense by reason of any such settlement. Notwithstanding the immediately
preceding sentence, if in any case where the fees and expenses of counsel are at
the expense of the Issuer and an Indemnified Person shall have requested the
Issuer to reimburse the Indemnified Person for such fees and expenses of counsel
as incurred, the Issuer agrees that it shall be liable for any settlement for
any action effected without the Issuer's written consent if (i) such settlement
is entered into more than 20 business days after the receipt by the Issuer of
the aforesaid request and (ii) the Issuer shall have failed to reimburse the
Indemnified Person in accordance with such request for reimbursement prior to
the date of such settlement. The Issuer shall not, without the prior written
consent of each Indemnified Person, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Person is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Person from all liability
arising out of such action, claim, litigation or proceeding.
(c) The Initial Purchasers agree, severally and not jointly, to indemnify
and hold harmless the Issuer, its directors, its officers and any controlling
person (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as the foregoing indemnity from the Issuer
to each of the Indemnified Persons, but only with respect to claims and actions
based on information relating to the Initial Purchasers furnished in writing by
or on behalf of the Initial Purchasers expressly for use in the preliminary
offering memorandum or the Offering Memorandum. In case any action shall be
brought against any such Indemnified Person in respect of which indemnity may be
sought against the Initial Purchasers, the Initial Purchasers shall have the
rights and duties given to the Issuer (except that if the Issuer shall have
assumed the defense thereof, the Initial Purchasers shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof but the fees and expenses of such counsel shall be at the expense of the
Initial Purchasers), and the Indemnified Person shall have the rights and duties
given to the Initial Purchasers by Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or expenses referred to herein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other hand from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is
29
<PAGE>
30
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the indemnifying parties and the
indemnified party, as well as any other relevant equitable considerations. The
relative benefits received by the Issuer on the one hand, and the Initial
Purchasers, on the other hand, shall be deemed to be in the same proportion as
the total proceeds from the offering of the Securities (net of underwriting
discounts and commissions but before deducting expenses) received by the Issuer
bear to the total underwriting discounts and commissions received by the Initial
Purchasers, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault of the Issuer and the Initial Purchasers
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact related to information supplied by the Issuer or the
Initial Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuer and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, each Initial Purchaser (and
the Initial Purchasers' related Indemnified Persons) shall not be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total discount applicable to the Securities purchased by such Initial Purchaser
exceeds the amount of any damages which such Initial Purchaser would have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The indemnity and contribution obligations of the Issuer contained in
this Section 8 are in addition to any liability or obligation which the Issuer
may otherwise have to any Indemnified Person.
9. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of and be binding upon the Initial Purchasers, the Issuer and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers, the Issuer and their respective affiliates and
successors and the controlling persons and officers and directors referred to in
Section 8 and their heirs and legal representatives and other than holders and
prospective purchasers of the Securities as provided in Section 4(f), any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
10. Expenses. The Issuer agrees with the Initial Purchasers to pay (a) the
costs incident to the authorization, issuance, sale, preparation and delivery of
the Securities; (b) the costs incident to the preparation, printing and
distribution of any preliminary offering memorandum, the Offering Memorandum and
any amendments and supplements thereto; (c) the costs of reproducing and
distributing this Agreement, the Registration Rights Agreement and the
Indenture; (d) the fees and expenses of qualifying the Securities under the
securities laws of the several jurisdictions as provided in Section 4(n) and of
preparing, printing and distributing a preliminary and final Blue Sky Memorandum
(including related reasonable fees and expenses of L&W); (e) any fees charged by
securities rating services for rating the
30
<PAGE>
31
Securities; (f) all fees and expenses of the Trustee; (g) all costs incident to
and fees and expenses of the inclusion of the Securities on the PORTAL Market
system and the approval of the Securities for book-entry transfer by DTC; (h)
the fees, disbursements and expenses of the Issuer's counsel and accountants;
and (i) all other costs and expenses incident to the performance of the
obligations of the Issuer under this Agreement (other than each parties'
respective share of the costs and expenses incurred in connection with the
roadshow); provided, however, that, except as otherwise provided in this Section
10 the Initial Purchasers shall pay their own costs and expenses, including the
costs and expenses of their counsel and the expenses of advertising any offering
of the Securities made by the Initial Purchasers.
11. Survival. The respective indemnities, rights of contribution,
representations, warranties, agreements and statements made by or on behalf of
the Issuer and the Initial Purchasers and any of their respective affiliates,
representatives, officers, directors or controlling persons contained in this
Agreement or in any certificate delivered pursuant to this Agreement, shall
survive the delivery of and payment for the Securities and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation or statement as to the results thereof made by or
on behalf of any of them or any person controlling any of them.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail,
telex or facsimile transmission to Donaldson Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, NY 10172, Attention: Thomas G.
McGonagle; and
(b) if to the Issuer, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Issuer set forth in the
Offering Memorandum, Attention: John K. Saer, Jr. and General Counsel;
provided, however, that any notice to the Initial Purchasers pursuant to Section
8(c) shall be delivered or sent by mail, telex or facsimile transmission to the
Initial Purchasers at their addresses set forth on the signature page hereof.
Any such statements, requests, notices or agreements shall take effect at
the time of receipt thereof.
13. Business Day. For purposes of this Agreement, "business day" means any
day on which the New York Stock Exchange, Inc. is open for trading.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
15. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by facsimile) and, if
executed in one or more counterparts, the executed counter parts shall each be
an original, but all such counterparts shall together constitute one and the
same instrument.
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<PAGE>
32
16. Amendments. No amendment or waiver of any provision of this Agreement,
nor any consent or approval to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the parties hereto.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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<PAGE>
33
If the foregoing is in accordance with your understanding of this
Agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Issuer and the several
Initial Purchasers in accordance with its terms. Initial Purchasers, kindly
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KSL RECREATION GROUP, INC.
By:____________________________________
Name:
Title:
Accepted and agreed to as of
the date first written above:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CREDIT SUISSE FIRST BOSTON CORPORATION
BANK AMERICA SECURITIES, INC.
MONTGOMERY SECURITIES
SCOTIA CAPITAL MARKETS (USA) INC.
Acting severally on behalf of
themselves and the several
Initial Purchasers names
in Schedule I hereto
BY: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:____________________________
Name:
Title:
<PAGE>
34
Addresses for Notices:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
SALOMON BROTHERS INC
7 World Trade Center
New York, New York 10048
CREDIT SUISSE FIRST BOSTON CORPORATION
11 Madison Avenue
New York, New York 10010
BANCAMERICA SECURITIES, INC.
231 S. LaSalle Street, 17th Floor
Chicago, Illinois 60697
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
SCOTIA CAPITAL MARKETS (USA) INC.
One Liberty Plaza
25th Floor
New York, New York 10006
<PAGE>
Schedule I
Principal
Amount of
Initial Purchaser Securities
- ----------------- ----------
Donaldson, Lufkin & Jenrette
Securities Corporation .................................. $ 62,500,000
Salomon Brothers Inc ...................................... 31,250,000
Credit Suisse First Boston Corporation .................... 12,500,000
BancAmerica Securities, Inc. .............................. 6,250,000
Montgomery Securities ..................................... 6,250,000
Scotia Capital Markets (USA) Inc ......................... 6,250,000
------------
Total $125,000,000
============
<PAGE>
Schedule II
KSL Landmark Corporation
KSL Desert Resorts, Inc.
KSL Florida Holdings, Inc.
KSL Hotel Corporation
KSL Georgia Holdings, Inc.
KSL Lake Lanier, Inc.
KSL Golf Holdings, Inc.
KSL Fairways Golf Corporation
The Fairways Group, L.P.
Mequon Country Club, Inc.
Monroe Associates, L.P.
Liberty Golf Park, Inc.
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
KSL RECREATION HOLDINGS, INC.
1. The name of the corporation is KSL Recreation Holdings, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the city of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful activity for which corporations may be organized under
the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000); all of such shares shall have a par
value of $0.01.
5. The name and mailing address of the sole incorporator is:
A.S. Gardner
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written ballot.
7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
8. The corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of Delaware.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act
<PAGE>
2
and the facts herein stated are true, and accordingly have hereunto set my hand
this 14th day of March, 1997.
/s/ A.S. Gardner
----------------------------
A.S. Gardner
Sole Incorporator
<PAGE>
3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
KSL RECREATION HOLDINGS, INC.
Pursuant to Section 241 of the General Corporation
Law of the State of Delaware
KSL Recreation Holdings, Inc., a corporation organized and existing
under and by virtue of the Delaware General Corporation Law (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent of its members acting without a meeting pursuant to Section
141(f) of the General Corporation Law of the State of Delaware, duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors of the Corporation hereby
deems it advisable and in the best interests of the Corporation that the
Certificate of Incorporation (the "Charter") be amended by changing the
name of the Corporation to KSL RECREATION GROUP, INC.; and further
RESOLVED, that Larry E. Lichliter, a director of the Corporation
be, and he hereby is authorized and directed to make and execute, in the
name of and under the corporate seal of this Corporation, a Certificate
of Amendment of the Certificate of Incorporation reflecting the
foregoing, and to file such certificate in the Office of the Secretary
of State of the State of Delaware.
SECOND: That the Corporation has not received any payment for any of its
stock nor have any officers been elected.
THIRD: That the amendment was duly adopted in accordance with the
provision of Section 241 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said CORPORATION has caused this certificate to be
signed by Larry E. Lichliter, a director of the Corporation, this 2nd day of
April, 1997.
/s/ Larry E. Lichliter
----------------------------
Larry E. Lichliter, Director
<PAGE>
Exhibit 3.2
KSL RECREATION GROUP, INC.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the stockholders
of the Corporation shall be held at such place either within or without the
State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at least 10
and not more than 60 days before each meeting of stockholders, written notice of
the time, date and place of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's issued
and outstanding capital stock shall constitute a quorum for the transaction of
business, except as otherwise provided by law. In the absence of a quorum, any
officer entitled to preside at or to act as secretary of the meeting shall have
power to adjourn the meeting from time to time until a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The number of
Directors that shall constitute the Board of Directors shall not be less than
one or more than fifteen. The first Board of Directors shall consist of eight
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees,
including, without limitation, an Executive Committee, to have and exercise such
power and authority as the Board of Directors shall specify. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in place of any such absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer and such other additional officers with such titles as
the Board of Directors shall
<PAGE>
3
determine, all of which shall be chosen by and shall serve at the pleasure of
the Board of Directors. Such officers shall have the usual powers and shall
perform all the usual duties incident to their respective offices. All officers
shall be subject to the supervision and direction of the Board of Directors. The
authority, duties or responsibilities of any officer of the Corporation may be
suspended by the President with or without cause. Any officer elected or
appointed by the Board of Directors may be removed by the Board of Directors
with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party by reason of his current
or former position with the Corporation or by reason of the fact that he is or
was serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
<PAGE>
Exhibit 4.1
EXECUTION COPY
================================================================================
KSL RECREATION GROUP, INC.
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
-----------------------------
INDENTURE
Dated as of April 30, 1997
-----------------------------
First Trust of New York, National Association
-----------------------------
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.............................................................. 1
Section 1.02. Other Definitions. ...................................................... 18
Section 1.03. Incorporation By Reference of Trust Indenture Act........................ 18
Section 1.04. Rules of Construction.................................................... 19
Section 1.05. Compliance Certificates and Opinions..................................... 19
ARTICLE 2 THE NOTES................................................................ 21
Section 2.01. Form and Dating.......................................................... 21
Section 2.02. Execution and Authentication............................................. 22
Section 2.03. Registrar and Paying Agent............................................... 22
Section 2.04. Paying Agent to Hold Money in Trust...................................... 23
Section 2.05. Holder Lists............................................................. 23
Section 2.06. Transfer and Exchange.................................................... 23
Section 2.07. Replacement Notes........................................................ 34
Section 2.08. Outstanding Notes........................................................ 34
Section 2.09. Treasury Notes........................................................... 34
Section 2.10. Temporary Notes.......................................................... 34
Section 2.11. Cancellation............................................................. 35
Section 2.12. Defaulted Interest....................................................... 35
ARTICLE 3 REDEMPTION AND PREPAYMENT................................................ 35
Section 3.01. Applicability of Article................................................. 35
Section 3.02. Election to Redeem; Notice to Trustee.................................... 36
Section 3.03. Selection by Trustee of Notes to Be Redeemed............................. 36
Section 3.04. Notice of Redemption..................................................... 36
Section 3.05. Deposit of Redemption Price.............................................. 37
Section 3.06. Notes Payable on Redemption Date......................................... 37
Section 3.07. Notes Redeemed in Part................................................... 37
Section 3.08. Optional Redemption...................................................... 37
Section 3.09. Mandatory Redemption..................................................... 38
ARTICLE 4 COVENANTS................................................................ 40
Section 4.01. Payment of Principal, Premium and Interest............................... 40
Section 4.02. Maintenance of Office or Agency.......................................... 40
Section 4.03. Money for Security Payments to Be Held In Trust.......................... 40
Section 4.04. Reports.................................................................. 42
Section 4.05. Statement as to Compliance; Notice of Default. .......................... 42
Section 4.06. Payment of Taxes and Other Claims........................................ 43
Section 4.08. Corporate Existence...................................................... 43
Section 4.09. Offer to Repurchase Upon Change of Control............................... 44
Section 4.10. Asset Sales.............................................................. 45
Section 4.11. Limitation on Restricted Payments........................................ 46
Section 4.12. Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. 51
Section 4.13. Transactions with Affiliates............................................. 54
Section 4.14. Dividend and Other Payment Restrictions Affecting Subsidiaries........... 55
Section 4.15. Limitations on Guarantees of Indebtedness by Restricted Subsidiaries..... 56
Section 4.16 Limitation on Other Senior Subordinated Indebtedness..................... 57
ARTICLE 5 SUCCESSORS............................................................... 58
Section 5.01. Merger, Consolidation, or Sale of All or Substantially All Assets........ 58
Section 5.02. Successor Corporation Substituted........................................ 59
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 6 DEFAULTS AND REMEDIES.................................................... 59
Section 6.01. Events of Default and Notice Thereof..................................... 59
Section 6.02. Acceleration of Maturity; Rescission..................................... 60
Section 6.03. Other Remedies........................................................... 61
Section 6.04. Waiver of Past Defaults.................................................. 61
Section 6.05. Control by Majority. ................................................... 61
Section 6.06. Limitation on Suits...................................................... 61
Section 6.07. Rights of Holders of Notes to Receive Payment............................ 62
Section 6.08. Collection Suit by Trustee............................................... 62
Section 6.09. Trustee May File Proofs of Claim......................................... 62
Section 6.10. Priorities............................................................... 62
Section 6.11. Undertaking for Costs.................................................... 63
Section 6.12. Waiver of Stay, Extension of Usury Laws.................................. 63
ARTICLE 7 TRUSTEE.................................................................. 63
Section 7.01. Duties of Trustee........................................................ 63
Section 7.02. Rights of Trustee........................................................ 64
Section 7.03. Individual Rights of Trustee............................................. 65
Section 7.04. Trustee's Disclaimer..................................................... 65
Section 7.05. Notice of Defaults....................................................... 65
Section 7.06. Reports by Trustee to Holders of the Notes............................... 65
Section 7.07. Compensation and Indemnity............................................... 66
Section 7.08. Replacement of Trustee................................................... 66
Section 7.09. Successor Trustee by Merger, etc......................................... 67
Section 7.10. Eligibility; Disqualification............................................ 67
Section 7.11. Preferential Collection of Claims Against the Company.................... 68
Section 7.12. Rights of Holders with Respect to Time Method and Place.................. 68
ARTICLE 8 DEFEASANCE AND COVENANT DEFEASANCE....................................... 68
Section 8.01. Option to Effect Defeasance or Covenant Defeasance....................... 68
Section 8.02. Defeasance and Discharge................................................. 68
Section 8.03. Covenant Defeasance...................................................... 68
Section 8.04. Conditions to Defeasance or Covenant Defeasance.......................... 69
Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other
Miscellaneous Provisions................................................. 70
Section 8.06. Reinstatement............................................................ 71
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER..........................................71
Section 9.01. Without Consent of Holders of Notes...................................... 71
Section 9.02. With Consent of Holders of Notes......................................... 72
Section 9.03. Compliance with TIA...................................................... 73
Section 9.04. Revocation and Effect of Consents........................................ 73
Section 9.05. Notation on or Exchange of Notes......................................... 73
ARTICLE 10 SUBORDINATION........................................................... 74
Section 10.01. Agreement to Subordinate................................................ 74
Section 10.02. Liquidation; Dissolution; Bankruptcy.................................... 74
Section 10.03. Default on Designated Senior Indebtedness............................... 74
Section 10.04. Acceleration of Securities.............................................. 75
</TABLE>
ii
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<S> <C> <C>
Section 10.05. When Distribution Must Be Paid Over..................................... 75
Section 10.06. Notice by Company....................................................... 76
Section 10.07. Subrogation............................................................. 76
Section 10.08. Relative Rights......................................................... 76
Section 10.09. Subordination May Not Be Impaired by Company............................ 77
Section 10.10. Distribution or Notice to Representative................................ 77
Section 10.11. Rights of Trustee and Paying Agent...................................... 77
Section 10.12. Authorization to Effect Subordination................................... 78
ARTICLE 11 SATISFACTION AND DISCHARGE...............................................78
Section 11.01 Satisfaction and Discharge of Indenture................................. 78
Section 11.02 Application of Trust Money.............................................. 79
ARTICLE 12 MISCELLANEOUS............................................................79
Section 12.01. Conflict of Any Provision of Indenture with TIA......................... 79
Section 12.02. Notices................................................................. 79
Section 12.03. Communication by Holders of Notes with Other Holders of Notes........... 80
Section 12.04. Certificate and Opinion as to Conditions Precedent...................... 80
Section 12.05. Legal Holidays.......................................................... 81
Section 12.06. No Personal Liability of Directors, Officers, Employees and Stockholders.81
Section 12.07. Governing Law........................................................... 81
Section 12.08. No Adverse Interpretation of Other Agreements........................... 81
Section 12.09. Successors and Assigns.................................................. 81
Section 12.10. Severability............................................................ 81
Section 12.11. Counterpart Originals................................................... 82
Section 12.12. Table of Contents, Headings, etc........................................ 82
</TABLE>
iii
<PAGE>
ANNEXES
Annex A Specified Property
EXHIBITS
Exhibit A-1 Form of Restricted Definitive Note, Regulation S Permanent Global
Note and Rule 144A Global Note
Exhibit A-2 Form of Regulation S Temporary Global Note
Exhibit A-3 Form of Unrestricted Note
Exhibit B Form of Certificate of Transfer
Exhibit C Form of Certificate of Exchange
Exhibit D Form of Certificate from Acquiring Institutional Accredited Investor
Exhibit E Form of Supplemental Indenture to be Delivered by Subsidiary
Guarantors
iv
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture Section
Act Section
310(a)(1)........................................................... 7.10
(a)(2)........................................................... 7.10
(a)(3)........................................................... N.A.
(a)(4)........................................................... N.A.
(a)(5)........................................................... 7.10
(b).............................................................. 7.10
(c).............................................................. N.A.
311(a).............................................................. 7.11
(b).............................................................. 7.11
(c).............................................................. N.A.
312(a).............................................................. 11.03
(b).............................................................. 11.03
(c).............................................................. 11.03
313(a).............................................................. 7.06
(b)(1)........................................................... N.A.
(b)(2)........................................................... 7.06; 7.07
(c).............................................................. 7.06; 10.02
(d).............................................................. 7.06
314(a).............................................................. 4.04; 11.02
(b).............................................................. N.A.
(c)(1)........................................................... 11.04
(c)(2)........................................................... 11.04
(c)(3)........................................................... N.A.
(d).............................................................. N.A.
(f).............................................................. N.A.
315(a).............................................................. 7.01
(b).............................................................. 7.05; 11.02
(c).............................................................. 7.01
(d).............................................................. 7.01
(e).............................................................. 6.11
316(a)(last sentence)............................................... 2.09
(a)(1)(A)........................................................ 6.05
(a)(1)(B)........................................................ 6.04
(a)(2)........................................................... N.A.
(b).............................................................. 6.07
317(a)(1)........................................................... 6.08
(a)(2)........................................................... 6.09
(b).............................................................. 2.04
318(a).............................................................. 11.01
(b).............................................................. N.A.
(c).............................................................. 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
v
<PAGE>
INDENTURE dated as of April 30, 1997 between KSL Recreation Group, Inc.,
a Delaware corporation, and First Trust of New York, National Association, as
trustee (the "Trustee"). The Company and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 10 1/4% Senior Subordinated Notes due 2007 (the "Notes")
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
Set forth below are certain defined terms used in this Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accredited Investor" has the meaning set forth in Rule 501(a) (1), (2),
(3) of (7) of the Securities Act.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Adjusted Net Membership Deposits" for any period means, with respect to
any specified Person, the amount of refundable membership deposits paid in such
period to such specified Person or any Restricted Subsidiary of such specified
Person by new and upgraded private club members and by existing club members who
have converted to new membership plans, in each case in cash, plus principal
payments in cash received by such specified Person or any Restricted Subsidiary
of such specified Person in such period on notes in respect thereof, minus the
amount of any refunds paid to such specified Person or any Restricted Subsidiary
of such specified Person in cash in such period in respect of such deposits;
provided, however, that all amounts paid to such specified Person or any
Restricted Subsidiary of such Specified Person in such period by existing
private club members in connection with the conversion of such members to new
membership plans within six months after the introduction of such plans shall be
excluded.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Members" means members of, or participants in, the Depository.
"Applicable Procedures" means applicable procedures of the Depository,
Euroclear or Cedel Bank, as the case may be.
<PAGE>
2
"Asset Sale" means: (i) the sale, conveyance, transfer or other
disposition (whether in a single transaction or a series of related
transactions) of property or assets (including by way of a sale and leaseback)
of the Company or any Restricted Subsidiary (each referred to in this definition
as a "disposition") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than: (a) a disposition of Cash Equivalents,
Investment Grade Securities or obsolete equipment in the ordinary course of
business; (b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described under Section
5.01 or any disposition that constitutes a Change of Control pursuant to this
Indenture; (c) any Restricted Payment that is permitted to be made, and is made,
under Section 4.11; (d) any disposition of assets with an aggregate fair market
value of less than $1 million; (e) any disposition of property or assets by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary; (f) any exchange of like property
pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for
use in a Similar Business; (g) any sale leaseback of an asset within 180 days
after the completion of construction or acquisition of such asset; (h)
foreclosures on assets; and (i) any sale of Equity Interests in, or Indebtedness
or other securities of, an Unrestricted Subsidiary.
"Bankruptcy Law" means Title 11, U.S. Code or any similar foreign,
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law, regulation or executive order to close.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized and reflected as a
liability on a balance sheet in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) of this definition entered into with any financial institution meeting the
qualifications specified in
<PAGE>
3
clause (iii) of this definition, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii) Indebtedness
or preferred stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of
the Company and its Restricted Subsidiaries, taken as a
whole; or
(ii) the Company becomes aware of (by way of a report or any
other filing pursuant to Section 13(d) of the Exchange Act,
proxy, vote, written notice or otherwise) the acquisition by
any Person or group (within the meaning of Section 13(d)(3)
or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than the Permitted Holders and their Related Parties, in a
single transaction or in a related series of transactions,
by way of merger, consolidation or other business
combination or purchase of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of more of the total voting power of
the Voting Stock of the Company than the Permitted Holders
and their Related Parties beneficially own at the time the
Company so becomes aware of such acquisition if, at such
time, the Permitted Holders and their Related Parties do not
have the right or the ability by voting power, contract or
otherwise to elect or designate for election a majority of
the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Company" means KSL Recreation Group, Inc., a Delaware corporation, and
any successor thereto pursuant to Section 5.01 hereof.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company (i) by its Chairman, a Vice Chairman, its
President or a Vice President and (ii) by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary and delivered to the Trustee; provided,
however, that such written request or order may be signed by any two of the
officers or directors listed in clause (i) above in lieu of being signed by one
of such officers or directors listed in such clause (i) and one of the officers
listed in clause (ii) above.
"Concurrent Transactions" has the meaning set forth in the Offering
Memorandum.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, without
duplication, (a) provision for taxes based on income or profits of such Person
for such period deducted in computing Consolidated Net Income or, if different,
paid or accrued pursuant to, or on terms substantially similar to those
contained in, the Tax Sharing Agreement, plus (b) Consolidated Interest Expense
of such Person for such period, plus (c) Consolidated
<PAGE>
4
Depreciation and Amortization Expense of such Person for such period, plus (d)
Adjusted Net Membership Deposits (as recorded on the Company's consolidated
statement of cash flows for the applicable period), plus (e) any expenses or
charges related to any Equity Offering or Indebtedness permitted to be incurred
by this Indenture (including such expenses or charges related to the
Refinancings) and deducted in computing Consolidated Net Income, plus (f) the
amount of any restructuring charge deducted in such period in computing
Consolidated Net Income, plus (g) without duplication, any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of a cash reserve for anticipated cash charges
for any future period and amortization of a prepaid cash expense that was paid
in a prior period), less, without duplication (h) non-cash items increasing
Consolidated Net Income of such Person for such period (excluding any items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period).
"Consolidated Depreciation and Amortization Expense" means with respect
to any Person for any period, to the extent deducted in computing Consolidated
Net Income, the total amount of depreciation and amortization expense (including
the amortization of deferred financing fees) and other noncash charges
(excluding any noncash item that represents an accrual, reserve or amortization
of a cash expenditure that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis and otherwise
determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of: (a) to the extent deducted in computing Consolidated Net
Income, consolidated interest expense of such Person and its Restricted
Subsidiaries for such period (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations and net payments (if any) pursuant to Hedging Obligations, but
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; provided, however, that (i) any net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto)
shall be excluded, (ii) the Net Income for such period shall not include the
cumulative effect of a change in accounting principles during such period, (iii)
any net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of business
(as determined in good faith by the Board of Directors of the Company) shall be
excluded, (iv) the Net Income of the referent Person attributable to any Person
that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted
for by the equity method of accounting, shall be included only to the extent of
the amount of dividends or distributions or other payments paid in cash (or to
the extent converted into cash) to the referent Person or a Wholly Owned
Restricted Subsidiary thereof in respect of such period, (v) the Net Income of
any Person acquired in a pooling of interests transaction shall not be included
for any period prior to the date of such acquisition and (vi) the Net Income for
such period of any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of its Net Income to the referent Person or a Restricted
Subsidiary thereof is not at the date of determination permitted without any
prior governmental approval (which has not been obtained) or, directly or
indirectly, by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, unless such
restriction with respect to the payment of dividends or in similar distributions
has been legally waived.
<PAGE>
5
"Contingent Obligations" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation against loss in respect
thereof.
"Corporate Sale Transaction" means any Restricted Payment consisting of
the dividend of Equity Interests of any Subsidiary and/or the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Notes" means Restricted Definitive Notes and Unrestricted
Definitive Notes.
"Depository" means, with respect to any Global Note, the Person
specified in Section 2.03 hereof as the Depositary with respect to such Note,
until a successor shall have been appointed and become such pursuant to the
applicable provision of this Indenture, and, thereafter, "Depository" shall mean
or include such successor.
"Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of Section 4.11.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Facility and (ii) any other Senior Indebtedness or
Guarantor Senior Indebtedness permitted hereunder the principal amount of which
is $50 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
<PAGE>
6
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Notes; provided, however, that if such Capital Stock is
issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred
stock by the Company (excluding Disqualified Stock) that is registered pursuant
to the Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, and (ii) any private issuance of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Registrable Notes (as
defined in the Registration Rights Agreement) for Exchange Notes.
"Excluded Contribution" means the net cash proceeds received by the
Company after the Issuance Date from (a) contributions to its common equity
capital and (b) the sale (other than to a Subsidiary or to any Company or
Subsidiary management equity plan or stock option plan or any other management
or employee benefit plan or agreement) of Capital Stock of the Company (other
than Disqualified Stock), in each case, designated as Excluded Contributions
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company on the date such capital
contributions are made or the date such Capital Stock is sold, as the case may
be, the cash proceeds of which are excluded from the calculation set forth in
paragraph (c) of Section 4.11.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issuance Date, plus interest
accruing thereon, after application of the net proceeds from the initial sale of
the Notes as described in the Offering Memorandum.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of Consolidated Cash Flow of such Person for such period to
the Fixed Charges of such Person for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of Indebtedness arising under revolving
credit borrowings, in which case Consolidated Interest Expense shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period) or issues or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of
<PAGE>
7
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter period. For purposes of making the computation referred to above,
Investments, acquisitions, dispositions, mergers, consolidations and
discontinued operations (as determined in accordance with GAAP) that have been
made by the Company or any of its Restricted Subsidiaries during the
four-quarter reference period or subsequent to such reference period and on or
prior to or simultaneously with the Calculation Date shall be calculated on a
pro forma basis assuming that all such Investments, acquisitions, dispositions,
mergers, consolidations and discontinued operations (and the reduction of any
associated fixed charge obligations and the change in Consolidated Cash Flow
resulting therefrom) had occurred on the first day of the four-quarter reference
period. If, since the beginning of such period, any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Investment, acquisition, disposition, discontinued operation, merger or
consolidation that would have required adjustment pursuant to this definition
had such Person been a Restricted Subsidiary at the time of such Investment,
acquisition, disposition, merger, consolidation or discontinued operation, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four quarter period. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, the pro forma calculations
shall be made in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be calculated as
if the rate in effect on the Calculation Date had been the applicable rate for
the entire period (taking into account any Hedging Obligations applicable to
such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by a responsible financial
or accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) Consolidated Interest Expense of such Person for such period and (b)
all cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person or its Restricted Subsidiaries.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
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 or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of this
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"Global Note" means, individually and collectively, the Regulation S
Global Note, the Rule 144A Global Note and the Unrestricted Global Note.
<PAGE>
8
"Government Securities" means securities that are (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, (i) the Obligations of such Subsidiary Guarantor under the New Credit
Facility and (ii) any other Indebtedness of such Subsidiary Guarantor permitted
to be incurred by such Subsidiary Guarantor under the terms of this Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Subsidiary Guarantee of such Subsidiary Guarantor, including, with respect to
(i) and (ii), interest accruing subsequent to the filing of, or which would have
accrued but for the filing of, a petition for bankruptcy, whether or not such
interest is an allowable claim in such bankruptcy proceeding. Notwithstanding
anything to the contrary in the foregoing, Guarantor Senior Indebtedness will
not include (1) any liability for federal, state, local or other taxes owed or
owing by any Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor
to the Company, (3) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such liabilities)
other than obligations in respect of bankers' acceptances and letters of credit
under the New Credit Facility, (4) any Indebtedness that is incurred in
violation of this Indenture, (5) Indebtedness which, when incurred and without
respect to any election under Section 1111 (b) of Title 11, United States Code,
is without recourse to a Subsidiary Guarantor, (6) any Indebtedness, guarantee
or obligation of any Subsidiary Guarantor which is subordinate or junior to any
other Indebtedness, guarantee or obligation of such Subsidiary Guarantor, (7)
Indebtedness evidenced by any Subsidiary Guarantee and (8) Capital Stock of any
Subsidiary Guarantor.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, (a) any indebtedness
of such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case, accrued in the ordinary
course of business
<PAGE>
9
or (iv) representing any Hedging Obligations, if and to the extent any of the
foregoing Indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (b) to the extent not otherwise included, any obligation
by such Person to be liable for, or to pay, as obligor, guarantor or otherwise,
on the Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person) and (d) the liquidation preference of all outstanding
Disqualified Stock of such Person; provided, however, that Contingent
Obligations incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Independent Financial Advisor" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in Similar Businesses
of nationally recognized standing that is, in the judgment of the Company's
Board of Directors, qualified to perform the task for which it has been engaged.
"Initial Purchasers" mean Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc, Credit Suisse First Boston Corporation,
BancAmerica Securities, Inc., Montgomery Securities and Scotia Capital Markets
(USA) Inc.
"Interest Payment Date" means each May 1 and November 1, whether or not
such day is a Business Day.
"interest" means all interest payable with respect to the Notes,
including, without limitation Special Interest.
"Investment Grade Securities" means (i) securities issued or directly
and fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and
Section 4.11: (i) "Investments" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of a Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
<PAGE>
10
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issuance Date" means the closing date for the sale and original
issuance of the Notes under this Indenture.
"Joint Venture" means a corporation, partnership or other entity engaged
in a Similar Business as to which the Company (directly or through one or more
Restricted Subsidiaries) owns an Equity Interest.
"KKR" means KKR Associates, L.P., a Delaware limited partnership.
"KSL Land Note" means the note payable to the Company by KSL Land
Corporation, dated April 30, 1997, evidencing the indebtedness of KSL Land
Corporation to the Company pursuant to the Refinancings.
"KSL Recreation" means KSL Recreation Corporation, a Delaware
corporation, the corporate parent of the Company, and any successor thereto.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Management Group" means the group consisting of the Officers of the
Company.
"Maturity" when used in respect to any Note means the date on which the
principal of (and premium, if any) and interest on such Note becomes due and
payable as therein or herein provided, whether at Stated Maturity or the
applicable Redemption Date and whether by declaration of acceleration, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the consolidated net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including
any cash proceeds received upon the sale or other disposition of Designated
Non-Cash Proceeds), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and brokerage and sales
<PAGE>
11
commissions), and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of Section 4.10) to be paid as a result of such transaction and any deduction of
appropriate amounts to be provided by the Company as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
"New Credit Facility" means that certain credit facility dated as of
April 30, 1997 by and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, as a co-syndication agent and the documentation agent,
The Bank of Nova Scotia, as a co-syndication agent and the administrative agent
and BancAmerica Securities, Inc., as the syndication agent, and the lenders from
time to time party thereto, including any collateral documents, instruments and
agreements executed in connection therewith, and the term New Credit Facility
shall also include any amendments, supplements, modifications, extensions,
renewals, restatements or refundings thereof and any credit facilities that
replace, refund or refinance any part of the loans, other credit facilities or
commitments thereunder, including any such replacement, refunding or refinancing
facility that increases the amount borrowable thereunder or alters the maturity
thereof, provided, however, that there shall not be more than one facility at
any one time that constitutes the New Credit Facility and, if at any time there
is more than one facility which would constitute the New Credit Facility, the
Company will designate to the Trustee which one of such facilities will be the
New Credit Facility for purposes of this Indenture.
"Notes" means the Company's 10 1/4% Senior Subordinated Notes due 2007
issued in compliance with the Indenture.
"Note Custodian" means custodian for the Depository of the Global Notes,
or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Offering Memorandum" means that certain offering memorandum with
respect to the Notes, dated April 24, 1997.
"Officer" means the Chairman of the Board, the President, any Vice
President or the Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in Section 1.05.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee. Each such
opinion shall include the statements provided for in TIA Section 314(e) to the
extent applicable.
<PAGE>
12
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness which ranks pari passu in right of payment to the Notes and (b)
with respect to any Subsidiary Guarantee, Indebtedness which ranks pari passu in
right of payment to such Subsidiary Guarantee.
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Holders" means KKR and any of its Affiliates and the
Management Group.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is engaged in a Similar Business if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
or (ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; (d) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to the provisions of Section 4.10 or any other disposition of
assets not constituting an Asset Sale; (e) any Investment existing on the
Issuance Date; (f) advances to employees not in excess of $10 million
outstanding at any one time; (g) any Investment acquired by the Company or any
of its Restricted Subsidiaries (i) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (ii) the transfer of title with respect to any secured Investment in default
as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to such secured Investment; (h) Hedging Obligations
permitted under Section 4.12; (i) loans and advances to officers, directors and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case, incurred in the ordinary course of business; (j)
any Investment in a Similar Business (other than an Investment in an
Unrestricted Subsidiary) having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (j), that are at the
time outstanding, not to exceed the greater of (x) $50 million and (y) 10% of
Total Assets at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); (k) additional Investments having an aggregate
fair market value, taken together with all other Investments made pursuant to
this clause (k), that are at the time outstanding, not to exceed the greater of
(x) $50 million and (y) 10% Total Assets at the time of such Investment (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value); (l) Investments the
payment for which consists of Equity Interests of the Company (exclusive of
Disqualified Stock); provided, however, that such Equity Interests will not
increase the amount available for Restricted Payments under clause (c) of
Section 4.11; (m) any guarantees permitted to be made pursuant to Section 4.12;
and (n) any transaction to the extent it constitutes an investment that is
permitted by and made in accordance with the provisions of the second paragraph
of Section 4.13 (except transactions described in clauses (ii) and (vi) of such
paragraph).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"preferred stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Private Placement Legend" means the legend set forth in Section
2.07(g)(i)(A) to be placed on all Notes issued under this Indenture except as
permitted pursuant to Section 2.06(g)(i)(B).
<PAGE>
13
"Pro Forma Consolidated Cash Flow" means with respect to any Person for
any period the Consolidated Cash Flow of such Person for such period; provided,
however, (i) for purposes of making the computation referred to above,
Investments, acquisitions (including transactions accounted for as
acquisitions), dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the date of calculation shall be calculated on a pro forma basis assuming that
all such Investments, acquisitions, dispositions, discontinued operations,
mergers and consolidations (and the reduction of any associated fixed charge
obligations and the change in Consolidated Cash Flow resulting therefrom) had
occurred on the first day of the four-quarter reference period, and (ii) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, discontinued operation, merger or consolidation that
would have required adjustment pursuant to this definition had such Person been
a Restricted Subsidiary at the time of such Investment, acquisition,
disposition, discontinued operation, merger or consolidation, then Pro Forma
Consolidated Cash Flow shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, discontinued
operation, merger or consolidation had occurred at the beginning of the
applicable four quarter period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of the
Company.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Refinancings" has the meaning set forth in the Offering Memorandum.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of April 30, 1997, by and among the Company and the Initial Purchasers,
as such agreement may be amended, modified or supplemented from time to time.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 15 or October 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depository or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name
<PAGE>
14
of the Depository or its nominee, issued in a denomination equal to the
outstanding principal amount of the Notes initially sold in reliance on Rule 903
of Regulation S.
"Related Parties" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's Notes pursuant to the provisions described under
Sections 4.09 or 4.10.
"Responsible Officer," when used with respect to the Trustee, means any
officer in the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Definitive Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A-1, that do not include the information called
for by footnotes 1 and 2 thereof.
"Restricted Global Notes" means the Regulation S Global Notes and the
Rule 144A Global Notes.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that contains the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 2 to the form of the Note attached hereto as Exhibit A-1, and that is
deposited with and registered in the name of the Depository, representing Notes
sold in reliance on Rule 144A.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"S&P" means Standard and Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issuance Date.
"Similar Business" means any business the majority of whose revenues are
derived from the leasing, ownership and/or operation of recreation, leisure
and/or hospitality facilities, including without
<PAGE>
15
limitation, golf courses, resort facilities, spas and hotels, or any business or
activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
"Senior Indebtedness" means, with respect to the Company, (i) the
Obligations of the Company under the New Credit Facility and (ii) any other
Indebtedness of the Company permitted to be incurred by the Company under the
terms of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes, including, with respect to (i) and (ii), interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (1) any
liability for federal, state, local or other taxes owed or owing by the Company
or any of its Subsidiaries, (2) any obligation of the Company to any of its
Subsidiaries, (3) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such liabilities)
other than obligations in respect of bankers' acceptances and letters of credit
under the New Credit Facility, (4) any Indebtedness that is incurred in
violation of this Indenture, (5) Indebtedness which, when incurred and without
respect to any election under Section 1111 (b) of Title 11, United States Code,
is without recourse to the Company, (6) any Indebtedness, guarantee or
obligation of the Company which is subordinate or junior to any other
Indebtedness, guarantee or obligation of the Company, (7) Indebtedness evidenced
by the Notes and (8) Capital Stock of the Company.
"Special Interest" means all interest payable pursuant to Paragraph 2 of
the Restricted Definitive Notes, the Regulation S Global Notes and the Rule 144A
Global Notes.
"Special Record Date" means a date fixed by the Trustee for the payment
of any Defaulted Interest pursuant to Section 2.12.
"Specified Property" means the items set forth on Annex A hereto.
"Stated Maturity," when used with respect to any Note or any installment
of principal thereof or interest thereon, means the date specified in such Note
as the fixed date on which the principal of such Note or such installment of
principal or interest is due and payable.
"Subordinated Indebtedness" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary Guarantee, any
Indebtedness of the applicable Subsidiary Guarantor which is by its terms
subordinated in right of payment to such Subsidiary Guarantee.
"Subordinated Note Obligations" means any principal of, premium, if any,
and interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, redemption, repurchase or other acquisition thereof, together with
and including any amounts received upon the exercise of rights of rescission or
other rights of action (including claims for damages) or otherwise, to the
extent relating to the purchase price of the Notes or amounts corresponding to
such principal, premium, if any, or interest on the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the
<PAGE>
16
capital accounts, distribution rights, total equity and voting interests or
general or limited partnership interests, as applicable, are owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof whether in the form of
membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Indenture and the Notes by any Person in accordance with the
provisions of this Indenture pursuant to a supplemental indenture substantially
in the form attached hereto as Exhibit E.
"Subsidiary Guarantor" means any Person that incurs a Subsidiary
Guarantee; provided that upon the release and discharge of such Person from its
Subsidiary Guarantee in accordance with this Indenture, such Person shall cease
to be a Subsidiary Guarantor.
"Tax Sharing Agreement" means that certain tax sharing agreement between
and among the Company, KSL Recreation and each of the entities described on
Schedule A thereto, dated April 30, 1997, without giving effect to any amendment
subsequent thereto.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Total Assets" means (i) with respect to the Company, the total
consolidated assets of the Company and its Restricted Subsidiaries, as shown on
the most recent balance sheet of the Company; or (ii) with respect to any
Foreign Subsidiary, or any Restricted Subsidiary that is not a Foreign
Subsidiary, the total consolidated assets of such Foreign Subsidiary or
Restricted Subsidiary, as the case may be, and its Restricted Subsidiaries, as
shown on the most recent balance sheet of such Foreign Subsidiary or Restricted
Subsidiary, as applicable; provided, however, that, in the case of clauses (i)
and (ii), Total Assets shall not include the Specified Property.
"Total Net Debt" means at any date of determination, an amount equal to
(i) the aggregate amount of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding as of the date of determination less (ii) the aggregate
of all unrestricted cash and Cash Equivalents of the Company and its Restricted
Subsidiaries as of such date.
"Trustee" means the party named as such above unless and until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means such successor.
"Unrestricted Global Note" means a permanent global Note that contains
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 2 to the form of the Note attached hereto as Exhibit A-3, and that
is deposited with or on behalf of and registered in the name of the Depository.
"Unrestricted Definitive Note" means Notes that are in the form of the
Notes attached hereto as Exhibit A-3 that do not include the information called
for by footnotes 1 and 2 thereof.
"Unrestricted Notes" means the Unrestricted Global Notes and
Unrestricted Definitive Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which
at the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the
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17
Company may designate any Subsidiary of the Company (including any existing
Subsidiary and any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Equity Interests of, or owns, or holds any Lien on, any property of, the
Company or any Subsidiary of the Company (other than any Subsidiary of the
Subsidiary to be so designated), provided that (a) any Unrestricted Subsidiary
must be an entity of which a majority of the voting power of the outstanding
Voting Stock is beneficially owned, directly or indirectly, by the Company, (b)
the Company certifies that such designation complies with Section 4.11 and (c)
each of (I) the Subsidiary to be so designated and (II) its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness (x) pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries or (y) with respect
to which a default (including any rights that the holders thereof may have to
take enforcement action against such Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any Indebtedness of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 4.11. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.12 calculated on a pro forma basis as
if such designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence following
such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the
quotient obtained by dividing (i) the sum of the products of the number of years
from the date of determination to the date of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock multiplied by the amount of such payment, by
(ii) the sum of all such payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that
is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person 100% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
<PAGE>
18
Section 1.02. Other Definitions.
Term Defined in
Section
"Act"............................................................ 1.07
"Affiliate Transaction".......................................... 4.13
"Asset Sale Offer"............................................... 4.10
"Cedel Bank"..................................................... 2.01
"Covenant Defeasance"............................................ 8.03
"Defeasance"..................................................... 8.02
"DTC"............................................................ 2.03
"Euroclear"...................................................... 2.01
"Event of Default"............................................... 6.01
"Excluded Guarantee"............................................. 4.15
"Guaranteed Debt"................................................ 4.15
"Paying Agent"................................................... 2.03
"QIB"............................................................ 2.01
"Registrar"...................................................... 2.03
"Restricted Payments"............................................ 4.11
"Rule 144 A Global Notes"........................................ 2.01
"Successor Company".............................................. 5.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor
obligors upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
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19
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor
sections or rules adopted by the SEC from time to time.
SECTION 1.05. COMPLIANCE CERTIFICATES AND OPINIONS
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion (other than the certificates required by
Section 4.05(a)) with respect to compliance with a condition or covenant
provided for in this Indenture shall comply with the provisions of TIA 314(e)
and shall include:
(a) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
SECTION 1.06. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of,
<PAGE>
20
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representation
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.07. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to TIA Section 315) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved in any reasonable manner that the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by a register kept by the
Registrar.
(d) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of such Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. Notwithstanding TIA Section 316(c),
any such record date shall be the record date specified in or pursuant to such
Board Resolution, which shall be a date not more than 30 days prior to the first
solicitation of Holders generally in connection therewith and no later than the
date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to
<PAGE>
21
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for this purpose the Notes then outstanding shall be computed as of
such record date; provided that no such request, demand, authorization,
direction, notice, consent, waiver or other Act by the Holders on such recorded
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holder of any Note shall bind every future Holder of the
same Note or the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company
in reliance thereon, whether or not notation of such action is made upon such
Note.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibits A-1, A-2 and A-3 attached hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage, as designated by the Company or its counsel. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof (subject to a minimum
initial purchase requirement of $250,000 for Notes sold to Accredited Investors
other than in reliance on Rule 144A or Regulation S).
The Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of a Rule 144A Global Note. Notes offered and sold to
Accredited Investors in transactions exempt from registration under the
Securities Act not made in reliance on Rule 144A or Regulation S shall be issued
initially in the form of Restricted Definitive Notes. Notes offered and sold in
reliance on Regulation S shall be issued initially in the form of the Regulation
S Temporary Global Note, which shall be deposited on behalf of the purchasers of
the Notes represented thereby with the Trustee, at its New York office, as
custodian for the Depository, and registered in the name of the Depository or
the nominee of the Depository for the accounts of designated agents holding on
behalf of Euroclear or Cedel Bank, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The Restricted Period
shall be terminated upon the receipt by the Trustee of (i) a written certificate
from the Depository or the Note Custodian, together with copies of certificates
from Euroclear and Cedel Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note, and (ii) an Officers'
Certificate from the Company to the effect set forth in Section 12.04(a) hereof.
Following the termination of the Restricted Period, beneficial interests in the
Regulation S Temporary Global Note shall be exchanged for beneficial interests
in Regulation S Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Notes,
the Trustee shall cancel the Regulation S Temporary Global Note.
Notes issued in global form shall be substantially in the form of Exhibits
A-1, A-2 or A-3 attached hereto (including the Global Note Legend and the
"Schedule of Exchanges in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-1 or A-3
attached hereto (but without the Global Note Legend and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). Each Global Note
shall represent such of the outstanding Notes as shall be specified therein and
each shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of
<PAGE>
22
outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any endorsement
of a Global Note to reflect the amount of any increase or decrease in the
aggregate principal amount of outstanding Notes represented thereby shall be
made by the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Notes that are held by the
Agent Members through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in the Notes. The aggregate principal amount of Notes outstanding
at any time may not exceed such amount except as provided in Section 2.07
hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holders or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
<PAGE>
23
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, or interest on the Notes, and will notify the Trustee of any
default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a Subsidiary) shall have no further liability for
the money. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depository to the Depository or to another nominee of the
Depository, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates identified by the Company or
its counsel to be required pursuant to Rule 903 under the Securities Act. Upon
the occurrence of either of the preceding events in (i) or (ii) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee. Global Notes also may be exchanged or replaced, in whole or in
part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to Section 2.07 or 2.10 hereof, shall be authenticated and delivered in
the form of, and shall be, a Global Note. A Global Note may not be exchanged for
another Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in Global Notes. The
transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer described in the
Private Placement Legend to the extent
<PAGE>
24
required by the Securities Act. Transfers of beneficial interests in the Global
Notes also shall require compliance with either subparagraph (i) or (ii) below,
as applicable, as well as one or more of the other following subparagraphs as
applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period transfers of
beneficial interests in the Temporary Regulation S Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person (other
than an Initial Purchaser). Beneficial interests in any Unrestricted Global
Note may be transferred only to Persons who take delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note. No written
orders or instructions shall be required to be delivered to the Registrar
to effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests (other than a transfer of a beneficial interest in a Global Note
to a Person who takes delivery thereof in the form of a beneficial interest
in the same Global Note), the transferor of such beneficial interest must
deliver to the Registrar either (A) (1) a written order from an Agent
Member to the Depositary in accordance with the Applicable Procedures
directing the Depositary to credit or cause to be credited a beneficial
interest in another Global Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given in
accordance with the Applicable Procedures containing information regarding
the Agent Member account to be credited with such increase or (B) (1) a
written order from an Agent Member given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to cause to be
issued a Definitive Note in an amount equal to the beneficial interest to
be transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above; provided that in no event shall Definitive Notes
be issued upon the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
identified by the Company or its counsel to be required pursuant to Rule
903 under the Securities Act. Upon an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer or
exchange of beneficial interests in Global Notes contained in this
Indenture, the Notes and otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of clause (ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof; and
<PAGE>
25
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of clause (ii) above and:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
holder of the beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer, is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of the
Notes issues in the Exchange Offer or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
beneficial interest in an Unrestricted Global Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof;
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note, a certificate from such holder in the form
of Exhibit B hereto, including the certifications in item (4) thereof;
and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are not required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to, Persons who take delivery thereof in the
form of a beneficial interest in a Restricted Global Note.
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26
(c) Transfer or Exchange of Beneficial Interests in Global Notes for
Definitive Notes.
(i) If any holder of a beneficial interest in a Restricted Global Note
proposes to exchange such beneficial interest for a Restricted Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon receipt by
the Registrar of the following documentation:
(A) if the holder of such beneficial interest proposes to exchange
such beneficial interest for a Restricted Definitive Note, a
certificate from such holder in the form of Exhibit C hereto, including
the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S.
Person in an offshore transaction in accordance with Rule 903 or Rule
904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Accredited Investor in reliance on an exemption from the registration
requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications, certificates
and Opinion of Counsel required by item (3)(d) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company
or any of its Subsidiaries, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(b) thereof;
or
(G) if such beneficial interest is being transferred pursuant to an
effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Restricted Definitive Note in the appropriate principal amount. Any
Restricted Definitive Note issued in exchange for a beneficial interest in
a Restricted Global Note pursuant to this Section 2.06(c) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Agent Member.
The Trustee shall deliver such Restricted Definitive Notes to the Persons
in whose names such Notes are so registered. Any Restricted Definitive Note
issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend
and shall be subject to all restrictions on transfer contained therein.
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27
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
(A) exchanged for a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(B) under the Securities Act or (B)
transferred to a Person who takes delivery thereof in the form of a
Definitive Note prior to the conditions set forth in clause (A) above or
unless the transfer is pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
(iii) Notwithstanding 2.06(c)(i) hereof, a holder of a beneficial
interest in a Restricted Global Note may exchange such beneficial interest
for an Unrestricted Definitive Note or may transfer such beneficial
interest to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
holder of such beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a Broker-Dealer, (2)
a Person participating in the distribution of the Notes issued in the
Exchange Offer or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for an
Unrestricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (1)(b)
thereof;
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of an Unrestricted
Definitive Note, a certificate from such holder in the form of Exhibit
B hereto, including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company, to the
effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are not required in order to
maintain compliance with the Securities Act.
(iv) If any holder of a beneficial interest in an Unrestricted Global
Note proposes to exchange such beneficial interest for an Unrestricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of an Unrestricted Definitive Note,
then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii)
hereof, the Trustee shall cause the aggregate principal amount of the
applicable Unrestricted Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions an
Unrestricted Definitive Note in the appropriate principal amount. Any
Unrestricted Definitive Note issued in exchange for a beneficial
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28
interest pursuant to this Section 2.06(c)(iv) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Agent Member. The Trustee shall
deliver such Unrestricted Definitive Notes to the Persons in whose names
such Notes are so registered. Any Unrestricted Definitive Note issued in
exchange for a beneficial interest pursuant to this section 2.06(c)(iv)
shall not bear the Private Placement Legend. A beneficial interest in an
Unrestricted Global Note cannot be exchanged for a Restricted Definitive
Note or transferred to a Person who takes delivery thereof in the form of a
Restricted Definitive Note.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests
in Global Note.
(i) If any Holder of a Restricted Definitive Note proposes to exchange
such Note for a beneficial interest in a Restricted Global Note or to
transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof; or
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, and in the case of clause (C) above, the
Regulation S Global Note.
(ii) A Holder of a Restricted Definitive Note may exchange such Note
for a beneficial interest in an Unrestricted Global Note or transfer such
Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
Holder, in the case of an exchange, or the transferee, in the case of a
transfer, is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
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29
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes
to exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof;
(2) if the Holder of such Restricted Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery thereof in
the form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company to the
effect that such exchange or transfer is in compliance with the
Securities Act, that the restrictions on transfer contained herein and
in the Private Placement Legend are not required in order to maintain
compliance with the Securities Act, and such Restricted Definitive
Notes are being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United States.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Restricted Definitive
Notes and increase or cause to be increased the aggregate principal amount
of the Unrestricted Global Note.
(iii) A Holder of an Unrestricted Definitive Note may exchange such
Note for a beneficial interest in an Unrestricted Global Note or transfer
such Unrestricted Definitive Notes to a Person who takes delivery thereof
in the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
If any such exchange or transfer from a Definitive Note to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above
at a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an authentication order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, pursuant to the provisions of this Section 2.06(e).
(i) Restricted Definitive Notes may be transferred to and registered in
the name of Persons who take delivery thereof if the Registrar receives the
following:
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30
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904,
then the transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable.
(ii) Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person or
Persons who take delivery thereof in the form of an Unrestricted Definitive
Note if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
Holder, in the case of an exchange, or the transferee, in the case of a
transfer, is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes
to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof;
(2) if the Holder of such Restricted Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery thereof in
the form of an Unrestricted Definitive Note, a certificate from such
Holder in the form of Exhibit B hereto, including the certifications in
item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company to the
effect that such exchange or transfer is in compliance with the
Securities Act, that the restrictions on transfer contained herein and
in the Private Placement Legend are not required in order to maintain
compliance with the Securities Act, and such Restricted Definitive Note
is being exchanged or transferred in compliance with any applicable
blue sky securities laws of any State of the United States.
(iii) A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request for such a transfer, the
Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions
<PAGE>
31
from the Holder thereof. Unrestricted Definitive Notes cannot be exchanged
for or transferred to Persons who take delivery thereof in the form of a
Restricted Definitive Note.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by persons that
are not (x) Broker-Dealers, (y) Persons participating in the distribution of the
Notes issued in the Exchange Offer or (z) Persons who are Affiliates (as defined
in Rule 144) of the Company and accepted for exchange in the Exchange Offer and
(ii) Unrestricted Definitive Notes in an aggregate principal amount equal to the
principal amount of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Unrestricted Definitive Notes in the appropriate principal
amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (b) below, each Global Note
and each Definitive Note (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the
following form:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
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32
REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
(B) Notwithstanding the foregoing, any Unrestricted Global Note or
Unrestricted Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE
TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE
MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO
SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE
AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER
HOLDS THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT
INTEREST FROM ACCRUING ON THIS NOTE."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
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33
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note, by the
Trustee or by the Depositary at the direction of the Trustee, to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note, by the Trustee or by the
Depositary at the direction of the Trustee, to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon receipt of a Company Order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.08, 4.09, 4.10 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any registration
of transfer or exchange of Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange Notes during a period beginning at the opening
of business 15 days before the day of any selection of Notes for redemption
under Section 3.02 hereof and ending at the close of business on the day of
selection, (B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part or (C) to register the transfer of or to
exchange a Note between a record date and the next succeeding Interest
Payment Date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a transfer or exchange may be submitted by facsimile.
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34
SECTION 2.07.REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee and the Company receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon the written order of the Company signed by two Officers of the Company,
shall authenticate a replacement Note if the Trustee's and the Company's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
SECTION 2.08.OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
SECTION 2.09.TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by an Affiliate of the Company, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Trustee has been informed of by the Company as being so owned shall
be so disregarded.
SECTION 2.10.TEMPORARY NOTES.
Until permanent Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of permanent Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
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35
SECTION 2.11.CANCELLATION.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12.DEFAULTED INTEREST.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date and interest on such defaulted
interest at the applicable interest rate borne by the Notes, to the extent
lawful (such defaulted interest (and interest thereon) herein collectively
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder; and
such Defaulted Interest shall be paid by the Company to the Persons in whose
names the Notes are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall give the Trustee at least 15 days' written
notice (unless a shorter period is acceptable to the Trustee for its
convenience) 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 by the Trustee in
trust for the benefit of the Persons entitled to such Defaulted Interest as in
this subsection provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall not be more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date. In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Registrar, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such Default
Interest shall be paid to the Persons in whose names the Notes are registered at
the close of business on such Special Record Date.
Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Note shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Note.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company shall be made in
accordance with this Article 3.
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36
SECTION 3.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section 3.08
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 45 but not more than 60
days prior to the Redemption Date fixed by it (unless a shorter notice period
shall be satisfactory to the Trustee for its convenience), notify the Trustee of
such Redemption Date and of the principal amount of Notes to be redeemed.
SECTION 3.03. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, selection of
such Notes for redemption or purchase, as the case may be, shall be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed, or, if such Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate (and in such manner as complies with applicable legal
requirements); provided that no Notes of $1,000 or less shall be redeemed in
part.
The Trustee shall promptly notify the Company and the Registrar in writing
of the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to 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
amount of such Note which has been or is to be redeemed.
SECTION 3.04. NOTICE OF REDEMPTION.
Notices of redemption shall be mailed by first class mail, postage prepaid,
at least 30 but not more than 60 days before the Redemption Date to each Holder
of Notes to be redeemed at such Holder's registered address. If any Note is to
be redeemed in part only, any notice of redemption that relates to such Note
shall state the portion of the principal amount thereof that has been or is to
be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Notes then outstanding are to be redeemed, the
identification (and, in the case of a Note to be redeemed in part, the principal
amount) of the particular Notes to be redeemed;
(d) that on the Redemption Date the Redemption Price will become due and
payable upon each such Note or portion thereof, and that (unless the Company
shall default in payment of the Redemption Price) interest thereon shall cease
to accrue on or after said date;
(e) the places or places where such Notes are to be surrendered for payment
of the Redemption Price;
(f) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price;
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37
(g) the CUSIP number, if any, relating to such Notes, and
(h) in the case of a Note to be redeemed in part, the principal amount of
such Note to be redeemed and that after the Redemption Date upon surrender of
such Note, new Note or Notes in the aggregate principal amount equal to the
unredeemed portion thereof will be issued.
Notice of redemption of Notes to be redeemed at the election of the Company
shall be given by the Company or, at its request, by the Trustee in the name and
at the expense of the Company.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its owning
Paying Agent, segregate and hold in trust as provided in Section 4.03) an amount
of money in same day funds (or New York Clearing House funds if such deposit is
made prior to the applicable Redemption Date) sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes or portions thereof which are
to be redeemed on that date.
SECTION 3.06. NOTES PAYABLE ON REDEMPTION DATE.
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 and accrued interest) 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 to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall by payable to the Holders of such Notes,
registered as such on the relevant Regular Record Dates according to the terms
and the provisions of Section 2.12.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Redemption Date at the rate borne by
such Note.
SECTION 3.07. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at the
office or agency of the Company maintained for such purpose pursuant to Section
4.02 (with, if the Company, the Registrar or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company, the Registrar or the Trustee duly executed by, the Holder thereof or
his attorney duly authorized in writing), and a new Note in principal amount
equal to the unpurchased or unredeemed portion will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the purchase
or redemption date, unless the Company defaults in payment of the purchase or
redemption price, interest shall cease to accrue on Notes or portions thereof
purchased or called for redemption.
SECTION 3.08. OPTIONAL REDEMPTION.
(a) Except as described in this Section 3.08, the Notes will not be
redeemable at the Company's option prior to May 1, 2002. On and after May 1,
2002, the Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' written notice,
at the Redemption Prices (expressed as a percentage of principal amount) set
forth below, plus accrued
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38
and unpaid interest thereon, if any, to the applicable Redemption Date, if
redeemed during the twelve-month period beginning on May 1 of each of the years
indicated below:
Year Redemption
- ---- Price
-----
2002................................................................. 105.125%
2003................................................................. 103.417%
2004................................................................. 101.708%
2005 and thereafter.................................................. 100.000%
In addition, at any time or from time to time, on or prior to May 1,
2001, the Company may, at its option, redeem up to 50% of the aggregate
principal amount of Notes originally issued under this Indenture on the Issuance
Date at a Redemption Price equal to 110.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Redemption
Date, with the net cash proceeds of one or more Equity Offerings; provided that
at least 50% of the aggregate principal amount of Notes originally issued under
this Indenture on the Issuance Date remains outstanding immediately after the
occurrence of such redemption; provided, further that such redemption occurs
within 60 days of the date of closing of each such Equity Offering.
(b) Any redemption pursuant to this Section 3.08 shall be made pursuant
to the provisions of Sections 3.01 through 3.07 hereof.
SECTION 3.09. MANDATORY REDEMPTION.
Except as set forth under Sections 3.10, 4.09 and 4.10 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer.
If the Purchase Date is on or after a Regular Record Date and on or
before the related Interest Payment Date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such Regular Record Date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
<PAGE>
39
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.10 and Section 4.10 hereof and the length of time
the Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Purchase
Date;
(e) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, or transfer
by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address
specified in the notice not later than the third Business
Day preceding the end of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case
may be, receives, not later than the Business Day preceding
the end of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his
election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company
so that only Notes in denominations of $1,000, or integral
multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or transferred
by book-entry transfer).
On or before 12:00 p.m. (New York City time) on each Purchase Date, the
Company shall, irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest thereon to the Purchase Date, to be held for payment in
accordance with the terms of this Section 3.10. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or clause the Paying Agent or
depositary, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officer's Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.10. The Company, the depositary or the Paying Agent, as
the case may be, shall promptly (but
<PAGE>
40
in any case not later than three Business Days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Company for purchase, plus any
accrued and unpaid interest, thereon to the Purchase Date, and the Company shall
promptly issue a new Note, and the Trustee, upon written request from the
Company shall authenticate and mail or deliver such new Note to such Holder,
equal in principal amount to any unpurchased portion of the Note surrendered.
Any Note not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof. The Company shall send a notice to each Holder a stating the
results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.10, any purchase
pursuant to this Section 3.10 shall be made pursuant to the provisions of
Sections 3.01 through 3.07 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain, in The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of any change
in the location of any such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation; provided, however, that no such designation or
recession shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or recession
and any change in the location of any such office or agency.
SECTION 4.03. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest
<PAGE>
41
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Notes,
it will, on or before each due date of the principal of, premium, if any, or
interest on any Notes, deposit with a Paying Agent a sum in same day funds (or
New York Clearing House funds if such deposit is made prior to the date on which
such deposit is required to be made) sufficient to pay the principal, premium,
if any, or interest so becoming due (or at the option of the Company, payment of
interest may be mailed by check to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments with respect to Global Notes and Definitive Notes, the holders of which
have given wire transfer instructions to the Company shall receive such payments
of interest by wire transfer in same day funds) such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest;
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with the
provisions of this Indenture relating to the duties, rights and
obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of the Company cause
notice to be promptly sent to each Holder that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification any unclaimed balance of such money then remaining
will be repaid to the Company.
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42
SECTION 4.04. REPORTS.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the SEC, the Company
shall file with the SEC (and provide the Trustee and Holders with copies
thereof, without cost to each Holder, within 15 days after it files them with
the SEC), (a) within 90 days after the end of each fiscal year, annual reports
on Form 10-K (or any successor or comparable form) containing the information
required to be contained therein (or required in such successor or comparable
form); (b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and (d) any other information, documents and
other reports which the Company would be required to file with the SEC if it
were subject to Section 13 or 15(d) of the Exchange Act; provided, however, the
Company shall not be so obligated to file such reports with the SEC if the SEC
does not permit such filing, in which event the Company shall make available
such information to prospective purchasers of Notes, in addition to providing
such information to the Trustee and the Holders, in each case within 15 days
after the time the Company would be required to file such information with the
SEC, if it were subject to Sections 13 or 15(d) of the Exchange Act. In
addition, the Company agrees that, for so long as any of the Notes remain
outstanding, it will furnish to holders and prospective purchasers of the Notes
the information required by Rule 144A(d)(4) under the Securities Act.
SECTION 4.05. STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Company will deliver to the Trustee, within 90 days after the
end of each fiscal year ending after the date hereof, a brief certificate of its
principal executive officer, principal financial officer or principal accounting
officer stating whether, to such officer's knowledge, the Company is in
compliance with all covenants and conditions to be complied with by it under
this Indenture (including with respect to any Restricted Payments made during
such year, the basis upon which the calculations required by this Section 4.07
were computed, which calculations may be based on the Company's latest financial
statements), and further stating, as to each Officer signing such certificate,
that to the best of his or her knowledge each entity is not in default in the
performance or observance of any terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto. For purposes of this Section 4.05, such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual reports delivered
pursuant to Section 4.04(a) above shall be accompanied by a written statement of
the Company's independent public accountants (who shall be a firm of established
national reputation) that in making the examination necessary for certification
of such financial statements, nothing has come to their attention that would
lead them to believe that the Company has violated any provisions of Article
Four or Article Five hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
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(c) The Company shall, within five Business Days, upon becoming aware of
any Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Subsidiary Guarantor,
deliver to the Trustee an Officer's Certificate specifying such Default or Event
of Default.
SECTION 4.06. 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, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon the
income, profits or property of the Company or any of its Subsidiaries and (b)
all material lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a lien upon the property of the Company or any of its
Subsidiaries that could produce a material adverse effect on the consolidated
financial condition of the Company; 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 in respect of which
appropriate reserves (in the good faith judgment of management of the Company)
are being maintained in accordance with GAAP.
SECTION 4.07. LIMITATION ON LIENS.
The Company shall not, directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness of the Company on any asset or
property of the Company or its Restricted Subsidiaries, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless the
Notes are equally and ratably secured with the Pari Passu Indebtedness or
Subordinated Indebtedness so secured or until such time as such Pari Passu
Indebtedness or Subordinated Indebtedness is no longer secured by a Lien.
No Subsidiary Guarantor shall directly or indirectly create, incur,
assume or suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness of such Subsidiary Guarantor on any
asset or property of such Subsidiary Guarantor or its Restricted Subsidiaries or
any income or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Subsidiary Guarantee of such Subsidiary Guarantor is
equally and ratably secured with the Pari Passu Indebtedness or Subordinated
Indebtedness so secured or until such time as such Pari Passu Indebtedness or
Subordinated Indebtedness is no longer secured by a Lien.
SECTION 4.08. CORPORATE EXISTENCE.
Subject to Article Five, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Subsidiary of the Company and the corporate rights
(charter and statutory), corporate licenses and corporate franchises of the
Company and its Subsidiaries, except where a failure to do so, singly or in the
aggregate, is not likely to have a materially adverse effect upon the business,
assets, financial conditions or results of operations of the Company and the
Subsidiaries taken as a whole determined on a consolidated basis in accordance
with GAAP; provided that prior to the occurrence and continuance of an Event of
Default, the Company shall not be required to preserve any such existence
(except of the Company), right, license or franchise if the Board of Directors
of the Company, or of the Subsidiary concerned, shall determine and deliver to
the Trustee an Officer's Certificate to the effect that the preservation thereof
is no longer desirable in the conduct of the business of the Company or such
Subsidiary and that the loss thereof is not disadvantageous in any material
respect to the Holders.
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SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of the Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in
cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder of Notes issued under this
Indenture, with a copy to the Trustee, with the following
statements and/or information:
(1) a Change of Control Offer is being made pursuant to this
Section 4.09 and that all Notes properly tendered pursuant
to such Change of Control Offer will be accepted for
payment;
(2) the purchase price and the purchase date, which will be no
earlier than 30 days nor later than 60 days from the date
such notice is mailed, except as may be otherwise required
by applicable law (the "Change of Control Payment Date");
(3) any Note not properly tendered will remain outstanding and
continue to accrue interest;
(4) unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to
accrue interest on the Change of Control Payment Date;
(5) Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the
Paying Agent and at the address specified in the notice
prior to the close of business on the third Business Day
preceding the Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such
Notes, provided that the paying agent receives, not later
than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes tendered
for purchase, and a statement that such Holder is
withdrawing his tendered Notes and his election to have
such Notes purchased; and
(7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
(c) Prior to complying with the provisions of this Section 4.09, but
in any event within 30 days following a Change of Control, the
Company shall either repay all outstanding Senior Indebtedness,
or offer to repay in full all outstanding Senior Indebtedness and
repay the Senior Indebtedness with respect to which such offer
has been accepted, or
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45
obtain the requisite consents, if any, under all outstanding
Senior Indebtedness to permit the repurchase of the Notes
required by this Section 4.09.
(d) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws or regulations are
applicable in connection with the repurchase of the Notes
pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the provisions of this Indenture, the Company shall comply with
the applicable securities laws and regulations and will not be
deemed to have breached its obligations described in this
Indenture by virtue thereof.
(e) On the Change of Control Payment Date, the Company shall, to the
extent permitted by law, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal
to the aggregate Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver, or cause
to be delivered, to the Trustee for cancellation the Notes so
accepted together with an Officers' Certificate stating that such
Notes or portions thereof have been tendered to and purchased by
the Company. The Paying Agent shall promptly mail to each Holder
of Notes the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail to each Holder a new
Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided, that each such new Note will
be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(f) The Change of Control provisions described in this Section 4.09
will be applicable whether or not any other provisions of this
Indenture are applicable.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless (x) the
Company, or its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Company) of the assets or Equity
Interests issued or sold or otherwise disposed of and (y) at least 75% of the
proceeds from such Asset Sale when received consists of either (I) cash or Cash
Equivalents or (II) property or assets that are used or useful in a Similar
Business, or Capital Stock of any Person primarily engaged in a Similar Business
if, as a result of the acquisition by the Company or any Restricted Subsidiary
thereof, such Person becomes a Restricted Subsidiary; provided that the amount
of (1) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or a Subsidiary Guarantee, if any) that are assumed by the transferee of
any such assets pursuant to an agreement that releases the Company or such
Restricted Subsidiary from further liability, (2) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are converted by the Company or such Restricted Subsidiary into cash or
Cash Equivalents within 180 days after such Asset Sale (to the extent of the
cash or Cash Equivalents received) and (3) any Designated Noncash Consideration
received by the Company or any of its Restricted Subsidiaries in such Asset Sale
having an aggregate fair market value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (3) that is at that time
outstanding, not to exceed 15% of the Company's Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being
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46
measured at the time received and without giving effect to subsequent changes in
value), shall be deemed to be cash for the purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently reduce Obligations under the New Credit Facility, other Senior
Indebtedness or Guarantor Senior Indebtedness (and, in each case, to
correspondingly reduce commitments with respect thereto) or to permanently
reduce Pari Passu Indebtedness of the Company or any Subsidiary Guarantor
(provided that if the Company or such Subsidiary Guarantor shall so reduce
Obligations under Pari Passu Indebtedness, it will redeem Notes with an
aggregate principal amount equal to the proportion that the total aggregate
principal amount of Notes outstanding bears to the sum of the total aggregate
principal amount of Notes outstanding plus the total aggregate principal amount
outstanding of such Pari Passu Indebtedness, if the Notes are then redeemable
or, if the Notes may not be then redeemed, the Company shall make an offer (in
accordance with the procedures set forth below for an Asset Sale Offer) to
purchase at 100% of the principal amount thereof the amount of the Notes that
would otherwise be redeemed), (ii) to an investment in property, capital
expenditures or assets that are used or useful in a Similar Business, or Capital
Stock of any Person primarily engaged in a Similar Business if, as a result of
such acquisition by the Company or any Restricted Subsidiary, such Person
becomes a Restricted Subsidiary and/or (iii) to an investment in properties or
assets that replace the properties or assets that are the subject of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. Any Net Proceeds from the Asset Sale
that are not invested as provided and within the time period set forth in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15 million, the Company
shall make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that is an integral multiple of $1,000
that may be purchased out of the Excess Proceeds at an offer price in cash equal
to 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date fixed for the closing of such offer, in accordance with the
procedures set forth in Section 3.10 hereof. The Company will commence an Asset
Sale Offer with respect to Excess Proceeds within ten Business Days after the
date that Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of this Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. Upon completion of any such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of this
Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in this Indenture by virtue thereof.
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests, including any dividend or distribution payable
in connection with any merger or consolidation (other than (A) dividends or
distributions by the Company payable in Equity Interests (other than
Disqualified Stock) of the Company or (B) dividends or distributions by a
<PAGE>
47
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of equity securities issued by a
Subsidiary other than a Wholly Owned Restricted Subsidiary, the Company or a
Restricted Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or series of
equity securities); (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of the Company; (iii) make any principal
payment on, or redeem, repurchase, defease or otherwise acquire or retire for
value in each case, prior to any scheduled repayment, or maturity, any
Subordinated Indebtedness; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00
of additional Indebtedness under the provisions of the first
paragraph of Section 4.12; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issuance Date (including Restricted
Payments permitted by clauses (i), (ii) (with respect to the
payment of dividends on Refunding Capital Stock pursuant to
clause (b) thereof), (iv) (only to the extent that amounts paid
pursuant to such clause are greater than amounts that would have
been paid pursuant to such clause if $5 million and $10 million
were substituted in such clause for $10 million and $20 million,
respectively), (vi) and (ix) of the next succeeding paragraph,
but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as
one accounting period) from the fiscal quarter that first begins
after the Issuance Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in the case
such Consolidated Net Income for such period is a deficit, minus
100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds and the fair market value, as determined in good faith
by the Board of Directors, of marketable securities received by
the Company since the Issuance Date from the issue or sale of
Equity Interests of the Company (including Retired Capital Stock
(as defined below)) or debt securities of the Company that have
been converted into such Equity Interests of the Company (other
than, in each case, Refunding Capital Stock (as defined below),
Equity Interests or convertible debt securities of the Company
sold to a Restricted Subsidiary, Disqualified Stock, debt
securities that have been converted into Disqualified Stock,
Designated Preferred Stock and Equity Interests of the Company
issued to members of management, directors or consultants of the
Company and its Subsidiaries after the Issuance Date to the
extent such amounts have been applied to Restricted Payments in
accordance with clause (iv) of the next succeeding paragraph),
plus (iii) 100% of the aggregate amount of cash and marketable
securities contributed to the capital of the Company following
the Issuance Date (excluding Excluded Contributions), plus (iv)
100% of the aggregate amount received in cash and the fair market
value of marketable securities (other than Restricted
Investments) received since the Issuance Date from (A) the sale
or other disposition (other than to the Company or a Restricted
Subsidiary) of Restricted Investments made by the Company and its
Restricted Subsidiaries (other than Restricted Investments in an
Unrestricted Subsidiary the Investment in which was
<PAGE>
48
made by the Company or a Restricted Subsidiary pursuant to clause
(vii) below) or (B) a dividend from, or the sale (other than to
the Company or a Restricted Subsidiary) of the stock of, an
Unrestricted Subsidiary (other than an Unrestricted Subsidiary
the Investment in which was made by the Company or a Restricted
Subsidiary pursuant to clause (vii) below).
The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment
would have complied with the provisions of this Indenture:
(ii) (a) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of the Company (the "Retired Capital
Stock") or Subordinated Indebtedness of the Company in exchange
for, or out of the proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary) of, Equity Interests of
the Company (other than any Disqualified Stock) (the "Refunding
Capital Stock"), and (b) if immediately prior to the retirement
of Retired Capital Stock, the declaration and payment of
dividends thereon was permitted under clause (vi) of this
paragraph, the declaration and payment of dividends on the
Refunding Capital Stock in an aggregate amount per year no
greater than the aggregate amount of dividends per annum that was
declarable and payable on such Retired Capital Stock immediately
prior to such retirement; provided, however, that at the time of
the declaration of any such dividends, no Default or Event of
Default shall have occurred and be continuing or would occur as a
consequence thereof;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new
Indebtedness of the Company or the Restricted Subsidiary that is
the obligor with respect to the Subordinated Indebtedness being
redeemed, repurchased or otherwise acquired or retired so long as
(A) the principal amount of such new Indebtedness does not exceed
the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired for value (plus the
amount of any premium required to be paid under the terms of the
instrument governing the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to Senior Indebtedness and/or
Guarantor Senior Indebtedness, if any, the Notes and/or the
Subsidiary Guarantees, if any, at least to the same extent as
such Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value, (C) such Indebtedness
has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness
being so redeemed, repurchased, acquired or retired and (D) such
Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of
the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired;
(iv) a Restricted Payment to KSL Recreation, which Restricted Payment
is applied solely to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of
KSL Recreation held by any future, present or former employee,
director or consultant of the Company or any of the Company's
Subsidiaries pursuant to any management equity plan or stock
option plan or any other management or employee benefit plan or
agreement; provided, however, that the aggregate Restricted
Payments made under this clause (iv) does not exceed in any
calendar year $10 million (with unused
<PAGE>
49
amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum (without giving effect to the
following proviso) of $20 million in any calendar year);
provided, further, that such amount in any calendar year may be
increased by an amount not to exceed (i) the cash proceeds
received by the Company from the sale of Equity Interests of KSL
Recreation to members of management, directors or consultants of
the Company and its Restricted Subsidiaries that occurs after the
Issuance Date (to the extent the cash proceeds from the sale of
such Equity Interest have not otherwise been applied to the
payment of Restricted Payments by virtue of the preceding
paragraph (c)) plus (ii) the cash proceeds of key man life
insurance policies received by the Company and its Restricted
Subsidiaries after the Issuance Date less (iii) the amount of any
Restricted Payments previously made pursuant to clauses (i) and
(ii) of this subparagraph (iv); and provided, further, that
cancellation of Indebtedness owing to the Company from members of
management of Company or any of its Restricted Subsidiaries in
connection with a repurchase of Equity Interests of KSL
Recreation shall not be deemed to constitute a Restricted Payment
for purposes of this covenant or any other provision of this
Indenture;
(v) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Company issued in
accordance with Section 4.12;
(vi) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified
Stock) issued after the Issuance Date (including, without
limitation, the declaration and payment of dividends on Refunding
Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (ii)); provided, however, that for the
most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock, after giving
effect to such issuance on a pro forma basis, the Company and its
Restricted Subsidiaries would have had a Fixed Charge Coverage
Ratio of at least 1.5 to 1.00;
(vii) investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made
pursuant to this clause (vii) that are at that time outstanding,
not to exceed the greater of (A) $25 million and (B) 5% of the
Company's Total Assets at the time of such Investment (with the
fair market value of each Investment being measured at the time
made and without giving effect to subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(ix) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the
Issuance Date, of up to 6% per annum of the net proceeds received
by the Company in such public offering, other than public
offerings with respect to the Company's Common Stock registered
on Form S-8 or Form S-4;
(x) (a) Restricted Payments made pursuant to the Concurrent
Transactions and the Refinancings and (b) the dividend to KSL
Recreation of the Specified Property; provided, however that
immediately prior to a dividend of a Specified Property, the use
of such
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50
Specified Property shall be substantially similar to the use of
such Specified Property by the Company and/or the Restricted
Subsidiaries on the Issuance Date;
(xi) Investments in Unrestricted Subsidiaries or Joint Ventures that
are made with Excluded Contributions;
(xii) payments to KSL Recreation, whether in the form of dividends, the
making of loans or advances or otherwise, for expenses incurred
by KSL Recreation in its capacity as a holding company that are
directly attributable to the operations of the Company and its
Restricted Subsidiaries, including, without limitation, (a)
customary salary, bonus and other benefits payable to officers
and employees of KSL Recreation, (b) fees and expenses paid to
members of the Board of Directors of KSL Recreation, (c) general
corporate overhead expenses of KSL Recreation, (d) foreign,
federal, state or local tax liabilities paid by KSL Recreation
and (e) management, consulting or advisory fees paid by KSL
Recreation to KKR; provided, however, that federal and California
state income tax liabilities shall only be reimbursed pursuant to
the Tax Sharing Agreement or on substantially the same terms as
set forth in the Tax Sharing Agreement;
(xiii) a Corporate Sale Transaction on only one occasion; provided that
immediately after giving effect to such transaction, the
Company's ratio of Total Net Debt to Pro Forma Consolidated Cash
Flow for the four quarters immediately preceding such transaction
is equal to or less than immediately prior to such transaction;
(xiv) a dividend of the KSL Land Note to KSL Recreation; and
(xv) other Restricted Payments in an aggregate amount not to exceed
the greater of (A) $25 million and (B) 5% of the Company's Total
Assets at the time of such Restricted Payment;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix), (x)(b), (xi), (xii), (xiii) and (xv), no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; and provided, further, that for purposes of determining the aggregate
amount expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses (i),
(ii) (with respect to the payment of dividends on Refunding Capital Stock
pursuant to clause (b) thereof), (iv) (only to the extent that amounts paid
pursuant to such clause are greater than amounts that would have been paid
pursuant to such clause if $5 million and $10 million were substituted in such
clause for $10 million and $20 million, respectively), (vi) and (ix) shall be
included.
For purposes of designating any Restricted Subsidiary as an Unrestricted
Subsidiary, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated shall be deemed to be Restricted Payments in an amount determined as
set forth in the last sentence of the definition of "Investments." Such
designation shall only be permitted if a Restricted Payment in such amount and
of such nature would be permitted pursuant to the first or second paragraph of
this Section 4.11 at such time and if such Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
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51
SECTION 4.12. LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.
(a)(i) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur") any Indebtedness (including Acquired Indebtedness), (ii) the Company
and the Subsidiary Guarantors, if any, shall not issue any Disqualified Stock
and (iii) the Company shall not permit any of its Restricted Subsidiaries that
are not Subsidiary Guarantors, if any, to issue any shares of preferred stock;
provided, however, that the Company and the Subsidiary Guarantors, if any, may
incur Indebtedness (including Acquired Indebtedness) or issue shares of
Disqualified Stock if the ratio of Total Net Debt to Pro Forma Consolidated Cash
Flow for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been no greater than 6.75 to 1 determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom).
(b) The limitations set forth in section (a) above shall not apply
to:
(i) the incurrence by the Company and the Subsidiary Guarantors, if
any, of Indebtedness under the New Credit Facility and the
issuance and creation of letters of credit and banker's
acceptances thereunder (with letters of credit and banker's
acceptances being deemed to have a principal amount equal to the
face amount thereof) up to an aggregate principal amount of $300
million outstanding at any one time;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iii) Existing Indebtedness (other than Indebtedness described in
clauses (b)(i) and (b)(ii)) of this Section 4.12;
(iv) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance
the purchase, lease or improvement of property (real or personal)
or equipment (whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets) in an
aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (iv) (together with any
Refinancing Indebtedness with respect thereto), does not exceed
15% of the Company's Total Assets;
(v) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business,
including without limitation letters of credit in respect of
workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of
such Indebtedness, such obligations are reimbursed within 30 days
following such drawing or incurrence;
(vi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing
such
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52
acquisition; provided, however, that (1) such Indebtedness is not
reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance
sheet will not be deemed to be reflected on such balance sheet
for purposes of this clause (vi)) and (2) the maximum assumable
liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds including noncash proceeds (the fair
market value of such noncash proceeds being measured at the time
received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
(vii) Indebtedness of the Company to a Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany
note and is subordinated in right of payment to the Notes;
provided, further, that any subsequent issuance or transfer of
any Capital Stock or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of any such Indebtedness (except to the
Company or another Restricted Subsidiary) shall be deemed, in
each case to be an incurrence of such Indebtedness;
(viii) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; provided that (1) any such Indebtedness is
made pursuant to an intercompany note and (2) if a Subsidiary
Guarantor incurs such Indebtedness to a Restricted Subsidiary
that is not a Subsidiary Guarantor, such Indebtedness is
subordinated in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor; provided, further, that any subsequent
issuance or transfer of any Capital Stock of any Restricted
Subsidiary to whom such Indebtedness is owed or any other event
which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted
Subsidiary) shall be deemed, in each case to be an incurrence of
such Indebtedness;
(ix) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate
risk with respect to any Indebtedness that is permitted by the
terms of this Indenture to be outstanding or (2) for the purpose
of fixing or hedging currency exchange rate risk with respect to
any currency exchanges; provided that such agreements do not
increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder
(x) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(xi) Indebtedness of a Subsidiary Guarantor, if any, in respect of
such Subsidiary Guarantor's Subsidiary Guarantee;
(xii) Indebtedness of the Company and any of its Restricted
Subsidiaries not otherwise permitted hereunder in an aggregate
principal amount, which when aggregated with the principal amount
of all other Indebtedness then outstanding and incurred pursuant
to this clause (xii), does not exceed the greater of (1) $75
million and (2) 10% of the Company's Total Assets at the time of
such incurrence; provided, however, that (A) Indebtedness of
Foreign Subsidiaries which, when aggregated with the principal
amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and incurred pursuant to this clause
<PAGE>
53
(xii), shall not exceed the greater of (1) $37.5 million (or the
equivalent thereof in any other currency) and (2) 5% of the
Company's Total Assets at the time of such incurrence, provided,
further, that, with respect to any such Foreign Subsidiary, the
aggregate amount of such Indebtedness, together with all other
Indebtedness of such Foreign Subsidiary incurred pursuant to this
clause (xii), shall not exceed 15% of the Total Assets of such
Foreign Subsidiary at the time of such incurrence by such Foreign
Subsidiary and (B) Indebtedness of Restricted Subsidiaries that
are not Foreign Subsidiaries which, when aggregated with the
principal amount of all other indebtedness of Restricted
Subsidiaries that are not Foreign Subsidiaries then outstanding
and incurred pursuant to this clause (xii), shall not exceed the
greater of (1) $37.5 million and (2) 5% of the Company's Total
Assets at the time of such incurrence; provided, further, that
with respect to any such Restricted Subsidiary that is not a
Foreign Subsidiary, the aggregate amount of such Indebtedness,
together with all other Indebtedness of such Restricted
Subsidiary incurred pursuant to this clause (xii), shall not
exceed 15% of the Total Assets of such Restricted Subsidiary at
the time of such incurrence.
(xiii) any guarantee by the Company of Indebtedness or other obligations
of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness incurred by such Restricted Subsidiary is
permitted under the terms of this Indenture and any Excluded
Guarantee of a Restricted Subsidiary;
(xiv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness which serves to refund, refinance or
restructure any Indebtedness incurred as permitted under the
first paragraph of this Section 4.12 and clauses (ii) and (iii)
above, or any Indebtedness issued to so refund, refinance or
restructure such Indebtedness including additional Indebtedness
incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity;
provided, however, that such Refinancing Indebtedness (1) has a
Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining
Weighted Average Life to Maturity of Indebtedness being refunded
or refinanced, (2) to the extent such Refinancing Indebtedness
refinances Indebtedness subordinated or pari passu to the Notes
or any Subsidiary Guarantee, such Refinancing Indebtedness is
subordinated or pari passu to the Notes and/or the Subsidiary
Guarantees at least to the same extent as the Indebtedness being
refinanced or refunded and (3) shall not include (x) Indebtedness
of a Restricted Subsidiary that is not a Subsidiary Guarantor
that refinances Indebtedness of the Company or a Subsidiary
Guarantor or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; and provided, further, that subclauses (1) and (2) of
this clause (xiv) will not apply to any refunding or refinancing
of any Senior Indebtedness or Guarantor Senior Indebtedness;
(xv) Indebtedness or preferred stock of Persons that are acquired by
the Company or any of its Restricted Subsidiaries or merged into
a Restricted Subsidiary in accordance with the terms of this
Indenture; provided that such Indebtedness or preferred stock is
not incurred in contemplation of such acquisition or merger; and
provided, further, that after giving effect to such acquisition,
either (1) the Company would be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Total Net Debt to Pro
Forma Consolidated Cash Flow test set forth in the first sentence
of this Section 4.12 or (2) the Company's ratio of Total Net Debt
to Pro Forma Consolidated Cash Flow is no greater than
immediately prior to such acquisition.
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54
(c) The Company may, at its option, cause any Restricted Subsidiary
to execute and deliver a Subsidiary Guarantee.
SECTION 4.13. TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") involving aggregate consideration in excess of $5 million per
Affiliate Transaction, unless:
(a) such Affiliate Transaction is on terms that are not materially
less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $10
million, a resolution adopted by a majority of the Board of
Directors approving such Affiliate Transaction and set forth in
an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following:
(i) transactions between or among the Company and/or any of its
Restricted Subsidiaries;
(ii) Restricted Payments permitted by Section 4.11;
(iii) the payment of customary annual management, consulting and
advisory fees and related expenses to KKR and its Affiliates;
(iv) the payment of reasonable and customary fees paid to, and
indemnity provided on behalf of, officers, directors, employees
or consultants of the Company or any Restricted Subsidiary;
(v) payments by the Company or any of its Restricted Subsidiaries to
KKR and its Affiliates made for any financial advisory,
financing, underwriting or placement services or in respect of
other investment banking activities, including, without
limitation, in connection with acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of
the Company in good faith;
(vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a
letter from an Independent Financial Advisor stating that such
transaction is fair to the Company or such Restricted Subsidiary
from a financial point of view or meets the requirements of
clause (a) of the preceding paragraph;
(vii) payments or loans to employees or consultants which are approved
by a majority of the Board of Directors of the Company in good
faith;
(viii) any agreement as in effect as of the Issuance Date or any
amendment thereto (so long as any such amendment is not, in the
reasonable determination of a majority of the members
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55
of the Board of Directors, disadvantageous to the holders of the
Notes in any material respect) or any transaction contemplated
thereby;
(ix) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of,
any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a
party as of the Issuance Date and any similar agreements which it
may enter into thereafter; provided, however, that the existence
of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under any future amendment to any
such existing agreement or under any similar agreement entered
into after the Issuance Date shall only be permitted by this
clause (ix) to the extent that the terms of any such amendment or
new agreement are not otherwise disadvantageous to the holders of
the Notes in any material respect;
(x) the payment of all fees and expenses related to the Refinancings
as disclosed in the Offering Memorandum; and
(xi) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of this
Indenture which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of a majority of
the members of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an
unaffiliated party, in the reasonable determination of a majority
of the members of the Board of Directors.
SECTION 4.14. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability of
any such Restricted Subsidiary to:
(a) (i)pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or any
other interest or participation in, or measured by, its profits
or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries; except (in each
case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including pursuant to the New Credit Facility and
its related documentation;
(2) this Indenture and the Notes;
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56
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature
discussed in clause (c) of this Section 4.14 on the property so
acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of
such acquisition (but not created in contemplation thereof),
which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant
to Sections 4.07 and 4.12 that limit the right of the debtor to
dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(9) other Indebtedness of Foreign Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to Section
4.12;
(10) customary provisions in joint venture agreements at the time of
creation of such joint venture and other similar agreements
entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business; and
(12) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (1) through
(11) above, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, no more restrictive with
respect to such dividend and other payment restrictions than
those contained in the dividend or other payment restrictions
prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
SECTION 4.15. LIMITATIONS ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES
(a) The Company shall not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case,
the "Guaranteed Debt") unless:
(i) if such Restricted Subsidiary is not a Subsidiary
Guarantor, such Restricted Subsidiary simultaneously
executes and delivers a Subsidiary Guarantee (pursuant
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57
to a supplemental indenture (the "Supplemental
Indenture"), substantially in the form of Exhibit E
hereto) of payment of the Notes by such Restricted
Subsidiary;
(ii) if the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary that is the debtor with respect to
the Guaranteed Debt is subordinated in right of payment to
the Guaranteed Debt, the Subsidiary Guarantee under the
Supplemental Indenture shall be subordinated to such
Restricted Subsidiary's guarantee with respect to the
Guaranteed Debt substantially to the same extent as the
Notes or the Subsidiary Guarantee are subordinated to the
Guaranteed Debt under this Indenture;
(iii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Notes or the
Subsidiary Guarantee (if any) of such Restricted
Subsidiary, any such guarantee of such Restricted
Subsidiary with respect to the Guaranteed Debt shall be
subordinated in right of payment to such Restricted
Subsidiary's Subsidiary Guarantee with respect to the
Notes substantially to the same extent as the Guaranteed
Debt is subordinated to the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary; and
(iv) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that (A) such Subsidiary
Guarantee of the Notes has been duly executed and
authorized and (B) such Subsidiary Guarantee of the Notes
constitutes a valid, binding and enforceable obligation of
such Restricted Subsidiary, except insofar as enforcement
thereof may be limited by bankruptcy, insolvency or
similar laws (including, without limitation, all laws
relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of
equity;
provided that this paragraph (a) shall not be applicable to any guarantee of any
Restricted Subsidiary (x) that (A) existed at the time such Person became a
Restricted Subsidiary of the Company and (B) was not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary of
the Company and (y) that guarantees the payment of Obligations of the Company or
any Restricted Subsidiary under the New Credit Facility or any other bank
facility which is designated as Senior Indebtedness and any refunding,
refinancing or replacement thereof, in whole or in part, provided that such
refunding, refinancing or replacement thereof constitutes Senior Indebtedness
and is not incurred pursuant to a registered offering of securities under the
Securities Act or a private placement of securities (including under Rule 144A)
pursuant to an exemption from the registration requirements of the Securities
Act, which private placement provides for registration rights under the
Securities Act (any guarantee excluded by operations of this clause (y) being an
"Excluded Guarantee").
SECTION 4.16 LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS.
The Company shall not, and shall not permit any Subsidiary Guarantor to,
directly or indirectly, incur any Indebtedness (including Acquired Indebtedness)
that is subordinate in right of payment to any Indebtedness of the Company or
any Indebtedness of any Subsidiary Guarantor, as the case may be, unless such
Indebtedness is either (a) pari passu in right of payment with the Notes or such
Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, or (b)
subordinate in right of payment to the Notes, or such Subsidiary Guarantor's
Subsidiary Guarantee, as the case may be, in the same manner and at least to the
same extent as the Notes are subordinate to Senior Indebtedness or such
Subsidiary Guarantor's
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Subsidiary Guarantee is subordinate to such Subsidiary Guarantor's Guarantor
Senior Indebtedness, as the case may be.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY
ALL ASSETS
The Company shall not consolidate or merge with or into or wind up into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any Person unless:
(i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made is a
corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any
territory thereof (the Company or such Person, as the case may
be, being herein called the "Successor Company");
(ii) the Successor Company (if other than the Company) expressly
assumes all the obligations of the Company under this Indenture
and the Notes pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the
Trustee;
(iii) immediately after such transaction no Default or Event of Default
exists;
(iv) immediately after giving pro forma effect to such transaction, as
if such transaction had occurred at the beginning of the
applicable four-quarter period, (A) the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Total Net Debt to Pro Forma Consolidated Cash
Flow test set forth in the first sentence of Section 4.12 or (B)
the ratio of Total Net Debt to Pro Forma Consolidated Cash Flow
for the Successor Company and its Restricted Subsidiaries would
be no greater than such ratio for the Company and its Restricted
Subsidiaries immediately prior to such transaction;
(v) each Subsidiary Guarantor, if any, unless it is the other party
to the transactions described above, shall have by supplemental
indenture confirmed that its Subsidiary Guarantee shall apply to
such Person's obligations under this Indenture and the Notes; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture.
Notwithstanding clause (iv) of this Section 5.01, (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another State of the United States so long as the amount of Indebtedness of the
Company and its Restricted Subsidiaries is not increased thereby.
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SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger or any sale, assignment, transfer,
lease or conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01, the Successor Company
will succeed to, and be substituted for, the Company under this Indenture and
the Notes; provided that solely for the purposes of computing Consolidated Net
Income for purposes of clause (c) of the first paragraph of Section 4.11 hereof,
the Consolidated Net Income of any person other than the Company and its
Restricted Subsidiaries shall be included only for periods subsequent to the
effective time of such consolidation or merger, sale, assignment, transfer,
lease or conveyance or other disposition of assets.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND NOTICE THEREOF.
Each of the following constitutes an "Event of Default":
(a) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any,
on the Notes (whether or not such payment shall be prohibited by
Article 10 hereof or any Subsidiary Guarantee);
(b) default for 30 days or more in the payment when due of interest
on or with respect to the Notes whether or not such payment shall
be prohibited by Article 10 hereof or any Subsidiary Guarantee;
(c) failure by the Company or a Subsidiary Guarantor, if any, for 30
days after receipt of written notice given by the Trustee or the
holders of at least 30% in principal amount of the Notes then
outstanding to comply with any of its other agreements in this
Indenture, the Notes or the Subsidiary Guarantees, if any;
(d) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries (other than
Indebtedness owed to the Company or a Restricted Subsidiary),
whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1)
results from the failure to pay any such Indebtedness at its
stated final maturity (after giving effect to any applicable
grace periods) or (2) relates to an obligation other than the
obligation to pay principal of any such Indebtedness at its
stated final maturity and results in the holder or holders of
such Indebtedness causing such Indebtedness to become due prior
to its stated final maturity and (B) the principal amount of such
Indebtedness, together with the principal amount of any other
such Indebtedness in default for failure to pay principal at
stated final maturity (after giving effect to any applicable
grace periods), or the maturity of which has been so accelerated,
aggregate $15 million or more at any one time outstanding;
(e) failure by the Company or any of its Significant Subsidiaries to
pay final non-appealable judgments aggregating in excess of $15
million, which final non-appealable judgments remain unpaid,
undischarged and unstayed for a period of more than 60 days after
such
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60
judgment becomes final, and in the event such judgment is covered
by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly
stayed;
(f) the Company or any Restricted Subsidiary that is a Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy
Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) admits in writing its inability generally to pay its debts
as the same become due;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted
Subsidiary that is a Significant Subsidiary in an
involuntary case in which it is the debtor,
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary that is a Significant Subsidiary or for all or
substantially all of the property of the Company of any
Restricted Subsidiary that is a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any Restricted
Subsidiary that is a Significant Subsidiary,
and the order or decree contemplated in clauses (i), (ii) or (iii) of
this clause (g), remains unstayed and in effect for 60 consecutive days;
or
(h) any Subsidiary Guarantee shall for any reason cease to be in full
force and effect or be declared null and void or any responsible
officer of the Company or Subsidiary Guarantor denies that it has
any further liability under any such Subsidiary Guarantee or
gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such
Subsidiary Guarantee in accordance with such Subsidiary Guarantee
and this Indenture).
SECTION 6.02. ACCELERATION OF MATURITY; RESCISSION.
If an Event of Default (other than of a type specified in clauses (f) or
(g) of Section 6.01) occurs and is continuing hereunder, the Trustee or the
Holders of at least 30% in principal amount of the then outstanding Notes may
declare the principal, premium, if any, interest and any other monetary
obligations on all the then outstanding Notes to be due and payable immediately
by notice in writing to the Company (and the Trustee, if given by the Holders);
provided, however, that, so long as any Indebtedness permitted to be incurred
pursuant to the New Credit Facility shall be outstanding, no such acceleration
shall be
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effective until the earlier of (i) acceleration of any such Indebtedness under
the New Credit Facility or (ii) five business days after the giving of such
written notice to the Company and the representative under the New Credit
Facility of such acceleration. Upon the effectiveness of such declaration, such
principal, premium, interest and other monetary obligations will be due and
payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default
arising under clauses (f) or (g) of Section 6.01, all outstanding Notes will
become due and payable without further action or notice. The Holders of a
majority in principal amount of the Notes then outstanding by written notice to
the Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal or interest that has become due solely
because of the acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may upon
delivery of pursue any available remedy to collect the payment of principal,
premium, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, any such Note held
by a non-consenting Holder; provided, however, that the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding may rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability. The Trustee may take any other action
which it deems proper which is not inconsistent with any such direction.
SECTION 6.06. LIMITATION ON SUITS.
No Holder of a Note will have any right to institute any proceeding with
respect to this Indenture or for any remedy hereunder, unless (i) such Holder
shall have previously given to the Trustee written
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notice of a continuing Event of Default with respect to the Notes, (ii) the
Holders of at least 30% in aggregate principal amount of the Notes then
outstanding shall have made written request to the Trustee to institute such
proceeding and, if requested by the Trustee, provided reasonable indemnity to
the Trustee, with respect to such proceeding and (iii) the Trustee shall not
have received from the Holders of a majority in aggregate principal amount of
the Notes then outstanding a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on any Note, on or after the respective due dates expressed in any Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, as administrative expenses associated with any such proceeding and
in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof. To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof out of the estate in any such
proceeding, 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,
money, securities and other properties that the Holders may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article Six, it shall
pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to holders of Senior Debt and Guarantor Senior Debt to the
extent required by Article 10 hereof or any Subsidiary Guarantee;
Third: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for principal, premium and, if any, and interest, respectively;
Fourth: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fifth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
SECTION 6.12. WAIVER OF STAY, EXTENSION OF USURY 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, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If 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 its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, 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 the
Trustee and conforming to the requirements of this Indenture, provided, that the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture unless
the Holders shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
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(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) 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 unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the direction of the Company under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA ss. 313(a) (but if no event described in TIA ss.
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
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A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA ss. 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee, from time to time as may be agreed
upon between them, reasonable compensation for its acceptance of this Indenture
and services hereunder. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation for
its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, 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. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(f) or (g) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the
extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then
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outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof,
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business (including the trust
created by this Indenture) to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has, or is a wholly owned subsidiary of a bank holding
company that has, a combined capital and surplus of at least $100 million as set
forth in its most recent published annual report of condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
SECTION 7.12. RIGHTS OF HOLDERS WITH RESPECT TO TIME METHOD AND PLACE
Subject to the limitations of this Article 7, a majority in principal
amount of the outstanding Notes issued hereunder shall have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions.
ARTICLE 8
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 8.02 or Section 8.03 be
applied to all Notes and Subsidiary Guarantees then outstanding upon compliance
with the conditions set forth below in this Article Eight.
SECTION 8.02. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 of the option applicable
to this Section 8.02, the Company and the Subsidiary Guarantors, if any, shall
be deemed to have been discharged from their respective obligations with respect
to all Notes and Subsidiary Guarantees then outstanding on the date the
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company and any Subsidiary Guarantor
shall be deemed to have paid and discharged the entire indebtedness represented
by the Notes and any Subsidiary Guarantees outstanding, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 8.05 and the
other Sections of this Indenture referred to in (A) and (B) below, and to have
satisfied all its other obligations under such Notes, Subsidiary Guarantees and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Notes then outstanding to receive solely
from the trust fund described in Section 8.04 and as more fully set forth in
such Section, payments in respect of the principal of (and premium, if any) and
interest on such Notes when such payments are due, or on the Redemption Date, as
the case may be, (B) the Company's obligations with respect to such Notes under
Sections 2.03, 2.04, 2.05, 2.06 2.07, 2.10, 4.02 and 4.03, (C) the rights,
powers, trusts, duties, indemnities and immunities of the Trustee hereunder and
the Company's obligations in connection therewith and (D) this Article Eight.
Subject to compliance with this Article Eight, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 with respect to the Notes.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 of the option applicable
to this Section 8.03, the Company and each Subsidiary Guarantor shall be
released from its obligations under the covenants
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contained in Article Five and in Sections 4.04, 4.07, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15 and 4.16 with respect to the outstanding Notes and Subsidiary
Guarantees, if any, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Notes and the Subsidiary
Guarantees, if any, shall thereafter be deemed to be not "outstanding" for the
purposes 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 (it being
understood that such Notes and Subsidiary Guarantees, if any, shall not be
deemed outstanding for financial accounting purposes). For this purpose, such
covenant defeasance means that, with respect to the outstanding Notes and
Subsidiary Guarantees, if any, the Company and any Subsidiary Guarantor 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 6.01(c), but, except as specified above, the remainder
of this Indenture and such Notes and Subsidiary Guarantees, if any, shall be
unaffected thereby. In addition, upon the Company's exercise under Section 8.01
of the option applicable to Section 8.03, Sections 6.01(c) through 6.01(e) and
Section 6.01(h) shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 to the outstanding Notes and Subsidiary Guarantees:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes and without retaining any legal interest
corpus of such trust, cash in U.S. dollars, non-callable Government Securities,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest due on the outstanding Notes on the
Stated Maturity thereof or on the applicable Redemption Date, as the case may
be, of such principal, premium, if any, or interest on the outstanding Notes,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that, subject to customary assumptions and exclusions,
(A) the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling or (B) since the Issuance Date, there
has been a change in the applicable U.S. federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel in the United
States shall confirm that, subject to customary assumptions and exclusions, the
Holders of the outstanding Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such Legal Defeasance and will
be subject to U.S. 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;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such 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;
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(iv) no Default or Event of Default (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
shall have occurred and be continuing on the date of such deposit or, insofar as
Events of Default set forth in Section 6.01(f) and (g), at any time in the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be satisfied until the expiration of
such period);
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or a Subsidiary
Guarantor, if any, is a party or by which the Company or a Subsidiary Guarantor,
if any, is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions (which assumptions and exclusions shall not
relate to the operation of Section 547 of the United States Bankruptcy Code or
any analogous laws of the state governing the provisions of this Indenture)
following the deposit the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally under any applicable U.S. federal or state law, and
that the Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) 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 defeating, hindering, delaying or defrauding any creditors of the Company or
a Subsidiary Guarantor, if any, or others;
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied with; and
(ix) the Trustee shall have received such other documents and assurances
as the Trustee shall reasonably require.
SECTION 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 4.03, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.05, the "Trustee") pursuant to Section 8.04 in respect of the Notes
then outstanding shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) 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 cash or Government Securities
deposited pursuant to Section 8.04 or the principal 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 Notes then outstanding.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it
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as provided in Section 8.04 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(i)), are in excess of the amount thereof which would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or Government Securities in accordance with Section 8.02 or 8.03, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's and any Subsidiary Guarantor's obligations under this Indenture,
the Notes and the Subsidiary Guarantees, if any, shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.02 or 8.03, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 or 8.03, as the case may be;
provided, however, that if the Company or any Subsidiary Guarantor makes any
payment of principal of (or premium, if any) or interest on any Note following
the reinstatement of its obligations, the Company or any Subsidiary Guarantor
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or Notes, and with respect to a
Subsidiary Guarantee, the Subsidiary Guarantor under such Subsidiary Guarantee
and the Trustee may amend or supplement such Subsidiary Guarantee, without the
consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency,
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes,
(c) to comply with Article 5 hereof;
(d) to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to the Holders of the Notes;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not, in the
opinion of counsel, adversely affect the legal rights hereunder
of any such Holder,
(f) to add covenants for the benefit of the Holders or to surrender
any right or power conferred upon the Company,
(g) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust
Indenture Act, or
(h) to add a Subsidiary Guarantor under this Indenture.
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Upon the written request of the Company accompanied by resolutions of
the Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of an Officers'
Certificate and an Opinion of Counsel, the Trustee shall join with the Company
and the Subsidiary Guarantors, if any, in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, this Indenture, the Notes
and a Subsidiary Guarantee, if any, issued hereunder may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for the Notes), and, subject to Sections
6.02, 6.04 and 6.07 hereof, any existing default or compliance with any
provision of this Indenture, the Notes or the Subsidiary Guarantees may be
waived with the consent of the Holders of a majority in principal amount of the
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Upon the request of the Company accompanied by resolutions of the Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of an Officers' Certificate and an Opinion of Counsel, the Trustee
shall join with the Company and any Subsidiary Guarantor in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
The consent of the Holders is not necessary under this Section 9.02 to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. 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 amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture, the Notes or the Subsidiary Guarantees, if any. However, without the
consent of each Holder affected, an amendment or waiver may not (with respect to
any Note or Subsidiary Guarantee held by a non-consenting Holder):
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any such
Note or alter or waive the provisions with respect to the
redemption of the Notes (other than provisions relating to the
covenants described under Sections 4.09 and 4.10);
(iii) reduce the rate of or change the time for payment of interest on
any Note;
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(iv) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of such Notes and
a waiver of the payment default that resulted from such
acceleration), or in respect of a covenant or provision contained
herein or any Subsidiary Guarantee which cannot be amended or
modified without the consent of all Holders;
(v) make any Note payable in money other than that stated in such
Notes,
(vi) make any change in Section 6.04 or 6.07,
(vii) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.09 or Section 4.10),
(viii) except as provided under Article 8 and the relevant Subsidiary
Guarantee, release a Subsidiary Guarantor, if any, from its
obligations under its Subsidiary Guarantee, if any, or make any
change in a Subsidiary Guarantee, if any, that would adversely
affect the Holders;
(ix) make any change in Article 10 or the subordination provisions of
any Subsidiary Guarantee that would adversely affect the holders
of the Notes; or
(x) make any change in the foregoing amendment and waiver provisions
of this Article 9.
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may, but shall not be required to, place an appropriate
notation about an amendment, supplement or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
<PAGE>
74
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In signing or refusing to sign any amended or supplemental
indenture the Trustee shall be entitled to receive and (subject to Section 7.01)
shall be fully protected in relying upon an Officers's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company
and the Subsidiary Guarantors, if any, in accordance with its terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that the
payment of the Subordinated Note Obligations shall be subordinated in right of
payment, as set forth in this Article 10, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the date
hereof or thereafter incurred.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Indebtedness shall be entitled to
receive payment in full in cash or cash equivalents of such Senior Indebtedness
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness) before the Holders of Notes
will be entitled to receive any payment with respect to the Subordinated Note
Obligations (except that Holders of Notes may receive (i) Equity Interests of
the Company and any debt securities of the Company that are subordinated at
least to the same extent as the Notes to (a) Senior Indebtedness and (b) any
Indebtedness issued in exchange for Senior Indebtedness and (ii) payments made
from the trusts described in Article 8 hereof), and until all Senior
Indebtedness is paid in full in cash or Cash Equivalents, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Indebtedness (except that Holders of Notes may receive (i) Equity
Interests of the Company and any debt securities of the Company that are
subordinated at least to the same extent as the Notes to (a) Senior Indebtedness
and (b) any Indebtedness issued in exchange for Senior Indebtedness and (ii)
payments made from the trusts described in Article 8 hereof).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
The Company may not make any payment upon or in respect of the
Subordinated Note Obligations (except that holders of Notes may receive (i)
Equity Interests of the Company and any debt securities of the Company that are
subordinated at least to the same extent as the Notes to (a) Senior Indebtedness
and (b) any Indebtedness issued in exchange for Senior Indebtedness and (ii)
payments made from the trusts described in Article 8 hereof) if:
<PAGE>
75
(i) a default in the payment of the principal of, premium, if any,
or interest on, or of unreimbursed amounts under letters of
credit or fees relating to letters of credit and commitments
to extend credit constituting Designated Senior Indebtedness
occurs and is continuing beyond any applicable period of grace
(a "payment default") or
(ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the
Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "non-payment default")
and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from a representative of such Designated
Senior Indebtedness. No new period of payment blockage may be
commenced unless and until (i) 365 days have elapsed since the
effectiveness of the immediately preceding Payment Blockage
Notice (provided that, if any Payment Blockage Notice is given
by or on behalf of any holders of Designated Senior
Indebtedness (other than the representative under the New
Credit Facility), within such 365 day period, the
representative under the New Credit Facility may give another
Payment Blockage Notice within such period) and (ii) all
scheduled payments of principal, premium, if any, and interest
on the Notes that have come due have been paid in full in cash
or Cash Equivalents. In no event, however, may the total
number of days during which any Payment Blockage Period or
Periods is in effect exceed 179 days in the aggregate during
any 365 consecutive day period. No non-payment default that
existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such
default shall have been cured for a period of not less than 90
days.
The Company may and shall resume payments on the Notes (including any
missed payments):
(a) in the case of a payment default described in clause (i)
above, upon the date on which such default is cured or waived
or shall have ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full in
cash or Cash Equivalents; and
(b) in the case of a non-payment default described in clause (ii)
above, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on
which the applicable Payment Blockage Notice is received (each
such period, the "Payment Blockage Period") or (z) the date
such Payment Blockage Period shall be terminated by written
notice to the Trustee from the requisite holders of such
Designated Senior Indebtedness necessary to terminate such
period or from their representative.
SECTION 10.04. ACCELERATION OF SECURITIES.
If the Company fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure shall constitute an Event of
Default and shall entitle the holders of the Notes to accelerate the maturity
thereof. The Company shall promptly notify holders of Senior Indebtedness if
payment of the Notes is accelerated because of an Event of Default.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of any
Subordinated Note Obligations at a time when the Trustee or such Holder, as
applicable, has actual knowledge that such payment is prohibited by Section
10.02 or 10.03 hereof, such payment shall be held by the Trustee or such
<PAGE>
76
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Indebtedness as their
interests may appear or their representative under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Indebtedness remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
In the event that any Holder receives any payment of any Subordinated
Note Obligations at any time when such payment is prohibited by Section 10.02 or
10.03 hereof, such payment shall be held by such Holder, in trust for the
benefit of, and shall be paid forthwith over and delivered, upon written request
to, the Holders of Senior Indebtedness as their interest may appear or their
representative under the indenture or other agreement (if any) pursuant to which
Senior Indebtedness may have been issued, as their interest may appear, for the
application to the payment of all Obligations with respect to Senior
Indebtedness remaining unpaid to the extend necessary to pay such Obligations in
full accordance with their terms, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied 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 holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
10, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Subordinated
Note Obligations to violate this Article 10, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Indebtedness as
provided in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Indebtedness is paid in full and until the Notes are
paid in full in cash, Holders of Notes shall be subrogated (equally and ratably
with all other Indebtedness pari passu with the Notes) to the rights of holders
of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the Holders
of Notes have been applied to the payment of Senior Indebtedness. A distribution
made under this Article 10 to holders of Senior Indebtedness that otherwise
would have been made to Holders of Notes is not, as between the Company and
Holders, a payment by the Company on the Senior Indebtedness.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Indebtedness. Nothing in this Indenture shall:
<PAGE>
77
(1) impair, as between the Company and Holders of Notes,
the obligation of the Company, which is absolute and
unconditional, to pay principal of, premium, if any,
and interest on the Notes in accordance with their
terms;
(2) affect the relative rights of Holders of Notes and
creditors of the Company other than their rights in
relation to holders of Senior Indebtedness; or
(3) prevent the Trustee or any Holder of Notes from
exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders
and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to
Holders of Notes.
If the Company fails because of this Article 10 to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is
nevertheless a Default or an Event of Default.
SECTION 10.09. 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 by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Subordinated
Note Obligations to violate this Article 10. Only the Company or a
representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
<PAGE>
78
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, a representative of Designated Senior Indebtedness is hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes.
ARTICLE 11
SATISFACTION AND DISCHARGE
SECTION 11.01 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and will cease to be of further
effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust
and thereafter repaid to the Company) have been
delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to
such Trustee for cancellation have become
due and payable by reason of the making of a
notice of redemption or otherwise or will
become due and payable within one year and
the Company or a Subsidiary Guarantor, if
any, has irrevocably deposited or caused to
be deposited with such Trustee as trust
funds in trust an amount of money sufficient
to pay and discharge the entire Indebtedness
on such Notes not theretofore delivered to
the Trustee for cancellation for principal,
premium, if any, and accrued interest to the
date of maturity or redemption;
(ii) no Default or Event of Default with respect
to this Indenture or the Notes 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 or a
Subsidiary Guarantor, if any, is a party or
by which the Company or a Subsidiary
Guarantor, if any, is bound;
(iii) the Company or a Subsidiary Guarantor, if
any, has paid or caused to be paid all sums
payable by it under this Indenture; and
(iv) the Company has delivered irrevocable
instructions to the Trustee under this
Indenture to apply the deposited money
toward the payment of such Notes at maturity
or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an
opinion of counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
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79
SECTION 11.02 APPLICATION OF TRUST MONEY
Subject to the provisions of the last paragraph of Section 4.03, all
money deposited with the Trustee pursuant to Section 11.01 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
Persons entitled thereto, of the principal (and premium, if any) and interest
for whose payment such money has been deposited with the Trustee.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 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, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though such deposit had occurred pursuant to Section 11.01;
provided that if the Company has made any payment of principal of, premium, if
any, or interest on any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or Government Securities held by the Trustee
or Paying Agent.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. CONFLICT OF ANY PROVISION OF INDENTURE WITH TIA.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Subsidiary Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or any Subsidiary Guarantor:
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
Attention: Nola S. Dyal, Esq.
Facsimile: (619) 564-4880
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Gary I. Horowitz, Esq.
Facsimile: (212) 455-2502
<PAGE>
80
If to the Trustee:
First Trust of New York, National Association
100 Wall Street, Suite 1600
New York, New York
Attention: Corporate Trust Department -- KSL Recreation
Group, Inc.
Facsimile: (212) 809-5459
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 1.05 hereof) stating that, in
the opinion of the signers, all conditions precedent and
covenants, if any, provided for in this Indenture relating to
the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 1.05 hereof) stating that, in
the opinion of such counsel, all such conditions precedent and
covenants have been satisfied.
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81
SECTION 12.05. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, any date established for
payment of Defaulted Interest pursuant to Section 2.12, or any Maturity with
respect to any Note shall not be a Business Day, then (notwithstanding any other
provisions of this Indenture, the Notes or any Subsidiary Guarantee) payment of
interest or principal (and premium, if any) need not be made on such date but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date or date established for payment of
Defaulted Interest pursuant to Section 2.12 or Maturity, and no interest shall
accrue with respect to such payment for the period from and after such Interest
Payment Date or date established for payment of Defaulted Interest pursuant to
Section 2.12 or Maturity, as the case may be, to the next succeeding Business
Day.
SECTION 12.06. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company or a Subsidiary Guarantor, if any, shall have any liability for any
obligations of the Company or the Subsidiary Guarantors, if any, under the
Notes, the Subsidiary Guarantees, if any, or this Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
SECTION 12.07. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF ANY, SHALL
BE, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW RULES THEREOF.
SECTION 12.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its respective successors and assigns, whether so expressed or not. All
covenants and agreements in this Indenture by the Trustee shall bind its
respective successors and assigns, whether so expressed or not.
SECTION 12.10. 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.
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82
SECTION 12.11. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.12. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
<PAGE>
83
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed in New York, New York as of the day and year first above written.
KSL RECREATION GROUP, INC.
Dated: April 30, 1997 By:
---------------------------------
Name:
Title:
Dated: April 30, 1997 By:
---------------------------------
Name:
Title:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
Dated: April 30, 1997 By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
(Face of Note)
10 1/4% Senior Subordinated Notes due 2007
No. Cusip No:
KSL RECREATION GROUP, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of $
_______________________________ Dollars on __________, 2007.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
KSL RECREATION GROUP, INC.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
This is one of the 10 1/4% Senior Subordinated Notes due 2007 referred to in the
within-mentioned Indenture:
First Trust of New York, National Association
as Trustee
By: -----------------------
Authorized Signature
A-1-1
<PAGE>
(Back of Note)
10 1/4% Senior Subordinated Notes due 2007
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Note may not be transferred except as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]1
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER
- --------
1 This paragraph should be included only if the Note is a Global Note.
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<PAGE>
IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE
IN VIOLATION OF THE FOREGOING RESTRICTIONS."
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. SL Recreation Group, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 10.25% per
annum from April 30, 1997 until May 1, 2007. The Company shall pay interest
semi-annually in arrears on May 1 and November 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Issuance Date; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be November 1, 1997. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate equal to the per annum rate on the Notes then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. SPECIAL INTEREST. The holder of this Note is entitled to the benefits of the
Registration Rights Agreement dated as of April 30, 1997, among the Company and
the Initial Purchasers (the "Registration Rights Agreement").
(a) In the event that either (i) the Exchange Offer
Registration Statement (as defined in the Registration Rights Agreement) has not
been declared effective on or prior to the 150th day following the Issuance Date
or (ii) the Exchange Offer is not consummated or a Shelf Registration Statement
(as defined in the Registration Rights Agreement) is not declared effective on
or prior to the 180th day following the Issuance Date, or (iii) the Exchange
Offer Registration Statement or, subject to the provisions of paragraph (b)
below, the Shelf Registration Statement is declared effective but thereafter
ceases to be effective or usable, the interest rate borne by the Notes shall be
increased by one-quarter of one percent per annum following such 150-day period
in the case of clause (i) above, or following such 180-day period in the case of
clause (ii) above, or following the date on which such Registration Statement
ceases to be effective or usable in the case of clause (iii) above, which rate
will be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; provided that
the aggregate increase in such annual interest rate will in no event exceed
one-percent. In each case, such additional interest (the "Special Interest")
shall be payable in cash semiannually in
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<PAGE>
arrears on each May 1 and November 1, commencing on the first such date
following any event set forth in clause (i), (ii) or (iii) above. Upon (x) the
effectiveness of the Exchange Offer Registration Statement after the 150-day
period described in clause (i) above, (y) consummation of the Exchange Offer or
the effectiveness of a Shelf Registration Statement, as the case may be, after
the 180-day period described in clause (ii) above, or (z) the date on which the
Exchange Offer Registration Statement or Shelf Registration Statement is again
declared effective or becomes usable, in the case of clause (iii) above, the
interest rate borne by the Notes from the date of such effectiveness,
consummation or that the applicable Registration Statement once again becomes
effective or usable, as the case may be, will be reduced to the original
interest rate set forth in paragraph 1 of this Note if the Company is otherwise
in compliance with this paragraph; provided, however, that, if after any such
reduction in interest rate, a different event specified in clauses (i), (ii) or
(iii) above occurs, the interest rate will again be increased and thereafter
reduced pursuant to the foregoing provisions.
(b) Notwithstanding the preceding paragraph, if the Shelf
Registration Statement becomes effective but thereafter ceases to be effective
or is unusable pending the announcement of a material corporate transaction or,
as required under applicable securities laws, and the number of days in any
consecutive twelve-month period for which the Shelf Registration Statement is
not effective or usable does not exceed 30 days in the aggregate, then the
interest rate borne by the Notes will not be increased pursuant to the preceding
paragraph.
(c) Except as expressly provided in this paragraph 2, Special
Interest shall be treated as interest and any date on which Special Interest is
due and payable shall be treated as an Interest Payment Date for all purposes
under this Note and the Indenture.
(d) In the event that the Company is required to pay Special
Interest pursuant to this paragraph 2, the Company shall notify the Trustee in
writing at least 15 days prior to the first Interest Payment Date upon which
such Special Interest is due; provided that, in the event that the obligation to
pay such Special Interest occurs less than 15 days prior to such Special
Interest Date, such notice shall be provided by the Company to the Trustee as
soon as reasonably practicable prior to such Interest Payment Date.
3. METHOD OF PAYMENT. The Company shall make payments in respect of Global Notes
(including principal, premium, if any, and interest) by wire transfer of
immediately available funds to the accounts specified by the Note Custodian or,
at the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes. Notwithstanding the foregoing, all payments with respect to
the Notes (the Holders of which have provided wire transfer instructions to the
Company at least ten business days prior to the applicable payment date), will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Such payment shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts.
4. PAYING AGENT AND REGISTRAR. Initially, First Trust of New York, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Notes may be presented for registration of transfer and exchange
at the offices of the Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
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<PAGE>
5. INDENTURE. The Company issued the Notes under an Indenture dated as of April
30, 1997 ("Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. The Notes are
general unsecured obligations of the Company limited to $125,000,000 in
aggregate principal amount.
6. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes will not
be redeemable at the Company's option prior to May 1, 2002. On and after May 1,
2002, the Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' written notice,
at the Redemption Prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of each of the years indicated below:
YEAR REDEMPTION
PRICE
2002 ................................................... 105.125%
2003 ................................................... 103.417%
2004 ................................................... 101.708%
2005 and thereafter......................................... 100.000%
In addition, at any time or from time to time, on or prior to May 1,
2001, the Company may, at its option, redeem up to 50% of the aggregate
principal amount of Notes originally issued under the Indenture on the Issuance
Date at a Redemption Price equal to 110.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Redemption
Date, with the net cash proceeds of one or more Equity Offerings; provided that
at least 50% of the aggregate principal amount of Notes originally issued under
the Indenture on the Issuance Date remains outstanding immediately after the
occurrence of such redemption; provided further that such redemption occurs
within 60 days of the date of closing of each such Equity Offering. The Trustee
shall select the Notes to be purchased in the manner described in the Indenture.
7. MANDATORY REDEMPTION. Other than as set forth in paragraph 9, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder whose Notes
are to be redeemed at its registered address. Notes may be redeemed in part but
only in whole multiples of $1,000. On and after the Redemption Date interest
ceases to accrue on Notes or portions thereof called for redemption.
9. REPURCHASE AT OPTION OF HOLDERS. (a) Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
the Notes at a price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the
A-1-5
<PAGE>
Company shall mail a notice to each Holder of Notes issued under the Indenture,
with a copy to the Trustee, containing the information set forth in Section 4.09
of the Indenture. Holders of Notes that are subject to an offer to purchase may
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" on the reverse side of this Note.
(b) When the aggregate amount of Excess Proceeds in connection with
Asset Sales by the Company exceeds $15 million, the Company shall make an offer
to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that is an integral multiple of $1,000 that may be
purchased out of the Excess Proceeds at an offer price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase in accordance with the procedures set forth in Section 3.10 of
the Indenture. The Company will commence an Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that Excess Proceeds
exceeds $15 million by mailing the notice required pursuant to the terms Section
3.10 of the Indenture, with a copy to the Trustee. To the extent that the
aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse side of this Note.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without
coupons in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (subject to a minimum initial purchase requirement of $250,000
for Notes sold to institutional investors that qualify as accredited investors
as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act other
than in reliance on Rule 144A or Regulation S). The transfer of Notes may be
registered and Notes may be exchanged only as provided in Article 2 of the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents (including
legal opinions) and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company need not exchange or
register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, it
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its
owner for all purposes.
12. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium, if any, and interest on each Note is subordinated in
right of payment, to the extent and in the manner provided in Article 10 of the
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness (whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed, provided that such
creation, incurrence,
A-1-6
<PAGE>
assumption or guarantee is in accordance with the provisions set forth in the
Indenture), and this subordination provision is for the benefit of the holders
of Senior Indebtedness.
13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Notes or any Subsidiary Guarantee may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes, and, subject to the terms of the Indenture and any
applicable Subsidiary Guarantee, any existing default (other than a default in
the payment of the principal of, premium, if any, or interest on, the Notes) or
compliance with any provision of the Indenture, the Notes or any Subsidiary
Guarantee may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture, the Notes and any Subsidiary Guarantee may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to comply with Article 5 of the Indenture, to provide for the assumption
of the Company's or any Subsidiary Guarantor's obligations to Holders of the
Notes, to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to add covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company, to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA, to add a Subsidiary Guarantor
under the Indenture, or to provide for the appointment of a successor trustee in
compliance with the requirements of Section 7.10 of the Indenture.
14. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event of
Default": (a) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the Notes
(whether or not such payment shall be prohibited by Article 10 of the Indenture
or the terms of any Subsidiary Guarantee); (b) default for 30 days or more in
the payment when due of interest on or with respect to the Notes whether or not
such payment shall be prohibited by Article 10 of the Indenture or the terms of
any Subsidiary Guarantee; (c) failure by the Company or a Subsidiary Guarantor,
if any, for 30 days after receipt of written notice given by the Trustee or the
holders of at least 30% in principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture, the Notes or the
Subsidiary Guarantees, if any; (d) default under any mortgage, indenture or
instrument under which there is issued or by which there is secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries (other than Indebtedness owed to the Company or a
Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1) results
from the failure to pay any such Indebtedness at its stated final maturity
(after giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such Indebtedness
at its stated final maturity and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated final
maturity and (B) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at stated final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated, aggregate $15
million or more at any one time outstanding; (e) failure by the Company or any
of its Significant Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $15 million, which final, non-appealable judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days after
such judgment becomes final and non-appealable, and in the event such judgment
is covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such
A-1-7
<PAGE>
judgment or decree which is not promptly stayed; (f) the Company or any
Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to
the entry of an order for relief against it in an involuntary case in which it
is the debtor, (iii) consents to the appointment of a custodian of it or for all
or substantially all of its property, (iv) makes a general assignment for the
benefit of its creditors, or (v) admits in writing its inability generally to
pay its debts as the same become due; (g) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that: (i) is for relief
against the Company or any Restricted Subsidiary that is a Significant
Subsidiary in an involuntary case in which it is the debtor, (ii) appoints a
custodian of the Company or any Restricted Subsidiary that is a Significant
Subsidiary or for all or substantially all of the property of the Company of any
Restricted Subsidiary that is a Significant Subsidiary; or (iii) orders the
liquidation of the Company or any Restricted Subsidiary that is a Significant
Subsidiary, and the order or decree contemplated in clauses (i), (ii) or (iii)
of this clause (g), remains unstayed and in effect for 60 consecutive days; or
(h) any Subsidiary Guarantee shall for any reason cease to be in full force and
effect or be declared null and void or any responsible officer of the Company or
Subsidiary Guarantor denies that it has any further liability under any such
Subsidiary Guarantee or gives notice to such effect (other than by reason of the
termination of the Indenture or the release of any such Subsidiary Guarantee in
accordance with such Subsidiary Guarantee and the Indenture).
If an Event of Default (other than of a type specified in clause (f) or
(g) in the preceding paragraph) occurs and is continuing under the Indenture,
the Trustee or the Holders of at least 30% in principal amount of the then
outstanding Notes may declare the principal, premium, if any, interest and any
other monetary obligations on all the then outstanding Notes to be due and
payable immediately by notice in writing to the Company (and the Trustee, if
given by the Holders); provided, however, that, so long as any Indebtedness
permitted to be incurred pursuant to the New Credit Facility shall be
outstanding, no such acceleration shall be effective until the earlier of (i)
acceleration of any such Indebtedness under the New Credit Facility or (ii) five
business days after the giving of written notice to the Company and the
representative under the New Credit Facility of such acceleration. Upon the
effectiveness of such declaration, such principal, premium, interest and other
monetary obligations will be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising under clause (f) or (g) of
the preceding paragraph, all outstanding Notes will become due and payable
without further action or notice. Holders of Notes may not enforce the Indenture
or the Notes except as provided under the Indenture. Subject to certain
limitations, including the provision to the Trustee of an indemnity in
accordance with Section 7.07 of the Indenture, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium, if any, or interest)
if it determines that withholding notice is in their interest. In addition, the
Trustee shall have no obligation to accelerate the Notes if in the best judgment
of the Trustee acceleration is not in the best interest of the Holders of such
Notes.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, and may otherwise deal with the Company, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under these Notes or
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<PAGE>
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting any of these Notes
waives and releases all such liability.
17. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company have caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
Attention: General Counsel
Facsimile: (619) 564-4880
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<PAGE>
ASSIGNMENT FORM
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____________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:________________
Your Signature:___________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.09 or 4.10 of the Indenture, check the box below:
|_| Section 4.09 |_| Section 4.10
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.09 or Section 4.10 of the Indenture, state the
amount you elect to have purchased: $_________
Date:___________________ Your Signature:__________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:_______________________
Signature Guarantee.
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<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE2
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in of this Signature of
Principal Amount Principal Amount Global Note authorized officer of
of this of this following such decrease Trustee or Note
Date of Exchange Global Note Global Note (or increase) Custodian
- ---------------------- ----------------------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C>
- --------
2 This should be included only if the Note is a Global Note.
</TABLE>
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<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
10 1/4% Senior Subordinated Notes due 2007
No. Cusip No:
KSL RECREATION GROUP, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
_______________________________ Dollars on __________, 2007.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
KSL RECREATION GROUP, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
This is one of the 10 1/4% Senior
Subordinated Notes due 2007
referred to in the within-mentioned
Indenture:
First Trust of New York, National Association
As Trustee
By: _____________________________
Authorized Signature
A-2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
10 1/4% Senior Subordinated Notes due 2007
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS
THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM
ACCRUING ON THIS NOTE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN
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<PAGE>
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND , IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF
LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. KSL Recreation Group, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 10.25% per
annum from April 30, 1997 until May 1, 2007. The Company shall pay interest
semi-annually in arrears on May 1 and November 1 of each year, or if any such
day is not a Business Day, on the next succeed ng Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Issuance Date; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be November 1, 1997. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate equal to the per annum rate on the Notes then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. SPECIAL INTEREST. The holder of this Note is entitled to the benefits of the
Registration Rights Agreement dated as of April 30, 1997, among the Company and
the Initial Purchasers (the "Registration Rights Agreement").
(a) In the event that either (i) the Exch nge Offer Registration
Statement (as defined in the Registration Rights Agreement) has not been
declared effective on or prior to the 150th day following the Issuance Date or
(ii) the Exchange Offer is not consummated or a Shelf Registration Statement (as
defined in the Registration Rights Agreement) is not declared effective on or
prior to the 180th day following the Issuance Date, or (iii) the Exchange Offer
Registration Statement or, subject to the provisions of paragraph (b) below, the
Shelf Registration Statement is declared effective but thereafter ceases to be
effective or usable, the interest rate borne by the Notes shall be increased by
one-quarter of one percent per annum following such 150-day period in the case
of clause (i) above, or following such 180-day period in the case of clause (ii)
above, or following the date on which such Registration Statement ceases to be
effective or usable in the case of clause (iii) above, which rate will be
increased by an additional one-quarter of one percent per annum for each 90-day
period that any additional interest continues to accrue; provided that the
aggregate increase in such annual interest rate will in no event exceed
one-percent. In each case, such
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<PAGE>
additional interest (the "Special Interest") shall be payable in cash
semiannually in arrears on each May 1 and November 1, commencing on the first
such date following any event set forth in clause (i), (ii) or (iii) above. Upon
(x) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (i) above, (y) consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after the 180-day period described in clause (ii) above, or (z) the date on
which the Exchange Offer Registration Statement or Shelf Registration Statement
is again declared effective or becomes usable, in the case of clause (iii)
above, the interest rate borne by the Notes from the date of such effectiveness,
consummation or that the applicable Registration Statement once again becomes
effective or usable, as the case may be, will be reduced to the original
interest rate set forth in paragraph 1 of this Note if the Company is otherwise
in compliance with this paragraph; provided, however, that, if after any such
reduction in interest rate, a different event specified in clauses (i), (ii) or
(iii) above occurs, the interest rate will again be increased and thereafter
reduced pursuant to the foregoing provisions.
(b) Notwithstanding the preceding paragraph, if the Shelf Registration
Statement becomes effective but thereafter ceases to be effective or is unusable
pending the announcement of a material corporate transaction or, as required
under applicable securities laws, and the number of days in any consecutive
twelve-month period for which the Shelf Registration Statement is not effective
or usable does not exceed 30 days in the aggregate, then the interest rate borne
by the Notes will not be increased pursuant to the preceding paragraph.
(c) Except as expressly provided in this paragraph 2, Special Interest
shall be treated as interest and any date on which Special Interest is due and
payable shall be treated as an Interest Payment Date for all purposes under this
Note and the Indenture.
(d) In the event that the Company is required to pay Special Interest
pursuant to this paragraph 2, the Company shall notify the Trustee in writing at
least 15 days prior to the first Interest Payment Date upon which such Special
Interest is due; provided that, in the event that the obligation to pay such
Special Interest occurs less than 15 days prior to such Special Interest Date,
such notice shall be provided by the Company to the Trustee as soon as
reasonably practicable prior to such Interest Payment Date.
3. METHOD OF PAYMENT. The Company shall make payments in respect of Global Notes
(including principal, premium, if any, and interest) by wire transfer of
immediately available funds to the accounts specified by the Note Custodian or,
at the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes. Notwithstanding the foregoing, all payments with respect to
the Notes (the Holders of which have provided wire transfer instructions to the
Company at least ten business days prior to the applicable payment date), will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Such payment shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts.
4. PAYING AGENT AND REGISTRAR. Initially, First Trust of New York, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Notes may be presented for registration of transfer and exchange
at the offices of the Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
5. INDENTURE. The Company issued the Notes under an Indenture dated as of April
30, 1997 ("Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. The Notes are
general unsecured obligations of the Company limited to $125,000,000 in
aggregate principal amount.
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<PAGE>
6. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes will not be
redeemable at the Company's option prior to May 1, 2002. On and after May 1,
2002, the Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' written notice,
at the Redemption Prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of each of the years indicated below:
YEAR REDEMPTION
PRICE
2002................................................. 105.12 %
2003................................................. 103.417%
2004................................................. 101.708%
2005 and thereafter.................................. 100.000%
In addition, at any time or from time to time, on or prior to May 1,
2001, the Company may, at its option, redeem up to 50% of the aggregated
principal amount of Notes originally issued under the indenture on the Issuance
Date at a Redemption Price equal to 110.25% of the aggregated principal amount
thereof, plus accured and unpaid interest thereon, if any, to the Redemption
Date, with the net cash proceeds of one or more Equity Offerings; provided that
at least 50% of the aggregate principal amount of Notes originally issued under
the Indenture on the Issuance Date remains outstanding immediately after the
occurrence of such redemption; provided further that such redemption occurs
within 60 days of the date of closing of each such Equity Offering. The Trustee
shall select the Notes to be purchased in the manner described in the Indenture.
7. MANDATORY REDEMPTION. Other than as set forth in paragraph 9, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder whose Notes
are to be redeemed at its registered address. Notes may be redeemed in part but
only in whole multiples of $1,000. On and after the Redemption Date interest
ceases to accrue on Notes or portions thereof called for redemption.
9. REPURCHASE AT OPTION OF HOLDERS. (a) Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
the Notes at a price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder of Notes issued under the
Indenture, with a copy to the Trustee, containing the information set forth in
Section 4.09 of the Indenture. Holders of Notes that are subject to an offer to
purchase may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse side of this Note.
(b) When the aggregate amount of Excess Proceeds in connection with
Asset Sales by the Company exceeds $15 million, the Company shall make an offer
to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that is an integral multiple of $1,000 that may be
purchased out of the Excess Proceeds at an offer price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase in accordance with the procedures set forth in Section 3.10 of
the Indenture. The Company will commence an Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that Excess Proceeds
exceeds $15 million by mailing the notice required pursuant to the terms Section
3.10 of the Indenture, with a copy to the Trustee. To the extent that the
aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than
the
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<PAGE>
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of any such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse side of this Note.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without
coupons in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (subject to a minimum initial purchase requirement of $250,000
for Notes sold to institutional investors that qualify as accredited investors
as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act other
than in reliance on Rule 144A or Regulation S). The transfer of Notes may be
registered and Notes may be exchanged only as provided in Article 2 of the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents (including
legal opinions) and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company need not exchange or
register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, it
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its
owner for all purposes.
12. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium, if any, and interest on each Note is subordinated in
right of payment, to the extent and in the manner provided in Article 10 of the
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness (whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed, provided that such
creation, incurrence, assumption or guarantee is in accordance with the
provisions set forth in the Indenture), and this subordination provision is for
the benefit of the holders of Senior Indebtedness.
13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Notes or any Subsidiary Guarantee may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes, and, subject to the terms of the Indenture and any
applicable Subsidiary Guarantee, any existing default (other than a default in
the payment of the principal of, premium, if any, or interest on, the Notes) or
compliance with any provision of the Indenture, the Notes or any Subsidiary
Guarantee may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture, the Notes and any Subsidiary Guarantee may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to comply with Article 5 of the Indenture, to provide for the assumption
of the Company's or any Subsidiary Guarantor's obligations to Holders of the
Notes, to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to add covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company, to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA, to add a Subsidiary Guarantor
under the Indenture, or to provide for the appointment of a successor trustee in
compliance with the requirements of Section 7.10 of the Indenture.
14. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event of
Default": (a) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the Notes
(whether or not such payment shall be prohibited by Article 10 of the Indenture
or the
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<PAGE>
terms of any Subsidiary Guarantee); (b) default for 30 days or more in the
payment when due of interest on or with respect to the Notes whether or not such
payment shall be prohibited by Article 10 of the Indenture or the terms of any
Subsidiary Guarantee; (c) failure by the Company or a Subsidiary Guarantor, if
any, for 30 days after receipt of written notice given by the Trustee or the
holders of at least 30% in principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture, the Notes or the
Subsidiary Guarantees, if any; (d) default under any mortgage, indenture or
instrument under which there is issued or by which there is secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries (other than Indebtedness owed to the Company or a
Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1) results
from the failure to pay any such Indebtedness at its stated final maturity
(after giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such Indebtedness
at its stated final maturity and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated final
maturity and (B) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at stated final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated, aggregate $15
million or more at any one time outstanding; (e) failure by the Company or any
of its Significant Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $15 million, which final, non-appealable judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days after
such judgment becomes final and non-appealable, and in the event such judgment
is covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed; (f) the
Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant
to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an involuntary
case in which it is the debtor, (iii) consents to the appointment of a custodian
of it or for all or substantially all of its property, (iv) makes a general
assignment for the benefit of its creditors, or (v) admits in writing its
inability generally to pay its debts as the same become due; (g) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted Subsidiary that is a
Significant Subsidiary in an involuntary case in which it is the debtor, (ii)
appoints a custodian of the Company or any Restricted Subsidiary that is a
Significant Subsidiary or for all or substantially all of the property of the
Company of any Restricted Subsidiary that is a Significant Subsidiary; or (iii)
orders the liquidation of the Company or any Restricted Subsidiary that is a
Significant Subsidiary, and the order or decree contemplated in clauses (i),
(ii) or (iii) of this clause (g), remains unstayed and in effect for 60
consecutive days; or (h) any Subsidiary Guarantee shall for any reason cease to
be in full force and effect or be declared null and void or any responsible
officer of the Company or Subsidiary Guarantor denies that it has any further
liability under any such Subsidiary Guarantee or gives notice to such effect
(other than by reason of the termination of the Indenture or the release of any
such Subsidiary Guarantee in accordance with such Subsidiary Guarantee and the
Indenture).
If an Event of Default (other than of a type specified in clause (f) or
(g) in the preceding paragraph) occurs and is continuing under the Indenture,
the Trustee or the Holders of at least 30% in principal amount of the then
outstanding Notes may declare the principal, premium, if any, interest and any
other monetary obligations on all the then outstanding Notes to be due and
payable immediately by notice in writing to the Company (and the Trustee, if
given by the Holders); provided, however, that, so long as any Indebtedness
permitted to be incurred pursuant to the New Credit Facility shall be
outstanding, no such acceleration shall be effective until the earlier of (i)
acceleration of any such Indebtedness under the New Credit Facility or (ii) five
business days after the giving of written notice to the Company and the
representative under the New Credit Facility of such acceleration. Upon the
effectiveness of such declaration, such principal, premium, interest and other
monetary obligations will be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising under clause (f) or (g) of
the preceding paragraph, all outstanding Notes will become due and payable
without further action or notice. Holders of Notes may not enforce the Indenture
or the Notes except as provided under the
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<PAGE>
Indenture. Subject to certain limitations, including the provision to the
Trustee of an indemnity in accordance with Section 7.07 of the Indenture,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interest. In addition, the Trustee shall have no obligation
to accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the Holders of such Notes.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, and may otherwise deal with the Company, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under these Notes or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
any of these Notes waives and releases all such liability.
17. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company have caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
Attention: General Counsel
Facsimile: (619) 564-4880
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<PAGE>
ASSIGNMENT FORM
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____________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:________________
Your Signature:___________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
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<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global Note for
an interest in another Global Note, or of other Restricted Global Notes for an
interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in of this Signature of
Principal Amount Principal Amount Global Note authorized officer of
of this of this following such decrease Trustee or Note
Date of Exchange Global Note Global Note (or increase) Custodian
- ---------------------- ----------------------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
EXHIBIT A-3
(Face of Unrestricted Note)
10 1/4% Senior Subordinated Notes due 2007
No. Cusip No:
KSL RECREATION GROUP, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
_______________________________ Dollars on __________, 2007.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
Dated:___________,199_________ KSL RECREATION GROUP, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
This is one of the 10 1/4% Senior
Subordinated Notes due 2007
referred to in the within-mentioned
Indenture:
First Trust of New York, National Association
As Trustee
By: _____________________________
Authorized Signature
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<PAGE>
(Back of Unrestricted Note)
10 1/4% Senior Subordinated Notes due 2007
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Note may not be transferred except as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]1
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. KSL Recreation Group, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 10.25% per
annum from April 30, 1997 unt l May 1, 2007. The Company shall pay interest
semi-annually in arrears on May 1 and November 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Issuance Date; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be November 1, 1997. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate equal to the per annum rate on the Notes then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall make payments in respect of Global Notes
(inc uding principal, premium, if any, and interest) by wire transfer of
immediately available funds to the accounts specified by the Note Custodian or,
at the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes. Notwithstanding the foregoing, all payments with respect to
the Notes (the Holders of which have provided wire transfer instructions to the
Company at least ten business days prior to the applicable payment date), will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Such payment shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, First Trust of New York, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Notes may be presented for registration of transfer and exchange
at the offices of the Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
- --------
1 This paragraph should be included only if the Note is a Global Note.
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4. INDENTURE. The Company issued the Notes under an Indenture dated as of April
30, 1997 ("Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. The Notes are
general unsecured obligations of the Company limited to $125,000,000 in
aggregate principal amount.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes will not be
redeemable at the Company's option prior to May 1, 2002. On and after May 1,
2002, the Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' written notice,
at the Redemption Prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of each of the years indicated below:
YEAR REDEMPTION
PRICE
2002.................................................. 105 .125%
2003.................................................. 103.417%
2004.................................................. 101.708%
2005 and thereafter................................... 100.000%
In addition, at any time or from time to time, on or prior to May 1,
2001, the Company may, at its option, redeem up to 50% of the aggregate
principal amount of Notes originally issued under the Indenture on the Issuance
Date at a Redemption Price equal to 110.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Redemption
Date, with the n t cash proceeds of one or more Equity Offerings; provided that
at least 50% of the aggregate principal amount of Notes originally issued under
the Indenture on the Issuance Date remains outstanding immediately after the
occurrence of such redemption; provided further that such redemption occurs
within 60 days of the date of closing of each such Equity Offering. The Trustee
shall select the Notes to be purchased in the manner described in the Indenture.
6. MANDATORY REDEMPTION. Other than as set forth in paragraph 8, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes may be redeemed in part but
only in whole multiples of $1,000. On and after the redemption date interest
ceases to accrue on Notes or portions thereof called for redemption.
8. REPURCHASE AT OPTION OF HOLDERS. Upon the occurrence of a Change of Control,
the Company shall make an offer (a "Change of Control Offer") to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of the Notes at a
price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder of Notes issued under the Indenture, with a
copy to the Trustee, containing the information set forth in Section 4.09 of the
Indenture. Holders of Notes that are subject to an offer to purchase may elect
to have such Notes purchased by completing the form entitled "Option of Holder
to Elect Purchase" on the reverse side of this Note.
(b) When the aggregate amount of Excess Proceeds exceeds $15 million,
the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of Notes that is an integral multiple
of $1,000 that may be purchased out of the Excess Proceeds at an offer price in
cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the
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date of purchase in accordance with the procedures set forth in Section 3.10 of
the Indenture. The Company will commence an Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that Excess Proceeds
exceeds $15 million by mailing the notice required pursuant to the terms of this
Indenture, with a copy to the Trustee. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse side of this Note.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without
coupons in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (subject to a minimum initial purchase requirement of $250,000
for Notes sold to institutional investors that qualify as accredited investors
as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act other
than in reliance on Rule 144A or Regulation S). The transfer of Notes may be
registered and Notes may be exchanged only as provided in Article 2 of the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents (including
legal opinions) and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company need not exchange or
register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, it
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its
owner for all purposes.
11. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium, if any, and interest on each Note is subordinated in
right of payment, to the extent and in the manner provided in Article 10 of the
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness (whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed, provided that such
creation, incurrence, assumption or guarantee is in accordance with the
provisions set forth in the Indenture), and this subordination provision is for
the benefit of the holders of Senior Indebtedness.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Notes or any Subsidiary Guarantee may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes, and, subject to the terms of the Indenture and any
applicable Subsidiary Guarantee, any existing default (other than a default in
the payment of the principal of, premium, if any, or interest on, the Notes) or
compliance with any provision of the Indenture, the Notes or any Subsidiary
Guarantee may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture, the Notes and any Subsidiary Guarantee may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to comply with Article 5 of the Indenture, to provide for the assumption
of the Company's or any Subsidiary Guarantor's obligations to Holders of the
Notes, to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to add covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company, to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA, to add a Subsidiary Guarantor
under the Indenture, or to provide for the appointment of a successor trustee in
compliance with the requirements of Section 7.10 of the Indenture.
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13. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event
of Default": (a) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the Notes (
hether or not such payment shall be prohibited by Article 10 of the Indenture or
the terms of any Subsidiary Guarantee); (b) default for 30 days or more in the
payment when due of interest on or with respect to the Notes whether or not such
payment shall be prohibited by Article 10 of the Indenture or the terms of any
Subsidiary Guarantee; (c) failure by the Company or a Subsidiary Guarantor, if
any, for 30 days after receipt of written notice given by the Trustee or the
holders of at least 30% in principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture, the Notes or the
Subsidiary Guarantees, if any; (d) default under any mortgage, indenture or
instrument under which there is issued or by which there is secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries (other than Indebtedness owed to the Company or a
Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1) results
from the failure to pay any such Indebtedness at its stated final maturity
(after giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such Indebtedness
at its stated final maturity and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated final
maturity and (B) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at stated final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated, aggregate $15
million or more at any one time outstanding; (e) failure by the Company or any
of its Significant Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $15 million, which final, non-appealable judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days after
such judgment becomes final and non-appealable, and in the event such judgment
is covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed; (f) the
Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant
to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an involuntary
case in which it is the debtor, (iii) consents to the appointment of a custodian
of it or for all or substantially all of its property, (iv) makes a general
assignment for the benefit of its creditors, or (v) admits in writing its
inability generally to pay its debts as the same become due; (g) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted Subsidiary that is a
Significant Subsidiary in an involuntary case in which it is the debtor, (ii)
appoints a custodian of the Company or any Restricted Subsidiary that is a
Significant Subsidiary or for all or substantially all of the property of the
Company of any Restricted Subsidiary that is a Significant Subsidiary; or (iii)
orders the liquidation of the Company or any Restricted Subsidiary that is a
Significant Subsidiary, and the order or decree contemplated in clauses (i),
(ii) or (iii) of this clause (g), remains unstayed and in effect for 60
consecutive days; or (h) any Subsidiary Guarantee shall for any reason cease to
be in full force and effect or be declared null and void or any responsible
officer of the Company or Subsidiary Guarantor denies that it has any further
liability under any such Subsidiary Guarantee or gives notice to such effect
(other than by reason of the termination of the Indenture or the release of any
such Subsidiary Guarantee in accordance with such Subsidiary Guarantee and the
Indenture).
If an Event of Default (other than of a type specified in clause (f) or
(g) in the preceding paragraph) occurs and is continuing under the Indenture,
the Trustee or the Holders of at least 30% in principal amount of the then
outstanding Notes may declare the principal, premium, if any, interest and any
other monetary obligations on all the then outstanding Notes to be due and
payable immediately by notice in writing to the Company (and the Trustee, if
given by the Holders); provided, however, that, so long as any Indebtedness
permitted to be incurred pursuant to the New Credit Facility shall be
outstanding, no such acceleration shall be effective until the earlier of (i)
acceleration of any such Indebtedness under the New Credit Facility or (ii) five
business days after the giving of written notice to the Company and the
representative under the New Credit Facility of such acceleration. Upon the
effectiveness of such declaration, such principal, premium, interest and other
monetary obligations will be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising under clause (f) or
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<PAGE>
(g) of the preceding paragraph, all outstanding Notes will become due and
payable without further action or notice. Holders of Notes may not enforce the
Indenture or the Notes except as provided under the Indenture. Subject to
certain limitations, including the provision to the Trustee of an indemnity in
accordance with Section 7.07 of the Indenture, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium, if any, or interest)
if it determines that withholding notice is in their interest. In addition, the
Trustee shall have no obligation to accelerate the Notes if in the best judgment
of the Trustee acceleration is not in the best interest of the Holders of such
Notes.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, and may otherwise deal with the Company, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under these Notes or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
any of these Notes waives and releases all such liability.
16. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company have caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
Attention: General Counsel
Facsimile: (619) 564-4880
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EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
First Trust of New York, National Association
100 Wall Street, Suite 1600
New York, New York 10005
Re: 10 1/4% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of April 30, 1997
(the "Indenture"), between KSL Recreation Group, Inc., as issuer (the
"Company"), and First Trust of New York, National Association, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1.|_|CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A
GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Restricted Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Restricted Definitive Note for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Restricted Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the 144A Global Note and/or the Restricted Definitive Note and in the Indenture
and the Securities Act.
2.|_|CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A RESTRICTED
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a U.S. Person or for the account or benefit of a U.S. Person (other than
an Initial Purchaser). Upon consummation of the proposed transfer in
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accordance with the terms of the Indenture, the transferred beneficial interest
or Restricted Definitive Note will be subject to the restrictions on Transfer
enumerated in the Private Placement Legend printed on the Regulation S Global
Note, the Temporary Regulation S Global Note and/or the Definitive Note and in
the Indenture and the Securities Act.
3.|_|CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A RESTRICTED
DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE
144A OR REGULATION S. The Transfer is being effected in compliance with the
transfer restrictions applicable to Restricted Definitive Notes and pursuant to
and in accordance with the Securities Act and any applicable blue sky securities
laws of any state of the United States, and accordingly the Transferor hereby
further certifies that (check one):
(a)|_|such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b)|_|such Transfer is being effected to the Company or a Subsidiary
thereof;
or
(c)|_|such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d)|_|such Transfer is being effected to an Accredited Investor and
pursuant to an exemption from the registration requirements of the Securities
Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby
further certifies that the Transfer complies with the transfer restrictions
applicable to Restricted Definitive Notes and the requirements of the exemption
claimed, which certification is supported by (1) a certificate executed by the
Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is
in respect of a principal amount of Notes at the time of transfer of less than
$250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the effect
that such Transfer is in compliance with the Securities Act. Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Restricted Definitive Note will be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Definitive Notes and in the Indenture and the Securities Act.
4.|_|CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN
UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a)|_|CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Unrestricted
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b)|_|CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of
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the proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Unrestricted Definitive Note will no longer
be subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Notes, on Restricted Definitive Notes
and in the Indenture.
(c)|_|CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Unrestricted Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
[Insert Name of Transferor]
By:
-------------------
Name:
Title:
Dated:____________,______
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a)|_|a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP _____), or
(ii) |_| Regulation S Global Note
(CUSIP/CINS ___), or
(b)|_|a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a)|_|a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP _______), or
(ii) |_| Regulation S Global Note
(CUSIP/CINS ______), or
(iii) |_| Unrestricted Global Note
(CUSIP ______); or
(b)|_|a Restricted Definitive Note; or
(c)|_|an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
First Trust of New York, National Association
100 Wall Street, Suite 1600
New York, New York 10005
Re: 10 1/4% Senior Subordinated Notes due 2007 (CUSIP )
Reference is hereby made to the Indenture, dated as of April 30, 1997
(the "Indenture"), between KSL Recreation Group, Inc. as issuer (the "Company"),
and First Trust of New York, National Association, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1.EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a)|_|CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b)|_|CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Unrestricted Definitive Note is being acquired
in compliance with any applicable blue sky securities laws of any state of the
United States.
(c)|_|CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in
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accordance with the Securities Act, (iii) the restrictions on transfer contained
in the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest is
being acquired in compliance with any applicable blue sky securities laws of any
state of the United States.
(d)|_|CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2.EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED
GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES
(a)|_|CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b)|_|CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] |_| 144A Global Note or |_| Regulation S Global Note, with an equal
principal amount, the Owner hereby certifies (i) such Owner acquired such
Restricted Definitive Note in a transaction pursuant to Rule 144A or Regulation
S, (ii) the beneficial interest is being acquired for the Owner's own account
without transfer and (iii) such Exchange has been effected in compliance with
the transfer restrictions applicable to the Restricted Global Notes and pursuant
to and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the beneficial interest issued will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the relevant
Restricted Global Note and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
------------------------
[Insert Name of Owner]
By:
---------------------
Name:
Title:
Dated: ___________,______
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EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
First Trust of New York, National Association
100 Wall Street, Suite 1600
New York, New York 10005
Re: 10 1/4% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of April 30, 1997
(the "Indenture"), between KSL Recreation Group, Inc., as issuer (the
"Company"), and First Trust of New York, National Association, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of Restricted Definitive Notes we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the Notes have not been registered under the
Securities Act, and that the Notes and any interest therein may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of each account for which we acquire any Notes (for which
are acting as hereinafter stated), that such Notes may be offered, resold,
pledged or otherwise transferred only (i) to a person whom we reasonably believe
to be a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule 904
under the Securities Act, or in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so Requests), (ii) to the Company or (iii) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction. We further agreement to provide to any person
purchasing the Definitive Note or a beneficial interest in a Global Note from us
in a transaction meeting the requirements of (i) or (ii) of this paragraph a
notice advising such purchaser that resales thereof are restricted as stated
herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
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<PAGE>
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes without a view to distribution thereof in
violation of the Securities Act for our own account or for one or more accounts
(each of which is an institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
------------------------------------
[Insert Name of Accredited Investor]
By:
---------------------
Name:
Title:
Dated: ___________,______
D-2
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY SUBSIDIARY GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
____________________, between _____________________ (the "Subsidiary
Guarantor"), a subsidiary of KSL Recreation Group, Inc. (or its successor), a
company incorporated under the laws of the State of Delaware (the "Company"),
and First Trust of New York, National Association, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of April 30 1997, providing for
the issuance of an aggregate principal amount at maturity of $125,000,000 of 10
1/4% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, Section 4.12 of the Indenture provides that the Company may
cause the Subsidiary Guarantor to execute and deliver to the Trustee a
subsidiary guarantee on the terms and conditions set forth herein;
WHEREAS, Section 4.15 of the Indenture provides that, under certain
circumstances, the Company is required to cause the Subsidiary Guarantor to
execute and deliver to the Trustee a Subsidiary Guarantee on the terms and
conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings as signed to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH GUARANTEE IS GIVEN. This
Supplemental Indenture is being executed and delivered pursuant to Section
[4.12][4.15] of the Indenture.
3. AGREEMENTS TO GUARANTEE. The Subsidiary Guarantor hereby agrees as
follows:
(a) The Subsidiary Guarantor, jointly and severally with all
other Subsidiary Guarantors, if any, unconditionally guarantees to each Holder
of a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, regardless of the validity and enforceability of the
Indenture, the Notes and the obligations of the Company under the Indenture and
the Notes, that:
(i) the principal of, premium, if any, and interest
on the Notes shall be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of,
premium, if any, and interest on the Notes, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee thereunder shall be
promptly paid in full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or
renewal of any Notes or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise.
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Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the liability of the
Subsidiary Guarantor under this Supplemental Indenture and its Subsidiary
Guarantee shall be limited to such amount as will not, after giving effect
thereto, and to all other liabilities of the Subsidiary Guarantor, result in
such amount constituting a fraudulent transfer or conveyance.
4. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Subsidiary Guarantor hereby agrees that a notation
of such Subsidiary Guarantee substantially in the form of Annex A hereto shall
be endorsed by an officer of such Subsidiary Guarantor on each Note
authenticated and delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Subsidiary Guarantor
hereby agrees that its Subsidiary Guarantee set forth herein shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office at the time
the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed,
the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of the Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of the
Subsidiary Guarantor.
(e) The Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional, regardless of the validity,
regularity or enforceability of the Notes or the Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgement
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(f) The Subsidiary Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that its Subsidiary Guarantee made pursuant to this Supplemental Indenture will
not be discharged except by complete performance of the obligations contained in
the Notes and the Indenture or pursuant to Section 5(b) of this Supplemental
Indenture.
(g) If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Supplemental Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then, and in every such
case, subject to any determination in such proceeding, the Subsidiary Guarantor,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Subsidiary Guarantor, the Trustee and the Holders shall continue as though no
such proceeding had been instituted.
(h) The Subsidiary Guarantor hereby waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary Guarantor as a result of any payment by such Subsidiary
Guarantor under its Subsidiary Guarantee. The Subsidiary Guarantor further
agrees that, as between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand:
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<PAGE>
(i) the maturity of the obligations guaranteed hereby
may be accelerated as provided in Article Six of the Indenture for the purposes
of the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration
of such obligations as provided in Article Six, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Subsidiary
Guarantor for the purpose of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
(i) The Subsidiary Guarantor shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor, if any, so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantee made pursuant to this Supplemental Indenture.
(j) The Subsidiary Guarantor 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,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of the Indenture or this
Subsidiary Guarantee; and the Subsidiary Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
5. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles Four and Five of the
Indenture, nothing contained in the Indenture, this Supplemental Indenture or in
the Notes shall prevent any consolidation or merger of the Subsidiary Guarantor
with or into the Company or any other Subsidiary Guarantor or shall prevent any
transfer, sale or conveyance of the property of the Subsidiary Guarantor as an
entirety or substantially as an entirety, to the Company or any other Subsidiary
Guarantor.
(b) Except as set forth in Article Five of the Indenture, upon
the sale or disposition of all of the Capital Stock of the Subsidiary Guarantor
by the Company or the Subsidiary of the Company, or upon the consolidation or
merger of the Subsidiary Guarantor with or into any Person, or the sale of all
or substantially all of the assets of the Subsidiary Guarantor (in each case,
other than to an Affiliate of the Company), such Subsidiary Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Subsidiary Guarantee without any further action required
on the part of the Trustee or any Holder if no Default shall have occurred and
be continuing; provided, that in the event of an Asset Sale, the Net Cash
Proceeds therefrom are treated in accordance with Section 4.10 of the Indenture.
Except with respect to transactions set forth in the preceding sentence, the
Company and the Subsidiary Guarantor covenant and agree that upon any such
consolidation, merger or transfer of assets, the performance of all covenants
and conditions of this Supplemental Indenture to be performed by such Subsidiary
Guarantor shall be expressly assumed by supplemental indenture satisfactory in
form to the Trustee, by the corporation formed by such consolidation, or into
which the Subsidiary Guarantor shall have merged, or by the corporation which
shall have acquired such property. Upon receipt of an Officer's Certificate of
the Company or the Subsidiary Guarantor, as the case may be, to the effect that
the Company or such Subsidiary Guarantor has complied with the first sentence of
this Section 5(b), the Trustee shall execute any documents reasonably requested
by the Company or the Subsidiary Guarantor, at the cost of the Company or such
Subsidiary Guarantor, as the case may be, in order to evidence the release of
such Subsidiary Guarantor from its obligations under its Guarantee endorsed on
the Notes and under the Indenture and this Supplemental Indenture.
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<PAGE>
[6. RELEASES UPON RELEASE OF GUARANTEE OF GUARANTEED INDEBTEDNESS.
Concurrently with the releasee or discharge of the Subsidiary Guarantor's
guarantee of the payment of [describe indebtedness the guarantee of which gave
rise to the delivery of this Supplemental Indenture] ("Guaranteed Debt") (other
than a release or discharge by or as a result of payment under such guarantee of
Guaranteed Indebtedness), the Subsidiary Guarantor shall be automatically and
unconditionally released and relieved of its obligations under this Supplemental
Indenture and its Subsidiary Guarantee made pursuant to Section 4 of this
Supplemental Indenture. Upon delivery by the Company to the Trustee of an
Officer's Certificate to the effect that such release or discharge has occurred,
the Trustee shall execute any documents reasonably required in order to evidence
the release of the Subsidiary Guarantor from its obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant hereto;
provided such documents shall not affect or impair the rights of the Trustee and
Paying Agent under Section 7.07 of the Indenture.]2
7. SUBORDINATION.
(a) AGREEMENT TO SUBORDINATE. The Subsidiary Guarantor agrees,
and each Holder by accepting this Subsidiary Guarantee agrees, that the payment
of the Subordinated Note Obligations by the Subsidiary Guarantor shall be
subordinated in right of payment, as set forth in this Section 7, to the prior
payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness
of such Subsidiary Guarantor whether outstanding on the date hereof or hereafter
incurred.
(b) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
distribution to creditors of the Subsidiary Guarantor in a liquidation or
dissolution of the Subsidiary Guarantor or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Subsidiary
Guarantor or its property, an assignment for the benefit of creditors or any
marshalling of the Subsidiary Guarantor's assets and liabilities, the holders of
Guarantor Senior Indebtedness of the Subsidiary Guarantor shall be entitled to
receive payment in full in cash or Cash Equivalents of such Guarantor Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Guarantor Senior Indebtedness) before
the Holders will be entitled to receive any payment by the Subsidiary Guarantor
with respect to the Subordinated Note Obligations (except that holders of Notes
may receive (i) Equity Interests of the Company and any debt securities of the
Company that are subordinated at least to the same extent as the Notes to (a)
Senior Indebtedness and (b) any Indebtedness issued in exchange for Senior
Indebtedness and (ii) payments made from the trusts described in Article 8 of
the Indenture), and until all Guarantor Senior Indebtedness of the Subsidiary
Guarantor is paid in full in cash or Cash Equivalents, any distribution to which
the Holders of Notes would be entitled shall be made to the holders of such
Guarantor Senior Indebtedness (except that holders of Notes may receive (i)
Equity Interests of the Company and any debt securities of the Company that are
subordinated at least to the same extent as the Notes to (a) Senior Indebtedness
and (b) any Indebtedness issued in exchange for Senior Indebtedness and (ii)
payments made from the trusts described in Article 8 of the Indenture).
(c) DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS. The Subsidiary Guarantor
may not make any payment upon or in respect of the Subordinated Note Obligations
(except that holders of Notes may receive (i) Equity Interests of the Company
and any debt securities of the Company that are subordinated at least to the
same extent as the Notes to (a) Senior Indebtedness and (b) any Indebtedness
issued in exchange for Senior Indebtedness and (ii) payments made from the
trusts described in Article 8 of the Indenture) if: (i) a default in the payment
of the principal of, premium, if any, or interest on, or of unreimbursed amounts
under letters of credit or fees relating to letters of credit and commitments to
extend credit constituting Designated Senior Indebtedness of the Subsidiary
Guarantor occurs and is continuing beyond any applicable period of grace (a
"payment default") or (ii) any other default occurs and is
- --------
2. To be included if the Supplemental Indenture is executed and delivered
pursuant to Section 4.15 of the Indenture.
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<PAGE>
continuing with respect to Designated Senior Indebtedness of the Subsidiary
Guarantor that permits holders of such Designated Senior Indebtedness as to
which such default relates to accelerate its maturity (a "non-payment default")
and the Trustee receives a notice of such default (a "Payment Blockage Notice")
from a representative of such Designated Senior Indebtedness. No new period of
payment blockage may be commenced unless and until (i) 365 days have elapsed
since the effectiveness of the immediately preceding Payment Blockage Notice
(provided that, if any Payment Blockage Notice is given by or on behalf of any
holders of Designated Senior Indebtedness (other than the representative under
the New Credit Facility), within such 365 day period, the representative under
the New Credit Facility may give another Payment Blockage Notice within such
period) and (ii) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 365
consecutive day period. No non-payment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured for a period of not less than 90 days.
The Subsidiary Guarantor may and shall resume payments on the Notes
(including any missed payments): (a) in the case of a payment default described
in clause (i) above, upon the date on which such default is cured or waived or
shall have ceased to exist or such Designated Senior Indebtedness shall have
been discharged or paid in full in cash or Cash Equivalents; and (b) in the case
of a non-payment default described in clause (ii) above, the earlier of (x) the
date on which such nonpayment default is cured or waived, (y) 179 days after the
date on which the applicable Payment Blockage Notice is received (each such
period, the "Payment Blockage Period") or (z) the date such Payment Blockage
Period shall be terminated by written notice to the Trustee from the requisite
holders of such Designated Senior Indebtedness necessary to terminate such
period or from their representative.
(d) ACCELERATION OF SECURITIES. If the Subsidiary Guarantor fails to
make any payment on the Notes when due or within any applicable grace period,
whether or not on account of the payment blockage provision referred to above,
such failure shall constitute an Event of Default and shall entitle the holders
of the Notes to accelerate the maturity thereof.
(e) WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee
or any Holder receives any payment of any Subordinated Note Obligations at a
time when the Trustee or such Holder, as applicable, has actual knowledge that
such payment is prohibited by Section (b) or (c) above, such payment shall be
held by the Trustee or such Holder, in trust for the benefit of, and shall be
paid forthwith over and delivered, upon written request, to, the holders of
Guarantor Senior Indebtedness of the Subsidiary Guarantor as their interests may
appear or their representative under the indenture or other agreement (if any)
pursuant to which such Guarantor Senior Indebtedness may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to such Guarantor Senior Indebtedness remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Guarantor Senior Indebtedness of the Subsidiary Guarantor.
In the event that any Holder receives any payment of any Subordinated
Note Obligations at any time when such payment is prohibited by Section (b) or
(c) above, such payment shall be held by such Holder, in trust for the benefit
of, and shall be paid forthwith over and delivered, upon written request to, the
Holders of Guarantor Senior Indebtedness of the Subsidiary Guarantor as their
interest may appear or their representative under the indenture or other
agreement (if any) pursuant to which such Guarantor Senior Indebtedness may have
been issued, as their interest may appear, for the application to the payment of
all Obligations with respect to such Guarantor Senior Indebtedness remaining
unpaid to the extend necessary to pay such Obligations in full accordance with
their terms, after giving effect to any concurrent payment or distribution to or
for the holders of Guarantor Senior Indebtedness of the Subsidiary Guarantor.
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With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Section 7, and no implied 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 Guarantor Senior Indebtedness, and shall
not be liable to any such holders if the Trustee shall pay over or distribute to
or on behalf of Holders or the Subsidiary Guarantor or any other Person money or
assets to which any holders of Guarantor Senior Indebtedness shall be entitled
by virtue of this Section 7, except if such payment is made as a result of the
willful misconduct or gross negligence of the Trustee.
(f) NOTICE BY SUBSIDIARY GUARANTOR. The Subsidiary Guarantor shall
promptly notify the Trustee and the Paying Agent of any facts known to the
Subsidiary Guarantor that would cause a payment of any Subordinated Note
Obligations to violate this Section 7, but failure to give such notice shall not
affect the subordination of this Subsidiary Guarantor to Guarantor Senior
Indebtedness as provided in this Section 7.
(g) SUBROGATION. After all Guarantor Senior Indebtedness is paid in
full and until the Notes are paid in full in cash, Holders of Notes shall be
subrogated (equally and ratably with all other Indebtedness pari passu with the
Notes) to the rights of holders of Guarantor Senior Indebtedness to receive
distributions applicable to Guarantor Senior Indebtedness to the extent that
distributions otherwise payable to the Holders of Notes have been applied to the
payment of Guarantor Senior Indebtedness. A distribution made under this Section
7 to holders of Guarantor Senior Indebtedness that otherwise would have been
made to Holders of Notes is not, as between the Subsidiary Guarantor and
Holders, a payment by the Subsidiary Guarantor on the Guarantor Senior
Indebtedness.
(h) RELATIVE RIGHTS. This Section 7 defines the relative rights of
Holders of Notes and holders of Guarantor Senior Indebtedness. Nothing in this
Subsidiary Guarantee shall: (1) impair, as between the Subsidiary Guarantor and
Holders of Notes, the obligation of the Subsidiary Guarantor, which is absolute
and unconditional, to pay principal of, premium, if any, and interest on the
Notes in accordance with their terms; (2) affect the relative rights of Holders
of Notes and creditors of the Subsidiary Guarantor other than their rights in
relation to holders of Guarantor Senior Indebtedness; or (3) prevent the Trustee
or any Holder of Notes from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and owners of Guarantor
Senior Indebtedness to receive distributions and payments otherwise payable to
Holders of Notes.
If the Subsidiary Guarantor fails because of this Section 7 to pay
principal of, premium, if any, or interest on a Note on the due date, the
failure is nevertheless a Default or an Event of Default.
(i) SUBORDINATION MAY NOT BE IMPAIRED BY SUBSIDIARY GUARANTOR. No right
of any holder of Guarantor Senior Indebtedness to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or failure
to act by the Subsidiary Guarantor or any Holder or by the failure of the
Subsidiary Guarantor or any Holder to comply with this Indenture.
(j) DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution
is to be made or a notice given to holders of Guarantor Senior Indebtedness, the
distribution may be made and the notice given to their representative.
Upon any payment or distribution of assets of the Subsidiary Guarantor
referred to in this Section 7, the Trustee and the Holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Guarantor
Senior Indebtedness and other Indebtedness of the Subsidiary Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 7.
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(k) RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions
of this Section 7 or any provision of the Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment or distribution by the Trustee, and the Trustee and the
Paying Agent may continue to make payments on the Notes, unless the Trustee
shall have received at its Corporate Trust Office at least five Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Subordinated Note Obligations to violate this Section 7. Only the
Subsidiary Guarantor or a representative may give the notice. Nothing in this
Section 7 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 of the Indenture.
The Trustee in its individual or any other capacity may hold Guarantor
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights.
(l) AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the
Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Section 7, and appoints the Trustee to act as
such Holder's attorney-in-fact for any and all such purposes. If the Trustee
does not file a proper proof of claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 of the Indenture at least 30 days
before the expiration of the time to file such claim, a representative of
Designated Senior Indebtedness is hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Notes.
8. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
9. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not effect the construction hereof.
E-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ___________,____________ [SUBSIDIARY GUARANTOR]
By:
--------------------------
Name:
Title:
Dated: ___________,____________
as Trustee
By:
--------------------------
Name:
Title:
E-8
<PAGE>
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Subsidiary Guarantor (as defined in the Indenture) has jointly and
severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, whether at Stated
Maturity or an Interest Payment Date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
and premium of, and interest, to the extent lawful, on the Notes and (c) that in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, the same will be promptly paid in full when due in accordance
with the terms of the extension of renewal, whether at stated maturity, by
acceleration or otherwise.
Notwithstanding the foregoing, in the event that the Subsidiary
Guarantee would constitute or result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the liability of the
Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to such
amount as will not, after giving effect thereto, and to all other liabilities of
the Subsidiary Guarantor, result in such amount constituting a fraudulent
transfer or conveyance.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual or facsimile signature of one of its authorized
officers.
Dated: ___________,____________ [SUBSIDIARY GUARANTOR]
By:
--------------------------
Name:
Title:
E-9
<PAGE>
Exhibit 4.4
EXECUTION COPY
================================================================================
Registration Rights Agreement
Dated as of April 30, 1997
by and among
KSL RECREATION GROUP, INC.
as Issuer,
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON BROTHERS INC
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA SECURITIES, INC.
MONTGOMERY SECURITIES
AND
SCOTIA CAPITAL MARKETS (USA) INC.,
as Initial Purchasers
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made
and entered into as of April 30, 1997, by and among KSL Recreation Group, Inc.,
a Delaware corporation (the "Issuer"), as issuer, and Donaldson Lufkin &
Jenrette Corporation ("DLJ"), Salomon Brothers Inc, Credit Suisse First Boston
Corporation, BancAmerica Securities, Inc., Montgomery Securities and Scotia
Capital Markets (USA), Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement
dated April 24, 1997, among the Issuer and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Issuer to the Initial Purchasers
of $125,000,000 aggregate principal amount of the Issuer's 10 1/4% Senior
Subordinated Notes due 2007 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Issuer has agreed to
provide to the Initial Purchasers and their direct and indirect transferees and
assigns the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"Broker-Dealer" shall mean any broker or dealer
registered under the 1934 Act.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Issuer, provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City of New
York.
"Exchange Notes" shall mean 10 1/4% Senior Subordinated Notes
due 2007 to be issued by the Issuer under the Indenture containing terms
identical to the Notes (except that (i) interest thereon shall accrue from the
last date on which interest was paid on the Notes or, if no such interest has
been paid, from April 30, 1997, (ii) the transfer restrictions thereon shall be
eliminated and (iii) certain provisions relating to an increase in the stated
rate of interest thereon shall be eliminated) to be offered to
<PAGE>
2
Holders of Notes in exchange for Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Issuer
of Registrable Notes for Exchange Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as
they own any Registrable Notes, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable Notes under
the Indenture.
"Indenture" shall mean the Indenture relating to the Notes
dated as of April 29, 1997, between the Issuer and First Trust of New York,
National Association, as trustee, as the same may be amended from time to time
in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in
the preamble of this Agreement.
"Issuer" shall have the meaning set forth in the preamble of
this Agreement and also includes the Issuer's successors.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Issuer or
any of its affiliates (as such term is defined in Rule 405 under the 1933 Act)
(other than the Initial Purchasers or subsequent holders of Registrable Notes if
such subsequent holders are deemed to be such affiliates solely by reason of
their holding of such Registrable Notes) shall be disregarded in determining
whether such consent or approval was given by the Holders of such required
percentage or amount.
"Person" shall mean an individual, partnership, limited
liability company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Participating Broker-Dealer" means any Broker-Dealer
which holds Participating Broker-Dealer Notes.
<PAGE>
3
"Participating Broker-Dealer Notes" shall mean Notes acquired
by a Broker-Dealer in the Exchange Offer that such broker or dealer acquired for
its own account as a result of market making activities or other trading
activities (other than Registrable Notes acquired directly from the Issuer or
any of its affiliates).
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Notes covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in
the preamble of this Agreement.
"Registrable Notes" shall mean each Note, until the earliest
to occur of (a) the date on which such Note is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Note has been disposed of in accordance with a Shelf Registration Statement, (c)
the date on which such Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the 1933
Act.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Issuer with this Agreement,
including without limitation: (i) all SEC and National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees, if any (including, without
limitation, the fees and expenses of any "qualified independent underwriter"),
(ii) all fees and expenses incurred in connection with compliance with state
securities, blue sky or other securities laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with
state securities, blue sky or other securities qualification or of any of the
Exchange Notes or Registrable Notes), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, certificates representing the Exchange Notes and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, if any, (v) the fees and disbursements of counsel for the
Issuer and, in the case of a Shelf Registration Statement, the reasonable fees
and disbursements (including the expenses of preparing and distributing any
underwriting or securities sales agreement) of one counsel (in addition to
appropriate local counsel) for the Holders (which counsel shall be selected in
writing by the Majority Holders), (vi)
<PAGE>
4
all application and filing fees in connection with listing the Exchange Notes on
a national securities exchange or an automated quotation system, if any, (vii)
the reasonable fees and expenses of the independent public accountants of the
Issuer, including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, and (viii) the
reasonable fees and expenses of the trustee, including its counsel, and any
escrow agent or custodian, but excluding underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Registrable
Notes by a Holder.
"Registration Statement" shall mean any registration statement
of the Issuer which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Issuer pursuant to the provisions of Section 2(b)
of this Agreement which covers all of the then Registrable Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Trustee" shall mean the trustee with respect to the
Notes under the Indenture.
2. Registration Under the 1933 Act.
(a) EXCHANGE OFFER REGISTRATION. To the extent not
prohibited by any applicable law or applicable interpretation of the Staff of
the SEC, the Issuer shall (A) file an Exchange Offer Registration Statement
covering the offer by the Issuer to the Holders to exchange all of their
Registrable Notes for Exchange Notes, (B) use its best efforts to cause such
Exchange Offer Registration Statement to be declared effective by the SEC within
150 days after the date hereof, (C) use its best efforts to cause such Exchange
Offer Registration Statement to remain effective until the closing of the
Exchange Offer or, in accordance with the procedures set forth in Section 3(f),
to the extent any Participating Broker-Dealer participates in the Exchange
Offer, use its best efforts to maintain the effectiveness of the Exchange Offer
Registration Statement for a period ending on the earlier to occur of (i) the
date when all Exchange Notes held by Participating
<PAGE>
5
Broker-Dealers have been sold and (ii) 180 days after the consummation of the
Exchange Offer and (D) use its best efforts to consummate the Exchange Offer on
or prior to 180 days following the date hereof. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration Statement.
The Exchange Notes will be issued under the Indenture. Upon the effectiveness of
the Exchange Offer Registration Statement, the Issuer shall promptly commence
the Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder (other than Participating Broker-Dealers exchanging Participating
Broker-Dealer Notes for Exchange Notes (assuming that such Holder is not an
affiliate of the Issuer within the meaning of Rule 405 under the 1933 Act,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements or understandings with any person to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes) to trade such
Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
In connection with the Exchange Offer, the Issuer shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20
business days after the date notice thereof is mailed to the Holders
(or longer if required by applicable law);
(iii) use the services of the Depositary for the
Exchange Offer with respect to Notes evidenced by global
certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at
any time prior to the close of business, New York City time, on the
last business day on which the Exchange Offer shall remain open, by
sending to the institution specified in the notice, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such
Notes exchanged;
(v) prior to effectiveness of the Exchange Offer Registration
Statement, provide a supplemental letter to the SEC (A) stating that
the Issuer is registering the Exchange Offer in reliance on the
position of the SEC enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the SEC's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including,
<PAGE>
6
if applicable, any no-action letter obtained pursuant to clause (v)
above) and (B) including a representation that the Issuer has not
entered into any arrangement or understanding with any Person to
distribute the Exchange Notes to be received in the Exchange Offer and
that, to the best of the Issuer's information and belief, each Holder
participating in the Exchange Offer is acquiring the Exchange Notes in
its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Exchange
Notes received in the Exchange Offer; and
(vi) otherwise comply in all material respects with all
applicable laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer,
the Issuer shall:
(i) accept for exchange Registrable Notes duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter
of transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee
for cancellation all Registrable Notes so accepted for
exchange by the Issuer; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in amount to
the Registrable Notes of such Holder so accepted for exchange.
The Exchange Offer shall not be subject to any conditions,
other than (i) that the Exchange Offer, or the making of any exchange by a
Holder, does not, in the good faith determination of the Issuer, (a) violate
applicable law, statute, rule or regulation, or (b) violate any applicable
interpretation of the Staff of the SEC and (ii) that there has been no action or
proceeding instituted in any court or before any governmental agency or
regulatory authority or any injunction, order or decree issued with respect to
the Exchange Offer, which would prohibit the Issuer from proceeding with the
Exchange Offer. Each Holder of Registrable Notes (other than Participating
Broker-Dealers) who wishes to exchange such Registrable Notes for Exchange Notes
in the Exchange Offer shall have represented that (i) it is not an affiliate (as
defined in Rule 405 under the 1933 Act) of the Issuer, (ii) any Exchange Notes
to be received by it were acquired in the ordinary course of business, (iii) at
the time of the commencement of the Exchange Offer it has no arrangement with
any person to participate in the distribution (within the meaning of the 1933
Act) of the Exchange Notes and (iv) it is not acting on behalf of any person who
could not make the representations in clauses (i) through (iii). The Issuer
shall inform the Initial
<PAGE>
7
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such Holders
and otherwise facilitate the tender of Registrable Notes in the Exchange Offer.
(b) SHELF REGISTRATION. (i) If, because of any change in law
or applicable interpretations thereof by the Staff of the SEC, the Issuer is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer cannot be consummated within
180 days following the date hereof, or (iii) if any Holder (other than an
Initial Purchaser) is not eligible to participate in the Exchange Offer or (iv)
upon the request of any Initial Purchaser within 90 days (with respect to any
Registrable Notes which it acquired directly from the Issuer) following the
consummation of the Exchange Offer if any such Initial Purchaser shall hold
Registrable Notes which it acquired directly from the Issuer, the Issuer shall,
at its cost:
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the then
outstanding Registrable Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Holders of
such Registrable Notes and set forth in such Shelf Registration
Statement, and use its best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC by the 180th day after
the date hereof (or within 60 days following a request by any Initial
Purchaser pursuant to clause (iv) above). In the event that the Issuer
is required to file a Shelf Registration Statement upon the request of
any Holder (other than an Initial Purchaser) not eligible to
participate in the Exchange Offer pursuant to clause (iii) above or
upon the request of any Initial Purchaser pursuant to clause (iv)
above, the Issuer shall file and have declared effective by the SEC
both an Exchange Offer Registration Statement pursuant to Section 2(a)
with respect to all Registrable Notes and a Shelf Registration
Statement (which may be a combined Registration Statement with the
Exchange Offer Registration Statement) with respect to offers and sales
of Registrable Notes held by such Holder or such Initial Purchaser
after completion of the Exchange Offer;
(B) use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years
from the Issuance Date (or one year from the date the Shelf
Registration Statement is declared effective if such Shelf Registration
Statement is filed upon the request of any Initial Purchaser pursuant
to clause (iv) above) or such shorter period which will terminate when
all of the Registrable Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement
or all of the Registrable Notes become eligible for
<PAGE>
8
resale pursuant to Rule 144 under the 1933 Act without volume
restrictions; and
(C) notwithstanding any other provisions hereof use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement and any supplement to
such Prospectus (as amended or supplemented from time to time), does
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
The Issuer further agrees, if necessary, to supplement or
amend any such Shelf Registration Statement if reasonably requested by the
Holders with respect to information relating to the Holders and otherwise as
required by Section 3(b) below, to use all reasonable efforts to cause any such
amendment to become effective and such Shelf Registration Statement to become
usable as soon as practicable thereafter and to furnish to the Holders of
Registrable Notes copies of any such supplement or amendment promptly after its
being used or filed with the SEC.
(c) Expenses. The Issuer shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) and 2(b). Each
Holder shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions (prior to the
reduction thereof with respect to selling concessions, if any) and transfer
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Notes pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Issuer will be
deemed not to have used its best efforts to cause a Registration Statement to
become, or to remain, effective during the requisite period if the Issuer
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Registrable Notes
covered thereby not being able to exchange or offer and sell such Registrable
Notes during that period unless (A) such action is required by applicable law or
(B) such action is taken by the Issuer in good faith and for valid business
reasons (but not including avoidance of the Issuer's obligations hereunder),
including a material corporate transaction, so long as the Issuer promptly
complies with the requirements of Section 3(k) hereof, if applicable.
<PAGE>
9
(ii) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC, provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Issuer acknowledges
that any failure by the Issuer to comply with its respective obligations under
Sections 2(a) and 2(b) hereof may result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Issuer's
obligations under Sections 2(a) and 2(b) hereof.
3. Registration Procedures. In connection with the
obligations of the Issuer with respect to the Registration
Statements pursuant to Sections 2(a) and 2(b) hereof, the Issuer shall:
(a) prepare and file with the SEC a Registration Statement,
within the time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Issuer,
(ii) shall, in the case of a Shelf Registration, be available for the
sale of the Registrable Notes by the selling Holders thereof, (iii)
shall, in the case of the Exchange Offer Registration Statement, be
available for the sale of Participating Broker-Dealer Notes by the
Holders thereof and (iv) shall comply as to form in all material
respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the SEC
to be filed therewith, and use its best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to (i) the Exchange Offer Registration
Statement as may be necessary under applicable law to keep such
Exchange Offer Registration Statement effective for the period required
to comply with Section 2(a) (except to the extent the Issuer is unable
to consummate the Exchange Offer and the Issuer complies with Section
2(b)), and (ii) the Shelf Registration Statement as may be necessary
<PAGE>
10
under applicable law to keep such Shelf Registration Statement
effective for the period required pursuant to Section 2(b) hereof;
cause each Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the 1933 Act, and comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the selling Holders
thereof;
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Notes, at least ten days prior to filing, that
the Shelf Registration Statement with respect to the Registrable Notes
is being filed and advising such Holders that the distribution of
Registrable Notes will be made in accordance with the method elected by
the Holders; and (ii) furnish to each Holder of Registrable Notes, to
counsel for the Initial Purchasers, to counsel for the Holders and to
each underwriter of an underwritten offering of Registrable Notes, if
any, without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and
such other documents as such Holder or underwriter may reasonably
request, including financial statements and schedules and, if the
Holder specifically so requests in writing, all exhibits (including
those incorporated by reference) in order to facilitate the public sale
or other disposition of the Registrable Notes; and (iii) subject to the
last paragraph of Section 3, hereby consents to the use of the
Prospectus, including each preliminary Prospectus, or any amendment or
supplement thereto by each of the selling Holders of Registrable Notes
in connection with the offering and sale of the Registrable Notes
covered by the Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Notes covered
by a Registration Statement and each underwriter of an underwritten
offering of Registrable Notes shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with the Holders in connection with any filings required to
be made with the NASD, keep each such registration or qualification
effective during the period such Registration Statement is required to
be effective and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable Notes
owned by such Holder, provided, however, that the Issuer shall not be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d) or (ii) take any action which
would subject it to general service
<PAGE>
11
of process or taxation in any such jurisdiction if it is not
then so subject;
(e) in the case of a Shelf Registration and, to the extent
that the Issuer is required to maintain an effective Exchange Offer
Registration Statement for any Participating Broker-Dealer pursuant to
Section 2(a) above, notify each Holder of Registrable Notes and counsel
for such Holders promptly and, if requested by such Holder or counsel,
confirm such advice in writing promptly (i) when a Registration
Statement has become effective and when any post-effective amendments
and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Notes covered
thereby, the representations and warranties of the Issuer contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and
correct in all material respects, (v) of the receipt by the Issuer of
any notification with respect to the suspension of the qualification of
the Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening
of any event or the discovery of any facts during the period such
Registration Statement is effective which makes any statement made in
such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vii) of any determination by the Issuer
that a post-effective amendment to a Registration Statement would be
appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by a Participating Broker-Dealer who holds
Participating Broker- Dealer Notes; provided that such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the
amount of Notes held by any such Broker-Dealer, except to the extent
required by the SEC as a result of a change in policy after the date of
this Agreement, (ii) furnish to each Participating Broker-Dealer,
without charge, as many copies of each Prospectus included in the
Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such
Participating Broker- Dealer may reasonably request, (iii) include in
the Exchange
<PAGE>
12
Offer Registration Statement a statement that any Participating
Broker-Dealer who receives Exchange Notes for Registrable Notes
pursuant to the Exchange Offer, may be a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes, (iv) subject to the
last paragraph of Section 3, hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or
any amendment or supplement thereto, by any Participating Broker-
Dealer in connection with the sale or transfer of the Participating
Broker-Dealer Notes covered by the Prospectus or any amendment or
supplement thereto, and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the
undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Registrable Notes,
it represents that the Registrable Notes to be exchanged for
Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of
such Exchange Notes acquired pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act"; and
(y) a statement to the effect that by a Participating Broker- Dealer
making the acknowledgment described in subclause (x) and by delivering
a Prospectus in connection with the sale of Participating Broker-Dealer
Notes received in exchange for Registrable Notes, the Participating
Broker-Dealer will not be deemed to admit that it is an underwriter
within the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Issuer shall cause to be delivered at the
request of an entity representing the Participating Broker-Dealers
(which entity shall be one of the Initial Purchasers, unless it elects
not to act as such representative) only one, if any, "cold comfort"
letter with respect to the Prospectus in the form existing on the last
date for which exchanges are accepted pursuant to the Exchange Offer
and with respect to each subsequent amendment or supplement if any,
effected during the period specified in Section 2(a) above;
(C) the Issuer shall not be required to amend or
supplement the Prospectus contained in the Exchange Offer
<PAGE>
13
Registration Statement as would otherwise be contemplated by Section
3(b), or take any other action as a result of this Section 3(f), for a
period exceeding the time specified in Section 2(a)(C) (as such period
may be extended by the Issuer) and Participating Broker-Dealers shall
not be authorized by the Issuer to, and shall not, deliver such
Prospectus after such period has lapsed in connection with resales
contemplated by this Section 3.
(g) (A) in the case of an Exchange Offer, furnish counsel for
Participating Broker-Dealers, if any, and (B) in the case of a Shelf
Registration, furnish counsel for the Holders of Registrable Notes
copies of any request by the SEC or any state securities authority for
amendments or supplements to a Registration Statement and Prospectus or
for additional information;
(h) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement as
soon as practicable and provide immediate notice to each Holder of the
withdrawal of any such order;
(i) in the case of a Shelf Registration and, to the extent
that the Issuer is required to maintain an effective Exchange Offer
Registration Statement for any Participating Broker-Dealer pursuant to
Section 2(a) above, furnish to each Holder of Registrable Notes,
without charge, at least one conformed copy of each Registration
Statement and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration and, to the extent
that the Issuer is required to maintain an effective Exchange Offer
Registration Statement for any Participating Broker-Dealer pursuant to
Section 2(a) above, cooperate with the selling Holders of Registrable
Notes to facilitate the timely preparation and delivery of certificates
representing Registrable Notes to be sold and not bearing any
restrictive legends; and cause such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if
any, may reasonably request at least one business day prior to the
closing of any sale of Registrable Notes;
(k) in the case of a Shelf Registration and, to the extent
that the Issuer is required to maintain an effective Exchange Offer
Registration Statement for any Participating Broker-Dealer pursuant to
Section 2(a) above, upon the occurrence of any event or the discovery
of any facts, each as contemplated by Section 3(e)(vi) hereof, use its
best efforts to prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any
<PAGE>
14
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
Issuer agrees to notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until the Issuer
has amended or supplemented the Prospectus to correct such misstatement
or omission. At such time as such public disclosure is otherwise made
or the Issuer determines that such disclosure is not necessary, in each
case to correct any misstatement of a material fact or to include any
omitted material fact, the Issuer agrees promptly to notify each Holder
of such determination and to furnish each Holder such numbers of copies
of the Prospectus, as amended or supplemented, as such Holder may
reasonably request;
(l) obtain a CUSIP number for all Exchange Notes, or
Registrable Notes, as the case may be, not later than the effective
date of a Registration Statement, and provide the Trustee with printed
certificates for the Exchange Notes or the Registrable Notes, as the
case may be, in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA") no later than the
effective date of the first Registration Statement required by this
Agreement, (ii) cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and (iii)
execute, and use its best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration and, to the extent
that the Issuer is required to maintain an effective Exchange Offer
Registration Statement for any Participating Broker-Dealer pursuant to
Section 2(a) above, enter into agreements (including underwriting
agreements) and take all other customary and appropriate actions
(including those reasonably requested by the Majority Holders) in order
to expedite or facilitate the disposition of such Registrable Notes and
in such connection whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the
Holders of such Registrable Notes and the underwriters, if
any, in form, substance and scope as are customarily
<PAGE>
15
made by issuers to underwriters in similar underwritten
offerings as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Issuer and
updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the holders of a majority
in principal amount of the Registrable Notes being sold)
addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested
in sales of securities or underwritten offerings;
(iii) obtain "cold comfort" letters and updates
thereof from the Issuer's independent certified public
accountants addressed to the underwriters, if any, and use
best efforts to have such letters addressed to the selling
Holders of Registrable Notes, such letters to be in customary
form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with
similar underwritten offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such agent for the selling Holders
for the purpose of soliciting purchases of Registrable Notes,
which agreement shall be in form, substance and scope
customary for similar offerings; and
(v) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in
similar offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto)
and (ii) each closing under any underwriting or similar agreement as
and to the extent required thereunder. In the case of any underwritten
offering, the Issuer shall provide written notice to the Holders of all
Registrable Notes of such underwritten offering at least 30 days prior
to the filing of a prospectus supplement for such underwritten
offering. Such notice shall (x) offer each such Holder the right to
participate in such underwritten offering, (y) specify a date, which
shall be no earlier than ten days following the date of such notice, by
which such Holder must inform the Issuer of its intent to participate
in such underwritten offering and (z) include the instructions such
Holder must follow in order to participate in such underwritten
offering;
(o) in the case of a Shelf Registration and, to the
extent that the Issuer is required to maintain an effective
Exchange Offer Registration Statement for any Participating
<PAGE>
16
Broker-Dealer pursuant to Section 2(a) above, make available for
inspection by representatives of the Holders of the Registrable Notes
and any underwriters participating in any disposition pursuant to such
Registration Statement and any counsel or accountant retained by such
Holders or underwriters, at reasonable times and in a reasonable
manner, all financial and other records, pertinent corporate documents
and properties of the Issuer reasonably requested by any such persons,
and cause the respective officers, directors, employees, and any other
agents of the Issuer to supply all information reasonably requested by
any such representative, underwriter, special counsel or accountant in
connection with such Registration Statement, provided, however, that
such Persons shall first agree in writing with the Issuer that any
information that is reasonably and in good faith designated by the
Issuer in writing as confidential at the time of delivery of such
information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative
order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law
(including any disclosure requirements pursuant to Federal securities
laws in connection with the filing of such Registration Statement or
the use of any Prospectus), (iii) such information becomes generally
available to the public other than as a result of a disclosure or
failure to safeguard such information by such Person or (iv) such
information becomes available to such Person from a source other than
the Issuer and its subsidiaries and such source is not known, after due
inquiry, by the relevant Holder to be bound by a confidentiality
agreement; provided further, that the foregoing investigation shall be
coordinated on behalf of the Holders by one representative designated
by and on behalf of such Holders and any such confidential information
shall be available from such representative to such Holders so long as
any Holder agrees to be bound by such confidentiality agreement;
(p) (i) a reasonable time prior to the filing of any Exchange
Offer Registration Statement, any Prospectus forming a part thereof,
any amendment to an Exchange Offer Registration Statement or amendment
or supplement to a Prospectus, provide copies of such document to the
Initial Purchasers and each other Broker-Dealer that has notified the
Issuer that it may or has exchanged Registrable Notes for Participating
Broker-Dealer Notes, and make such changes in any such document prior
to the filing thereof as any of the Initial Purchasers or such
Broker-Dealers or their counsel may reasonably request; (ii) in the
case of a Shelf Registration, a reasonable time prior to filing any
Shelf Registration Statement, any Prospectus forming a part thereof,
any amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the
Holders of Registrable Notes, to the Initial Purchasers, to counsel on
behalf of the Holders and to the
<PAGE>
17
underwriter or underwriters of an underwritten offering of Registrable
Notes, if any, and make such changes in any such document prior to the
filing thereof as the Holders of Registrable Notes, the Initial
Purchasers on behalf of such Holders, their counsel and any underwriter
may reasonably request; and (iii) cause the representatives of the
Issuer to be available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Notes, the Initial
Purchasers on behalf of such Holders or any underwriter and shall not
at any time make any filing of any such document of which such Holders,
the Initial Purchasers on behalf of such Holders, their counsel or any
underwriter shall not have previously been advised and furnished a copy
or to which such Holders, the Initial Purchasers on behalf of such
Holders, their counsel or any underwriter shall reasonably object, each
of which actions in this clause (iii) by the Holders shall be
coordinated by one representative for all the Holders at reasonable
times and in a reasonable manner;
(q) in the case of a Shelf Registration, use their best
efforts to cause all Registrable Notes to be listed on any securities
exchange, if any, on which similar debt securities issued by the Issuer
are then listed if requested by the Majority Holders or by the
underwriter or underwriters of an underwritten offering of Registrable
Notes, if any;
(r) in the case of a Shelf Registration, unless the rating in
effect for the Notes applies to the Exchange Notes and the Notes to be
sold pursuant to a Shelf Registration, use its best efforts to cause
the Registrable Notes to be rated with the appropriate rating agencies,
if so requested by the Majority Holders or by the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any,
unless the Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earning
statement covering at least 12 months which shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
and
(t) cooperate and assist in any filings required to be
made with the NASD.
No Holder of Registrable Notes may include any of its
Registrable Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Issuer in writing, within 20 days
after receipt of a request therefor, such information specified in item 507 of
Regulation S-K under the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Registrable Notes shall be entitled to additional interest as provided in such
Holder's Registrable Notes unless and until such
<PAGE>
18
Holder shall have used its best efforts to provide all such information. Each
Holder as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuer all information required to be disclosed in order
to make the information previously furnished to the Issuer by such Holder not
materially misleading.
In the case of a Shelf Registration Statement and, to the
extent that the Issuer is maintaining an effective Exchange Offer Registration
Statement for any Participating Broker-Dealer pursuant to Section 2(a) above,
each Holder agrees that, upon receipt of any notice from the Issuer of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Notes pursuant to such Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Issuer, such
Holder will deliver to the Issuer (at its expense) all copies in its possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Notes current at the time of receipt of
such notice. The Issuer will be deemed not to have used its best efforts to
cause a Registration Statement to remain effective during the requisite period
if the Issuer has voluntarily taken any action that resulted in the delivery of
a notice described in Section 3(e)(vi) hereof unless (A) such action was
required by applicable law or (B) such action was taken by the Issuer in good
faith and for valid business reasons (but not including avoidance of the
Issuer's obligations hereunder), including a material corporate transaction;
provided that, in any event, the aggregate number of days in any consecutive
twelve-month period for which a Registration Statement is not effective or
usable does not exceed 30 days. In any event, any suspension pursuant to this
paragraph shall extend the period during which the Registration Statement shall
be maintained effective pursuant to this Agreement by the number of days during
the period from and including the date of the giving of such notice to and
including the date when the Holders shall have received copies of the
supplemented or amended Prospectus necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Issuer.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and
<PAGE>
19
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
5. Indemnification and Contribution.
(a) The Issuer agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Issuer by any of the
Holders expressly for use therein. The Issuer also agrees to reimburse each
Indemnified Person for any and all fees and expenses (including, without
limitation, the fees and expenses of counsel) as they are incurred in connection
with enforcing such Indemnified Person's rights under this Agreement (including,
without limitation, its rights under this Section 5).
In case any action or proceeding (including any governmental
or regulatory investigation or proceeding) shall be brought or asserted against
any of the Indemnified Holders with respect to which indemnity may be sought
against the Issuer, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Issuer in
writing (provided, that the failure to give such notice shall not relieve the
Issuer of its obligations pursuant to this Agreement unless such failure
materially prejudices the Issuer). Such Indemnified Holder shall have the right
to employ its own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Issuer (regardless of whether it is
ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Issuer shall not, in connection
<PAGE>
20
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Issuer shall be liable for any settlement of any
such action or proceeding effected with the Issuer's prior written consent,
which consent shall not be withheld unreasonably, and the Issuer agrees to
indemnify and hold harmless each Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Issuer. The Issuer shall not, without
the prior written consent of each Indemnified Holder, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Registrable Notes agrees, severally and not
jointly, to indemnify and hold harmless the Issuer and its directors, officers,
and any person controlling (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Issuer, and its officers, directors,
partners, employees, representatives and agents of each such person, to the same
extent as the foregoing indemnity from the Issuer to each of the Indemnified
Holders, but only with respect to claims and actions based on information
relating to such Holder furnished in writing by such Holder expressly for use in
any Registration Statement. In case any action or proceeding shall be brought
against the Issuer or its directors or officers or any such controlling person
in respect of which indemnity may be sought against a Holder of Registrable
Notes, such Holder shall have the rights and duties given the Issuer, and the
Issuer, such directors or officers or such controlling person shall have the
rights and duties given to each Holder by the preceding paragraph. In no event
shall any Holder be liable or responsible for any amount in excess of the amount
by which the total received by such Holder with respect to its sale of
Registrable Notes pursuant to a Registration Statement exceeds (i) the amount
paid by such Holder for such Registrable Notes and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under Section 5(a) or Section 5(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party,
<PAGE>
21
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer, on the one hand, and the Holders, on the other hand, from their sale of
Registrable Notes or if such allocation is not permitted by applicable law, the
relative fault of the Issuer, on the one hand, and of the Indemnified Holder, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the Issuer, on the one
hand, and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuer or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 5(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Issuer and each Holder of Registrable Notes agree that it
would not be just and equitable if contribution pursuant to this Section 5(c)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Registrable Notes pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Registrable Notes plus (B) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 5(c) are several in proportion to the respective principal amount of
Notes held by each of the Holders hereunder and not joint.
<PAGE>
22
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as
the Issuer is subject to the reporting requirements of Section 13 or 15 of the
1934 Act, the Issuer covenants that it will file the reports required to be
filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder, that if it ceases to be so required
to file such reports, it will upon the request of any Holder of Registrable
Notes (i) make publicly available such information as is necessary to permit
sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to
a prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the 1933 Act and it will take such further action as any Holder of
Registrable Notes may reasonably request, and (iii) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to enable such Holder to sell its Registrable Notes without
registration under the 1933 Act within the limitation of the exemptions provided
by (x) Rule 144 under the 1933 Act, as such Rule may be amended from time to
time, (y) Rule 144A under the 1933 Act, as such Rule may be amended from time to
time, or (z) any similar rules or regulations hereafter adopted by the SEC. Upon
the request of any Holder of Registrable Notes, the Issuer will deliver to such
Holder a written statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Issuer represents and
agrees that (i) it has not entered into nor will the Issuer on or after the date
of this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Notes in this Agreement or otherwise
conflicts with the provisions hereof and (ii) the rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Issuer's other issued and outstanding
securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Issuer has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder (other than an Initial Purchaser), at the most current address
set forth on the records of the Registrar under the Indenture, (ii) if to an
Initial Purchaser, at the most current address given by such
<PAGE>
23
Initial Purchaser to the Issuer by means of a notice given in accordance with
the provisions of this Section 6(d), which address initially is the address set
forth in the Purchase Agreement; and (iii) if to the Issuer, initially at the
Issuer's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and on the next business day if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuer on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE>
24
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
25
If the foregoing is in accordance with your understanding of
this Agreement, kindly sign and return to us a counterpart hereof, whereupon
this instrument will become a binding agreement between the Issuer and the
several Initial Purchasers in accordance with its terms. Initial Purchasers,
kindly indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KSL RECREATION GROUP, INC.
By:
----------------------------------
Name:
Title:
Accepted and agreed to as of the date first written above:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CREDIT SUISSE FIRST BOSTON CORPORATION
BANK AMERICA SECURITIES, INC.
MONTGOMERY SECURITIES
SCOTIA CAPITAL MARKETS (USA) INC.
Acting severally on behalf of
themselves and the several
Initial Purchasers names
in Schedule I hereto
BY: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
[Letterhead of Simpson Thacher & Bartlett]
EXHIBIT 5.1
July 9, 1997
KSL Recreation Group, Inc.
56-140 PGA WEST Boulevard
La Quinta, California 92253
Ladies and Gentlemen:
We have acted as special counsel for KSL Recreation Group, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the issuance by the Company of
$125,000,000 aggregate principal amount of its 10.25% Series B Senior
Subordinated Notes due 2007 (the "Exchange Notes"). The Exchange Notes are to be
offered by the Company in exchange for (the "Exchange") $125,000,000 aggregate
principal amount of its outstanding 10.25% Senior Subordinated Notes due 2007
(the "Notes"). The Notes have been, and the Exchange Notes will be, issued under
an Indenture dated as of April 30, 1997 (the "Indenture") between the Company
and First Trust of New York National Association, as Trustee (the "Trustee").
We have examined the Registration Statement and the Indenture, which has
been filed with the Commission as an Exhibit to the Registration Statement. In
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that:
assuming the Indenture has been duly authorized and validly executed and
delivered by the parties thereto, when (1) the Indenture has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), (2) the Board of Directors of the Company, a duly
constituted and acting committee thereof or duly authorized officers thereof
have taken all necessary corporate action to approve the issuance and terms
of the Exchange Notes, the terms of the Exchange and related matters, and
(3) the Exchange Notes have been duly executed, authenticated, issued and
delivered in accordance with the provisions of the Indenture upon the
Exchange, the Exchange Notes will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with their terms.
Our opinion set forth above is subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
We are members of the Bar of the State of New York and we do not express any
opinion herein concerning any law other than the law of the State of New York
and the federal law of the United States.
<PAGE>
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE>
Exhibit 10.1
[EXECUTION COPY]
U.S. $275,000,000
CREDIT AGREEMENT,
dated as of April 30, 1997,
among
KSL RECREATION GROUP, INC.,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
as a Co-Syndication Agent
and the Documentation Agent,
THE BANK OF NOVA SCOTIA,
as a Co-Syndication Agent
and the Administrative Agent,
and
BANCAMERICA SECURITIES, INC.,
as the Syndication Agent.
<PAGE>
TABLE OF CONTENTS
Section Page
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms.................................................... 2
1.2. Use of Defined Terms............................................. 42
1.3. Cross-References................................................. 42
1.4. Accounting and Financial Determinations.......................... 43
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
2.1. Commitments...................................................... 43
2.1.1. Revolving Loan Commitment and Swing Line Loan
Commitment..................................................... 43
2.1.2. Letter of Credit Commitment...................................... 44
2.1.3. Term Loan Commitment............................................. 44
2.1.4. Lenders Not Permitted or Required to Make Loans.................. 45
2.1.5. Issuer Not Permitted or Required to Issue Letters
of Credit...................................................... 45
2.2. Reduction of the Commitment Amounts.............................. 46
2.2.1. Optional......................................................... 46
2.2.2. Mandatory........................................................ 46
2.3. Borrowing Procedures............................................. 47
2.3.1. Borrowing Procedure.............................................. 47
2.3.2. Swing Line Loans................................................. 48
2.4. Continuation and Conversion Elections............................ 49
2.5. Funding.......................................................... 50
2.6. Issuance Procedures.............................................. 50
2.6.1. Other Lenders' Participation..................................... 51
2.6.2. Disbursements.................................................... 51
2.6.3. Reimbursement.................................................... 52
2.6.4. Deemed Disbursements............................................. 53
2.6.5. Nature of Reimbursement Obligations.............................. 53
2.6.6. Uniform Customs and Practice..................................... 54
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Section Page
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2.7. Loan Accounts and Notes.......................................... 54
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments; Application.......................... 55
3.1.1. Repayments and Prepayments....................................... 55
3.1.2. Application...................................................... 59
3.2. Interest Provisions.............................................. 61
3.2.1. Rates............................................................ 61
3.2.2. Post-Maturity Rates.............................................. 62
3.2.3. Payment Dates.................................................... 62
3.3. Fees............................................................. 63
3.3.1. Commitment Fee................................................... 63
3.3.2. Arrangement and Agency Fees...................................... 64
3.3.3. Letter of Credit Fee............................................. 64
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful....................................... 64
4.2. Deposits Unavailable............................................. 65
4.3. Change of Circumstances.......................................... 65
4.4. Replacement of Lender............................................ 66
4.5. Funding Losses................................................... 67
4.6. Taxes............................................................ 68
4.7. Change of Lending Office......................................... 71
4.8. Payments, Computations, etc...................................... 71
4.9. Sharing of Payments.............................................. 72
4.10. Setoff........................................................... 72
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extensions........................................ 73
5.1.1. Resolutions, etc................................................. 73
5.1.2. Closing Date Certificate......................................... 74
5.1.3. Pledge Agreement................................................. 74
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Section Page
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5.1.4. Guaranty......................................................... 75
5.1.5. Financial Information, etc....................................... 75
5.1.6. Solvency......................................................... 75
5.1.7. Payment of Outstanding Indebtedness, etc......................... 76
5.1.8. Issuance of the Senior Subordinated Notes........................ 76
5.1.9. No Material Adverse Change....................................... 76
5.1.10. Availability of Revolving Commitments............................ 76
5.1.11. Opinions of Counsel.............................................. 77
5.1.12. Closing Fees, Expenses, etc...................................... 77
5.2. All Credit Extensions............................................ 77
5.2.1. Compliance with Warranties, No Default, etc...................... 77
5.2.2. Credit Extension Request, etc.................................... 77
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Section Page
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc................................................ 78
6.2. Due Authorization, Non-Contravention, etc........................ 78
6.3. Government Approval, Regulation, etc............................. 79
6.4. Validity, etc.................................................... 79
6.5. Financial Information............................................ 80
6.6. No Material Adverse Change....................................... 80
6.7. Litigation, Labor Controversies, etc.; No Violation
of Law......................................................... 80
6.8. Subsidiaries..................................................... 80
6.9. Ownership of Properties.......................................... 81
6.10. Taxes............................................................ 81
6.11. ERISA Compliance................................................. 81
6.12. Compliance with Environmental Laws............................... 82
6.13. Regulations G, U and X........................................... 83
6.14. Accuracy of Information.......................................... 83
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants............................................ 84
7.1.1. Financial Information, Reports, Notices, etc..................... 84
7.1.2. Preservation of Corporate Existence, etc......................... 87
7.1.3. Maintenance of Properties........................................ 88
7.1.4. Payment of Taxes................................................. 88
7.1.5. Compliance with Statutes, etc.................................... 88
7.1.6. Insurance........................................................ 89
7.1.7. Inspection Of Property and Books and Records..................... 89
7.1.8. Guaranty by each of The Fairways Group, L.P.
and its Subsidiaries........................................... 89
7.1.9. Future Subsidiaries.............................................. 89
7.1.10. Use of Proceeds.................................................. 90
7.1.11. Transactions with Affiliates..................................... 90
7.1.12. Business Activities.............................................. 91
7.1.13. End of Fiscal Year............................................... 91
7.2. Negative Covenants............................................... 91
7.2.1. Modification of Certain Agreements............................... 91
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Section Page
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7.2.2. Indebtedness..................................................... 91
7.2.3. Liens............................................................ 94
7.2.4. Financial Condition and Operations............................... 97
7.2.5. Investments...................................................... 98
7.2.6. Restricted Payments, etc.........................................100
7.2.7. Consolidations and Mergers; Sales of Assets......................102
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default.....................................103
8.1.1. Non-Payment of Obligations.......................................103
8.1.2. Breach of Warranty...............................................103
8.1.3. Non-Performance of Certain Covenants
and Obligations................................................104
8.1.4. Non-Performance of Other Covenants and Obligations...............104
8.1.5. Default on Other Indebtedness....................................104
8.1.6. Judgments........................................................104
8.1.7. ERISA............................................................104
8.1.8. Control of the Borrower..........................................104
8.1.9. Bankruptcy, Insolvency, etc......................................105
8.1.10. Impairment of Security, etc......................................105
8.2. Action if Bankruptcy.............................................105
8.3. Action if Other Event of Default.................................106
ARTICLE IX
THE AGENTS
9.1. Actions..........................................................106
9.2. Funding Reliance, etc............................................107
9.3. Exculpation......................................................108
9.4. Successor........................................................108
9.5. Loans by Agents..................................................109
9.6. Credit Decisions.................................................109
9.7. Copies, etc......................................................110
ARTICLE X
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Section Page
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MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc.........................................110
10.2. Notices..........................................................112
10.3. Payment of Costs and Expenses....................................112
10.4. Indemnification..................................................113
10.5. Survival.........................................................114
10.6. Severability.....................................................115
10.7. Headings.........................................................115
10.8. Execution in Counterparts, Effectiveness, etc....................115
10.9. Governing Law; Entire Agreement..................................115
10.10. Successors and Assigns...........................................116
10.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes..............................116
10.11.1. Assignments......................................................116
10.11.2. Participations...................................................118
10.12. Other Transactions...............................................119
10.13. Confidentiality..................................................120
10.14. Forum Selection and Consent to Jurisdiction......................120
10.15. Waiver of Jury Trial.............................................121
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<PAGE>
ANNEX I - Lender Information
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Specified Real Properties
EXHIBIT A-1 - Form of Revolving Note
EXHIBIT A-2 - Form of Term A Note
EXHIBIT A-3 - Form of Term B Note
EXHIBIT A-4 - Form of Swing Line Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Issuance Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Closing Date Certificate
EXHIBIT E - Form of Compliance Certificate
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G - Form of Guaranty
EXHIBIT H - Form of Lender Assignment Agreement
EXHIBIT I - Form of Solvency Certificate
EXHIBIT J-1 - Form of Opinion of Simpson, Thacher &
Bartlett, Special Counsel to the Borrower
and each of the other Obligors
EXHIBIT J-2 - Form of Opinion of Nola S. Dyal, Esq.,
General Counsel to the Borrower and each of
the other Obligors
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of April 30, 1997, is among KSL RECREATION
GROUP, INC. (the "Borrower"), a Delaware corporation and the wholly-owned
Subsidiary (such term, and other capitalized terms used herein, to have the
meanings provided in Section 1.1) of KSL Recreation Corporation, a Delaware
corporation ("KSL"), the various financial institutions as are or may become
parties hereto (collectively, the "Lenders", and, individually, a "Lender"),
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("DLJ"), as a co-syndication
agent (in such capacity, a "Co-Syndication Agent"), and as the documentation
agent (in such capacity, the "Documentation Agent"), THE BANK OF NOVA SCOTIA
("Scotiabank"), as a co- syndication agent (in such capacity, a "Co-Syndication
Agent", and, together with DLJ, in such capacity, collectively, the "Co-
Syndication Agents") and as the administrative agent (in such capacity, the
"Administrative Agent"), and BANCAMERICA SECURITIES, INC. ("BancAmerica"), as
the syndication agent (in such capacity, the "Syndication Agent").
W I T N E S S E T H:
WHEREAS, the Borrower desires to obtain from the Lenders
(a) a Term A Loan Commitment and a Term B Loan Commitment pursuant
to which Borrowings of Term A Loans and Term B Loans will be made to the
Borrower in a single Borrowing to occur on the Closing Date in a maximum
aggregate principal amount not to exceed $50,000,000 in respect of Term A
Loans and $50,000,000 in respect of Term B Loans;
(b) a Revolving Loan Commitment (to include availability for
Revolving Loans, Swing Line Loans and Letters of Credit) pursuant to which
Borrowings of Revolving Loans and Swing Line Loans, in a maximum aggregate
principal amount (together with all Letter of Credit Outstandings) not to
exceed $175,000,000 will be made to the Borrower from
-1-
<PAGE>
time to time on and subsequent to the Closing Date but prior to the
Revolving Loan Commitment Termination Date;
(c) a Letter of Credit Commitment pursuant to which the Issuer will
issue Letters of Credit for the account of the Borrower from time to time
on and subsequent to the Closing Date but prior to the Revolving Loan
Commitment Termination Date in a maximum aggregate Stated Amount at any
one time outstanding not to exceed $20,000,000 (provided, that the
aggregate outstanding principal amount of Revolving
Loans, Swing Line Loans and Letter of Credit Outstandings at any time
shall not exceed the then existing Revolving Loan Commitment Amount); and
(d) a Swing Line Loan Commitment pursuant to which Borrowings of
Swing Line Loans in an aggregate outstanding principal amount not to
exceed $10,000,000 will be made on and subsequent to the Closing Date but
prior to the Revolving Loan Commitment Termination Date (provided, that
the aggregate outstanding principal amount of such Swing Line Loans,
Revolving Loans and Letter of Credit Outstandings at any time shall not
exceed the then existing Revolving Loan Commitment Amount);
with all the proceeds of the Credit Extensions to be used for the purposes
specified in Section 7.1.10; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
Commitments and make such Loans to the Borrower and issue (or participate in)
Letters of Credit for the account of the Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its
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<PAGE>
preamble and recitals, shall, except where the context otherwise requires, have
the following meanings (such meanings to be equally applicable to the singular
and plural forms thereof):
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the Capital
Stock of any Person, or otherwise causing any Person to become a Subsidiary, (c)
a merger or consolidation or any other combination with another Person (other
than with a Person that is a Restricted Subsidiary), provided that the Borrower
or one of its Restricted Subsidiaries is the surviving entity or (d) an
Unrestricted Subsidiary becoming a Restricted Subsidiary.
"Adjusted EBITDA" means, with respect to any particular Person, for such
Person and its Restricted Subsidiaries, for any applicable period, the sum
(without duplication) of
(a) EBITDA of such Person and each of its Restricted Subsidiaries,
plus
(b) the amount of refundable membership deposits paid in cash, plus
principal payments in cash received on notes in respect thereof, minus the
amount of any refunds paid in cash in respect of such deposits or amounts.
"Administrative Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 9.4.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). With respect to any Lender or the Issuer, a Person
shall be deemed to be "controlled by" another Person if such other Person
possesses, directly or indirectly, power to vote 51% or more of
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<PAGE>
the securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners of such "controlled" Person.
With respect to all other Persons, a Person shall be deemed to be "controlled
by" another Person if such other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners of such "controlled" Person; or
(b) to direct or cause the direction of the management and policies
of such "controlled" Person whether through ownership of voting
securities, membership or partnership interests, by contract or otherwise.
"Agent" means, as the context may require, the Administrative Agent, the
Syndication Agent, each of the Co-Syndication Agents and/or the Documentation
Agent.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base Rate
Loans, a fluctuating rate of interest per annum (rounded upward, if necessary,
to the next highest 1/16 of 1%) equal to the higher of
(a) the Base Rate in effect on such day; and
(b) the Federal Funds Rate in effect on such day plus 1/2 of 1%.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Administrative Agent will give notice promptly to the Borrower
and the Lenders of changes in the Alternate Base Rate.
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<PAGE>
"Annual Payment Date" means each annual anniversary of the Closing Date
or, if such day is not a Business Day, the next succeeding Business Day.
"Applicable Commitment Fee" means, with respect to the fee payable to the
Lenders pursuant to Section 3.3.1, (a) for the period following the Closing Date
through (and including) October 31, 1997, 1/2 of 1% and (b) at all times
thereafter during the applicable periods set forth below, the applicable
percentage set forth below under the column entitled "Applicable Commitment
Fee":
Applicable
Leverage Ratio Commitment Fee
Greater than 5.5:1 0.425%
Less than or equal to 5.5:1
and greater than 5.0:1 0.375%
Less than or equal to 5.0:1
and greater than 4.5:1 0.375%
Less than or equal to 4.5:1
and greater than 4.0:1 0.350%
Less than or equal to 4.0:1
and greater than 3.5:1 0.300%
Less than or equal to 3.5:1
and greater than 3.0:1 0.250%
Less than or equal to 3.0:1 0.200%.
The Leverage Ratio used to compute the Applicable Commitment Fee shall be
the Leverage Ratio set forth in the Compliance Certificate most recently
delivered by the Borrower to the Administrative Agent pursuant to clause (c) of
Section 7.1.1; changes in the Applicable Commitment Fee resulting from a change
in the Leverage Ratio shall become effective (as of the first day following the
Fiscal Quarter in respect of which such Compliance Certificate was required to
be delivered) upon delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to clause (c) of Section 7.1.1. In the
event such Compliance Certificate indicates a Leverage Ratio that would result
in an Applicable Commitment Fee which is greater or
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<PAGE>
lesser than the Applicable Commitment Fee then in effect, then (A) such greater
or lesser Applicable Commitment Fee shall be deemed to be in effect for all
purposes of this Agreement from the first day following the Fiscal Quarter in
respect of which such Compliance Certificate was required to be delivered to the
Administrative Agent pursuant to clause (c) of Section 7.1.1 and (B) if the
Borrower shall have made any payment in respect of fees during the period from
the first day following the Fiscal Quarter in respect of which such Compliance
Certificate was required to be delivered to the actual date of delivery of such
Compliance Certificate, then, on the next Quarterly Payment Date, the Borrower
shall pay in the form of a supplemental payment of fees, an amount which equals
the difference between the amount of fees that would otherwise have been paid
based on such new Leverage Ratio and the amount of such fees so paid, or, as the
case may be, an amount shall be deducted from the fees then otherwise payable in
an amount which equals the difference between the amount of fees so paid and the
amount of fees that would otherwise have been paid based on such new Leverage
Ratio.
"Applicable Margin" means
(a) at all times, with respect to the unpaid principal amount of
each Term A Loan maintained as a Base Rate Loan, 1.75%;
(b) at all times, with respect to the unpaid principal amount of
each Term A Loan maintained as a LIBO Rate Loan, 2.75%;
(c) at all times, with respect to the unpaid principal amount of
each Term B Loan maintained as a Base Rate Loan, 2.00%;
(d) at all times, with respect to the unpaid principal amount of
each Term B Loan maintained as a LIBO Rate Loan, 3.00%; and
(e) (i) with respect to the unpaid principal amount of each
Revolving Loan maintained as a Base Rate Loan, (x) for the period
following the Closing Date through (and including) October 31, 1997, 1.25%
and (y) at all times
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<PAGE>
thereafter during the applicable periods set forth below, the applicable
percentage set forth below under the column entitled "Applicable Margin
for Base Rate Revolving Loans", and (ii) with respect to the unpaid
principal amount of each Revolving Loan maintained as a LIBO Rate Loan,
(x) for the period following the Closing Date through (and including)
October 31, 1997, 2.25% and (y) at all times thereafter during the
applicable periods set forth below, the applicable percentage set forth
below under the column entitled "Applicable Margin for LIBO Rate Revolving
Loans":
Applicable Margin Applicable Margin
for Base Rate for LIBO Rate
Leverage Ratio Revolving Loans Revolving Loans
-------------- ----------------- -----------------
Greater than 5.5:1 1.250% 2.250%
Less than or equal
to 5.5:1 and
greater than 5.0:1 1.000% 2.000%
Less than or equal
to 5.0:1 and
greater than 4.5:1 0.625% 1.625%
Less than or equal
to 4.5:1 and
greater than 4.0:1 0.375% 1.375%
Less than or equal
to 4.0:1 and
greater than 3.5:1 0.125% 1.125%
Less than or equal
to 3.5:1 and
greater than 3.0:1 0.000% 0.875%
Less than or equal 0.000% 0.625%.
to 3.0:1
The Leverage Ratio used to compute the "Applicable Margin for Base Rate
Revolving Loans" and the "Applicable Margin for LIBO Rate Revolving Loans" shall
be the Leverage Ratio set forth in the Compliance Certificate most recently
delivered by the Borrower to the Administrative Agent pursuant to clause (c) of
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Section 7.1.1; changes in the "Applicable Margin for Base Rate Revolving Loans"
and the "Applicable Margin for LIBO Rate Revolving Loans" resulting from a
change in the Leverage Ratio shall become effective (as of the first day
following the Fiscal Quarter in respect of which such Compliance Certificate was
required to be delivered) upon delivery by the Borrower to the Administrative
Agent of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1.
In the event such Compliance Certificate indicates a Leverage Ratio that would
result in an Applicable Margin which is greater or lesser than the Applicable
Margin then in effect, then (A) such greater or lesser Applicable Margin shall
be deemed to be in effect for all purposes of this Agreement from the first day
following the Fiscal Quarter in respect of which such Compliance Certificate was
required to be delivered to the Administrative Agent pursuant to clause (c) of
Section 7.1.1 and (B) if the Borrower shall have made any payment in respect of
interest during the period from the first day following the Fiscal Quarter in
respect of which such Compliance Certificate was required to be delivered to the
actual date of delivery of such Compliance Certificate, then, on the next
Quarterly Payment Date, the Borrower shall pay in the form of a supplemental
payment of interest, an amount which equals the difference between the amount of
interest that would otherwise have been paid based on such new Leverage Ratio
and the amount of such interest so paid, or, as the case may be, an amount shall
be credited to the Borrower in an amount which equals the difference between the
amount of interest so paid and the amount of interest that would otherwise have
been paid based on such new Leverage Ratio.
"Authorized Officer" means, relative to the Borrower and any other
Obligor, those of its officers whose signatures and incumbency shall have been
certified to the Agents and the Lenders pursuant to Section 5.1.1 and such other
officers of the Borrower as the Borrower designates in writing as such to the
Administrative Agent.
"Available Amount" means, on any date (the "Reference Date"), an amount
equal to (a) the sum of (i) the aggregate amount of net cash proceeds received
by the Borrower (x) in respect of equity contributions made to the Borrower by
Persons other than Subsidiaries of the Borrower after the Closing Date
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and on or prior to the Reference Date or (y) from issuances of equity of the
Borrower after the Closing Date and on or prior to the Reference Date, plus (ii)
the cumulative amount of Excess Cash Flow not required to be applied to
prepayments pursuant to clause (f) of Section 3.1.1 on or prior to the Reference
Date, plus (iii) the aggregate amount of prepayments refused by Lenders pursuant
to clause (b)(i)(B) of Section 3.1.2 and retained by the Borrower pursuant to
clauses (b)(i)(C) and (b)(i)(D) of Section 3.1.2, on or prior to the Reference
Date, minus (b) the sum of (i) the aggregate amount of any Investments (as such
aggregate amount is determined in accordance with the definition of
"Investment") made by the Borrower or any Restricted Subsidiary pursuant to
clause (j)(ii) of Section 7.2.5 on or prior to the Reference Date and (ii) the
aggregate amount paid by the Borrower in connection with any prepayment,
repurchase or redemption of the Senior Subordinated Notes pursuant to clause (g)
of Section 7.2.6 on or prior to the Reference Date.
"BancAmerica" is defined in the preamble.
"Base Rate" means, at any time, the rate of interest then most recently
established by the Administrative Agent in New York, New York as its base rate
for Dollars loaned in the United States. The Base Rate is not necessarily
intended to be the lowest rate of interest determined by the Administrative
Agent in connection with extensions of credit.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrowing" means the Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by all Lenders required to make such
Loans on the same Business Day and pursuant to the same Borrowing Request in
accordance with Section 2.1.
"Borrowing Request" means a Loan request and certificate duly executed by
an Authorized Officer of the Borrower, substantially in the form of Exhibit B-1
hereto.
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"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in New
York, New York; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollars are carried on
in the London interbank eurodollar market.
"Capital Expenditures" means, for any period, the sum of (a) the aggregate
amount of all expenditures of the Borrower and its Restricted Subsidiaries for
fixed or capital assets made during such period which, in accordance with GAAP,
would be classified as capital expenditures, and (b) without duplication, the
aggregate amount of all cash payments made during such period in respect of all
Capitalized Lease Liabilities allocable to the principal component thereof;
provided that the term "Capital Expenditures" shall not include (i) expenditures
made in connection with the replacement, substitution or restoration of assets
(A) to the extent financed from insurance proceeds paid on account of the loss
of or damage to the assets being replaced or restored or (B) with awards of
compensation arising from the taking by eminent domain or condemnation of the
assets being replaced, (ii) the purchase price of equipment that is purchased
simultaneously with the trade-in of existing equipment to the extent that the
gross amount of such purchase price is reduced by the credit granted by the
seller of such equipment for the equipment being traded in at such time, (iii)
Capitalized Lease Liabilities paid in respect of equipment that is leased in
substitution for, or as replacement in connection with the trade- in of,
existing similar equipment, (iv) the purchase of plant, property or equipment
made within one year of the sale of any asset in replacement of such asset to
the extent purchased with the proceeds of such sale and Capitalized Lease
Liabilities paid in respect of such replaced asset and (v) the portion of the
purchase price in connection with any Acquisition that would otherwise be
included as additions to property, plant or equipment and Capitalized Lease
Liabilities assumed or incurred in connection with any Acquisition.
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"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower or any of its Restricted Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, are classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof determined in
accordance with GAAP, and the stated maturity thereof shall be determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of capital of such Person, including if such Person is a
partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership,
whether now outstanding or issued after the Effective Date.
"Cash Equivalent Investment" means, at any time:
(a) any direct obligation of (or guaranteed by) the United States
government (or any agency or instrumentality thereof) maturing not more
than two years after the date of acquisition thereof;
(b) any direct obligation of (or guaranteed by) any state of the
United States (or any political subdivision, agency or instrumentality
thereof) maturing not more than two years after the date of acquisition
thereof and, at the time of such acquisition, rated at least investment
grade by either S&P or Moody's (or, if at any time neither S&P or Moody's
shall be rating such obligations, then from another nationally recognized
rating agency);
(c) commercial paper, maturing not more than twelve months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any state of the United States or of the
District of Columbia and rated at least A-2 by S&P or P-2 by Moody's
(or, if at any
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time neither S&P or Moody's shall be rating such obligations, then
from another nationally recognized rating agency), or
(ii) any Lender (or its holding company);
(d) any certificate of deposit or bankers acceptance, maturing not
more than two years after the date of acquisition thereof, which is issued
by either
(i) any bank which has a combined capital and surplus not less
than $250,000,000 (or in the case of foreign banks, the Dollar
equivalent thereof), or
(ii) any Lender;
(e) any repurchase agreement entered into with any Lender or any
commercial banking institution of the stature referred to in clause (d)(i)
above or securities dealers of recognized national standing which
(i) is for any obligation of the type described in clause (a),
(b) or (d) above, and
(ii) has a term of not more than 30 days for underlying
obligations of the type described in clause (a), (b) or (d) above;
(f) shares of investment companies that are registered under the
Investment Company Act of 1940 and invest solely in one or more of the
types of securities described in clauses (a) through (e) above; and
(g) short-term, high quality liquid investments made by a Foreign
Subsidiary in the ordinary course of managing its cash.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws".
"Change of Control" means, and shall be deemed to have occurred if: (a)
(i) KKR, its successors and its Affiliates and
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<PAGE>
management of the Borrower shall cease to own in the aggregate, directly or
indirectly, beneficially and of record, 35% of the outstanding Voting Stock of
the Borrower (other than as the result of (A) one or more public offerings of
common stock of the Borrower or (B) a widely distributed private placement of
common stock of the Borrower that does not provide any special director
designation or special election rights or other special corporate governance
rights to the holders of such shares, in each case whether by the Borrower or
another Person) and/or (ii) any Person or "group" (within the meaning of Section
13(d) or 14(d) of the Exchange Act) shall at any time have acquired direct or
indirect beneficial ownership of a percentage of the outstanding Voting Stock of
the Borrower that exceeds in the aggregate the percentage of such Voting Stock
then beneficially owned, directly or indirectly, by KKR, its successors and its
Affiliates and management of the Borrower, unless, in the case of either
clause(a)(i) or (a)(ii) above, KKR, its successors and its Affiliates and
management of the Borrower have, at such time, the right or the ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Borrower; and/or (b) at any time
Continuing Directors shall not constitute a majority of the Board of Directors
of the Borrower.
"Closing Date" means the date of the making of the initial Credit
Extensions hereunder, subject to the prior or concurrent satisfaction (or waiver
by each of the Lenders and each of the Agents) of each of the conditions
precedent set forth in Article V.
"Closing Date Certificate" means the closing date certificate executed and
delivered by the Borrower pursuant to Section 5.1.2, substantially in the form
of Exhibit D hereto.
"Code" means the Internal Revenue Code of 1986, and the regulations
thereunder, in each case as amended, reformed or otherwise modified from time to
time.
"Commitment" means, as the context may require, a Lender's Term A Loan
Commitment, Term B Loan Commitment, Revolving Loan Commitment or Letter of
Credit Commitment, or the Swing Line Lender's Swing Line Loan Commitment.
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"Commitment Amount" means, as the context may require, the Term A Loan
Commitment Amount, the Term B Loan Commitment Amount, the Revolving Loan
Commitment Amount, the Letter of Credit Commitment Amount or the Swing Line Loan
Commitment Amount.
"Commitment Termination Date" means, as the context may require, the Term
A Loan Commitment Termination Date, the Term B Loan Commitment Termination Date
or the Revolving Loan Commitment Termination Date.
"Commitment Termination Event" means
(a) the occurrence of any Event of Default described in clauses (a)
through (d) of Section 8.1.9; or
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of all or any portion of the Loans to be
due and payable pursuant to Section 8.3, or
(ii) the giving of notice by the Administrative Agent, acting
at the direction, or with the consent, of the Required Lenders, to
the Borrower that the Commitments have been terminated.
"Compliance Certificate" means a certificate duly completed and executed
by the chief executive, financial or accounting Authorized Officer of the
Borrower, substantially in the form of Exhibit E hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time,
together with such changes thereto as the Agents may from time to time
reasonably request for the purpose of monitoring the Borrower's compliance with
the financial covenants contained herein.
"Confidential Memorandum" means the Confidential Information Memorandum
dated April 1997, describing the KSL Recreation Group, Inc. $275,000,000 senior
secured credit facilities.
"Consolidated Gross Revenues" means, for any period, the consolidated
gross revenues of the Borrower and its Restricted Subsidiaries for such period,
determined in accordance with GAAP.
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<PAGE>
"Consolidated Net Income" means, with respect to any particular Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) any
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary course of business
shall be excluded, or (iii) the Net Income for such period of the referent
Person attributable to any Person that is not a Restricted Subsidiary of the
Borrower, or that is accounted for by the equity method of accounting, shall be
included only to the extent of dividends or distributions or other net payments
paid in cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary (except for directors' qualifying shares) in respect of
such period.
"Consolidated Working Capital" means, with respect to the Borrower, at any
date, the excess of (a) the sum of all amounts (other than cash and cash
equivalents) that would, in conformity with GAAP, be set forth opposite the
caption "total current assets" (or any like caption) on a consolidated balance
sheet of the Borrower and its Restricted Subsidiaries at such date over (b) the
sum of all amounts that would, in conformity with GAAP, be set forth opposite
the caption "total current liabilities" (or any like caption) on a consolidated
balance sheet of the Borrower and its Restricted Subsidiaries on such date, but
excluding the current portion of any Total Funded Debt.
"Contingent Obligation" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, with or
without recourse, to provide funds for payment to, to purchase from, to supply
funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor
against loss) the Indebtedness of any other Person (other than by endorsements
of instruments in the course of collection), or guarantees the payment of
scheduled dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Obligation shall
(subject to any limitation set forth therein) be deemed to
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be the outstanding principal amount (or maximum principal amount, if larger) of
the debt, obligation or other liability guaranteed thereby or, if not stated or
if indeterminable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder), as determined
by such Person in good faith. Notwithstanding the foregoing, the term
"Contingent Obligation" shall not include (a) endorsements of instruments for
deposit or collection in the ordinary course of business, (b) guarantees made by
a Person of the obligations of a Restricted Subsidiary of such Person that do
not constitute Indebtedness of such Restricted Subsidiary and are incurred in
the ordinary course of business of such Restricted Subsidiary and (c)
obligations arising from agreements providing for indemnification or adjustment
of purchase price (or from guarantees supporting any obligations pursuant to any
such agreements) incurred in connection with the disposition of any business or
assets or Restricted Subsidiary.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit C hereto.
"Continuing Director" means, at any date, an individual (a) who is a
member of the Board of Directors of the Borrower, as the case may be, on the
Effective Date, (b) who, as at such date, has been a member of such Board of
Directors for at least the 12 preceding months (or, for the period comprising
the first 12 months after the Effective Date, has been a member of such Board of
Directors at least since the Effective Date), or (c) who has been nominated to
be a member of such Board of Directors, directly or indirectly, by KKR or
Persons nominated by KKR or has been nominated to be a member of such Board of
Directors by a majority of the other Continuing Directors then in office.
"Corporate Sale Transaction" means a one-time transfer (pursuant to clause
(k) of Section 7.2.5, clause (f) of Section 7.2.6 or clause (c) of Section
7.2.7) of all or a portion of the Capital Stock or assets of one of the
Borrower's Restricted Subsidiaries, provided that, in any event, such
transaction shall only be permitted to the extent that (i) such transfer is
designated as the "Corporate Sale Transaction" by notice in
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writing from the Borrower to the Agents, (ii) only one transaction (or series of
directly related transactions), involving a single Restricted Subsidiary (and
any of its Subsidiaries), may be designated as the "Corporate Sale Transaction",
(iii) both immediately before and after giving effect to such "Corporate Sale
Transaction", no Default or Event of Default shall have occurred and be
continuing or would result therefrom, (iv) immediately after giving pro forma
effect to such "Corporate Sale Transaction", as if such transaction had occurred
at the beginning of the applicable Test Period, (A) the Interest Coverage Ratio
as of the end of the applicable Test Period would not be any lower than the
Interest Coverage Ratio set forth in the Compliance Certificate most recently
delivered to the Administrative Agent pursuant to Section 7.1.1 for the Test
Period immediately prior to giving effect to such transaction and (B) the
Leverage Ratio as of the end of the applicable Test Period would not be any
greater than the Leverage Ratio set forth in the Compliance Certificate most
recently delivered to the Administrative Agent pursuant to Section 7.1.1 for the
Test Period immediately prior to giving effect to such transaction and (v) the
Borrower shall have delivered to the Agents prior to the consummation of such
transaction a certificate of the Borrower executed by its chief financial
Authorized Officer stating that the statements made in the foregoing clauses
(iii) and (iv) are true and correct and demonstrating (in reasonable detail,
including with respect to appropriate calculations and computations) compliance
with the requirements set forth in subclauses (A) and (B) of the foregoing
clause (iv).
"Co-Syndication Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as a successor Co-Syndication
Agent pursuant to Section 9.4.
"Credit Extension" means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, or the extension of any
Stated Expiry Date of any existing Letter of Credit, by the Issuer.
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"Credit Extension Request" means, as the context may require, any
Borrowing Request or Issuance Request.
"Default" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Defaulting Lender" means any Lender with respect to which a Lender
Default is in effect.
"Disbursement" is defined in Section 2.6.2.
"Disbursement Date" is defined in Section 2.6.2.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented, amended and restated or
otherwise modified from time to time by the Borrower with the written consent of
the Agents and the Required Lenders.
"Disposition" means the sale, conveyance, issuance or other disposition of
any property, business or assets by the Borrower or any Restricted Subsidiary
(including receivables of or owned by, and Capital Stock owned by, the Borrower
or such Restricted Subsidiary, and in all cases whether now owned or hereafter
acquired), other than (a) the issuance of Capital Stock of the Borrower, (b)
sales, conveyances or other dispositions in the ordinary course of business
(including sales, conveyances or other dispositions of inventory in the ordinary
course and including sales, conveyances or other dispositions in the ordinary
course of business of condominium units and other similar interests in real
property in connection with the Borrower's property development and property
management activities in an aggregate amount not to exceed $10,000,000 during
the term of this Agreement) and (c) the Corporate Sale Transaction.
"DLJ" is defined in the preamble.
"Documentation Agent" is defined in the preamble and includes each other
Person as shall have subsequently been
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appointed as the successor Documentation Agent pursuant to Section 9.4.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such Lender
designated as such Lender's "Domestic Office" below its name in Annex I hereto
or as set forth in a Lender Assignment Agreement, or such other office of a
Lender (or any successor or assign of such Lender) within the United States as
may be designated from time to time by notice from such Lender, as the case may
be, to each other Person party hereto.
"Domestic Subsidiary" means any Restricted Subsidiary that is not a
Foreign Subsidiary.
"EBITDA" means, with respect to any particular Person, for such Person and
its Restricted Subsidiaries, for any applicable period, the sum (without
duplication) of
(a) Consolidated Net Income of such Person and its Restricted
Subsidiaries,
plus
(b) the amount deducted by such Person and its Restricted
Subsidiaries, in determining Consolidated Net Income of such Person and
its Restricted Subsidiaries, representing non-cash charges, including in
respect of amortization, depreciation, restructuring charges or reserves,
other reserves and non-recurring charges,
plus
(c) the amount deducted, in determining Consolidated Net Income of
such Person and its Restricted Subsidiaries, of all federal, state and
local income taxes (whether paid in cash or deferred) of such Person and
its Restricted Subsidiaries,
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plus
(d) the amount deducted, in determining Consolidated Net Income of
such Person and its Restricted Subsidiaries, of Interest Expense and
non-cash interest expense of such Person and its Restricted Subsidiaries,
minus
(e) the amount included by such Person and its Restricted
Subsidiaries, in determining Consolidated Net Income of such Person and
its Restricted Subsidiaries, representing non-cash gains,
minus
(f) the amount included by such Person and its Restricted
Subsidiaries, in determining Consolidated Net Income of such Person and
its Restricted Subsidiaries, representing non-recurring gains.
"Effective Date" means the date this Agreement becomes effective pursuant
to Section 10.8.
"Eligible Assignee" means and includes each Lender (and any Affiliate
thereof), any commercial bank, any financial institution, any fund that is
regularly engaged in making, purchasing or investing in loans or any Person that
would satisfy the requirements of an "accredited investor" (as defined in SEC
Regulation D, but excluding a natural person).
"Environmental Claims" shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by the Borrower or any of its Subsidiaries (a) in the ordinary course of such
Person's business or (b) as required in connection with a financing transaction
or an acquisition or disposition of real estate) or proceedings relating in any
way to any Environmental Law or any permit issued, or any approval given, under
any such Environmental Law (hereafter, "Claims"), including, without limitation,
(i) any and all Claims by
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governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law and (ii) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" means any and all present and future laws, statutes,
ordinances, rules, regulations, requirements, restrictions, permits, orders, and
determinations of any governmental authority that have the force and effect of
law, pertaining to pollution (including Hazardous Materials), natural resources
or the environment, whether federal, state, or local, including environmental
response laws such as the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, and as the same may be further amended (hereinafter
collectively called "CERCLA").
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means any of the following if such event or occurrence
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect: (a) the failure to make a required contribution to a
Pension Plan if such failure is sufficient to give rise to a Lien under Section
302(f) of ERISA; (b) a withdrawal by the Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any
ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer
Plan is in reorganization; (d) the filing of a
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notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e)
an event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA other than PBGC premiums due
but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" means, for any Fiscal Year, the excess (if any), of
(a) the sum for such Fiscal Year, without duplication, of:
(i) Consolidated Net Income of the Borrower and its Restricted
Subsidiaries;
plus
(ii) the amount deducted by the Borrower and its Restricted
Subsidiaries, in determining Consolidated Net Income of the Borrower
and its Restricted Subsidiaries, representing non-cash charges,
including in respect of amortization, depreciation, restructuring
charges or reserves, other reserves and non-recurring charges;
plus
(iii) decreases in Consolidated Working Capital;
over
(b) the sum for such Fiscal Year, without duplication, of
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(i) the amount included by the Borrower and its Restricted
Subsidiaries of all non-cash credits, in determining Consolidated
Net Income;
plus
(ii) the aggregate amount of all principal payments of
Indebtedness of the Borrower or its Restricted Subsidiaries
(including any Term Loans and the principal component of payments in
respect of Capitalized Lease Liabilities but excluding Term Loans
prepaid pursuant to clause (f) of Section 3.1.1) made during such
Fiscal Year (other than in respect of any revolving credit facility
to the extent there is not an equivalent permanent reduction in
commitments thereunder);
plus
(iii) to the extent accompanied by a permanent reduction in
the Revolving Loan Commitment Amount, voluntary prepayments of the
principal amount of Revolving Loans and Swing Line Loans;
plus
(iv) increases in Consolidated Working Capital;
plus
(v) Capital Expenditures permitted hereunder and actually made
by the Borrower and its Restricted Subsidiaries in such Fiscal Year
(excluding the principal amount of Indebtedness incurred in
connection with such Capital Expenditures, whether incurred in such
Fiscal Year or in a subsequent Fiscal Year);
plus
(vi) the amount of cash payments by the Borrower and its
Restricted Subsidiaries during such Fiscal Year
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in respect of long-term liabilities of the Borrower and its
Restricted Subsidiaries other than Indebtedness;
plus
(vii) the amount of Investments made during such Fiscal Year
in cash pursuant to clause (e), (h), (i) or (j) of Section 7.2.5 to
the extent that such Investments were financed with internally
generated cash flow of the Borrower and its Restricted Subsidiaries;
plus
(viii) the aggregate amount of expenditures actually made by
the Borrower and its Restricted Subsidiaries in cash during such
Fiscal Year (including expenditures for the payment of financing
fees) to the extent that such expenditures are not expensed during
such Fiscal Year;
plus
(ix) the aggregate amount of dividends paid to KSL in
accordance with clauses (d), (e) and (h) of Section 7.2.6;
provided, however, that Excess Cash Flow for any Fiscal Year shall not be deemed
to be less than zero.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
annum equal to
(a) the rate set forth in the weekly statistical release designated
as H.15(519), or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, "H.15(519)") on
the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or
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(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"Fee Letter" means that certain confidential letter, dated April 4, 1997,
among KSL and the Agents.
"Fiscal Quarter" means any quarter of a Fiscal Year ending on the last day
of January, April, July or October.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on October 31; references to a Fiscal Year with a number corresponding to
any calendar year (e.g., the "1997 Fiscal Year") refer to the Fiscal Year ending
on October 31 of such calendar year.
"Fiscal Year End" is defined in Section 7.1.13.
"Fixed Charge Coverage Ratio" means, as of the close of any Fiscal
Quarter, the ratio computed for the period consisting of such Fiscal Quarter and
each of the three immediately prior Fiscal Quarters with respect to the Borrower
and its Restricted Subsidiaries on a consolidated basis of:
(a) Adjusted EBITDA of the Borrower and its Restricted Subsidiaries
(for all such Fiscal Quarters);
to
(b) the sum (for all such Fiscal Quarters) of
(i) Interest Expense of the Borrower and its Restricted
Subsidiaries;
plus
(ii) scheduled principal repayments of the Term Loans pursuant
to the provisions of clauses (c) and (d) of Section 3.1.1 after
giving effect to any reductions in such scheduled principal
repayments attributable to
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any optional or mandatory prepayments of the Term Loans;
plus
(iii) all federal, state and foreign income taxes actually
paid in cash by the Borrower and its Restricted Subsidiaries
(including payments made to any Affiliate of the Borrower other than
a Restricted Subsidiary in respect of any tax sharing agreement,
including the Tax Sharing Agreement);
plus
(iv) Ordinary Capital Expenditures;
plus
(v) dividends made by the Borrower in cash pursuant to Section
7.2.6;
provided, however, that in computing the Fixed Charge Coverage Ratio for the
fourth Fiscal Quarter of the 1997 Fiscal Year, the amount set forth in clause
(b) above shall equal the sum of the amounts set forth in clause (b) for such
Fiscal Quarter and the two immediately preceding Fiscal Quarters, multiplied by
4/3.
"Foreign Subsidiary" means any Subsidiary of the Borrower (a) which is
organized under the laws of any jurisdiction outside of the United States, (b)
which conducts the major portion of its business outside of the United States
and (c) all or substantially all of the property and assets of which are located
outside of the United States.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in Section 1.4.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity
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exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any corporation or other
entity owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
"Guaranty" means the guaranty executed and delivered by each Restricted
Subsidiary required to do so hereunder that is a direct or indirect Domestic
Subsidiary of the Borrower pursuant to the terms of this Agreement,
substantially in the form of Exhibit G hereto, as amended, supplemented, amended
and restated or otherwise modified.
"Hazardous Materials" means any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any present or future
Environmental Law or that is otherwise regulated or prohibited or subject to
investigation or remediation under any present or future Environmental Law
because of its hazardous, toxic, or dangerous properties, including (a) any
substance that is a "hazardous substance" under CERCLA and (b) petroleum wastes
or products.
"Hedging Obligations" means, with respect to any Person, all liabilities
of such Person under currency exchange agreements, interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and all other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
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(a) which questions the status of the Borrower and its Restricted
Subsidiaries, taken as a whole, as a "going concern";
(b) which relates to the limited scope of examination of any
material portion of the records of the Borrower and its Restricted
Subsidiaries relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
the Borrower to be in default of any of its obligations under Section
7.2.4.
"including" and "include" means including without limiting the generality
of any description preceding such term.
"Increased Commitment Amount" is defined in Section 10.1.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all Capitalized Lease Liabilities of such Person;
(d) net monetary liabilities of such Person under all Hedging
Obligations (calculated, at any time, as the aggregate amount (giving
effect to any netting agreements) that the Borrower or a Restricted
Subsidiary would be required to pay if the agreements giving rise to such
Hedging Obligations were terminated at such time);
(e) all obligations of such Person to pay the deferred purchase
price of property or services that, in accordance with GAAP, would be
included on the liability side of the
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balance sheet of such Person as of the date at which Indebtedness is to be
determined;
(f) all indebtedness referred to in clauses (a), (b), (c) and (e)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(g) all Contingent Obligations of such Person in respect of any of
the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, unless the express terms of the relevant
partnership or joint venture agreement provide that liabilities incurred in
connection therewith are completely without recourse to such Person or is of
limited recourse to such Person, in which case the amount of Indebtedness of
such Person in respect thereof shall be limited to the extent of such recourse
against such Person.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Insolvency Proceeding" means, with respect to any Person, (a) any case,
action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, rehabilitation, dissolution, winding-up or relief of
debtors or (b) any general assignment for the benefit of creditors, composition,
marshalling of assets for creditors or other, similar arrangement in respect of
its creditors generally or any substantial portion of its creditors, undertaken
under U.S. Federal, state or foreign law, including the Federal Bankruptcy
Reform Act of 1978 (11 U.S.C. ss. 101, et seq.).
"Interest Coverage Ratio" means, at the close of any Fiscal Quarter, the
ratio computed for the period consisting of such
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Fiscal Quarter and each of the three immediately prior Fiscal Quarters of:
(a) Adjusted EBITDA of the Borrower and its Restricted Subsidiaries
(for all such Fiscal Quarters)
to
(b) the sum (for all such Fiscal Quarters) of Interest Expense of
the Borrower and its Restricted Subsidiaries;
provided, however, that in computing the Interest Coverage Ratio for
(c) the second Fiscal Quarter of the 1997 Fiscal Year, the amount
set forth in clause (b) above shall equal the Interest Expense of the
Borrower and its Restricted Subsidiaries for such Fiscal Quarter,
multiplied by four;
(d) the third Fiscal Quarter of the 1997 Fiscal Year, the amount set
forth in clause (b) above shall equal the aggregate Interest Expense of
the Borrower and its Restricted Subsidiaries for such Fiscal Quarter and
the immediately preceding Fiscal Quarter, multiplied by two; and
(e) the fourth Fiscal Quarter of the 1997 Fiscal Year, the amount
set forth in clause (b) above shall equal the aggregate Interest Expense
of the Borrower and its Restricted Subsidiaries for such Fiscal Quarter
and the two immediately preceding Fiscal Quarters, multiplied by 4/3.
"Interest Expense" means, for any Fiscal Quarter, the aggregate cash
interest expense (net of cash interest income) of the Borrower and its
Restricted Subsidiaries for such Fiscal Quarter, as determined in accordance
with GAAP, including the portion of any payments made in respect of Capitalized
Lease Liabilities allocable to interest expense, but excluding deferred
financing costs and other non-cash interest expense.
"Interest Period" means, relative to any LIBO Rate Loan, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate
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Loan pursuant to Section 2.3 or 2.4 and shall end on (but exclude) the day which
numerically corresponds to such date one, two, three or six (or, if available to
all the Lenders making such Loans as determined by such Lenders in good faith
based on prevailing market conditions, nine or twelve) months thereafter (or, if
such month has no numerically corresponding day, on the last Business Day of
such month), as the Borrower may select in its relevant notice pursuant to
Section 2.3 or 2.4; provided, however, that
(a) the Borrower shall not be permitted to select Interest Periods
to be in effect at any one time which have expiration dates occurring on
more than fifteen different dates (provided, that, in any event, the
Borrower shall not be permitted to select Interest Periods to be in effect
at any one time which have expiration dates occurring on more than ten
different dates with respect to Revolving Loans, ten different dates with
respect to Term A Loans and ten different dates with respect to Term B
Loans);
(b) if such Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next following
Business Day (unless such next following Business Day is the first
Business Day of a calendar month, in which case such Interest Period shall
end on the Business Day next preceding such numerically corresponding
day); and
(c) no Interest Period for any Loan may end later than the Stated
Maturity Date for such Loan.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person;
(b) any Contingent Obligation of such Person incurred in connection
with loans or advances described in clause (a); and
(c) any ownership or similar interest held by such Person in any
other Person.
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The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity, or distributions or dividends
paid, thereon and shall, if made by the transfer or exchange of property other
than cash, be deemed to have been made in an original principal or capital
amount equal to the fair value of such property at the time of such Investment,
as determined in good faith by the Borrower.
"Issuance Request" means a Letter of Credit request and certificate duly
executed by an Authorized Officer of the Borrower, substantially in the form of
Exhibit B-2 hereto.
"Issuer" means Scotiabank in its capacity as issuer of the Letters of
Credit, together with each other Person as shall have subsequently been
appointed as the successor Issuer in accordance with Section 9.4. At the request
of Scotiabank or such successor Issuer, another Lender with a Revolving Loan
Commitment or an Affiliate of Scotiabank may issue one or more Letters of Credit
hereunder and shall be deemed to be the Issuer with respect to such Letters of
Credit.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"KSL" is defined in the preamble.
"Lender Assignment Agreement" means a lender assignment agreement
substantially in the form of Exhibit H hereto.
"Lender Default" means, as a result of the appointment of a receiver or
conservator with respect to any Lender, at the direction or request of any
regulatory agency or authority, either (a) the refusal or failure (which has not
been retracted or cured) of such Lender to make available its portion of any
Borrowing or to fund its portion of any unreimbursed payment under Section 2.6.1
or (b) such Lender having notified the Administrative Agent and/or the Borrower
that it does not intend to comply with its obligations under Section 2.1 or
under Section 2.6.1.
"Lenders" is defined in the preamble and, in addition, shall include any
Eligible Assignee that becomes a Lender pursuant to Section 10.11.1.
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"Lender's Environmental Liability" means any and all losses, liabilities,
obligations, penalties, claims, litigation, demands, defenses, costs, judgments,
suits, proceedings, damages (including consequential damages), disbursements or
expenses of any kind or nature whatsoever (including reasonable attorneys' fees
at trial and appellate levels and experts' fees and disbursements and expenses
incurred in investigating, defending against or prosecuting any litigation,
claim or proceeding) which may at any time be imposed upon, incurred by or
asserted or awarded against any Indemnified Party in connection with or arising
from:
(a) any Hazardous Material on, in, under or affecting all or any
portion of any property of the Borrower or any of its Subsidiaries, the
groundwater thereunder, or any surrounding areas thereof to the extent
caused by Releases from the Borrower's or any of the Borrower's
Subsidiaries' or any of their respective predecessors' properties;
(b) any misrepresentation, inaccuracy or breach of any warranty,
contained or referred to in Section 6.12;
(c) any violation or claim of violation by the Borrower or any of
its Subsidiaries of any Environmental Laws (including any Environmental
Claim); or
(d) the imposition of any lien for damages caused by or the recovery
of any costs for the cleanup, release or threatened release of Hazardous
Material by the Borrower or any of its Subsidiaries, or in connection with
any property owned or formerly owned by the Borrower or any of its
Subsidiaries.
"Letter of Credit" is defined in Section 2.1.2.
"Letter of Credit Commitment" means, with respect to the Issuer, the
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 and,
with respect to each of the other Lenders that has a Revolving Loan Commitment,
the obligations of each such Lender to participate in such Letters of Credit
pursuant to Section 2.6.1.
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"Letter of Credit Commitment Amount" means, on any date, a maximum amount
of $20,000,000, as such amount may be permanently reduced from time to time
pursuant to Section 2.2.
"Letter of Credit Outstandings" means, on any date, an amount equal to the
sum of
(a) the then aggregate amount which is undrawn and available under
all issued and outstanding Letters of Credit,
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"Leverage Ratio" means, as of the last day of any Fiscal Quarter, the
ratio of
(a) Total Funded Debt (net of unrestricted cash of the Borrower and
its Restricted Subsidiaries) outstanding on the last day of such Fiscal
Quarter
to
(b) Adjusted EBITDA of the Borrower and its Restricted Subsidiaries
computed for the period consisting of such Fiscal Quarter and each of the
three immediately preceding Fiscal Quarters (provided that, with respect
to any Restricted Subsidiary created or acquired at any time during such
period, Adjusted EBITDA of such Restricted Subsidiary shall be determined
on a pro forma basis as if such Restricted Subsidiary were created or
acquired on the first day of such period);
provided, however, that in computing the Leverage Ratio for
(c) the second Fiscal Quarter of the 1997 Fiscal Year, the amount
set forth in clause (b) above shall be determined by reference to Adjusted
EBITDA of the Borrower and its Restricted Subsidiaries for such Fiscal
Quarter, multiplied by four;
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(d) the third Fiscal Quarter of the 1997 Fiscal Year, the amount set
forth in clause (b) above shall be determined by reference to Adjusted
EBITDA of the Borrower and its Restricted Subsidiaries for such Fiscal
Quarter and the immediately preceding Fiscal Quarter, multiplied by two;
and
(e) the fourth Fiscal Quarter of the 1997 Fiscal Year, the amount
set forth in clause (b) above shall be determined by reference to Adjusted
EBITDA of the Borrower and its Restricted Subsidiaries for such Fiscal
Quarter and the two immediately preceding Fiscal Quarters, multiplied by
4/3.
"LIBO Rate" means, with respect to each day during each Interest Period
pertaining to a LIBO Rate Loan, the rate of interest per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Telerate
Page 3750 as of 11:00 a.m., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate does not appear
on Telerate Page 3750, "LIBO Rate" for the purposes of this paragraph shall be
determined by reference to such other publicly available service for displaying
eurodollar rates as may be agreed upon by the Agents and the Borrower or, in the
absence of such agreement, "LIBO Rate" for the purposes of this paragraph shall
instead be the rate per annum equal to the arithmetic average of the respective
rates notified to the Administrative Agent by each of the Reference Lenders as
the rate at which such Reference Lender is offered Dollar deposits at or about
11:00 a.m., London time, two Business Days prior to the beginning of such
Interest Period, in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its LIBO Rate Loans are
then being conducted for delivery.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such Lender's "LIBOR Office" below its name in Annex I hereto or
as set forth in a Lender Assignment Agreement, or such other office of a Lender
as designated from
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time to time by notice from such Lender to the Borrower and the Administrative
Agent, whether or not outside the United States, which shall be making or
maintaining LIBO Rate Loans of such Lender hereunder.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, charge, lien (statutory or other), escrow or similar encumbrance
of any kind, or any other type of similar preferential arrangement (including
any agreement to give any of the foregoing, any conditional sale or other title
retention agreement or any lease in the nature thereof).
"Loan Documents" collectively means this Agreement, the Notes (if any),
the Letters of Credit, the Pledge Agreement, the Guaranty, each Borrowing
Request, each Issuance Request and the Fee Letter.
"Loans" means, as the context may require, a Revolving Loan, a Term A
Loan, a Term B Loan or a Swing Line Loan, of any type.
"Material Adverse Change" means any change in the business, assets,
operations, properties or financial condition of the Borrower and its Restricted
Subsidiaries taken as a whole that would materially adversely affect the ability
of the Borrower and the other Obligors taken as a whole to perform their
obligations under this Agreement and the other Loan Documents taken as a whole.
"Material Adverse Effect" means a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower
and its Restricted Subsidiaries taken as a whole that would materially adversely
affect (a) the ability of the Borrower and the other Obligors taken as a whole
to perform their obligations under this Agreement and the other Loan Documents
taken as a whole or (b) the rights and remedies of the Administrative Agent and
the Lenders under this Agreement and the other Loan Documents taken as a whole.
"Material Restricted Subsidiary" means, at any time, each Restricted
Subsidiary having at such time either (a) net sales (on a consolidated basis,
including each of its Subsidiaries that
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constitute Restricted Subsidiaries, but excluding revenues received by any
Restricted Subsidiary from the Borrower or any other Restricted Subsidiary) for
the applicable Test Period in excess of 5% of the net sales of the Borrower and
its Restricted Subsidiaries for such Test Period or (b) total assets (on a
consolidated basis, including each of its Subsidiaries that constitute
Restricted Subsidiaries), as of the last day of the preceding Fiscal Quarter,
constituting in excess of 5% of the total assets of the Borrower and its
Restricted Subsidiaries as of such day, in each case, based upon the Borrower's
most recent annual or quarterly financial statements delivered to the
Administrative Agent under Section 7.1.1 in accordance with GAAP (it being
acknowledged and understood that, in the event the determination of whether a
Restricted Subsidiary is a Material Restricted Subsidiary is to be made on or
about the date such Restricted Subsidiary was created or acquired, such
determination shall be made on a pro forma basis as if such Restricted
Subsidiary were a Restricted Subsidiary at the commencement of such Test Period
for purposes of clause (a) above and on the last day of such Fiscal Quarter for
purposes of clause (b) above; provided, however, that, notwithstanding anything
to the contrary in the foregoing, if, at any time, "Material Restricted
Subsidiaries" as defined above, taken together with the Borrower, on a
consolidated basis, account for less than 80% of Adjusted EBITDA of the Borrower
and its Restricted Subsidiaries for the applicable Test Period based upon the
Borrower's most recent annual or quarterly financial statements delivered to the
Administrative Agent pursuant to Section 7.1.1, then the term "Material
Restricted Subsidiaries" shall be deemed to include such number of the largest
(pursuant to the foregoing criteria) Restricted Subsidiaries as is sufficient to
cause "Material Restricted Subsidiaries" to account for at least 80% of such
Adjusted EBITDA as set forth above.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan," within the meaning of
Section 4001(a)(3) of ERISA, with respect to which the Borrower or any ERISA
Affiliate may have any liability.
"NAIC" means the National Association of Insurance Commissioners or any
successor thereto with similar authority.
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"Net Disposition Proceeds" means, as to any Disposition by a Person (other
than a Disposition permitted pursuant to clause (a) of Section 7.2.7), proceeds
in cash as and when received by such Person, net of (a) the costs and expenses
relating to such Disposition, (b) the amount of all taxes paid or reasonably
estimated to be payable by such Person in connection therewith, but Net
Disposition Proceeds shall include the excess, if any, of the estimated taxes
payable in connection with such Disposition over the actual amount of taxes
paid, immediately after the payment of such taxes, (c) amounts required to be
applied to repay principal, interest and prepayment premiums and penalties on
Indebtedness secured by a Lien on the asset which is the subject of such
Disposition, and (d) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities (other than any taxes deducted
pursuant to clause (b) above) associated with the assets sold or disposed of and
retained by the Borrower or any of its Restricted Subsidiaries (provided that
the amount of any subsequent reduction of such reserve (other than in connection
with a payment in respect of any such liability) shall be deemed to be Net
Disposition Proceeds realized on the date of such reduction).
"Net Income" means, for any period, the net income (or loss) included in
accordance with GAAP as such on the consolidated financial statements of the
Borrower and its Restricted Subsidiaries for such period.
"Net Issuance Proceeds" means, as to any issuance of indebtedness for
borrowed money or incurrence of Capitalized Lease Liabilities by any Person,
cash proceeds received by such Person in connection therewith, net of all costs
and expenses paid in connection therewith.
"Non-Defaulting Lender" means and includes each Lender other than a
"Defaulting Lender".
"Non-Performing Lender" means any Lender that either (a) refuses or fails
(which refusal or failure has not been retracted or cured) to make available its
portion of any Borrowing or to fund its portion of any unreimbursed payment
under Section 2.6.1 or (b) has notified the Administrative Agent and/or the
Borrower
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that it does not intend to comply with its obligations under Section 2.1 or
under Section 2.6.1.
"Non-U.S. Lender" has the meaning specified in Section 4.6(d).
"Non-U.S. Participant" means a Participant that is not incorporated or
organized in or under the laws of the United States or a state thereof.
"Note" means, as the context may require, a Revolving Note, a Term A Note,
a Term B Note or a Swing Line Note.
"Obligations" means all monetary obligations (whether absolute or
contingent, matured or unmatured, direct or indirect, choate or inchoate, sole,
joint, several or joint and several, due or to become due, heretofore or
hereafter contracted or acquired) of the Borrower and each other Obligor to any
Lender or Issuer or Agent arising under this Agreement, any Rate Protection
Agreement, the Notes, the Letters of Credit and each other Loan Document.
"Obligor" means, as the context may require, the Borrower, each Restricted
Subsidiary and any other Person (other than any Agent, the Issuer or any Lender)
to the extent such Person is obligated under this Agreement or any other Loan
Document.
"Ordinary Capital Expenditures" means, for any period, the lesser of (a)
Capital Expenditures actually made during such period and (b) an amount equal to
3.5% of Consolidated Gross Revenues for such period.
"Organic Document" means, relative to any Obligor, as applicable, its
certificate of incorporation, by-laws, certificate of partnership, partnership
agreement, certificate of formation or limited liability agreement and any
certificate of designations or similar instrument relating to the rights of
preferred shareholders of such Person.
"Other Taxes" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or
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from the execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Document.
"Participant" is defined in Section 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA (other than a Multiemployer Plan) with respect to
which the Borrower or any ERISA Affiliate may have any liability.
"Percentage" means, relative to any Lender, the applicable percentage
relating to Revolving Loans, Term A Loans or Term B Loans, as the case may be,
as set forth below its name in Annex I hereto under the applicable column
heading or as set forth in a Lender Assignment Agreement under the applicable
column heading, as such percentage may be adjusted from time to time pursuant to
Lender Assignment Agreement(s) executed by such Lender and the Eligible
Assignee(s) and delivered pursuant to Section 10.11.1. A Lender shall not have
any Commitment to make Revolving Loans, Term A Loans or Term B Loans (as the
case may be) if its percentage under the respective column heading is zero (0%).
"Permitted Acquisition" is defined in clause (i) of Section 7.2.5.
"Person" means any natural person, corporation, limited liability company,
partnership, joint venture, joint stock company, firm, association, trust or
unincorporated organization, government, governmental agency, court or any other
legal entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making or is obligated to make contributions and includes any Pension Plan.
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"Pledge Agreement" means the Pledge Agreement executed and delivered by
the Borrower, substantially in the form of Exhibit F hereto, as amended,
supplemented, amended and restated or otherwise modified.
"Quarterly Payment Date" means the last day of each January, April, July
and October, or, if any such day is not a Business Day, the next succeeding
Business Day.
"Rate Protection Agreement" means, collectively, any interest rate swap,
cap, collar or similar agreement entered into by the Borrower pursuant to the
terms of this Agreement under which the counterparty to such agreement is (or at
the time such Rate Protection Agreement was entered into, was) a Lender or an
Affiliate of a Lender.
"Reference Lenders" means Scotiabank and Bank of America Illinois.
"Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2.
"Register" is defined in Section 10.11.1(c).
"Reimbursement Obligation" is defined in Section 2.6.3.
"Rentals" means, for any period and determined in accordance with GAAP,
all fixed payments made by the Borrower or any of its Restricted Subsidiaries,
as lessee or sublessee under any lease of real or personal property (including
as such all payments that the Borrower or any of its Restricted Subsidiaries, as
the case may be, is obligated to make to the lessor on termination of the lease
or surrender of the property), but shall be exclusive of any amounts required to
be paid by the Borrower or any such Restricted Subsidiary (whether or not
designated as rents or additional rents) on account of maintenance, repairs,
insurance, taxes, assessments and similar charges.
"Replaced Lender" is defined in Section 4.4.
"Replacement Lender" is defined in Section 4.4.
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"Required Lenders" means, at any time,
(a) prior to the date of the making of the initial Credit Extension
hereunder, Non-Defaulting Lenders having a majority of the Commitments,
taken as a whole, of the Non- Defaulting Lenders); and
(b) on and after Closing Date, Non-Defaulting Lenders having or
holding a majority of the sum (without duplication) of the aggregate
outstanding principal amount of the Loans, the aggregate amount of the
Letter of Credit Outstandings and the unfunded amount of the Revolving
Loan Commitment Amount, in each case, taken as a whole, of the
Non-Defaulting Lenders).
"Required Revolving Lenders" means, at any time, Non-Defaulting Lenders
having or holding a majority of the sum (without duplication) of the aggregate
outstanding principal amount of the Revolving Loans and Swing Line Loans, the
aggregate amount of the Letter of Credit Outstandings and the unfunded amount of
the Revolving Loan Commitment Amount, in each case, taken as a whole, of the
Non-Defaulting Lenders.
"Required Term Lenders" means, at any time,
(a) prior to the date of the making of the initial Credit Extension
hereunder, Non-Defaulting Lenders having a majority of the Term A Loan
Commitment and the Term B Loan Commitment, taken as a whole, of the
Non-Defaulting Lenders; and
(b) on and after Closing Date, Non-Defaulting Lenders holding a
majority of the aggregate outstanding principal amount of the Term Loans,
taken as a whole, of the Non- Defaulting Lenders.
"Requirement of Law" means, as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject.
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"Responsible Officer" means, with respect to any Person, its chief
executive officer, its president or any vice president, managing director, chief
financial officer, treasurer, controller or other officer thereof having
substantially the same authority and responsibility.
"Restricted Subsidiary" means each Subsidiary of the Borrower other than
an Unrestricted Subsidiary.
"Revolving Loan" is defined in Section 2.1.1.
"Revolving Loan Commitment" means, relative to any Lender, such Lender's
obligation (if any) to make Revolving Loans pursuant to clause (a) of Section
2.1.1.
"Revolving Loan Commitment Amount" means, on any date, $175,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Revolving Loan Commitment Termination Date" means the earliest of
(a) April 30, 1997 (if the initial Credit Extension has not occurred
on or prior to such date);
(b) the Business Day immediately preceding April 30, 2004 (i.e., the
seven year anniversary date of the Closing Date);
(c) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section 2.2; and
(d) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding clause (c) or (d),
the Revolving Loan Commitments shall terminate automatically and without any
further action.
"Revolving Note" means a promissory note, if any, executed by the Borrower
and payable to any Lender, in the form of
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Exhibit A-1 hereto (as such promissory note may be amended, endorsed or
otherwise modified from time to time), evidencing the aggregate Indebtedness of
the Borrower to such Lender resulting from outstanding Revolving Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
"S&P" means Standard & Poor's Rating Services.
"Scotiabank" is defined in the preamble.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Indenture" means the Indenture dated as of April 30,
1997, between the Borrower and First Trust of New York, National Association, as
trustee, pursuant to which the Senior Subordinated Notes were issued.
"Senior Subordinated Notes" means, collectively, the 10 1/4% Senior
Subordinated Notes due 2007 of the Borrower issued pursuant to the Senior
Subordinated Indenture.
"Specified Real Properties" means all or any part of the real property
listed on Schedule II hereto, including any fixtures or improvements thereon.
"Stated Amount" of each Letter of Credit means the total amount available
to be drawn under such Letter of Credit upon the issuance thereof, as such
amount may be amended from time to time.
"Stated Expiry Date" is defined in Section 2.6.
"Stated Maturity Date" means
(a) with respect to all Swing Line Loans and Revolving Loans, April
30, 2004 (i.e., the seven year anniversary date of the Closing Date);
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(b) with respect to all Term A Loans, April 30, 2005 (i.e., the
eight year anniversary date of the Closing Date); and
(c) with respect to all Term B Loans, April 30, 2006 (i.e., the nine
year anniversary date of the Closing Date).
"Subordinated Debt" means the unsecured Indebtedness of the Borrower
evidenced by the Senior Subordinated Indenture and the Senior Subordinated
Notes.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which more than 50% of the outstanding
capital stock (or other ownership interest) having ordinary voting power to
elect a majority of the board of directors, managers or other voting members of
the governing body of such entity (irrespective of whether at the time capital
stock (or other ownership interest) of any other class or classes of such entity
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned by such Person, by such Person and one or
more other Subsidiaries of such Person, or by one or more other Subsidiaries of
such Person. Unless the context otherwise specifically requires, the term
"Subsidiary" shall be a reference to a Subsidiary of the Borrower.
"Supermajority Revolving Lenders" means, at any time, Non-Defaulting
Lenders having or holding at least 66-2/3% of the sum (without duplication) of
the aggregate outstanding principal amount of the Revolving Loans and the Swing
Line Loans, the aggregate amount of the Letter of Credit Outstandings and the
unfunded amount of the Revolving Loan Commitment Amount, in each case, taken as
a whole, of the Non-Defaulting Lenders.
"Supermajority Term A and B Lenders" means, at any time,
(a) prior to the date of the making of the initial Credit Extension
hereunder, Non-Defaulting Lenders having at least 66-2/3% of the Term A
Loan Commitment and Term B Loan Commitment, taken as a whole, of the
Non-Defaulting Lenders; and
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(b) on and after the Closing Date, Non-Defaulting Lenders having or
holding at least 66-2/3% of the aggregate outstanding principal amount of
the Term Loans, taken as a whole, of the Non-Defaulting Lenders.
"Swing Line Lender" means, subject to the terms of this Agreement,
Scotiabank, its successors and assigns.
"Swing Line Loan" is defined in clause (b) of Section 2.1.1.
"Swing Line Loan Commitment" is defined in clause (b) of Section 2.1.1.
"Swing Line Loan Commitment Amount" means, on any date, $10,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Swing Line Note" means a promissory note, if any, executed by the
Borrower and payable to the Swing Line Lender pursuant to clause (b) of Section
2.7, in the form of Exhibit A-4 hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to the Swing Line Lender resulting from outstanding
Swing Line Loans, and also means all other promissory notes accepted from time
to time in substitution therefor or renewal thereof.
"Syndication Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Syndication
Agent pursuant to Section 9.4.
"Tax Sharing Agreement" means that certain Tax Sharing Agreement, dated as
of April 30, 1997, by and between KSL and each of its Affiliates parties
thereto.
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, respectively, taxes imposed on any Lender or the
Administrative Agent as a result of a present or former connection between such
Lender or the Administrative Agent and
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the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from such Lender or the Administrative Agent
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement).
"Telerate Page 3750" means the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on the service or
such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association interest settlement rates for Dollar deposits).
"Term A Loan" is defined in clause (a) of Section 2.1.3.
"Term A Loan Commitment" means, relative to any Lender, such Lender's
obligation (if any) to make Term A Loans pursuant to clause (a) of Section
2.1.3.
"Term A Loan Commitment Amount" means, on any date, $50,000,000.
"Term A Loan Commitment Termination Date" means the earliest of
(a) April 30, 1997 (if the Term A Loans have not been made on or
prior to such date);
(b) the Closing Date (immediately after the making of the Term A
Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (b) or (c), the Term A Loan
Commitments shall terminate automatically and without any further action.
"Term A Note" means a promissory note, if any, executed by the Borrower
and payable to any Lender, in the form of Exhibit A-2 hereto (as such promissory
note may be amended,
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endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from outstanding Term A
Loans, and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"Term B Loan" is defined in clause (b) of Section 2.1.3.
"Term B Loan Commitment" means, relative to any Lender, such Lender's
obligation (if any) to make Term B Loans pursuant to clause (b) of Section
2.1.3.
"Term B Loan Commitment Amount" means, on any date, $50,000,000.
"Term B Loan Commitment Termination Date" means the earliest of
(a) April 30, 1997 (if the Term B Loans have not been made on or
prior to such date);
(b) the Closing Date (immediately after the making of the Term B
Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (b) or (c), the Term B Loan
Commitments shall terminate automatically and without any further action.
"Term B Note" means a promissory note, if any, executed by the Borrower
and payable to any Lender, in the form of Exhibit A-3 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Term B Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"Term Loans" means, collectively, the Term A Loans and the Term B Loans.
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"Test Period" means, for any determination under this Agreement at any
time, the four consecutive Fiscal Quarters of the Borrower then last ended.
"Total Funded Debt" means, on any date, the outstanding principal amount
of all Indebtedness of the Borrower and its Restricted Subsidiaries of the type
referred to in clause (a) and clause (c), and unreimbursed drawings in respect
of Indebtedness described in clause (b), in each case of the definition of
"Indebtedness" (exclusive of intercompany Indebtedness between the Borrower and
any of its Subsidiaries or between any Subsidiaries of the Borrower).
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"U.C.C." means the Uniform Commercial Code as from time to time in effect
in the State of New York.
"UCP" is defined in Section 2.6.6.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Plan pursuant to Section 412 of the Code for the applicable plan year.
"United States" or "U.S." means the United States of America, its fifty
states and the District of Columbia.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Borrower that is
first created or acquired by the Borrower or a Restricted Subsidiary after the
Closing Date to the extent the acquisition price therefor is funded by the
Borrower or such Restricted Subsidiary in accordance with clause (j) of Section
7.2.5 and such Subsidiary is designated by the Borrower as an Unrestricted
Subsidiary in a written notice delivered to the Agents prior to or reasonably
promptly after such creation or acquisition or (b) any Subsidiary of the
Borrower that is first created or acquired after the Closing Date by another
Unrestricted Subsidiary created or acquired in accordance with the provisions of
this definition or (c) any Restricted
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Subsidiary existing on the Closing Date which is subsequently re-designated as
an Unrestricted Subsidiary by the Borrower in a written notice to the Agents,
provided that such re-designation shall be deemed to be an Investment pursuant
to clause (j) of Section 7.2.5 on the date of such re-designation in an
Unrestricted Subsidiary in an amount equal to the sum of (x) the net worth of
such re-designated Restricted Subsidiary immediately prior to such
re-designation (such net worth to be calculated without regard to any Guaranty
provided by such re-designated Restricted Subsidiary) and (y) the aggregate
principal amount of any Indebtedness owed by such re-designated Restricted
Subsidiary to the Borrower or any other Restricted Subsidiary immediately prior
to such re-designation, all calculated, except as set forth in the parenthetical
to the foregoing clause (x), on a consolidated basis in accordance with GAAP;
provided that in any case (in the case of either clause (a), (b) or (c) above),
the provisions of clause (j) of Section 7.2.5 are not breached in connection
with such creation or acquisition or re-designation, and that promptly after the
date of such creation or acquisition or re-designation, as applicable, such
Subsidiary and the Borrower enter into a tax sharing agreement containing terms
that, in the reasonable judgment of the Agents, provide for appropriate
allocation of tax liabilities and benefits. Notwithstanding anything to the
contrary herein, (i) a Restricted Subsidiary cannot be a Subsidiary of an
Unrestricted Subsidiary, (ii) an Unrestricted Subsidiary cannot be designated as
a Restricted Subsidiary except with prior written notice to the Agents and as
otherwise provided in clause (i) of Section 7.2.5, (iii) at the time of any
written re-designation by the Borrower to the Agents of any Unrestricted
Subsidiary as a Restricted Subsidiary, the Unrestricted Subsidiary so
re-designated shall no longer constitute an Unrestricted Subsidiary, (iv) no
Unrestricted Subsidiary may be re-designated as a Restricted Subsidiary if a
Default or Event of Default has occurred and is continuing or would result from
such re-designation, (v) no Restricted Subsidiary may be re-designated as an
Unrestricted Subsidiary if a Default or Event of Default has occurred and is
continuing or would result from such re-designation and (vi) in order for any
Unrestricted Subsidiary to be permitted to be created or acquired or to continue
to exist, no recourse whatsoever may be had to the Borrower or any of its
Restricted Subsidiaries or any of their respective properties in respect of
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any obligations or liabilities (contingent or otherwise) of such Unrestricted
Subsidiary except to the extent the aggregate maximum amount of such recourse
constitutes an Investment made and permitted pursuant to clause (j) of Section
7.2.5.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"wholly-owned" means, with respect to any direct or indirect Subsidiary,
any Subsidiary all of the outstanding Capital Stock of which is owned directly
or indirectly by the Borrower.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in each other Loan Document, the Disclosure
Schedule, or any Borrowing Request, Issuance Request, Continuation/ Conversion
Notice, Compliance Certificate, Closing Date Certificate, solvency certificate,
Lender Assignment Agreement, notice or other communications delivered from time
to time in connection with this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document, or in
any Compliance Certificate or solvency certificate, shall be interpreted, all
accounting determinations and computations hereunder or thereunder (including
under Section 7.2.4) shall be made, and all financial statements required to be
delivered hereunder or thereunder shall
be prepared, in accordance with, those generally accepted accounting principles
("GAAP") applied in the preparation of the financial statements referred to in
clause (a) of Section 5.1.5;
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provided, however, that at any time the computations determining compliance with
Section 7.2 utilize accounting principles different from those utilized in the
financial statements furnished to the Lenders pursuant to Section 7.1.1, such
financial statements shall be accompanied by reconciliation worksheets. Unless
otherwise expressly provided, all financial covenants and defined financial
terms shall be computed on a consolidated basis for the Borrower and its
Restricted Subsidiaries, in each case without duplication.
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
SECTION 2.1. Commitments. On the terms and subject to the conditions of
this Agreement (including Section 2.1.4, Section 2.1.5 and Article V),
(a) each Lender severally agrees to make Loans (other than Swing
Line Loans) pursuant to the Commitments and the Swing Line Lender
severally agrees to make Swing Line Loans pursuant to the Swing Line Loan
Commitment, in each case as described in this Section 2.1; and
(b) the Issuer severally agrees that it will issue Letters of Credit
pursuant to Section 2.1.2, and each other Lender that has a Revolving Loan
Commitment severally agrees that it will purchase participation interests
in such Letters of Credit pursuant to Section 2.6.1.
SECTION 2.1.1. Revolving Loan Commitment and Swing Line Loan Commitment.
(a) From time to time on any Business Day occurring from and after the Closing
Date but prior to the Revolving Loan Commitment Termination Date, each Lender
that has a Revolving Loan Commitment will make loans (relative to such Lender,
its "Revolving Loans") to the Borrower equal to such Lender's Percentage of the
aggregate amount of each Borrowing of the Revolving Loans requested by the
Borrower to be made on such day. The Commitment of each such Lender described in
this Section 2.1.1 is herein referred to as its "Revolving Loan
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Commitment". On the terms and subject to the conditions hereof, the Borrower may
from time to time borrow, prepay and reborrow the Revolving Loans.
(b) From time to time on any Business Day occurring from and after the
Closing Date but prior to the Revolving Loan Commitment Termination Date, the
Swing Line Lender will make loans (the "Swing Line Loans") to the Borrower equal
to the principal amount of the Swing Line Loan requested by the Borrower to be
made on such day. The Commitment of the Swing Line Lender described in this
clause (b) is herein referred to as its "Swing Line Loan Commitment". On the
terms and subject to the conditions hereof, the Borrower may from time to time
borrow, prepay and reborrow Swing Line Loans.
SECTION 2.1.2. Letter of Credit Commitment. From time to time on any
Business Day occurring from and after the Closing Date but prior to the
Revolving Loan Commitment Termination Date, the Issuer will
(a) issue one or more standby or documentary letters of credit (the
"Letters of Credit") for the account of the Borrower in the Stated Amount
requested by the Borrower on such day; or
(b) extend the Stated Expiry Date of an existing standby Letter of
Credit previously issued hereunder to a date not later than the earlier of
(x) the Revolving Loan Commitment Termination Date and (y) one year from
the date of such extension.
SECTION 2.1.3. Term Loan Commitment. In a single Borrowing (which shall be
a Business Day) occurring on or prior to the applicable Commitment Termination
Date, each Lender that has a Term A Loan Commitment or a Term B Loan Commitment,
as applicable,
(a) will make loans (relative to such Lender, its "Term A Loans") to
the Borrower equal to such Lender's Percentage of the aggregate amount of
the Borrowing of Term A Loans requested by the Borrower to be made on such
day (with the commitment of each such Lender described in
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this clause (a) herein referred to as its "Term A Loan Commitment"); and
(b) will make loans (relative to such Lender, its "Term B Loans") to
the Borrower equal to such Lender's Percentage of the aggregate amount of
the Borrowing of Term B Loans requested by the Borrower to be made on such
day (with the commitment of each such Lender described in this clause (b)
herein referred to as its "Term B Loan Commitment").
No amounts paid or prepaid with respect to Term A Loans or Term B Loans may be
reborrowed.
SECTION 2.1.4. Lenders Not Permitted or Required to Make Loans. No Lender
shall be permitted or required to make any Loan if, after giving effect thereto,
the aggregate outstanding principal amount of
(a) all Revolving Loans
(i) of all Lenders with a Revolving Loan Commitment and the
outstanding principal amount of all Swing Line Loans, together with
the aggregate amount of all Letter of Credit Outstandings, would
exceed the then existing Revolving Loan Commitment Amount; or
(ii) of such Lender with a Revolving Loan Commitment, together
with such Lender's Percentage of the aggregate amount of all Letter
of Credit Outstandings, and such Lender's Percentage of the
outstanding principal amount of all Swing Line Loans, would exceed
such Lender's Percentage of the then existing Revolving Loan
Commitment Amount;
(b) all Term A Loans or all Term B Loans (as the case may be)
(i) of all Lenders made on the Closing Date would exceed the
Term A Loan Commitment Amount (in the case of Term A Loans) or the
Term B Loan Commitment Amount (in the case of Term B Loans); or
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(ii) of such Lender with a Term A Loan Commitment or with a
Term B Loan Commitment, as applicable, made on the Closing Date
would exceed such Lender's Percentage of the Term A Loan Commitment
Amount (in the case of Term A Loans) or the Term B Loan Commitment
Amount (in the case of Term B Loans); or
(c) all Swing Line Loans would exceed the then existing Swing Line
Loan Commitment Amount.
SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
Credit. The Issuer shall not be permitted or required to issue any Letter of
Credit if,
(a) after giving effect thereto, (i) the aggregate amount of all
Letter of Credit Outstandings would exceed the Letter of Credit Commitment
Amount or (ii) the sum of the aggregate amount of all Letter of Credit
Outstandings plus the aggregate principal amount of all Revolving Loans
and Swing Line Loans then outstanding would exceed the Revolving Loan
Commitment Amount; or
(b) a Lender Default known to the Issuer exists or the Issuer
becomes aware of any Lender being a Non-Performing Lender, unless the
Issuer has entered into arrangements reasonably satisfactory to it and the
Borrower to eliminate the Issuer's risk with respect to the participation
in Letter of Credit Outstandings by each Defaulting Lender and each
Non-Performing Lender, including cash collateralizing such Defaulting
Lender's (or such Non-Performing Lender's, as the case may be) Percentage
of Letter of Credit Outstandings in respect thereof.
SECTION 2.2. Reduction of the Commitment Amounts. The Commitment Amounts
are subject to reduction from time to time pursuant to this Section 2.2.
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
Business Day occurring after the Effective Date, voluntarily reduce the amount
of the Revolving Loan Commitment Amount, the Swing Line Loan Commitment Amount
or the Letter of Credit Commitment Amount on the Business Day so specified by
the
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Borrower; provided, however, that all such reductions shall require at least
three Business Day's prior notice to the Administrative Agent (and the Swing
Line Lender in the case of a reduction to the Swing Line Commitment Amount) and
shall be permanent, and any partial reduction of any Commitment Amount shall be
in a minimum amount of $1,000,000 and in an integral multiple of $250,000.
SECTION 2.2.2. Mandatory. On each anniversary date of the Closing Date set
forth below, the then Revolving Loan Commitment Amount shall, without any
further action, automatically and permanently be reduced to the amount set forth
opposite such anniversary date (unless on or prior to any such date the then
Revolving Loan Commitment Amount shall have been reduced to a lesser amount, in
which case the Revolving Loan Commitment Amount shall be equal to such lesser
amount):
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Anniversary Date Revolving Loan
of the Closing Date Commitment Amount
------------------- -----------------
three year anniversary date $163,750,000
four year anniversary date $152,500,000
five year anniversary date $137,500,000
six year anniversary date $118,750,000;
provided, however, that on the Revolving Loan Commitment Termination Date, the
Revolving Loan Commitment Amount shall be zero.
SECTION 2.3. Borrowing Procedures. Loans (other than Swing Line Loans)
shall be made by the Lenders in accordance with Section 2.3.1, and Swing Line
Loans shall be made by the Swing Line Lender in accordance with Section 2.3.2.
SECTION 2.3.1. Borrowing Procedure. In the case of other than Swing Line
Loans, by delivering a Borrowing Request to the Administrative Agent on or
before 2:00 p.m., New York City time, on a Business Day, the Borrower may from
time to time irrevocably request, on not less than one Business Day's notice in
the case of Base Rate Loans, or three Business Days' notice in the case of LIBO
Rate Loans, and in either case not more than five Business Days' notice, that a
Borrowing be made, in the case of LIBO Rate Loans, in a minimum amount of
$5,000,000 and an integral multiple of $500,000, in the case of Base Rate Loans,
in a minimum amount of $5,000,000 and an integral multiple of $500,000 or, in
either case, in the unused amount of the applicable Commitment, or, in the case
of Refunded Swing Line Loans, the amount thereof. On the terms and subject to
the conditions of this Agreement, each Borrowing shall be comprised of the type
of Loans, and shall be made on the Business Day, specified in such Borrowing
Request. In the case of other than Swing Line Loans, on or before 12:00 noon
(New York City time) on such Business Day each Lender that has a Commitment to
make the Loans being requested shall deposit with the Administrative Agent same
day funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Administrative
Agent shall specify from time to time by notice to the Lenders.
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To the extent funds are received from the Lenders, the Administrative Agent
shall make such funds available to the Borrower by wire transfer to the accounts
the Borrower shall have specified in its Borrowing Request. No Lender's
obligation to make any Loan shall be affected by any other Lender's failure to
make any Loan.
SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to the Administrative Agent and the Swing Line Lender on or before
12:00 noon, New York City time, on the Business Day the proposed Swing Line Loan
is to be made, the Borrower may from time to time irrevocably request that Swing
Line Loans be made by the Swing Line Lender in an aggregate minimum principal
amount of $250,000 and an integral multiple of $50,000. All Swing Line Loans
shall be made as Base Rate Loans and shall not be entitled to be converted into
LIBO Rate Loans. The proceeds of each Swing Line Loan shall be made available by
the Swing Line Lender, by its close of business on the Business Day telephonic
notice is received by it as provided in this clause (a), to the Borrower by wire
transfer to the account the Borrower shall have specified in its notice
therefor.
(b) If
(i) any Swing Line Loan shall be outstanding for more than five
Business Days;
(ii) any Swing Line Loan is or will be outstanding on a date when
the Borrower requests that a Revolving Loan be made; or
(iii) any Default shall occur and be continuing,
each Lender with a Revolving Loan Commitment (other than the Swing Line Lender)
irrevocably agrees that it will, at the request of the Administrative Agent (on
behalf of, and at the request of, the Swing Line Lender), make a Revolving Loan
(which shall initially be funded as a Base Rate Loan) in an amount equal to such
Lender's Percentage of the aggregate principal amount of all such Swing Line
Loans then outstanding (such outstanding Swing Line Loans being hereinafter
referred to as the "Refunded
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Swing Line Loans"). On or before 11:00 a.m. (New York City time) on the first
Business Day following receipt by each Lender of a request to make Revolving
Loans as provided in the preceding sentence, each such Lender with a Revolving
Loan Commitment shall deposit in an account specified by the Swing Line Lender
the amount so requested in same day funds and such funds shall be applied by the
Swing Line Lender to repay the Refunded Swing Line Loans. At the time the
aforementioned Lenders make the above referenced Revolving Loans the Swing Line
Lender shall be deemed to have made, in consideration of the making of the
Refunded Swing Line Loans, Revolving Loans in an amount equal to its Percentage
of the aggregate principal amount of the Refunded Swing Line Loans. Upon the
making (or deemed making, in the case of the Swing Line Lender) of any Revolving
Loans pursuant to this clause (b), the amount so funded shall become outstanding
under such Lender's Revolving Note and shall no longer be owed under the Swing
Line Note. All interest payable with respect to any Revolving Loans made (or
deemed made, in the case of the Swing Line Lender) pursuant to this clause (b)
shall be appropriately adjusted to reflect the period of time during which the
Swing Line Lender had outstanding Swing Line Loans in respect of which such
Revolving Loans were made. Each Lender's obligation (in the case of Lenders with
a Revolving Loan Commitment) to make the Revolving Loans referred to in this
clause (b) shall be absolute and unconditional and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Swing Line Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default; (iii) any adverse change in the condition (financial
or otherwise) of the Borrower; (iv) the acceleration or maturity of any Loans or
the termination of any Commitment after the making of any Swing Line Loan; (v)
any breach of this Agreement or any other Loan Document by the Borrower or any
Lender; or (vi) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing.
(c) Without in any way limiting the obligation of the Borrower to confirm
in writing any notice it may give hereunder by telephone, the Administrative
Agent or the Swing Line Lender, as the case may be, may act prior to receipt of
written confirmation without liability upon the basis of such telephonic
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notice believed by the Administrative Agent or the Swing Line Lender, as the
case may be, in good faith to be from an Authorized Officer of the Borrower (or
a designee of such Authorized Officer). In each such case the record of the
Administrative Agent or the Swing Line Lender, as the case may be, of the terms
of any such telephonic notice shall be conclusive absent manifest error.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 10:00
a.m., New York City time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than one Business Days' notice in the case of any
Loans that are to be converted into Base Rate Loans, or three Business Days'
notice in the case of any Loans that are to be continued as, or converted into,
LIBO Rate Loans, and in either case not more than five Business Days' notice,
that all, or any portion in an aggregate minimum amount of $5,000,000 and an
integral multiple of $250,000, in the case of any Loans that are to be continued
as, or converted into, LIBO Rate Loans, or an aggregate minimum amount of
$5,000,000 and an integral multiple of $250,000, in the case of any Loans that
are to be converted into Base Rate Loans, be, in the case of Base Rate Loans,
converted into LIBO Rate Loans or be, in the case of LIBO Rate Loans, converted
into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery
of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least
three Business Days (but not more than five Business Days) before the last day
of the then current Interest Period with respect thereto, such LIBO Rate Loan
shall, on such last day, automatically be continued as a LIBO Rate Loan having
an Interest Period of one month); provided, however, that (x) each such
conversion or continuation shall be pro rated among the applicable outstanding
Loans of all Lenders that have made such Loans, and (y) if any Default is in
existence at the applicable time of any proposed continuation of, or conversion
into, any LIBO Rate Loans and the Administrative Agent has, or the Required
Lenders have, determined in its or their sole discretion not to permit such
continuation or conversion and have notified the Borrower telephonically or in
writing thereof, the Borrower may not elect to have a Loan converted into or
continued as a LIBO Rate Loan and any outstanding LIBO Rate Loans shall be
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automatically converted on the last day of the current Interest Period
applicable thereto into a Base Rate Loan.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility; provided, further,
that in no event shall the Borrower be obligated to pay to any Lender any
amounts pursuant to Section 4.1, 4.2, 4.3 or 4.5 that would not have arisen but
for such Lender's election pursuant to the first sentence of this Section (it
being acknowledged and agreed that any change in lending office or other action
taken by a Lender in accordance with Section 4.7 shall not be considered to be
an "election" by such Lender under this Section).
SECTION 2.6. Issuance Procedures. By delivering to the Administrative
Agent an Issuance Request on or before 10:00 a.m., New York City time, on a
Business Day, the Borrower may, from time to time irrevocably request, on not
less than three nor more than ten Business Days' notice, in the case of an
initial issuance of a Letter of Credit for the account of the Borrower, and not
less than three Business Days' prior notice to the date any issued Letter of
Credit containing an "evergreen" or similar automatic extension feature is
scheduled to automatically be extended unless the beneficiary thereof shall have
received notice to the contrary from the Issuer and subject to the Issuer's
right not to extend if the conditions precedent to issuance of such a Letter of
Credit would not be satisfied, in the case of a request for the extension of the
Stated Expiry Date of a standby Letter of Credit, that the Issuer issue, or
extend the Stated Expiry Date of, as the case may be, an irrevocable Letter of
Credit in such form as may be requested by the Borrower and approved by the
Issuer, solely for the purposes described in Section 7.1.10. Each Letter of
Credit shall by its terms be stated to expire on a date (its "Stated Expiry
Date") no later than the earlier to occur of
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(a) in the case of a standby Letter of Credit, (i) the Revolving
Loan Commitment Termination Date or (ii) one year from the date of its
issuance; and
(b) in the case of a documentary Letter of Credit, (i) the Revolving
Loan Commitment Termination Date and (ii) 180 days from the date of its
issuance.
The Issuer will make available to the beneficiary thereof the original of each
Letter of Credit which it issues hereunder.
SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each
Letter of Credit issued by the Issuer pursuant hereto, and without further
action, each Lender (other than the Issuer) that has a Revolving Loan Commitment
shall be deemed to have irrevocably purchased, to the extent of its Percentage
to make Revolving Loans, a participation interest in such Letter of Credit
(including the Contingent Obligation and any Reimbursement Obligation with
respect thereto), and such Lender shall, to the extent of its Revolving Loan
Commitment Percentage, be responsible for reimbursing promptly (and in any event
within one Business Day) the Issuer for Reimbursement Obligations which have not
been reimbursed by the Borrower in accordance with Section 2.6.3. In addition,
such Lender shall, to the extent of its Percentage to make Revolving Loans, be
entitled to receive a ratable portion of the Letter of Credit fees payable
pursuant to Section 3.3.3 with respect to each Letter of Credit (other than the
issuance fees payable to the Issuer of such Letter of Credit pursuant to the
last sentence of Section 3.3.3) and of interest payable pursuant to Section 3.2
with respect to any Reimbursement Obligation. To the extent that any Lender has
reimbursed the Issuer for a Disbursement as required by this Section, such
Lender shall be entitled to receive its ratable portion of any amounts
subsequently received (from the Borrower or otherwise) in respect of such
Disbursement.
SECTION 2.6.2. Disbursements. The Issuer will notify the Borrower and the
Administrative Agent promptly of the presentment for payment of any Letter of
Credit issued by the Issuer, together with notice of the date (the "Disbursement
Date") such payment shall be made (each such payment, a "Disbursement"). Subject
to the terms and provisions of such Letter of Credit and
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this Agreement, the Issuer shall make such payment to the beneficiary (or its
designee) of such Letter of Credit. Prior to 11:00 a.m., New York City time, on
the first Business Day following the Disbursement Date, the Borrower will
reimburse the Administrative Agent, for the account of the Issuer, for all
amounts which the Issuer has disbursed under such Letter of Credit, together
with interest thereon at a rate per annum equal to the rate per annum then in
effect for Base Rate Loans (with the then Applicable Margin for Revolving Loans
accruing on such amount) pursuant to Section 3.2 for the period from the
Disbursement Date through the date of such reimbursement; provided, however,
that unless the Borrower shall have notified the Administrative Agent and the
Issuer prior to such time on the Disbursement date, the Borrower will be deemed
to have requested (and shall deliver a Borrowing Request within one Business Day
of the Disbursement Date confirming) that a Swing Line Loan be made in the
amount of such reimbursement and the Administrative Agent shall so notify the
Swing Line Lender who shall, subject to the conditions set forth herein (except
for the notice, the minimum principal amount and the integral amount
requirements), make a Swing Line Loan in such amount (the proceeds of which will
be wired to the Issuer unless the Issuer and the Swing Line Lender are the same
Person, in which case a book-entry transfer may be made). Without limiting in
any way the foregoing and notwithstanding anything to the contrary contained
herein or in any separate application for any Letter of Credit, the Borrower
hereby acknowledges and agrees that it shall be obligated to reimburse the
Issuer upon each Disbursement of a Letter of Credit.
SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement
Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with
respect to each Disbursement (including interest thereon), and, upon the failure
of the Borrower to reimburse the Issuer, each Lender's (to the extent it has a
Revolving Loan Commitment) obligation under Section 2.6.1 to reimburse the
Issuer, shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower or such Lender, as the case may be, may have or have had against the
Issuer or any such Lender, including any defense based upon the failure of any
Disbursement to conform to the terms of the
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applicable Letter of Credit (if, in the Issuer's good faith opinion, such
Disbursement is determined to be appropriate) or any non-application or
misapplication by the beneficiary of the proceeds of such Letter of Credit;
provided, however, that after paying in full its Reimbursement Obligation
hereunder, nothing herein shall preclude the right of such Lender to commence
any proceeding against the Issuer for any wrongful Disbursement made by the
Issuer under a Letter of Credit as a result of acts or omissions constituting
gross negligence or wilful misconduct as determined by a court of competent
jurisdiction on the part of the Issuer; provided, further, that, in any event,
the Borrower may have a claim against the Issuer, and the Issuer may be liable
to the extent (but only to the extent) of any direct, as opposed to
consequential or exemplary, damages suffered by the Borrower which the Borrower
proves were caused by the Issuer's wilful misconduct or gross negligence as
determined by a court of competent jurisdiction or the Issuer's wilful failure
to pay under any Letter of Credit after the presentation to it by the
beneficiary of a demand for payment strictly complying with the terms and
conditions of such Letter of Credit.
SECTION 2.6.4. Deemed Disbursements. Upon the occurrence of any Default of
the nature described in clauses (a) through (d) of Section 8.1.9 with respect to
the Borrower,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is undrawn
and available under all Letters of Credit issued and outstanding hereunder
shall, without demand upon or notice to the Borrower, be deemed to have
been paid or disbursed by the Issuer under such Letters of Credit
(notwithstanding that such amount may not in fact have been so paid or
disbursed); and
(b) upon notification by the Administrative Agent to the Borrower of
its obligations under this Section, the Borrower shall be immediately
obligated to reimburse the Issuer for the amount deemed to have been so
paid or disbursed by the Issuer.
Any amounts so payable by the Borrower pursuant to this Section shall be
deposited in cash with the Administrative Agent and held
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as collateral security for the Obligations in connection with the Letters of
Credit issued by the Issuer. At such time when the Defaults or Events of Default
giving rise to the deemed disbursements hereunder shall have been cured or
waived, the Administrative Agent shall return to the Borrower all amounts then
on deposit with the Administrative Agent pursuant to this Section which have not
been applied to the satisfaction of such Obligations.
SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and, to
the extent set forth in Section 2.6.1, each Lender with a Revolving Loan
Commitment shall assume all risks of the acts, omissions or misuse of any Letter
of Credit by the beneficiary thereof. The Issuer (except to the extent of its
own gross negligence or wilful misconduct) shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or the proceeds thereof in whole or in part, which may prove to be invalid
or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise;
or
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a Letter
of Credit.
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None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to the Issuer or any Lender with a Revolving Loan
Commitment hereunder. In furtherance and extension and not in limitation or
derogation of any of the foregoing, any action taken or omitted to be taken by
the Issuer in good faith (and not constituting gross negligence or willful
misconduct) shall be binding upon the Borrower and each such Lender, and shall
not put the Issuer under any resulting liability to the Borrower or any such
Lender, as the case may be.
SECTION 2.6.6. Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce ("UCP") most recently at the time of issuance of any Letter of Credit
shall (unless otherwise expressly provided in the Letters of Credit) apply to
such Letter of Credit.
SECTION 2.7. Loan Accounts and Notes. (a) The Loans made by each Lender
and the Letters of Credit issued by the Issuer shall be evidenced by one or more
loan accounts or records maintained by such Lender or the Issuer, as the case
may be, in the ordinary course of business. The loan accounts or records
maintained by the Administrative Agent, the Issuer and each Lender shall be
conclusive absent clearly demonstrable error of the amount of the Loans made by
the Lenders to, and the Letters of Credit issued by the Issuer for the account
of, the Borrower and the interest and payments thereon. Any failure to so record
or any error in doing so shall not, however, limit or otherwise affect the
obligation of the Borrower hereunder to pay any amount owing with respect to the
Loans and the Reimbursement Obligations.
(b) Upon the request of any Lender made through the Administrative Agent,
solely to facilitate the pledge or assignment of its Loans to any Federal
Reserve Bank pursuant to clause (b) of Section 10.11.1, the Loans made by such
Lender may be evidenced by one or more Notes, instead of or in addition to loan
accounts. Each such Lender is irrevocably authorized by the Borrower to endorse
on the schedules annexed to its Note(s) the date, amount and maturity of each
Loan made, continued or converted by it and the amount of each payment of
principal made
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by the Borrower with respect thereto. Each such Lender's record shall be
conclusive absent clearly demonstrable error; provided, however, that the
failure of a Lender to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of the
Borrower hereunder or under any such Note to such Lender.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments; Application.
SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Loan upon the applicable Stated
Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall
or may be made as set forth below.
(a) Voluntary Prepayments. From time to time on any Business Day,
the Borrower may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any
(i) Loans (other than Swing Line Loans); provided, however,
that
(A) any such prepayment of the Term A Loans or Term B
Loans shall be applied to the Term A Loans and/or Term B Loans
as the Borrower shall direct (or, in the absence of any such
direction, pro rata among Term A Loans and Term B Loans), and
subject to such application, shall be made pro rata among Term
A Loans and Term B Loans, as applicable, of the same type and,
if applicable, having the same Interest Period of all Lenders
that have made such Term A Loans or Term B Loans (with the
amounts so allocated to the Term A Loans or the Term B Loans
being applied to the remaining amortization payments for the
Term A Loans and the Term B Loans, as the case may be, in such
amounts
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as the Borrower shall determine) and any such prepayment of
Revolving Loans shall be made pro rata among the Revolving
Loans of the same type and, if applicable, having the same
Interest Period of all Lenders that have made such Revolving
Loans;
(B) all such voluntary prepayments shall require at
least one but no more than five Business Days' prior written
notice to the Administrative Agent; and
(C) all such voluntary partial prepayments shall be, in
the case of LIBO Rate Loans, in an aggregate minimum amount of
$1,000,000 and an integral multiple of $250,000 and, in the
case of Base Rate Loans, in an aggregate minimum amount of
$1,000,000 and an integral multiple of $250,000; and
(ii) Swing Line Loans, provided that
(A) all such voluntary prepayments shall require prior
telephonic notice to the Administrative Agent (which shall
promptly notify the Swing Line Lender) on or before 1:00 p.m.,
New York City time, on the day of such prepayment (such notice
to be confirmed in writing by the Borrower within 24 hours
thereafter); and
(B) all such voluntary partial prepayments shall be in
an aggregate minimum amount of $250,000 and an integral
multiple of $100,000.
(b) Exceeding the Revolving Loan Commitment Amount. On each date
when the sum of (i) the aggregate outstanding principal amount of all
Revolving Loans and Swing Line Loans and (ii) the aggregate amount of all
Letter of Credit Outstandings exceeds the Revolving Loan Commitment Amount
(as it may be reduced from time to time, including pursuant to Sections
2.2 and 3.1), the Borrower shall make a mandatory prepayment of first, all
Swing Line Loans, then,
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all Revolving Loans and, if necessary, give cash collateral to the
Administrative Agent pursuant to an agreement satisfactory to the Agents
to collateralize Letter of Credit Outstandings, in an aggregate amount
equal to such excess.
(c) Scheduled Repayments of Term A Loans. On the Stated Maturity
Date and on each Annual Payment Date, the Borrower shall make a scheduled
repayment of the aggregate outstanding principal amount, if any, of all
Term A Loans in such amount equal to the amount necessary to fully
amortize the Term A Loans by the aggregate annual principal repayment
amount set forth below (or such other amount after giving effect to any
adjustments in respect of any optional and/or mandatory prepayments of the
Term A Loans) opposite each year of amortization set forth below:
Year of
Amortization Annual
from Principal
Closing Date Repayment Amount
------------ ----------------
1 $ 500,000
2 $ 500,000
3 $ 500,000
4 $ 500,000
5 $ 500,000
6 $ 500,000
7 $ 500,000
8 $46,500,000
(d) Scheduled Repayments of Term B Loans. On the Stated Maturity
Date and on each Annual Payment Date, the Borrower shall make a scheduled
repayment of the aggregate outstanding principal amount, if any, of all
Term B Loans in such amount equal to the amount necessary to fully
amortize the Term B Loans by the aggregate annual principal amount set
forth below (or such other amount after giving effect to any adjustments
in respect of any optional and/or mandatory
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prepayments of the Term B Loans) opposite each year of amortization:
Year of
Amortization Annual
from Principal
Closing Date Repayment Amount
------------ ----------------
1 $ 500,000
2 $ 500,000
3 $ 500,000
4 $ 500,000
5 $ 500,000
6 $ 500,000
7 $ 500,000
8 $ 500,000
9 $46,000,000
(e) Asset Dispositions. If the Borrower or any Restricted Subsidiary
shall at any time make a Disposition (other than a Disposition permitted
pursuant to clause (a) or (b) of Section 7.2.7 and other than a
Disposition constituting the Corporate Sale Transaction) for aggregate Net
Disposition Proceeds of $100,000 or more, then (i) the Borrower or such
Restricted Subsidiary may, within 360 days after the receipt by the
Borrower or such Restricted Subsidiary of the Net Disposition Proceeds of
such Disposition, (A) so long as no Event of Default or payment Default
has occurred and is then continuing or would result therefrom (except in
the case where the Borrower or such Restricted Subsidiary is subject to a
definitive agreement that has been duly and fully executed at a time when
no Event of Default or payment Default existed and pursuant to which it is
obligated to use such Net Disposition Proceeds for a purpose permitted by
this clause (e)), reinvest up to 100% of such Net Disposition Proceeds in
the businesses described in Section 7.1.12, (B) prepay the Term Loans
within such 360-day period in an amount equal to such Net Disposition
Proceeds (or a portion thereof) or (C) retain
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the amount of such Net Disposition Proceeds not so applied pending such
application and (ii) to the extent such Net Disposition Proceeds are not
so applied during such 360-day period and the aggregate amount of all such
Net Disposition Proceeds not so applied since the last prepayment made
pursuant to this clause (e) equals or exceeds $1,000,000, the Borrower
shall make a mandatory prepayment of the Term Loans on the Business Day
immediately succeeding the last day of such 360-day period in an aggregate
amount equal to the portion of such Net Disposition Proceeds not so
applied.
(f) Excess Cash Flow. For each Fiscal Year on the last day of which
the Leverage Ratio for such Fiscal Year is more than 4.5 to 1.0, the
Borrower shall, not later than the day on which financial statements for
such Fiscal Year are required to be delivered pursuant to clause (b) of
Section 7.1.1, make a mandatory prepayment of the Term Loans in an
aggregate amount equal to fifty percent (50%) of Excess Cash Flow, if any,
for such Fiscal Year; provided, that the first Fiscal Year in respect of
which such amount shall be required to be so applied shall be the Fiscal
Year ending October 31, 1998.
(g) Indebtedness Issuance. If the Borrower shall, subject to the
written consent of the Required Lenders, issue indebtedness for borrowed
money or incur Capitalized Lease Liabilities not otherwise permitted to be
issued or incurred pursuant to Section 7.2.2, the Borrower shall promptly
upon, and in no event later than five Business Days following, receipt by
the Borrower of Net Issuance Proceeds of such issuance or incurrence, make
a mandatory prepayment of the Term Loans in an aggregate amount equal to
the amount of such Net Issuance Proceeds.
(h) Acceleration of Maturity. Immediately upon any acceleration of
the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section
8.3, the Borrower shall repay all the Loans, unless, pursuant to Section
8.3, only a portion of all the Loans is so accelerated (in which case the
portion so accelerated shall be so prepaid).
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Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.5. No prepayment of
principal of any Revolving Loans or Swing Line Loans pursuant to clause (a) or
(b) of this Section shall cause a reduction in the Revolving Loan Commitment
Amount or the Swing Line Loan Commitment Amount, as the case may be.
SECTION 3.1.2. Application. Amounts prepaid shall be applied as set forth
in this Section.
(a) Subject to clause (b) and clause (c) below, each prepayment or
repayment of the principal of the Loans shall be applied, to the extent of
such prepayment or repayment, as the Borrower shall direct (and in the
absence of such direction, shall be applied first, to the principal amount
thereof being maintained as Base Rate Loans, and second, to the principal
amount thereof being maintained as LIBO Rate Loans with the shortest
Interest Periods remaining); provided, that prepayments or repayments of
LIBO Rate Loans not made on the last day of the Interest Period with
respect thereto, shall be prepaid or repaid subject to the provisions of
Section 4.5 (together with a payment of all accrued interest). In the case
of any mandatory prepayments of Loans are to be made pursuant to clauses
(e), (f) and (g) of Section 3.1.1, at the Borrower's option, exercised in
writing to the Administrative Agent at least one Business Day before such
prepayment is to be distributed, such prepayments pursuant to this Section
3.1.2 shall not be applied to any Loan of a Defaulting Lender, but shall
be allocated ratably to the Loans of the Non-Defaulting Lenders.
(b) Each prepayment of Loans made pursuant to clauses (e), (f) and
(g) of Section 3.1.1 shall be applied
(i) first, until all Term A Loans and Term B Loans have been
paid in full, to a mandatory prepayment of the outstanding principal
amount of all Term A Loans and Term B Loans (with the amount of such
prepayment of the Term A Loans and the Term B Loans being applied to
the remaining Term A Loan or Term B Loan, as the case may be,
amortization payments, pro rata in accordance
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with the amount of each such remaining Term Loan amortization
payment), pro rata among all such outstanding Term A Loans and Term
B Loans, except that (A) with respect to the amount of any such
prepayment that is allocated to the then outstanding Term A Loans or
Term B Loans, the Borrower will, prior to prepaying any such Loans,
give the Administrative Agent telephonic notice (promptly confirmed
in writing) requesting that the Administrative Agent provide notice
of such prepayment to each Lender entitled to receive any portion of
such prepayment, (B) each such Lender will have the right to refuse
any such prepayment by giving written notice of such refusal to the
Borrower within seven Business Days after such Lender's receipt of
notice from the Administrative Agent of such prepayment (and the
Borrower shall not prepay any such Term A Loans or Term B Loans
until such seventh Business Day or such time as the Borrower
receives written notice from such Lender that it consents to such
prepayment, whichever is earlier), (C) 50% of any prepayment so
refused shall be applied pro rata to the remaining Term A Loans and
Term B Loans of Lenders that did not refuse such prepayment pursuant
to subclause (B) above, except that the procedures set forth in
subclauses(A) and (B) above shall be followed with respect to such
additional prepayment application and each such non-refusing Lender
shall have the right to refuse such additional prepayment
application, in which case the amount of such additional prepayment
application refused thereby may be retained by the Borrower, and (D)
the remainder of any prepayment so refused may be retained by the
Borrower; provided, however, that any prepayment made pursuant to
clause (f) of Section 3.1.1 may be applied, at the Borrower's
election, to the Term A Loans and/or the Term B Loans in such
proportions as the Borrower may direct (or, in the absence of any
such direction, pro rata among Term A Loans and Term B Loans) and to
scheduled and unpaid principal installments of the outstanding
principal of such Term A Loans and Term B Loans pro rata in direct
order of maturities, subject to the exception (and subclauses (A)
through (D)
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thereof) set forth above in this clause (b)(i) of Section 3.1.2; and
(ii) second, once all Term A Loans and Term B Loans have been
repaid in full, all prepayments of Loans made pursuant to clauses
(e), (f) and (g) of Section 3.1.1 shall be applied to the repayment
of any outstanding Revolving Loans and a corresponding reduction of
the Revolving Loan Commitment Amount in accordance with Section
2.2.2.
(c) Interest Periods. In lieu of making any payment pursuant to
clause (e), (f) or (g) of Section 3.1.1 in respect of any LIBO Rate Loan
other than on the last day of the Interest Period therefor, so long as no
Default shall have occurred and be continuing, the Borrower at its option
may deposit with the Administrative Agent an amount equal to the amount of
the LIBO Rate Loan to be prepaid and such LIBO Rate Loan shall be repaid
on the last day of the Interest Period therefor in the required amount (it
being understood and agreed that such LIBO Rate Loan shall not be
considered repaid until such last day of such Interest Period). Such
deposit shall be held by the Administrative Agent in a corporate time
deposit account established on terms reasonably satisfactory to the
Administrative Agent, earning interest (for the account of the Borrower)
at the then- customary rate for accounts of such type. Such deposit shall
cash collateralize the Obligations, provided that the Borrower may at any
time direct that such deposit be applied to make the applicable payment
required pursuant to Section 3.1.1, subject to the provisions of Section
4.5.
SECTION 3.2. Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
SECTION 3.2.1. Rates. Subject to the first sentence of Section 2.3.2
regarding telephonic notice, pursuant to an appropriately delivered Borrowing
Request or Continuation/ Conversion Notice, the Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum:
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(a) on that portion maintained from time to time as a Base Rate
Loan, equal to the sum of the Alternate Base Rate from time to time in
effect plus the Applicable Margin; provided that all Swing Line Loans
shall always accrue interest at a rate per annum equal to the higher of
(i) the Alternate Base Rate (for Revolving Loans maintained as Base Rate
Loans) and (ii) the sum of the then effective Alternate Base Rate (for
Revolving Loans maintained as Base Rate Loans) plus the Applicable Margin
(for Revolving Loans maintained as Base Rate Loans) minus the Applicable
Commitment Fee; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate for
such Interest Period plus the Applicable Margin.
All LIBO Rate Loans shall bear interest from and including the first day
of the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBO Rate
Loan.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount of
any Loan or Reimbursement Obligation is due and payable (whether on the Stated
Maturity Date, upon acceleration or otherwise), or after any other monetary
Obligation of the Borrower shall have become due and payable, the Borrower shall
pay, but only to the extent permitted by law, interest (after as well as before
the entry of judgment thereon) on such amounts at a rate per annum equal to the
Alternate Base Rate from time to time in effect plus the Applicable Margin plus
a margin of 2%. Anything herein to the contrary notwithstanding, the obligations
of the Borrower to any Lender hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Lender would be contrary to the provisions of
any law applicable to such Lender limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Lender, and in such
event the Borrower shall pay such Lender interest at the highest rate permitted
by applicable law.
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SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in part,
of principal outstanding on such Loan on the principal amount so paid or
prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Closing Date;
(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, on each date occurring at three-month intervals after the
first day of such Interest Period);
(e) with respect to any Base Rate Loans converted into LIBO Rate
Loans on a day when interest would not otherwise have been payable
pursuant to clause (c), on the date of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of which
is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon
such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this
Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender, for the period (including
any portion thereof when any of its Commitments are suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on the
Closing
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Date and continuing through the applicable Commitment Termination Date, a
commitment fee in an amount equal to the Applicable Commitment Fee, in each case
on such Lender's Percentage of the sum of the average daily unused portion of
the applicable Commitment Amount (net of Letter of Credit Outstandings, in the
case of the Revolving Loan Commitment Amount). All commitment fees payable
pursuant to this Section shall be calculated on a year comprised of 360 days and
payable by the Borrower in arrears on each Quarterly Payment Date, commencing
with the first Quarterly Payment Date following the Closing Date, and on the
Revolving Loan Commitment Termination Date. The making of Swing Line Loans shall
not constitute usage of the Revolving Loan Commitment with respect to the
calculation of commitment fees to be paid by the Borrower to the Lenders.
SECTION 3.3.2. Arrangement and Agency Fees. The Borrower agrees to pay to
the Administrative Agent, for its own account and the account of each Agent (as
the case may be), the fees in the amounts and on the dates set forth in the Fee
Letter.
SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to the
Administrative Agent, for the pro rata account of the Issuer and each other
Lender that has a Revolving Loan Commitment, a Letter of Credit fee in an amount
equal to
(a) with respect to each standby Letter of Credit, a rate per annum
equal to the then Applicable Margin for Revolving Loans maintained as LIBO
Rate Loans, minus 1/8 of 1% per annum, multiplied by the Stated Amount of
each such Letter of Credit; and
(b) with respect to each documentary Letter of Credit, 1 and 1/8%
per annum multiplied by the Stated Amount of each such Letter of Credit,
such fees being payable quarterly in arrears on each Quarterly Payment Date. The
Borrower further agrees to pay to the Issuer (x) quarterly in arrears payable on
each Quarterly Payment Date, an issuance fee as specified in the Fee Letter and
(y) from time to time promptly after demand, the normal issuance, presentation,
amendment and other processing fees, and other standard
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administrative costs and charges of the Issuer relating to Letters of Credit as
from time to time in effect.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrower and the Lenders,
be conclusive and binding on the Borrower) that the introduction of or any
change in or in the interpretation of any law makes it unlawful, or any central
bank or other Governmental Authority asserts that it is unlawful, for such
Lender to make, continue or maintain any Loan as, or to convert any Loan into, a
LIBO Rate Loan, the obligations of such Lender to make, continue or maintain or
to convert any Loan into, a LIBO Rate Loan shall, upon such determination,
forthwith be suspended until such Lender shall notify the Administrative Agent
that the circumstances causing such suspension no longer exist, and all
outstanding LIBO Rate Loans shall automatically convert into Base Rate Loans at
the end of the then current Interest Periods with respect thereto or sooner, if
required by such law or assertion. Each Lender agrees to promptly give notice to
the Administrative Agent and the Borrower when the circumstances causing such
suspension cease to exist.
SECTION 4.2. Deposits Unavailable. If the Required Lenders shall have
determined that (a) Dollar deposits in the relevant amount and for the relevant
Interest Period are neither available to such Required Lenders in the eurodollar
market nor available to them in their respective relevant markets, or (b) by
reason of circumstances affecting the eurodollar market, adequate means do not
exist for ascertaining the interest rate applicable hereunder to LIBO Rate
Loans, then, upon notice from the Administrative Agent to the Borrower and the
Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to
make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans
shall forthwith be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist. Upon receipt of notice from the Administrative Agent that the
Required Lenders are
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unable to determine the LIBO Rate, the Borrower may revoke any Borrowing Request
or Conversion/Continuation Notice then submitted by it. If the Borrower does not
revoke such Borrowing Request or Continuation/Conversion Notice, the Lenders
shall make, convert or continue the Loans, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made, converted or continued as Base Rate Loans instead of LIBO
Rate Loans.
SECTION 4.3. Change of Circumstances. If, after the Effective Date, the
introduction of or any change in or in the interpretation of, or any change in
the application of, any law or any regulation (including Regulation D of the
Board) or guideline issued by any central bank or other Governmental Authority
(whether or not having the force of law), or by NAIC or any other comparable
agency charged with the interpretation or administration thereof or including
any reserve or special deposit requirement or any tax (other than Taxes covered
by Section 4.6 and taxes on a Lender's general income) or any capital
requirement, has, due to a Lender's compliance the effect, directly or
indirectly, of (i) increasing the cost to such Lender of performing its
obligations hereunder (including the making, continuing or maintaining of any
Loans as or converting any Loans into, LIBO Rate Loans); (ii) reducing any
amount received or receivable by such Lender hereunder or its effective return
hereunder or on its capital; or (iii) causing such Lender to make any payment or
to forego any return based on any amount received or receivable by such Lender
hereunder, then upon demand of such Lender to the Borrower through the
Administrative Agent, accompanied by written notice showing in reasonable detail
the basis for calculation of any such amounts, from time to time, the Borrower
shall be obligated to pay such amounts and shall compensate such Lender promptly
after receipt of such notice and demand for any such cost, reduction, payment or
foregone return. Any certificate of a Lender in respect of the foregoing will be
conclusive and binding upon the Borrower, except for clearly demonstrable error.
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SECTION 4.4. Replacement of Lender. If (a) the Borrower receives notice
from any Lender requesting increased costs or additional amounts under Section
4.3 or 4.6, (b) any Lender is affected in the manner described in Section 4.1,
(c) a Lender becomes a Non-Performing Lender or a Defaulting Lender or (d) S&P
or Moody's, after the date that any Person becomes a Lender with a Revolving
Loan Commitment, downgrades the long-term certificate of deposit ratings of such
Lender, and the resulting rating is below BBB- or Baa3, respectively, or the
equivalent, then
(i) in each case, the Borrower shall have the right, so long as no
Event of Default shall have occurred and be continuing and unless, (x) in
the case of clause (a) above, such Lender has removed or cured the
conditions which resulted in the obligation to pay such increased costs or
additional amounts or agreed to waive and otherwise forego any right it
may have to any payments provided for under Section 4.3 or 4.6 in respect
of such conditions or (y) in the case of clause (d) above, such Lender's
rating is upgraded by S&P or Moody's to a rating of at least BBB- or Baa3,
respectively, or the equivalent, and
(ii) in the case of clause (d) above, the Swing Line Lender and the
Issuer shall have the right, but not the obligation,
to replace in its entirety such Lender (the "Replaced Lender"), upon prior
written notice to the Administrative Agent and such Replaced Lender, with one or
more other Eligible Assignee(s) (collectively, the "Replacement Lender")
acceptable to the Administrative Agent and, in the case of clause (a), (b) or
(d) above and in the event the Replaced Lender is a Lender with a Revolving Loan
Commitment, the Swing Line Lender and the Issuer (which acceptance, in each
case, shall not be unreasonably withheld); provided, however, that, at the time
of any replacement pursuant to this Section 4.4, the Replaced Lender and the
Replacement Lender shall enter into (each Replaced Lender hereby unconditionally
agreeing to enter into) one or more Lender Assignment Agreements (appropriately
completed), pursuant to which (A) the Replacement Lender shall acquire all of
the Commitments and outstanding Revolving Loans and Term Loans of, and
participations in Swing Line Loans and Letter of Credit
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Outstandings of, the Replaced Lender and, in connection therewith, shall pay (x)
to the Replaced Lender in respect thereof an amount equal to the sum of (1) an
amount equal to the principal of, and all accrued but unpaid interest on, all
outstanding Loans of the Replaced Lender and (2) an amount equal to all accrued
but theretofore unpaid fees owing to the Replaced Lender pursuant to Section 3.3
and (y) to the Issuer, an amount equal to any portion of the Replaced Lender's
funding of an unpaid drawing under a Letter of Credit as to which the Replaced
Lender is then in default; and (B) the Borrower shall pay to the Replaced Lender
any other amounts payable to the Replaced Lender under this Agreement (including
amounts payable under Sections 3.3.3, 4.1, 4.3, 4.5 and 4.6 which have accrued
to the date of such replacement). Upon the execution of the Lender Assignment
Agreement(s), the payment of the amounts referred to in the preceding sentence
and, if so requested by the Replacement Lender in accordance with clause (b) of
Section 10.11.1, delivery to the Replacement Lender of the applicable Notes
executed by the Borrower, the Replacement Lender shall automatically become a
Lender hereunder and the Replaced Lender shall cease to constitute a Lender
hereunder, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Lender. It is understood and
agreed that if any Replaced Lender shall fail to enter into a Lender Assignment
Agreement in accordance with the foregoing, it shall be deemed to have entered
into such a Lender Assignment Agreement.
SECTION 4.5. Funding Losses. In the event any Lender shall reasonably
incur any loss or expense (including any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to make, continue or maintain any portion of the principal amount of any
Loan as, or to convert any portion of the principal amount of any Loan into, a
LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of
the principal amount of any LIBO Rate Loans on a date other than the scheduled
last day of the Interest Period applicable thereto, whether pursuant to Section
3.1 or otherwise, (b) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor, (c) any Loans not being made or continued
as, or continued into, LIBO Rate Loans as a result of a withdrawn or revoked
Borrowing Request or
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Continuation/Conversion Notice or for any other reason (other than a default by
any Lender or the Administrative Agent), or (d) any Loans not being continued
as, or converted into, LIBO Rate Loans in accordance with the
Continuation/Conversion Notice therefor, then, upon the written notice of such
Lender to the Borrower (with a copy to the Administrative Agent), the Borrower
shall, promptly after its receipt thereof, pay to the Administrative Agent for
the account of such Lender such amounts required to compensate such Lender for
any additional losses, costs or expenses that such Lender may reasonably incur
as a result of such payment, failure to convert or failure to continue,
including any loss, cost or expense (excluding loss of anticipated profits)
actually incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by any Lender to fund or maintain such LIBO Rate Loan. Such
written notice (which shall set forth in reasonable detail the basis for
requesting such amount and include calculations in reasonable detail in support
thereof) shall, in the absence of clearly demonstrable error, be conclusive and
binding on the Borrower.
SECTION 4.6. Taxes. (a) Any and all payments by the Borrower to each
Lender and the Administrative Agent under this Agreement and any other Loan
Document shall be made free and clear of, and without deduction or withholding
for, any Taxes. In addition, the Borrower shall pay all Other Taxes to the
relevant taxing authority or other authority in accordance with applicable law.
(b) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that, after
making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section),
such Lender or the Administrative Agent, as the case may be, receives an
amount equal to the sum it would have received had no such deductions or
withholdings been made;
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(ii) the Borrower shall make such deductions and withholdings; and
(iii) the Borrower shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance with
applicable law and shall as promptly as possible thereafter send to the
Administrative Agent for its own account or for the account of such
Lender, as the case may be, a certified copy of an original receipt (or
other written evidence) showing payment thereof.
(c) The Borrower agrees to indemnify and hold harmless each Lender and the
Administrative Agent for the full amount of (i) Taxes and (ii) Other Taxes that
are payable by such Lender or the Administrative Agent and any penalties,
interest, additions to tax, expenses or other similar liabilities arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 45 days after the date such Lender or the Administrative Agent makes
written demand therefor.
(d) Each Lender that is not incorporated or organized in or under the laws
of the United States or a state thereof (a "Non-U.S. Lender") shall:
(i) deliver to the Borrower and the Administrative Agent, prior to
the first day on which the Borrower is required to make any payments
hereunder to such Lender, two copies of either United States Internal
Revenue Service Form 1001 or Form 4224 or, in the case of a Non-U.S.
Lender claiming exemption from U.S. Federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio
interest", a Form W-8, or any subsequent versions thereof or successors
thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate
representing that such Non-U.S. Lender (x) is not a bank for purposes of
Section 881(c) of the Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or submission
made to any Governmental Agency, any application made to a rating agency
or qualification for any exemption
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from tax, securities law or other legal requirements, (y) is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Borrower and (z) is not a controlled foreign corporation
related to the Borrower (within the meaning of Section 864(d)(4) of the
Code)), properly completed and duly executed by such Non-U.S. Lender
claiming complete exemption from, or a reduced rate of, U.S. Federal
withholding tax on payments by the Borrower under this Agreement;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form of certification on or before the date
that any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and completing such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent;
unless in any such case any change in treaty, law or regulation has occurred
prior to the date on which any such delivery would otherwise be required that
renders any such form inapplicable or would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Administrative Agent. Each Non-U.S. Lender that
shall become a Participant pursuant to Section 10.11.2 or a Lender pursuant to
Section 10.11.1 shall, upon the effectiveness of the related transfer, be
required to provide all the forms and statements required pursuant to this
Section 4.6(d), provided that in the case of a Participant such Participant
shall furnish all such required forms and statements to the Lender from which
the related participation shall have been purchased.
(e) The Borrower shall not be required to indemnify any Non-U.S. Lender or
the Administrative Agent, or to pay any additional amounts to such Non-U.S.
Lender or the Administrative Agent, in respect of U.S. Federal withholding tax
pursuant to clause (a) above to the extent that (i) the obligation to withhold
amounts with respect to U.S. Federal withholding tax existed on the date such
Non-U.S. Lender became a party to this
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Agreement (or, in the case of a Non-U.S. Participant, on the date such
Participant became a Participant hereunder) or as of the date such Non-U.S.
Lender changes its applicable lending office; provided, however, that this
clause (i) shall not apply to the extent that (x) in the case of an assignee
Lender or a Participant or a change in the Lender's applicable lending office,
the indemnity payments or additional amounts any Lender (or Participant) would
be entitled to receive (without regard to this clause (i)) do not exceed the
indemnity payment or additional amounts that the Person making the assignment,
participation, transfer or change in lending office would have been entitled to
receive in the absence of such assignment, participation, transfer or change in
lending office, or (y) such assignment, participation, transfer or change in
lending office had been requested by the Borrower, (ii) the obligation to pay
such additional amounts would not have arisen but for a failure by such Non-U.S.
Lender or Non-U.S. Participant to comply with the provisions of clause (d) above
or (iii) any of the representations or certifications made by a Non-U.S. Lender
or Non-U.S. Participant pursuant to clause (d) above are incorrect at the time a
payment hereunder is made, other than by reason of any change in treaty, law or
regulation having effect after the date such representations or certifications
were made.
(f) If the Borrower determines in good faith that a reasonable basis
exists for contesting any Taxes for which indemnification has been demanded
hereunder, the relevant Lender (to the extent such Lender reasonably determines
in good faith that it will not suffer any adverse effect as a result thereof) or
the Administrative Agent, as applicable, shall cooperate with the Borrower in
challenging such Taxes at the Borrower's expense if so requested by the Borrower
in writing. If any Lender or the Administrative Agent, as applicable, receives a
refund of a Tax for which a payment has been made by the Borrower pursuant to
this Agreement, which refund in the good faith judgment of such Lender or the
Administrative Agent, as the case may be, is attributable by the Borrower, then
such Lender or the Administrative Agent, as the case may be, shall reimburse the
Borrower for such amount as such Lender or the Administrative Agent, as the case
may be, determines to be the proportion of the refund as will leave it, after
such reimbursement, in no better or worse position than it would have been in if
the payment had
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not been required. Neither the Lenders nor the Administrative Agent shall be
obliged to disclose information regarding its tax affairs or computations to the
Borrower in connection with this clause (f) or any other provision of this
Section 4.6.
(g) Promptly after the date of any payment by the Borrower of Taxes or
Other Taxes, the Borrower shall furnish to each Lender and the Administrative
Agent the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to such Lender or the Administrative
Agent.
SECTION 4.7. Change of Lending Office. Each Lender agrees that, as
promptly as practicable after it becomes aware of the occurrence of an event or
the existence of a condition that would give rise to the operation of Section
4.1, 4.3, 4.6(b) or 4.6(c) with respect to such Lender, it will exercise
commercially reasonable efforts to make, fund or maintain the affected Loans of
such Lender through another lending office and to take such other actions as it
deems appropriate to remove or lessen the impact of such condition and if, as
determined by such Lender in its sole discretion, the making, funding or
maintaining of such affected Loans through such other lending office or the
taking of such other actions would not otherwise adversely affect such Loans or
such Lender and would not, in such Lender's sole discretion, be commercially
unreasonable. Nothing in this Section 4.7 shall affect or postpone any of the
Obligations of the Borrower or the right of any Lender provided in Section 4.1,
4.3, 4.6(b) or 4.6(c).
SECTION 4.8. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Notes,
each Letter of Credit or any other Loan Document shall be made by the Borrower
to the Administrative Agent for the pro rata account of the Lenders entitled to
receive such payment. All such payments required to be made to the
Administrative Agent shall be made, without setoff, deduction or counterclaim,
not later than 1:00 p.m., New York City time, on the date due, in same day or
immediately available funds, to such account as the Administrative Agent shall
specify from time to time by notice to the Borrower. Funds received after 2:00
p.m., New York City time, on such due date shall be deemed to have been
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received by the Administrative Agent on the next succeeding Business Day. The
Administrative Agent shall promptly remit in same day funds to each Lender its
share, if any, of such payments received by the Administrative Agent for the
account of such Lender. All computations of interest for LIBO Rate Loans and
Base Rate Loans (calculated at the Federal Funds Rate) shall be made on the
basis of a 360-day year and actual days elapsed. All other computations
(including for interest on Base Rate Loans (calculated at other than the Federal
Funds Rate) and fees) shall be made on the basis of a year or 365 or 366 days,
as the case may be, and actual days elapsed. Whenever any payment to be made
shall otherwise be due on a day which is not a Business Day, such payment shall
(except as otherwise required by clause (c) of the definition of the term
"Interest Period") be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and fees, if any, in
connection with such payment.
SECTION 4.9. Sharing of Payments. If any Lender shall obtain any payment
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan or Reimbursement Obligation (other than
pursuant to the terms of Section 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata
share of payments then or therewith obtained by all Lenders, such Lender shall
purchase from the other Lenders such participations in Credit Extensions made by
them as shall be necessary to cause such purchasing Lender to share the excess
payment or other recovery ratably with each of them; provided, however, that if
all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender shall repay to
the purchasing Lender the purchase price to the ratable extent of such recovery
together with an amount equal to such selling Lender's ratable share (according
to a fraction having a numerator of (a) the amount of such selling Lender's
required repayment to the purchasing Lender and a denominator of (b) total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights
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of payment (including pursuant to Section 4.10) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a setoff to which this Section applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.
SECTION 4.10. Setoff. Each Lender shall, upon the occurrence and during
the continuance of any Default described in clauses (a) through (d) of Section
8.1.9 or, with the consent of the Required Lenders, upon the occurrence and
during the continuance of any other Event of Default, without prior notice to
the Borrower (any such notice being waived by the Borrower to the fullest extent
permitted by law), have the right to appropriate and apply to the payment of the
Obligations then due and payable to it, any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with such
Lender; provided, however, that any such appropriation and application shall be
subject to the provisions of Section 4.9. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such setoff and application
made by such Lender; provided, however, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such
Lender may have.
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. Initial Credit Extensions. The obligations of the Lenders
and, if applicable, the Issuer, to fund the initial Credit Extensions shall be
subject to the prior or concurrent satisfaction of each of the conditions
precedent set forth in this Section 5.1.
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SECTION 5.1.1. Resolutions, etc. The Administrative Agent shall have
received from the Borrower and each other Obligor, as applicable, (i) good
standing certificates for each such Person from the Secretary of State (or
similar, applicable Governmental Authority) of such Person's state of
incorporation and each state where the Borrower or such Obligor, as the case may
be, is qualified to do business as a foreign corporation as of a recent date,
together with a bring-down certificate by facsimile, dated a date reasonably
close to the Effective Date, and (ii) a certificate, dated the date of the
initial Credit Extension and with counterparts for each Lender, duly executed
and delivered by such Person's Secretary or Assistant Secretary, as to
(a) resolutions of each such Person's Board of Directors then in
full force and effect authorizing, to the extent relevant, the execution,
delivery and performance of this Agreement, the Notes, each other Loan
Document to be executed by such Person and the transactions contemplated
hereby and thereby;
(b) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement, the Notes and each other
Loan Document to be executed by such Person; and
(c) each Organic Document of such Person, upon which certificates
each Agent and each Lender may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of
any such Person canceling or amending the prior certificate of such
Person.
SECTION 5.1.2. Closing Date Certificate. The Administrative Agent shall
have received, with counterparts for each Lender, the Closing Date Certificate,
dated the date of the initial Credit Extension and duly executed and delivered
by an Authorized Officer of the Borrower, in which certificate the Borrower
shall agree and acknowledge that the statements made therein shall be deemed to
be true and correct representations and warranties in all material respects of
the Borrower made as of such date and under this Agreement, and, at the time
such
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certificate is delivered, such statements shall in fact be true and correct
in all material respects. All documents and agreements required to be appended
to the Closing Date Certificate (which shall include true and complete, as
certified in such certificate, copies of the Senior Subordinated Indenture, a
Senior Subordinated Note specimen, a summary description of the Borrower's and
its Restricted Subsidiaries' material insurance policies, and any tax sharing
agreement (including the Tax Sharing Agreement)) shall be in form and substance
satisfactory to each of the Agents and such certificate shall specify that none
of such documents or agreements have been modified except as set forth in such
certificate.
SECTION 5.1.3. Pledge Agreement. The Administrative Agent shall have
received, with counterparts for each Lender,
(a) the Pledge Agreement, dated as of the date hereof, duly executed
and delivered by an Authorized Officer of the Borrower, together with
certificates evidencing all of the issued and outstanding shares of
Capital Stock pledged pursuant to the Pledge Agreement (which shall
include all of the issued and outstanding shares of Capital Stock of each
direct Domestic Restricted Subsidiary and 65% of the issued and
outstanding shares of Capital Stock of each direct Foreign Restricted
Subsidiary, if any), which certificates shall in each case be accompanied
by undated stock powers duly executed in blank, or, if any securities
subject thereto are uncertificated securities, confirmation and evidence
satisfactory to the Agents that the security interest in such
uncertificated securities has been transferred to and perfected by the
Administrative Agent for the benefit of the Lenders in accordance with
Section 8-313 and Section 8-321 of the Uniform Commercial Code, as in
effect in the State of New York, and all laws otherwise applicable to the
perfection of the pledge of such shares; and
(b) the Agents and their counsel shall be satisfied that
(i) the Lien granted to the Administrative Agent, for the
benefit of the Agents, the Issuers and the
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Lenders, in the collateral described above is a first priority
security interest; and
(ii) no Lien exists on any of the collateral described above
other than the Lien created in favor of the Administrative Agent,
for the benefit of the Agents, the Issuers and the Lenders, pursuant
to the Pledge Agreement.
SECTION 5.1.4. Guaranty. The Administrative Agent shall have received,
with counterparts for each Lender, each Guaranty, dated as of the date hereof,
duly executed and delivered by an Authorized Officer of each Domestic Restricted
Subsidiary (excluding The Fairways Group, L.P. and each of its Subsidiaries).
SECTION 5.1.5. Financial Information, etc. The Administrative Agent shall
have received, with copies for each Lender,
(a) audited combined financial statements of the Borrower and its
Subsidiaries as at October 31, 1996 and unaudited combined financial
statements of the Borrower and its Subsidiaries as at January 31, 1997;
and
(b) pro forma consolidated financial statements of the Borrower and
its Subsidiaries, including therein a pro forma consolidated balance sheet
of the Borrower and its Subsidiaries and pro forma consolidated statements
of earnings and cash flow of the Borrower and its Subsidiaries, in each
case as of January 31, 1997, certified by the chief financial or
accounting Authorized Officer of the Borrower, giving effect to the
consummation of the transactions contemplated by this Agreement and
reflecting the proposed capital structure of the Borrower, and which shall
be satisfactory to each of the Agents.
SECTION 5.1.6. Solvency. The Administrative Agent shall have received,
with counterparts for each Lender, a solvency certificate as to the Borrower and
its Subsidiaries, taken as a whole, duly executed and delivered by the chief
financial or accounting Authorized Officer of the Borrower, dated the date of
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the initial Credit Extension, in the form of Exhibit I attached hereto.
SECTION 5.1.7. Payment of Outstanding Indebtedness, etc. All Indebtedness
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the Disclosure
Schedule, together with all interest, all prepayment premiums and other amounts
due and payable with respect thereto, shall have been paid in full from the
proceeds of the initial Credit Extension and the commitments in respect of such
Indebtedness shall have been terminated, and all Liens securing payment of any
such Indebtedness have been released and the Administrative Agent shall have
received all Uniform Commercial Code Form UCC-3 termination statements or other
instruments as may be suitable or appropriate in connection therewith.
SECTION 5.1.8. Issuance of the Senior Subordinated Notes. The Borrower
shall have duly authorized, executed and delivered the Senior Subordinated
Indenture, the Senior Subordinated Notes and all other certificates, documents
and agreements entered into in connection therewith, and the Administrative
Agent shall have received true and correct copies of the executed Senior
Subordinated Indenture, the Senior Subordinated Notes and all other
certificates, documents, agreements, consents and opinion letters (together
with, to the extent available, reliance letters from the givers of such opinion
letters, permitting the Agents and the Lenders to rely upon the opinions
contained in such opinion letters) furnished pursuant to or in connection
therewith, the terms and conditions of which shall be satisfactory in all
respects to the Agents and the Required Lenders. The Borrower shall have issued
at least $75,000,000 of the Senior Subordinated Notes pursuant to the Senior
Subordinated Indenture and shall have received at least $75,000,000 in gross
cash proceeds therefrom.
SECTION 5.1.9. No Material Adverse Change. No Material Adverse Change has
occurred since October 31, 1996 and no material adverse change has occurred
since October 31, 1996 with respect to the business, assets, operations, results
of operations, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries, taken as a whole.
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SECTION 5.1.10. Availability of Revolving Commitments. After giving effect
to the transactions contemplated hereby to occur on or prior to the date of the
initial Credit Extension, no less than $75,000,000 of the Revolving Loan
Commitment Amount shall be available to the Borrower for Revolving Loans.
SECTION 5.1.11. Opinions of Counsel. The Administrative Agent shall have
received opinions, dated the date of the initial Credit Extension and addressed
to each Agent, each Lender and the Issuer, from
(a) Simpson Thacher & Bartlett, special counsel to the Borrower and
each of the other Obligors, substantially in the form of Exhibit J-1
hereto; and
(b) Nola S. Dyal, Esq., general counsel to the Borrower and each of
the other Obligors, substantially in the form of Exhibit J-2 hereto.
SECTION 5.1.12. Closing Fees, Expenses, etc. The Administrative Agent
shall have received evidence of payment by the Borrower of all accrued and
unpaid fees, costs and expenses to the extent then due and payable under this
Agreement or the Fee Letter on the date of the initial Credit Extension,
together with all reasonable and documented legal costs and expenses of the
Agents to the extent invoiced prior to or on the date of the initial Credit
Extension, including any such fees, costs and expenses arising under or
referenced in Sections 3.3 and 10.3.
SECTION 5.2. All Credit Extensions. The obligation of each Lender and the
Issuer to make any Credit Extension (including the initial Credit Extension)
shall be subject to Sections 2.1.4 and 2.1.5 and the satisfaction of each of the
conditions precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Credit Extension:
(a) the representations and warranties set forth in Article VI and
in each other Loan Document shall, in each case, be true and correct in
all material respects with the same effect as if then made (unless stated
to relate solely
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to an earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date); and
(b) no Default shall have then occurred and be continuing.
SECTION 5.2.2. Credit Extension Request, etc. Subject to Sections 2.3.2
and 2.6.2, the Administrative Agent shall have received a Borrowing Request if
Loans are being requested, or an Issuance Request if a Letter of Credit is being
requested or extended. Each of the delivery of a Borrowing Request or Issuance
Request, the giving of telephonic notice pursuant to Section 2.3.2 and the
deemed making of a request for a Swing Line Loan as set forth in Section 2.6.2
and the acceptance by the Borrower of the proceeds of such Credit Extension
shall constitute a representation and warranty by the Borrower that on the date
of such Credit Extension (both immediately before and after giving effect to
such Credit Extension and the application of the proceeds thereof) the
statements made in Section 5.2.1 are true and correct in all material respects.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Issuer and each Agent to enter into
this Agreement and to make Credit Extensions hereunder, the Borrower represents
and warrants unto each Agent, the Issuer and each Lender as set forth in this
Article VI.
SECTION 6.1. Organization, etc. The Borrower and each of its Material
Restricted Subsidiaries and each other Obligor
(a) is a corporation validly organized and existing and in good
standing under the laws of the state or jurisdiction of its incorporation;
(b) is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires such qualification; and
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(c) has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and
perform its Obligations under this Agreement, the Notes and each other
Loan Document to which it is a party and to own and hold under lease its
property and to conduct its business substantially as currently conducted
by it,
except, in the case of clauses (a) and (c) above, with respect to each Material
Restricted Subsidiary and each other Obligor other than the Borrower, and, in
the case of clause (b) above, with respect to the Borrower and each Material
Restricted Subsidiary and each other Obligor, to the extent that the failure of
which could not reasonably be expected to have a Material Adverse Effect.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, the execution, delivery
and performance by each other Obligor of each Loan Document executed or to be
executed by it, the granting of the Liens contemplated by the Pledge Agreement,
and the Borrower's, each of its Material Restricted Subsidiaries' and each other
Obligor's participation in the consummation of all aspects of the transactions
contemplated hereby, are in each case within each such Person's corporate
powers, have been duly authorized by all necessary corporate action, and do not
(a) contravene any such Person's Organic Documents;
(b) contravene any material contractual restriction binding on or
affecting any such Person or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under the
terms of any material indenture (including the Senior Subordinated
Indenture), loan agreement, lease agreement, mortgage, deed of trust,
agreement or other material instrument to which the Borrower or any of the
Restricted Subsidiaries is a party or by which it or any of its property
or assets is bound;
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(c) contravene (i) any court decree or order binding on or affecting
any such Person or (ii) any law or governmental regulation binding on or
affecting any such Person; or
(d) result in, or require the creation or imposition of, any Lien on
any of such Person's material properties (except as permitted by this
Agreement).
SECTION 6.3. Government Approval, Regulation, etc. No approval, consent,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or regulatory body or other Person (other than those that
have been, or on the Effective Date will be, duly obtained or made and which
are, or on the Effective Date will be, in full force and effect and other than
those, singly or in the aggregate, with respect to which the failure to obtain
or make could not reasonably be expected to have a Material Adverse Effect) is
necessary or required for the consummation of the transactions contemplated
hereby or the due execution, delivery or performance by, or enforcement against,
the Borrower or any other Obligor of this Agreement, the Notes or any other Loan
Document to which it is a party or the granting of the Liens contemplated by the
Pledge Agreement. Neither the Borrower nor any other Obligor nor any of the
Restricted Subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes and
each other Loan Document, executed by the Borrower will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms; and each other Loan Document executed pursuant hereto by each
other Obligor will, on the due execution and delivery thereof by such Obligor,
constitute the legal, valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms (except, in any case above, as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
principles of equity).
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SECTION 6.5. Financial Information. The financial statements furnished to
the Administrative Agent and the Lenders pursuant to clauses (a) and (b) of
Section 5.1.5 have been prepared in accordance with GAAP consistently applied,
except as otherwise expressly noted therein, and present fairly in all material
respects the consolidated financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended. All balance sheets, all statements of operations,
shareholders' equity, earnings and cash flow and all other financial information
of each of the Borrower and its Subsidiaries furnished pursuant to Section 7.1.1
have been and will for periods following the Effective Date be prepared in
accordance with GAAP consistently applied, except as otherwise expressly noted
therein, and do or will present fairly in all material respects the consolidated
financial condition of the corporations covered thereby as at the dates thereof
and the results of their operations for the periods then ended.
SECTION 6.6. No Material Adverse Change. Except as may have been disclosed
in writing to the Agents and the Lenders prior to the Closing Date, there has
been no Material Adverse Change since October 31, 1996.
SECTION 6.7. Litigation, Labor Controversies, etc.; No Violation of Law.
There is no pending or, to the knowledge of the Borrower, threatened litigation,
action, proceeding, or labor controversy affecting the Borrower or any of its
Material Restricted Subsidiaries, or any of their respective properties,
businesses, assets or revenues, which could reasonably be expected to have a
Material Adverse Effect, except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.
SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries, except those
Subsidiaries
(a) existing on the Closing Date which are identified in Item 6.8
("Existing Subsidiaries") of the Disclosure Schedule (and each Material
Restricted Subsidiary as of the Closing Date has been so designated
therein);
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(b) which are permitted to have been organized or acquired following
the Closing Date in accordance with Section 7.2.5 or 7.2.7.
SECTION 6.9. Ownership of Properties. The Borrower and each of its
Material Restricted Subsidiaries has good title to, or leasehold interests in,
all of its properties and assets, real and personal, tangible and intangible, of
any nature whatsoever, free and clear in each case of all Liens or claims,
except for Liens permitted pursuant to Section 7.2.3, except where the failure
to have such good title or leasehold interests could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each of the
Borrower and its Material Restricted Subsidiaries owns or are licensed or
otherwise have the right to use all of the trademarks, copyrights, patents,
licenses and other rights that are reasonably necessary for the operation of
each of their respective businesses, without conflict with the rights of any
other Person and free of burdensome restrictions, except where the failure to
have any such rights could not reasonably be expected to have a Material Adverse
Effect.
SECTION 6.10. Taxes. The Borrower, its Restricted Subsidiaries and all
other corporations with whom the Borrower or any Restricted Subsidiary join in
the filing of a consolidated return have filed all Federal income tax returns
and other material tax returns and reports, domestic and foreign, required by
law to have been filed, and have paid all material taxes, assessments, fees and
other governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable except those not yet delinquent or
those which are being diligently contested in good faith. The Borrower, each of
its Restricted Subsidiaries and each such other corporation with whom the
Borrower or any Restricted Subsidiary joins in the filing of a consolidated
return have paid, or have provided adequate reserves (in the good faith
judgement of the management of the Borrower) in accordance with GAAP for the
payment of all such material taxes, assessments, fees and charges relating to
all prior taxable years and the current taxable year of the Borrower, each of
its Restricted Subsidiaries and each such other corporation with whom the
Borrower or any Restricted Subsidiary joins in the filing of a consolidation
return. To the best
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knowledge of the Borrower, there is no proposed tax assessment against the
Borrower or any Restricted Subsidiary or any such other corporation with whom
the Borrower or any Restricted Subsidiary joins in the filing of a consolidated
return that could reasonably be expected to have a Material Adverse Effect.
SECTION 6.11. ERISA Compliance. Except as specifically disclosed in Item
6.11 ("Employee Benefit Plans") of the Disclosure Schedule:
(a) Each Plan is in compliance in all material respects with the
terms thereof and the applicable provisions of ERISA, the Code and other
federal or state law except to the extent that failure to comply would not
result, individually or in the aggregate, in an amount of liability that
could reasonably be expected to have a Material Adverse Effect. The
Borrower and each ERISA Affiliate has made all required contributions to
any Plan subject to Section 412 of the Code, except to the extent that a
failure to do so could not reasonably be expected to have a Material
Adverse Effect, and no application for a funding waiver or an extension of
any amortization period pursuant to Section 412 of the Code has been made
with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Pension Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability in an
amount which could reasonably be expected to have a Material Adverse
Effect if such Pension Plan were then terminated; and (iii) neither the
Borrower nor any ERISA Affiliate has engaged in a transaction that could
be subject to Section 4069 or 4212(c) of ERISA that could reasonably be
expected to have a Material Adverse Effect.
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SECTION 6.12. Compliance with Environmental Laws. The Borrower and each of
its Restricted Subsidiaries is in compliance with all applicable Environmental
Laws in respect of the conduct of its business and the ownership of its
property, except such noncompliance as could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect. Without limiting the effect of
the preceding sentence:
(a) neither the Borrower nor any of its Subsidiaries has received a
complaint, order, citation, notice or other written communication with
respect to the existence or alleged existence of a violation of, or
liability arising under, any Environmental Law, the outcome of which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect;
(b) to the best of the Borrower's knowledge, after due inquiry,
there are no environmental, health or safety conditions existing or
reasonably expected to exist at any real property owned, operated, leased
or used by the Borrower or any of its existing or former Subsidiaries or
any of their respective predecessors, including off-site treatment or
disposal facilities used by the Borrower or its existing or former
Subsidiaries for wastes treatment or disposal, which could reasonably be
expected to require any construction or other capital costs or clean-up
obligations to be incurred prior to the Stated Maturity Date for all Term
B Loans in order to assure compliance with any Environmental Law,
including provisions regarding clean-up, to the extent that any of such
conditions, construction or other capital costs or clean-up obligations,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect; and
(c) neither the Borrower nor any of its Subsidiaries has treated,
stored, transported or disposed of Hazardous Materials at or from any
currently or formerly owned Real Estate (as defined in Section 7.1.8) or
facility relating to its business in a manner that could reasonably be
expected to have a Material Adverse Effect.
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SECTION 6.13. Regulations G, U and X. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no use of any proceeds of any Credit
Extensions will violate F.R.S. Board Regulation G, U or X. Terms for which
meanings are provided in F.R.S. Board Regulation G, U or X or any regulations
substituted therefor, as from time to time in effect, are used in this Section
with such meanings.
SECTION 6.14. Accuracy of Information. (a) All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower or any of its Subsidiaries in writing to any Agent, the Issuer or any
Lender on or before the Closing Date (including (i) the Confidential Information
Memorandum and (ii) all information contained in the Loan Documents) for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is true and complete in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided, it being understood and agreed that for purposes of
this clause (a), such factual information shall not include projections and pro
forma financial information.
(b) The projections and pro forma financial information contained in the
factual information referred to in clause (a) above (including the pro forma
consolidated financial statements delivered pursuant to clause (b) of Section
5.1.5) were or are based on good faith estimates and assumptions believed to be
reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
significantly from the projected results.
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ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with each Agent,
the Issuer and each Lender that, until all Commitments have terminated, all
Letters of Credit have terminated or expired and all Obligations have been paid
and performed in full, the Borrower will perform or cause to be performed the
obligations set forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower
will furnish, or will cause to be furnished, to each Lender, the Issuer and each
Agent copies of the following financial statements, reports, notices and
information:
(a) as soon as available and in any event within 60 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower, unaudited consolidated and consolidating balance sheets of the
Borrower and its Restricted Subsidiaries and, to the extent available,
unaudited consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries, in each case as of the end of such Fiscal Quarter
and unaudited consolidated and consolidating statements of earnings and
cash flow of the Borrower and its Restricted Subsidiaries and, to the
extent available, unaudited consolidated and consolidating statements of
earnings and cash flow of the Borrower and its Subsidiaries, in each case
for such Fiscal Quarter and for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter,
certified by the chief financial Authorized Officer of the Borrower as
fairly presenting in all material respects, in accordance with GAAP
(subject to year-end audit adjustments), the financial position and
results of operations of the Borrower and its Subsidiaries covered thereby
as of the date thereof;
(b) as soon as available and in any event within 120 days after the
end of each Fiscal Year of the Borrower, a copy of the annual audited
financial statements for such Fiscal Year for the Borrower and its
Restricted Subsidiaries, including therein consolidated and
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consolidating balance sheets of the Borrower and its Restricted
Subsidiaries as of the end of such Fiscal Year and consolidated and
consolidating statements of earnings and cash flow of the Borrower and its
Restricted Subsidiaries for such Fiscal Year, in each case as audited
(without any Impermissible Qualification) by Deloitte & Touche LLC or
other nationally recognized independent public accountants, together in
any event with a certificate of such accounting firm stating that in the
course of its regular audit of the business of the Borrower and its
Restricted Subsidiaries, which audit was conducted in accordance with
generally accepted auditing standards, such accounting firm has obtained
no knowledge of any Default or Event of Default relating to clause (a),
(b) or (c) of Section 7.2.4 that has occurred and is continuing or, if in
the opinion of such accounting firm such a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof;
(c) as soon as available and in any event within 60 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower and within 120 days after the end of the Fiscal Year of the
Borrower, a Compliance Certificate, executed by the chief executive,
financial or accounting Authorized Officer of the Borrower, showing (in
reasonable detail, including with respect to appropriate calculations and
computations) compliance with the financial covenants set forth in Article
VII;
(d) promptly after any Responsible Officer of the Borrower or any of
its Restricted Subsidiaries obtains knowledge of the occurrence of a
Default or Event of Default (including any "Event of Default" as defined
in the Senior Subordinated Indenture), a statement of the chief executive,
financial or accounting Authorized Officer of the Borrower setting forth
details of such Default or Event of Default and the action which the
Borrower has taken and proposes to take with respect thereto;
(e) promptly after any Responsible Officer of the Borrower or any of
its Restricted Subsidiaries obtains knowledge of (x) the occurrence of any
material adverse
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development with respect to any litigation, action, proceeding or labor
controversy, or (y) the commencement of any litigation, action, proceeding
or labor controversy, in each case (in the case of either clause (x) or
(y) above) to the extent the same, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, notice thereof;
(f) promptly after any receipt of any notice of acceleration,
redemption or purchase demands or other similar notices provided by the
trustee for the Senior Subordinated Notes, notice thereof and copies of
all documentation relating thereto;
(g) concurrently with the delivery of the financial statements
referred to in clauses (a) and (b) of Section 7.1.1, financial statements
prepared on a pro forma basis assuming each Acquisition consummated during
the Test Period relating to such financial statements referred to in such
clauses (a) and (b) had been consummated on the first day of such Test
Period, together with a Compliance Certificate executed by the chief
executive, financial or accounting Authorized Officer of the Borrower;
(h) promptly upon filing thereof, copies of any reports filed on
Forms 10-K, 10-Q, and 8-K, effective registration statements filed on
Forms S-1, S-2, S-3 and S-4, and any proxy statements, as well as any
substitute or similar documents to substantially the same effect as the
foregoing, including, to the extent requested by the Administrative Agent,
the schedules and exhibits thereto, in such each case as filed with the
SEC by the Borrower or any of its Restricted Subsidiaries (other than
immaterial amendments to any such registration statement);
(i) promptly after transmission thereof, copies of any notices of
reports that the Borrower or any of its Subsidiaries shall send to the
holders of any publicly issued debt of the Borrower and/or any of its
Subsidiaries (including the Senior Subordinated Notes) in their capacity
as such holders (in each case to the extent not theretofore delivered to
the Lenders pursuant to this Agreement);
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(j) promptly after a Responsible Officer of the Borrower or any of
its Restricted Subsidiaries obtains knowledge of the occurrence of any
ERISA Event (but in no event more than 10 days after a Responsible Officer
of the Borrower obtains knowledge of such ERISA Event), notice thereof
together with a copy of any notice with respect to such event that is
filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Borrower or any ERISA Affiliate with respect
to such event;
(k) promptly when available and in any event within 60 Business Days
after the last day of each Fiscal Year of the Borrower (commencing after
the Effective Date), a budget for the then current Fiscal Year of the
Borrower as customarily prepared by the management of the Borrower for its
internal use, which budget shall be prepared on a Fiscal Quarter basis and
shall set forth the principal assumptions on which such budget is based;
(l) promptly after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters would
not, individually or when aggregated with all other such matters, be
reasonably expected to result in a Material Adverse Effect, written notice
of:
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Estate (as defined
below);
(ii) any condition or occurrence on any Real Estate that (x)
results in noncompliance by the Borrower or any of its Subsidiaries
with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Estate;
(iii) any condition or occurrence on any Real Estate that
could reasonably be anticipated to cause such Real Estate to be
subject to any restrictions on
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the ownership, occupancy, use or transferability of such Real Estate
under any Environmental Law; and
(iv) the taking of any removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any
Real Estate.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and the Borrower's response thereto. The term "Real Estate" shall mean
land, buildings and improvements owned or leased by the Borrower or any of
its Subsidiaries, but excluding all operating fixtures and equipment,
whether or not incorporated into improvements; and
(m) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as any
Agent, or the Required Lenders through the Administrative Agent, may from
time to time reasonably request in writing.
SECTION 7.1.2. Preservation of Corporate Existence, etc. The Borrower
will, and will cause each of its Restricted Subsidiaries to:
(a) preserve and maintain in full force and effect its corporate
existence under the laws of its state or jurisdiction of incorporation
(provided that the Borrower and its Restricted Subsidiaries may consummate
any transaction permitted under Section 7.2.7), except, in the case of any
such Restricted Subsidiary, to the extent that the failure to do so could
not reasonably be expected to have a Material Adverse Effect; and
(b) preserve and maintain in full force and effect its good standing
under the laws of its state or jurisdiction of incorporation and all
material governmental rights, privileges, qualification, permits, licenses
and franchises necessary in the normal conduct of its business except in
each case to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
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SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will
cause each of its Restricted Subsidiaries to, ensure that its properties and
equipment used or useful in its business, in whomsoever's possession they may be
to the extent that it is within the Borrower's or such Restricted Subsidiary's
control to cause same, are kept in good repair, working order and condition,
normal wear and tear excepted, and that from time to time there are made in such
properties and equipment all needful and proper repairs, renewals, replacements,
extensions, additions, betterments and improvements thereto, to the extent and
in the manner customary for companies in similar businesses and consistent with
third-party leases, except in each case to the extent the failure to do so could
not reasonably be expected to have a Material Adverse Effect.
SECTION 7.1.4. Payment of Taxes. The Borrower will, and will cause each of
its Subsidiaries to, pay and discharge all material taxes, assessments and
governmental charges or levies upon it or upon its income or profits, or upon
any properties belonging to it, prior to the date on which material penalties
attach thereto, and all lawful material claims that, if unpaid, could reasonably
be expected to become a material Lien upon any properties of the Borrower or any
of its Restricted Subsidiaries; provided, however, that neither the Borrower nor
any of its Subsidiaries shall be required hereunder to pay any such tax,
assessment, charge, levy or claim that is being contested in good faith if it
has maintained adequate reserves (in the good faith judgment of the management
of the Borrower or such Subsidiary) with respect thereto in accordance with
GAAP.
SECTION 7.1.5. Compliance with Statutes, etc. The Borrower will, and will
cause each of its Subsidiaries to comply, in all material respects, with all
applicable statutes, regulations and other Requirements of Law (including
Environmental Laws) having jurisdiction over it or its business, except such as
may be contested in good faith or as to which a bona fide dispute may exist or
except to the extent that the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
SECTION 7.1.6. Insurance. The Borrower shall, and shall cause each of its
Restricted Subsidiaries to, at all times maintain in full force and effect, with
insurance companies which
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the Borrower believes (in the good faith judgment of the management of the
Borrower) are financially sound and responsible at the time the relevant
coverage is placed or renewed, insurance with respect to its properties and
business (including business interruption and hurricane insurance) against such
casualties and contingencies and of such types and in such amounts, and with
such deductibles, retentions, self-insured amounts and reinsurance provisions,
as are customarily maintained by companies engaged in the same or similar
businesses in the same general area and will, upon request of any of the
Administrative Agent, furnish to each Lender information presented in reasonable
detail as to the insurance maintained by the Borrower and its Restricted
Subsidiaries.
SECTION 7.1.7. Inspection Of Property and Books and Records. The Borrower
will, and will cause each of its Restricted Subsidiaries to, permit officers and
designated representatives of the Agents or the Required Lenders, at reasonable
times and intervals, to visit and inspect any of its properties or its assets,
to discuss its financial matters with its officers and independent public
accountant and to examine (and, at the expense of the Borrower, photocopy
extracts from) any of its books or other corporate records. The Borrower shall
pay any fees of such independent public accountant incurred in connection with
such Agent's or any Lender's exercise of its rights pursuant to this Section.
SECTION 7.1.8. Guaranty by each of The Fairways Group, L.P. and its
Subsidiaries. The Administrative Agent shall have received, no later than August
31, 1998, with counterparts for each Lender, supplements to the Guaranty duly
executed and delivered by each of The Fairways Group, L.P. and its Subsidiaries
for the purposes of The Fairways Group, L.P. and such Subsidiaries becoming
guarantors thereunder.
SECTION 7.1.9. Future Subsidiaries. Upon any Person becoming, after the
Effective Date, a Subsidiary of the Borrower (other than any Unrestricted
Subsidiary), including any Person that was a Restricted Subsidiary, but not a
Material Restricted Subsidiary, but which becomes a Material Restricted
Subsidiary through internal growth or otherwise, or upon the Borrower acquiring
additional Capital Stock of any existing Restricted
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Subsidiary, the Capital Stock of which is then pledged under the Pledge
Agreement, the Borrower shall notify the Agents of such acquisition, and, unless
otherwise agreed to among the Borrower, the Agents and the Required Lenders, and
subject to the provisions of clauses (g)(iii) and (k)(ii) of Section 7.2.2 and
clause(i)(ii) of Section 7.2.5,
(a) such Person shall, if it is a Domestic Subsidiary and not
theretofore a party to the Guaranty, execute and deliver to the
Administrative Agent a supplement to the Guaranty for the purposes of
becoming a guarantor thereunder; and
(b) the Borrower shall, if such Person is a direct Subsidiary of the
Borrower, pursuant to the Pledge Agreement, pledge to the Administrative
Agent all of the outstanding shares of Capital Stock of such Subsidiary
owned directly by it (provided that, in the event such Subsidiary is a
Foreign Subsidiary, the Borrower shall not be required to pledge more than
65% of the outstanding shares of the Capital Stock of such Subsidiary),
along with undated stock powers for such certificates, executed in blank
(or, if any such shares of capital stock are uncertificated, confirmation
and evidence satisfactory to the Agents that the security interest in such
uncertificated securities has been transferred to and perfected by the
Administrative Agent, for the benefit of the Lenders, the Agents and the
Issuer, in accordance with Section 8-313 and Section 8-321 of the U.C.C.
or any other similar law which may be applicable).
SECTION 7.1.10. Use of Proceeds. The Borrower shall apply the proceeds of
the Credit Extensions
(a) for working capital and general corporate purposes of the
Borrower and its Restricted Subsidiaries, including Permitted Acquisitions
by such Persons; and
(b) to repay the Indebtedness identified in Item 7.2.2(b)
("Indebtedness to be Paid") of the Disclosure Schedule.
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SECTION 7.1.11. Transactions with Affiliates. The Borrower shall, and
shall cause each of its Restricted Subsidiaries to, conduct all transactions
with any of its Affiliates (other than the Borrower and its Restricted
Subsidiaries) upon terms that are substantially as favorable to the Borrower or
such Restricted Subsidiary as it would obtain in a comparable arm's-length
transaction with a Person not an Affiliate of the Borrower or such Restricted
Subsidiary; provided that the foregoing restrictions shall not apply to (a) the
payment of customary annual fees to KKR and its Affiliates for management,
consulting and financial services rendered to the Borrower and its Restricted
Subsidiaries, and customary investment banking fees paid to KKR and its
Affiliates for services rendered to the Borrower or its Restricted Subsidiaries
in connection with divestitures, acquisitions, financings and other
transactions, (b) customary fees paid to members of the Board of Directors of
the Borrower and its Restricted Subsidiaries and (c) the performance of the
management agreements entered into with KSL identified in Item 7.1.11
("Management Agreements with KSL") of the Disclosure Schedule.
SECTION 7.1.12. Business Activities. The Borrower will, and will cause
each of its Restricted Subsidiaries to, engage primarily in the business of
owning, operating and developing country club, resort and spa properties and
assets and hospitality services activities related thereto and such other
activities as are reasonably related, incidental or substantially similar
thereto.
SECTION 7.1.13. End of Fiscal Year. The Borrower will, for financial
reporting purposes, cause each of its, and each of its Domestic Subsidiaries',
fiscal years to end on October 31 of each year (the "Fiscal Year End");
provided, however, that the Borrower may, upon prior written notice to the
Agents, change the definition of Fiscal Year End set forth above to any other
date reasonably acceptable to the Agents, in which case the Borrower and the
Agents will, and are hereby authorized by the Lenders to, make any adjustments
to this Agreement that are necessary in order to reflect such change in
financial reporting.
SECTION 7.2. Negative Covenants. The Borrower agrees with each Agent, the
Issuer and each Lender that, until all
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Commitments have terminated, all Letters of Credit have terminated or expired
and all Obligations have been paid and performed in full, the Borrower will
perform the obligations set forth in this Section 7.2.
SECTION 7.2.1. Modification of Certain Agreements. The Borrower will not,
and will not permit any of its Restricted Subsidiaries to, consent to or permit
or suffer to exist any amendment, supplement or other modification of, the
Senior Subordinated Notes or the Senior Subordinated Indenture or any document
or instrument evidencing or applicable to the Subordinated Debt issued
thereunder in a manner materially adverse to the Lenders.
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
or otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Credit Extensions and other
Obligations (including Hedging Obligations in respect of such Credit
Extensions);
(b) until the date of the initial Credit Extension, Indebtedness
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the Disclosure
Schedule;
(c) Indebtedness existing as of the Effective Date which is
identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the Disclosure
Schedule;
(d) unsecured Indebtedness incurred in the ordinary course of
business of the Borrower and its Restricted Subsidiaries (consisting of
open accounts extended by suppliers on normal trade terms in connection
with purchases of goods and services and Indebtedness in respect of
performance, surety or appeal bonds provided in the ordinary course of
business, but excluding Indebtedness incurred through the borrowing of
money or Contingent Obligations in respect thereof);
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(e) Indebtedness in respect of Capitalized Lease Liabilities;
provided, that the aggregate amount of all Indebtedness outstanding
pursuant to this clause at the time any of the same is created, assumed or
incurred (together with the principal amount of all other Indebtedness
permitted under this clause (e)) shall not at any time exceed $125,000,000
at such time after giving effect thereto;
(f) Indebtedness between the Borrower and its Restricted
Subsidiaries and Indebtedness between Restricted Subsidiaries;
(g) Indebtedness of a Person existing at the time such Person became
a Restricted Subsidiary of the Borrower to the extent such Indebtedness
constitutes mortgage financing or other real property financing or, when
incurred by such Person, would have constituted Indebtedness of the type
described in clause (i) below, in each case after the Closing Date as the
result of a Permitted Acquisition, provided that (i) such Indebtedness
existed at the time such Person became a Restricted Subsidiary or at the
time such assets were acquired and, in each case, was not created in
anticipation thereof, (ii) such Indebtedness is not guaranteed in any
respect by the Borrower or any Restricted Subsidiary (other than any such
Person that so becomes a Restricted Subsidiary), (iii) (A) the Borrower
pledges the Capital Stock of such Person to the Administrative Agent to
the extent required under Section 7.1.9, (B) such Person executes a
supplement to the Guaranty to the extent required under Section 7.1.9 and
(C) if any such Indebtedness is secured, (1) the Guaranty referred to in
the preceding subclause (B) is equally and ratably secured or (2) in the
case of assets acquired by the Borrower or any Restricted Subsidiary, the
Borrower's obligations hereunder or such Restricted Subsidiary's Guaranty,
as the case may be, are equally and ratably secured, provided that the
requirements of this subclause (iii) shall not apply to a portion thereof
in an aggregate amount at any time outstanding of up to (and including),
but not in excess of, $25,000,000 of the aggregate of (1) all such
Indebtedness described above in this clause (g) and (2) all Indebtedness
as to which the
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proviso to clause (k)(ii) of this Section 7.2.2 then applies, and (iv) the
aggregate amount of all such Indebtedness described above in this clause
(g) together with the Increased Commitment Amount and all Indebtedness
incurred under clause (k) below of this Section 7.2.2, when taken
together, may not exceed $200,000,000 in the aggregate at any time
outstanding;
(h) unsecured Subordinated Debt of the Borrower evidenced by the
Senior Subordinated Notes in an aggregate principal amount not to exceed
$125,000,000;
(i) Indebtedness in an aggregate outstanding amount not to exceed
$25,000,000 at any time incurred within 270 days of the acquisition,
construction or improvement of fixed or capital assets to finance the
acquisition, construction or improvement of such fixed or capital assets
or otherwise incurred in respect of capital expenditures of the Borrower
and its Restricted Subsidiaries to the extent (but only to the extent)
such Indebtedness is secured solely by (and recourse in respect of such
Indebtedness is limited to) such fixed or capital assets and is
non-recourse to the Borrower and each of its Restricted Subsidiaries;
(j) Indebtedness in respect of Hedging Obligations incurred in the
ordinary course of business and not for speculative purposes (as
determined in good faith by the Borrower);
(k) Indebtedness of the Borrower or any Restricted Subsidiary,
provided, that (x) if such Indebtedness is incurred to finance a Permitted
Acquisition, (i) such Indebtedness is not guaranteed in any respect by any
Restricted Subsidiary (other than any Person acquired (the "acquired
Person") as a result of such Permitted Acquisition or the Restricted
Subsidiary so incurring such Indebtedness) or, in the case of Indebtedness
of any Restricted Subsidiary, by the Borrower and (ii) (A) the Borrower
pledges the Capital Stock of such acquired Person to the Administrative
Agent to the extent required under Section 7.1.9, (B) such acquired Person
executes a supplement to the Guaranty to the extent required under Section
7.1.9 and
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(C) if a guaranty by such acquired Person of any such Indebtedness is
secured by assets of such acquired Person, the Guaranty referred to in the
preceding subclause (B) is equally and ratably secured, provided that the
requirements of this subclause (ii) shall not apply to a portion thereof
in an aggregate amount at any time outstanding of up to (and including),
but not in excess of, $25,000,000 of the aggregate of (1) all such
Indebtedness described above in this clause (k) and (2) all Indebtedness
as to which the proviso to clause (g)(iii) of this Section 7.2.2 then
applies, and (y) the aggregate amount of all such Indebtedness described
above in this clause (k) together with the Increased Commitment Amount and
all Indebtedness assumed or permitted to exist under clause (g) of this
Section 7.2.2, when taken together, may not exceed $200,000,000 in the
aggregate at any time outstanding; and
(l) any refinancing, refunding, renewal or extension of any
Indebtedness permitted under clauses (c) through (k) above; provided that
(i) the principal amount thereof is not increased above the principal
amount thereof outstanding immediately prior to such refinancing,
refunding, renewal or extension (except to the extent otherwise permitted
under this Section 7.2.2) and (ii) the direct and contingent obligors with
respect to such Indebtedness are not changed unless permitted under the
applicable provisions hereof.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its property, revenues or assets, whether now owned or
hereafter acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant to
any Loan Document or any Rate Protection Agreement;
(b) until the date of the initial Credit Extension, Liens securing
payment of Indebtedness of the type permitted and described in clause (b)
of Section 7.2.2;
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(c) Liens existing as of the Effective Date securing Indebtedness of
the type permitted and described in clause (c) of Section 7.2.2;
(d) Liens securing
(i) payment of foreign currency exchange or rate swap and
similar agreements referred to in clause (a) of Section 7.2.2, in
each case to the extent the counterparty to any such agreement is
(or at the time such agreement was entered into, was) a Lender or an
Affiliate of a Lender; and
(ii) Indebtedness of the type permitted and described in
clause (e) of Section 7.2.2 (and securing only the assets that are
the subject of such Capitalized Lease Liabilities);
and renewals, extensions and refinancing of such Indebtedness; provided,
that the Liens permitted by this clause with respect to clause (e) of
Section 7.2.2 shall only cover the same assets (or substitutions or
replacements of the same general type) which originally secured the
Indebtedness renewed, extended or refinanced pursuant to such clause;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
to the extent payment is not required pursuant to Section 7.1.4;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords and other similar Liens imposed by law incurred in the ordinary
course of business, in each case so long as such Liens do not individually
or in the aggregate have a Material Adverse Effect;
(g) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory and
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regulatory obligations, bids, leases and contracts or other similar
obligations (other than for borrowed money) entered into in the ordinary
course of business or to secure obligations on surety or appeal bonds or
performance or return-of-money bonds;
(h) Liens consisting of judgement or judicial attachment liens in
circumstances not constituting an Event of Default under Section 8.1.6;
(i) easements, rights-of-way, municipal and zoning ordinances or
similar restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of the Borrower or its
Restricted Subsidiaries;
(j) Liens on the property of, or securing Indebtedness to the extent
permitted by clause (g) of Section 7.2.2 of, any Person which becomes a
Restricted Subsidiary after the date hereof; provided that such Liens
exist at the time such Person becomes a Restricted Subsidiary and are not
created in anticipation thereof and such Liens attach only to a specific
asset or type of asset of such Person and not assets of such Person
generally;
(k) Liens arising solely by virtue of any statutory or common law
provision relating to banks' liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a
creditor depository institution, provided that such deposit account is not
a cash collateral account;
(l) any interest or title of a lessor secured by a lessor's interest
under any lease permitted by this Agreement, or any leases or subleases
granted to others not interfering in any material respect with the
business of the Borrower or its Restricted Subsidiary to which the
property subject to such lease or sublease relates;
(m) Liens placed upon property, plant or equipment used in the
ordinary course of business of the Borrower or
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any of its Restricted Subsidiaries in connection with the acquisition
thereof by the Borrower or any such Restricted Subsidiary to secure
Indebtedness incurred to pay all or a portion of the purchase price
thereof (provided that (i) the Lien encumbering the property, plant or
equipment so acquired does not encumber any other asset of the Borrower or
any such Restricted Subsidiary and (ii) the Indebtedness secured thereby
is permitted by clause (k) of Section 7.2.2 and such acquisition was
otherwise permitted by this Agreement);
(n) Liens existing on the assets of any Person that becomes a
Restricted Subsidiary, or existing on assets acquired, pursuant to a
Permitted Acquisition under clause (i) of Section 7.2.5 to the extent the
Liens on such assets secure Indebtedness permitted by clause (g) of
Section 7.2.2, provided that such Liens attach at all times only to the
same assets that such Liens attached to, and secure only the same
Indebtedness that such Liens secured, immediately prior to such Permitted
Acquisition;
(o) Liens placed upon the Capital Stock or assets of any Restricted
Subsidiary acquired pursuant to a Permitted Acquisition under clause (i)
of Section 7.2.5 to the extent such Liens secure Indebtedness incurred
pursuant to clause (k) of Section 7.2.2 to finance the Acquisition of such
Restricted Subsidiary by the Borrower or any of its other Restricted
Subsidiaries;
(p) Liens securing additional Indebtedness in an aggregate
outstanding amount not to exceed $5,000,000 at any time; and
(q) the replacement, extension or renewal of any Lien permitted by
clauses (c) through (p) above upon or in the same assets theretofore
subject to such Lien (or substitution or replacement assets of the same
general type) or the replacement, extension or renewal (without increase
in the amount or change in any direct or contingent obligor except to the
extent otherwise permitted under this Agreement) of the Indebtedness
secured thereby.
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SECTION 7.2.4. Financial Condition and Operations. The Borrower will not
permit to occur any of the events set forth below.
(a) Interest Coverage Ratio. The Borrower will not permit the
Interest Coverage Ratio as of the end of any Fiscal Quarter occurring
during any period set forth below to be less than the ratio set forth
opposite such period:
Interest Coverage
Period Ratio
------ -----------------
04/30/1997 through
10/31/1997 1.50:1
01/31/1998 through
10/31/1998 1.75:1
01/31/1999 through
10/31/1999 2.00:1
01/31/2000 through
10/31/2000 2.25:1
01/31/2001 through
the Stated Maturity Date
with respect to Term B Loans 2.50:1.
(b) Fixed Charge Coverage Ratio. The Borrower will not permit the
Fixed Charge Coverage Ratio as of the end of any Fiscal Quarter during any
Fiscal Year (commencing with the Fiscal Quarter ending October 31, 1997)
to be less than 1.05:1.
(c) Maximum Leverage Ratio. The Borrower will not permit the
Leverage Ratio as of the end of any Fiscal Quarter ending on or about any
date set forth below or occurring during any period set forth below to be
greater than the ratio set forth opposite such date or such period, as
applicable:
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Maximum Leverage
Date/Period Ratio
----------- ----------------
10/31/1997 6.75:1
01/31/1998 through 07/31/1998 6.50:1
10/31/1998 6.25:1
01/31/1999 through 10/31/1999 6.00:1
01/31/2000 through 5.50:1
10/31/2001
01/31/2002 through 4.50:1.
the Stated Maturity Date
with respect to Term B Loans
SECTION 7.2.5. Investments. The Borrower will not, and will not permit any
of its Restricted Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Investments existing on the Effective Date and identified in
Item 7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments to the extent permitted as
Indebtedness pursuant to Section 7.2.2;
(d) without duplication, Capital Expenditures;
(e) without duplication, Investments permitted by Section 7.2.6;
(f) Investments by way of contributions to capital or purchases of
equity by the Borrower in any of its Restricted Subsidiaries or by such
Restricted Subsidiary in any of its Restricted Subsidiaries;
(g) Investments constituting (i) accounts receivable arising, (ii)
trade debt granted, or (iii) deposits made in
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connection with the purchase price of goods or services, in each case in
the ordinary course of business;
(h) Investments constituting loans and advances to officers,
directors and employees of the Borrower or any of the Restricted
Subsidiaries (i) to finance the purchase of Capital Stock of the Borrower
and (ii) for additional purposes not contemplated by clause (i) above, in
an aggregate principal amount at any time outstanding with respect to this
clause (ii) not exceeding $5,000,000;
(i) Investments by the Borrower or any Restricted Subsidiary (other
than any Investment in an Unrestricted Subsidiary) constituting an
Acquisition (any such Acquisition permitted pursuant to this clause (i), a
"Permitted Acquisition"), so long as (i) such Acquisition and all
transactions related thereto are consummated in accordance with applicable
law, (ii) in the case of an Acquisition of Capital Stock or other equity
interest by the Borrower or a Restricted Subsidiary, (A) such Acquisition
results in the issuer of such Capital Stock or other equity interest
becoming a Restricted Subsidiary, (B) the Borrower pledges the Capital
Stock of such Person to the Administrative Agent to the extent required
under Section 7.1.9 and (C) such Person executes a supplement to the
Guaranty to the extent required under Section 7.1.9, provided that the
requirements of subclauses (B) and (C) of this subclause (ii) shall not
apply to an aggregate amount at any time outstanding of up to (and
including), but not in excess of, $25,000,000 of Indebtedness permitted
under clauses (g) and (k) of Section 7.2.2 to be incurred in connection
with such Acquisition, (iii) no Capital Stock or other equity interest or
assets acquired in connection with such Acquisition shall be subject to
any Lien (other than Liens permitted by Section 7.2.3), (iv) neither the
Borrower nor any other Restricted Subsidiary shall assume or incur,
directly or indirectly, any Indebtedness in connection with such
Acquisition (other than Indebtedness otherwise permitted by Section
7.2.2), (v) after giving effect to such Acquisition, no Default shall have
occurred and be continuing and (vi) the Borrower shall have delivered to
the Administrative Agent prior to the consummation of such
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Acquisition (A) financial statements or reconciliations prepared on a pro
forma basis for the period of four consecutive Fiscal Quarters ending with
the Fiscal Quarter then last ended for which financial statements and the
Compliance Certificate relating thereto have been delivered to the
Administrative Agent pursuant to Section 7.1.1 (assuming, for purposes of
such pro forma calculation, that such Acquisition had been consummated on
the first day of such period) and (B) a certificate of the Borrower
executed by its chief financial Authorized Officer demonstrating that the
financial results reflected in such financial statements would comply with
the requirements of Section 7.2.4 for the Fiscal Quarter in which such
Investment is to be made (provided, that for purposes of this clause
(i)(vi), and notwithstanding anything in clause (c) of Section 7.2.4 to
the contrary, with respect to Investments made in Fiscal Quarters ended
prior to October 31, 1997, the requirements of clause (c) of Section 7.2.4
shall apply and be deemed to specify a "Maximum Leverage Ratio" not to
exceed 6.75:1); and
(j) additional Investments by the Borrower or its Restricted
Subsidiaries (including in Unrestricted Subsidiaries); provided, that at
any time that the Leverage Ratio as of the last day of the most recently
ended Fiscal Quarter is greater than 3.5:1.0, additional Investments may
not be made pursuant to this clause (j) if, after giving effect thereto,
the aggregate amount of all Investments at such time would exceed the sum
of (i) $50,000,000 and (ii) the Available Amount at such time (to the
extent not utilized prior to such time); and
(k) any Investment constituting the Corporate Sale Transaction;
provided, however, that
(l) any Investment which when made complies with the requirements of
clause (a), (b) or (c) of the definition of the term "Cash Equivalent
Investment" may continue to be held notwithstanding that such Investment
if made thereafter would not comply with such requirements; and
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(m) no Investment otherwise permitted by clause (i), (j) or (k)
shall be permitted to be made if any Event of Default or payment Default
has occurred and is continuing or would result therefrom.
SECTION 7.2.6. Restricted Payments, etc. The Borrower shall not declare or
make any dividend payment or other distribution of assets, properties, cash,
rights, obligations or securities on account of any shares of any class of its
Capital Stock, purchase, redeem or otherwise acquire for value any shares of its
Capital Stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding, or pay, prepay, purchase, redeem or defease principal of
the Senior Subordinated Notes or make any payments pursuant to any tax sharing
arrangements or agreements, and the Borrower shall not permit any Restricted
Subsidiary to purchase, redeem or otherwise acquire for value any shares of any
class of Capital Stock of the Borrower, now or hereafter outstanding (or any
warrants, rights or options to acquire such shares), and the Borrower shall not
permit any of its Restricted Subsidiaries to pay, prepay, purchase, redeem or
defease principal of the Senior Subordinated Notes or to make any payments
pursuant to any tax sharing arrangement or agreement, except that, so long as
(except in the case of clause (e) below) before and after giving effect to any
such payment no Default shall have occurred, the Borrower may:
(a) declare and make dividends or other distributions payable solely
in shares of its Capital Stock;
(b) purchase, redeem or otherwise acquire shares of common stock of
the Borrower or warrants or options to acquire any such shares with the
proceeds received from the substantially concurrent issuance of new shares
of common stock of the Borrower;
(c) redeem or exchange in whole or in part any Capital Stock of the
Borrower for another class of Capital Stock or rights to acquire such
other class of Capital Stock of the Borrower, provided that such other
class of Capital Stock contains terms and provisions (taken as a whole) at
least as advantageous to the Lenders as those contained in the Capital
Stock redeemed or exchanged thereby;
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(d) repurchase shares of its Capital Stock (together with options or
warrants in respect of any thereof) held by the officers, directors and
employees of the Borrower, so long as such repurchase is pursuant to, and
in accordance with the terms of, management and/or employee stock plans,
stock subscription agreements or shareholder agreements;
(e) (i) pay dividends to KSL in amounts necessary to pay
administrative, legal, accounting and other fees, costs and expenses
directly related to the ownership of the Borrower or the conduct of its
operations and (ii) make, and may permit its Restricted Subsidiaries to
make, payments to (x) the Borrower or any Restricted Subsidiary pursuant
to a tax sharing agreement and (y) KSL pursuant to a tax sharing agreement
in respect of the actual consolidated or combined tax liability of KSL and
its Subsidiaries to the extent such tax payments are attributable to the
tax liability of the Borrower and its Subsidiaries determined as if the
Borrower and its Subsidiaries were an affiliated group of companies filing
a consolidated or, as applicable, combined return, provided that, the
Borrower and its Subsidiaries shall not make any portion of any such tax
payment to the extent corresponding to any portion of such tax liability
of the Borrower and its Subsidiaries attributable to any tax liability of
an Unrestricted Subsidiary (determined as if Unrestricted Subsidiaries
were to file returns on a separate reporting basis), unless the Borrower
or its Restricted Subsidiaries shall have received contribution to the
extent of each such Unrestricted Subsidiary's liability (as adjusted in
good faith in a manner not materially adverse to the Lenders) from the
Unrestricted Subsidiaries;
(f) make a dividend or distribution constituting the Corporate Sale
Transaction;
(g) redeem, defease or otherwise prepay or retire the Senior
Subordinated Notes in an aggregate amount not to exceed at any time the
Available Amount at such time (to the extent not utilized prior to such
time);
(h) at any time after the Closing Date, pay cash dividends not
otherwise permitted hereunder so long as the
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aggregate amount so paid under this clause (h) during the term of this
Agreement does not exceed an amount equal to the sum of (i) $15,000,000
and (ii) 50% of Consolidated Net Income for the period (taken as one
accounting period) from the Closing Date through the last day of the most
recently ended Fiscal Quarter; and
(i) make dividends or distributions consisting of one or more
Specified Real Properties to the extent (and only to the extent) that
immediately prior to any such dividend or distribution of any Specified
Real Property, the use of such Specified Real Property shall be
substantially similar to the use of such Specified Real Property by the
Borrower and/or its Restricted Subsidiaries on the Closing Date.
SECTION 7.2.7. Consolidations and Mergers; Sales of Assets. The Borrower
shall not, and shall not suffer or permit any of its Restricted Subsidiaries to,
merge, consolidate or otherwise combine or liquidate with or into, or enter into
or consummate any Disposition (other than any Disposition resulting from a
casualty or condemnation), whether in one transaction or in a series of
transactions to or in favor of, any Person, except:
(a) (i) any Restricted Subsidiary may merge or otherwise consolidate
with the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) and (ii) any Restricted Subsidiary may merge or
otherwise consolidate with any other Restricted Subsidiary;
(b) any Restricted Subsidiary may sell or otherwise transfer its
assets (upon voluntary liquidation or otherwise) to the Borrower and the
Borrower or any Restricted Subsidiary may sell or otherwise transfer its
assets (in the case of any such Restricted Subsidiary, upon voluntary
liquidation or otherwise) to any Restricted Subsidiary;
(c) the Borrower or any Restricted Subsidiary may consummate the
Corporate Sale Transaction; and
(d) the Borrower or any Restricted Subsidiary may consummate one or
more Dispositions (in addition to any
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thereof described in any other provision of this Section 7.2.7), provided
that (i) the Borrower complies with the requirements of clause (e) of
Section 3.1.1, (ii) such Disposition is made for fair value (as determined
in good faith by the Borrower) and (iii) the aggregate consideration
received for all assets disposed of in Dispositions from and after the
Closing Date pursuant to this clause (d) shall not exceed $125,000,000.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following events or
occurrences described in this Section 8.1 shall constitute an "Event of
Default".
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in
the payment or prepayment when due of
(a) any principal of any Loan; or
(b) of any interest on any Loan, any Reimbursement Obligation, any
fee described in Article III or of any other amount payable hereunder or
under any other Loan Document and such default shall continue unremedied
for a period of five days.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to any Agent, the Issuer or
any Lender for the purposes of or in connection with this Agreement or any such
other Loan Document (including any certificates delivered pursuant to Article
V), is or shall be incorrect when made or deemed to have been made in any
material respect.
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SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The
Borrower shall default in the due performance and observance of any of its
obligations under clause (d) or (f) of Section 7.1.1, Section 7.1.8 or Section
7.2 or Section 8 of the Pledge Agreement.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. The
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue unremedied for a period of 30
days after written notice thereof shall have been given to the Borrower or such
other Obligor, as applicable, by the Administrative Agent or the Required
Lenders.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the
payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of the Borrower or any of its Restricted
Subsidiaries having a principal amount, individually or in the aggregate, in
excess of $10,000,000, or a default shall occur in the performance or observance
of any obligation or condition with respect to such Indebtedness (subject to any
applicable grace period) if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue unremedied for
any applicable period of time sufficient to permit the holder or holders of such
Indebtedness, or any trustee or agent for such holders, to cause or declare such
Indebtedness to become due and payable or to require such Indebtedness to be
prepaid, redeemed, purchased or defeased, or to cause an offer to purchase or
defease such Indebtedness to be required to be made, prior to its expressed
maturity.
SECTION 8.1.6. Judgments. Any judgment, order, decree or arbitration award
for the payment of money in excess of $10,000,000 (to the extent not fully
covered by insurance (less any applicable deductible) or indemnification and as
to which the insurer or the indemnifying party, as the case may be, has not
disputed in writing its responsibility to cover such judgment, order, decree or
arbitration award) shall be rendered against the Borrower or any of its
Restricted Subsidiaries and the same shall
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not have been satisfied or vacated or discharged or stayed or bonded pending
appeal within 60 days after the entry thereof.
SECTION 8.1.7. ERISA. An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan.
SECTION 8.1.8. Control of the Borrower. Any Change of Control shall occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of its
Material Restricted Subsidiaries shall
(a) become insolvent or generally fail to pay, or admit in writing
its inability or unwillingness generally to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial
part of the property of any thereof, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for a substantial part of the property of
any thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect thereof, and, if any such case or
proceeding is not commenced by the Borrower or any such Subsidiary, such
case or proceeding shall be consented to or acquiesced in by the Borrower
or such Subsidiary, as the case may be, or shall result in the entry of an
order for relief or shall remain for 60 days undismissed; or
(e) take any corporate action authorizing, or in furtherance of, any
of the foregoing.
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SECTION 8.1.10. Impairment of Security, etc. The Pledge Agreement or the
Guaranty, in whole or in material part, or any Lien granted under the Pledge
Agreement, shall (except in accordance with its terms and except as a result of
acts or omissions of any Agent or Lender) terminate, cease to be effective or
cease to be the legally valid, binding and enforceable obligation of any Obligor
party thereto; the Borrower, any other Obligor or any other party shall,
directly or indirectly, deny or disaffirm in writing such effectiveness,
validity, binding nature or enforceability; or, except as permitted under any
Loan Document, any Lien securing any Obligation shall, in whole or in part,
cease to be a perfected first priority Lien.
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.9 shall occur with respect to the
Borrower, the Commitments (if not theretofore terminated) shall automatically
terminate and the outstanding principal amount of all outstanding Loans and all
other Obligations (including Reimbursement Obligations) shall automatically be
and become immediately due and payable, without notice or demand and the
Borrower shall automatically and immediately be obligated to deposit with the
Administrative Agent cash collateral in an amount equal to all Letter of Credit
Outstandings.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Administrative Agent, upon the direction of the Required
Lenders, shall by notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations (including
Reimbursement Obligations) to be due and payable and/or the Commitments (if not
theretofore terminated) to be terminated, whereupon the full unpaid amount of
such Loans and other Obligations which shall be so declared due and payable
shall be and become immediately due and payable, without further notice, demand
or presentment, and/or, as the case may be, the Commitments shall terminate and
the Borrower shall automatically and immediately be obligated to deposit with
the Administrative
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Agent cash collateral in an amount equal to all Letter of Credit Outstandings.
ARTICLE IX
THE AGENTS
SECTION 9.1. Actions. (a) Each Lender hereby appoints (i) DLJ as one of
its Co-Syndication Agents and as its Documentation Agent, (ii) Scotiabank as one
of its Co-Syndication Agents and as its Administrative Agent and (iii)
BancAmerica as its Syndication Agent, in each case under and for purposes of
this Agreement, the Notes and each other Loan Document. Each Lender authorizes
each such Agent to act on behalf of such Lender under this Agreement, the Notes
and each other Loan Document and, in the absence of other written instructions
from the Required Lenders received from time to time by any particular Agent
(with respect to which each Agent agrees that it will comply, except as
otherwise provided in this Section or as otherwise advised by counsel in order
to avoid contravention of applicable law), to exercise such powers hereunder and
thereunder as are specifically delegated to or required of such Agent by the
terms hereof or thereof, together with such powers as may be reasonably
incidental thereto. Each Lender hereby indemnifies (which indemnity shall
survive any termination of this Agreement) each of the Agents and their
respective directors, officers, employees or agents, ratably in accordance with
each such Lender's respective Term Loans outstanding and Commitments (or, if no
Term Loans or Commitments are at the time outstanding or in effect, then ratably
in accordance with the principal amount of Term Loans held by such Lender, and
each such Lender's respective Commitments as in effect in each case on the date
of the termination of this Agreement), from and against any and all liabilities,
obligations, losses, damages, claims, costs or expenses of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted
against, such Agent, in any way relating to or arising out of this Agreement,
the Notes and any other Loan Document, including reasonable attorneys' fees, and
as to which the same is not reimbursed by the Borrower; provided, however, that
no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages,
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claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from the gross
negligence or wilful misconduct of such Agent or any of its directors, officers,
employees or agents. No Agent shall be required to take any action hereunder,
under the Notes or under any other Loan Document, or to prosecute or defend any
suit in respect of this Agreement, the Notes or any other Loan Document, unless
it is indemnified hereunder to its satisfaction. If any indemnity in favor of
any Agent shall be or become, in such Agent's determination inadequate, such
Agent may call for additional indemnification from the Lenders and cease to do
the acts indemnified against hereunder until such additional indemnity is given.
(b) Each Lender with a Revolving Loan Commitment hereby irrevocably
appoints the Issuer to act on behalf of such Lenders with respect to any Letters
of Credit issued by the Issuer and the documents associated therewith until such
time and except for so long as the Administrative Agent may agree at the request
of the Required Lenders to act for such Issuer with respect thereto; provided,
however, that the Issuer shall have all of the benefits and immunities (i)
provided to the Administrative Agent in this Article IX with respect to any acts
taken or omissions suffered by the Issuer in connection with Letters of Credit
issued by it or proposed to be issued by it and the application and agreements
for letters of credit pertaining to the Letters of Credit as fully as if the
term "Administrative Agent", as used in this Article IX, included the Issuer
with respect to such acts or omissions and (ii) as additionally provided in this
Agreement with respect to the Issuer.
SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall
have been notified by telephone, confirmed in writing, by any Lender by 5:00
p.m., New York City time, on the Business Day prior to a Borrowing that such
Lender will not make available the amount which would constitute its
Percentage of such Borrowing on the date specified therefor, the Administrative
Agent may assume that such Lender will make such amount available to the
Administrative Agent and, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent that such Lender shall
not have made such amount available to the Administrative
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Agent, such Lender and the Borrower severally agree to repay the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date the Administrative Agent made such amount
available to the Borrower to the date such amount is repaid to the
Administrative Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing, in the case of the Borrower, and, in the case of a
Lender, at the Federal Funds Rate for the first two Business Days after which
such amount has not been repaid, and thereafter at the interest rate applicable
to Loans comprising such Borrowing.
SECTION 9.3. Exculpation. None of the Agents nor any of their respective
directors, officers, employees or agents shall be liable to any Lender or the
Issuer for any action taken or omitted to be taken by it under this Agreement or
any other Loan Document, or in connection herewith or therewith, except for its
own wilful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan Document, nor for
the creation, perfection or priority of any Liens purported to be created by any
of the Loan Documents, or the validity, genuineness, enforceability, existence,
value or sufficiency of any collateral security, nor to make any inquiry
respecting the performance by the Borrower of its obligations hereunder or under
any other Loan Document. Any such inquiry which may be made by any such Agent
shall not obligate such Person to make any further inquiry or to take any
action. Each of the Agents shall be entitled to rely upon advice of counsel
concerning legal matters and upon any notice, consent, certificate, statement or
writing which it believes to be genuine and to have been presented by a proper
Person.
SECTION 9.4. Successor. Any Agent may resign as such at any time upon at
least 30 days' prior notice to the Borrower and all Lenders. If any Agent at any
time shall resign, the Required Lenders may appoint another Lender reasonably
acceptable to the Borrower as a successor to such Agent which shall thereupon
become an Agent hereunder in such capacity as the retiring Agent. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment,
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within 30 days after the retiring Agent's giving notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be one of the Lenders or a commercial banking institution organized under
the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a
commercial banking institution, and having (x) a combined capital and surplus of
at least $250,000,000 and (y) a credit rating of AA or better by Moody's or a
comparable rating by S&P; provided, however, that if, after expending all
reasonable commercial efforts, such retiring Agent is unable to find a
commercial banking institution which is willing to accept such appointment and
which meets the qualifications set forth in clause (y) above, such retiring
Agent, shall be permitted to appoint as its successor from all available
commercial banking institutions willing to accept such appointment such
institution having the highest credit rating of all such available and willing
institutions. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of
(a) this Article IX shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was an Agent under this
Agreement; and
(b) Sections 10.3 and 10.4 shall continue to inure to its benefit.
SECTION 9.5. Loans by Agents. Each of the Agents shall have the same
rights and powers with respect to (x) the Credit Extensions made by it or any of
its Affiliates, and (y) the Notes held by it or any of its Affiliates as any
other Lender and may exercise the same as if it were not an Agent hereunder.
Each of the Agents and their respective Affiliates may accept deposits from,
lend money to, and generally engage in any kind of business with the Borrower or
any Subsidiary or Affiliate of the Borrower as if it were not an Agent
hereunder.
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SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
independently of each of the Agents and each other Lender, and based on such
Lender's review of the financial information of the Borrower, this Agreement,
the other Loan Documents (the terms and provisions of which being satisfactory
to such Lender) and such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to extend its
Commitments. Each Lender also acknowledges that it will, independently of each
of the Agents and each other Lender, and based on such other documents,
information and investigations as it shall deem appropriate at any time,
continue to make its own credit decisions as to exercising or not exercising
from time to time any rights and privileges available to it under this Agreement
or any other Loan Document.
SECTION 9.7. Copies, etc. Each Agent shall give prompt notice to each
Lender and each other Agent of each notice or request required or permitted to
be given to such Agent by the Borrower pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders by the Borrower). Each Agent will
distribute to each Lender and each other Agent each document or instrument
received for its account and copies of all other communications received by such
Agent from the Borrower for distribution to the Lenders by the such Agent in
accordance with the terms of this Agreement or any other Loan Document.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Required Lenders; provided, however, that no such
amendment, modification or waiver shall:
(a) extend any Commitment Termination Date, change any Commitment to
any other Commitment, amend, modify or waive any provision of this Section
10.1 or reduce the percentages
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specified in the definitions of the terms "Required Lenders",
"Supermajority Revolving Lenders" or "Supermajority Term A and B Lenders",
or consent to the assignment or transfer by the Borrower of its rights and
obligations under any Loan Document to which it is a party, in each case
without the consent of each Lender directly and adversely affected
thereby;
(b) forgive any principal of or interest on any Lender's Loan,
reduce the stated rate of any interest hereunder or any fees described in
Article III payable to any Lender, extend the Stated Maturity Date for any
Lender's Loan or extend any scheduled time of payment of such interest or
such fees (other than as a result of waiving the applicability of any
post-default increase in interest rates) without the consent of such
Lender;
(c) increase the aggregate amount of any Lender's Percentage of any
Commitment Amount or increase the aggregate amount of any Loans required
to be made by a Lender pursuant to its Commitments without the consent of
such Lender;
(d) extend the due date (other than the Stated Maturity Date, as to
which clause (b) above applies) for any scheduled repayment or prepayment
of, or decrease the relative proportion of any mandatory prepayment to be
received by the Lenders holding
(i) Revolving Loans without the consent of the Required
Revolving Lenders,
(ii) Term A Loans without the consent of the Required Term A
Lenders or
(iii) Term B Loans without the consent of the Required Term B
Lenders;
(e) except to the extent expressly permitted under the Loan
Documents, release (i) all or substantially all of the Obligors that are
guarantors under the Guaranty from their obligations under the Guaranty or
(ii) all or substantially
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all of the collateral security provided under the Loan Documents,
including all Pledged Shares (as such term is defined in the Pledge
Agreement), in either case without the consent of (i) the Supermajority
Revolving Lenders and (ii) the Supermajority Term A and B Lenders; or
(f) affect adversely the interests, rights or obligations of any
Agent qua such Agent, the Swing Line Lender qua the Swing Line Lender or
the Issuer qua the Issuer, unless consented to by such Agent, the Swing
Line Lender or the Issuer, as the case may be; and
provided, further, that at any time that no Default or Event of Default has
occurred and is continuing, the Revolving Loan Commitment of any Lender may be
increased (and such Lender's Percentage and the Revolving Loan Commitment Amount
may be increased accordingly) to finance a Permitted Acquisition, with the
consent of such Lender and the Borrower and without the consent of the Required
Lenders, so long as (w) the Increased Commitment Amount (as defined below) at
such time, when added to the amount of Indebtedness incurred pursuant to clause
(k) of Section 7.2.2 and outstanding at such time, does not exceed the limits
set forth therein, (x) the Borrower pledges the Capital Stock of any Person
acquired pursuant thereto to the Administrative Agent to the extent required
under Section 7.1.9, (y) such acquired Person executes a supplement to the
Guaranty to the extent required under Section 7.1.9 and (z) to the extent
determined by the Administrative Agent to be necessary to ensure pro rata
borrowings commencing with the initial borrowing after giving effect to such
increase, the Borrower shall prepay any LIBO Rate Loans outstanding immediately
prior to such initial borrowing; as used herein and in clauses (g) and (k) of
Section 7.2.2, the "Increased Commitment Amount" means at any time, the
aggregate amount of all increases pursuant to this proviso made at or prior to
such time less the aggregate amount of all voluntary reductions of the Revolving
Loan Commitment Amount made prior to such time.
No failure or delay on the part of any Agent, the Issuer or any Lender in
exercising any power or right under this Agreement or any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right
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preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on the Borrower in any case shall entitle
it to any notice or demand in similar or other circumstances. No waiver or
approval by any Agent, the Issuer or any Lender under this Agreement or any
other Loan Document shall, except as may be otherwise stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
hereunder shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto, in the
case of the Borrower or any Agent, or set forth below its name in Annex I hereto
or in a Lender Assignment Agreement, in the case of any Lender (including in its
separate capacity as the Swing Line Lender or Issuer, if applicable), or at such
other address or facsimile number as may be designated by such party in a notice
to the other parties. Any notice, if mailed and properly addressed with postage
prepaid or if properly addressed and sent by pre-paid courier service, shall be
deemed given when received; any notice, if transmitted by facsimile, shall be
deemed given when the confirmation of transmission thereof is received by the
transmitter.
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay or
reimburse on demand all reasonable and documented costs and expenses of the
Agents (including the reasonable, itemized fees and out-of-pocket expenses of
counsel to the Agents and of local and foreign counsel, if any, who may be
retained by counsel to the Agents) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated; and
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(b) the filing, recording, refiling or rerecording of any Loan
Document and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements, amendments and restatements and
other modifications to any thereof and any and all other documents or
instruments of further assurance required to be filed or recorded or
refiled or rerecorded by the terms hereof or the terms of any Loan
Document; and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save each Agent, the Issuer and the
Lenders harmless from all liability for, any stamp or other taxes which may be
payable in connection with the execution or delivery of this Agreement, the
Credit Extensions hereunder, or the issuance of the Notes, Letters of Credit or
any other Loan Documents. The Borrower also agrees to reimburse each Agent, the
Issuer and each Lender upon demand for all reasonable and documented
out-of-pocket costs and expenses (including reasonable attorneys' fees and legal
expenses of counsel to each Agent, the Issuer and each Lender) incurred by such
Agent, the Issuer or such Lender in connection with (x) the negotiation of any
restructuring or "work-out" with the Borrower, whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations.
SECTION 10.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds each Agent, the Issuer and
each Lender and each their respective Affiliates, and each other Person
controlling any of the foregoing within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable
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attorneys' fees and disbursements, whether incurred in connection with actions
between or among the parties hereto or the parties hereto and third parties
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Credit Extension;
(b) the entering into, performance and enforcement of this Agreement
and any other Loan Document by any of the Indemnified Parties;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not any Agent, the Issuer or any Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by the Borrower or any of its
Subsidiaries of any Hazardous Material;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary thereof of
any Hazardous Material (including any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any
Environmental Law), regardless of whether caused by, or within the control
of, the Borrower or such Subsidiary; or
(f) each Lender's Environmental Liability (the indemnification
herein shall survive payment in full of the Obligations and any transfer
of the property of the Borrower or any of its Subsidiaries by foreclosure
or by a deed in lieu of foreclosure for any Lender's Environmental
Liability, regardless of whether caused by, or within the control of, the
Borrower or such Subsidiary);
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except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct or resulting from disputes among the
Agents, the Lenders and/or their transferees. If and to the extent that
the foregoing undertaking may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under Sections
4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under
Section 9.1, shall in each case survive any assignment from one Lender to
another (in the case of Sections 10.3 and 10.4) and any termination of this
Agreement, the payment in full of all the Obligations and the termination of all
the Commitments. The representations and warranties made by the Borrower and
each other Obligor in this Agreement and in each other Loan Document shall
survive the execution and delivery of this Agreement and each such other Loan
Document.
SECTION 10.6. Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of each
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be an original and all of which shall constitute together but one
and the same agreement. This Agreement shall become effective when counterparts
hereof executed on behalf of the Borrower, each
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Agent and each Lender (or notice thereof satisfactory to the Agents) shall have
been received by the Administrative Agent and notice thereof shall have been
given by the Administrative Agent to the Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT (INCLUDING PROVISIONS WITH RESPECT TO INTEREST,
LOAN CHARGES AND COMMITMENT FEES) SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR
SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A
SECURITY INTEREST OR MORTGAGE HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF NEW YORK. This Agreement, the Notes, the other Loan Documents and
the Fee Letter constitute the entire understanding among the parties hereto with
respect to the subject matter hereof and thereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 10.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
(a) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Agents and
all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11.
SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans,
Letters of Credit Outstandings and Commitments to one or more other Persons in
accordance with this Section 10.11.
SECTION 10.11.1. Assignments. (a) Upon prior notice to the Borrower and
the Administrative Agent, any Lender may at any time assign and delegate to one
or more Eligible Assignees with
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the consent of the Borrower and the Administrative Agent (which consents shall
not be required if the Eligible Assignee is a Lender or an Affiliate of a Lender
and shall not be unreasonably withheld or delayed if such consents are in fact
required), all or any fraction of such Lender's total Loans, Letter of Credit
Outstandings and Commitments in a minimum aggregate amount of the lesser of
$5,000,000 (or such lesser amount as may be agreed to by the Borrower and the
Administrative Agent in their sole and absolute discretion) and the entire
remaining amount of such Lender's Loans, Letter of Credit Outstandings and
Commitments (except that no such minimum shall be applicable on an assignment to
a Lender or an Affiliate of a Lender); provided, however, that with respect to
assignments solely of Revolving Loans, the assigning Lender must assign a
pro-rata portion of each of its Revolving Loan Commitments, Revolving Loans and
interest in Letters of Credit Outstandings. The Borrower and each other Obligor
and each of the Agents shall be entitled to continue to deal solely and directly
with such Lender in connection with the interests so assigned and delegated to
an Eligible Assignee until
(i) notice of such assignment and delegation, together with (A)
payment instructions, (B) the Internal Revenue Service Forms or other
statements contemplated or required to be delivered pursuant to Section
4.6, if applicable, (C) addresses and related information with respect to
such Eligible Assignee, shall have been delivered to the Borrower and the
Administrative Agent by such Lender and such Eligible Assignee and (D) the
Administrative Agent has made the appropriate entries in the Register;
(ii) such Eligible Assignee shall have executed and delivered to the
Borrower and the Administrative Agent a Lender Assignment Agreement,
accepted by such Agent; and
(iii) the processing fees described below shall have been paid.
From and after the date that such Agent accepts such Lender Assignment
Agreement, (x) the Eligible Assignee thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Eligible Assignee in
connection with such
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Lender Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents.
Accrued interest on that part of the Loans assigned, if any, and accrued fees,
shall be paid as provided in the Lender Assignment Agreement. Accrued interest
and accrued fees shall be paid at the same time or times provided in this
Agreement. Such assignor Lender or such Eligible Assignee must also pay a
processing fee in the amount of $3,500 to the Administrative Agent upon delivery
of any Lender Assignment Agreement. Notwithstanding any other term of this
Section 10.11.1, the agreement of the Swing Line Lender to provide the Swing
Line Loan Commitment shall not impair or otherwise restrict in any manner the
ability of the Swing Line Lender to make any assignment of its Loans or
Commitments, it being understood and agreed that the Swing Line Lender may
terminate its Swing Line Loan Commitment, either in whole or in part, in
connection with the making of any assignment. Any attempted assignment and
delegation not made in accordance with this Section 10.11.1 shall be null and
void.
(b) Notwithstanding anything to the contrary set forth above, any Lender
may (without requesting the consent of the Borrower or the Administrative Agent)
pledge its Loans to a Federal Reserve Bank in support of borrowings made by such
Person from such Federal Reserve Bank. Upon the request of the Lender, solely to
facilitate the pledge or assignment of its Loans to any Federal Reserve Bank,
the Borrower shall issue Notes to such Lender. Upon the request of an assignor
Lender, if applicable, solely to facilitate such pledge or assignment of its
Loans to any Federal Reserve Bank, the Borrower shall issue a reduced Note to
such assignor in exchange and replacement for its then existing Note. The
reasonable costs and expenses incurred in connection with the issuance of each
Note shall be for the account of the Borrower.
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(c) The Administrative Agent, on behalf of the Borrower, shall maintain at
the address of the Administrative Agent specified below its signature hereto (or
at such other address as may be designated by the Administrative Agent from time
to time in accordance with Section 10.2) a copy of each Lender Assignment
Agreement delivered to it and a register (the "Register") for the recordation of
the names and addresses of the Lenders and the Commitment of and principal
amount of the Loans owing to each Lender from time to time. The entries in the
Register shall be conclusive and binding, in the absence of clearly demonstrable
error, and the Borrower, the Agents and the Lenders shall treat each Person
whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder shall be effective only
upon appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
SECTION 10.11.2. Participations. Upon prior written notice to the Borrower
and the Administrative Agent, any Lender may at any time sell to one or more
commercial lenders, financial institutions or other Persons (each of such
commercial lenders, financial institutions or other Persons being herein called
a "Participant") participating interests in any of the Loans, Letter of Credit
Outstandings, Commitments, or other interests of such Lender hereunder
(including loan derivatives and similar swap arrangements based on such Lender's
interests hereunder); provided, however, that
(a) no participation contemplated in this Section 10.11 shall
relieve such Lender from its Commitments or its other obligations
hereunder or under any other Loan Document;
(b) such Lender shall remain solely responsible for the performance
of its Commitments and such other obligations;
(c) the Borrower and each other Obligor and each Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and each of the
other Loan Documents;
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(d) no Participant, unless such Participant is an Affiliate of such
Lender or is itself a Lender, or unless the Borrower otherwise agrees in
writing, shall be entitled to require such Lender to take or refrain from
taking any action hereunder or under any other Loan Document, except that
such Lender may agree with any
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Participant that such Lender will not, without such Participant's consent,
to the extent requiring the consent of such Lender, take any action of the
type described in clause (b) of Section 10.1; and
(e) the Borrower shall not be required to pay any amount under this
Agreement that is greater than the amount which it would have been
required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.1, 4.3, 4.5, 4.6, 4.8, 7.1.1 and 10.4, shall be considered a Lender.
Each Participant shall only be indemnified for increased costs pursuant to
Section 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such
participating interest to such Participant concurrently is entitled to make, and
does make, a claim on the Borrower for such increased costs. Any Lender that
sells a participating interest in any Loan, Commitment or other interest to a
Participant under this Section 10.11.2 shall indemnify and hold harmless the
Borrower and each Agent from and against any taxes, penalties, interest or other
costs or losses (including reasonable attorneys' fees and expenses) incurred or
payable by the Borrower or such Agent as a result of the failure of the Borrower
or such Agent to comply with its obligations to deduct or withhold any Taxes
from any payments made pursuant to this Agreement to such Lender or such Agent,
as the case may be, which Taxes would not have been incurred or payable if such
Participant had been a NonU.S. Lender that was entitled to deliver to the
Borrower, such Agent or such Lender, and did in fact so deliver, a duly
completed and valid Form 1001 or 4224 (or applicable successor form) entitling
such Participant to receive payments under this Agreement without deduction or
withholding of any United States federal taxes. If amounts outstanding under
this Agreement are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
SECTION 10.12. Other Transactions. Nothing contained herein shall preclude
any Agent, the Issuer or any other Lender from engaging in any transaction, in
addition to those
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contemplated by this Agreement or any other Loan Document, with the Borrower or
any of its Affiliates in which the Borrower or such Affiliate is not restricted
hereby from engaging with any other Person.
SECTION 10.13. Confidentiality. Each Lender agrees to maintain, in
accordance with its customary procedures for handling confidential information,
the confidentiality of all information provided to it by or on behalf of the
Borrower or any Subsidiary, or by any Agent on the Borrower's or such
Subsidiary's behalf, under this Agreement or any other Loan Document
("Confidential Information"), and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Borrower or any Subsidiary,
except to the extent such information (i) was or becomes generally available to
the public other than as a result of disclosure by the Lender or (ii) was or
becomes available on a non-confidential basis from a source other than the
Borrower, provided that such source is not bound by a confidentiality agreement
with the Borrower known to the Lender; provided, however, that any Lender may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which the Lender is subject or in connection with
an examination of such Lender by any such Governmental Authority; (B) pursuant
to subpoena or other court process; (C) when required to do so in accordance
with the provisions of any applicable Requirement of Law; (D) to the extent
reasonably required in connection with any litigation or proceeding to which any
Agent, any Lender or their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (F) to such Lender's independent auditors and
other professional advisors who have been advised that such information is
confidential pursuant to this Section 10.13; (G) to any Participant or Eligible
Assignee, actual or potential, provided that such Person shall have agreed in
writing to keep such information confidential to the same extent required of the
Lenders hereunder; and (H) to its Affiliates who have been advised that such
information is confidential pursuant to this Section 10.13. Unless prohibited by
applicable law or court order, each Lender and each Agent shall notify the
Borrower of any request by any Governmental Authority (other than any request in
connection with an examination of the financial condition of
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such Lender) for disclosure of Confidential Information prior to such
disclosure; provided further that in no event shall any Agent or any Lender be
obligated to return any materials furnished by the Borrower or any of its
Subsidiaries. This Section shall supersede any confidentiality letter or
agreement with respect to the Borrower or the Facilities entered into prior to
the date hereof.
SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY AGENT, THE LENDERS, THE ISSUER OR
THE BORROWER IN CONNECTION HEREWITH OR THEREWITH SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW
YORK OF THE SATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK LOCATED IN THE COUNTY OF NEW YORK OF THE STATE OF NEW YORK AND OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION,
SUBJECT TO THE BORROWER'S RIGHT TO CONTEST SUCH JUDGMENT BY MOTION OR APPEAL ON
ANY GROUNDS NOT EXPRESSLY WAIVED IN THIS SECTION 10.14. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR
NOTICES SPECIFIED IN SECTION 10.2. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED
BY LAW SUCH IMMUNITY IN RESPECT OF
-147-
<PAGE>
ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15. Waiver of Jury Trial. THE AGENTS, THE LENDERS, THE ISSUER
AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE
FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY AGENT, THE LENDERS, THE ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR
THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENTS, THE LENDERS AND THE ISSUER ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
-148-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
KSL RECREATION GROUP, INC.
By
---------------------------------------
Title:
Address: 56-140 PGA Boulevard
La Quinta, California 92253
Facsimile No.: (619) 564-3560
Attention: Steve Elliot
-149-
<PAGE>
AGENTS:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION, as a
Co-Syndication Agent and the
Documentation Agent
By
---------------------------------------
Title:
Address: 277 Park Avenue
New York, New York 10127
Facsimile No.: (212) 892-5286
Attention: Wendy LaMantia
THE BANK OF NOVA SCOTIA, as a
Co-Syndication Agent and the
Administrative Agent
By
---------------------------------------
Title:
Address: One Liberty Plaza
New York, New York 10006
Facsimile No.: (212) 225-5090
Attention: Todd Meller
-150-
<PAGE>
BANCAMERICA SECURITIES, INC., as
the Syndication Agent
By
---------------------------------------
Title:
Address: 335 Madison Avenue
6th Floor
New York, New York 10017
Facsimile No.: (212) 503-7031
Attention: Jordan Schweon
-151-
<PAGE>
LENDERS:
DLJ CAPITAL FUNDING, INC.
By
---------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
---------------------------------------
Title:
BANK OF AMERICA ILLINOIS
By
---------------------------------------
Title:
BANKBOSTON, N.A.
By
---------------------------------------
Title:
BANKERS TRUST COMPANY
By
---------------------------------------
Title:
-152-
<PAGE>
CITICORP USA, INC.
By
---------------------------------------
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By
---------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By
---------------------------------------
Title:
By
---------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
---------------------------------------
Title:
FLEET NATIONAL BANK
By
---------------------------------------
Title:
-153-
<PAGE>
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
By:ING Capital Advisors, Inc.,
as Investment Advisor
By
---------------------------------------
Title:
KZH HOLDING CORPORATION II
By
---------------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC.
By
---------------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By
---------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By
---------------------------------------
Title:
NATIONAL WESTMINSTER BANK PLC
By
---------------------------------------
Title:
-154-
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By
---------------------------------------
Title:
THE SAKURA BANK, LIMITED
By
---------------------------------------
Title:
THE SUMITOMO BANK, LIMITED, NEW
YORK BRANCH
By
---------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By
---------------------------------------
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By
---------------------------------------
Title:
-155-
<PAGE>
WELLS FARGO BANK, N.A.
By
---------------------------------------
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By
---------------------------------------
Title:
THE CHASE MANHATTAN BANK
By
---------------------------------------
Title:
-156-
<PAGE>
ANNEX I
LENDER INFORMATION
<TABLE>
<CAPTION>
1. DLJ CAPITAL FUNDING, INC.
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 277 Park Avenue Address: 277 Park Avenue 7.14285%
New York, NY 10172 New York, NY 10172
Term A Loan Commitment
Facsimile No.: (212) 892-5286 Facsimile No.: (212) 892-5286 5.50000%
Attention: Wendy LaMantia Attention: Wendy LaMantia Term B Loan Commitment
5.50000%
2. THE BANK OF NOVA SCOTIA
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: One Liberty Plaza Address: One Liberty Plaza 7.14285%
New York, NY 10006 New York, NY 10006
Term A Loan Commitment
Facsimile No.: (212) 225-5090 Facsimile No.: (212) 225-5090 21.00000%
Attention: Todd Meller Attention: Todd Meller Term B Loan Commitment
21.00000%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3. BANK OF AMERICA ILLINOIS
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 200 West Jackson Blvd. Address: 200 West Jackson Blvd. 7.14285%
Chicago, IL 60697 Chicago, IL 60697
Term A Loan Commitment
Facsimile No.: (312) 974-9626 Facsimile No.: (312) 974-9626 5.50000%
Attention: Maryann Patmon Attention: Maryann Patmon Term B Loan Commitment
5.50000%
4. BANKBOSTON, N.A.
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 100 Federal Street Address: 100 Federal Street 4.28571%
Boston, MA 02110 Boston, MA 02110
Term A Loan Commitment
Facsimile No.: (617) 434-9820 Facsimile No.: (617) 434-9820 2.50000%
Attention: Halise Shrago Attention: Halise Shrago Term B Loan Commitment
2.50000%
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
5. BANKERS TRUST COMPANY
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 300 South Grand Avenue Address: 300 South Grand Avenue 5.14285%
Los Angeles, CA 90071 Los Angeles, CA 90071
Term A Loan Commitment
Facsimile No.: (213) 620-8484 Facsimile No.: (213) 620-8484 5.00000%
Attention: David Hadley Attention: David Hadley Term B Loan Commitment
5.00000%
6. CITICORP USA, INC.
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 399 Park Avenue Address: Citibank, N.A. 4.92857%
6th Floor - Zone 4 Leuisham House
New York, NY 10043 25 Molesworth Street Term A Loan Commitment
London, England SE137EX 4.37500%
Facsimile No.: (212) 758-6278
Facsimile No.: 011-441-715004482 Term B Loan Commitment
Attention: Charles Foster 4.37500%
Attention: Maxine O'Hara
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
7. CREDIT LYONNAIS NEW YORK BRANCH
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 1301 Ave. of the Americas Address: 1301 Ave. of the Americas 4.92857%
New York, NY 10019 New York, NY 10019
Term A Loan Commitment
Facsimile No.: (212) 459-3176 Facsimile No.: (212) 459-3176 4.37500%
Attention: Michael Henderlong Attention: Michael Henderlong Term B Loan Commitment
4.37500%
8. CREDIT SUISSE FIRST BOSTON
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 11 Madison Avenue Address: 11 Madison Avenue 4.00000%
New York, NY 10010 New York, NY 10010
Term A Loan Commitment
Facsimile No.: (212) 325-8319 Facsimile No.: (212) 325-8319 1.5000%
Attention: Gina Manginello Attention: Gina Manginello Term B Loan Commitment
1.50000%
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
9. THE FIRST NATIONAL BANK OF
CHICAGO
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: One First Nat'l Plaza Address: One First Nat'l Plaza 6.28571%
10th Fl., Suite 0634 10th Fl., Suite 0634
Chicago, IL 60670 Chicago, IL 60670 Term A Loan Commitment
0%
Facsimile No.: (312) 732-4840 Facsimile No.: (312) 732-4840
Term B Loan Commitment
Attention: Sharon Bosch Attention: Sharon Bosch 0%
10. FLEET NATIONAL BANK
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: One Federal Street Address: One Federal Street 4.28571%
Boston, MA 02211 Boston, MA 02211
Term A Loan Commitment
Facsimile No.: (617) 346-4806 Facsimile No.: (617) 346-4806 2.50000%
Attention: Terri DeMarco Attention: Terri DeMarco Term B Loan Commitment
2.50000%
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
11. THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 333 South Grand Avenue Address: 333 South Grand Avenue 0%
Suite 4250 Suite 4250
Los Angeles, CA 90071 Los Angeles, CA 90071 Term A Loan Commitment
4.00000%
Facsimile No.: (213) 626-6552 Facsimile No.: (213) 626-6552
Term B Loan Commitment
Attention: Lenore Crummey-Benoit Attention: Lenore Crummey-Benoit 4.00000%
12. KZH HOLDING CORPORATION II
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: KZH Holding Corporation II Address: KZH Holding Corporation II 0.00000%
c/o Chase Manhattan Bank c/o Chase Manhattan Bank
450 West 33rd St. 15th Fl. 450 West 33rd St. 15th Fl. Term A Loan Commitment
New York, New York 10001 New York, New York 10001 4.00000%
Facsimile No.: (212) 946-7776 Facsimile No.: (212) 946-7776 Term B Loan Commitment
4.00000%
Attention: Robert Goodwin Attention: Robert Goodwin
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
13. LEHMAN COMMERCIAL PAPER INC.
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 3 World Financial Center Address: 3 World Financial Center 4.28571%
10th Floor 10th Floor
New York, New York 10285 New York, New York 10285 Term A Loan Commitment
2.50000%
Facsimile No.: (212) 528-0819 Facsimile No.: (212) 528-0819
Term B Loan Commitment
Attention: Michele Swanson Attention: Michele Swanson 2.50000%
14. MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 800 Scudders Mill Road Address: 800 Scudders Mill Road 0%
Plainsboro, NJ 08536 Plainsboro, NJ 08536
Term A Loan Commitment
Facsimile No.: (609) 282-2756 Facsimile No.: (609) 282-2756 8.00000%
Attention: Jill Montanye Attention: Jill Montanye Term B Loan Commitment
8.00000%
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
15. MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 500 Stanton Christiana Rd. Address: 500 Stanton Christiana Rd. 4.92857%
Mail Code: 3/OPS2 Mail Code: 3/OPS2
Newark, DE 19713 Newark, DE 19713 Term A Loan Commitment
4.37500%
Facsimile No.: (302) 634-4110 Facsimile No.: (302) 634-4110
Term B Loan Commitment
Attention: Colleen McCloskey Attention: Colleen McCloskey 4.37500%
16. NATIONAL WESTMINSTER BANK PLC
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 175 Water Street Address: 175 Water Street 4.92857%
New York, NY 10038 New York, NY 10038
Term A Loan Commitment
Facsimile No.: (212) 602-4118 Facsimile No.: (212) 602-4118 4.37500%
Attention: Rich Biggica Attention: Rich Biggica Term B Loan Commitment
4.37500%
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
17. NATIONSBANK OF TEXAS, N.A.
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 901 Main Street Address: 901 Main Street 8.00000%
Dallas, TX 75202 Dallas, TX 75202
Term A Loan Commitment
Facsimile No.: (214) 508-2118 Facsimile No.: (214) 508-2118 0%
Attention: Karen Puente Attention: Karen Puente Term B Loan Commitment
0%
18. THE SAKURA BANK, LIMITED
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 277 Park Avenue Address: 277 Park Avenue 4.28571%
45th Floor 45th Floor
New York, New York 10172 New York, New York 10172 Term A Loan Commitment
2.50000%
Facsimile No.: (212) 888-7651 Facsimile No.: (212) 888-7651
Term B Loan Commitment
Attention: Yoshikazu Nagura Attention: Yoshikazu Nagura 2.50000%
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
19. THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
<S> <C> <C>
Revolving Loan Commitment
Domestic Office: LIBOR Office: 4.28571%
Address: 277 Park Avenue Address: 277 Park Avenue
New York, NY 10172 New York, NY 10172 Term A Loan Commitment
2.50000%
Facsimile No.: (212) 224-5188 Facsimile No.: (212) 224-5188
Term B Loan Commitment
Attention: Gregory Aptman Attention: Gregory Aptman 2.50000%
20. UNION BANK OF CALIFORNIA, N.A.
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 70 South Lake Avenue Address: 70 South Lake Avenue 5.71428%
Suite 900 Suite 900
Pasadena, CA 91101 Pasadena, CA 91101 Term A Loan Commitment
1.00000%
Facsimile No.: (818) 304-1846 Facsimile No.: (818) 304-1846
Term B Loan Commitment
Attention: Angela Tiao Attention: Angela Tiao 1.00000%
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
21. VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: One Parkview Plaza Address: One Parkview Plaza 0%
Oakbrook Terrace, IL Oakbrook Terrace, IL
60181 60181 Term A Loan Commitment
8.00000%
Facsimile No.: (630) 684-6740/41 Facsimile No.: (630) 684-6740/41
Term B Loan Commitment
Attention: Brian Murphy Attention: Brian Murphy 8.00000%
with a copy to: with a copy to:
State Street Bank & Trust State Street Bank & Trust
Corporate Trust Department Corporate Trust Department
P.O. Box 778 P.O. Box 778
Boston, MA 02102 Boston, MA 02102
Facsimile No.: (617) 664-5366/67 Facsimile No.: (617) 664-5366/67
Attention: Laura Magazu Attention: Laura Magazu
</TABLE>
A-11
<PAGE>
<TABLE>
<CAPTION>
22. WELLS FARGO BANK, N.A.
<S> <C> <C>
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 555 Montgomery Street Address: 555 Montgomery Street 4.28571%
17th Floor, MAC 0167-173 17th Floor, MAC 0167-173
San Francisco, CA 94163 San Francisco, CA 94163 Term A Loan Commitment
2.50000%
Facsimile No.: (415) 362-5081 Facsimile No.: (415) 362-5081
Term B Loan Commitment
Attention: David Neumann Attention: David Neumann 2.50000%
23. MORGAN STANLEY SENIOR FUNDING, INC.
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 1585 Broadway, 10th Floor Address: 1585 Broadway, 10th Floor 0%
New York, NY 10036 New York, NY 10036
Term A Loan Commitment
Facsimile No.: (212) 761-0592 Facsimile: (212) 761-0592 2.50000%
Attention: John Milad Attention: John Milad Term B Loan Commitment
2.50000%
24. THE CHASE MANHATTAN BANK
Domestic Office: LIBOR Office: Revolving Loan Commitment
Address: 270 Park Avenue Address: 270 Park Avenue 4.00000%
New York, NY 10017 New York, NY 10017
Term A Loan Commitment
Facsimile No.: (212) 270-1848 Facsimile No.: (212) 270-1848 1.50000%
Attention: Peter Eckstein Attention: Peter Eckstein Term B Loan Commitment
1.50000%
</TABLE>
A-12
<PAGE>
Exhibit 10.2
SUBLEASE
between
LAKE LANIER ISLANDS DEVELOPMENT AUTHORITY,
Sublessor
and
KSL LAKE LANIER, INC.,
Sublessee
Dated: As of _________, 19__
Location: Lake Lanier Islands
Lake Lanier Islands, Hall County, Georgia
<PAGE>
TABLE OF CONTENTS
Page
----
1. Basic Provisions and Definitions..................................... 1
2. Premises............................................................. 8
3. Term................................................................. 9
4. Rent................................................................. 10
5. Sublessor's Lien..................................................... 14
6. Tax Payments......................................................... 15
7. Use.................................................................. 17
8. Alterations and Improvements......................................... 19
9. Repairs and Maintenance.............................................. 25
10. Insurance and Indemnity.............................................. 27
11. Utilities............................................................ 31
12. Assignment, Mortgaging and Subletting................................ 31
13. Access............................................................... 49
14. Sublessee's Property................................................. 49
15. Casualty Damage...................................................... 49
16. Eminent Domain....................................................... 52
17. Events of Default.................................................... 56
18. Sublessor's Remedies................................................. 58
19. Curing Sublessee's and Sublessor's Defaults.......................... 63
20. Surrender............................................................ 64
21. Quiet Enjoyment...................................................... 64
22. Estoppel Certificates................................................ 65
23. Memorandum of Sublease............................................... 66
24. Notices.............................................................. 66
25. Brokers.............................................................. 67
-i-
<PAGE>
Page
----
26. Miscellaneous........................................................ 67
27. Guarantor............................................................ 69
28. Time of the Essence.................................................. 69
29. Sublease Subject to Other Agreements; Covenant to
Perform Obligations.................................................. 69
30. Force Majeure........................................................ 74
31. Purchase Option...................................................... 74
32. Proration of Income and Expenses..................................... 75
33. Liquor Licenses...................................................... 75
34. Hotel Tax............................................................ 75
35. Due Authorization, Execution and Delivery of Sublease................ 76
36. Right of First Refusal............................................... 76
37. Assignments by Sublessor to Certain Parties.......................... 80
38. Maintenance by Sublessor............................................. 81
39. Financial Statements................................................. 81
-ii-
<PAGE>
Schedule of Exhibits First Reference
- -------------------- ---------------
Exhibit "A" - Description of Premises........................ss.1.17, p. 6
Exhibit "B" - Existing Title Exceptions......................ss.1.18, p. 6
Exhibit "C" - Description of Prime Lease.....................ss.1.19, p. 6
Exhibit "D" - Description of LLIDA Sublease..................ss.1.21, p. 6
Exhibit "E" - Percentage Rent Rider..........................ss.1.24, p. 7
Exhibit "F" - Use Restrictions................................ss.1.7, p. 2
Exhibit "G" - Hazardous Wastes Rider..........................ss.7.1,p. 15
Exhibit "H" - Memorandum of Lease.............................ss.23, p. 55
Exhibit "I" - Guaranty........................................ss.27, p. 57
Exhibit "J" - Corps Consent, Estoppel and
Non-Disturbance Agreement....................ss.1.28, p. 7
Exhibit "K" - DNR Consent, Estoppel and
Non-Disturbance Agreement....................ss.1.29, p. 7
Exhibit "L" - KSL Development Plan...........................ss.1.30, p. 7
Exhibit "M" - Closing Statement..............................ss.1.31, p. 7
Exhibit "N" - Property Pledged Under
Sublessor's Lien.............................ss.5.1, p. 12
Exhibit "O" - Intentionally Omitted
Exhibit "P" - Form of Mortgagee Recognition
Agreement................................ss.12.7(H), p. 36
Exhibit "Q" - Form of LLIDA Consent, Estoppel &
Non-Disturbance Agreement................ss.12.6(A), p. 29
Exhibit "R" - Improvements to be Owned by
Sublessee......................................ss.8.5, p. 19
Exhibit "S" - Schedule of Minimum Sub-sublease
Requirements..................................ss.12.1,p.26
Exhibit "T" - Schedule of 1995 Gross
Revenue...................(Exhibit "S"), ss.1 (a)(i), p. 1
Exhibit "U" - Liquor License Requirements.......................ss.33,p.62
Exhibit "V" - Form of Environmental Hazard
Insurance Policy............................ss.10.2, p. 24
Exhibit "W" - Schedule of Existing Conditions...............ss.10.5, p. 25
-iii-
<PAGE>
SCHEDULE OF DEFINITIONS
DEFINED TERM FIRST REFERENCE
- ------------ ---------------
1972 Act.......................................................Exhibit "C", p. 2
AAA...........................................................ss.18.12(c), p. 51
Additional Premises............................................Exhibit "C", p. 1
Additional Rent..................................................ss.4.1(c), p. 9
Address of Guarantor...............................................ss.1.16, p. 6
Address of Sublessee................................................ss.1.5, p. 2
Address of Sublessor.................................................ss.1.3, p.2
Aggregate Revenue..............................................Exhibit "E", p. 1
Allocated Annual Sales Base....................................Exhibit "S", p. 1
Annual Basic Rent Rate.............................................ss.1.11, p. 5
Annual Sales Base..............................................Exhibit "E", p. 1
Approved Sublease Form............................................ss.12.1, p. 26
Army............................................................Exhibit "C", p.1
Assignee.........................................................ss.36(b), p. 64
Assignment 1...................................................Exhibit "C", p. 1
Authority......................................................ss.29.1(a), p. 58
Basic Rent........................................................ss.41(a), p. 9
Bridge Maintenance Agreement.....................................ss.19(b), p. 52
Change Order....................................................ss.8.2(e), p. 18
Closing Statement..................................................ss.1.31, p. 7
Commencement Date...................................................ss.1.8, p. 4
Contract.......................................................Exhibit "C", p. 2
Corps......................................................................p. 68
Corps of Engineers.................................................ss.1.26, p. 7
Corps Consent, Estoppel and Non-Disturbance
Agreement.......................................................ss.1.28, p. 7
Date of this Sublease...............................................ss.1.1, p. 1
DEP............................................................Exhibit "G", p. 1
DNR................................................................ss.1.27, p. 7
DNR Consent, Estoppel and Non-Disturbance
Agreement.......................................................ss.1.29, p. 7
Environmental Complaint........................................Exhibit "G", p. 1
EPA............................................................Exhibit "G", p. 1
Event of Default..................................................ss.17.1, p. 47
Execution Date......................................................ss.1.6, p. 2
Existing Improvements..............................................ss.9.3, p. 22
Existing Title Exceptions..........................................ss.1.18, p. 6
Expiration Date.....................................................ss.1.9, p. 4
Extension Option.................................................ss.3 2(a), p. 8
Extension Period.................................................ss.3.2(a), p. 8
Fifth Supplemental Agreement...................................Exhibit "C", p. 1
First Partial Lease Year.......................................Exhibit "E", p. 1
First Supplemental Agreement...................................Exhibit "C", p. 1
Fourth Supplemental Agreement..................................Exhibit "C", p. 1
GAAP...........................................................Exhibit "E", p. 2
GDOT.............................................................ss.19(b), p. 52
Gross Revenue..................................................Exhibit "E", p. 2
Guarantor..........................................................ss.1.15, p. 6
Hall County Agreement...............................................ss.34, p. 62
Hazardous Discharge............................................Exhibit "G", p. 1
-iv-
<PAGE>
SCHEDULE OF DEFINITIONS - CONTINUED
DEFINED TERM FIRST REFERENCE
- ------------ ---------------
Impositions........................................................ss.1.10, p. 4
Incurable Defaults.............................................ss.12.7(E), p. 32
Individual Sublease...............................................ss.12.8, p. 38
Individual Subleases..............................................ss.12.8, p. 38
Initial Premises...............................................Exhibit "C", p. 1
Insurance Costs...................................................ss.10.1, p. 23
Insurance Requirements.............................................ss.1.13, p. 5
KSL Conceptual Plan................................................ss.1.30, p. 7
Last Partial Lease Year........................................Exhibit "E", p. 5
Late Payment Interest Rate..........................................ss.4.4, p. 9
Lease..........................................................Exhibit "C", p. 1
Leasehold Mortgage................................................ss.1.13A, p. 5
Leasehold Mortgagee.............................................ss.1.13(B), p. 5
Lease Year.........................................................ss.1.24, p. 7
Lessee.........................................................ss.29.1(a), p. 57
Legal Requirements.................................................ss.1.14, p. 5
LLIDA..............................................................ss.1.20, p. 6
LLIDA Sublease.....................................................ss.1.21, p. 6
LLIDC...............................................................ss.1.22, p.6
Major Event.....................................................ss.4.5(a), p. 10
Material Portion of the Premises...........................ss.16.1(a)(ii), p. 44
Minimum Sublease Rent.............................................ss.12.1, p. 26
Mortgagee Sublease.............................................ss.12.7(G), p. 33
Net Sailing Academy Revenue....................................Exhibit "E", p. 3
Net Stouffer Revenue...........................................Exhibit "E", p. 3
New Improvements...................................................ss.9.3, p. 22
Notice of Contest.............................................ss.18.12(a), p. 51
Notices.............................................................ss.24, p. 55
Parks..........................................................Exhibit "C", p. 1
Percentage Rent..................................................ss.4 1(b), p. 9
Percentage Rent Rate...........................................Exhibit "E", p. 1
Permitted Use.......................................................ss.1.7, p. 2
Personal Property...................................................ss.31, p. 62
Preapproved Project...............................................ss.12.4, p. 28
Preapproved Projects..............................................ss.12.4, p. 28
Premises...........................................................ss.1.17, p. 6
Prime Lease........................................................ss.1.19, p. 6
Proration Date......................................................ss.32, p. 62
Recognized Sub-sublease........................................ss.12.6(A), p. 29
Recognized Sub-sublessee.......................................ss.12.6(A), p. 29
Rent................................................................ss.4.1, p. 9
Rent Reduction..................................................ss.4.5(b), p. 11
Reserve Account....................................................ss.9.4, p. 22
Reserve Deposit....................................................ss.9.4, p. 22
Reserve Deposits...................................................ss.9.4, p. 22
Sailing Academy License........................................Exhibit "E", p. 3
Second Supplemental Agreement..................................Exhibit "C", p. 1
Stouffer Sublease..................................................ss.1.23, p. 6
Sublessee...........................................................ss.1.4, p. 2
Sublessee's Accountants........................................Exhibit "E", p. 6
-v-
<PAGE>
SCHEDULE OF DEFINITIONS - CONTINUED
DEFINED TERM FIRST REFERENCE
- ------------ ---------------
Sublessor...........................................................ss.1.2, p. 1
Sublessor's Accountants........................................Exhibit "E", p. 7
Sublessor's Lien...................................................ss.1.12, p. 5
Substantial Completion.............................................ss.8.3, p. 18
Successors and Assigns.........................................Exhibit "I", p. 4
Stouffer's Sublessee...............................................ss.1.25, p. 7
Term................................................................ss.3.1, p. 8
Third Supplemental Agreement...................................Exhibit "C", p. 1
Title Objections.................................................ss.36(d), p. 64
United States Persons........................................ss.36(b)(ii), p. 64
-vi-
<PAGE>
AGREEMENT OF SUBLEASE -- LAKE LANIER ISLANDS
THIS SUBLEASE ("Sublease"), made and entered into as of ____________, 19__
(referred to herein as the "date of this Sublease"), by and between LAKE LANIER
ISLANDS DEVELOPMENT AUTHORITY, a body corporate and politic created and existing
under the laws of the State of Georgia, as sublessor ("Sublessor") and KSL LAKE
LANIER, INC., a Delaware corporation, as sublessee ("Sublessee");
W I T N E S S E T H :
WHEREAS under and by virtue of the "LLIDA Sublease" (as hereinafter
defined), Sublessor is the sublessee and the owner and holder of a subleasehold
estate in certain property in Hall County, Georgia commonly known as "Lake
Lanier Islands"; and
WHEREAS, Sublessor has determined, in the exercise of the authority vested
in it by law, that a privatization of the operation of the recreational resort
development on said property is the appropriate means to achieve the objectives
contemplated by Official Code of Georgia Annotated Section 12-3-318; and
WHEREAS, Sublessee is experienced in the operation of such recreational
resort developments and desires to enter into a sub-sublease of said property
and the improvements thereon from Sublessor; and
WHEREAS, Sublessor has determined that it is in the best interests of the
Sublessor and the State of Georgia for Sublessor to enter into such sub-sublease
with Sublessee;
NOW, THEREFORE, for and in consideration of the premises recited above,
the covenants and agreements hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Sublessor and Sublessee do hereby covenant and agree as follows:
1. Basic Provisions and Definitions.
This Paragraph 1 is an integral part of this Sublease and all of the terms
hereof are incorporated into this Sublease in all respects. In addition to the
other terms which are defined in this Sublease, the following capitalized terms,
whenever used in this Sublease, shall have the meanings set forth in this
Paragraph 1, and only such meanings, unless such meanings are expressly
contradicted, limited or expanded elsewhere herein:
1.1 Date of this Sublease: As of __________, 19__.
1.2 Sublessor: LAKE LANIER ISLANDS DEVELOPMENT AUTHORITY.
<PAGE>
2
1.3 Address of Sublessor: Lake Lanier Islands Development
Authority
6950 Holiday Road
Lake Lanier Islands, Georgia 30518
Attn: Frank Lee Smith,
Interim Executive Director
1.4 Sublessee: KSL LAKE LANIER, INC.
1.5 Address of Sublessee: KSL Lake Lanier, Inc.
6950 Holiday Road
Lake Lanier Islands, Georgia 30518
Attn: Ray Williams
With a copy to: KSL Lake Lanier, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
Attn: Nola S. Dyal, Esq.
Billing Address of
Sublessee: KSL Lake Lanier, Inc.
6950 Holiday Road
Lake Lanier Islands, Georgia 30518
Attn: Ray Williams
1.6 Execution Date: The date of actual execution and delivery of this
Sublease, which the parties acknowledge to be 19__ [insert date of release from
escrow].
1.7 Permitted Use: The following uses, to the extent consistent with the
KSL Development Plan, as the same may be modified as provided herein, permitted
by the Corps of Engineers, and subject to the use restrictions set forth in
Exhibit "F", as the same may be modified as provided herein:
(a) Public park and recreational purposes, including, without
limitation, theme and amusement parks, resort attractions, resort uses, resort
rentals, hiking trails, swimming pools and water related amenities;
(b) Hotels and related uses, including, without limitation, hotel
villas, suites, lodges, conference rooms, ballrooms, restaurant and hotel retail
facilities, sales and marketing facilities, office spaces related to the hotel
operations, and educational and classroom facilities;
(c) Vacation services, including, but not limited to, tourist and
travel agency services, vacation related activities, including summer camps,
family events, dances and dining, rentals of resort villas, cabins, campground
spaces, boat rental operations and uses incidental thereto, including sale of
fuel and service and repair facilities for rental boats, and horseback and
stable operations;
<PAGE>
3
(d) Sports and entertainment uses, including, without limitation,
golf and tennis facilities, fitness and health facilities, fishing tournaments,
fishing schools and teaching facilities and other facilities relating to
fishing, dining areas and beverage establishments, entertainment venues,
jogging, biking and hiking improvements, theaters, amphitheaters and festival
venues, golf practice areas, golf clubhouse and lodging facilities, golf retail
and restaurant facilities, golf schools and teaching facilities, tennis practice
facilities, tennis clubhouse and lodging facilities, tennis retail and
restaurant facilities, tennis schools and teaching facilities;
(e) Retail stores and other commercial uses (such as, without
limitation, restaurants, gift shops, apparel boutiques, drug stores, convenience
stores, sporting goods stores, nightclubs, laundries and dry cleaners, fishing
and camping retail sales outlets, arts and crafts stores, recreational clothing
and merchandise stores, boat and water related equipment sales facilities,
subject to Paragraph 1(x) on the attached Exhibit "F", containing certain
restrictions on boat and related sales) consistent with a recreational resort;
(f) Restaurant and related uses, including, without limitation,
restaurants, food and beverage facilities, and related facilities, related
office areas for restaurant and related activities, catering and sales marketing
facilities;
(g) Office and other uses relating to operations on the Premises by
any partnership, association, corporation or other entity owned or controlled by
Sublessee or which owns or controls Sublessee, or which is under common control
with Sublessee (an "Affiliate"); office and other uses incidental to any other
Permitted Use by parties which are otherwise conducting on the Premises any of
the Permitted Uses;
(h) Office uses by Affiliates of Sublessee not relating to
operations on the Premises by such Affiliates, provided that the usable square
footage occupied by all such Affiliates in connection with such unrelated uses
does not exceed, in the aggregate, 25,000 usable square feet;
(i) Office uses by parties other than Affiliates of Sublessee, which
office uses are not incidental to any other Permitted Use by such party,
provided that the usable square footage occupied by all such parties does not
exceed, in the aggregate, 150,000 usable square feet (excluding square footage
occupied in connection with or incidental to other Permitted Uses by such
parties);
(j) Ancillary infrastructure and support facilities, including,
without limitation, utilities, roads, parking lots or structures,
telecommunications facilities, heating, ventilation and air conditioning
facilities, boiler room facilities and other
<PAGE>
4
mechanical facilities and equipment, maintenance areas and structures;
(k) Theme attractions, including aerial and ground rides, aquariums,
dinner cruise boat attractions, and facilities typically found in water parks,
theme parks or other daily fee attraction venues;
(l) Docks, moorings, wharves, and other similar facilities, which
may be located on the waters of Lake Lanier within the areas permitted by the
Prime Lease and this Sublease. Sublessee shall not construct or operate marinas
(consisting of docks the primary purpose of which is the storage of boats by the
general public, and boat repair facilities), except as may be approved in
writing by the Corps of Engineers. This provision shall not be deemed to
prohibit the acquisition, ownership or operation by Sublessee, or an Affiliate
of Sublessee, or by a joint venture or other entity in which Sublessee or its
Affiliate is a venture partner or other beneficial owner, of the Holiday on Lake
Lanier Marina located adjacent to the Premises, or of an operating or other
agreement or arrangement between Sublessee and the owner, lessee or operator of
the Holiday on Lake Lanier Marina, or of the expansion thereof with the prior
approval of the Corps of Engineers within the cove adjacent to the Holiday on
Lake Lanier Marina;
1.8 Commencement Date: The date of commencement of the Term shall be the
Execution Date.
1.9 Expiration Date: The Expiration Date shall be 12:00 midnight on
_________, 20__ [insert date which is two days prior to expiration of Prime
Lease], subject to earlier termination as provided in this Sublease, and subject
to extension as provided in Paragraph 3.2 of this Sublease.
1.10 Impositions: All taxes, assessments, use and occupancy taxes, transit
taxes, water and sewer charges, rates and rents, charges for public utilities,
excises, levies, license and permit fees and other charges, general and special,
ordinary and extraordinary, foreseen and unforeseen, of any kind and nature
whatsoever, which shall or may during the Term (as hereinafter defined) be
assessed, levied, charged, confirmed or imposed upon or accrue or become due or
payable out of or on account of or become a lien on the Premises or any portion
thereof, the appurtenances thereto, or the rent and income [including rents and
other income received by or for the account of Sublessee from any subtenants or
for any use or occupation of the Premises or any portion thereof, and such
franchises, licenses and permits as may be appurtenant to the use of the
Premises or any portion thereof, or any documents to which Sublessee is a party
(which documents create or transfer any interest or estate in the Premises or
any portion thereof, payable to any governmental body)]. Impositions shall not
include any income taxes, capital levy, estate, succession,
<PAGE>
5
inheritance or transfer taxes or similar tax payable by or imposed upon
Sublessor or DNR or any franchise taxes imposed upon any owner of the fee of the
Premises or any income, profits or revenue tax, assessment or charge imposed
upon the rent or other benefit received by Sublessor under this Sublease, by any
municipality, county or state, the United States of America or any governmental
body, or any tax or other assessment (other than the hotel tax described in
Paragraph 34 below) levied by Sublessor or DNR solely against the Premises or
any portions thereof, or solely against properties or assets such as the
Premises which have been privatized by the State of Georgia; provided, however,
that if at any time during the Term, the present method of taxation or
assessment shall be so changed that the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or imposed on
real estate and the improvements thereon shall be discontinued and as a
substitute therefor, taxes, assessments, levies, impositions or charges shall be
levied, assessed and/or imposed wholly or partially as a capital levy or
otherwise on the rental received from said real estate or the rents reserved
herein or any part thereof, then such substitute taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or imposed, shall be
deemed to be included within the term "Impositions" to the extent that such
substitute tax would be payable if Premises were the only property of Sublessor
subject to such tax. Impositions shall not include any taxes (including, without
limitation, any state, county or local ad valorem real estate taxes) which are
imposed on the interest of Sublessor hereunder, or on the interest of DNR in the
Premises, or which are hereafter imposed as the result of any transfer by
Sublessor or DNR to any party to whom the tax exemptions currently available to
DNR and Sublessor are not available or applicable.
1.11 Annual Basic Rent Rate: Three Million and No/100 Dollars
($3,000,000.00) per annum ($250,000.00 per month) during the Term.
1.12 Sublessor's Lien: As defined in Paragraph 5 hereof.
1.13 Insurance Requirements: All requirements of any insurance policy
required under this Sublease covering or applicable to any part of the Premises
or the use thereof; all requirements of the issuer of any such policy, and all
orders, rules, regulations, and other requirements of the Association of Fire
Underwriters, Factory Mutual Insurance Companies, the Insurance Services
Organization, and any other body exercising the same or similar functions and
having jurisdiction or cognizance of any part of the Premises. Insurance
Requirements shall not include any requirements, orders, rules, regulations or
recommendations imposed by the Georgia Department of Administrative Services or
any successor office or department which carries or coordinates insurance for
Sublessor, DNR or the State of Georgia.
<PAGE>
6
1.13A Leasehold Mortgage: as defined in Paragraph 12.7 hereof.
1.13B Leasehold Mortgagee: as defined in Paragraph 12.7 hereof.
1.14 Legal Requirements: All laws, statutes and ordinances (including
building codes and zoning regulations and ordinances, to the extent the same are
applicable to the Premises) and the orders, rules and regulations of all
federal, state, county and city departments, bureaus, boards, agencies, offices,
commissions and other subdivisions thereof, or of any official thereof, or of
any other governmental, public or quasi-public authority, whether now or
hereafter in force, which may be applicable to the Premises, or any part
thereof, all requirements, obligations and conditions of all Existing Title
Exceptions and all requirements, obligations and conditions of all future
instruments of record to which Sublessee is a party or consents in writing.
Legal Requirements shall not include any order, rule, regulation, directive or
requirement of the State of Georgia or any such state, county or city
department, bureau, board, agency, office, commission or other subdivision
thereof, or of any official thereof, or of Sublessor, (a) which is applicable
solely to the Premises or any portions thereof (except any such orders,
directives or requirements pursuant to laws and regulations of general
application, such as enforcement of violations of health codes of general
application), or (b) which is applicable solely to properties or assets such as
the Premises which have been privatized by the State of Georgia, to the extent
that any such order, rule, regulation, directive or requirement is in conflict
or inconsistent with the provisions of this Sublease, or imposes additional
duties or obligations on Sublessee which are not contained in this Sublease.
1.15 Guarantor: KSL Recreation Corporation, a Delaware corporation.
1.16 Address of Guarantor: KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Attn: John K. Saer, Jr.
1.17 Premises: Those certain premises consisting of approximately 1,040.7
acres of land located in Hall County, Georgia, and being more particularly
described on Exhibit "A" attached hereto and made a part hereof, together with
the improvements thereon, said land and improvements being commonly known as
Lake Lanier Islands; together with all rights, members, easements and
appurtenances benefiting or appertaining thereto; together with all intervening
lands between the lands otherwise described on Exhibit "A" and the water's edge
of Lake Sidney Lanier, as it may vary due to water level fluctuations; together
with the right to place recreational facilities and establish protected swimming
areas in and upon the adjacent water areas of
<PAGE>
7
Lake Sidney Lanier subject to the provisions of the Prime Lease, it being
understood that, upon construction of such facilities and establishment of such
protected swimming areas, the Premises shall then include, without further
amendment of this Sublease, the area occupied by, and land and water area within
100 feet of, such approved recreation facilities and protected swimming areas.
1.18 Existing Title Exceptions: The matters set forth on Exhibit "B"
attached hereto.
1.19 Prime Lease: That certain lease described in Exhibit "C" attached
hereto.
1.20 LLIDA: Lake Lanier Islands Development Authority, a body corporate
and politic created and existing under the laws of the State of Georgia.
1.21 LLIDA Sublease: That certain sublease described in Exhibit "D"
attached hereto.
1.22 LLIDC: Lake Lanier Islands Development Commission, a former
department of the executive branch of the State of Georgia.
1.23 Stouffer Sublease: That certain Lease Agreement dated February 26,
1973, by and between LLIDC and LLIDA, as lessor, and Lanier Islands Inn
Associates (the "Partnership"), a general partnership originally composed of
William L. Gunter, Joe H. Anderson, J. William Gibson, E. Michael Masinter,
William S. King, Robert B. Russell and Robert L. Rate, as amended by Amendment
to Lease Agreement dated March 26, 1974 and recorded in Deed Book 559, page 376,
Hall County, Georgia records, by and between LLIDC and LLIDA, as lessor, and the
Partnership, as lessee (through its partners William L. Gunter, Joe H. Anderson,
J. William Gibson, E. Michael Masinter, William S. King and Robert B. Russell),
as further amended by Amendment to Lease Agreement dated June 18, 1976, by and
between LLIDC and LLIDA, as lessor, and the Partnership, as lessee (through its
partners William L. Gunter, Joe H. Anderson, J. William Gibson, E. Michael
Masinter, Robert C. Sawyer, W. Wesley Devoto, William S. King and Robert B.
Russell), as further amended by Amendment to Lease Agreement dated October 28,
1976, by and between LLIDC and LLIDA, as lessor, and the Partnership, as lessee
(through its partners William L. Gunter, J. William Gibson, E. Michael Masinter,
Robert C. Sawyer, W. Wesley Devoto, William S. King and Robert B. Russell), and
assigned by the Partnership to The Stouffer Corporation, an Ohio Corporation as
of February 25, 1977, and recorded in Deed Book 621, page 429, aforesaid
records, and further assigned by The Stouffer Corporation to The Stouffer Hotel
Company pursuant to that certain Transfer and Assignment of Lessee's Interest in
Lease, dated September 15, 1989 and recorded in Deed Book 1415, page 151,
aforesaid records, and as further assigned by The Stouffer Hotel Company to the
current Stouffer's Sublessee.
<PAGE>
8
1.24 Lease Year: As defined in Exhibit "E" hereto.
1.25 Stouffer's Sublessee: the holder of the interest of the sublessee
under the Stouffer Sublease.
1.26 Corps of Engineers: The United States Army Corps of Engineers
1.27 DNR: The State of Georgia acting through its Department of Natural
Resources.
1.28 Corps Consent, Estoppel and Non-Disturbance Agreement: That certain
Consent, Estoppel and Non-Disturbance Agreement executed by the Corps of
Engineers in favor of Sublessee and its permitted assignees and sublessees, a
copy of which is attached hereto as Exhibit "J".
1.29 DNR Consent, Estoppel and Non-Disturbance Agreement: That certain
Consent, Estoppel and Non-Disturbance agreement executed by DNR in favor of
Sublessee and its permitted assignees and sublessees, a copy of which is
attached hereto as Exhibit "K".
1.30 KSL Development Plan: That certain conceptual plan shown on the
document referenced on Exhibit "L"attached hereto, which plan has been approved
by Sublessor and DNR, as the same may be modified or amended from time to time
with the approval of Sublessor, DNR and the Corps of Engineers. The approval of
Sublessor to any such modifications of such conceptual plan shall not be
unreasonably withheld, delayed or conditioned. In addition, Sublessor will
assist and cooperate with Sublessee in obtaining the approval of the Corps of
Engineers to such conceptual plan, and will assist and cooperate with Sublessee
in obtaining the approval of the Corps of Engineers and DNR to any such
modifications of such conceptual plan which are or are required to be approved
by Sublessor under this Sublease.
1.31 Closing Statement: That certain Closing Statement which is executed
by the Sublessee and Sublessor contemporaneously with this Sublease and which
relates to the proration, adjustments, and other economic information between
the parties relating to the transfer of the Premises from Sublessor to
Sublessee, a copy of which is attached hereto as Exhibit "M".
2. Premises.
2.1 Sublessor hereby demises and leases to Sublessee and Sublessee hereby
leases, rents and hires from Sublessor, the Premises, subject, however, to the
Existing Title Exceptions and terms and conditions of this Sublease. It is the
specific intent and agreement of the parties hereto that this Sublease shall
create and vest in Sublessee an estate for years in and to the Premises, and not
a usufruct.
<PAGE>
9
3. Term.
3.1 The term of this Sublease (the "Term") shall commence on the
Commencement Date, as set forth in Paragraph 1.8 hereof, and shall end at
midnight on the Expiration Date, as set forth in Paragraph 1.9 hereof, unless
the Term shall sooner terminate or be extended pursuant to any of the terms or
conditions of this Sublease.
3.2 (a) Sublessor and Sublessee acknowledge and agree that the term of the
Prime Lease currently expires on _________, 20__ [insert date of expiration of
Prime Lease, not later than 50 years from release from escrow] [***and the term
of the LLIDA Sublease currently expires _________, 20__ [insert date which is
one day prior to date of expiration of Prime Lease]]. Sublessor agrees that
Sublessee shall have the right (the "Extension Option") to extend the Term of
this Sublease from the expiration date of the Term of this Sublease to
_________, 2056 [insert date which is ten years after initial expiration of this
Sublease] (the "Extension Period") upon the same terms and conditions set forth
in this Sublease (including, without limitation, Basic Rent and Percentage
Rent), provided that the term of the Prime Lease is extended so as to expire no
earlier than _________, 2056 [insert date which is ten years after initial
expiration of Prime Lease]. Sublessor agrees that it will assist Sublessee in
the presentation of any request for any such extension of the term of the Prime
Lease to the Corps of Engineers, and use its reasonable efforts to obtain
approval by the Corps of Engineers. DNR has agreed that, if the Prime Lease is
extended as described in this Paragraph 3.2(a), the LLIDA Sublease will be
extended for the same period of time. If the Prime Lease is extended by the
Corps of Engineers to a date which is earlier than ________, 2056 [insert date
which is 10 years after initial expiration of Prime Lease], the Extension Period
shall expire on the day which is two (2) days prior to the expiration date of
the Prime Lease, as so extended, and the Extension Option shall be deemed to
apply to such shorter Extension Period. Sublessee shall give Sublessor written
notice on or before _________, 2008 [insert day of month which is two days prior
to expiration day of month of Prime Lease in 2056] whether Sublessee desires to
exercise the Extension Option.
(b) It is further understood and agreed that during the term of this
Sublease it is contemplated by Sublessor and Sublessee that Sublessee will
develop improvements on the Premises. To the extent it becomes necessary or
desirable to extend the expiration of the Term of this Sublease beyond the then
balance of the Term to a new term for a full fifty (50) years from the date of
the request for extension, Sublessor will consider in good faith a request for
such an extension. Sublessor reserves the right to require changes in this
Sublease for the period of the new extension, provided that, except as
hereinabove set forth, no changes shall be made in the rent and other terms of
the Sublease applicable to any extension of the
<PAGE>
10
Term during the Extension Period. Sublessor also agrees that it will assist
Sublessee in the presentation of a request to the Corps of Engineers and DNR for
any such extension of the Prime Lease and the LLIDA Sublease approved by
Sublessor, and use its reasonable efforts to obtain approval by the Corps of
Engineers and DNR.
4. Rent.
4.1 Sublessee shall pay to Sublessor during the Term, in lawful money (by
good check evidencing immediately available funds) of the United States, without
any prior demand therefor and without any offsets or deductions whatsoever
except as may be other~vise expressly provided herein, the following sums
(collectively, "Rent"):
(a) fixed rent ("Basic Rent") at the Annual Basic Rent Rate for the
period commencing on the Execution Date and ending on the Expiration Date. In
addition, an amount equal to the amount of Basic Rent which would have been
payable for the period beginning on (and as though the Term of this Sublease had
commenced on) the Proration Date and ending on the day prior to the Execution
Date shall be due and payable on the Execution Date.
(b) percentage rent ("Percentage Rent") at the rate specified in,
and on the terms and conditions set forth in, the Percentage Rent Rider attached
hereto as Exhibit "E"; and
(c) additional rent ("Additional Rent") consisting of all other sums
of money as shall become due from and be payable by Sublessee hereunder (for
default in the payment of which Sublessor shall have the same remedies as for a
default in the payment of Basic Rent). Basic Rent, Percentage Rent and
Additional Rent are sometimes collectively referred to herein as "Rent".
4.2 Except as expressly provided in Paragraph 4.1 hereof, Basic Rent shall
be payable in advance in equal monthly installments beginning on the Execution
Date and continuing on the first day of each calendar month thereafter during
the Term. In addition, an amount equal to the amount of Basic Rent which would
have been payable for the period beginning on (and as though the Term of this
Sublease had commenced on) the Proration Date and ending on the day prior to the
Execution Date shall be due and payable on the Execution Date.
4.3 The amount payable on the Execution Date calculated based upon the
Proration Date, as set forth above, shall be prorated on the basis of the actual
number of days in the month in which the Proration Date occurs. In the event the
Expiration Date shall occur on a day other than the last day of a calendar
month, then the amount of the monthly installment of the Basic Rent for the last
month or portion thereof in which the
<PAGE>
11
Expiration Date occurs shall be prorated on the basis of the actual number of
days in such month, and any excess prepaid Basic Rent and Additional Rent shall
be refunded by Sublessor to Sublessee on the Expiration Date.
4.4 If Sublessee shall fail to pay any rents, charges or other sums after
the same become due and payable, such unpaid amounts shall bear interest at the
per annum rate of one percent (1%) in excess of the rate from time to time
announced by NationsBank, N.A. (or any successor thereto) as its "prime rate"
("Late Payment Interest Rate"), calculated on the basis of actual days elapsed,
based on a three hundred sixty (360) day year, from the fifth (5th) business day
following the due date of such rents, charges or other sums to the date of
payment; except that such interest shall never exceed the maximum legal rate
from time to time permitted by applicable law; provided, however, if the payment
is more than thirty (30) days late, the Late Payment Interest Rate, from and
after such thirtieth (30th) day, shall be increased by three (3) percentage
points, except that such interest shall never exceed the maximum legal rate from
time to time permitted by applicable law The provisions herein for Additional
Rent shall not be construed to extend the date for payment of any sums required
to be paid by Sublessee hereunder or to relieve Sublessee of its obligation to
pay all such sums at the time or times herein stipulated. Notwithstanding the
imposition of such Additional Rent, Sublessee shall be in default under this
Sublease if any or all payments required to be made by Sublessee are not made
within ten (10) days following written notice that any such amounts are past
due, which notice shall identify in reasonable detail the items required to be
paid, and the exact amount required to cure such default. Notwithstanding
anything to the contrary in this Sublease, Sublessee shall not be in default
with respect to payment of Percentage Rent until the expiration of ten (10) days
following written notice received by Sublessee of the final determination of the
amount thereof following any dispute with respect thereto, which shall be
resolved in accordance with the provisions of the Percentage Rent Rider attached
hereto as Exhibit "E", provided that Sublessee shall have paid, on or before the
due date or within any applicable notice and grace period, the amount of
Percentage Rent which is undisputed.
4.5 (a) For purposes of this Paragraph 4.5, a "Major Event" shall mean any
of the following events: (i) Sublessee is prevented from charging such prices,
rates and charges as it chooses in its sole discretion for products and services
on the Premises because of the relationship of Sublessor or DNR to the Premises,
or by reason of legal requirements specifically applicable only to the Premises
or applicable solely to properties or assets such as the Premises which have
been privatized by the State of Georgia; (ii) Sublessee is prevented from
charging such prices, rates and charges as the result of controls imposed by the
Corps in a manner inconsistent with the Corps Consent, Estoppel and
Non-Disturbance Agreement; (iii)
<PAGE>
12
Sublessee fails to obtain liquor licenses in accordance with the terms of
Paragraph 33 hereof, Sublessee having otherwise complied in all respects with
all of the terms and conditions set forth therein, due to (A) the nonexistence
of Sublessor, (B) Sublessor's failure or refusal to issue such liquor licenses
for any reason other than Sublessee's failure to comply with the usual and
customary requirements of Sublessor, or failure to comply with the terms of
Paragraph 33 hereof, which failure Sublessee fails to cure within thirty (30)
days after receipt of written notice that any such liquor license will not be
issued, which notice shall set forth in reasonable detail the reason that such
liquor license will not be issued and any action required to satisfy the
objections of Sublessor, or (C) the lack of authority of Sublessor to issue
liquor licenses; (iv) the hotel tax described in Paragraph 34 is no longer
imposed by Sublessor, and/or (subject to the limitations on the applications of
such funds described in Paragraph 34 below) Sublessee no longer may use its
discretion in determining how such funds may be utilized in promoting and
marketing the Premises, due to (A) the nonexistence of Sublessor, (B)
Sublessor's failure or refusal to impose such tax, or (C) the lack of authority
of Sublessor to impose such tax; (v) the Corps target level of the waters of
Lake Lanier is permanently reduced below an elevation of 1059 feet based on
National Geodetic Vertical Datum; and (vi) the State of Georgia (or any other
agency or instrumentality thereof) levies any tax or other assessment solely
against the Premises or any portions thereof, or solely against properties or
assets such as the Premises which have been privatized by the State of Georgia.
The event described in subclause (iv) above shall not be a Major Event if such
hotel tax is no longer imposed by Sublessor by reason of a general repeal of
such tax.
(b) The parties agree that the occurrence of a Major Event may
damage Sublessee, and that a reduction in the rental paid by Sublessee to
Sublessor under this Sublease will be appropriate. Sublessor and Sublessee agree
that in the event of the occurrence of any Major Event, Sublessee shall be
entitled to a reduction of Basic Rent and Percentage Rent in an amount equal to
the losses, costs, damages and expenses incurred by Sublessee by reason of such
Major Event, including, without limitation, start-up costs, marketing and
promotional costs and expenses, and a reasonable, good faith estimate by
Sublessee of lost profits and returns on investment opportunities eliminated by
reason of the occurrence of such Major Event (the total amount of such losses,
costs, damages and expenses is hereinafter referred to collectively as the "Rent
Reduction"). The parties will use good faith efforts to reach an agreement as to
the amount of the Rent Reduction and amend this Sublease to reduce the Rent by
the amount of the Rent Reduction. Upon the occurrence of any Major Event, and
until the amendment of this Sublease to effect the Rent Reduction, or the
termination of this Sublease as hereinafter provided, all Basic Rent and
Percentage Rent under this Sublease shall be tolled in full commencing on the
expiration of one hundred twenty (120) days after the date of
<PAGE>
13
such occurrence, provided that the inability of the parties to reach an
agreement as to the amount of the Rent Reduction and to amend this Sublease as
provided above is not the result of any challenge by Sublessee of the
enforceability of any of the provisions of this Paragraph 4.5(b). Any Rent which
is determined to be payable by Sublessee during any period that the rent is
tolled pursuant to the provisions of the preceding sentence shall be paid in
full by Sublessee within ten (10) days after the date of determination of the
amount of the Rent Reduction. The Rent Reduction shall be retroactive to the
date of the occurrence of the Major Event. Any Rent which is determined not to
be payable by Sublessee with respect to the period after the date of occurrence
of a Major Event but which has been previously paid by Sublessee shall be
refunded by Sublessor within ten (10) days after the date of determination of
the amount of the Rent Reduction and, if not so refunded by Sublessor within
such ten (10) day period, Sublessee shall have a right of offset against the
Rent subsequently payable hereunder with respect to the amount not refunded. In
determining the amount of the Rent Reduction, the parties and the appraisers to
be appointed pursuant to Paragraph 4.5(c) below, shall take into account any
reduction in the return on the investment of Sublessee and its permitted
assignees and sublessees of the $9,000,000 payment made by Sublessee
contemporaneously with the execution of this Sublease, and any capital
expenditures made by Sublessee, and its permitted assignees and sublessees, to
the time of determination of such loss.
(c) If the parties are unable to reach agreement as to the amount of
the Rent Reduction, the Rent Reduction, and the amount of the losses, costs,
damages and expenses incurred by Sublessee by reason of such occurrence, shall
be determined by the following appraisal process: Sublessor and Sublessee shall
each appoint one appraiser to determine the Rent, and each shall promptly notify
the other of such appointment. If either party shall fail or refuse so to
appoint an appraiser and give notice thereof within thirty (30) days after
written request from the other party, the appraiser appointed by such other
party shall within an additional thirty (30) days thereafter individually make
any such appraisal. If the parties have each so appointed an appraiser, the two
appraisers thus appointed shall make such determination within thirty (30) days
after the date of the later notice of appointment. If such two appraisers are
unable to agree on such determination within said thirty (30) days, they shall,
within an additional ten (10) days thereafter, jointly appoint a third
appraiser; if they fail so to appoint such third appraiser within said ten (10)
days, the third appraiser shall, within an additional ten (10) days thereafter,
be appointed jointly by Sublessor and Sublessee (or upon their inability to
agree, by the American Institute of Real Estate Appraisers, or its successor).
The three appraisers so appointed shall then, within thirty (30) days after the
appointment of the third appraiser, make such determination by majority vote.
Any determination made pursuant to this Paragraph 4.5(c) shall be
<PAGE>
14
binding and conclusive upon Sublessor and Sublessee, without any right of
appeal. All appraisers appointed hereunder shall be competent, qualified by
training and experience, disinterested, independent, and members in good
standing of the American Institute of Real Estate Appraisers, or its successor.
All appraisal reports shall be rendered in writing and signed by the appraiser
or appraisers making the report. Each party shall pay all fees and expenses
charged or incurred by the appraiser appointed by such party; fees and expenses
charged or incurred by the third appraiser and fees and expenses which cannot be
reasonably attributed to any one appraiser shall be borne equally by Sublessor
and Sublessee.
(d) In the event that any Major Event terminates or ceases to occur,
the Rent payable hereunder prior to any Rent Reduction shall be reinstated as of
the date on which such Major Event terminates or ceases to occur.
(e) Upon any such occurrence, if the amount of the Rent Reduction is
insufficient to compensate Sublessee for all losses, costs, damages and expenses
incurred and to be incurred by Sublessee by reason of such occurrence, Sublessee
shall have the further right to terminate this Sublease by providing written
notice of termination to Sublessor within one hundred eighty (180) days after
receipt of written notice by Sublessee of the final determination of the amount
of the Rent Reduction, in which event this Sublease shall terminate on the date
set by Sublessee for termination in such notice, which date shall be not later
than one (1) year after the date of such notice.
(f) If Sublessee elects to terminate this Sublease pursuant to
Paragraph 4.5(e) above, Sublessee shall be entitled to receive from Sublessor
reimbursement for the unamortized costs (based on then current book value and
using the straight-line method of depreciation, based upon useful lives used by
Sublessee for tax purposes) of all buildings, structures and improvements
constructed upon the Premises by Sublessee or its sub-sublessees, and any
unamortized portion of the $9,000,000 payment made by Sublessee to Sublessor
contemporaneously with the execution of this Sublease. Proof of such unamortized
costs must be provided to Sublessor prior to reimbursement. In addition, all
items of income and expense under this Sublease or otherwise with respect to the
Premises shall be prorated as of midnight of the day prior to the effective date
of termination, consistent with the manner in which such items of income and
expense were prorated between Sublessor and Sublessee contemporaneously with the
execution of this Sublease.
5. Sublessor's Lien.
5.1 In addition to Sublessor's statutory landlord's lien as security for
the faithful performance of the undertakings, duties and obligations of
Sublessee under this Sublease, Sublessee hereby grants to Sublessor a security
interest in and lien
<PAGE>
15
("Sublessor's Lien") on certain equipment and other personal property described
in Exhibit "N" attached hereto and by this reference incorporated herein.
Sublessee agrees to execute such security agreements and UCC financing
statements as Sublessor may require in form and substance reasonably
satisfactory to Sublessor and Sublessee to evidence Sublessor's Lien
5.2 Sublessor's Lien shall be released at such time as Sublessee has
expended $3,000,000.00 for capital improvements and additions to and upon the
Premises, exclusive of the amount of capital expenditures funded from the
Reserve Account established pursuant to Paragraph 9.4 below. The amount secured
by Sublessor's Lien shall be reduced, dollar for dollar, by the amount expended
by Sublessee from time to time for such improvements and additions to and upon
the Premises, exclusive of such amounts funded from the Reserve Account.
5.3 If, upon the date on which Sublessor's Lien is required to be released
under Section 5.2, above, and in any event upon the expiration of the Term,
Sublessee shall have well and truly performed all of the undertakings, duties
and obligations required of Sublessee under this Sublease including, but not
limited to, the payment of the Rent and all other sums owed by Sublessee to
Sublessor hereunder, then the Sublessor's Lien, to the extent not theretofore
released in accordance with subparagraph 5.2, shall be terminated by Sublessor.
At such time as Sublessor is required to release or terminate Sublessor's Lien,
Sublessor shall execute a UCC Financing Statement Termination Statement and file
the same in the appropriate UCC records, evidencing the release or termination
of Sublessor's Lien.
5.4 Sublessor does hereby waive any right to any lien, including any
statutory landlord's lien, in or on any logos, trademarks, tradenames,
characters or other intellectual property owned by Sublessee and used in
connection with the ownership or operation of all or any part of the Premises.
6. Tax Payments.
6.1 As Additional Rent during the Term, Sublessee will pay or cause to be
paid all Impositions, as and when the same shall become due, except that all
Impositions for the fiscal years or tax years in which this Sublease commences
and expires shall be apportioned so that Sublessee shall pay the portions of the
Impositions that are applicable to the period during the Term of this Sublease
and Sublessor shall pay the portion thereof applicable before and after the
Term. Sublessee shall pay all such Impositions directly to the taxing authority,
and within thirty (30) days thereafter deliver to Sublessor satisfactory
evidence of such payment. The certificate, advice, bill or statement issued or
given by the appropriate officials authorized or designated by law to issue or
give the same or receive payment of any of the Impositions, of the existence,
nonpayment or amount
<PAGE>
16
of such Impositions shall be prima facie evidence of the existence, payment,
non-payment and amount of such Impositions. The parties acknowledge and agree
that Sublessee shall also be responsible for, and hereby agrees to pay to
Sublessor, an amount equal to all Impositions payable by Sublessor with respect
to the period from and after the Proration Date and ending on the day prior to
the Execution Date.
6.2 Sublessee, if Sublessee shall so desire, may contest the validity or
amount of any Impositions, in which event Sublessee may defer payment thereof
during the pendency of such contest provided that, prior to the date the same
shall have become delinquent, Sublessee shall take such action as shall be
required to postpone the collection of such Imposition. Nothing herein
contained, however, shall be construed to allow such items to remain unpaid for
such length of time as shall permit the Premises, or any part thereof, to be
sold by any governmental or quasi-governmental authority or a lien with respect
thereto foreclosed for the non-payment of the same.
6.3 Commencing on the Execution Date, Sublessee shall render and return
the Premises for taxing to all taxing jurisdictions and may, if Sublessee shall
so desire, endeavor at any time or times to obtain a lowering of the assessed
valuation upon the Premises, for any year for the purpose of reducing
Impositions thereon. In such event, Sublessor will offer no objection, and, at
the request of Sublessee, will cooperate with Sublessee, but without expense to
Sublessor, in effecting such a reduction. Sublessee shall be authorized to
collect any tax refund payable as a result of any proceeding Sublessee may
institute for that purpose and any such refund shall be the property of
Sublessee to the extent to which it may be based on a payment made by Sublessee,
subject, however, to any apportionment between Sublessor and Sublessee with
respect to taxes paid or contributed by Sublessor in the year in which this
Sublease commences or expires, after deducting from such refund the reasonable
costs and expenses, including reasonable legal fees, incurred in connection with
obtaining such refund.
6.4 Sublessor shall not be required to join in any action or proceeding
referred to in Paragraphs 6.2 or 6.3 unless required by law or any rule or
regulation in order to make such action or proceeding effective, in which event
any such action or proceeding may be taken by Sublessee in the name of, but
without expense to, Sublessor. Sublessee shall save Sublessor harmless from all
costs, expenses, claims, losses or damages by reason of, in connection with, on
account of, growing out of or resulting from any such action or proceeding.
6.5 Sublessee agrees to pay prior to delinquency any and all taxes and
assessments levied, assessed or imposed during the Term upon or against (i) all
furniture, fixtures, signs and equipment and any other personal property
installed or located within the Premises, (ii) all alterations, additions,
betterments
<PAGE>
17
or improvements of whatsoever kind or nature made by or on behalf of Sublessee
to the Premises, as the same may be separately levied, taxed and assessed
against or imposed directly upon Sublessee by the tax authorities, and (iii) the
rentals payable hereunder by Sublessee to Sublessor (other than Sublessor's
Federal, State and local income taxes thereon, if any), provided such taxes are
not duplicative hereunder. Sublessee may contest the validity or amount of any
such taxes and assessments, subject to the same procedures and provisions as are
applicable to contests of Impositions, as set forth in Paragraph 6.2 above. The
parties acknowledge and agree that Sublessee shall also be responsible for, and
hereby agrees to pay to Sublessor, an amount equal to all such taxes and
assessments payable by Sublessor with respect to the period from and after the
Proration Date and ending on the day prior to the Execution Date.
6.6 Should any governmental authority require that a tax, other than the
Impositions above mentioned, be paid by Sublessee, but collected by Sublessor,
for and on behalf of said governmental authority, and from time to time
forwarded by Sublessor to said governmental authority, the same shall be paid by
Sublessee to Sublessor payable in advance, subject to the right of Sublessee to
contest the validity or amount of any such tax, on the same terms and provisions
as are applicable to contests of Impositions, as set forth in Paragraph 6.2
above.
6.7 With respect to any Impositions for which Sublessee is responsible
hereunder, the official tax bill shall be conclusive evidence of the amount of
Impositions levied (subject to the right of Sublessee, as set forth above, to
contest the validity or amount of any such Imposition, and the final
determination of any such contest), assessed, or imposed, as well as of the
items taxed. A copy of such tax bill shall, upon request of Sublessee, be
submitted by Sublessor to Sublessee annually.
6.8 Notwithstanding anything to the contrary herein, Sublessee shall have
no liability or responsibility, under this Sublease or otherwise, for the
payment of any Impositions on the interest of the Stouffer Sublessee under the
Stouffer Sublease, or (with respect to the period during the term of the
Stouffer Sublease) the property affected thereby. Sublessee acknowledges that
the Stouffer's Sublessee pays the hotel tax described in Paragraph 34 below
directly to Sublessor, but Sublessor acknowledges that the proceeds of such
payments will be applied as described in said Paragraph 34.
7. Use.
7.1 Sublessee may use the Premises solely for the Permitted Use, as set
forth in Paragraph 1.7 hereof. Sublessee will not use or permit, or suffer the
use of the Premises for any other business or purpose or in any manner or for
any use which would violate or contravene the restrictions set forth on Exhibit
"F" attached hereto, and Sublessee shall comply with its obligations
<PAGE>
18
set forth on Exhibit "G" attached hereto. Sublessee shall not commit waste,
perform any acts or carry on any practice which may injure the Premises or be a
nuisance or menace to subtenants in the Premises. Without limiting Sublessor's
other rights and remedies at law, in equity, under this Sublease or otherwise,
if Sublessee violates the terms of this Paragraph 7, Sublessor shall have the
right to injunctive or other equitable relief and, if Sublessor is unsuccessful
in obtaining such equitable relief, to recover from Sublessee any damages caused
by Sublessee's breach.
7.2 Sublessor acknowledges and agrees that Sublessee will be operating the
Premises as a for-profit business, and that so long as Sublessee develops,
leases, operates, manages and maintains the Premises in accordance with the
provisions of this Sublease, Sublessee shall be entitled to operate the Premises
in such manner as to generate revenues and profits and to keep and retain for
its own account all revenues and profits generated from the Premises, and to
distribute such revenues and profits to its shareholders.
7.3 Sublessee takes the Premises subject to all applicable zoning
regulations and ordinances now or hereafter in force including, but not limited
to, those as to building line and setback. Sublessee, in its discretion and at
its own cost and expense, may, in good faith, institute rezoning proceedings or
contest and litigate the validity of any zoning ordinance, rule, regulation,
resolution or statute of any governmental body affecting the Premises or
Sublessee's use or occupancy thereof; provided, however, that Sublessee shall
first give Sublessor written notice thereof. The Sublessor shall execute any and
all documents reasonably requested by Sublessee in connection with any such
proceedings or litigation and which are consistent with the terms and provisions
of this Sublease. Sublessee shall indemnify Sublessor from any and all liability
which might arise by reason of any such proceedings or litigation. Sublessor
agrees to cooperate with and assist Sublessee, but without expense to Sublessor,
in preserving and maintaining the inapplicability to the Premises of the zoning
regulations and ordinances of Hall County, Georgia or any other municipality or
political subdivision.
7.4 Sublessee, at its sole cost and expense, shall comply with all Legal
Requirements and shall comply in all material respects with all Insurance
Requirements relating to or affecting the Premises, or respecting work performed
by Sublessee, and subject to the provisions of Paragraph 33 below, shall procure
all permits necessary for the Permitted Use. Sublessor shall cooperate with
Sublessee in connection with any Legal Requirements and Insurance Requirements,
and shall execute any and all documents reasonably requested by Sublessee which
are necessary for Sublessee to obtain permits or otherwise comply with such
Legal Requirements and Insurance Requirements.
<PAGE>
19
7.5 In the event that Sublessee and all Recognized Sub-sublessees, if any,
cease all operations on the Premises for the entirety of any period of twelve
(12) consecutive months during the Term, Sublessor may, as its sole and
exclusive remedy for such event, terminate this Sublease by providing ninety
(90) days prior written notice to Sublessee and all Recognized Sub-sublessees,
if any, and upon payment to Sublessee and all Recognized Sub-sublessees, on or
before the expiration of such ninety (90) day period, of an amount equal to the
unamortized costs (based on then current book value and using the straight-line
method of depreciation, based upon useful lives used by Sublessee for tax
purposes) of all buildings, structures and improvements constructed upon the
Premises by Sublessee or its sub-sublessees, and any unamortized portion of the
$9,000,000 payment made by Sublessee to Sublessor contemporaneously with the
execution of this Sublease; provided, however, that Sublessor shall not be
required to pay such unamortized portion of such $9,000,000 payment unless,
contemporaneously with the payment of such sum, Sublessee shall convey to
Sublessor all of the improvements and personal property conveyed by Sublessor to
Sublessee upon the execution of this Sublease, or replacements thereof, which
conveyance shall be made by limited warranty deed and bill of sale substantially
identical to the limited warranty deed and bill of sale pursuant to which such
improvements and personal property were conveyed to Sublessee. Such improvements
and personal property shall be conveyed by Sublessee substantially in the same
condition as on the Proration Date, subject to normal wear and tear, damage by
fire or other casualty not required to be restored by Sublessee under the
provisions of Paragraph 15 below, condemnation, obsolescence and damage caused
by the gross negligence or wilful misconduct of Sublessor, its agents and
employees. Upon the date of any such termination, the obligations of Guarantor
under the guaranty executed in connection with this Sublease shall automatically
be deemed to be terminated with respect to the period from and after the date of
such termination. The provisions of this Paragraph 7.5 shall not apply with
respect to any cessation of operations by reason of force majeure (as described
in Paragraph 30 below), by reason of any casualty or condemnation of the
improvements on the Premises, or in connection with the construction of new
improvements, or the repair or renovation of existing improvements on the
Premises.
8. Alterations and Improvements.
8.1 Provided Sublessee has received all necessary approvals from the Corps
of Engineers in accordance with this Paragraph 8, Sublessee covenants and agrees
that Sublessee and/or its Recognized Sub-sublessees (as defined in Paragraph
12.6 below) shall expend in the aggregate not less than $5,000,000.00 for
capital improvements and additions to and upon the Premises, exclusive of the
amount of capital expenditures funded from the Reserve Account established
pursuant to Paragraph 9.2 below, during the five (5) Lease Years commencing with
the Lease Year in
<PAGE>
20
which Gross Revenue (as defined in Exhibit "E") for the Premises is not less
than $20,000,000. The obligations of Sublessee under the preceding sentence
shall be null and void and of no force or effect if the amount of the Rent
Reduction, if any, imposed under the provisions of Paragraph 4.5 above, is less
than the amount of the losses, costs, damages and expenses incurred by Sublessee
as a result of the matters described in Paragraph 4.5(a) above, provided,
however, that such obligation shall be reinstated effective as of the date on
which any Major Event terminates or ceases to occur and the Rent payable prior
to the date of such Major Event is reinstated pursuant to the provisions of
Paragraph 4.5(d) above. Any improvements, alterations, changes or additions may
be made without the consent of Sublessor, provided that Sublessee complies with
the provisions of Paragraph 8.2 below, including obtaining the approval of the
Corps of Engineers and Sublessor required thereunder, and provided that any such
improvements, alterations, changes or additions are in compliance with the KSL
Development Plan, and are for a Permitted Use.
8.2 The approval process for improvements to be constructed by Sublessee
or any sub-sublessees of Sublessee shall be as follows:
a. The KSL Development Plan (i) has been and is hereby approved by
Sublessor and (ii) has been approved by the Corps of Engineers as
evidenced by the execution and delivery of the Corps Consent,
Estoppel and Non-Disturbance Agreement, a copy of which is attached
hereto as Exhibit "J".
b. Sublessee shall have the right to amend the KSL Development Plan
with the approval of Sublessor, and Sublessor agrees that it will
not unreasonably withhold, delay or condition its approval. Any such
amendment will be subject to approval by the Corps of Engineers and,
if the amendment has been approved by Sublessor, Sublessor agrees to
assist Sublessee in the presentation of the amendment to the KSL
Development Plan to the Corps of Engineers and will use its
reasonable efforts to obtain approval by the Corps of Engineers. In
the event that (i) Sublessor fails to approve or disapprove such
proposed amendment within thirty (30) days after the receipt of a
request for such approval from Sublessee, and (ii) if Sublessee
provides to Sublessor a second written request for such approval or
disapproval upon the expiration of such thirty (30) day period, and
Sublessor fails to approve or disapprove such proposed amendment
within thirty (30) days after the receipt of such second written
request, then, such proposed amendment shall be deemed approved. If
Sublessor disapproves such amendment, Sublessor will describe in
reasonable detail the reasons for such disapproval and the action,
if any,
<PAGE>
21
which may be taken or changes, if any, which may be made to obtain
Sublessor's approval.
c. At such time as Sublessee or its sub-sublessees plan the
construction of specific improvements on the Premises, a preliminary
site plan for such improvements will be prepared and submitted to
Sublessor for its approval. Such preliminary site plan shall show
the location of the footprint for such improvements and generally
indicate the location of parking lots, driveways and related
facilities. The proposed preliminary site plan shall be subject to
the approval of Sublessor and Sublessor agrees that it will not
unreasonably withhold, delay or condition its approval of the
proposed preliminary site plan.
d. The preliminary site plan will be subject to the approval of the
Corps of Engineers and, if the preliminary site plan has been
approved by Sublessor, Sublessor will assist Sublessee in the
presentation of the preliminary site plan to the Corps of Engineers
for its approval and will use reasonable efforts to obtain approval
thereof by the Corps of Engineers.
e. It is understood and agreed that in the construction of the
improvements in accordance with the plans and specifications,
certain change orders to the plans and specifications may become
necessary or appropriate, and Sublessor agrees that, subject to the
approval of the Corps of Engineers, Sublessee may without the
consent or approval of Sublessor, order, authorize or perform any
change, substitute work or materials in prosecuting the construction
of the improvements ("Change Order"), provided (i) any such Change
Order does not cause the improvements to be constructed for a
purpose or use which is not a Permitted Use; and (ii) any such
Change Order (individually or in the aggregate with all other Change
Orders) does not result in a material change in the preliminary site
plan approved by Sublessor as provided above. Neither plans and
specifications for such improvements other than such preliminary
site plan, nor the identity of the architect, contractors, engineers
or consultants, nor the construction contract, architect's contract,
engineering contract nor any other documentation in connection with
the construction requires the approval of Sublessor, nor shall this
Sublease be deemed to require the approval of the Corps of Engineers
of any such matters.
8.3 As soon as practicable (however, in no event to exceed three (3)
calendar months) after the substantial completion of the improvements, Sublessee
will furnish to Sublessor, at Sublessee's own cost and expense, (A) one complete
set of final "as-built" plans and specifications of the completed
<PAGE>
22
improvements, and (B) a current, accurate, properly labeled, and certified plat
of survey prepared by a Georgia registered land surveyor or professional
engineer depicting to scale the exact location of the completed improvements,
and any other physical objects, as the same have been constructed. The term
"substantial completion" as used in this Sublease shall be deemed to mean such
completion as will make the improvements sufficient, suitable and ready for
immediate occupancy and for the use intended.
8.4 Sublessee shall complete the construction of the proposed improvements
substantially in accordance with the preliminary site plan approved by Sublessor
or permitted without Sublessor's approval as hereinabove set forth.
8.5 The fee title to all improvements, alterations, changes and additions
described on Exhibit "R" attached hereto and incorporated herein, and fee title
to all improvements, alterations, changes and additions constructed by Sublessee
or its permitted sub-sublessees on the Premises from and after the Proration
Date, shall be vested in Sublessee or its permitted assignees or sub-sublessees,
as the case may be, until the termination or expiration of this Sublease, at
which time all title to and ownership of said improvements shall automatically
and immediately be surrendered with the Premises and vest (without the necessity
of any further action being taken by Sublessee or Sublessor or any instrument
being executed and delivered by Sublessee to Sublessor) in Sublessor. In the
event that title to any improvements, alterations, changes or additions shall be
vested in a sub-sublessee of Sublessee, such title shall automatically and
immediately be surrendered to and vest (without the necessity of any further
action being taken by Sublessee or such sub-sublessee or any instrument being
executed and delivered by such sub-sublessee to Sublessee) in Sublessee upon the
termination or expiration of such sub-sublease until the termination or
expiration of this Sublease, at which time such title shall vest in Sublessor in
accordance with the provisions of the preceding sentence. All permanent
(non-trade and/or non-movable) fixtures installed in the Premises during the
period from and after the Proration Date shall be treated in the same manner as
improvements constructed by Sublessee, as described in the first sentence of
this Paragraph 8.5. Sublessee shall have only leasehold title to all
improvements, alterations, changes and additions currently existing on the
Premises as of the Proration Date (other than those items described on the
attached Exhibit "R") for the Term of this Sublease, and upon the termination or
expiration of this Sublease, such leasehold title shall terminate automatically
without the necessity of any further action being taken by Sublessee or
Sublessor or any instrument being executed and delivered by Sublessee to
Sublessor. All improvements and fixtures surrendered to Sublessor on the
termination or expiration of this Sublease shall be surrendered subject to
normal wear and tear, damage by fire or other casualty not required to be
restored by Sublessee under the
<PAGE>
23
provisions of Paragraph 15 below, condemnation, and damage caused by the gross
negligence or wilful misconduct of Sublessor, its agents and employees.
8.6 Any removal of Sublessee's personal property and trade fixtures from
the Premises shall be accomplished in a manner which will minimize any damage or
injury to the Premises and any such damage or injury shall be promptly repaired
by Sublessee at its sole cost and expense. Any personal property of Sublessee
not removed by Sublessee prior to the Expiration Date or date of sooner
termination of this Sublease shall, at Sublessor's option, either become the
property of Sublessor or shall be disposed of or stored by Sublessor at
Sublessee's sole risk and expense.
8.7 No approval of any site plan, plans or specifications by Sublessor or
consent by Sublessor allowing Sublessee to make improvements, alterations,
changes or additions to the Premises shall in any way be deemed to be an
agreement by Sublessor that the contemplated work complies with any Legal
Requirements or Insurance Requirements or the certificate of occupancy for the
Premises, or deemed to be a waiver by Sublessor of any of the provisions of this
Sublease. Notice is hereby given that neither Sublessor, nor Sublessor's agents,
nor the lessor under the Prime Lease or the LLIDA Sublease, shall be liable for
any labor or materials furnished or to be furnished to Sublessee upon credit,
and that no mechanic's or other claims for such labor or materials shall attach
to or affect any estate or interest of Sublessor or any other such party in and
to the Premises.
8.8 While any construction (which term as used throughout this Sublease
shall also include any alteration, renovation, demolition, reconstruction,
repair, maintenance, restoration or replacement) is being done on or to the
Premises, Sublessee shall protect such property and all adjacent property. In
connection with such protection, Sublessee agrees that it will obtain, or
require the general or prime contractor retained to perform such construction to
obtain, or in the event there is no general or prime contractor retained to
perform such construction then require the person(s) or entity(ies) performing
such construction to obtain, and keep in force at all times during the
performance of such construction, in addition to the insurance required to be
carried pursuant to Paragraph 10 of this Sublease, insurance coverage under a
policy or policies of builder's risk and comprehensive liability insurance
covering the operations of such construction. Such policy or policies of
liability insurance shall have combined single limits of not less than
$2,000,000.00, except that for any construction project involving construction
costs in excess of $5,000,000.00, such policy or policies of liability insurance
shall have combined single limits of not less than $5,000,000.00, as such limits
shall be increased from time to time by the percentage increase of the CPI-U (as
hereinafter defined) above the CPI-U published for the month in which the
Execution Date occurs. For purposes of this Paragraph 8.8, the "CPI-U" means the
Consumer Price Index for All Urban
<PAGE>
24
Consumers-U.S. City Average (1982-84 = 100), published by the U.S. Department of
Labor Statistics. If such Index shall be discontinued, then any successor
Consumer Price Index of the United States Bureau of Labor Statistics, or
successor agency thereto, for the Atlanta, Georgia metropolitan area shall be
used, with appropriate adjustments, and if there is no such successor Consumer
Price Index, the parties shall attempt to agree upon a substitute Index or
formula, and in the event that the parties are unable to agree upon a substitute
Index or formula, then the matter shall be referred to arbitration in accordance
with the provisions of Paragraph 18.12 below.
8.9 Sublessee covenants and agrees to pay, currently as they become due
and payable, all bills for labor, materials, insurance, and all fees of
architects, engineers, contractors, and subcontractors and all other costs and
expenses incident to any construction in or on the Premises; provided, however,
that Sublessee may, in good faith, at its sole cost and expense and in its own
name, dispute and contest any such bill, fee, cost or expense, and in such
event, any such item need not be paid until adjudged to be valid; provided,
however, Sublessee shall first notify Sublessor in writing of such dispute and
contest and shall furnish to Sublessor, if requested in writing by Sublessor,
reasonable security for the payment of any such item so contested unless
Sublessee shall have prevented the execution of any lien or judgment relating
thereto by bond or otherwise. Unless so contested by Sublessee, all such items
shall be paid by Sublessee within the time provided by law, and if contested,
any such item shall be paid before the issuance of an execution on a final
judgment with respect thereto.
8.10 Sublessee's rights, as well as the rights of anyone else, including,
but not limited to, any mortgagee, architect, engineer, contractor, assignee,
sublessee, subcontractor, independent contractor, prime or general contractor,
mechanic, laborer, materialman or other lien or claim holder, shall always be
and remain subordinate, inferior, and junior to Sublessor's reversionary title,
interest and estate in the Premises, subject to the provisions of Paragraph 12.7
below.
8.11 Sublessee covenants and agrees that in the event Sublessee abandons
or fails to complete the construction of improvements undertaken by Sublessee
upon the Premises substantially in accordance with all the requirements of this
Sublease, and does not remove such construction and restore the Premises to its
original condition, or recommence such construction, within sixty (60) days
after the receipt by Sublessee of written notice of the intention of Sublessor
to exercise its rights under this Paragraph 8.11, Sublessor may, at its option
(but without any obligation so to do and without prejudice to any other rights
Sublessor may have under this Sublease) complete the construction of the
improvements undertaken by Sublessee at the cost and expense of Sublessee and,
as nearly as practicable and proper, according to the site plan
<PAGE>
25
previously approved by Sublessor. Sublessee shall, at the time of execution of a
contract with the architect who created the plans and specifications for
Sublessee, obtain the written agreement of such architect to furnish to
Sublessor and to permit Sublessor to use the plans and specifications, without
charge to Sublessor, in the event Sublessor elects to complete the construction
of the improvements undertaken by Sublessee or any part or parts thereof.
8.12 In the event that, at any time during the Term of this Sublease, any
alteration, demolition, renovation, repair, replacement or maintenance of any
building, other structure or improvement in or on the Premises or any other work
of any nature whatsoever shall be required or ordered, or becomes necessary on
account of any law, ordinance or governmental regulation now in effect or
hereafter adopted (other than any such laws, ordinances or governmental
regulations enacted by the State of Georgia, or any department, agency or
instrumentality thereof, which are applicable solely to the Premises, or solely
to assets which have been the subject of the State of Georgia's privatization
effort), Sublessee shall be solely liable for the entire cost and expense
thereof, regardless of when the same shall be incurred or become due, and in no
event shall Sublessor be required to contribute thereto, participate therein, or
do or pay for any work performed, materials furnished, or obligations incurred
by Sublessee. Sublessee shall have the right to contest the validity of any such
law, ordinance or regulation.
9. Repairs and Maintenance.
9.1 Sublessee shall, at all times during the Term of this Sublease,
totally at Sublessee's own cost and expense, keep and maintain the Premises, and
appurtenances and every part thereof, and any and all buildings, other
structures or improvements that may exist on, in, or be made a part of the
Premises, in good and sanitary order, condition and repair, ordinary wear and
tear (subject to the obligation of Sublessee to consistently maintain such
buildings, structures or improvements) excepted. The obligation of Sublessee to
restore and maintain buildings, structures and improvements damaged by fire or
other casualty or condemnation is governed by the provisions of Paragraphs 15
and 16 below, rather than by the provisions of this Paragraph 9.
9.2 Subject to the provisions of Paragraph 9.3 below, Sublessee shall have
the right to demolish any buildings or improvements which, in Sublessee's
judgment, in its sole discretion (provided that such judgment is made in good
faith), are obsolete or not commercially necessary or appropriate for the
Premises, or can be replaced with improvements which better serve the Premises
and generate more revenue for the Premises, or which are otherwise detrimental
to the operation of the Premises, and provided that such demolition, in
Sublessee's good faith business judgment, will be in the best interest of the
Premises. No material improvements shall be demolished during the last five
<PAGE>
26
(5) years of the Term without Sublessor's prior written consent, which may be
given or withheld in Sublessor's sole discretion.
9.3 Notwithstanding the provisions of Paragraph 9.1 above, in the event
that Sublessee elects to demolish any buildings or improvements which are
located on the Premises as of the Execution Date, or which are constructed by
Sublessee in compliance with the capital improvement obligations set forth in
Paragraph 8.1 above (hereinafter referred to collectively as "Existing
Improvements"), Sublessee shall replace such Existing Improvements with
improvements of substantially equivalent value as the demolished buildings or
improvements, unless Sublessee shall have previously constructed buildings or
improvements in excess of such capital improvement obligations under said
Paragraph 8.1 (all improvements constructed by Sublessee after the date hereof
in excess of the capital improvement obligations of Sublessee under said
Paragraph 8.1 are hereinafter referred to collectively as "New Improvements"),
in which event (i) the obligation of Sublessee to rebuild improvements upon
demolition of Existing Improvements shall be deemed to have been satisfied to
the extent of the costs incurred by Sublessee in the construction of such New
Improvements, and (ii) such obligation to rebuild shall thereafter be deemed to
be apply to such New Improvements, to the extent of the value of the demolished
Existing Improvements which are not replaced.
9.4 Sublessee will, at its sole cost and expense, establish and maintain a
segregated, interest bearing capital expenditure reserve account (the "Reserve
Account"). Commencing with the first payment of Rent due under this Sublease and
simultaneously with the making of such payment and on the date of each Rent
payment due thereafter, Sublessee shall pay into the Reserve Account an amount
equal to five percent (5%) of Sublessee's Gross Revenue (as defined in Exhibit
"E" hereto) for the preceding month (each a "Reserve Deposit" and collectively
the "Reserve Deposits"), which will be held in the Reserve Account to be used as
a capital expenditure reserve for the Premises. All interest earned on the
Reserve Deposits will be added to and become a part of the Reserve Deposits.
Sublessee may make withdrawals from the Reserve Account in accordance with the
budget hereinafter described in this Paragraph 9.4, in order to make capital
expenditures with respect to the Premises from time to time, and in accordance
with the other terms of this Paragraph 9.4; provided, however, that during each
calendar year of the Term Sublessee shall expend a minimum of five percent (5%)
of Sublessee's annual Gross Revenue during the preceding calendar year for
capital expenditures, of which four percent (4%) of Gross Revenue must be used
for capital replacements, and renovation of existing improvements, furniture,
fixtures and equipment, and up to one percent (1%) of Gross Revenue may be used
for any new capital additions, improvements, construction or installations on
the Premises. Within 120 days from the commencement of each calendar year during
the Term of this Sublease, Sublessee shall submit to Sublessor for its review
and
<PAGE>
27
approval (which approval shall not be unreasonably withheld, delayed or
conditioned) a budget for expenditures of the Reserve Deposits equal to five
percent (5%) of Sublessee's annual Gross Revenue for the preceding calendar
year. Any portions of any such annual budget which, with Sublessor's consent,
which shall not be unreasonably withheld, delayed or conditioned, are not
expended in the current calendar year shall be retained in the Reserve Account
until expended in accordance with a subsequent budget approved by Sublessor.
Sublessee hereby grants a security interest to Sublessor in the Reserve Account,
which security interest shall be subject and subordinate to the security
interest of any Leasehold Mortgagee, provided that such Leasehold Mortgagee
agrees that the proceeds in the Reserve Account shall be used in accordance with
the provisions of this Paragraph 9.4.
10. Insurance and Indemnity.
10.1 Throughout the Term, Sublessee shall have all buildings, other
structures and improvements insured against any loss or damage caused by fire,
lightning, windstorm, hurricane, tornado, cyclone, hail, explosion, riot, civil
commotion, aircraft, smoke, land vehicles, boiler explosion, collapse, vandalism
and sprinkler leakage, and any other risks customarily included under either
fire and extended coverage or so-called all-risk insurance policies, and loss of
rents for up to twelve (12) months resulting from any insured event, with
responsible insurance companies, legally licensed and authorized to transact
business in the State of Georgia, said insurance to be in the amount of the full
insurable replacement value [one hundred percent (100%)] of said buildings,
other structures and improvements. The contracts of insurance required by this
subparagraph 10.1 shall contain standard loss payable clauses in favor of
Sublessee, any permitted sublessees of such buildings, structures and
improvements, Sublessor, the lessors under the Prime Lease and the LLIDA
Sublease, and Leasehold Mortgagees, as their respective interests may appear.
The phrase "full insurable replacement value" shall mean the actual replacement
cost at the time in question (excluding costs of excavations, foundations,
footings, underground pipes, conduits, flues and drains) without diminution of
such costs for depreciation or obsolescence. The costs to Sublessee of all such
required insurance under this Paragraph 10.1 are hereinafter called the
"Insurance Costs". From and after the date of this Sublease, Sublessee shall pay
the Insurance Costs when invoiced and prior to the due date thereof and provide
Sublessor a statement showing the total amount thereof and a receipted invoice
or other reasonable evidence of payment thereof. Sublessee shall also be
responsible for payment of Insurance Costs from and after the Proration Date.
The policy shall name Sublessor, any permitted sublessees of such buildings,
structures and improvements, Sublessee, the lessors under the Prime Lease and
the LLIDA Sublease, and Leasehold Mortgagees as additional insureds, and shall
contain a clause that the insurer will not cancel or change the insurance
without first giving Sublessor twenty (20) days
<PAGE>
28
prior written notice. Said insurance shall be with an insurance company, having
a Best's rating of A-VII or better, and a copy of the policy shall be delivered
to Sublessor. If Sublessee fails to secure and maintain insurance policies
complying with the provisions of this Paragraph 10.1, then Sublessor may, but
shall not be required to, secure and maintain such insurance policies and
Sublessee shall pay the cost thereof to Sublessor, as Additional Rent, upon
demand. Sublessor may require increases in the aforesaid coverage to reflect
inflation.
10.2 Sublessee shall, at all times during the Term and during any period
of holding over thereafter, keep in full force and effect a policy of insurance
upon Sublessee's fixtures, equipment and other personal property against loss or
damage by hazards insured under either a fire and extended coverage policy or a
so-called all-risk policy, including collapse, vandalism and sprinkler leakage,
in an amount equal to one hundred percent (100%) of the full replacement cost
thereof. Notwithstanding the foregoing, Sublessee shall have the right to
self-insure against the foregoing risks with respect to Sublessee's fixtures,
equipment and other personal property so long as Sublessee maintains a plan of
self-insurance adequate to provide coverage equal to such policy and shall
furnish Sublessor with an affidavit by a principal officer of Sublessee to such
effect. Sublessee shall also, at all times during the Term and during any period
of holding over thereafter, keep in full force and effect a policy of insurance
insuring against loss or damage by certain environmental hazards on or at the
Premises or emanating from the Premises, which policy of insurance shall be in
the amount of not less than $10,000,000.00 per occurrence and $10,000,000.00 in
the aggregate, and shall cover substantially all of the risks covered under the
form of insurance policy attached to this Sublease as Exhibit "V". Subject to
the immediately succeeding sentence, such policy shall not be required to cover
environmental hazards on or at or emanating from the property affected by the
Stouffer Sublease during the term thereof, but such policy shall cover the
property affected by the Stouffer Sublease to the same extent as the balance of
the Premises is covered by such policy, at such time as the Stouffer Sublease is
terminated or expires. Notwithstanding the preceding sentence, during the term
of the Stouffer Sublease such policy shall cover any liability of Sublessor or
Sublessee with respect to environmental hazards on or at or emanating from the
property affected by the Stouffer Sublease.
10.3 Sublessee shall, at all times during the Term and during any period
of holding over thereafter, keep in full force and effect a policy of commercial
general liability insurance with respect to the Premises, and the business
conducted by Sublessee and any subtenants of Sublessee in the Premises, with a
combined single limit of liability of not less than One Million Dollars
($1,000,000.00), subject to commercially reasonable deductible amounts, for
bodily injury to or personal injury or death of any person and consequential
damages arising therefrom,
<PAGE>
29
and for property damage, arising out of any one occurrence. Sublessee shall also
keep in full force and effect an umbrella general liability policy with a limit
of not less than $25,000,000.00, subject to commercially reasonable deductible
amounts. The policies shall name Sublessor, any permitted sublessees of such
buildings, structures and improvements, Sublessee, the lessors under the Prime
Lease and the LLIDA Sublease, and Leasehold Mortgagees as additional insureds,
and shall contain a clause that the insurer will not cancel or change the
insurance without first giving Sublessor twenty (20) days prior written notice.
Said insurance shall be with an insurance company, having a Best's rating of
A-VII or better, and a copy of the policies shall be delivered to Sublessor. If
Sublessee fails to secure and maintain insurance policies complying with the
provisions of this Paragraph 10.3, then Sublessor may, but shall not be required
to, secure and maintain such insurance policies and Sublessee shall pay the cost
thereof to Sublessor, as Additional Rent, upon demand. Sublessor may require
increases in the aforesaid coverage to reflect inflation. Such insurance
policies shall contain primary coverage endorsements, pursuant to which such
policies are non-contributing with any other coverage available to Sublessor.
10.4 Sublessee agrees that it will not keep, use, sell or offer for sale
in or upon the Premises any article which may be prohibited by Sublessee's fire
insurance policy. Sublessee agrees to pay any increase in premiums for fire and
extended coverage or so-called all-risk insurance that may be charged during the
Term resulting from Sublessee's use or manner of use of the Premises. In
determining whether increased premiums are the result of Sublessee's use of the
Premises, a schedule, issued by the organization establishing the insurance rate
for the Premises, showing the various components of such rate, shall be
conclusive evidence of the several items and charges which make up the fire
insurance rate on the Premises.
10.5 Sublessee, as a material part of the consideration to be rendered to
Sublessor in this Sublease, agrees to be responsible for, to indemnify Sublessor
and the lessors under the Prime Lease and the LLIDA Sublease against, and to
save and hold harmless Sublessor and the lessors under the Prime Lease and the
LLIDA Sublease from, any and all liability, damages, expense, claims, actions or
demands for any injury or death of any person(s) or damages to any property(ies)
if such injury, death or damage to property arises from or in any manner grows
out of, any act or neglect on or about the Premises by Sublessee or Sublessee's
sublessees, subtenants, assignees, licensees, concessionaires, partners, agents,
servants, employees, invitees, trespassers, contractors and subcontractors, or
their partners, representatives, agents or employees, or which arises from or in
any manner grows out of, any defect in any undertaking hereunder by Sublessee or
any failure of Sublessee to comply with the provisions of this Sublease. The
agreement of Sublessee to indemnify, save and hold harmless such parties as
provided in
<PAGE>
30
this Paragraph 10.5 shall not apply to the matters described on the schedule
attached hereto as Exhibit "W" (which Exhibit "W" consists of a schedule of
conditions on the Premises to be corrected and for which Sublessee has been
compensated, in full or in part, contemporaneously with the execution hereof),
until the expiration of a reasonable period of time after the Execution Date for
the correction by Sublessee of each of such matters, at which time the agreement
of Sublessee to indemnify, save and hold harmless such parties as provided in
this Paragraph 10.5 shall become applicable.
10.6 Notwithstanding anything in this Sublease to the contrary, if either
party hereto is made or becomes a party to any litigation commenced by or
against the other party involving the enforcement of any such other party's
obligations hereunder or elsewhere in this Sublease, then the prevailing party
in such litigation, or the party becoming involved in such litigation because of
a claim against such other party, as the case may be, shall receive from the
other party all costs and reasonable attorneys' fees incurred by such party in
such litigation to the extent not covered by insurance.
10.7 Sublessor and Sublessee hereby waive any claim each may have against
the other by way of subrogation or otherwise from any and all liability for any
loss or damage to property, whether caused by the negligence or fault of the
other party, to the extent such loss or damage is covered or required to be
covered by the fire and extended coverage policy or so-called all-risk policy
with respect to the Premises or any plan of self-insurance with respect to risks
which would be insured against under such policies, notwithstanding the failure
to obtain such policies. For purposes of this Paragraph 10.7, the amount of any
deductible or co-insurance payment shall be deemed as having been covered under
the applicable property damage insurance policy. Each of Sublessor and Sublessee
shall cause any fire insurance and extended coverage or so-called all-risk
policies which it maintains in respect of the Premises to contain a provision
whereby the insurer waives any rights of subrogation against the other party.
10.8 Sublessee agrees and covenants that it will not do or permit to be
done in, to, or about the Premises any act or thing which will invalidate any
insurance pertaining to any buildings, -other structures or improvements now
located thereon or therein or hereafter constructed and located thereon or
therein; and, further, that Sublessee will not permit any buildings, other
structures or improvements at any time to be put, kept or maintained on the
Premises in such condition that the same cannot be insured in the amount of the
full insurable replacement value [one hundred percent (100%)] thereof.
10.9 Sublessee shall, not less than fifteen (15) days prior to the
expiration date of any and all insurance policies required to be carried by
Sublessee in accordance with this Sublease,
<PAGE>
31
furnish to the Sublessor duplicate receipts or satisfactory evidence of the
payment of all premiums on all such insurance.
11. Utilities.
11.1 Sublessee shall be solely responsible for and shall promptly pay all
charges for heat, water, gas, electricity or any other utility used or consumed
in the Premises. In no event shall Sublessor be liable for an interruption or
failure in the supply of any such utilities to the Premises. Subject to the
preceding sentence, Sublessor agrees to cooperate with and assist Sublessee in
good faith in obtaining and maintaining public telephone service at the Hilton
Hotel presently located on the Premises, and at other locations on the Premises
designated by Sublessee, including obtaining and maintaining such public
telephones in the name of Sublessor, if reasonably necessary, but at the sole
cost and expense of Sublessee. Sublessee shall indemnify Sublessor from any and
all liability which might arise by reason of the obtaining and maintaining of
such public telephones in the name of Sublessor.
12. Assignment, Mortgaging and Subletting.
12.1 Except as otherwise set forth herein, Sublessee shall not (a) assign
or otherwise transfer this Sublease or the Term and estate hereby granted, (b)
sublet all or part of the Premises or allow the same to be used or occupied by
others or in violation of Paragraph 7 hereof, or (c) mortgage, pledge or
encumber this Sublease or all or any part of the Premises in any manner by
reason of any act or omission on the part of Sublessee, without the prior
written consent of Sublessor in each instance, which consent shall not be
unreasonably withheld, delayed or conditioned. In exercising such right of
consent to any proposed assignment, subletting or other transfer as described in
subparagraphs (a) and (b) of this Paragraph 12.1, Sublessor shall be entitled to
take into account any factor or factors relevant to such decision, and the
factors which may cause Sublessor to reasonably withhold its consent shall
include, but are not limited to, the following: (i) failure of any use proposed
by any such proposed sublessee or assignee to comply with the KSL Development
Plan; or (ii) failure of any use proposed by any such proposed sublessee or
assignee to comply with the Permitted Use or, if applicable, such use as shall
be approved in writing by Sublessor; or (iii) failure to utilize a sublease or
assignment form approved by Sublessor; or (iv) failure of such sublessee,
assignee or other transferee (A) to have a net worth of at least $5,000,000.00
or, if less, demonstrable financial resources sufficient to perform the project
to be undertaken pursuant to such sublease, assignment or other transfer, as
reasonably determined by Sublessor or (B) to be of good character and
reputation; or (v) failure of the rent provided for in such sublease, assignment
or other transfer, together with any Recognized Sub-subleases (as hereinafter
defined) then in effect, to be sufficient to satisfy the minimum rent
requirements set
<PAGE>
32
forth on the attached Exhibit "S" (the minimum rent which would be sufficient to
satisfy the requirements of this clause (v) is hereinafter referred as the
"Minimum Sublease Rent"). Sublessor agrees that the sublease form used by
Sublessee shall be acceptable to Sublessor if any such sublease form is
substantially identical to the form of this Sublease, without material changes
other than as may be necessary or appropriate to reflect the business terms of
the sublease transaction, the parties to the transaction, or which are not
adverse to or detrimental to the interests of Sublessor, with such other changes
as may be approved by Sublessor, which approval shall not be unreasonably
withheld, delayed or conditioned, provided that the sublease form satisfies the
requirements set forth on the Schedule of Minimum Sub-sublease Requirements
attached hereto as Exhibit "S" and incorporated herein (a sublease form which
satisfies the requirements of this sentence is hereinafter referred to as an
"Approved Sublease Form"). Any assignment or subletting, if consented to by
Sublessor, shall be further subject to and conditioned upon the following: (a)
at the time of any proposed subletting or assignment, Sublessee shall not be in
default beyond any applicable grace period under any of the terms, provisions or
conditions of this Sublease; (b) the sublessee or assignee shall occupy only the
Premises and conduct its business in accordance with the KSL Development Plan
and the Permitted Use or, if applicable, such use as was approved in writing by
Sublessor; (c) prior to occupancy, Sublessee and its assignee or sublessee shall
execute, acknowledge and deliver to Sublessor a fully-executed counterpart of a
written assignment of lease or sublease, as the case may be (consented to by any
Guarantor of this Sublease) on a form approved by Sublessor, by the terms of
which: (i) in case of an assignment, Sublessee will assign to such assignee
Sublessee's entire interest in this Sublease, and all prepaid rents hereunder,
and the assignee will accept said assignment and assume and agree to perform as
the obligation of such assignee directly to and for the benefit of Sublessor and
enforceable by Sublessor, all of the terms, covenants and conditions of this
Sublease on Sublessee's part to be performed with respect to the period from and
after the date of such assignment; or (ii) in case of a subletting, the sublease
in all respects will be subject and subordinate to all of the terms, covenants
and conditions of this Sublease; and (d) notwithstanding any such assignment or
subletting under the terms of this Paragraph, both Sublessee and any Guarantor
will acknowledge that, notwithstanding any such assignment or subletting and the
consent of Sublessor thereto, neither Sublessee nor said Guarantor, if any, is
released or discharged from any liability whatsoever under this Sublease and
both shall continue liable with the same force and effect as though no
assignment or sublease has been made. Notwithstanding the foregoing provisions
of this Paragraph 12.1 and notwithstanding anything to the contrary contained
elsewhere in this Sublease, Sublessee shall be entitled to enter into subleases
with respect to portions of the Premises other than for Preapproved Projects (as
hereinafter defined) pursuant to Paragraph 12.4 below, and
<PAGE>
33
other than to Affiliates pursuant to Paragraph 12.5 below, to sublessees who are
not entitled to the benefits of a Recognized Sub-Sublessee pursuant to Paragraph
12.6 below, without the consent of Sublessor.
12.2 Should Sublessee desire to assign this Sublease or sublet the
Premises or any portion thereof and such assignment or sublease requires
Sublessor's prior consent hereunder, Sublessee shall give Sublessor written
notice of such desire, which notice shall contain (1) the name and address of
the proposed assignee or sublessee and its form of organization, (2) the
material terms and conditions of the proposed sublease or assignment (including,
without limitation, the financial terms of such proposed assignment or
subletting and the proposed commencement date of the proposed assignment or
sublease), and (3) financial statements for the three (3) most recently
completed fiscal years of the proposed assignee or sublessee and such other
financial information as Sublessor shall reasonably request (or if the proposed
assignee or sublessee has not been extant for at least three [3] years, such
financial statements as are available), together with the request that Sublessor
approve such assignment or sublease. Sublessor shall have a period of thirty
(30) days following receipt of such written notice within which to notify
Sublessee in writing that Sublessor elects (A) to deny Sublessee the right to
consummate such assignment or sublease, or (B) permit Sublessee to assign this
Sublease or sublet the Premises. In the event Sublessor fails to respond to such
written request for approval within thirty (30) days of receipt of such request,
Sublessor shall be deemed to have approved such request. In the event of a
denial of approval of one or more projects, Sublessor shall specify in
reasonable detail the reasons for such disapproval.
12.3 If this Sublease be assigned, whether or not in violation of the
terms of this Sublease, Sublessor may collect rent from the assignee. If the
Premises or any part thereof be sublet or be used or occupied by anybody other
than Sublessee, whether or not in violation of this Sublease, Sublessor may,
after default by Sublessee and expiration of Sublessee's time to cure such
default, if any, collect rent from the subtenant or occupant. In either event,
Sublessor may apply the net amount collected to the Rent herein reserved. The
consent by Sublessor to an assignment, transfer, encumbering or subletting
pursuant to any provision of this Sublease shall not in any way be considered to
relieve Sublessee from obtaining the express prior consent of Sublessor to any
other or further assignment, transfer, encumbering or subletting. Neither any
assignment of this Sublease nor any subletting, occupancy or use of the Premises
or any part thereof by any person other than Sublessee, nor any collection of
rent by Sublessor from any person other than Sublessee, nor any application of
any such rent as provided in this Paragraph 12 shall, under any circumstances,
be deemed a waiver of any of the provisions of Paragraph 12.1 hereof, or
relieve, impair, release or discharge Sublessee of its
<PAGE>
34
obligations fully to perform the terms of this Sublease on Sublessee's part to
be performed and Sublessee shall remain fully and primarily liable therefor.
Sublessor shall have no liability for brokerage commissions arising out of a
transfer by Sublessee and Sublessee shall and does hereby indemnify Sublessor
and hold it harmless from any and all liability for brokerage commissions
arising out of any such transfer.
12.4 Without further approval by Sublessor but subject to the terms and
conditions set forth below in this Paragraph 12.4, Sublessee shall have the
right to sublease to third parties up to three (3) proposed projects included
within the KSL Development Plan. Each such project is hereinafter referred to as
a "Preapproved Project" and such projects are hereinafter collectively referred
to as the "Preapproved Projects"). Sublessee shall have the right to enter into
subleases for the Preapproved Projects without the further consent or approval
of Sublessor subject to the following terms and conditions:
(a) Construction of a Preapproved Project must commence within five (5)
years after the Execution Date;
(b) Any sublease of a Preapproved Project: (i) shall be in compliance with
the KSL Development Plan or modifications thereof approved by Sublessor;
(ii) shall provide for use of the Preapproved Project in accordance with
the Permitted Use or, if applicable, such use as shall be approved in
writing by Sublessor; (iii) shall be on an Approved Sublease Form; (iv)
shall be a sublease to a sublessee having a net worth of at least
$5,000,000.00 or, if less, having demonstrable financial resources
sufficient to perform the -project to be undertaken by the sublessee
pursuant to such sublease, as reasonably determined by Sublessor; and (v)
the rent provided for in such sublease shall not be less than the Minimum
Sublease Rent;
(c) Any subleases approved by Sublessor under Paragraph 12.1 above shall
not be included in the three (3) Preapproved Projects for which no
approval of Sublessor is required under this Paragraph 12.4; and
(d) Sublessee shall provide to Sublessor, prior to the execution of a
sublease under this Paragraph 12.4, written notice of Sublessee's
intention to execute such sublease and evidence reasonably satisfactory to
Sublessor that the terms and conditions set forth above have been
satisfied.
12.5 Without further approval by Sublessor but subject to the terms and
conditions set forth below in this Paragraph 12.5 and elsewhere in this
Paragraph 12, Sublessee shall have the right to assign this Sublease or to
sublease all or portions of the Premises to any Affiliate of Sublessee. Any such
sublease of all or portions of the Premises to an Affiliate without the
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35
further consent or approval of Sublessor shall be subject to the following terms
and conditions:
(i) such sublease shall be in compliance with the KSL Development Plan or
modifications thereof approved by Sublessor; (ii) such sublease shall
provide for use of the subleased portion of the Premises in accordance
with the Permitted Use or, if applicable, such use as shall be approved in
writing by Sublessor; and (iii) such sublease shall be on an Approved
Sublease Form; and (iv) the rent provided for in such sublease shall not
be less than the Minimum Sublease Rent, except that the minimum rent
provided for in such sublease may be less than the Minimum Sublease Rent
if such sublease to an Affiliate is not to be treated as a Recognized
Sub-Sublease pursuant to the provisions of the last sentence of Paragraph
12.1 above, and such Affiliate shall not be entitled to the benefits of a
Recognized Sub-Sublessee pursuant to Paragraph 12.6 below.
(ii) Sublessee shall provide to Sublessor, prior to the execution of a
sublease under this Paragraph 12.5, written notice of Sublessee's
intention to execute such sublease and evidence reasonably satisfactory to
Sublessor that the terms and conditions set forth above have been
satisfied.
12.6 (A) Any sublease for a Preapproved Project or to an Affiliate,
meeting all of the terms and conditions for entering into such sublease without
the prior approval of Sublessor, and any other sublease expressly approved by
Sublessor pursuant to this Paragraph 12 shall be entitled to recognition in
accordance with this Paragraph 12.6. In the event the portion of the Premises as
to which any such recognition is made is also a portion of the Premises as to
which there exists any Leasehold Mortgage, such sublease shall be accompanied by
evidence of the written consent thereto by any such Leasehold Mortgagee.
Sublessor shall, upon request by Sublessee, promptly execute, acknowledge and
deliver agreements evidencing and agreeing to the recognition of any such
subleases, and agreeing to recognize the rights of the sub-sublessee under its
sublease, and to accept the attornment of such sub-sublessee in the event of the
termination of this Sublease, in the form of the Consent, Estoppel and
Non-Disturbance Agreement attached hereto as Exhibit "Q". Any sublease which is
or is required to be recognized by Sublessor pursuant to the provisions of this
Paragraph 12.6 shall be hereinafter sometimes referred to as a "Recognized
Sub-sublease," and the sublessee thereunder shall be hereinafter sometimes
referred to as a "Recognized Sub-sublessee."
(B) If this Sublease is terminated prior to the expiration of the
Term as provided for herein, whether or not Sublessor enters into a Mortgagee
Sublease (as hereinafter defined) with any Leasehold Mortgagee as provided for
in Paragraph 12.7 hereof, Sublessor agrees that any such premature termination
of this Sublease shall not result in the termination
<PAGE>
36
of any Recognized Sub-sublease. Each Recognized Sub-sublease shall continue for
the duration of its term as a direct lease between Sublessor and each such
Recognized Sub-sublessee, with the same force and effect as if Sublessor had
originally entered into the Recognized Sub-sublease as the lessor thereunder.
(C) Any other provisions of this Sublease or of any Recognized
Sub-sublease to the contrary notwithstanding, in no event shall Sublessor have
any greater obligations to any Recognized Sub-sublessee than Sublessor has to
Sublessee under this Sublease, and in no event shall any Recognized
Sub-sublessee have any greater rights as against Sublessor than Sublessee has as
against Sublessor under this Sublease.
12.7 Sublessee, and every successor and assign of Sublessee (and any
Recognized Sub-sublessee and every successor and assign of a Recognized
Sub-sublessee pursuant to Paragraph 12.6), shall have the right in addition to
any other rights granted in this Sublease to encumber its interest in this
Sublease (or any Recognized Sub-sublease) without Sublessor's consent, under one
or more Leasehold Mortgages (as hereinafter defined), upon the condition that
all rights acquired under the Leasehold Mortgage or Mortgages shall be subject
to each of the provisions set forth in this Sublease (and, if applicable, such
Recognized Sub-sublease) and to all rights and interest of the Sublessor (and,
if applicable, the sublessor under such Recognized Sub-sublease) therein and
shall be further subject to the Prime Lease and the LLIDA Sublease. If, from
time to time, Sublessee or Sublessee's successors and assigns (or Recognized
Sub-sublessees or their successors and assigns) shall encumber this Sublease or
any Recognized Sub-sublease with a Leasehold Mortgage, and if the Leasehold
Mortgagee (as hereinafter defined) registers with Sublessor by delivering to
Sublessor a copy of such recorded Leasehold Mortgage certified by the Clerk or
any Deputy Clerk of the Superior Court of Hall County, Georgia, together with
written notice specifying the name and address of the Leasehold Mortgagee and
the pertinent recording data with respect to the Leasehold Mortgage, Sublessor
agrees that, anything in this Sublease to the contrary notwithstanding, from and
after the date of receipt by Sublessor of such notice and so long as such
Leasehold Mortgage shall remain unsatisfied of record or until written notice of
satisfaction of such Leasehold Mortgage is given by the Leasehold Mortgagee to
Sublessor, the provisions of this Paragraph 12.7 shall apply to each such
Leasehold Mortgagee. Sublessor shall, promptly upon receipt of such notice under
this Paragraph 12.7, acknowledge in writing receipt of such notice to Sublessee
and such Leasehold Mortgagee as satisfying the requirements of this Paragraph
12.7 or, in the alternative, reject in writing said notice as not complying with
the provisions of this Paragraph 12.7 and specify the grounds for such
rejection. Upon the request of such Leasehold Mortgagee, Sublessor shall
acknowledge receipt of the satisfactory notice by an instrument in recordable
form. Upon satisfaction of the
<PAGE>
37
requirements of this Paragraph 12.7 by such Leasehold Mortgagee, the following
provisions shall apply:
(A) The term "Leasehold Mortgage," as used in this Sublease shall
mean and refer to any encumbrance of this Sublease (or any Recognized
Sub-sublease) or the interest of Sublessee hereunder (or the interest of a
Recognized Sub-sublessee under a Recognized Sub-sublease), or the interest of
Sublessee or a Recognized Sub-sublessee in the improvements located on the
Premises as security for any indebtedness Sublessee, or Sublessee's successors
and permitted assigns or any Recognized Sub-sublessee and its successors and
assigns, may incur, whether by deed to secure debt, mortgage, deed of trust, or
other security instrument. The term "Leasehold Mortgagee" shall mean and refer
to the holder of the indebtedness secured by any Leasehold Mortgage; provided,
however, that such Leasehold Mortgagee must be a national bank, commercial,
national or state savings bank or trust company (whether acting on its own
behalf or as trustee), investment or merchant bank, any foreign bank agency
licensed in Georgia or authorized to make loans in the United States, charitable
foundation, real estate investment fund, insurance company, credit company,
pension or retirement fund or fund which is in turn funded substantially by a
pension or retirement fund, real estate investment trust, venture capital firm,
mortgage banking house, international bank or investment company, hospitality,
resort- or recreation-based company or other like institutional lender and any
other lenders which perform functions similar to any of the foregoing, in each
such case having assets in excess of $50,000,000 at the time of the execution of
the Leasehold Mortgage. Leasehold Mortgagee shall also include any Sublessee
hereunder, and any of its successors and assigns (to the extent that any such
successors or assigns would otherwise qualify as a Leasehold Mortgagee
hereunder, or to whom this Sublease is assigned in good faith, and not for the
purpose of evading the qualifications of a Leasehold Mortgagee hereunder), who
take back a purchase money security interest in all or any portion of the
leasehold estate created hereby or such improvements upon a sale or assignment
of the same. If Sublessee or its successors or assigns become the holder of such
purchase money security interest, and Sublessee or a successor or assign becomes
the owner of the interest of Sublessee hereunder by reason of the exercise of
remedies under its Leasehold Mortgage, any further assignment or subleasing by
Sublessee or such successor and assign thereafter shall be subject to the
limitations on assignment or subletting applicable to Sublessee without regard
to the fact that Sublessee or such successor or assign was a Leasehold
Mortgagee.
(B) There shall be no cancellation, surrender or modification of
this Sublease by Sublessor and/or Sublessee without the prior written consent of
any Leasehold Mortgagee. Nothing herein contained shall be deemed to prohibit
Sublessor from terminating this Sublease for default of Sublessee as provided in
this Sublease, subject to the provisions of this
<PAGE>
38
Paragraph 12.7. Without limiting the generality of the foregoing, any Leasehold
Mortgage may provide that no rejection of this Sublease by Sublessee or by a
trustee in bankruptcy for Sublessee shall be effective as to any Leasehold
Mortgagee unless consented to in writing by such Leasehold Mortgagee, provided
that this sentence shall not create any duty or obligation from Sublessor to any
Leasehold Mortgagee in the event of any such rejection of this Sublease by
Sublessee or by a trustee in bankruptcy for Sublessee.
(C) Sublessor, upon serving Sublessee with any notice of default,
shall simultaneously serve a copy of such notice on any Leasehold Mortgagee. No
notice of default from Sublessor to Sublessee shall be deemed to have been duly
given unless and until a copy thereof has been provided to every Leasehold
Mortgagee of this Sublease in the manner specified herein, and no such notice
from Sublessor to any Leasehold Mortgagee shall be deemed to have been duly
given unless and until a copy thereof has been so provided to Sublessee in the
manner specified herein. The Leasehold Mortgagee shall then have the same period
after service of the notice on it to remedy or cause to be remedied the default
complained of, and Sublessor shall accept performance by or at the instigation
of any Leasehold Mortgagee as if it has been done by Sublessee. Any notice
required to be given to any Leasehold Mortgagee shall be addressed to the
Leasehold Mortgagee at the address and to the attention of the person designated
to Sublessor by such Leasehold Mortgagee to receive copies of such notices, and
shall otherwise be given and effective in accordance with the provisions of
Paragraph 24 below. Sublessor hereby authorizes entry upon the Premises by each
Leasehold Mortgagee, and its agents, representatives, contractors and employees,
for the purpose of curing defaults hereunder, subject to the rights of Sublessee
and its Sub-sublessees.
(D) In addition to the rights granted to any Leasehold Mortgagee
under subparagraph (C) of this Paragraph 12.7, a Leasehold Mortgagee shall have
an additional period of thirty (30) days to remedy or cause to be remedied any
default complained of, provided such Leasehold Mortgagee shall reimburse
Sublessor, at the time of so remedying the default, for all costs and expenses
to Sublessor of maintaining, protecting, insuring and operating the Premises
during the additional thirty (30) day period.
(E) If Sublessor shall elect to terminate this Sublease by reason of
any default of Sublessee, the Leasehold Mortgagee shall also have the right to
postpone and extend the date of termination as fixed by the provisions of this
Sublease until the later of (i) a period of not more than six (6) months from
the expiration of the cure period specified in subparagraph (D) of this
Paragraph 12.7, or (ii) the date which is ten (10) days after the receipt by
Leasehold Mortgagee of a separate notice of Sublessor's intention to terminate
this Sublease, provided that the Leasehold Mortgagee shall have cured or shall
<PAGE>
39
have caused to be cured any then existing defaults and meanwhile shall pay the
Rent and other charges required to be paid under this Sublease, except that such
Leasehold Mortgagee shall not be required to comply with (i) obligations of
Sublessee to satisfy or otherwise discharge any lien, charge or encumbrance
against Sublessee's interest hereunder or in the Premises junior in priority to
the lien of the Leasehold Mortgage held by such Leasehold Mortgagee, or (ii)
obligations then in default and not reasonably susceptible of being cured by
such Leasehold Mortgagee, which shall not include defaults which can be cured by
the payment of money (including the reimbursement obligations of Sublessee under
Paragraph 19 below), or physical conditions on the Premises, provided that
Leasehold Mortgagee has access to the Premises and is not stayed or enjoined
from curing any such conditions (such obligations not reasonably susceptible of
being cured by such Leasehold Mortgagee are hereinafter referred to collectively
as "Incurable Defaults"); and provided, further, that the Leasehold Mortgagee
shall forthwith take steps necessary to acquire or sell Sublessee's interest and
estate in this Sublease by foreclosure of its Leasehold Mortgage, or otherwise,
and shall prosecute such action to completion with due diligence. If at the end
of the six (6) month period, the Leasehold Mortgagee shall be actively engaged
in steps to acquire or sell Sublessee's interest in this Sublease (if not
enjoined or stayed), and shall have otherwise complied with the requirements of
this Paragraph 12.7, the time for Leasehold Mortgagee to comply with the
provisions of this sub-paragraph (E) of this Paragraph 12.7 shall be extended
for so long as such Leasehold Mortgagee is enjoined or stayed and thereafter for
such period as shall be reasonably necessary to complete these steps with
reasonable diligence and continuity. The Leasehold Mortgagee shall not be
required to cure or commence to cure any defaults consisting of Sublessee's
failure to satisfy and discharge any lien, charge or encumbrance against
Sublessee's interest hereunder or in the Premises junior in priority to the lien
of the Leasehold Mortgage held by such Leasehold Mortgagee. If a Leasehold
Mortgagee complies with the provisions of this Paragraph 12.7(E), then, upon the
acquisition of Sublessee's right, title and interest herein by such Leasehold
Mortgagee, or its designee, or any other purchaser or assignee at a foreclosure
sale or otherwise, this Sublease shall continue in full force and effect as if
Sublessee had not defaulted hereunder.
(F) Sublessor agrees that in the event of any foreclosure under any
Leasehold Mortgage, either by judicial proceedings or under power of sale
contained therein, all right, title and interest encumbered by such Leasehold
Mortgage may, without the consent of Sublessor, be assigned to and vested in the
purchaser at such foreclosure sale or an assignee from such purchaser of this
Sublease or a Recognized Sub-sublease subject and subordinate, however, to the
rights, title and interests of Sublessor and further subject to the Prime Lease
and the LLIDA Sublease and (in the case of a Leasehold Mortgage encumbering all
or any part of the estate of any Recognized Sub-sublessee)
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40
subject and subordinate to the rights, title and interest of Sublessee. In the
event that Leasehold Mortgagee or its designee shall become the owner of the
interest of Sublessee hereunder by foreclosure, deed in lieu of foreclosure, or
otherwise, such Leasehold Mortgagee or its designee shall have the right to
transfer and assign its interest hereunder to any other party without the prior
written consent of Sublessor, without complying with any restrictions on
assignment contained in this Sublease, and no such assignment or conveyance
shall be deemed to constitute a default or event of default hereunder.
(G) Sublessor agrees that in the event of a termination of this
Sublease by reason of any default by Sublessee or by reason of any other cause
(including, without limitation, a rejection of this Sublease by Sublessee's
trustee in bankruptcy pursuant 11 U.S.C. ss.365 or any equivalent provision of
law), and subject to the rights herein granted to Leasehold Mortgagees,
Sublessor shall provide each Leasehold Mortgagee with written notice that this
Sublease has been terminated, together with a statement of all sums then due to
Sublessor under this Sublease and all other defaults hereunder (identifying in
reasonable detail the action required to correct the same), and Sublessor will
enter into a lease (hereinafter referred to as a "Mortgagee Sublease") of the
Premises with the Leasehold Mortgagee or its designee for the remainder of the
term effective as of the date of termination, at the same Rent and upon the same
terms, provisions, covenants and agreements as contained in this Sublease
(including, without limitation any and all options to extend or renew the Term
of this Sublease) and subject to the Prime Lease and the LLIDA Sublease and to
no additional exceptions or encumbrances other than those set forth in Exhibit
"B" hereof and to the rights, if any, of the parties then in possession (actual
or constructive) of any part of the Premises (subject to any agreement between
such parties and the Leasehold Mortgagee), and Sublessor shall convey to such
Leasehold Mortgagee or its designee title to the improvements owned by Sublessee
as provided in Paragraph 8.5 of this Sublease by quitclaim deed, subject to the
right of reversion contained in such Paragraph 8.5; provided:
(1) The Leasehold Mortgagee shall make written request upon
Sublessor for the execution of such a Mortgagee Sublease within sixty (60)
days after the date of receipt by such Leasehold Mortgagee of such notice
of termination required under this Paragraph (G), and the written request
is accompanied by payment to Sublessor of all sums then due to Sublessor
under this Sublease, as set forth in such notice of termination to
Leasehold Mortgagee.
(2) The Leasehold Mortgagee or its designee shall pay to
Sublessor at the time of the execution and delivery of the Mortgagee
Sublease any sums that at the time of its execution and delivery would be
due pursuant to this Sublease but for the termination, and, in addition,
all
<PAGE>
41
reasonable attorney's fees which Sublessor shall have incurred by reason
of the default. Sublessor shall allow as an offset against the sums
otherwise due under this Paragraph (G), an amount equal to the net income,
if any, derived by Sublessor from the Premises during the period from the
date of termination of this Sublease to the date of beginning of the Term
of such Mortgagee Sublease. In the event of a controversy as to the amount
to be paid to Sublessor pursuant to this Paragraph (G), the payment
obligation shall be satisfied in the event that Sublessor shall be paid
the amount not in controversy, and such Leasehold Mortgagee or its
designee shall agree to pay any additional sum ultimately determined to be
due plus interest at the per annum rate of one percent (1%) in excess of
the rate from time to time announced by NationsBank, N.A. (or any
successor thereto) as its "prime rate", calculated on the basis of the
actual days elapsed, from the day following the due date of such payments
to the date of payment.
(3) The Leasehold Mortgagee or its designee shall perform and
observe all covenants contained in the Mortgagee Sublease on Sublessee's
part to be performed during such period of time commencing with the date
of execution of the Mortgagee Sublease and terminating upon the
abandonment or surrender of possession of the Premises under the said
Mortgagee Sublease and shall further remedy any other conditions that
Sublessee was obligated to perform under the terms of this Sublease (other
than Incurable Defaults), and specifically identified in such notice of
termination provided by Leasehold Mortgagee under this Paragraph (G).
(4) Unless otherwise agreed in writing by the Leasehold
Mortgagees, in the event that more than one Leasehold Mortgagee shall make
written request upon Sublessor for a Mortgagee Sublease, then the
Mortgagee Sublease shall be entered into pursuant to the request of the
Leasehold Mortgagee whose Leasehold Mortgage shall be most junior in lien,
provided (1) the holder of any Leasehold Mortgage prior in lien who makes
such written request upon Sublessor shall have been paid all installments
of interest and amortization of principal then due and owing to such
Leasehold Mortgagee, plus all expenses, including reasonable attorney's
fees, incurred by such Leasehold Mortgagee in connection with the
termination of this Sublease, the execution and delivery of the Mortgagee
Sublease and the execution and delivery of all documents reasonably
necessary to protect the priority of its Leasehold Mortgage; (2) the new
sublessee will assume, in writing, all of the covenants, agreements and
obligations on the part of the defaulted Sublessee under any Leasehold
Mortgage prior in lien to be kept, observed and performed on the part of
Sublessee, subject nevertheless to the terms and conditions of such
Leasehold Mortgage, and shall execute and deliver to all holders of any
Leasehold Mortgage prior in
<PAGE>
42
lien who have made a written request upon Sublessor pursuant to this
Paragraph (G) such documents as are necessary to keep such Leasehold
Mortgages in full force and effect, and (3) the holder of any Leasehold
Mortgage prior in lien shall have received from the title insurance
company insuring such Leasehold Mortgage assurances (at no expense to it)
satisfactory to such Leasehold Mortgagee that its Leasehold Mortgage
continues, with respect to the Mortgagee Sublease, in the same manner and
order of priority of lien as was in existence with respect to this
Sublease and that the leasehold estate of the new sublessee created by
such Mortgagee Sublease shall be subject to the lien of any Leasehold
Mortgage prior in lien in the same manner and order of priority of lien as
was in existence with respect to the leasehold estate created under this
Sublease. All holders of Leasehold Mortgages prior in lien who have
delivered a written request to Sublessor pursuant to this Paragraph (G)
shall act in good faith and cooperate with the holder of the Leasehold
Mortgage junior in lien so as to permit such junior Leasehold Mortgagee to
take advantage of the provisions of this Paragraph (G). In the event that
all of the conditions of clauses (1), (2) and (3), above, shall not have
been satisfied by or with respect to such junior Leasehold Mortgagee, the
next most junior Leasehold Mortgagee who shall have delivered a written
request to Sublessor pursuant to this Paragraph (G) shall have paramount
rights to the benefits set forth in this subparagraph. In the event the
conditions of clauses (1), (2) and (3), above, shall not be satisfied with
respect to such next most junior Leasehold Mortgagee, the provisions of
this subparagraph shall apply with respect to each Leasehold Mortgagee
next most junior until such conditions are satisfied. In the event of any
dispute as to the respective senior and junior priorities of any such
Leasehold Mortgages, the certification of such priorities by a title
company doing business in the State of Georgia, satisfactory to Sublessor,
shall be conclusively binding on all parties concerned. Sublessor's
obligation to enter into a Mortgagee Sublease with any junior Leasehold
Mortgagee shall be subject to the receipt by Sublessor of evidence
reasonably satisfactory to it that the conditions of clauses (1), (2) and
(3), above, have been satisfied with respect to all senior Leasehold
Mortgages.
(5) The new sublessee under any such Mortgagee Sublease shall
be liable to perform the obligations imposed on such sublessee by such
Mortgagee Sublease only during the period such person has an ownership of
the leasehold estate created by such Mortgagee Sublease.
(6) Sublessor shall have the right, without the consent of
Sublessee, at all times to encumber Sublessor's interest in the Premises
and Sublessor's interest in this Sublease, provided that each such
security instrument placed
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43
on the Premises by Sublessor shall by its terms be subject to this
Sublease, to the right, title and interest of Sublessee in the Premises
and the improvements thereon, and to the rights and interests of any
Leasehold Mortgagee hereunder in this Sublease (including, without
limitation, the right of any Leasehold Mortgagee to enter into a Mortgagee
Sublease) and the interest of Sublessee in the leasehold estate hereby
created. Upon the request of Sublessee or any Leasehold Mortgagee,
Sublessor shall obtain (at Sublessee's sole cost and expense) an agreement
in recordable form in which the holder of the mortgage on Sublessor's
interest in the Premises and Sublessor's interest in this Sublease
acknowledges that such mortgage is subject to this Sublease and to the
rights of Sublessee and such Leasehold Mortgagee as set forth above.
(7) The new sublessee under such Mortgagee Sublease shall,
upon entering into such Mortgagee Sublease, acquire all of the right,
title and interest of Sublessee in and to any and all subleases of all or
any part of the Premises and the improvements and upon the request of such
new sublessee, Sublessee shall execute, acknowledge and deliver to such
new sublessee an assignment in recordable form evidencing such conveyance.
(8) The Mortgagee Sublease shall be expressly made subject to
the Prime Lease and the LLIDA Sublease and to the rights, if any, of the
Sublessee under this Sublease and to the rights, if any, of the Recognized
Sub-sublessees (and any other person or entity claiming by, through or
under any Recognized Sub-sublessee) under any Recognized Sub-sublease
pursuant to Paragraph 12.6 hereof, subject to any agreement between the
Leasehold Mortgagee and the Recognized Sub-sublessee.
(9) The Leasehold Mortgagee (the lessee under the Mortgagee
Sublease) shall assume all of the obligations of Sublessor under any
Recognized Sub-sublease, subject to any agreement between the Leasehold
Mortgagee and the Recognized Sub-sublessee.
(10) The lessee (Leasehold Mortgagee) under the Mortgagee
Sublease shall have the same right, title and interest in and to the
Premises and the right to use the buildings and improvements thereon as
Sublessee had under this Sublease.
(H) Sublessor, upon request, shall execute, acknowledge and deliver
to any Leasehold Mortgagee an agreement, in the form attached hereto as Exhibit
"P" and incorporated herein or in such other form as shall be reasonably
satisfactory to Leasehold Mortgagee and Sublessor, by and between Sublessor,
Sublessee and Leasehold Mortgagee (provided the same has been previously
executed by Sublessee and Leasehold Mortgagee)
<PAGE>
44
agreeing to all of the provisions of this Paragraph 12.7 of this Sublease.
Sublessee agrees to pay all reasonable costs and expenses incurred by Sublessor
in connection with the preparation and/or execution of said agreement.
(I) Subject to the provisions of Paragraph 12.7(G)(4) above, the
rights granted a Leasehold Mortgagee under this Paragraph 12.7 shall not extend,
as to any one portion of the Premises, to more than three (3) such Leasehold
Mortgagees at any one time, but shall, as among Leasehold Mortgagees whose
Leasehold Mortgages encumber the same estate, be exercisable by said Leasehold
Mortgagees in the order of the respective priority of their Leasehold Mortgages,
to the exclusion of those Leasehold Mortgages junior in priority and those
Leasehold Mortgagees whose Leasehold Mortgages encumber a lesser estate (unless
any of such Leasehold Mortgagees agree otherwise in writing).
(J) Sublessor agrees that any Leasehold Mortgagee or its designee
permitted under this Sublease shall in no manner or respect whatsoever be liable
or responsible for any of Sublessee's obligations or covenants under this
Sublease, unless and until such Leasehold Mortgagee or its designee becomes the
owner of said leasehold estate by foreclosure, sale in lieu of foreclosure or
otherwise, in which event such Leasehold Mortgagee or its designee shall remain
liable for such obligations and covenants only so long as it remains the owner
of said leasehold estate.
(K) In the event that a Leasehold Mortgagee or its designee shall
become the holder of the leasehold estate hereby created, and in the event that
the improvements located on the Premises shall have been or become materially
damaged on, before or after the date such Leasehold Mortgagee or its designee
becomes such holder, such Leasehold Mortgagee or its designee shall be obligated
to repair, replace or reconstruct such improvements only to the extent of the
net insurance or condemnation proceeds received by such Leasehold Mortgagee or
its designee by reason of such damage. In the event that such net insurance or
condemnation proceeds are insufficient to repair, replace or reconstruct such
improvements to the extent required by this Sublease and such Leasehold
Mortgagee or its designee elects not to fully reconstruct such improvements to
the extent required by this Sublease, such failure shall constitute a default
under this Sublease.
(L) All proceeds of policies of insurance maintained hereunder and
the award from any condemnation or taking of the Premises shall be paid to and
held by the first in priority Leasehold Mortgagee in trust for the benefit of
Sublessor and Sublessee upon the condition that said Leasehold Mortgagee agrees
in a written agreement with Sublessor that is reasonably satisfactory to
Sublessor that the insurance proceeds or award from any taking shall be applied
in the manner specified in this Sublease and shall be paid to Sublessor to the
extent that
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45
Sublessor shall be entitled thereto pursuant to the provisions of this Sublease.
Such Leasehold Mortgagee is hereby authorized to participate in any actions,
proceedings or negotiations in connection with the collection, settlement or
compromise of any such proceeds or awards. In the event that the first in
priority Leasehold Mortgagee is a person or entity the principal place of
business of which is not located in the United States, such proceeds shall be
held by the next in priority Leasehold Mortgagee, the principal place of
business of which is located in the United States. If no Leasehold Mortgagee has
a principal place of business in the United States, such proceeds shall be held
by an escrow agent located in the Atlanta, Georgia metropolitan area reasonably
acceptable to Sublessor, Sublessee and the first in priority Leasehold
Mortgagee. Notwithstanding the foregoing, all proceeds of policies and insurance
resulting from damage to any improvements in existence as of the Proration Date
or which are required to be constructed by Sublessee hereunder shall be paid to
and held by a third party escrow agent reasonably satisfactory to Sublessor,
Sublessee and the first in priority Leasehold Mortgagee, in trust for the
benefit of Sublessor, Sublessee and such Leasehold Mortgagee, to be applied in a
manner specified in this Sublease.
(M) Sublessor and Sublessee shall cooperate in including in this
Sublease by suitable amendment from time to time any provision which may be
reasonably requested by any proposed Leasehold Mortgagee or may otherwise be
reasonably necessary to implement the provisions of this Paragraph 12; provided,
however, that any such amendment shall not in any way affect the Term or affect
adversely any rights of Sublessor under this Sublease.
(N) So long as any Leasehold Mortgage is in existence, unless all
Leasehold Mortgagees shall otherwise expressly consent in writing, the fee title
to the Premises, the leasehold estate of Sublessor and DNR and any leasehold
estate of Sublessee herein created shall not merge but shall remain separate and
distinct, notwithstanding the acquisition of said fee title and any of said
leasehold estates by Sublessor or by Sublessee, or by a third party by purchase
or otherwise. Nothing contained in this Paragraph (N) shall limit or affect any
right of termination on the part of Sublessor contained in any other provision
of this Sublease.
(O) In the event that Sublessor should become subject to any
bankruptcy proceeding, Sublessee shall not accept any rejection by Sublessor or
Sublessor's trustee in bankruptcy as terminating this Sublease, but, instead,
shall remain in possession of the Premises to the full extent permitted by law.
Without limiting the foregoing, no such acceptance of any rejection of this
Sublease shall be effective as to any Leasehold Mortgagee unless consented to in
writing by such Leasehold Mortgagee
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46
(P) In the event Sublessee shall fail to appoint an arbitrator or
appraiser in any arbitration or appraisal proceedings after notice from
Sublessor, as provided in any provision of this Sublease providing for
arbitration or appraisal by arbitrators or appraisers to be appointed by
Sublessor and/or Sublessee, the Leasehold Mortgagee shall have an additional
period of thirty (30) days, after notice by Sublessor that Sublessee has failed
to appoint such arbitrator or appraiser, to make such appointment, and the
arbitrator or appraiser so appointed shall thereupon be recognized in all
respects as if such arbitrator or appraiser had been appointed by Sublessee.
(Q) Notices from Sublessor to the Leasehold Mortgagees shall be
mailed to the address furnished to Sublessor pursuant to this Paragraph 12, and
those from the Leasehold Mortgagee to Sublessor shall be mailed to the address
designated pursuant to the provisions of Paragraph 24 hereof. Such notices,
demands and requests shall be given in the manner described in Paragraph 24 and
shall in all respects be governed by the provisions of Paragraph 24.
(R) Sublessor does hereby subordinate any and all lien or claim of
lien against Sublessee, the Premises, the improvements located on the Premises
and all other trade fixtures, fixtures, equipment, furniture and other property
of Sublessee located on the Premises, and any capital reserve or other reserve
account established hereunder, arising from this Sublease or the relationship of
Sublessor and Sublessee (including, without limitation, any lien created
pursuant to O.C.G.A. Section 44-14-341, but specifically excluding Sublessor's
lien in the equipment and other personal property described in the attached
Exhibit "N" granted pursuant to the provisions of Paragraph 5.1 above) to the
liens created under any and all Leasehold Mortgages, whether now or hereafter
existing.
12.8 Sublessor shall at any time, and from time to time during the term of
this Sublease, upon the written request of Sublessee, amend this Sublease and
enter into one or more individual leases (herein referred to in this Sublease as
"Individual Sublease" or "Individual Subleases" as the context requires)
covering any portion or portions of the Premises in accordance with the
following terms and conditions:
(a) Each Individual Sublease shall conform to the following
requirements and limitations:
(i) It shall name Sublessor as lessor and Sublessee or its
designee or Affiliate as lessee thereunder;
(ii) It shall specifically describe as the premises demised
thereunder such portion of the Premises which shall be
designated by Sublessee, and shall in no event include
any
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47
additional real property beyond the boundaries of the
property described in Exhibit "A" hereof, except that it
may include non-exclusive easements which are
appurtenant in part or in whole to the premises demised
thereunder and which non-exclusive easements have
theretofore been granted pursuant to the provisions of
this Sublease. The legal description contained in each
such Individual Sublease shall be prepared on the basis
of and from a current, accurate, properly labeled plat
of survey obtained at the expense of Sublessee from and
certified by a Georgia registered and licensed land
surveyor or professional engineer, which shall show and
have labeled across the face thereof (i) the portion of
the Premises which will be the premises demised under
the Individual Sublease, and (ii) any portion of the
Premises that has theretofore been demised under
Individual Subleases. Such plat of survey shall also
include thereon a certification and labeling by the said
surveyor or engineer as to the total gross acreage (also
expressed in square footage) contained within the
boundaries of (i) the portion of the Premises demised
under the Individual Sublease, (ii) the portion(s), if
any, of the Premises theretofore demised under
Individual Subleases and (iii) all of the remainder of
the Premises;
(iii) It shall provide for the payment of Rent according to
the provisions of Paragraph 4 of this Sublease, as
modified pursuant to paragraph (c) below;
(iv) It shall not contain any term or condition of this
Paragraph 12.8 or any equivalent to the terms and
conditions contained in this Paragraph 12.8; and
(v) Except as otherwise provided in this Paragraph 12.8, it
shall contain precisely the same provisions as are set
forth in this Sublease.
(b) Each Individual Sublease shall be submitted by Sublessee to
Sublessor accompanied by:
(i) A proposed form of an amendment of this Sublease
prepared in accordance with the provisions of
Subparagraph 12.8(d); and
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48
(ii) Five (5) copies of the plat of survey referred to in
subparagraph 12.8(a)(ii).
(c) The amount of the Basic Rent and Percentage Rent under each
Individual Sublease shall not be less than the minimum Rent
required under any Recognized Sub-sublease, as described on
the attached Exhibit "S".
(d) Upon the execution of each such Individual Sublease, this
Sublease shall be amended as follows:
(i) Paragraph 2 of this Sublease shall be amended to remove
and discharge that portion of the Premises demised under
each such Individual Sublease in all respects from the
provisions set forth in this Sublease;
(ii) Paragraph 4 of this Sublease shall be amended to reduce
the annual Rent by a sum equivalent to the amount of the
rental payable under any such Individual Sublease;
(iii) Any such amendment shall provide that except as
specifically therein provided for, and except as
theretofore amended by prior amendments, this Sublease
shall continue in full force and effect as legally
binding obligations of Sublessor and Sublessee, and
(iv) Any other provisions of this Sublease to the contrary
notwithstanding, in no event shall the cumulative sum of
(i) the annual Rent payable under this Sublease (as such
amount is amended from time to time by reason of
amendments to this Sublease) plus (ii) the sum of all
annual Rent payable pursuant to all Individual Subleases
which have been executed pursuant to this Sublease, fail
to be equal to or greater than the Rent as originally
provided for in Paragraph 4 of this Sublease.
12.9 Sublessor will execute, for the benefit of any sub-sublessee which is
permitted under the provisions of this Sublease without the consent or approval
of Sublessor, and for the benefit of any sub-sublessee which is otherwise
approved by Sublessor, a consent, estoppel and non-disturbance agreement,
substantially in the form of the Consent, Estoppel and Non-Disturbance Agreement
attached hereto as Exhibit "Q" and incorporated herein, with such changes
therein as may be reasonably requested by the sub-sublessee. Sublessor shall
assist and cooperate with Sublessee, but at no expense to
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49
Sublessor, in obtaining for the benefit of such sublessees a Subleasehold
Recognition Agreement from DNR and the Corps of Engineers, in forms heretofore
approved by DNR and the Corps of Engineers.
12.10 Sublessor acknowledges that this Sublease has been entered into with
the expectation that Sublessee will further sub-sublease portions of the
Premises in order to facilitate the development of the Premises, and that the
agreement of Sublessor not unreasonably to withhold, delay or condition consents
to subleases other than those with respect to which no further approval is
required hereunder is a material inducement to Sublessee to enter into this
Sublease. Sublessor agrees that it will promptly, diligently and in good faith
review requests by Sublessee for approval of sub-subleases which comply with the
requirements of this Paragraph 12.
13. Access.
Sublessor, its authorized representatives, agents, employees and attorneys
may, but shall be under no duty to, enter the Premises at reasonable times and
hours, upon reasonable advance notice, subject to the rights of tenants in
possession, if any, to inspect the Premises in order to determine whether
Sublessee is complying with its undertakings, duties and obligations under this
Sublease.
14. Sublessee's Property.
Sublessor shall not be liable for any damage to property of Sublessee or
of others located in the Premises, nor for the loss of or damage to any property
of Sublessee or of others by theft or otherwise, unless the result of the gross
negligence or wilful misconduct of Sublessor, its agents or employees. Sublessor
shall not be liable for any latent or patent defect in the Premises unless
identified in a written agreement between Sublessor and Sublessee executed on or
before the Execution Date, which agreement sets forth obligations of Sublessor
with respect to such defects. All property of Sublessee kept or stored on the
Premises shall be so kept or stored at the risk of Sublessee only and Sublessee
shall hold Sublessor harmless from and hereby waives any claims arising out of
damage to the same or damage to Sublessee's business, including subrogation
claims by Sublessee's insurance carrier.
15. Casualty Damage.
15.1 Repair of Damaged Improvements.
(a) Should any building, other structures or improvements
constructed and located on or within the Premises be damaged or destroyed by
fire or any other casualty whatsoever during the Term of this Sublease,
Sublessee, except as hereinafter provided in this Paragraph 15.1, shall, within
sixty
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50
(60) days following the date of the casualty, commence the preparation of plans
and specifications for the repair, reconstruction, restoration or replacement of
such improvements, it being specifically understood and agreed, however, that
Sublessee may elect, in its sole discretion, not to restore or replace such
improvements. Notwithstanding the preceding sentence or anything else to the
contrary in this subparagraph 15.1(a), Sublessee shall be obligated to restore
or replace such improvements when required under the provisions of Paragraph
15.1(b). If such improvements are to be restored or replaced, then, (i) within
one hundred twenty (120) days after the date of such casualty, Sublessee shall
submit the preliminary site plan required to be approved by Sublessor under this
Sublease and by the Corps of Engineers for approval; (ii) on or before one
hundred eighty (180) days after the date of such casualty, or, if such approvals
are required, ninety (90) days after obtaining any required approvals from
Sublessor and the Corps of Engineers, Sublessee shall commence the work of
repair, reconstruction, restoration, or replacement; and (iii) Sublessee shall
prosecute the same with all reasonable dispatch, and complete the same as soon
as reasonably practicable. Sublessor acknowledges and agrees that Sublessee may
elect in its sole discretion to demolish and remove the remainder of the damaged
improvements and replace such improvements with new improvements which are
consistent with the KSL Development Plan, as modified in accordance with this
Sublease, or not to restore or replace such improvements. Sublessor and
Sublessee specifically agree that, except as otherwise provided in this
Sublease, damage to or destruction of any buildings, other structures or
improvements on or within the Premises at any time during the Term of this
Sublease, by fire or any other casualty whatsoever, shall not cause or result in
a termination of this Sublease or authorize Sublessee or those claiming by,
through or under Sublessee to quit or surrender possession of the Premises or
any part thereof, and shall not release Sublessee in any way from its liability
to pay Sublessor the Rent herein provided for (except to the extent that Gross
Revenue is reduced by reason of such damage or destruction), or from any of the
provisions of this Sublease. However, if any buildings, other structures or
improvements constructed and located by Sublessee on or within the Premises
shall be damaged or destroyed at any time within the last five (5) years of the
Term of this Sublease, Sublessee shall be relieved of any obligation to repair,
reconstruct, restore, or replace the said damaged or destroyed buildings, other
structures or improvements or to construct replacement improvements. If any
buildings, other structures or improvements shall be damaged or destroyed, and
Sublessee is not obligated under this Paragraph to repair, reconstruct, restore
or replace the same under the provisions of this Sublease, and Sublessee elects
not to do so, Sublessee shall pay to Sublessor the portion of the insurance
proceeds resulting from such damage or destruction, after deducting the cost of
collection thereof, and the demolition and clearing costs, equal to the total
amount of such insurance proceeds multiplied by a fraction, the numerator of
which is the
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51
value of Sublessor's reversionary interest in the damaged or destroyed
improvements, as determined by the appraisal procedures set forth in Paragraph
16.4, below, and the denominator of which is the value of the improvements prior
to such damage or destruction, as determined by such appraisal procedure. The
balance of such proceeds of insurance shall be retained by Sublessee, subject to
the rights of Leasehold Mortgagees. In the event that any such damaged or
destroyed improvements are not repaired, reconstructed, restored or replaced,
Sublessee shall clear the Premises of any debris or remains of the said damaged
or destroyed buildings, other structures or improvements, and may use the
proceeds of insurance for such clearing.
(b) Sublessee shall restore any Existing Improvements (as defined in
Paragraph 9.3 above) which are damaged or destroyed by fire or other casualty
during the Term of this Sublease, or shall replace such Existing Improvements
with improvements of substantially equivalent value as the damaged or destroyed
improvements, unless Sublessee shall have previously constructed New
Improvements, in which event (i) the obligation of Sublessee to restore or
replace such Existing Improvements shall be deemed to have been satisfied to the
extent of the costs incurred by Sublessee in the construction of such New
Improvements, and (ii) such obligation to restore or replace shall thereafter be
deemed to apply to such New Improvements to the extent of the value of the
damaged or destroyed Existing Improvements which are not restored or replaced.
Notwithstanding the foregoing, Sublessee may elect not to restore or replace
such Existing Improvements damaged or destroyed at any time within the last five
(5) years of the Term, in which event the insurance proceeds resulting from such
damage or destruction shall be paid to Sublessor and Sublessee as provided in
subparagraph 15.1(a) above.
15.2 Failure to Comply with Repair Obligation. If the repair,
reconstruction, restoration or replacement of damaged or destroyed buildings,
other structures, or improvements, or the construction of replacement
improvements, is not substantially completed in accordance with subparagraph
15.1 hereof within the time periods provided therein (provided that Sublessee
shall have elected to restore or replace such improvements), or if Sublessee
shall fail diligently and in good faith to prosecute the same to completion,
upon the expiration often (10) days after written notice from Sublessor,
Sublessor shall be entitled to assume control of such repair, reconstruction,
restoration or replacement, and Sublessee or the Leasehold Mortgagee shall make
all insurance proceeds available to Sublessor for such completion.
15.3 Workman's Compensation Insurance. At all times prior to the
termination of this Sublease during any construction in or on the Premises,
Sublessee agrees, at its own cost and expense, to obtain and maintain workman's
compensation insurance in any amount required by applicable law.
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52
15.4 Use of Proceeds of Insurance. The proceeds of all insurance obtained
in accordance with Paragraph 10.1 of this Sublease shall be used for the repair,
reconstruction, restoration, or replacement of buildings, other structures or
improvements located on or within the Premises unless Sublessee shall be
relieved of Sublessee's obligation to so repair, reconstruct, restore, or
replace such damaged or destroyed buildings, other structures or improvements
pursuant to subparagraph 15.1 of this Sublease. The proceeds of such insurance,
if not required to be used for the repair, reconstruction, restoration or
replacement of the Premises, shall, subject to the rights of Leasehold
Mortgagees and the rights of Sublessor under Paragraph 15.1 above if such
improvements are not restored or replaced, be paid over or assigned to Sublessee
or as Sublessee may direct. All sums necessary to effect such repair,
reconstruction, restoration or replacement over and above the amount available
from said insurance proceeds shall be at the sole cost and expense of Sublessee.
All such insurance proceeds shall be made available to Sublessee pursuant to a
procedure reasonably satisfactory to the Leasehold Mortgagee and Sublessor to
the extent such proceeds are required to defray the expense of such repair,
reconstruction, restoration or replacement, and may be held by such Leasehold
Mortgagee or a third party escrow agent reasonably satisfactory to Sublessor,
Sublessee and the first in priority Leasehold Mortgagee, as trustee for
Sublessor, Sublessee and such Leasehold Mortgagee, as more particularly provided
in Paragraph 12 above.
15.5 Termination Prior to Completion of Repair. Subject to the rights of
Leasehold Mortgagees under Paragraph 12.7 above, if Sublessee has elected or is
otherwise obligated to restore or replace improvements which have been damaged
or destroyed, and has commenced the restoration or replacement of such
improvements, in the event of the termination of this Sublease before the
expenditure of the full amount of such insurance proceeds, Sublessor shall be
entitled to the portion of such proceeds as would have been paid to Sublessor if
Sublessee had elected not to restore or replace such improvements as permitted
under the provisions of Paragraph 15.1 above, or the entire amount of any
unexpended balance of the full amount of such insurance proceeds, if Sublessee
is required to restore or replace such improvements under Paragraph 15.1 above.
All other insurance proceeds shall be retained by Sublessee, subject to the
rights of Leasehold Mortgagees and the rights of Sublessor under Paragraph 15.1
above if such improvements are not restored or replaced.
16. Eminent Domain.
16.1 Sublease Termination.
(a) Total Condemnation or Condemnation by State. (i) If all of the
Premises, or such portion thereof as make the
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53
continued operation of the Premises commercially unfeasible, in Sublessee's
reasonable opinion, is condemned, this Sublease shall, at the option of
Sublessee, to be exercised by written notice to Sublessor, to be delivered on or
before the expiration of one hundred eighty (180) days after the date of receipt
by Sublessor of written notice of such condemnation, terminate on the date title
to the Premises or the condemned portion thereof vests in the condemnor;
provided, however, that such termination shall not benefit the condemnor and
shall be without prejudice to the rights of either Sublessor or Sublessee to
recover just and adequate compensation from any such condemnor.
(ii) If the State of Georgia, DNR, Sublessor, or any other
department, agency or instrumentality of the State of Georgia condemns any
portion of the Premises for the purpose of utilizing such condemned portion of
the Premises for any Permitted Use other than the use described in Paragraph
1.7(j), or in the event that, within five (5) years after the date of any such
condemnation, such condemned portion of the Premises is used for any Permitted
Use other than the use described in Paragraph 1.7(j), or in the event that the
State of Georgia, DNR, Sublessor, or any other department, agency or
instrumentality of the State of Georgia shall condemn any material portion of
the Premises (as hereinafter defined), this Sublease shall, at the option of
Sublessee, to be exercised by written notice to Sublessor, to be delivered on or
before the expiration of one hundred eighty (180) days after the date of receipt
by Sublessor of written notice of such condemnation, terminate on the date title
to the Premises or the condemned portion thereof vests in the condemnor;
provided, however, that such termination shall not benefit the condemnor and
shall be without prejudice to the rights of either Sublessor or Sublessee to
recover just and adequate compensation from any such condemnor. For purposes of
this Paragraph 16.1 (a)(ii), a "material portion of the premises" shall mean any
portion of the Premises consisting of five (5) acres or more, excluding any
portion of the Premises with respect to which only easements for utilities are
condemned.
(b) Partial Condemnation. In the event the operation of the residue
of the Premises is commercially feasible in Sublessee's reasonable opinion, and
this Sublease is not terminated pursuant to Paragraph 16.1(a) above, then the
Rent otherwise payable throughout the remainder of the Term of this Sublease
shall be reduced as follows: the percentage which the value of the residue of
the Premises (including all structures and improvements thereon and replacements
thereof, but excluding and disregarding any such structures and improvements
constructed after the Proration Date) after condemnation bears to the value of
the Premises (including all structures and improvements thereon and replacements
thereof, but excluding and disregarding any such structures and improvements
constructed after the Proration Date) immediately prior to such condemnation
shall be determined by appraisal as hereinafter provided, and the percentage
determined by said appraisal shall be multiplied by
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54
the amount of Basic Rent otherwise payable under the provisions of Paragraph 4
of this Sublease and the product thereof shall thereafter be payable as the
Basic Rent hereunder; and in such event, Sublessee may, but shall not be
obligated to, repair or rebuild the improvements remaining on such residue of
the Premises, or construct replacement improvements, to the extent that it is
economically feasible for Sublessee to do so. In such event the percentage
determined by said appraisal shall also be multiplied by the Annual Sales Base
(as defined in Exhibit "E" hereto), and the product thereof shall thereafter be
deemed to be the Annual Sales Base for purposes of the terms and provisions of
Exhibit "E" hereto.
16.2 Separate Awards. The court in such condemnation proceeding shall, if
not prohibited by law, be requested to make separate awards to Sublessor and
Sublessee, and Sublessor and Sublessee agree to request such action by the
court. This Paragraph 16 of this Sublease shall be construed as superseding and
being hereby substituted for any statutory provisions now in force or hereafter
enacted concerning condemnation proceedings to the extent permitted by law.
16.3 Awards. Sublessor and Sublessee hereby agree to petition the court in
any condemnation proceeding to make separate awards to Sublessor and Sublessee,
if said separate awards are not prohibited by law. In the event such court is
prohibited by law from making separate awards to Sublessor and Sublessee or
declines to do so and if this Sublease is terminated pursuant to Paragraph
16.1(a) above, the award shall be divided between Sublessor and Sublessee so
that each party shall receive that portion of the award which bears the same
proportion of the total award as the value of such party's interests in the
Premises bears to the total value of all interests in the Premises, determined
by appraisal as hereinafter provided. The value of Sublessor's interests shall
include the net present value of the reversionary interests in the land upon the
expiration or termination of this Sublease (discounted for time at an
appropriate discount rate); the value of Sublessor's interest in this Lease had
the Premises not been condemned, including the right to receive payment of all
sums required to be paid by Sublessee to Sublessor hereunder for the remainder
of the Term; and the value of Sublessor's residual right to the buildings and
improvements upon termination of this Lease. The value of the Sublessee's
interests shall include: the value of the buildings and improvements reduced by
the value of Sublessor's reversionary interest therein; and the value of
Sublessee's leasehold estate hereunder had the Premises not been condemned,
including the right to use and occupy the Premises for the remainder of the Term
subject to the obligation of Sublessee to pay Rent hereunder.
In the event such court is prohibited by law from making separate awards
to Sublessor and Sublessee or declines to do so and this Sublease is not
terminated pursuant to the provisions of
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55
Paragraph 16.1(a) above, the award shall be divided between Sublessor and
Sublessee as follows: Sublessor shall receive such portion of the award as shall
represent the net present value of the reversionary interest in the part of the
land so taken (discounted for time at an appropriate discount rate), together
with the reversionary interest in any improvements so taken which are not
restored; Sublessee shall receive such portion of the award as shall represent
the value of the improvements so taken less the amount of the reversionary
interest to be paid to Sublessor, which portion of the award may be applied to
the costs of restoration as provided in Paragraph 15 hereof; Sublessee shall
also receive the value of Sublessee's leasehold estate hereunder had the
Premises not been condemned, including the right to use and occupy the Premises
for the remainder of the Term subject to the obligation of Sublessee to pay Rent
hereunder. If Sublessee elects to restore the improvements, the entire amount of
the award representing the value of the improvements so taken shall be paid to
Sublessee to be applied to the costs of restoration; and if there shall remain
any balance of the award after restoration as aforesaid, an amount shall be paid
to Sublessor equal to the amount of such balance multiplied by the percentage of
the entire award as would have been paid to Sublessor if such improvements had
not been restored, and the balance shall be paid to Sublessee, subject to the
rights of Leasehold Mortgagees. It is specifically understood and agreed that in
the event of any partial condemnation, and regardless of whether this Sublease
is terminated as provided above, Sublessee may elect, in its sole discretion,
not to restore any improvements except to the extent necessary to maintain the
structural integrity of any such partially condemned improvement or to restore
the same to an architectural whole.
16.4 Appraisals. For the purpose of determining the appropriate reduction
in the Rent payable hereunder in the event of a partial condemnation of the
Premises as set forth in subparagraph 16.1 of this Paragraph 16 and for the
purpose of determining any value or amount which is to be determined by
appraisal pursuant to subparagraph 16.3 of this Paragraph 16, Sublessor and
Sublessee shall use good faith efforts to reach an agreement as to such Rent
reduction, or other value or amount. If Sublessor and Sublessee are unable to
agree on such reduction, value or amount within thirty (30) days from the date
of receipt by Sublessee of written notice of such condemnation, Sublessor and
Sublessee shall each appoint one appraiser to determine the applicable value(s)
or amount(s), and each shall promptly notify the other of such appointment. If
either party shall fail or refuse so to appoint an appraiser and give notice
thereof within thirty (30) days after written request from the other party, the
appraiser appointed by such other party shall within an additional thirty (30)
days thereafter individually make any such appraisal. If the parties have each
so appointed an appraiser, the two appraisers thus appointed shall make such
determination within thirty (30) days after the date of the later notice of
appointment. If such two appraisers are unable to agree on such
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56
determination within said thirty (30) days, they shall, within an additional ten
(10) days thereafter, jointly appoint a third appraiser; if they fail so to
appoint such third appraiser within said ten (10) days, the third appraiser
shall be appointed jointly by Sublessor and Sublessee (or upon their inability
to agree, by the American Institute of Real Estate Appraisers, or its
successor). The three appraisers so appointed shall then promptly make such
determination by majority vote. Any determination made pursuant to this
subparagraph 16.6 shall be binding and conclusive upon Sublessor and Sublessee,
without any right of appeal. All appraisers appointed hereunder shall be
competent, qualified by training and experience, disinterested, independent, and
members in good standing of the American Institute of Real Estate Appraisers, or
its successor. All appraisal reports shall be rendered in writing and signed by
the appraiser or appraisers making the report. Each party shall pay all fees and
expenses charged or incurred by the appraiser appointed by such party; fees and
expenses charged or incurred by the third appraiser and fees and expenses which
cannot be reasonably attributed to any one appraiser shall be borne equally by
Sublessor and Sublessee.
16.5 Other Evidence. Except as provided in subparagraphs 16.3 and 16.4 of
this Paragraph 16, and for the specific limited purpose set forth therein,
nothing herein contained to the contrary shall be deemed to prohibit Sublessor
or Sublessee from introducing into any such condemnation proceeding or
proceedings such appraisals or other estimates of value, loss and damage as each
of them may see fit.
16.6 Reformation. Subject to the foregoing provisions of this Paragraph
16, Sublessor and Sublessee agree that upon any condemnation of the Premises or
any portion thereof or any interest of Sublessee therein, this Sublease and all
of Sublessee's covenants, agreements, obligations, duties, rights, powers and
privileges created thereby shall automatically be deemed to be apportioned and
to apply to and affect solely that portion of the Premises or that interest of
Sublessee in and to the Premises or any portion thereof which is owned by
Sublessee under this Sublease following any such condemnation.
This Paragraph 16 of this Sublease shall not constitute an acknowledgment
by Sublessor or Sublessee or either or both of them that Sublessor's rights as a
Sovereign in and to the reversionary fee simple estate in the Premises are in
any manner subject to any power of eminent domain vested in any government or
other legal entity.
17. Events of Default.
17.1 The occurrence of any one or more of the following events and the
continuation thereof beyond the applicable grace period herein provided, if any,
shall constitute an "Event of Default":
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57
(a) if Sublessee shall default in the payment of (i) Basic Rent or
Percentage Rent, if any (subject to the provisions of the Percentage Rent Rider
attached hereto as Exhibit "E", providing for the determination of the amount of
Percentage Rent payable hereunder) and such default shall continue for a period
of twenty (20) days after written notice from Sublessor of such default, which
notice shall specify the exact amount due; provided, however, that said written
notice to Sublessee shall not be required with respect to failure to pay Basic
Rent if Sublessor has delivered to Sublessee written notices pursuant to this
Paragraph 17.1 (a) with respect to failure to pay Basic Rent two (2) or more
times within the preceding twelve (12) months, or (ii) any item of Additional
Rent and such default shall continue for a period of thirty (30) days after
written notice from Sublessor of such default, which notice shall specify the
exact amount due; or
(b) if Sublessee shall default in the observance or performance of
any of its covenants or obligations under this Sublease (other than the payment
of Basic Rent, Percentage Rent and Additional Rent), and shall not have cured
such default within thirty (30) days after written notice from Sublessor of such
default, which notice shall specify in reasonable detail the nature of such
default and the action required to be taken to cure the same, or, if such
default is of such a nature that it can be cured but cannot be completely
remedied within said thirty (30) days, Sublessee shall fail (i) within such
thirty (30) day period to advise Sublessor of Sublessee's intention to institute
all steps necessary to remedy such situation, and to institute and thereafter
diligently prosecute to completion all steps necessary to remedy the same, and
(ii) complete such remedy within a reasonable time after the date of the giving
of said notice by Sublessor and in any event prior to such time as would either
subject Sublessor or Sublessor's agents to prosecution for a crime or cause a
default under the Prime Lease or the LLIDA Sublease; or
(c) if Sublessee shall file a voluntary petition in bankruptcy or
insolvency, or commence a case under the Federal Bankruptcy Code, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law (foreign or domestic), or shall make an assignment for the benefit of
creditors or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Sublessee or of all or any part of
Sublessee's personal property; or
(d) if, within ninety (90) days after Sublessee becomes aware of the
commencement of any proceeding against Sublessee, whether by the filing of a
petition or otherwise, seeking any reorganization, arrangement, composition,
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58
readjustment, liquidation, dissolution or similar relief under any present or
future federal bankruptcy act or any other present or future applicable federal,
state or other statute or law (foreign or domestic), such proceeding shall not
have been dismissed, or if, within ninety (90) days after Sublessee becomes
aware of the appointment of any trustee, receiver or liquidator of Sublessee or
of all or any part of Sublessee's personal property, without the consent or
acquiescence of Sublessee, such appointment shall not have been vacated or
otherwise discharged, or if any execution or attachment shall be issued against
Sublessee or any of Sublessee's personal property pursuant to which the
Premises, or any part thereof, shall be taken or occupied or attempted to be
taken or occupied.
17.2 If, at any time, (a) Sublessee shall be comprised of two or more
persons, or (b) Sublessee's obligations under this Sublease shall have been
guaranteed by any person, or (c) Sublessee's interest in this Sublease shall
have been assigned, "Sublessee", as used in subdivisions (c) and (d) of
Paragraph 17.1 hereof, shall mean any one or more of the persons primarily,
co-primarily or secondarily liable for Sublessee's obligations under this
Sublease. Any monies received by Sublessor from or on behalf of Sublessee during
the pendency of any proceeding of the types referred to in subdivisions (c) and
(d) of Paragraph 17.1 hereof and the acceptance of any such compensation by
Sublessor shall not be deemed a waiver on the part of Sublessor of any rights
under this Sublease.
18. Sublessor's Remedies.
18.1 In the case of any Event of Default as hereinabove provided (not
cured within the applicable cure period, if any, set forth in this Sublease),
Sublessor shall have the immediate right, without terminating this Sublease, to
reenter the Premises and to dispossess Sublessee and all other occupants
therefrom and remove and (subject to the rights of any Leasehold Mortgagee)
dispose of all property therein or, at Sublessor's election, to store such
property in a public warehouse or elsewhere at the cost and for the account
of-Sublessee, and without Sublessor being deemed guilty of trespass or becoming
liable for any loss or damage which may be occasioned thereby. Upon the
occurrence of any such Event of Default, Sublessor shall also have the right, at
its option, in addition to and not in limitation of any other right or remedy,
to terminate this Sublease by giving Sublessee notice of such termination and
upon the giving of such notice, this Sublease, and the Term shall cease and
terminate as fully and completely as if the date of termination were the
Expiration Date and thereupon, unless Sublessor shall have theretofore demanded
possession of the Premises, Sublessor shall have the immediate right of
possession, in the manner aforesaid, and Sublessee and all other occupants shall
quit and surrender the Premises to Sublessor, but Sublessee shall remain liable
as hereinafter mentioned.
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18.2 If by reason of the occurrence of any such Event of Default, the Term
shall end before the Expiration Date, or Sublessor shall take lawful possession
of the Premises, or Sublessee shall be ejected, dispossessed, or removed
therefrom by summary proceedings or in any other lawful manner, whether or not
specifically enumerated in this Sublease, Sublessor at any time thereafter may
relet the Premises, or any part or parts thereof, either in the name of
Sublessor or as agent for Sublessee, for a term or terms which may, at
Sublessor's option, be less than or exceed the period of the remainder of the
Term, and at such rent or rentals and upon such other conditions, which may
include concessions and free rent periods, as Sublessor, in its sole discretion,
shall determine. Sublessor shall receive the rents from such reletting and shall
apply the same first, to the payment of such expenses as Sublessor may have
incurred in connection with reentering, ejecting, removing, dispossessing,
reletting, repairing, subdividing or otherwise preparing the Premises for
reletting, including market brokerage and reasonable, actual attorneys' fees and
expenses; second, to the payment of any indebtedness other than Rents, charges
and other sums due hereunder from Sublessee to Sublessor; and the residue, if
any, Sublessor shall apply to the fulfillment of the terms, covenants and
conditions of Sublessee hereunder and Sublessee hereby waives all claims to the
surplus, if any. Sublessee shall be and hereby agrees to be liable for and to
pay Sublessor any deficiency between the Rents, charges and other sums reserved
hereunder and the net rentals, as aforesaid, of reletting, if any, for each
month of the period which otherwise would have constituted the balance of the
Term. Sublessee hereby agrees to pay such deficiency in monthly installments on
the rent payment days specified in this Sublease, and any suit or proceeding
brought to collect the deficiency for any month, either during the Term or after
any termination thereof, shall not prejudice or preclude in any way the rights
of Sublessor to collect the deficiency for any subsequent month by a similar
suit or proceeding. Sublessor shall in no event be liable in any way whatsoever
for the failure to relet the Premises or in the event of such reletting, for
failure to collect the rents reserved thereunder; however, in the event of
termination of Sublessee's rights of possession due to an Event of Default, and
provided Sublessee has vacated the Premises and is not contesting Sublessor's
right to possession of the Premises, Sublessor agrees to use reasonable efforts
to relet the Premises so as to minimize the damages suffered by Sublessor and
payable by Sublessee. Sublessee agrees that Sublessor's agreement to use
reasonable efforts to relet the Premises shall not be deemed to impose any
obligation on Sublessor to relet the Premises (i) for any purposes which would
be inconsistent with or which would breach any covenant of Sublessor in the
Prime Lease or the LLIDA Sublease, or (ii) to any lessee who is not reputable or
who is not financially capable of performing the duties and obligations imposed
upon such lessee under the applicable lease or who does not have experience in
successfully operating a business of the type and size which such lessee
proposes to conduct in the
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60
Premises. Sublessee further agrees that the agreement by Sublessor to use
reasonable efforts to relet the Premises shall not impose any obligation on
Sublessor to relet the Premises in preference to the leasing by Sublessor of any
other property or premises of Sublessor. Sublessor is hereby authorized and
empowered to make such repairs, alterations, decorations, subdivision or other
preparations for the reletting of the Premises as Sublessor shall deem
advisable, without in any way releasing Sublessee from any liability hereunder,
as aforesaid.
18.3 No such reentry or taking possession of the Premises by Sublessor
shall be construed as an election on its part to terminate this Sublease unless
Sublessor gives written notice to Sublessee of such intention. Notwithstanding
any such reletting without termination, Sublessor may at any time thereafter
elect to terminate this Sublease for such previous default.
18.4 In the event this Sublease is terminated pursuant to the foregoing
provisions of this Paragraph 18, Sublessor may recover from Sublessee all
damages it may sustain by reason of Sublessee's default, including the cost of
recovering the Premises and reasonable, actual attorneys' fees and expenses and,
upon so electing Sublessor shall be entitled to recover from Sublessee, as and
for agreed upon liquidated damages, and not as a penalty, an amount equal to the
difference between (i) the Rent, charges and other sums reserved hereunder for
the period which otherwise would have constituted the balance of the Term from
the latest of the date of termination of this Sublease, the date of reentry or
the date through which monthly deficiencies shall have been paid in full and
(ii) the rental value of the Premises at the time of such election, for such
period, both discounted to present worth at the then rate of interest applicable
to a United States treasury bill or note, as the case may be, maturing as close
as possible to what otherwise would have been the natural date of expiration of
this Sublease, all of which shall immediately be due and payable by Sublessee to
Sublessor. Nothing herein contained, however, shall limit or prejudice the right
of Sublessor to prove and obtain as damages by reason of such termination an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the
amounts referred to in this Paragraph 18.4.
18.5 The parties hereby waive trial by jury in any action, proceeding or
counterclaim brought by either party against the other on any matter whatsoever
arising out of or in any way connected with this Sublease, the relationship of
Sublessor and Sublessee created hereby, Sublessee's use or occupancy of the
Premises or any claim for injury or damage.
18.6 Sublessee hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event Sublessee shall be
evicted or dispossessed from the
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61
Premises for any cause, or Sublessor reenters the Premises following the
occurrence of any Event of Default hereunder, or this Sublease is terminated
before the Expiration Date.
18.7 In the event of any breach or threatened breach by Sublessee of any
of the terms and provisions of this Sublease, Sublessor shall have the right to
injunctive relief and declaratory relief as if no other remedies were provided
herein for such breach.
18.8 The rights and remedies herein reserved by or granted to Sublessor
and Sublessee are distinct, separate and cumulative, and the exercise of any one
of them shall not be deemed to preclude, waive or prejudice Sublessor's or
Sublessee's right to exercise any or all others. Whether or not specifically
enumerated in this Sublease, Sublessor hereby reserves all rights and remedies
at law and in equity and nothing contained in this Sublease shall be construed
as a limitation of any such rights or remedies.
18.9 Sublessor and Sublessee hereby expressly waive any right to assert a
defense based on merger and agree that neither the commencement of any action or
proceeding, nor the settlement thereof nor the entry of judgment therein shall
bar Sublessor or Sublessee from bringing any subsequent actions or proceeding.
18.10 The words "reenter", "reentry" and "reentered" as used in this
Sublease shall not be deemed to be restricted to their technical legal meanings.
18.11 If either party commences any suit or action against the other
party, the prevailing party shall be reimbursed by the losing party for the
prevailing party's court costs and attorneys' fees.
18.12 Arbitration. If the parties are unable to agree on any matter under
or with respect to this Sublease, or any Event of Default or alleged Event of
Default hereunder (other than the payment of Basic Rent), or with respect to the
rights, duties, obligations, liabilities and authority of the parties hereto,
then such matters shall be settled pursuant to the provisions of this Paragraph
18 12.
(a) If a party receiving a notice of default hereunder does not
agree that it has failed to comply with or perform in any material respect any
of the terms, covenants or conditions of this Sublease to be complied with or
performed by it, it may, within thirty (30) days after receipt of such notice of
default, notify the other party hereto in writing of such disagreement; or in
the event of any inability of the parties to agree with respect to any other
matter hereunder, a party may notify the other in writing of the exact matter in
dispute (such written notice with respect to a disputed default or other matter
is hereinafter referred to as a "Notice of Contest"). Upon such
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62
Notice of Contest being given, no termination of this Sublease under the
provisions of Paragraph 18.1 shall be effective, and no rights shall accrue to
either party as a result of such matter in dispute, unless and until a final
determination of such matter in dispute, or that an Event of Default has
occurred, has been made as hereinafter provided.
(b) Upon the delivery and receipt of a Notice of Contest hereunder,
Sublessor and Sublessee shall promptly enter into good faith negotiations to
resolve the dispute concerning whether the party receiving the notice of default
has in fact failed to comply with or perform in any material respect any of the
terms, covenants or conditions of this Sublease, or to resolve any other dispute
which is the subject of such Notice of Contest. If such negotiations do not
result in the resolution of such dispute within ten (10) days from the delivery
and receipt of such Notice of Contest, then Sublessor and Sublessee shall submit
the dispute to a mediator, selected jointly by Sublessor and Sublessee, to
settle such dispute through mediation. In the event Sublessor and Sublessee
cannot agree on the selection of a mediator, Sublessor and Sublessee shall
engage the services of Resolution Resources Corporation, 245 Peachtree Center
Avenue, Suite 2850, Atlanta, Georgia 30303-1222 as the mediator. In the event
Resolution Resources Corporation, its successor or a comparable organization
ceases to exist or ceases to perform mediation services in the metropolitan
Atlanta, Georgia area, the party issuing the Notice of Contest shall petition
the Superior Court of Fulton County, Georgia to appoint a mediator to resolve
the subject dispute.
(c) If within fourteen (14) days after the selection or appointment
of a mediator the subject dispute has not been resolved through mediation, the
party issuing the Notice of Contest shall secure from the American Arbitration
Association (the "AAA") and deliver to the other party a list of not less than
twenty-five (25) persons who may serve as arbitrators under this Sublease.
Within five (5) days of delivery of such list to the parties hereto, Sublessor
and Sublessee shall each select one arbitrator from such list and the
arbitrators so selected shall jointly select one other arbitrator, for a total
of three (3) arbitrators. The arbitration shall be conducted in the City of
Atlanta, Georgia, and except as otherwise expressly provided herein, in
accordance with the commercial arbitration rules of the AAA then in effect.
(d) The parties hereto shall prepare for the subject dispute to be
heard by the selected arbitrators no later than thirty (30) days after the
selection of the third arbitrator and shall jointly request in writing that the
arbitrators expeditiously render to the parties hereto their decision as to
whether the party receiving the notice of default has failed to comply with or
perform its obligations under this Sublease in the manner specified in the
notice of default, or as to any other matter in dispute as specified in the
Notice of Contest. The
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arbitrators shall have no authority whatsoever to set aside or to modify the
terms, conditions or provisions of this Sublease. The decision of the
arbitrators shall contain the findings of fact upon which their decision is
based and, if applicable, the conclusions of law supporting their decision. The
decision of the arbitrators shall become conclusive and binding on the parties
hereto and shall not be subject to appeal to any court, although such decision
may be challenged on the basis of fraud or mistake.
(e) Each party hereto shall bear its own costs of mediation and, if
applicable, arbitration. Any and all charges of mediators or arbitrators shall
be borne equally by the parties hereto.
(f) The provisions of this Paragraph 18.12 shall survive the
expiration or any termination of this Sublease.
19. Curing Sublessee's and Sublessor's Defaults.
(a) If Sublessee shall default in the performance of any term of
this Sublease on Sublessee's part to be performed, Sublessor, without thereby
waiving such default, may, but shall not be obligated to, after having given any
required notice and after the expiration of any applicable cure period
hereunder, perform the same for the account and at the expense of Sublessee,
without notice in case of emergency and upon twenty (20) days' prior notice
(after the expiration of any applicable cure period) in all other cases.
Sublessor may enter the Premises at any time to cure any default without thereby
incurring any liability to Sublessee or anyone claiming through or under
Sublessee. Reasonable bills for any expenses incurred by Sublessor in connection
with any such performance or involved in collecting or endeavoring to collect
Rent or enforcing or endeavoring to enforce any rights against Sublessee under
or in connection with this Sublease or pursuant to law, including any cost,
expense and disbursement involved in instituting and prosecuting summary
proceedings (so long as Sublessor prevails therein), as well as reasonable bills
for any property, material, labor or services provided, furnished or rendered,
including reasonable actual attorneys' fees and expenses, shall be paid by
Sublessee as Additional Rent on demand. In the event that Sublessee is in
arrears in payment of Rent, Sublessee waives Sublessee's right, if any, to
designate the items against which any payments made by Sublessee are to be
credited and Sublessor may apply any payments made by Sublessee to any items
Sublessor sees fit, irrespective of and notwithstanding any designation or
requests by Sublessee as to the items against which any such payments shall be
credited.
(b) Notwithstanding anything to the contrary contained in this
Sublease, Sublessee may offset against any Rent payable under this Sublease (i)
the amount, if any, of any final judgment not subject to further appeals which
Sublessee may have obtained
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against Sublessor in connection with the performance by Sublessor of Sublessor's
duties and obligations under this Sublease; and (ii) the amount, if any, of any
final judgment not subject to further appeals which Sublessee may obtain against
the Georgia Department of Transportation ("GDOT") in connection with the failure
of GDOT to perform the maintenance obligations of GDOT under that certain
_____________, dated ____________, by and between GDOT and Sublessor [insert
description of bridge maintenance agreement] (hereinafter referred to as the
"Bridge Maintenance Agreement").
20. Surrender.
On the Expiration Date or sooner termination of the Term or upon reentry
by Sublessor upon the Premises, Sublessee shall surrender, vacate and deliver to
Sublessor the Premises, including all buildings, other structures and
improvements thereon, and any and all additions, alterations and replacements
thereto, "broom clean" and in good order, condition and repair except for
ordinary wear and damage by fire or other casualty, to the extent Sublessee is
not required to restore the same pursuant to Paragraph 15 hereof, and except for
damage caused by the grossly negligent or wilful misconduct of Sublessor, its
agents or employees, or which result from any condemnation, to the extent
Sublessee is not required to restore any condemned improvements under the
provisions of this Sublease. If the Premises are not surrendered upon the
Expiration Date or sooner termination of the Term, such holding over shall not
be deemed to extend the Term or renew this Sublease or to have created or be
construed as a tenancy. However, Sublessee shall pay, until such time as
Sublessee complies with this Paragraph 25, in monthly installments in advance,
on the first day of each and every month of such holding over, (a) one and
one-half (1-1/2) times the monthly installment of Basic Rent payable during the
last month of the Term; and (b) all other Percentage Rent and Additional Rent
due under this Sublease. In addition to such monthly installments to be paid by
Sublessee during such holdover, to the extent Sublessee holds over more than one
(1) month, Sublessee hereby indemnifies Sublessor against liability resulting
from delay by Sublessee in so surrendering the Premises, including any claims
made by any succeeding tenant or prospective tenant founded upon such delay, but
only if Sublessor provided written notice to Sublessee, prior to the scheduled
expiration date of this Sublease, that it was required to deliver the Premises
to a succeeding or prospective tenant by a specified date. Sublessee's
obligations under this Paragraph 20 shall survive the expiration or sooner
termination of the Term.
21. Quiet Enjoyment.
Sublessee shall have the peaceable and quiet possession of the Premises
during the Term free of the claims of Sublessor or anyone claiming by, through
or under Sublessor, subject to the terms of this Sublease, the Prime Lease and
the LLIDA Sublease,
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65
until the occurrence of an event of default and the expiration of any applicable
cure period. This covenant shall be construed as a covenant running with the
land and shall not be construed as a personal covenant or obligation of
Sublessor, except to the extent of Sublessor's interest in this Sublease and
then subject to the terms of Paragraph 23 hereof. Sublessor makes no
representation or warranty as to the condition of the Premises, except as may be
expressly provided in any written agreement between Sublessor and Sublessee
executed contemporaneously with this Sublease. Sublessee hereby acknowledges
that it has fully inspected the Premises and that the same is in satisfactory
condition for the use intended to be made of the same by Sublessee. Sublessee
further acknowledges that no representation or warranty as to the condition of
the Premises has been made to it by Sublessor, or any agent, employee,
representative or attorney of Sublessor, except as may be expressly provided in
any written agreement between Sublessor and Sublessee executed contemporaneously
with this Sublease. Sublessor shall not be required, during the Term of this
Sublease, to make any repair or alteration to the Premises or in any manner to
supply any services, utilities or maintenance to or for the Premises, except as
provided in Paragraph 38, below, pursuant to which Sublessor has agreed to cause
GDOT to maintain the bridge providing access to the Premises pursuant to the
Bridge Maintenance Agreement.
22. Estoppel Certificates.
Sublessee and Sublessor at any time or from time to time at the written
request of the other party, at the request of the lessor under the Prime Lease
or the lessor under the LLIDA Sublease, or at the request of any Leasehold
Mortgagee or Recognized Sub-sublessee, will execute, acknowledge and deliver to
the party so requesting, a certificate certifying:
(a) that this Sublease has not been modified, changed, altered or
amended in any respect and is in full force and effect (or, if there have been
modifications, stating the modifications and that this Sublease is in full force
and effect as modified);
(b) that this Sublease is the only Sublease between Sublessor and
Sublessee affecting the Premises;
(c) to the extent true, that Sublessee has accepted the Premises (or
part thereof), and is paying Rent hereunder, for which it is then liable on a
current basis;
(d) that, to the best of such party's knowledge, there are then
existing no credits, offsets or defenses against the enforcement of any
provisions of this Sublease (or, if so, specifying the same);
(e) the dates, if any, to which the Rent or other charges due
hereunder have been paid in advance and that there
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66
has been no prepayment of Rent other than as provided for in this Sublease:
(f) that, to the best of such party's knowledge, there are no
existing defaults by the other party under this Sublease (or, if so, specifying
such default);
(g) that, to the best of such party's knowledge, there are no
actions, whether voluntary or otherwise, pending against such party under the
bankruptcy laws of the United States or any state thereof; and
(h) such further information with respect to this Sublease or the
Premises as Sublessor, or such lessor, Leasehold Mortgagee, Recognized
Sub-sublessee, may reasonably request.
Any such certificate may be relied upon by any prospective purchaser of the
Premises or of the interest of Sublessor or Sublessee in any part thereof, by a
lessor or prospective lessor under the Prime Lease or the LLIDA Sublease, or by
any lessee or prospective lessee thereof, Leasehold Mortgagee, prospective
Leasehold Mortgagee, Recognized Sub-sublessee or prospective sub-sublessee. The
failure of either party to execute, acknowledge and deliver to the other party a
statement in accordance with the provisions of this Paragraph 22 within fifteen
(15) days after written request therefor shall constitute an acknowledgment by
such party, which may be relied on by any person who would be entitled to rely
upon any such statement, that such statement as submitted by the other party is
true and correct.
23. Memorandum of Sublease.
Neither Sublessor nor Sublessee shall record this Sublease or any
amendment to this Sublease (although a memorandum of this Sublease may be
recorded) without the prior written consent of the other party and in the event
such consent is given the party requesting such consent shall pay all transfer
taxes, recording fees and other charges in connection with such recording
notwithstanding any provision of law imposing liability therefor upon the other
party. In the event Sublessee records a memorandum of sublease, same shall be in
the form attached hereto and made part hereof as Exhibit "H" and shall also be
in substance reasonably satisfactory to Sublessor.
24. Notices.
Except as otherwise expressly set forth herein all notices, requests,
demands, approvals or consents required hereunder or by law (collectively,
"Notices") shall be in writing and shall be given by mailing the same, certified
or registered mail, return receipt requested, postage prepaid, or by a reliable
overnight courier service providing for delivery against receipt (such as
Federal Express) addressed to Sublessor at the address of
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Sublessor, as set forth in Paragraph 1.3 hereof and a copy to Troutman Sanders
LLP, Suite 5200,600 Peachtree Street, N.E., Atlanta, Georgia 30308-2216, Attn:
William B. Marianes, Esq. or Managing partner, and if to Sublessee, et the
address of Sublessee, as set forth in Paragraph 1.5 hereof and a copy to Nola S.
Dyal, Esq., KSL Recreation Corporation, 56-140 PGA Boulevard, La Quinta,
California 92253, with a copy to Clyde E. Click, Esq., Long, Aldridge & Norman,
303 Peachtree Street, N.E., Suite 5300, Atlanta, Georgia 30308. Notices shall be
deemed given on the next business day if sent by overnight courier, or on the
fourth business day after the same is deposited in the United States Mail and
addressed as set forth above, with postage thereon fully prepaid. The persons
designated for the receipt of Notices, and the addresses to which Notices may be
given or made by either party, may be changed or supplemented by Notice given by
such party to the other.
25. Brokers.
Sublessor and Sublessee each warrant to the other that it has not employed
nor had any dealings or discussions with any broker or agent who is entitled to
any commission, finder's fee or any similar compensation in connection with the
negotiation or execution of this Sublease. Sublessor and Sublessee each agree to
indemnify the other party and hold such other party harmless from and against
any and all liability for commissions or other compensation or charges and all
costs and expenses incurred in defense of the claim if this warranty is
breached. In the event of a suit on any such claim, Sublessor shall notify and
implead Sublessee, or Sublessee may intervene.
26. Miscellaneous.
26.1 No agreement to accept a surrender of this Sublease shall be valid
unless in writing signed by Sublessor. The delivery of keys or possession to
Sublessor or any agent or employee of Sublessor shall not operate as a
termination of this Sublease or surrender of the Premises.
26.2 No provision of this Sublease shall be deemed to have been waived by
Sublessor or Sublessee unless such waiver be in writing signed by the party
making such waiver. The failure of Sublessor or Sublessee to seek redress for
violation of, or to insist upon strict performance of, any covenant or condition
of this Sublease shall not be deemed a waiver thereof or prevent a subsequent
act, which would have originally constituted a violation, from having all the
force and effect of an original violation.
26.3 The receipt by Sublessor of Basic Rent and/or any items of Additional
Rent or Percentage Rent, if any, with knowledge of the breach of any covenant of
this Sublease shall not be deemed a waiver of such breach. No payment by
Sublessee or receipt by Sublessor of a lesser amount than the Basic Rent,
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68
Additional Rent or Percentage Rent, if any, herein stipulated shall be deemed to
be other than on account of the earliest Basic Rent, Additional Rent or
Percentage Rent, if any, reserved hereby which is due and owing at the time such
payment is received by Sublessor. No endorsement or statement on any check or
any letter accompanying any check or payment of any such rent shall be deemed an
accord and satisfaction, and Sublessor may accept such check or payment without
prejudice to Sublessor's rights and remedies provided in this Sublease.
26.4 The captions used in this Sublease are for convenience only and do
not in any way limit or amplify the terms and provisions hereof. Whenever herein
the singular number is used, the same shall include the plural, and words of any
gender shall include each other gender.
26.5 Exhibits "A" through "W", all attached hereto, are hereby
incorporated into this Sublease and made a part hereof as if fully set forth
herein.
26.6 This Sublease and all other agreements and instruments signed
contemporaneously herewith contain the entire agreement between the parties, and
no agreement, representation or inducement shall be effective to change, modify
or terminate this Sublease in whole or in part unless such agreement,
representation or inducement is in writing and signed by both parties hereto.
26.7 If any provision of this Sublease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Sublease shall not be affected thereby.
26.8 The terms, provisions and covenants contained in this Sublease shall
apply to, inure to the benefit of, be enforceable by and against, and be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and permitted assigns.
26.9 Sublessee hereby expressly waives any and all rights granted by or
under any present or future laws to redeem Sublessor's reversionary interest in
the Premises. In addition, in the event of any lawful termination of the Term or
any repossession of the Premises by reason of Sublessee's default hereunder,
Sublessee waives (i) any notice of reentry or of the institution of legal
proceedings to that end, (ii) any right of redemption, reentry or repossession,
and (iii) the benefit of any laws now or hereafter in force exempting property
from liability for rent or otherwise. The provisions of this Paragraph shall
survive the expiration or sooner termination of the Term.
26.10 This Sublease shall be deemed to be made under and shall be
construed in accordance with and governed by the
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69
internal laws of the State of Georgia, without regard to principles of conflicts
of laws.
26.11 Sublessee expressly acknowledges that neither Sublessor nor
Sublessor's agents have made or are making, and Sublessee, in executing and
delivering this Sublease, is not relying upon, any warranties, representations,
promises or statements, except to the extent that the same are expressly set
forth in this Sublease, and no rights, easements or licenses are or shall be
acquired by Sublessee by implication or otherwise unless expressly set forth in
this Sublease.
26.12 The parties agree that neither party shall be deemed to have drafted
this Sublease; accordingly, ambiguities shall not be interpreted against either
Sublessee or Sublessor.
27. Guarantor.
As a material inducement for Sublessor's agreeing to enter into this
Sublease with Sublessee, Sublessee shall cause Guarantor to execute the guaranty
attached hereto as Exhibit "I" contemporaneously with the execution of this
Sublease. If such guaranty is not executed by Guarantor contemporaneously with
the execution of this Sublease, this Sublease shall automatically be rescinded
nunc pro tunc. Sublessor agrees that it shall consider in good faith any request
by Guarantor for a release from liability under this Sublease and such guaranty
and the substitution of a new guarantor in connection with any permitted
assignment of this Sublease in accordance with the provisions hereof, and to
which Sublessor is willing or obligated to consent pursuant to the provisions of
Paragraph 12 above.
28. Time of the Essence.
Time is of the essence with respect to all time periods set forth herein.
29. Sublease Subject to Other Agreements; Covenant to
Perform Obligations.
29.1 (a) All rights of the parties hereto are subject to and subordinate
to the Prime Lease and the LLIDA Sublease in all instances and under all
circumstances. Sublessee agrees to be bound by and shall comply with all of the
terms, conditions and covenants of the Prime Lease and the LLIDA Sublease
applicable to the Premises and Sublessee's use of the Premises and manner of
access thereto during and with respect to the period from and after the
Execution Date. It is expressly understood and agreed that: (i) Sublessee may
perform no act or omit to perform any act that would cause a default of
Sublessor as "Lessee" under the Prime Lease or the "Authority" under the LLIDA
Sublease; (ii) wherever in this Sublease rights or privileges are granted to the
Sublessee with respect to any matter or thing, such rights or privileges shall
be exercisable by the Sublessee only insofar as
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Sublessor as "Lessee" under the Prime Lease and the "Authority" under the LLIDA
Sublease has the right to exercise the same and only insofar as the same are not
inconsistent with, or in violation of, the covenants and conditions of the Prime
Lease or the LLIDA Sublease with respect to the same matter or thing, and the
terms, covenants, and conditions of the Prime Lease and the LLIDA Sublease shall
be deemed to be a limitation upon the rights and privileges granted to the
Sublessee herein. For purposes of this paragraph, all of the provisions of the
Prime Lease and the LLIDA Sublease shall be subject to, for the purpose of
determining the obligations of Sublessee hereunder, the provisions contained in
that certain Consent, Estoppel and Non-Disturbance Agreement, executed by the
Corps of Engineers in favor of Sublessee, and that certain Consent, Estoppel and
Non-Disturbance Agreement, executed by DNR in favor of Sublessee.
(b) Notwithstanding the provisions of subparagraph 29.1(a) above,
Sublessor agrees that, for the purpose of determining the obligations of
Sublessee hereunder:
(i) In the event of any conflict or inconsistency between the
terms and provisions of the Prime Lease or the LLIDA Sublease and the
terms and provisions of this Sublease, the terms and provisions of this
Sublease shall control.
(ii) Sublessor shall not surrender or relinquish the LLIDA
Sublease, or any of the rights of the sublessee thereunder, without the
prior written consent of Sublessee in its sole discretion.
(iii) Compliance by Sublessee with the express provisions of
this Sublease shall be deemed to constitute compliance with the provisions
of subparagraph 29.1(a), above. No provision of the Prime Lease or the
LLIDA Sublease shall be deemed to impose additional obligations on
Sublessee which are not contained in this Sublease.
(iv) Sublessee shall have no obligation to pay any rental or
other amounts payable to DNR under the LLIDA Sublease or to the Corps
under the Prime Lease, and the provisions of Condition 12 of the Prime
Lease are not applicable to and are not required to be performed by
Sublessee.
(v) Sublessee shall not be required to comply with any
provisions of the Prime Lease or the LLIDA Sublease requiring the removal
of any improvements or the restoration of the Premises, except to the
extent that such requirements are not in conflict with the terms and
provisions of this Sublease.
(vi) Sublessee shall not be required to comply with the
requirements of the Prime Lease for the submission
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of budgets and approval thereof by the Corps under the Prime Lease, and
Sublessor agrees that it shall comply in full with such requirements.
Sublessee agrees that Sublessor may provide to DNR and the Corps any
information required to be delivered by Sublessee to Sublessor hereunder
in connection with the performance of the obligations of DNR and LLIDA
under the LLIDA Sublease and the Prime Lease.
(vii) Sublessee shall not be bound by or required to perform
or comply with any terms or provisions of the Prime Lease or the LLIDA
Sublease which are not presently contained therein, or with the terms and
provisions of any rules or regulations hereafter promulgated or imposed by
the Corps, DNR or LLIDA which are in conflict or inconsistent with the
terms and provisions of this Sublease, or which impose or purport to
impose any obligations on Sublessee which are not contained in this
Sublease. Notwithstanding the foregoing, Sublessee shall comply with the
provisions of subparagraph 27(c) of the Prime Lease, requiring the
submission of an annual pest control plan for anticipated pesticide usage
during the ensuing year, and a report of actual pesticide usage during the
preceding calendar year. Copies of such annual plan and report shall be
provide simultaneously to LLIDA and to the Corps, and shall be provided at
the times and in the form required under the Prime Lease.
29.2 (a) Subject to the provisions of subparagraph 29.2(b) below, in
consideration of the benefits to be derived from the Premises by Sublessee,
Sublessee agrees to perform, and to be responsible for, all obligations and
duties of Sublessor, in each case with respect to the period from and after the
Proration Date, under the LLIDA Sublease and under any other contract,
agreement, lease, easement, license or use, however designated, for the use,
enjoyment, development and operation of the Premises, specifically including,
without limitation, the Stouffer Sublease and that certain License Agreement
dated March 30, 1995, by and between Sublessor and Lanier Sailing Academy, Inc.
Notwithstanding the foregoing, Sublessor shall perform all obligations under the
Stouffer Sublease to the extent that Sublessee is not entitled or does not have
the authority to do so, and shall cooperate with and assist Sublessee,
reasonably and in good faith, to the extent necessary or appropriate in
connection with the performance of such obligations, or to the extent
necessitated by the failure or refusal by the Stouffer's Sublessee to permit
such performance by Sublessee, and regardless of whether the Stouffer's
Sublessee is entitled to so refuse to permit such performance by Sublessee.
Specifically, but without limitation of the foregoing, Sublessor shall comply
with the obligation to deliver possession of the property affected by the
Stouffer Sublease, with any representations, warranties or covenants regarding
the title of Sublessor to the property affected by the Stouffer Sublease,
including any covenant of quiet enjoyment, any requirements for the delivery to
mortgagees
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72
or sublessees under the Stouffer Sublease of any agreement, recognition, consent
or other instrument, and any requirements for the execution by the Sublessor
under the Stouffer Sublease of any certificates or instruments, or the granting
of any consents or approvals, but only to the extent such certificates, consents
or approvals are acceptable to Sublessee. In addition, Sublessor shall, upon
request by Sublessee, collect all rents and other payments under the Stouffer's
Sublease and remit the same to Sublessee. Sublessor does hereby irrevocably
constitute and appoint Sublessee the agent and attorney-in-fact of Sublessor
(which power of attorney shall be irrevocable during the Term of this Sublease,
shall be deemed coupled with an interest, shall survive the voluntary or
involuntary dissolution of Sublessor and shall not be affected by any disability
or incapacity suffered by Sublessor subsequent to the date hereof), with full
power of substitution, subject to the terms of this Sublease, to exercise all
rights of Sublessor under the Stouffer Sublease, including, without limitation,
the rights set forth in Article 4, Section 2, relating to the books and records
of the Stouffer's Sublessee. Sublessee does hereby indemnify and agreed to
defend and hold harmless Sublessor from and against any and all liabilities,
losses, costs, damages and expenses (including reasonable attorneys' fees)
arising, resulting, sustained or incurred, or which can or may arise, result, be
sustained or incurred by Sublessor in connection with the performance by
Sublessor of its obligations under this Paragraph 29.2(a), in accordance with
the provisions and limitations contained herein, or in connection with the
performance by Sublessee of the agency and power of attorney provided above.
(b) Notwithstanding anything to the contrary herein, Sublessor
acknowledges and agrees that Sublessee shall have no duties or obligations
whatsoever under this Sublease with respect to the property affected by the
Stouffer Sublease during the term thereof, other than the performance of the
obligations of the Sublessor thereunder with respect to the period from and
after the Proration Date. Specifically, but without limitation of the foregoing,
any provision of this Sublease which requires the payment of any sums or the
performance of any obligations by Sublessee, such as, but without limitation,
Paragraph 6, with respect to the payment of Impositions, Paragraph 7, with
respect to Permitted Uses, Permits, and Compliance with Legal Requirements and
Insurance Requirements, Paragraph 8, requiring the making of improvements
required under legal requirements, Paragraph 9, pertaining to repairs and
maintenance of improvements on the Premises, and Paragraph 11, providing for the
payment of utilities, and Exhibit "G", pertaining to Hazardous Discharges and
Environmental Complaints, and containing certain indemnities with respect
thereto, shall be inapplicable to the property affected by the Stouffer Sublease
during the term of the Stouffer Sublease to the extent of any obligations of
Sublessee under any such provisions, except that Sublessee shall provide the
insurance described in Paragraph 10.2 above. For the purposes of Paragraph 3 of
Exhibit "G", the property affected by
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73
the Stouffer Sublease shall be deemed not to be in the possession of Sublessee
or otherwise included in the Premises during the term of the Stouffer Sublease.
29.3 Sublessor does hereby certify to Sublessee, to the best of
Sublessor's knowledge, with the knowledge that such certification will be relied
upon by Sublessee in executing and delivering this Sublease, the following:
(a) The LLIDA Sublease is in full force and effect. The copy of the
LLIDA Sublease previously provided to Sublessee by Sublessor and certified as
such by DNR is a true, correct and complete copy thereof and has not been
modified. Sublessor is the holder of all of the interest of the sublessee under
the LLIDA Sublease, and, to the best of Sublessor's knowledge, DNR is the
current holder of all of the interest of the lessor under the LLIDA Sublease.
Sublessor has not transferred or assigned any of its rights, duties or
obligations under the LLIDA Sublease.
(b) No notice of default has been received by Sublessor with respect
to the LLIDA Sublease. To the best of Sublessor's knowledge, neither DNR nor
Sublessor is in default under the LLIDA Sublease nor is Sublessor aware of any
condition which, with the giving of notice or the passage of time, or both,
would constitute a default by DNR and/or Sublessor under the LLIDA Sublease. No
notice of default has been sent by Sublessor with respect to the LLIDA Sublease.
(c) The term of the LLIDA Sublease is currently scheduled to expire
on _______, 20__, and neither DNR nor Sublessor has any right to terminate the
LLIDA Sublease prior to that date.
(d) There are no base rents (except for $1.00 per year) or
percentage rents of any kind due by the lessee under the terms of the LLIDA
Sublease either for the period through and including the Proration Date or for
the remainder of the term of the LLIDA Sublease.
(e) All of the existing improvements on the Premises and all of the
existing subleases or licenses on the Premises, including, without limitation,
the Stouffer Sublease and the Hilton Inns, Inc. license affecting the Hilton
Hotel on the Premises, are in compliance with the terms of the LLIDA Sublease.
All improvements and existing leases and licenses on or with respect to the
Premises have been approved by DNR.
29.4 Sublessor does hereby agree that, with respect to the LLIDA Sublease,
so long as this Sublease remains in full force and effect:
(a) The LLIDA Sublease will not be amended or modified in any way
whatsoever without the prior written consent of Sublessee, in its sole
discretion, and any such amendment or
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modification without the prior written consent of Sublessee will not be binding
upon Sublessee. So long as this Sublease remains in full force and effect,
Sublessor shall not surrender the LLIDA Sublease.
(b) Sublessor will not consent to the modification of either the
U.S. Army Engineers' Master Plan nor the implementing General Development Plan
without the written agreement of Sublessee.
(c) Sublessor shall not do or omit to do anything which would result
in a default or event of default under the LLIDA Sublease or the Prime Lease,
and shall promptly cure any default or event of default of which it becomes
aware resulting from acts or omissions of Sublessor.
30. Force Majeure.
For the purposes of any of the provisions of this Sublease, except such
provisions as require or concern the payment of monies, neither Sublessor nor
Sublessee, as the case may be, shall be considered in breach of, or default in,
the obligations thereof with respect to this Sublease in the event of enforced
delay in the performance of such obligations due to unforeseeable causes beyond
the control and without the fault or negligence thereof, including, but not
restricted to, acts of God, acts of the public enemy, acts of the federal
government, fires, floods, epidemics, quarantine restrictions, strikes, freight
embargoes and unusually severe weather or delays due to such causes; it being
the purpose and intent of this Paragraph 30 that in the event of the occurrence
of any such enforced delay, the time or times for performance of the obligations
of Sublessor or Sublessee, as the case may be, with respect to this Sublease
shall be extended for the period of the enforced delay. The party seeking the
benefit of the provisions of this Paragraph 30 shall, within seven (7) days
after the beginning of any such enforced delay, advise the other party of such
enforced delay by notice in accordance with this Sublease, and of the cause or
causes thereof, provided that the failure of such party to so advise the other
party shall not be deemed to be a condition to the applicability of this
Paragraph 30.
31. Purchase Option.
Concurrently with the execution and delivery of this Sublease, Sublessor
has transferred and conveyed to Sublessee by bill of sale title to certain
movable trade fixtures, equipment, machinery, boats, vehicles and other personal
property (collectively, the "Personal Property"), a description of which is
appended to said bill of sale. Upon the expiration or earlier termination of the
Term of this Sublease for any reason whatsoever, Sublessor shall have the first
right and exclusive option to purchase the Personal Property from Sublessee (and
any accessions thereto or replacements thereof) for the price equal
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75
to unamortized costs thereof (based on then current book value and using the
straight-line method of depreciation, based upon useful lives used by Sublessee
for tax purposes). Notwithstanding anything to the contrary in this Sublease,
Sublessee shall not be required to surrender to Sublessor upon the expiration or
earlier termination of this Sublease, or to sell to Sublessor pursuant to this
Paragraph 31, any rights or interests in any intangible property, including
intellectual property, tradenames and trademarks, owned by Sublessee.
32. Proration of Income and Expenses.
Sublessor and Sublessee acknowledge and agree that all income and expenses
of the Premises shall be prorated between Sublessor and Sublessee as of 11:59
p.m. on May 14, 1996 (said date and time of proration hereinafter referred to as
the "Proration Date"), in the manner set forth in the Closing Statement attached
hereto as Exhibit "M" and made a part hereof.
33. Liquor Licenses.
It is understood and agreed that alcoholic beverage service is an
extremely important factor in the delivery of the various services and products
which Sublessee plans for the Premises and a very important factor in the
generation of revenues from which Rent and, particularly, Percentage Rent is
paid to Sublessor. Subject to the terms and provisions of this Paragraph 33,
Sublessor agrees that it will continue to issue liquor licenses for the Premises
during the Term of this Sublease, both for locations covered by existing liquor
licenses, and for such other and additional locations as may be proposed by
Sublessee from time to time. Liquor licenses will be issued to Sublessee and to
its sublessees and assignees upon request of such parties provided such parties
comply with all requirements of general application for the issuance of liquor
licenses by the State of Georgia, and comply with the procedures and
requirements of Sublessor set forth on the Liquor License Requirements attached
hereto as Exhibit "U" and made a part hereof. Sublessee acknowledges that the
liquor licenses issued by Sublessor relate to what would otherwise be a county
or municipal license and that Sublessee is also required and will continue to be
required to obtain an additional and separate license from the State of Georgia.
34. Hotel Tax.
Sublessor acknowledges and agrees that it currently imposes upon the
Premises a hotel excise tax equal to 5% of room revenues from the Hilton Hotel
and from the Stouffer Renaissance Hotel. Of the proceeds received from such tax,
approximately 40% is paid to Hall County in accordance with an agreement between
Hall County and Sublessor (the "Hall County Agreement"). A true and correct copy
of the Hall County Agreement has been delivered to Sublessee. Sublessor and
Sublessee agree that the Hall County
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Agreement is not being assigned to Sublessee in connection with this Sublease.
Sublessor agrees that Sublessor will not extend the term of the Hall County
Agreement without the prior, written consent of Sublessee, which may be given or
withheld in the sole discretion of Sublessee. Sublessor agrees that during the
term of this Sublease Sublessor will continue to impose the hotel tax in
substantially the manner currently imposed and to apply the proceeds, less an
amount equal to Sublessor's administrative services and costs in connection with
the imposition and collection of such tax and administration of expenditures in
connection therewith, for the benefit of the Premises in the manner and to the
extent directed by Sublessee, subject to the provisions of O.C.G.A. Section
48-13-50(6), as in effect on the Proration Date.
35. Due Authorization, Execution and Delivery of Sublease.
35.1 Sublessor acknowledges and agrees that the Sublease (i) is within the
powers granted to Sublessor by the State of Georgia, (ii) has been duly
authorized, executed and delivered by Sublessor, (iii) constitutes the binding
agreement of Sublessor, and (iv) is enforceable against Sublessor in accordance
with its terms. Sublessor has the right to enter into and perform the Sublease.
35.2 Sublessee acknowledges and agrees that the Sublease (i) is within the
powers granted to Sublessee, (ii) has been duly authorized, executed and
delivered by Sublessee, (iii) constitutes the binding agreement of Sublessee,
and (iv) is enforceable against Sublessee in accordance with its terms.
Sublessee has the right to enter into and perform the Sublease.
36. Right of First Refusal.
In the event that Sublessor should desire to assign all or any portion of
its interest as Sublessor under this Sublease, or any interest therein, and
receives from a prospective assignee a bona fide offer for the purchase of such
interest, or a portion thereof or an interest therein which Sublessor desires to
accept, then, Sublessor shall promptly give to Sublessee written notice of the
receipt of such offer, and to the extent permitted by law, shall make an offer
to sell and assign such interest to Sublessee or an Affiliate or designee of
Sublessee in accordance with the following provisions:
(a) Offer to Sell. Together with such written notice of the receipt
of such bona fide offer, Sublessor shall deliver to Sublessee an offer to sell
such interest for the price and on the terms and conditions of the bona fide
offer received by Sublessor. Sublessee shall have a period of thirty (30) days
after the date of receipt of such offer from Sublessor within which to notify
Sublessor in writing that Sublessee, or an Affiliate or designee of Sublessee,
elects to purchase such interest. In the event such offer is not accepted by
Sublessee
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within the time set forth above, then, Sublessor shall have the right to
consummate the sale and assignment to said prospective assignee within one
hundred eighty (180) days after the expiration of said thirty (30) day period.
In the event of any change in the identity of said prospective assignee or in
the terms of the prospective sale and assignment, or in the event the sale to
said prospective assignee is not closed within said one hundred eighty (180) day
period, then Sublessor shall not sell, convey, transfer or assign such interest
without first making a new offer to Sublessee in accordance with the provisions
of this Paragraph 36. In the event that Sublessee or its Affiliate or designee
elects to purchase such interest within the time and in the manner set forth
above, then Sublessor and Sublessee shall close such transaction at the time and
place and on the date designated by Sublessee by written notice to Sublessor,
which closing date shall be not more than thirty (30) days after the date on
which Sublessee or its Affiliate or designee accepts such offer.
(b) Closing Documents. At the closing, Sublessor shall execute and
deliver to Sublessee, or its Affiliate or designee (the "Assignee"), the
following documents:
(i) An assignment, properly executed and witnessed and
notarized for recording, conveying to the Assignee the subleasehold interest
being assigned, subject only to Existing Title Exceptions, and any and all
rights of third parties or other matters of title consented to, created or
suffered by Sublessee. Sublessor shall not be obligated to convey any portion of
the Premises as shall have been taken by condemnation.
(ii) An affidavit, in form and substance reasonably
satisfactory to Sublessee, stating Sublessor's U.S. taxpayer identification
number, that Sublessor and all persons holding beneficial interests in the
Premises are "United States Persons", as defined by Internal Revenue Code
Sections 1445(f)(3) and 7701(g), and that the purchase of the leasehold interest
by the Assignee pursuant to this Sublease is not subject to the withholding
requirements of Section 1445(a) of the Internal Revenue Code.
(iii) An affidavit pursuant to O.C.G.A. Section 48-7-128 that
Sublessor is not subject to Georgia tax withholding.
(iv) A Georgia transfer tax declaration.
(v) An affidavit regarding commercial real estate brokers, in
form reasonably satisfactory to Assignee and its title insurance company
pursuant to the Real Estate Broker Lien Act, O.C.G.A. Section 44-14-600, et seq.
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Sublessor and the Assignee shall also execute and deliver such other documents
and instruments as are necessary or appropriate in connection with the closing,
including a limited warranty deed conveying Sublessor's right, title and
interest in and to the improvements on the Premises, a bill of sale for personal
property, and such other assignments, affidavits and agreements as the Assignee
or the title insurance company insuring the Assignee's title in the Premises
shall reasonably require, including, without limitation, evidence, reasonably
satisfactory to the Assignee or the Assignee's title insurance company, that any
deed of trust, mortgage or other lien affecting Sublessor's interest in the
Premises, or any portion thereof, has been satisfied and canceled of record, and
evidence of the authority of Sublessor and the signatories for Sublessor with
respect to the transaction.
(c) Closing Costs and Prorations. All costs and expenses incurred in
connection with the closing of the conveyance shall be paid by the party by whom
payment is required under the terms of the offer, as accepted by the Assignee.
(d) Title Matters. On or before thirty (30) days after the date of
acceptance of such offer by the Assignee, the Assignee may deliver to Sublessor
a written statement of objections, if any, to title matters affecting
Sublessor's interest in the Premises. Prior to, or concurrently with, closing,
Sublessor may cure or remove or cause to be affirmatively insured against any
such title matters to which Sublessee has objected which are not Existing Title
Exceptions or otherwise permitted under the provisions of this Paragraph 36 (the
"Title Objections"). In the event that prior to closing Sublessor fails or
refuses to cure or remove or cause to be affirmatively insured against the Title
Objections, Sublessee shall have the right to terminate and rescind the
acceptance of such offer and any obligation of Sublessee to purchase the
Premises, in which event Sublessee shall be deemed not to have accepted such
offer and the rights of the parties shall be determined under this Paragraph 36
accordingly. Sublessor shall cure or remove or cause to be affirmatively insured
against any Title Objections which can be cured solely by the payment of money,
such as a deed to secure debt, mechanic's or materialman's lien or similar
matters, and any Title Objection resulting from the actions of Sublessor
occurring after the date of Sublessor's written notice to Sublessee under the
first sentence of this Paragraph 36. In the event that prior to closing
Sublessor fails or refuses to cure or remove or cause to be affirmatively
insured against any of the Title Objections described in the immediately
preceding sentence, Sublessor shall be in default and Sublessee shall have the
right to any and all remedies available at law or in equity and, without
limitation of the foregoing, Sublessee shall have the right to terminate and
rescind the acceptance of such offer and any obligation of Sublessee to purchase
the interest of Sublessor under this Paragraph 36.
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(e) Casualty. If all or any portion of the improvements on the
Premises is destroyed by fire or other casualty at any time after the acceptance
of such offer and prior to closing, then, at the option of the Assignee, (i) the
acceptance of such offer shall be deemed to be rescinded, and Sublessor shall
not be obligated to assign, and the Assignee shall not be obligated to purchase,
such interest pursuant to the acceptance of such offer, provided that such
rescission shall not affect the right of Sublessee subsequently to accept an
offer within the time period permitted under this Sublease, or (ii) the
acceptance of such offer shall not be deemed to be rescinded, and Sublessor, at
the time of closing, shall transfer and assign to the Assignee all of
Sublessor's right, title and interest in and to the insurance proceeds received
or to be received by reason of such damage or destruction, said option to be
exercisable by the Assignee by delivering to Sublessor written notice of such
exercise on or before the thirtieth (30th) day following the date on which such
damage or destruction occurs, but in no event later than the date of closing
hereunder, provided that the last date for closing shall be extended for a
period of thirty (30) days in the event of any such damage or destruction. If
the Assignee fails to exercise said option within said period, then, the
Assignee shall be deemed to have elected the alternative set forth in subclause
(ii), above.
(f) Condemnation. If, at any time after the date of acceptance of
such offer and prior to closing, any action or proceeding is filed or
threatened, under which the Premises, or any portion thereof or any interest
therein, or any portion of the improvements located on the Premises, may be
taken by condemnation or right of eminent domain, then, at the option of the
Assignee, (i) the acceptance of such offer shall be deemed to be rescinded, and
Sublessor shall not be obligated to assign, and the Assignee shall not be
obligated to purchase, such interest pursuant to the acceptance of such offer,
provided that such rescission shall not affect the right of Sublessee
subsequently to accept an offer within the time period permitted under this
Sublease, or (ii) the acceptance of such offer shall not be deemed to have been
rescinded, and Sublessor, at the time of closing hereunder, shall transfer and
assign to the Assignee all of Sublessor's right, title and interest in and to
any proceeds received or which may be received by reason of such condemnation,
said option to be exercisable by the Assignee by delivering to Assignor written
notice of such exercise on or before the thirtieth (30th) day following the date
on which the Assignee received written notice that such suit has been filed or
is threatened, but in no event later than the date of closing hereunder,
provided that the last date for closing shall be extended for thirty (30) days
in the event any such action or proceeding is filed or threatened. If the
Assignee fails to exercise said option within said period, then, the Assignee
shall be deemed to have elected the alternative set forth in subclause (ii)
above.
<PAGE>
80
(g) Brokers. At the closing, Sublessor and the Assignee shall each
represent and warrant to the other that they have dealt with no brokers or
finders in connection with such Assignment other than brokers or finders
specifically identified in such representation and warranty. The Assignee shall
indemnify and agree to hold Sublessor harmless from and against any and all
causes, claims, demands, losses, liabilities, fees, commissions, settlements,
judgments, damages, expenses and fees (including attorneys' fees and court
costs) in connection with any claim for commissions, fees, compensation or other
charges relating in any way to such assignment, or the consummation thereof,
which may be made by any person, firm or entity as the result of any of the
Assignees' acts, or the acts of the Assignee's representatives, including the
brokers or finders, if any, specifically identified as described above.
Sublessor shall agree to be responsible for and to pay to Sublessee the amount
of any causes, claims, demands, losses, liabilities, fees, commissions,
settlements, judgments, damages, expenses and fees (including attorneys' fees
and court costs) in connection with any claim for commissions, fees,
compensation or other charges relating in any way to such assignment, or the
consummation thereof, which may be made by any person, firm or entity as the
result of any Sublessor's acts or the acts of Sublessor's representatives.
(h) Default and Remedies. If the assignment of the interest of
Sublessor is not closed by reason of any default by Sublessor, Sublessee or the
Assignee, then, the non-defaulting party may avail itself of any and all
remedies at law or in equity under applicable laws, including a suit for
specific performance of the obligations of the defaulting party hereunder.
(i) Time of the Essence. Time is of the essence of each and all of
the provisions of this Paragraph 36.
37. Assignments by Sublessor to Certain Parties.
Without the written consent of Sublessee, Sublessor shall not have the
right to assign this Sublease, or its interest as Sublessor hereunder, or any of
its rights or interests hereunder, to any party which does not have the power
and authority to impose the hotel excise tax described in Paragraph 34 above, or
to issue liquor licenses for the Premises in accordance with the agreement of
Sublessor under Paragraph 33 above, and any attempted assignment by Sublessor in
violation of the provisions of this Paragraph 37 shall be null and void and of
no force and effect whatsoever. The provisions of the preceding sentence
prohibiting assignments to a party which does not have the power and authority
to issue liquor licenses for the Premises shall be inapplicable at any time that
Hall County, Georgia or any other political subdivision has the power and
authority to issue such liquor licenses for all of the Premises.
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81
38. Maintenance by Sublessor.
Notwithstanding anything to the contrary contained in this Sublease,
Sublessor agrees that it will or will cause GDOT to maintain the bridge
providing access to the Premises in accordance with the provisions of the Bridge
Maintenance Agreement, solely at the expense of Sublessor.
39. Financial Statements.
Sublessee agrees to make available at the Premises for inspection by
Sublessor, its agents and representatives, as soon as available, and in any
event within one hundred twenty (120) days after the end of each Lease Year or
Partial Lease Year (including the last Partial Lease Year hereof), as to which
Sublessee's obligations shall survive the Expiration Date, audited financial
statements of Sublessee, including a balance sheet, statement of income and
expenses and statement of cash flow for the fiscal year then ended, prepared in
accordance with GAAP, in comparative form and accompanied by the unqualified
opinion of a nationally recognized firm of independent certified public
accountants regularly retained by Sublessee and acceptable to Sublessor.
Sublessor acknowledges and agrees that all such financial statements shall be
treated as confidential (unless made generally available to the public by
Sublessee), except in any litigation or proceeding between the parties and,
except further that Sublessor may disclose such information to the lessors under
the Prime Lease and the LLIDA Sublease, the Internal Revenue Service, or other
governmental agency or pursuant to any subpoena or judicial process or where
otherwise required by law, except that, notwithstanding the foregoing,
Sublessor, and its agents and representatives, shall not be permitted to do
anything with any such statements or other information inspected or available
hereunder such that such statements or information becomes available to or
subject to
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82
inspection by third parties under any applicable open records act or other
similar provisions of law.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of
the day, month and year first above written.
Sublessor: LAKE LANIER ISLANDS
DEVELOPMENT AUTHORITY
By:
----------------------------------
Title:
-------------------------------
- -------------------------------
Witness
(CORPORATE SEAL)
Sublessee: KSL LAKE LANIER, INC.
By:
----------------------------------
Title:
-------------------------------
- -------------------------------
Witness
(CORPORATE SEAL)
<PAGE>
83
THE UNITED STATES OF AMERICA, DEPARTMENT OF THE ARMY, ACTING BY AND
THROUGH THE UNITED STATES ARMY CORPS OF ENGINEERS (the "Corps"), does hereby
approve and consent to the sub-subleasing of the entire Premises by Sublessor to
Sublessee pursuant to and in accordance with the provisions of this Sublease,
and does hereby approve and consent to all of the terms and conditions of this
Sublease.
IN WITNESS WHEREOF, the Corps hereby approves and consents to this
Sublease as of the ____ day of ________, 19__.
THE UNITED STATES OF AMERICA
- ------------------------------- BY: U.S. ARMY CORPS OF ENGINEERS, BY
Witness AUTHORITY OF THE SECRETARY OF
THE ARMY
By:
------------------------------------
Name: Donald L. Burchett
Title: Chief, Real Estate
Division
U.S. Army Engineer
District, Mobile
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement" is executed on the 15th
day of May, 1996, but is effective as of 12:01 a.m. on the 16th day of May,
1996 (the "Effective Date"), by and between the LAKE LANIER ISLANDS
DEVELOPMENT AUTHORITY, a body corporate and politic created and existing
under the laws of the State of Georgia, whose address is 6950 Holiday Road,
Lake Lanier Islands, Georgia 30518 ("LLIDA") and KSL LAKE LANIER, INC., a
Delaware corporation, whose address is 6950 Holiday Road, Lake Lanier
Islands, Georgia 30518 ("Manager").
STATEMENT OF BACKGROUND
Pursuant to that certain Lease ("Original Lease"), dated April 24,
1968, and identified as Lease No. DACW01-1-68-436, The United States of
America, Department of the Army, acting by and through the United States Army
Corps of Engineers (the "Corps") did lease to the Department of State Parks,
State of Georgia ("Parks Department"), certain land originally consisting of
approximately 1,071 acres within the lake commonly known as Lake Sidney
Lanier in Hall County, Georgia. The Original Lease has been amended by:
Supplemental Agreement No. 1, dated August 31, 1970; Supplemental Agreement
2, dated June 18, 1973; Supplemental Agreement No. 3, dated March 26, 1974;
Supplemental Agreement No. 4, dated October 30, 1975; and Supplemental
Agreement No. 5, dated April 22, 1986. The Original Lease, as amended by all
of the supplemental agreements listed above, is hereinafter referred to as
the "Corps Lease." The premises leased by the Corps to the Parks Department
(and its successors and assigns) pursuant to the Corps Lease, which now
consists of approximately 1,101 acres as described on Exhibit "A" attached
hereto and incorporated herein by this reference, is hereinafter referred to
as the "Project".
The Corps Lease incorporates by reference the terms of that certain
Contract for Recreational Development at Lake Sidney Lanier, Georgia
("Original Contract"), dated December 11, 1974, and identified as Contract
No. DACW01-9-75-325 by and between The United States of America, Lake Lanier
Islands Development Commission ("LLIDC") and LLIDA. The Original Contract
has been amended by Supplemental Agreement No. 1, dated February 24, 1976;
Supplemental Agreement No. 2, dated December 19, 1977; Supplemental Agreement
No. 3, dated April 25, 1979; Supplemental Agreement No. 4, dated September
15, 1980; and Supplemental Agreement No.5, dated March 24, 1982. The
Original Contract, as amended by all of the supplemental agreements listed
above, is hereinafter referred to as the "Contract".
The interest of the Parks Department under the Lease was assigned to
LLIDC pursuant to Assignment of Lease, dated September 18, 1969, with an
effective date of November 1, 1969. Pursuant to a Management Agreement, dated
December 1, 1971 (the "1971 Management Agreement"), and by Power of Attorney,
dated December 8, 1971, LLIDC delegated certain rights to develop, manage and
operate the Project to LLIDA. Pursuant to a Sublease Agreement dated January
15, 1979 (the "LLIDA Sublease"), the Georgia Department of Natural Resources
DNR, as successor to LLIDC pursuant to the
<PAGE>
2
Executive Reorganization Act of 1972 (GA. Laws 1972, pp. 1051, 1054), did
sublease all of its interest under the Corps Lease to LLIDA. Subsequent to
the LLIDA Sublease, LLIDA entered into that certain Management Agreement,
dated June 19, 1986 (the "1986 Management Agreement"), pursuant to which
LLIDA surrendered and reconveyed to DNR a portion of the Project.
By Lease Agreement, dated February 26, 1973 (the "Stouffer
Sublease"), executed by LLIDC, LLIDA and Lanier Islands Inn Associates, a
general partnership, a portion of the Project (the "PineIsle Resort") was
subleased to Lanier Islands Inn Associates. The PineIsle Resort includes a
250-room hotel (the "Stouffer Hotel") and an 18-hole golf course (the
"PineIsle Golf Course"). The interest of the Lessee under the Stouffer
Sublease is now held by ("Stouffer") Renaissance Stouffer, and Stouffer
presently operates the PineIsle Resort and the PineIsle Golf Course. The
term of the Stouffer Sublease expires on April 14, 2018.
The principal existing improvements (all of the existing
improvements owned by LLIDA or DNR and located on the Project are referred to
collectively herein as the ("LLIDA Facilities") now located on the portion of
the Project not leased to Stouffer under the Stouffer Sublease include a
224-room Hilton Hotel (the "Hilton Hotel"), an 18-hole golf course (the
"Hilton Golf Course"), a beach and water park (collectively, the "Water
Park"), food and beverage vending operations, boat rental facilities, a gift
shop, an outdoor amphitheater, pavilions, campgrounds, riding stables, and
dock space licensed under an annual license to the Lake Lanier Sailing
Academy (the "Sailing Academy"). LLIDA also presently operates a boat rental
operation on Lake Lanier, and hosts numerous special events, including the
Magical Nights of Lights.
The Governor's Commission on the Privatization of Government
Services has determined that it is in the best interest of the State of
Georgia to privatize the operation, management, development and control of
the Project. Accordingly, at the request of the Governor of the State of
Georgia, LLIDA disseminated a Request for Proposals to Sublease the Resort
Recreation Area Known as the Lake Lanier Islands, Lake Lanier Islands,
Georgia, dated December 15, 1995 (the "RFP"). Pursuant to the RFP, LLIDA
solicited sealed offers or bids for the sublease of the Project and the
privatization of the management and operation of the Project (collectively,
the "Privatization Transaction"). Manager was the apparent successful
proposer.
The basic business terms of the proposed Privatization Transaction
contained in Manager's proposal have been agreed upon and are outlined on
Exhibit "B" attached hereto and incorporated herein. While such basic
business terms have been agreed upon by LLIDA and Manager, those parties are
now diligently negotiating in good faith with one another to finalize other
terms of the proposed Privatization Transaction, and are preparing and
negotiating the documentation thereof. Due in significant part to the need
for various third party consents, approvals and estoppels, LLIDA and Manager
intend to effect closing of the Privatization Transaction on a date
subsequent to this Agreement, but to commence the operation and management of
the Project by Manager as of May 16, 1996. LLIDA and Manager desire to enter
into this Agreement to provide for the terms of such operation and
<PAGE>
3
management. It is the intention of the parties in entering into this
Agreement that, if the Privatization Transaction is closed, the parties
hereto will be placed in the same economic position as if the Privatization
Transaction had closed on, and all prorations and adjustments of Project
revenues and expenses will be as of, 12:01 a.m., May 15, 1996.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the sum of TEN DOLLARS
($10.00), in hand paid, and for other good and valuable consideration,
including, without limitation, the mutual covenants and promises set forth
hereinbelow, the receipt, adequacy and sufficiency of which are hereby
acknowledged, LLIDA hereby appoints Manager as its exclusive operator and
manager for the Project, and Manager agrees to manage and operate the Project
for and on behalf of LLIDA and to perform the management services described
herein for and on behalf of LLIDA, for the terms and on the conditions set
forth herein. LLIDA hereby represents to Manager that, to the best of
LLIDA's knowledge, the information set forth in the Statement of Background,
above, is factually correct and acknowledges and agrees that Manager is
authorized to rely, and will rely, thereon as a material inducement to
execute and deliver this Agreement.
ARTICLE I
TERM OF AGREEMENT
1.01 Management and Operation. The term of this Agreement shall
commence on the Effective Date and shall expire on the earlier to occur of
(a) July 16, 1996, subject to the right of Manager, to be exercised by
written notice to LLIDA on or before July 12, 1996, with the consent of
LLIDA, which consent shall not be unreasonably withheld or delayed, to extend
such date to August 16, 1996 if the Privatization Transaction has not closed
by July 12, 1996 by reason of the inability of the parties to obtain any
required third party consent or approval (July 16, 1996, as such date may be
extended with the consent of LLIDA as set forth in this Section, is herein
referred to as the "Outside Closing"), or (b) the date of closing of the
Privatization Transaction (the earlier of said dates being herein referred to
as the "Management Agreement Expiration Date"), unless sooner terminated in
accordance with the provisions of this Agreement.
ARTICLE II
MANAGEMENT OF PROJECT
2.01 Management and Operation. Manager shall manage, operate and
maintain the LLIDA Facilities and the rest of the Project prudently and
efficiently for the benefit of LLIDA in accordance with sound business
practices and in accordance with the standard procedures and management
techniques commonly used by Manager with respect to comparable properties
owned or managed by Manager. Manager shall also administer the Stouffer
Sublease, including the receipt of all revenues thereunder and the
performance of the obligations of the lessor thereunder.
<PAGE>
4
2.02 Employees.
(a) Employees of Manager. Manager shall have in its employ at all
times a sufficient number of employees as Manager deems appropriate in its
sole discretion to properly manage, operate, maintain, and account for the
Project, and may offer employment to any and all active employees of LLIDA
performing services in connection with the Project. All matters pertaining
to the employment, training, supervision, compensation, promotion, and
discharge of employees of Manager (whether or not formerly employed by LLIDA)
are and will be the responsibility of, and are and will be in the sole
discretion of, Manager which, in all respects, is and will be the employer of
all such employees. LLIDA will have neither the right, nor the obligation, to
hire, supervise, or discharge any of employees of Manager. Manager and LLIDA
shall fully comply with all applicable federal, state and local laws and
regulations respecting employment and employment practices, terms and
conditions of employment, immigration, workmen's compensation, social
security, unemployment insurance, hours of labor, wages, working conditions,
and other employer-employee related subjects with respect to any of their
respective employees prior to, during and after the term of this Agreement.
Manager will be responsible for payment of, from amounts available from time
to time in the Operating Account or otherwise provided by LLIDA, all
salaries, wages, fringe benefits, other remuneration, worker's compensation
insurance, social security taxes, unemployment insurance and other taxes or
levies now in force or hereafter imposed by any governmental authority with
respect to Manager's employees who work at the Project, including persons who
are currently employees of Manager or its parent, and who are either engaged
full-time in the performance of the obligations of Manager under this
Agreement, or are fulfilling roles currently performed by employees of LLIDA,
including, but not limited to, employees of LLIDA engaged in the marketing
services, human resources, finance, accounting, safety or security services,
and the executive officer (collectively, the "Project Employees"), as well as
all expenses incurred in connection with the hiring, training, and
maintenance of such employees, and all travel expenses incurred in connection
with the management and operation of the Project, including, but not limited
to all salaries, wages, other remuneration, funding for fringe benefits and
any benefits provided by any employee benefit plan, worker's compensation
insurance, social security taxes, unemployment insurance and other taxes or
leves, and workmen's compensation, employer lability, and other claims for
any benefit under any employee benefit plan or claims arising from the
employment of such employees (all such expense being collectively referred to
herein as "Employee Expenses"). Manager, however, will be entitled to
reimburse itself from the Operating Account (as defined below) for all such
Employee Expenses so insured, all of which Employee Expenses are hereby
agreed to as expenses of or related to the management and/or operation of the
Project. To the extent that funds available in the Operating Account from
time to time are insufficient or are reasonably anticipated to be
insufficient to pay all Employee Expenses, LLIDA will, within ten (10)
calendar days after a request by Manager, deposit such additional funds into
the Operating Account as shall be necessary to pay all Employee Expenses, or
will pay the same (if the Privatization Transaction does not close) if due
after the expiration or termination of this Agreement. Employee Expenses
related to Project Employees who are not engaged full-time in the performance
of the obligations of Manager under this Agreement shall be prorated in good
faith by Manager between the Project and any other duties not related to the
Project. LLIDA shall not be required to pay any such Employees Expenses
which result from
<PAGE>
5
acts by Manager outside the scope of authority granted to Manager under this
Agreement, or from fraudulent acts, or wilful misconduct or gross negligence
on the part of Manager and which do not result from acts by LLIDA. The
provisions of this Section 2.02(a) with respect to Employee Expenses shall be
subject in all respects to the provisions of Article 3, below, pursuant to
which Manager is required to comply with the Operating Budget, as defined
therein. Nothing contained in this Section 2.02(a) shall be deemed or
construed to relieve Manager of any obligation to maintain insurance as
required under this Agreement, or to constitute a release of any obligation
of the insurance companies to pay any loss so insured.
(b) Other Personnel. Manager shall be responsible for payment from
its own funds of expenses of its officers and employees other than Project
Employees.
(c) Hiring by LLIDA of Project Employees on Failure of Privatization
Transaction to Close. Notwithstanding any contrary provision set forth
elsewhere in this Agreement, LLIDA hereby covenants and agrees that upon the
expiration or termination of this Agreement for any reason other than the
closing of the Privatization Transaction, including, without limitation, the
termination of this Agreement by reason of a default by Manager hereunder or
the expiration of the term hereof, LLIDA will immediately rehire all Project
Employees (other than Project Employees who were employees of Manager or its
parent prior to the execution of this Agreement) on the terms and conditions,
including employees benefits, applicable immediately prior to the
commencement of this Agreement, effective and with pay and benefits to accrue
as of the date of such termination or expiration, provided, however, that
LLIDA shall have the right to elect not to rehire fifty (50) or fewer Project
Employees who have been employed by Manager and who were not employed by
LLIDA prior to the date of this Agreement. LLIDA represents to Manager and
agrees that LLIDA will pay and all costs, liabilities and expenses incurred
by LLIDA or Manager to any Project Employee (other than the Project Employees
who were employees of Manager or its parent prior to the execution of this
Agreement) by reason of the termination of the Project Employees without
providing any notice which may be required by applicable federal or state law
in the event that, in violation of the requirements of this Section 2.02(c),
Project Employees are not rehired by LLIDA.
(d) Employee Expenses Accrued and Owing by LLIDA as of Effective
Date. Contemporaneously herewith LLIDA has terminated the employment of
persons who were its employees at the Project and Manager has hired certain
of such former employees of LLIDA to serve as Project Employees of Manager.
LLIDA represents that all such terminated employees were employees at will.
At the time of the termination of such persons by LLIDA, certain of such
persons were and remain entitled to be paid by LLIDA for then accrued unpaid
salaries, wages, fringe benefits and other benefits and remuneration,
including specifically, without limitation, benefits under COBRA
(collectively, "Accrued LLIDA Employee Expenses"). Notwithstanding any
contrary provision contained elsewhere in this Agreement, Manager does not
hereby assume, and will not hereafter assume, any obligation or liability to
pay any Accrued LLIDA Employee Expenses and no Accrued LLIDA Employee
Expenses will now or hereafter be payable from the Operating Account (as
defined below). LLIDA hereby acknowledges, covenants, and agrees that it is
and will remain, solely responsible for the payment of, and that it will
timely and fully pay, all Accrued LLIDA
<PAGE>
6
Employee Expenses, and that Manager will have no liability for payment of
any Accrued LLIDA Employee Expenses.
(e) Employee Expenses Accrued and Owing by Manager as of Expiration
or Termination. In the event that the Privatization Transaction does not
close, then at the time of the termination of employment of Project
Employees, certain of such persons may be entitled to be paid by Manager for
then accrued unpaid salaries, wages, fringe benefits and other benefits and
remuneration (collectively, "Accrued Manager Employee Expenses").
Notwithstanding any contrary provision contained elsewhere in this Agreement,
LLIDA does hereby agree that, subject in all respects to the provisions of
Article 3, below, pursuant to which Manager is required to comply with the
Operating Budget, as defined therein, in the event that the Privatization
Transaction does not close, it will pay any and all Accrued Manager Employee
Expenses and that Manager will have no liability for payment of any Accrued
Manager Employee Expenses.
2.03 Compliance with Legal Requirements. Manager will be
responsible for full compliance with federal, state, municipal and other
local laws, statutes, ordinances, rules, regulations and orders related to
the management, use, operation, repair and maintenance of the Project,
including, without limitation, all of the LLIDA Facilities located thereon,
and with the rules, regulations, or orders of the local Board of Fire
Underwriters or other similar body (the aforedescribed laws, etc., being
collectively herein referred to as the "Legal Requirements"). By way of
illustration only, Manager will apply for and exercise diligent commercially
reasonable efforts to obtain and/or maintain, in the name of LLIDA, all
approvals, licenses and permits required by any governmental authority for
the operation of the Project. LLIDA hereby represents that all approvals,
licenses and permits currently required by any governmental authority for the
operation of the Project are in full force and effect and will be assigned,
as necessary or appropriate and to the extent assignable, to Manager. LLIDA
will maintain in effect all permits and take all other actions, all at no
expense to Manager, as may be necessary to permit the continued sale of
liquor and other alcoholic beverages on the excursion boats, in the Hilton
Hotel, and in all other LLIDA Facilities where same are not being sold.
Manager will exercise diligent commercially reasonable efforts to promptly
remedy any violation of any such Legal Requirement which violation comes to
its attention. Expenses incurred in complying with, and/or in remedying any
such violation of, any Legal Requirement, may be paid from the Operating
Account or the Capital Account. Manager acknowledges that R.L. Burson is
named as the licensee under certain liquor licenses presently held by LLIDA
issued by the State of Georgia. Manager does hereby indemnify and agree to
defend and hold harmless R.L.Burson from and against any and all liabilities,
losses, costs, damages and expenses (including reasonable attorneys' fees)
arising, resulting, sustained or incurred, or which can or may arise, result,
be sustained or incurred by R.L. Burson in connection with the holding by
R.L. Burson of such liquor licenses. Manager shall cause R.L. Burson to be
named as an additional insured in the liability insurance policies to be
provided by Manager under this Agreement, and to provide to R.L. Burson a
certificate or certificates evidencing such insurance. Nothing contained in
this Section 2.03 shall be deemed to limit the obligations of LLIDA under the
provisions of Section 11.11, below; provided however, that nothing contained
in this Section 2.03 shall be deemed or construed to relieve Manager of any
obligation to maintain insurance as required
<PAGE>
7
under this Agreement, or to constitute a release of any obligation of the
insurance companies to pay any loss so insured.
2.04 Collection of Room Rents and Other Income. Subject to the
provisions of Section 4.01, below, Manager shall use diligent and reasonable
efforts: (a) to collect all room rents and other charges due from guests,
tenants, vendors, concessionaires, invitees, and licensees, of the Project
and, when and as proper and expedient, to cause any such persons to quite and
surrender space or premises occupied by them; and (b) to ask for, demand,
collect, and receipt for any and all room rents and other charges which may
at any time become due to LLIDA from any guest, tenant or from others for
services provided in connection with or for the occupancy or other use of the
Project or any portion thereof. Manager shall collect and identify any
income due LLIDA from miscellaneous services provided to tenants or the
public, including, but not limited to, tenant storage, and coin operated
machines for all types (including, without limitation, washers, dryers,
vending machines and pay telephones). All monies so collected shall be
deposited in the Operating Account; provided, however, that Manager shall
remit to LLIDA the 5% room tax collected in connection with all room rents,
subject to LLIDA paying scheduled destination and marketing expenses, and
subject to appropriate adjustment at closing if the Privatization Transaction
closes. Manager shall use commercially reasonable efforts to collect all
receivables outstanding as of and through May 15, 1996, and to remit all such
receivables actually collected to LLIDA within ten (10) days after the end of
each calendar month during the term of this Agreement. All expenses incurred
for products and services delivered or rendered prior to or as of and through
May 15, 1996, and for services rendered through May 15, 1996, shall be paid
by LLIDA, and Manager shall promptly forward to LLIDA all invoices received
by Manager with respect to such expenses. LLIDA shall also be reasonable for
the payment of all other liabilities, whether disclosed, arising from events
occurring prior to the date of this Agreement, and Manager shall have no
responsibility for the payment of such liabilities. LLIDA acknowledges that
Manager may provide complimentary rooms, subject to availability, to
employees of Manager while at the Project on business relating to the Project
or in connection with the obligations of Manager under this Agreement.
2.05 Service Contracts.
(a) Existing Service Contracts. LLIDA hereby represents to Manager
that attached hereto as Exhibit "C" is a true, correct and complete list of
all now existing service and supply contracts related to the Project or any
portion thereof (collectively, the "Existing Service Contracts"), and that
all of the Existing Service Contracts are in full force and effect and, to
the knowledge of LLIDA, no default or event or condition, which, with the
giving of notice or the passage of time, or both, would constitute a default
is currently in existence under any of the Existing Service Contracts.
Manager, acting on behalf of and as agent for LLIDA, may modify, extend or
terminate any of the Existing Service Contracts as Manager, in its sole
discretion, may determine to be desirable, provided that any such Existing
Service Contract which is modified or extended is consistent with the
Operating Budget and either (i) is terminable by or on behalf of LLIDA on no
more than thirty (30) days prior written notice without premium, fee or
penalty, or (ii) has a term which is to expire no later than the Outside
Closing Date.
<PAGE>
8
(b) Additional Service Contracts. Manager, acting on behalf of and
as agent for LLIDA, may, and is hereby authorized to, enter into any new
contract for cleaning, maintaining, repairing, making replacements to, or
servicing any of the LLIDA Facilities or any other part of the Project (an
"Additional Service Control") if same is consistent with the Operating Budget
and either (i) is terminable by or on behalf of LLIDA on no more than thirty
(30) days prior written notice without premium, fee or penalty or (ii) has a
term which is to expire no later than the Outside Closing Date. Any other
proposed new service or supply contract which does not satisfy the parameters
specified in the preceding sentence may be executed by Manager only if
Manager has obtained LLIDA's prior written consent thereto, which consent
shall not be unreasonably withheld, conditioned or delayed. Manager may
modify, extend or terminate any Additional Service Contract provided that any
such Additional Service Contract, as modified or extended, would be permitted
under the provisions of this Section 2.05(b). Manager shall promptly provide
a copy of any Additional Service Contract, or modification of any Existing
Service Contract or Additional Service Contract to LLIDA.
2.06 Leases, Licenses, Concessions, etc. Manager shall, to the
extent, but only to the extent, of funds available from time to time in the
Operating Account or otherwise provided by LLIDA, be responsible for the
making of all payment and the performance of all other duties and obligations
of LLIDA and/or of DNR now or hereafter required to be paid or performed by
LLIDA and/or DNR under the Corps Lease, the Stouffer Sublease, or under any
other lease, license or concession agreement related to any part of the
Project existing as of the date of this Agreement (all such now existing
leases, licenses, and concession agreements being collectively referred to as
the "Other Project Agreements"). LLIDA hereby represents to Manager that all
Other Project Agreements are identified on Exhibit "D" attached hereto and
incorporated herein and that LLIDA has delivered to Manager true, correct and
complete copies of all Other Project Agreements, that the Other Project
Agreements are in full force and effect, and that, to the knowledge of LLIDA,
no default or event or condition, which, with the giving of notice or the
passage of time, or both, would constitute a default is currently in
existence under any of the Other Project Agreements. During the term hereof,
LLIDA will not encumber the Project, or any part thereof, will not execute
any Other Project Agreement, and will not amend or terminate any Other
Project Agreement. Subject to the provisions of Section 4.01, below,
Manager, acting for and on behalf of and in the name of LLIDA, may execute
any new license or concession agreement as Manager may deem advisable;
provided, however, that, if and to the extent that the Lease requires the
prior approval by the Corps of any new Other Project Agreement, Manager shall
not execute any such Other Project Agreement until such approval has been
obtained; provided further that any such new Other Project Agreement shall be
consistent with the Operating Budget and shall be either (i) terminable by or
on behalf of LLIDA on no more than thirty (30) days prior written notice
without premium, fee or penalty or (ii) have a term which is to expire no
later than the Outside Closing Date. LLIDA hereby represents to Manager that
the Corps has not notified LLIDA that it has declined to approve or has
disapproved any Other Project Agreement.
2.07 Advertising. Manager shall prepare such advertising plans and
promotional material to be used to further room sales and/or to increase
utilization by the
<PAGE>
9
public of any of the other the LLIDA Facilities as Manager, in its sole
discretion, shall determine to be advisable. Any and all such advertising
and promotional materials shall be prepared in full compliance with all
applicable Legal Requirements.
2.08 Room Sales, Room Rates and other Facilities Use Charges.
Manager may charge and implement prices, price schedules, rates and rate
schedules established from time to time by Manager in its sole discretion.
Manager agrees that during the term of this Agreement it will honor
contractual obligations of LLIDA, such as advance reservations at agreed upon
rates. Manager shall not materially reduce any such prices, price schedules,
rates or rate schedules effective during the term or after the expiration of
this Agreement without the prior written consent of LLIDA, which shall not be
unreasonably withheld, and except to the extent consistent with LLIDA's usual
and customary discounts and promotional practices. Notwithstanding anything
to the contrary in this Agreement, Manager may enter into advance bookings of
rooms or other LLIDA Facilities in accordance with price and rate schedules
consistent with the foregoing, even if such bookings are for days after the
Outside Closing Date.
2.09 License Agreement. LLIDA hereby represents to Manager that the
License Agreement, dated January 1, 1993, executed by and between LLIDA and
Hilton Inns, Inc. ("Hilton") related to the Hilton (the "Hilton License
Agreement"), is in full force and effect, that LLIDA has delivered to Manager
a true, correct and complete copy of the Hilton License Agreement, that to
the knowledge of LLIDA, there is no presently existing default thereunder by
either party thereto nor has Hilton notified LLIDA of any such default, nor
to the knowledge of LLIDA does there now exist any condition, nor has any
event heretofore occurred, which with notice and/or the passage of time will
become a default under the Hilton License Agreement. Manager will exercise
its commercially reasonable efforts to fully comply with and perform all
terms and conditions of the Hilton License Agreement which are required to be
performed by LLIDA, to the extent, but only to the extent, of funds from time
to time available in the Operating Account or the Capital Account or
otherwise provided by LLIDA.
2.10 Insurance. Manager will obtain and maintain in full force and
effect during the term hereof, to the extent, of funds from time to time
available in the Operating Account or otherwise provided by LLIDA, policies
of property damage, fire and hazard insurance with respect to the property
and improvements at the Project, and business interruption insurance (which
shall include business interruption coverage for damages to the bridge
leading to the Project), comprehensive general liability, liquor liability,
workmen's compensation, employer liability and automobile liability insurance
with respect to the Project in amount, with carriers and with deductibles,
all as more particularly described on Exhibit "H" attached hereto and
incorporated herein. LLIDA will be covered as a loss payee under all property
insurance policies maintained by Manger with respect to the Project, and
Manager will be covered as an insured and/or loss payee under all liability
and property insurance policies maintained by Manager with respect to the
Project. The premium for all such policies shall be expenses of the Project
which may be paid or reimbursed from the Operating Account. All insurance
policies required hereunder or otherwise related to the Project and
maintained by Manager shall include waiver of subrogation provisions for the
<PAGE>
10
benefit of LLIDA and Manager with respect to all losses payable under such
policies. In the event that LLIDA is required to carry separate liability or
property damage insurance policies with respect to the Project, the cost of
such insurance shall not be paid from Project revenues received by Manager
with respect to the period after the date of this Agreement, but shall be a
separate expense of LLIDA, and will not be prorated or otherwise assumed by
Manager in proration and economic adjustment calculations to occur upon
closing of the Privatization Transaction.
2.11 Repairs and Replacements.
(a) Capital Improvements. Manager may make the capital
improvements, repairs or replacements to the Project, and expend, in
connection therewith, the amounts from the Capital Amount (as hereinafter
defined) described in the Schedule of Capital Improvements and Repairs and
Capital Budget attached hereto as Exhibit "E" and incorporated herein. As of
the date of this Agreement, LLIDA has delivered to Manager the Initial
Capital Improvement Deposit (as defined in Article VI, below), and Manager is
authorized to expend the Initial Capital Improvement Deposit for the capital
improvements, repairs and replacements described on the attached Exhibit "E"
without the necessity of any further notice to, or consent from, LLIDA. In
addition, Manager may expend funds for other capital improvements, repairs or
replacements of capital improvements, with the prior written consent of
LLIDA, which shall not be unreasonably withheld, delayed or conditioned,
provided that the amount so expended shall be deducted from the $400,000.00
described in Paragraph 7 of the attached Exhibit "B" to be paid to Manager
upon the closing of the Privatization Transaction. Upon approval of such
capital improvements, repairs or replacements, LLIDA shall deposit the
approved cost thereof into the Capital Account, which funds may be withdrawn
by Manager for the payment of such approved cost.
(b) Non Capital Repairs and Replacements. Manager shall make or
cause to be made, to the extent, but only to the extent, of funds from time
to time available in the Operating in the Operating Account or otherwise
provided by LLIDA, all noncapital repairs, replacements, renovations and
restorations as Manager may determine to be advisable in its sole discretion,
but subject to the limitations specified in the Operating Budget, and without
the necessary of any further notice to, or consent from, LLIDA
(collectively, "Authorized Noncapital Repairs").
2.12 LLIDA's Project Representative. During the term hereof, LLIDA
shall cause to be present, on-site at the Project, during regular business
hours, its representative (the "LLIDA Representative") who shall serve as a
resource person for the Manager in the performance by the Manager of its
duties and obligations hereunder, shall act as a liaison between LLIDA and
Manager, and shall have the discretionary authority to grant any consent or
approval which LLIDA has herein reserved, LLIDA Representative during normal
business hours will generally be available at his office on the Project, at
6950 Holiday Road, Lake Lanier Islands, Georgia. LLIDA hereby designates
R.L. Burson to serve as the initial LLIDA Representative. LLIDA may from
time to time designate, upon ten (10) days prior written notice to Manager, a
different LLIDA Representative by written notice to Manager, provided that
any such substitute LLIDA Representative shall be reasonably acceptable to
Manager.
<PAGE>
11
ARTICLE III
BUDGETS
3.01 Approved Budgets. Attached hereto as collective Exhibit "F and
incorporated herein is the Operating Budget for the Project for the calendar
year ending on December 31, 1996 (the "Operating Budget"). The Operating
Budget was prepared by, and is hereby reaffirmed by, LLIDA and is hereby
approved by Manager. The Capital Budget which is attached hereto as Exhibit
"E", which relates to certain identified capital improvements, repairs or
replacements, was also prepared by, and is hereby reaffirmed by LLIDA, and is
hereby approved by Manager (the "Operating Budget" and the "Capital Budget"
are sometimes hereinafter referred to collectively as the "Budgets").
3.02 Compliance with Budgets. Manager will use commercially
reasonable efforts to cause the actual cots of maintaining and operating the
Project not to exceed the applicable Budget in the aggregate (with the
Operating Budget to be prorated on a daily basis for partial months).
3.03 Modification of Operating Budget. During the term hereof,
Manager will inform LLIDA of any material change in costs and expenses which,
in Manager's judgment, necessitate a modification to the Operating Budget.
LLIDA hereby agrees that it will not unreasonably withhold, condition, or
delay its approval of any modification recommended by Manager related to the
Operating Budget. LLIDA, however, may not unilaterally, without the approval
of Manager, modify the Operating Budget.
3.04 Non-Emergency Deviations from Operating Budget.
Notwithstanding any contrary provision hereinabove in this Article III,
Manager, without the necessity of giving any prior notice to, or of obtaining
any prior approval from, LLIDA, may and is hereby authorized to make any
expenditure which will not cause the expenditures in the Operating Budget to
be exceeded by more than five percent (5%) in the aggregate over the term of
this Agreement (such aggregate to be calculated for the year to date, net of
amounts expended by LLIDA prior to the date hereof), plus an amount equal to
all revenues received by Manager (other than 5% room tax) during the
applicable period in excess of the projected revenues shown in the Operating
Budget (excluding interest income shown in the Operating Budget).
3.05 Emergency Deviations from Operating Budget. The Parties hereto
acknowledge that unanticipated emergency conditions may arise, from time to
time, which may necessitate immediate response to minimize or avoid an
unreasonable risk of danger to the health, safety, or property of persons, or
of damage to the Project or to the environment, or of unnecessary and
material adverse impact on or disruption to the continuous and orderly
operation of the Hilton Hotel or of any other LLIDA Facility (any of such
situations being referred to as an "Emergency Situation"). In the event of
any Emergency Situation, Manager shall diligently exercise commercially
reasonable efforts to promptly notify LLIDA Representative when Manager
becomes aware of the occurrence of any Emergency Situation, but in the
absence of the LLIDA Representative Manager shall have the authority, without
the consent of LLIDA, and notwithstanding the other provisions of this
Article III, to make any
<PAGE>
12
reasonable expenditure which will not exceed $10,000 per Emergency Situation
(or any greater amount which the Manager may expend in good faith to halt or
stabilize (as opposed to repair and restore) the Emergency Situation).
Manager shall deliver to LLIDA, within ten (10) days after the initial
occurrence of any such Emergency Situation a written report, in reasonable
detail, of such Emergency Situation. LLIDA will not unreasonably withhold
its approval for any expenditures necessitated by any such Emergency
Situation or for any further subsequent related adjustments to the Operating
Budget.
ARTICLE IV
RESTRICTIONS ON
AUTHORITY OF MANAGER
4.01 Restrictions on Manager's Authority. In performing management
services hereunder, Manager shall not without the prior written consent of
Owner:
(a) Pay any funds generated from the Project to any person or entity
related to or affiliated with Manager (other than Employee Expenses
permitted under Section 2.02, above) except for procurement, in good faith
and in the ordinary course of business, of services and/or products at
prices and on such other terms as are fair, reasonable and no less
favorable to LLIDA than the prices and other terms for comparable services
and/or products which would be obtained in an arm's length transaction with
an unaffiliated person or except as otherwise authorized elsewhere in this
Agreement;
(b) Compromise, settle or adjust any condemnation claim against any
of the Project or make a claim for any proceeds of any such condemnation;
(c) Commence or discontinue any actions in the nature of legal
proceedings in any court, before any governmental authority, or in
arbitration;
(d) Retain legal counsel to represent LLIDA;
(e) Make any changes to the layout of the Project or make capital
additions or capital alterations thereto (other than repairs or
replacements and capital improvements, repairs and replacements permitted
under Section 2.11, above);
(f) Terminate the Hilton License Agreement;
(g) Sell or otherwise encumber the Project or any part thereof;
(h) Enter into agreements providing for occupancy by guests or other
occupants for more than 14 days;
(i) Rent or lease all or any portion of the Project, or enter into
any lease or rental agreement with any guest or occupant of all or any
portion of the Project; or
<PAGE>
13
(j) Permit occupancy by any guest or occupant for more than 14 days.
ARTICLE V
FINANCIAL REPORTING AND RECORDKEEPING
5.01 Books of Accounts. Manager shall maintain adequate and
separate books and records for the Project, the entries to which shall be
supported by sufficient documentation to ascertain that said entries are a
proper and accurate record for the Project. Such books and records shall be
maintained by Manager at the Project.
5.02 Account Classification. Manager shall utilize existing
accounting and internal auditing systems presently utilized by LLIDA,
including books of control and accounts consistent with good accounting
procedure, and in accordance with generally accepted accounting principles.
5.03 Financial Reports. Manager shall furnish reports, of the types
and in the forms heretofore approved by LLIDA (collectively, the "Required
Reports"), of all transactions occurring during each calendar month. A
schedule of all Required Reports is set forth in Exhibit "G" hereto. Except
as otherwise specified on Exhibit "G", the Required Reports are to be
delivered to LLIDA no later than the thirtieth (30th) day of the calendar
month following the calendar month to which such Required Reports relate.
5.04 LLIDA's Right to Audit. LLIDA or its representatives, on five
(5) business days prior written notice, at its own expense, may inspect the
books and records maintained for LLIDA by Manager no matter where books and
records are located. LLIDA also reserves the right to perform, after the
aforesaid notice, any and all additional audit tests relating to Manager's
activities either at the Project or at any office of the Manager, provided
such audit tests are related to those activities performed by Manager for
LLIDA.
ARTICLE VI
OPERATING ACCOUNT; CAPITAL ACCOUNT
6.01 Establishing and Maintenance of Operating Account. As of the
date of execution of this Agreement, Manager has opened, in Manager's name,
an operating account, Account No. 3250403286, with NationsBank, 1500 Buford
Highway, Buford, Georgia 30518 (the "Operating Account"). The Operating
Account shall be an interest-bearing account. Only officers and/or employees
of Manager designated from time to time by Manager, and the LLIDA
Representative or another officer or employee of LLIDA designated from time
to time by LLIDA, have or will have signature authority on the Operating
Account. Manager will maintain the Operating Account during the term of this
Agreement. As of the date of this Agreement LLIDA has delivered to Manager
the sum of $250,000.00 (the "Minimum Working Capital Amount"), which sum
Manager promptly will deposit into the Operating Account. Manager may open
an additional disbursement account in Manager's name, into which funds from
the Operating Account may be deposited for immediate disbursement for
<PAGE>
14
the payment of expenses permitted to be paid hereunder from the Operating
Account. In the event that the Privatization Transaction closes, the Minimum
Working Capital Amount deposited by LLIDA as of the date of this Agreement
shall be credited to LLIDA. The signatories on the Operating Account shall
be bonded or insured in a manner reasonably satisfactory to Manager and
LLIDA. Manager agrees that it will not change the Bank or the account of the
Operating Account without the consent of the LLIDA Representative. Manager
shall have no proprietary interest in the Operating Account, which shall be
at all times during the term hereof the property of LLIDA.
6.02 Deposits to and Disbursements from Operating Account. Manager
shall deposit in the Operating Account (a) all monies paid or furnished by
LLIDA to Manager pursuant to the terms hereof as working capital or for the
payment of authorized costs and expenses of or related to the Project and (b)
all room rents and all other revenues hereafter received by Manager from or
with respect to the Project in connection with the management and operation
of the Project, and shall not commingle in the Operating Account any funds
which are not derived from the management and operation of the Project.
Manager shall make disbursements and payments from the Operating Account in
such amounts as are required in connection with the day-to-day management and
operation of the Project, provided that all such disbursements and payments
shall be in compliance with the terms of this Agreement and the Operating
Budget or, if not in compliance therewith, shall be authorized pursuant to
Section 3.04, above, Section 3.05, above, or Section 2.11, above, or shall
have been approved in advance in writing by LLIDA. Notwithstanding any
provision to the contrary hereinabove in this Section 6.02 or elsewhere in
this Agreement, Manager shall not be required to make any payment on account
of this Agreement if the funds in the Operating Account are insufficient and
LLIDA has failed to advance (when and as determined by Manager to be
necessary) such additional funds for the operation of the Project and payment
of expenses of the Project. Manager will not, under any circumstances, be
responsible for payment from its own funds of any expenses of the Project or
for funding from its own funds any operating or other deficits of or related
to the Project.
6.03 Minimum Working Capital Amount. It is the intent of the
parties hereto that the Operating Account, at all times during the term
hereof, shall have a balance at least equal to the Minimum Working Capital
Amount. If at any time Manager reasonably estimates that the funds then in
the Operating Account are less than the Minimum Working Capital Amount,
Manager shall deliver to LLIDA written notice of such shortage and LLIDA,
within ten (10) calendar days after receipt of such notice, shall deliver to
Manager (by federal wire transfer of funds to the Operating Account)
additional working capital in the amount of such shortage.
6.04 Excess Funds. LLIDA acknowledges and agrees that Manager will
retain in the Operating Account (or a separate disbursement account
established by Manager for immediate disbursements) all funds received in
connection with the operation and management of the Project and not expended
as provided herein or deposited in the Capital Account, as provided below.
LLIDA shall not draft checks on either the Operating Account or the Capital
Account without the prior written consent of Manager, except on the
termination of this Agreement.
<PAGE>
15
6.05 Establishment and Maintenance of Capital Account. As of the
date of execution this Agreement, Manager has opened, in Manager's name, a
capital reserve account, Account No. 3250403245, with NationsBank, 1500
Buford Highway, Buford, Georgia 30518 (the "Capital Account"). The Capital
Account shall be an interest-bearing account. Only officers and/or employees
of Manager designated from time to time by Manager, and the LLIDA
Representative or another officer or employee of LLIDA designated from time
to time by LLIDA, have or will have signature authority on the Capital
Account. Manager will maintain the Capital Account during the term of this
Agreement. As of the date of this Agreement LLIDA has delivered to Manager
the sum of $30,391.00 (the "Initial Capital Improvement Deposit"), which sum
Manager promptly will deposit into the Capital Account. The signatories on
the Capital Account shall be bonded or insured in a manner reasonably
satisfactory to Manager and LLIDA. Manager agrees that it will not change
the Bank or the account of the Capital Account without the consent of the
LLIDA Representative. Manager shall have no proprietary interest in the
Capital Account, which shall be at all times during the term hereof the
property of LLIDA.
6.06 Deposits to and Disbursements from Capital Account. Manager
shall deposit in the Capital Account, as a reserve for capital repairs and
replacements provided for in the Capital Budget, an amount equal to five (5%)
percent of the cash received by Manager during the preceding month, within
thirty (30) days after the end of each month. Manager shall not commingle in
the Capital Account any funds which are not derived from the management and
operation of the Project or funds in excess of the amount required to be
deposited therein under Section 6.05, above, and this Section 6.06. Manager
shall make disbursements and payments from the Capital Account in such
amounts as are required or permitted under Section 2.11, above, or shall have
been approved in advance in writing by LLIDA. Notwithstanding any provision
to the contrary hereinabove in this Section 6.06 or elsewhere in this
Agreement, Manager shall not be required to make any payment with respect to
capital expenditures if the funds in the Capital Account are insufficient and
LLIDA has failed to advance such additional funds as may be required for the
purposes permitted hereunder. Manager will not, under any circumstances, be
responsible for payment from its own funds of any capital expenses of the
Project.
ARTICLE VII
PAYMENT OF EXPENSES
7.01 Manager's Costs to be Reimbursed. Manager may pay or reimburse
itself out of the Operating Account for costs of the gross salary, wages,
payroll taxes, insurance, worker's compensation and other Employee Expenses
of Manager's Project Employees required to properly, adequately, safely and
economically manage, operate and maintain the Project subject to and in
accordance with the Operating Budget and the terms of this Agreement.
7.02 Costs and Expenses Eligible for Payment from Operating Account.
Subject to the conditions specified in Section 6.02, above, Manager may also
pay all costs
<PAGE>
16
and expenses of the Project from the Operating Account, including, without
limitation, the following:
(a) Costs to correct any violation of, or to cause compliance with
the rules, regulations or orders of the local Board of Fire Underwriters or
other similar body or any other Legal Requirements relative to the use,
repair and/or maintenance of the Project;
(b) Actual and reasonable costs of making all repairs, replacements,
decorations and alterations;
(c) Costs incurred by Manager in connection with any Existing
Service Contract or any Additional Service Contract;
(d) Costs of collection of delinquent receipts collected through a
collection agency;
(e) Fees and expenses of attorneys of Manager or other professionals
engaged by Manager for services related to the performance of any of
Manager's duties or obligations under this Agreement, but not such fees and
expenses related to the negotiation or enforcement of this Agreement, the
Privatization Transaction or the documents to be executed in connection
therewith;
(f) Costs of printed checks and other bank service charges and fees
related to the Operating Account or the Capital Account;
(g) Costs of cash registers, adding machines and other equipment of
such type and use located at the Project and owned by LLIDA;
(h) Costs of utilities services for any of the LLIDA Facilities or
any of the rest of the Project;
(i) Costs of advertising for the LLIDA Facilities or any of the rest
of the Project;
(j) Costs of printed forms and supplies required for use at the
Project;
(k) Franchise fees, reservation fees, license fees, rents and other
fees necessary and proper for the efficient operation of the Hilton Hotel
or any other LLIDA Facility;
(l) Costs of food, beverages, supplies, services, equipment, leases,
and other costs and expenses necessary and proper for the efficient
operation of the Hilton Hotel or any other LLIDA Facility;
<PAGE>
17
(m) All other costs and expenses incurred in connection with the
operation of the Project that are within the limits of the Operating
Budget, or are authorized by Section 3.04, Section 3.05, above, or are
otherwise approved by LLIDA;
(n) General accounting and reporting services which are within the
reasonable scope of the Manager's responsibility to LLIDA;
(o) Costs of electronic data processing equipment, or any pro-rata
charge thereon, whether located at the Project;
(p) Costs of third party electronic data processing, or any pro-rata
charge thereof, for data and payroll processing provided by service
companies;
(q) costs of real estate and personal property taxes, improvements,
assessments and other like charges, if any; and
(r) Any Management Fee(s) as provided in Article VIII, below.
7.03 Non-Reimbursable Costs. The following expenses or costs incurred
by or on behalf of Manager in connection with the management and operation of
the Project shall be at the sole cost and expense of Manager and shall not be
reimbursed by LLIDA:
(a) Costs of gross salary, wages, payroll taxes, insurance, workmen's
compensation, and other benefits of Project Employees except to the extent
same are allocable to the Project;
(b) Costs of forms, papers, ledgers, and other supplies and equipment
used in the Manager's home office or at any other location off the Project;
(c) Political or charitable contributions; or
(d) Costs attributable to losses arising from gross negligence,
willful misconduct or fraud on the part of Manager or any of Manager's
employees or agents.
ARTICLE VIII
MANAGEMENT FEE
8.01 Management Fee. In consideration of the management services to
be provided by Manager pursuant to this Agreement, Manager shall be entitled
to receive a monthly management fee in the amount of $160,000.00 (the
"Management Fee"). The Management Fee shall be payable to Manager in advance
on the date of this Agreement, and on the first (1st) day of each calendar
month thereafter during the term of this Agreement. If the first month or
the last month in which this Agreement is in effect is less than a full
calendar month, the Management Fee payable with respect to any such partial
calendar month
<PAGE>
18
shall be prorated on a daily basis. Manager may pay all Management Fees from
the Operating Account.
ARTICLE IX
TERMINATION
9.01 Termination of Agreement. This Agreement may be terminated
prior to the expiration of the term hereof on the following terms and
conditions, it being understood and agreed, however, that any such early
termination shall not relieve LLIDA or Manager from liabilities or claims
accruing and arising up to and including the date of termination:
(a) By LLIDA for Cause. LLIDA shall have the right to terminate
this Agreement if Manager fails in any material respect to keep, observe or
perform any covenant, agreement, term or provision of this Agreement,
required to be kept, observed, or performed by Manager, and such material
default continues for a period of thirty (30) days after written notice
thereof by LLIDA to Manager; provided, if any such material default
reasonably is not susceptible to being cured within such initial thirty (30)
day curative period and if Manager promptly commences reasonably appropriate
curative measures within such thirty (30) day period and diligently
prosecutes same to completion, such curative period shall be automatically
extended for up to an additional thirty (30) days.
(b) By Manager for Cause. Manager shall have the right to terminate
this Agreement in the event LLIDA fails in any material respect to keep,
observe or perform any covenant, agreement, term or provision of this
Agreement to be kept, observed, or performed by LLIDA and such material
default continues for a period of thirty (30) days after written notice
thereof by Manager to LLIDA.
9.02 Obligations Upon Termination. Upon the expiration or
termination of this Agreement if the Privatization Transaction has not
closed, Manager shall: (i) immediately surrender and deliver to LLIDA the
Project and all funds held by Manager in connection with the Project, after
deduction therefrom of any sums then due and owed to Manager, (ii) deliver to
LLIDA (promptly after receipt by Manager) any monies due LLIDA under this
Agreement, but which are received by Manager after the effective date of such
expiration or termination; (iii) promptly deliver to LLIDA all materials,
equipment, tools and supplies, keys, contracts and documents relating to the
Project and obtained by Manager in connection with the operation and
management of the Project under this Agreement, and such other accountings,
papers and records as LLIDA shall reasonably request pertaining to the
Project; (iv) assign such then existing contracts relating to the operation
and maintenance of the Project as LLIDA shall require; (v) vacate any portion
of the Project then occupied by Manager as a consequence of this Agreement
(provided Manager shall be entitled to ten (10) days in which to vacate
completely) and furnish all such information and take all such actions as
LLIDA shall reasonably require in order to effect an orderly and systematic
ending of Manager's duties and activities hereunder, and (vi) deliver to
LLIDA the originals (or copies where the originals are unavailable) of all
papers and records pertaining to the Project;
<PAGE> 19
provided, however, that LLIDA shall make the same available for inspection
and reproduction by Manager at reasonable times upon request by Manager, that
LLIDA shall deliver the same into the possession of Manager in the event that
Manager requests the same for use in legal or quasi-legal proceedings, and
that LLIDA shall not destroy the same without first offering to deliver the
same to Manager.
9.03 Remedies. It is expressly understood that LLIDA's and
Manager's remedies to terminate this Agreement pursuant to the terms of this
Article IX shall not be exclusive, and in the event of any default by a party
hereto, the non-defaulting party shall be entitled to exercise any and all
other remedies and rights set forth herein or at law or in equity (unless
expressly waived in writing by the non-defaulting party).
ARTICLE X
NOTICES
10.01 Notices. All notices, demands, consents and reports provided
for in this Agreement or required by law shall be in writing and shall be
given to LLIDA or Manager at the address set forth below, or at such other
address as such party may hereafter specify in writing in compliance with
this Section 10.10:
Manager: KSL LAKE LANIER, INC
6950 Holiday Road
Lake Lanier Islands, Georgia 30518
Fax No.: (770) 271-8653
Attention: John K. Saer, Jr.
WITH A COPY TO:
KSL LAKE LANIER, INC
c/o KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Fax No.: (619) 564-3560
Attention: Nola S. Dyal, Esq.
Vice President and General Counsel
WITH A COPY TO:
Long, Aldridge & Norman
303 Peachtree Street, N.E.
One Peachtree Center, Suite 5300
Atlanta, Georgia 30308
Fax No.: (404) 527-4198
Attention: Clyde Click, Esq.
<PAGE>
20
LLIDA: LAKE LANIER ISLANDS DEVELOPMENT
AUTHORITY
6950 Holiday Road
Lake Lanier Islands, Georgia 30518
Fax No.: (770) 271-8653
Attention: R.L. Burson
WITH A COPY TO:
Troutman Sanders LLP
Nationsbank Plaza
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
Fax No.: (404) 885-3900
Attention: John W. Moore, Esq.
Any notice, or other communication hereunder shall be deemed to have been
validly given or served by delivery of the same in person to the intended
addressee, or by depositing the same with Federal Express or another
reputable private courier service for next business day delivery, or by
depositing the same in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, in any event addressed to the
intended addressee at its address set forth above or at such other address as
shall have been designated hereafter by such party as herein provided. All
notices, demands and requests shall be effective upon such personal delivery,
or one (1) business day after being deposited with the private courier
service, or two (2) business days after being deposited in the United States
mail as required above. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. Notices, demands, requests or other communications also shall
be deemed to have been validly given or served if by facsimile transmission
to the addressee's FAX number provided above upon confirmation of
transmission and (a) where the transmitting party includes a cover sheet
identifying the name, location and identity of the transmitting party, the
phone number of the transmitting device, the date and time of transmission
and the number of pages transmitted (including the cover page), (b) where the
transmitting device or receiving device records verification of receipt and
the date and time of transmission receipt and the phone number of the other
device, and (c) where the facsimile transmission is immediately followed by
service of the original of the subject item in another manner provided
herein. By giving to the other party hereto at least fifteen (15) day's
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their
respective addresses and each shall have the right to specify as its address
any other address within the United States of America.
ARTICLE XI
MISCELLANEOUS PROVISIONS
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21
11.01 Assignment. Neither party hereto may assign this Agreement
without obtaining the prior written consent of the other party hereto.
11.02 Relationship of Parties. The parties do not intend by this
Agreement to create a partnership or a joint venture, but merely to set forth
the terms upon which Manager shall manage and operate the Project for and on
behalf of LLIDA. Manager has entered into this Agreement as an independent
contractor. To facilitate the efficient, economical and timely performance
by Manager of its duties and obligations hereunder, however, LLIDA has
granted, and does hereby grant and confirm to Manager a special power of
attorney, and does hereby appoint Manager as its agent, with powers of
substitution, to act for and on behalf of LLIDA, and in the name and stead of
LLIDA, for the purpose of performing its obligations under this Agreement and
to the extent necessary to be performed in the name of LLIDA, except that
Manager shall have no power to act for or on behalf of LLIDA in the exercise
of any governmental power or authority. The foregoing power of attorney is
coupled with an interest and is irrevocable, until the expiration or earlier
termination of this Agreement, at which time such power of attorney shall
automatically be deemed to be revoked. Manager may act pursuant to the
foregoing power of attorney to perform any act in the name and on behalf of
LLIDA which Manager is otherwise authorized to perform on its own behalf
hereunder which LLIDA is privileged to perform under or with respect to any
Existing Service Contract, any Additional Service Contract, and any now or
hereafter existing Other Project Agreement. Manager is further authorized to
endorse checks, to sign receipts, and to execute such other instruments for
and on behalf of, and in the name of LLIDA, pursuant to the foregoing power
of attorney, as Manager may deem necessary or convenient in the ordinary
course of business in the operation and management of the Project hereunder.
11.03 Waiver. The failure by either party to exercise any right or
power given herein or by law, or to insist upon strict compliance by the
other party with any obligation imposed hereunder shall in no event
constitute a waiver of either party's right to demand full and complete
compliance with each and every provision hereof or to exercise and enforce
all available powers and remedies.
11.04 Amendments. This Agreement may not be amended except by
written agreement duly executed by the parties hereto, provided, however,
that a waiver of any right or privilege hereunder need be signed only by the
party waiving such right or privilege.
11.05 Covenant of Further Assurances. The parties hereby agree to
execute such other documents and perform such other acts as may be reasonably
necessary or desirable to carry out the purposes of this Agreement.
11.06 Entire Agreement. This document represents the entire
agreement between the parties with respect to the management and operation of
the Project during the term hereof.
11.07 Legal Representatives, Successors, Transferees and Assigns.
This Agreement shall be binding upon and inure to the benefit of LLIDA,
Manager, and their
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22
respective legal representatives, successors and permitted assigns, subject,
however, to the limitations on assignments set forth herein.
11.08 Time of the Essence. Time is of the essence of this Agreement.
11.09 Pronouns. All pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all other genders;
the singular shall include the plural, and vice versa.
11.10 Headings. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
11.11 Indemnification. Manager does hereby indemnify and agree to
defend and hold harmless LLIDA from and against any and all liabilities,
losses, costs, damages and expenses (including reasonable attorneys' fees)
arising, resulting, sustained or incurred, or which can or may arise, result,
be sustained or incurred by LLIDA in connection with the performance by
Manager of acts outside the scope of the authority granted to Manager under
this Agreement, and against any fraudulent acts, willful misconduct or gross
negligence on the part of Manager. LLIDA does hereby covenant and agree to
pay Manager for any and all liabilities, losses, costs, damages and expenses
(including reasonable attorneys' fees) arising, resulting, sustained or
incurred, or which can or may arise, result, be sustained or incurred by
Manager in connection with the performance by Manager under this Agreement,
except for such liabilities, losses, costs, damages and expenses arising,
resulting, sustained or incurred in connection with acts outside the scope of
authority granted to Manager under this Agreement, fraudulent acts, or wilful
misconduct or gross negligence on the part of Manager.
11.12 Governing Law. The laws of the State of Georgia shall govern
the interpretation, validity and enforcement of this Agreement.
11.13 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid,
but in the event any such provision should be held invalid or unenforceable,
the remaining provisions hereof shall be not be affected thereby.
11.14 Authority. By execution hereof, each party hereto represents
that it has the right, power and authority to enter into this Agreement in
accordance with the terms and conditions hereof, and the person executing
this Agreement on behalf of each party hereto represents that he has the
right, power and authority to enter into this Agreement on behalf of such
party and that this Agreement is binding upon and effective against such
party.
IN WITNESS WHEREOF the parties hereto have executed this Agreement,
under seal, as of the Effective Date.
LLIDA:
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23
LAKE LANIER ISLANDS DEVELOPMENT
AUTHORITY, a body corporate and politic
created and existing under the laws of
the State of Georgia
By:_____________________________________
Name:______________________________
Title:_____________________________
Attest:_________________________________
Name:______________________________
Title:_____________________________
(LLIDA SEAL)
MANAGER:
KSL LAKE LANIER, INC., a Delaware
corporation
By:_____________________________________
Name:______________________________
Title:_____________________________
Attest:_________________________________
Name:______________________________
Title:_____________________________
(CORPORATE SEAL)
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE PROJECT
All of the property leased under the Original Lease, together with
the property added under Supplemental Agreement No. 1 thereto, and commonly
known as Lake Lanier Islands.
<PAGE>
Exhibit "B"
PRELIMINARY STATEMENT OF ESSENTIAL
BUSINESS TERMS OF PRIVATIZATION TRANSACTION
1. DNR and LLIDA will enter into an amendment of the LLIDA Sublease,
pursuant to which DNR will re-sublease and reconvey to LLIDA the portion
of the Project previously surrendered by LLIDA under the 1986 Management
Agreement.
2. DNR and LLIDA will enter into an agreement for the purpose of terminating
the 1971 Management Agreement and the 1986 Management Agreement.
3. Substantially all of the personal property of LLIDA used in connection with
the operation of the Project, including the personal property used in
connection with the operation of the Hilton Hotel, the Water Park, the
Hilton Golf Course and related personal property, furniture, fixtures and
equipment will be conveyed to Manager.
4. KSL will pay to LLIDA a cash payment in LLIDA in the amount of
$9,000,000.00, subject to closing adjustments and prorations.
5. All of the real property interests of LLIDA in the Project (including the
interests of LLIDA in existing improvements) will be subleased to Manager
under the KSL Sublease for a term co-extensive with the remaining term of
the Corps Lease.
6. LLIDA will assist Manager in the presentation to the Corps of any request
for extension of the term of the corps Lease approved by LLIDA and agree to
use its reasonable efforts to attempt to extend the term of the Corps Lease
so that it will have a remaining term of approximately 50 years from May
15, 1996. If the parties are successful in obtaining such an extension,
the KSL Sublease will be automatically extended for the same period.
7. Manager will have a right to extend the term of the KSL Sublease, subject
to a corresponding extension of the Corps Lease, for an additional 10 years
beyond the initial 50 year term described in paragraph 6 above, at a market
rental rate as to both base rental and percentage rental (but in no event
less than the Base Rent [as defined in the KSL Sublease] at the expiration
of the prior term). Manager shall provide notice of such election of LLIDA
within twelve (12) years from the commencement of the KSL Sublease. LLIDA
will assist Manager in the presentation to the Corps of any request for
such extension of the term of the Corps Lease.
8. At closing, LLIDA will pay to Manager the sum of $400,000.00 (less any
portion of such amount paid to manager during the term of the management
Agreement in accordance with Section 2.11 of the Management Agreement) to
be used by Manager for repairs and improvements to the Project. In
addition, LLIDA will pay to Manager any unspent amounts remaining in the
Capital Budget.
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2
9. The KSL Sublease will provide for annual minimum rent of $3,000,000.00,
payable in equal monthly installments of $250,000.00 each, plus percentage
rents in the amount of 3.5% of Gross Revenue (to be defined in the KSL
Sublease) in excess of $20,000,000.00. There will be a percentage rent
floor of $100,000.00 annually for the first five (5) years, and $200,000.00
annually thereafter.
10. Certain obligations of Manager under the KSL Sublease will be guaranteed by
KSL Recreation Corporation under a Guaranty Agreement to be negotiated in
connection with the negotiation of the KSL Sublease.
11. In the KSL Sublease Manager will grant to LLIDA a perfected security
interest in assets conveyed to manager as described in paragraph 3 above,
having a value of not less than $3,000,000.00, until such time as Manager
has made capital expenditures, as described in Paragraph 12 below of not
less than $3,000,000.00, exclusive of capital expenditures funded from the
reserve account to be established and maintained pursuant to the KSL
Sublease. Such security interest shall be reduced pro rata as such
expenditures are made from time to time.
12. In the KSL Sublease, Manager will agree to make capital expenditures of not
less than $5,000,000.00 during the five (5) years of the lease term
following the first year in which Gross Revenue exceeds $20,000,000.00,
subject to the terms of the KSL Sublease and paragraph 17(c) below.
13. The KSL Sublease will be subordinate to the Stouffer Sublease, but LLIDA
and DNR will convey to Manager all of their respective rights to the rental
income and rights to enforce the sublessee's obligations under the Stouffer
Sublease, with a reversion to LLIDA and DNR of such rights in the event of
a termination of the KSL Sublease. LLIDA and DNR agree to cooperate with
Manager in connection with the enforcement of the Stouffer Sublease, and
Manager will assume the obligations of LLIDA and DNR as sublessor under the
Stouffer Sublease.
14. LLIDA will endeavor to provide appropriate non-disturbance agreements from
the Corps and from DNR with forms of sublessee and mortgagee recognition
agreements attached. After closing LLIDA will cooperate with Manager in
its efforts to obtain sublessee and mortgagee recognition agreements from
the Corps and DNR.
15. LLIDA will assign all of its rights under the Hilton License to KSL,
provided Hilton will acknowledge and consent to such assignment, which will
specifically include the assignment (with Hilton's consent) of the
termination rights contained therein.
16. Manager will be entitled to mortgage all or portions of the Project without
the consent of LLIDA, and LLIDA will provide mortgagee recognition
agreements (if such mortgagees are registered and meet any other sublease
requirements) in an acceptable form. The KSL Sublease will permit the
foreclosure of such mortgages (or deeds-in-lieu of foreclosure) without
consent, and the subsequent sale of the mortgaged interest in the Project
by the mortgagee or its nominee, without consent.
<PAGE>
3
17. Manager will be entitled to enter into subleases with respect to all or
portions of the Project, for purposes which comply with the approved KSL
Conceptual Plan, for uses that are permitted under the KSL Sublease, under
an approved sublease form and with rent protection for LLIDA:
(a) To affiliates of Manager, without the consent of LLIDA;
(b) To up to three third parties each with a net worth of at least
$5,000,000 or demonstrated sufficient financial resources, without the
consent of LLIDA for projects included in KSL Conceptual Plan or
amendments thereof approved by LLIDA provided construction begins
within 5 years from date of the KSL Sublease; and
(c) To others, with the consent of LLIDA, which shall not be unreasonably
withheld, delayed or conditioned, in accordance with the terms of the
KSL Sublease; and, in the event of disapproval of any sublease which
is proposed in good faith, the capital expenditure requirements
described in paragraph 12 above will be extinguished to the extent of
capital expenditures which were to be expanded under the proposed
sublease.
In addition, the KSL Sublease will contain language acknowledging that
the KSL Sublease has been entered into with the expectation that
development and subleasing will be permitted by LLIDA, subject to the
terms of the KSL Sublease. Subleases will be deemed approved if not
disapproved within a time period to be agreed upon.
18. Manager will be entitled to assign the KSL Sublease under an approved
assignment form:
(a) To affiliates of manager, without the consent of LLIDA, provided the
guaranty from KSL Recreation Corporation remains in full force and
effect and subject to the application of change of control provisions;
and
(b) To others, with the consent of LLIDA, which shall not be unreasonably
withheld, delayed or conditioned, in accordance with the terms of the
KSL Sublease.
19. LLIDA will, upon written request of Manager, amend the KSL Sublease and
enter into one or more individual subleases with Manager covering any
portion or portions of the Project, in accordance with the terms of the KSL
Sublease.
20. At closing all prorations and adjustments of all Project revenues and
expenses will be as of 12:01 a.m., May 15, 1996. Manager will receive a
credit at closing in an amount to be mutually agreed upon by Manager and
LLIDA, upon the submission of certain inspection reports by Manager to
LLIDA, to be applied toward the correction
<PAGE>
4
of certain alleged project deficiencies. LLIDA will receive a credit at
closing for the Minimum Working Capital Amount (as defined in the
Management Agreement), any management fees paid to Manager pursuant to
the Management Agreement, the amount of Rent (as defined in the KSL
Sublease) due for the period from May 15, 1996 to the closing date and
any costs incurred during the term of the Management Agreement pursuant
to Section 7.02(a) thereof for the correction of any violation of, or to
cause compliance with, any legal requirements, except to the extent of
the fixed amount described in the preceding sentence of this paragraph 20.
21. To the extent permitted by law, LLIDA will give Manager a right of first
refusal to purchase LLIDA's interest in the Project.
LLIDA and Manager agree to negotiate, diligently and in good faith on an
exclusive basis to consummate the Privatization Transaction substantially on
the terms set forth above. The parties acknowledge, however, that the terms
set forth above are only a summary of the material terms of the Privatization
Transaction, and constitute a basis for further negotiations, but do not
represent all of the terms and conditions of the Privatization Transaction.
Further, the terms set forth above assume that the cooperation of certain
third parties will be obtained and are not a covenant by LLIDA to perform any
matters not within LLIDA's control.
<PAGE>
Exhibit 10.4
A G R E E M E N T
The Professional Golfers' Association of America
LML Development Corp. of California
THIS AGREEMENT is made this 5th day of March, 1984, by and between
THE PROFESSIONAL GOLFERS' ASSOCIATION OF AMERICA (hereinafter the "PGA") and LML
DEVELOPMENT CORP. OF CALIFORNIA (hereinafter "Landmark").
WHEREAS, Landmark currently owns or controls approximately 1600
acres of land located near La Quinta, California, currently known as the Kennedy
Ranch, which land is more fully described on Exhibit "A" attached hereto and
made a part hereof (hereinafter the "Kennedy Ranch Property"); and
WHEREAS, Landmark intends to develop and operate the Kennedy Ranch
Property by, inter alia, constructing and selling residential, commercial,
hotel, office and other facilities and, incidental thereto, developing and
operating golf courses, golf clubs and related golf facilities (hereinafter
collectively the "Kennedy Ranch Property Development"); and
WHEREAS, the PGA is desirous of establishing offices in the area
near La Quinta, California, in order to better enable the PGA to perform
services for its members on the West Coast of the United States; and
WHEREAS, the PGA is the owner of the initials "PGA" and certain
other identifications, logos and tradenames containing such initials and is the
owner of certain registered trademarks with respect to such initials
(hereinafter all such initials, logos, tradenames and registered trademarks are
referred to as the "PGA Marks"); and
WHEREAS, the PGA has the right to license the use of the PGA Marks
in connection with, inter alia, the promotion, sale, development and operation
of the Kennedy Ranch Property Development, including, but not limited to, the
right to license the use of the PGA Marks in combination with the word "West"
for such purposes;
NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the PGA and Landmark hereby agree as follows:
1. (a) The PGA hereby grants to Landmark during the term of this
Agreement an exclusive right and license (hereinafter the "License") to use the
PGA Marks in combination with the word "West" (provided the word "West" is not
significantly smaller than the word "PGA") in connection with the sales,
promotion, advertising, development and/or operation of the Kennedy Ranch
Property (and any additional land adjacent to
<PAGE>
2
or in the immediate vicinity of the Kennedy Ranch Property that may hereafter be
added by Landmark to the Kennedy Ranch Property Development). In furtherance
thereof, during the term of this Agreement, (i) the PGA shall not permit any
other golf course, resort or real estate development located within the States
of California or Arizona to utilize the words or names "PGA, or "PGA of American
in its name or to otherwise use the words or names "PGA" or "PGA of America" in
connection with the advertising or promotion thereof (except as used in
conjunction with (x) the word "Tour" or (y) the name of a local PGA Section
which covers the states of California or Arizona); and (ii) the PGA shall not
permit any other golf course, resort or real estate development located within
the United States to utilize the words or name "PGA West" in its name or to
otherwise use the words or name "PGA West" in connection with the advertising or
promotion thereof. The PGA agrees to take whatever legal or other action that
may be necessary to prevent or prohibit another golf course, resort or real
estate development from using the names or words "PGA," "PGA of America" and/or
"PGA West" as stated above; and Landmark agrees to cooperate with the PGA in any
such action provided the PGA reimburses Landmark for any reasonable expenses
incurred by Landmark in connection therewith.
(b) Landmark shall have the right to develop a PGA West emblem or
logo for use in connection with the Kennedy Ranch Property Development; however,
the PGA shall have the prior right to approve any such emblem or logo, which
approval shall not be unreasonably withheld. Subsequent to the Termination Date
(as hereinafter defined), any emblem or logo developed by Landmark that contains
the words "PGA West" shall no longer be used by either party hereto.
2. Once an appropriate championship caliber golf course and related
golf facilities are developed to the PGA's reasonable satisfaction at the
Kennedy Ranch Property Development, the PGA agrees to negotiate in good faith to
make all necessary arrangements to conduct some or all of the following events
at the Kennedy Ranch Property Development:
(1) a PGA Championship;
(2) a PGA Seniors Championship;
(3) a Club Professional Championship;
(4) the Ryder Cup Matches; and
(5) the PGA Cup Matches.
Holding any or all of the foregoing events at the Kennedy Ranch
Property will depend on the execution of a mutually acceptable financial
agreement between the PGA and Landmark.
<PAGE>
3
3. The PGA shall exert reasonable and best efforts to promote and
advertise the golf clubs and other developments now or hereafter located upon
the Kennedy Ranch Property so as to further the success of the same; and, in
connection therewith, the PGA agrees to utilize those periodicals, television
times and other mediums of exposure at its disposal to effect such promotion.
4. Landmark agrees to pay to the PGA, as consideration for the
License, the sums set forth on Exhibit "B" attached hereto and made a part
hereof, which sums shall be due and payable within thirty (30) days subsequent
to a closing of a sale by Landmark of a residential unit or residential lot
located upon the Kennedy Ranch Property to an original retail third party
purchaser. Notwithstanding, sales of residential units and/or residential lots
to developer(s) or builder(s) for further construction or development shall not
be deemed sales of residential units or residential lots for the purposes of
this paragraph; however, subsequent sales by such developer(s) or builder(s) of
fully improved residential units or residential lots to original retail third
party purchasers shall trigger the obligation of Landmark to pay to the PGA the
sums set forth on Exhibit "B." In addition, beginning in the calendar year 1986,
and continuing each successive year thereafter until all residential lots and
residential units located upon the Kennedy Ranch Property have been sold,
Landmark shall guarantee that, by the end of each such calendar year, the PGA
will have received from fees generated from sales as aforesaid, on a cumulative
basis, the sums set forth on Exhibit "C" attached hereto and made a part hereof.
In the event sales of residential units and/or residential lots on the Kennedy
Ranch Property do not generate such guaranteed sums, then Landmark shall pay to
the PGA such monies as may be necessary to cover the amount so guaranteed for
that particular year; and such monies so paid by Landmark shall be credited to
sums due from Landmark on sales of residential lots or residential units
occurring during subsequent years. Provided Landmark is using the name "PGA
West" in the name of any golf club(s), golf course(s), hotel(s) and/or any other
commercial, office or residential developments then located on the Kennedy Ranch
Property at such time that all of the residential units and residential lots
located upon the Kennedy Ranch Property have been sold, Landmark shall
thereafter incur the obligation to pay unto the PGA the sum of $100,000.00 per
year until the Termination Date (as hereinafter defined). As used herein, the
term "Termination Date" shall mean the later of (a) the date on which all of the
residential units and residential lots located on the Kennedy Ranch Property
have been sold, or (b) the date on which Landmark ceases to use the name "PGA
West" in the name of any golf club(s), golf course(s), hotel(s) and/or any other
commercial, office or residential developments then located on the Kennedy Ranch
property. As used herein, the terms "residential units" and "residential lots"
shall not be deemed to include property and/or improvements which
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4
are or shall be utilized for hotel, motel or other transient accommodations,
apartment use or the like.
5. (a) Landmark agrees that, prior to the Termination Date, members
of the PGA shall have (i) a non-exclusive right to use certain golf clubhouse
facilities designated by Landmark and located upon the Kennedy Ranch Property,
and (ii) priority with respect to the booking of tee times on an 18-hole golf
course designated by Landmark and located upon the Kennedy Ranch Property, which
priority shall begin seven (7) full days and end three (3) full days prior to
the date of such tee time. Members of the PGA shall be charged prevailing greens
fees and cart fees in effect at the time for such golf course unless otherwise
agreed between the parties hereto. In addition, members of the PGA shall have
the right to purchase golf club memberships upon prevailing terms and conditions
in effect at the time for such golf club unless otherwise agreed between the
parties.
(b) The PGA shall have the right to request that a golf course
located upon the Kennedy Ranch Property be closed to non-PGA players for PGA
competitive events. Landmark shall reasonably comply with such requests,
provided (i) such request is made at least ninety (90) days prior to the
intended play date, (ii) a golf course (to be designated by Landmark) located
upon the Kennedy Ranch Property has not been previously booked and is available
for play on the requested play dates, and (iii) the PGA guarantees a minimum
number of one hundred (100) players per day, who will pay such cart fees, range
fees and greens fees as may be agrees upon between the PGA and Landmark.
6. (a) At such time that all required governmental approvals have
been obtained, Landmark agrees, upon the request of the PGA, to construct for
the PGA an office structure (hereinafter the "PGA Building") containing at least
12,000 square feet but no more than 20,000 square feet (unless a larger
structure is mutually agreed upon). The PGA Building shall be constructed on a
mutually agreeable location on the Kennedy Ranch Property in conformance with
mutually agreeable plans, specifications, construction cost estimates and
construction timeframes, but the exterior of the PGA Building shall be subject
to final architectural approval by Landmark to ensure harmonious design with the
remainder of the Kennedy Ranch Property Development. At such time as the PGA
Building is fully constructed and ready for occupancy by the PGA, the PGA
Building, together with the legal parcel upon which it is locates (which shall
be at least two acres) (such legal parcel, together with the PGA Building,
hereinafter referred to as the "PGA Property"), shall be deeded unto the PGA
free and clear of any liens or encumbrances which would materially adversely
affect the intended use of the PGA Property for office purposes.
Notwithstanding, it is agreed that the following restrictions shall be set forth
in the transfer instrument of the PGA Property to the PGA:
<PAGE>
5
(i) the PGA Property shall be restricted to use by the PGA and its
staff and shall not be leased or subleased to third parties without the
prior written consent of Landmark;
(ii) the PGA Property shall not be subdivided nor shall any other
building or structure be constructed thereon without the prior written
consent of Landmark;
(iii) Landmark, for itself, its legal representatives, successors
and assigns, shall have, along with the PGA, its employees, guests and
invitees, a non-exclusive parking and access easement over and across any
parking lots or other parking facilities located upon the PGA Property;
and
(iv) in the event an acceptable offer is made to the PGA, by a bona
fide third party, to purchase or acquire the PGA Property or any portion
thereof or interest therein (hereinafter the "Purchase Offer"), the PGA
shall deliver a copy of the Purchase Offer to Landmark, and Landmark shall
thereafter have the exclusive prior right, for a period of thirty (30)
days after receipt of a copy of the Purchase Offer, to purchase or acquire
the estate or interest in or to the PGA Property designated in the
Purchase Offer, on the terms of the Purchase Offer, by delivering to the
PGA during said thirty (30)-day period, notice of Landmark's intention to
exercise its first refusal rights (except that if the Purchase Offer price
consists in whole or in part of consideration other than cash or a
deferred payment, the fair market value of such other consideration shall
be deemed payable in Cash). The first refusal rights of Landmark set forth
in this clause "(iv)" shall not apply to transfers of the PGA Property, or
portion thereof, to any parent corporation of the PGA or any subsidiary or
sub-subsidiary thereof.
Notwithstanding the above, Landmark's obligations set forth in this Paragraph
"6" shall be expressly conditioned upon the execution of a mutually agreeable
financial agreement between the PGA and Landmark as to the repayment to Landmark
of actual costs incurred in the construction of,the PGA Building (it being
understood that the raw land costs relative to the PGA Building site shall be
borne by Landmark and not passed on to the PGA).
(b) The PGA Property shall be maintained by the PGA, at its sole
cost and expense, in a good and attractive condition; however, in the event
Landmark, its employees, guests or invitees utilize their rights to park on the
PGA Property, Landmark agrees to bear its fair share (based on usage) of the
maintenance costs of such parking lots or other parking facilities on the PGA
Property. In the event the PGA does not so maintain the PGA Property, Landmark
shall have the right to notify the PGA of such breach and if the same is not
cured within a reasonable time, Landmark shall have the right to perform all
necessary
<PAGE>
6
maintenance and to deduct the cost thereof from payments due to the PGA under
this Agreement.
7. Nothing contained herein shall be construed to restrict in any
way the right of Landmark to contract with or enter into an agreement with any
person, corporation, entity or other organization (including, without
limitation, the PGA Tour) with respect to any participation by such person,
corporation, entity or other organization in the advertising, sales, promotion,
development and/or operation of the Kennedy Ranch Property.
8. This Agreement may not be assigned by either party hereto without
the prior written approval of the other party, which approval shall not be
unreasonably withheld. Notwithstanding the above, either party hereto may assign
this Agreement to its parent corporation or any subsidiary or sub-subsidiary
thereof without the prior written consent of the other party. In addition,
notwithstanding the above, Landmark shall have the exclusive right and option to
sublicense the use of the name "PGA West" in connection with the Kennedy Ranch
Property Development without the prior written approval of the PGA. In this
regard, the PGA acknowledges that Landmark intends to sublicense the name "PGA
West" with respect to one or more hotels and other commercial, office and
residential developments in the Kennedy Ranch Property Development.
9. (a) The PGA shall be consulted with regard to the design and
operation of golf courses and golf clubhouses which are to be located on the
Kennedy Ranch Property (hereinafter the "Golf Facilities"). Landmark shall be
obligated to maintain the Golf Facilities up to standards of top rated country
clubs in the area and the PGA shall have the right to notify Landmark in the
event such standards are not being maintained. In addition, the PGA shall have
the right, upon at least 24 hours prior written notice to Landmark and at
reasonable intervals and during reasonable business hours, to inspect the Golf
Facilities and other facilities owned and operated by Landmark and to which the
name PGA West applies. In the event the PGA determines that goods or services
sold or performed under this Agreement by Landmark or its sublicensees do not
meet reasonable PGA standards of good quality, the PGA shall immediately notify
Landmark in writing of those items to which it specifically objects in order
that Landmark may take such steps as are reasonably necessary to cure such
objections, provided the PGA hereby agrees that it shall not unreasonably object
to any such goods or services or otherwise unreasonably exercise its quality
review powers hereunder.
(b) In the event an acceptable offer is made to Landmark, by a bona
fide third party, to purchase or acquire the Golf Facilities or any portion
thereof or interest therein (hereinafter the "Golf Facilities Purchase Offer"),
Landmark shall deliver a copy of the Golf Facilities Purchase Offer to the
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7
PGA and the PGA shall have the exclusive prior right, for a period of thirty
(30) days after receipt of the copy of the Golf Facilities Purchase Offer to
purchase or acquire the estate or interest in or to the Golf Facilities
designated in the Golf Facilities Purchase Offer, on the terms of the Golf
Facilities Purchase Offer, by delivering to Landmark, during said thirty
(30)-day period, notice of the PGA's intention to exercise its first refusal
rights (except that if the Golf Facilities Purchase Offer price consists in
whole or in part of consideration other than cash or a deferred payment, the
fair market value of such other consideration shall be deemed payable in cash).
The first refusal rights of the PGA set forth in this subparagraph "(b)" shall
not apply to transfers of the Golf Facilities, or any portion thereof, (i) to
any parent corporation of Landmark or any subsidiary or sub-subsidiary thereof,
or (ii) to members or the membership of a "golf club" or "country club"
utilizing the Golf Facilities or portion thereof so transferred.
10. A breach of this Agreement shall consist of a material failure
by either party to comply with its obligations set forth in this Agreement. Upon
any breach hereunder, the injured party shall provide notice in the manner set
forth in this Agreement to the breaching party, which notice shall specify in
detail the nature of the breach, together with the recommended cure or remedy
therefor. In the event the breach described in the notice is not cured within
sixty (60) days after notice is sent (or if such breach cannot reasonably be
cured within said sixty (60)-day period, then within such extended period of
time as may be reasonably necessary to cure the same) then the injured party
shall have, as its sole and exclusive remedy hereunder, the right to collect
from the breaching party all actual damages incurred as a result of such breach.
Notwithstanding, in the event the PGA breaches this Agreement, Landmark's right
and license to the use of the name "PGA West" as stated herein shall continue in
full force and effect in accordance with the terms of this Agreement.
11. Landmark agrees to defend the PGA and its officers, directors,
agents and employees and to hold each of them harmless from any and all damages,
claims, demands or causes of action arising solely from the use by Landmark of
the PGA Marks pursuant to the terms of this Agreement, provided Landmark is
given timely notice of, and shall have the opportunity to participate in the
defense of, any such claim, demand or cause of action. Notwithstanding the
above, the PGA agrees to defend Landmark and its sublicensees, their officers,
directors, agents and employees, and to hold them harmless from damages, claims,
demands or causes of action for trademark infringement or other similar claims
relating to the right of the PGA to license the PGA Marks or to the right of
Landmark to use the PGA Harks as authorized in this Agreement, provided the PGA
is given timely notice of, and shall have the opportunity to participate in the
defense of, any such claim, demand or cause of action.
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8
12. Any notices contemplated hereunder shall be given by letter
addressed to the respective addresses shown below by depositing such letter in
the United States mail, postage prepaid, return receipt requested; and such
notice shall be deemed received on the third day thereafter. Any change of
address shall be furnished to the other party by notice as provided herein.
As to the PGA:
100 Avenue of the Champions
Palm Beach, Florida 33410
Attention: Executive Director
As to Landmark:
Post Office Box 1000
La Quinta, California 92253
Attention: Joe W. Walser, Jr., and Ernest O. Vossler
13. This Agreement shall be governed and construed in accordance
with the laws of the State of California.
14. This Agreement contains the entire agreement of the parties and
may not be altered or amended except in writing duly signed by the parties
hereto. This Agreement shall supersede all previous communications,
representations or agreements, either verbal or written, between the parties,
including the letter agreement dated January 6, 1984, executed on January 8,
1984.
15. Nothing herein shall be construed to make the parties hereto as
partners or as Joint venturers, or either as agent of the other; and neither
party shall have any power to obligate or bind the other in any manner
whatsoever, except as expressly provided herein. Subject to any restrictions on
assignment or sublicensing contained herein, this Agreement shall be binding on
3 all legal representatives, successors or assigns of either party.
16. If any provision or any portion of any provision of this
Agreement shall be held to be void or unenforceable, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
17. This Agreement may be executed in one or more separate
counterparts, each of which, when so executed, shall be deemed to be an
original. Such counterparts shall, together, constitute and be one and the same
instrument.
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9
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Agreement as of the date and year first above
written.
THE PROFESSIONAL GOLFERS'
ASSOCIATION OF AMERICA
By:
---------------------------------------
Title:
------------------------------------
LML DEVELOPMENT CORP. OF CALIFORNIA
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
Exhibit 10.5
AGREEMENT
THIS AGREEMENT is made this 10 day of January, 1985, by and between
PGA TOUR, INC., a Maryland corporation ("TOUR"), and LANDMARK LAND COMPANY OF
CALIFORNIA, INC., a Delaware corporation ("LANDMARK").
PREAMBLE
WHEREAS, LANDMARK presently owns or controls approximately 2200
acres of land located in La Quinta, California, commonly known as the Kennedy
and Ahmanson Ranches, which land is outlined in red on Exhibit A attached hereto
and made a part hereof (the "Original Property"); and
WHEREAS, in the event that LANDMARK acquires real property adjacent
to the Original Property (the "Adjacent Property") and in the further event that
LANDMARK determines, in its sole discretion, that the Adjacent Property shall be
included within, and made a part of, LANDMARK's "PGA West" project, then and in
that event the Adjacent Property shall be considered, for the purposes of this
Agreement, to be included within, and treated the same as, the Original Property
(collectively, the "Property"); and
WHEREAS, LANDMARK intends to develop and operate the Property by,
among other things, constructing and selling residential, commercial, hotel,
office and other facilities and, incidental thereto, developing and operating
golf courses and related golf facilities; and
WHEREAS, TOUR and LANDMARK desire to enter into an agreement
relating to certain matters involving the development and operation of the
Property, including, among other things, (a) use of TOUR trademarks and/or
service in connection with sales, promotion, advertising and development of the
Property; (b) the construction and operation by LANDMARK of a golf course and
related facilities to be designated a "Tournament Players Club" (the "TPC") on a
portion of the Property; and (c) the holding of certain TOUR events at the TPC
or other golf clubs owned by LANDMARK;
NOW THEREFORE, TOUR and LANDMARK agree as follows:
1. Definitions. Terms defined in the introductory paragraph and
Preamble to this Agreement shall have the meanings assigned to them therein and
the following terms shall have the following meanings:
"Classic" means the nationally televised Bob Hope Classic or any
nationally televised successor event that directly replaces the Bob Hope Classic
on the PGA TOUR schedule. In the event that the Classic is not nationally
televised during any
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2
year, then the event shall not be considered the "Classic" for that particular
year.
"Clubs" means the La Quinta Hotel Golf & Tennis Resort (Dunes Course
only), the Mission Hills Golf Club (excluding the "Old Course") and the TPC. In
the event that LANDMARK sells, transfers, conveys or otherwise loses control of
one or more of the aforementioned clubs, then that club or clubs, as the case
may be, shall thereafter be excluded from the definition of "Clubs."
"Commercial Unit" means each one-third acre of the Property
(excluding that portion of the Property located within the "Resort Core" of the
"PGA West" project) that is sold or leased (for a term in excess of one year) by
LANDMARK to an unrelated third party for office, retail and/or other commercial
purposes. In the event that LANDMARK sells or leases portions of the aforesaid
commercial land in units of other than one-third of an acre, then, for the
purposes of this Agreement, a partial Commercial Unit shall be created which may
be aggregated with subsequently created partial Commercial Units for purposes of
the payment of fees pursuant to subparagraph 5.a herein.
"Computation Date" means the earlier of (a) the date on which all of
the Residential Lots/Units (as hereinafter defined) have been sold and all
Commercial Units have been sold or leased, (b) January 1, 2006, or (c) the date
on which this Agreement is terminated pursuant to the terms hereof.
"Facilities" means, with respect to a golf club, the golf course,
driving range, putting green and practice area at the club, all clubhouse,
parking and maintenance facilities at the club and all other facilities directly
connected with the club.
"Golf Facilities" means all golf clubs on the Property including all
Facilities directly associated therewith.
"Major Event" means either the nationally televised "Skins Game" or
another nationally televised PGA TOUR event acceptable to LANDMARK in its sole
discretion. In the event that a Major Event is not nationally televised during
any year, then the event shall not be considered to be a "Major Event" for that
particular year.
"Offer Documents" means a document or documents setting forth an
offer acceptable to LANDMARK from a third party to purchase or otherwise
acquire, or an offer by LANDMARK to sell, the Golf Facilities or any material
portion thereof or estate or interest therein.
"Other Tournament Players Clubs" means the Tournament Players Club
at Sawgrass, the Tournament Players Club at Eagle Trace, the Tournament Players
Club at Plum Creek and such other
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3
Tournament Players Clubs as TOUR may designate from time to time in its
discretion.
"PGA" means the Professional Golfers' Association of America.
"Qualifying Tournament" means the TOUR (Regular Tour) Qualifying
Tournament.
"Residential Lots/Units" means residential lots and residential
units hereinafter constructed or developed by LANDMARK on the Property.
Residential Lots/Units shall not include real property or improvements which are
or shall be utilized for hotel/motel or other transient accommodations, rental
apartment use or the like.
"Super Bowl Event" means a nationally televised, season-ending
championship such as the "Super Bowl of Golf" event currently being proposed by
NBC.
"Termination Date" means the earlier of (a) the date twenty years
after the Computation Date, or (b) the first date subsequent to the Computation
Date on which neither the Classic, the Super Bowl Event nor a Major Event is
held at a Club, or (c) the date of termination of this Agreement pursuant to the
terms hereof.
"TOUR Marks" means the TOUR trademarks and/or service marks set
forth on Exhibit B hereto.
"TPC Facilities" means the golf facilities to be included as a part
of the TPC, which facilities shall include an 18-hole championship "Stadium
Golf" course, a clubhouse, two (2) driving ranges, other appropriate
tournament-related features such as VIP and general parking areas, a suitable
press room area, a television pad, a tournament administration area, electric
scoreboard foundations and on-course electrical wiring and other facilities
directly connected with the TPC.
"The Vintage Invitational" means The Vintage Invitational Senior PGA
Tour event now held at The Vintage Club in Indian Wells, California.
2. The TPC.
(a) Completion of TPC Facilities. LANDMARK shall endeavor to
complete construction of the TPC Facilities to TOUR's reasonable satisfaction by
January 1, 1986, or, if delays beyond the reasonable control of LANDMARK (i.e.,
as a result of labor strikes, equipment unavailability, weather conditions,
governmental approvals, etc.) make completion of the TPC Facilities to TOUR's
reasonable satisfaction by January 1, 1986, impracticable, as soon as reasonably
practicable thereafter; provided, however, that if for any reason construction
of the TPC
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4
Facilities is not completed to TOUR's reasonable satisfaction by January 1,
1987, TOUR shall have the option on or prior to March 1, 1987, to terminate this
Agreement, without liability or further obligation, providing written notice to
LANDMARK before such date. In the event that construction of the TPC Facilities
is not completed to TOUR's reasonable satisfaction by January 1, 1988, on
account of delays beyond the reasonable control of LANDMARK, LANDMARK shall have
the option on or prior to March 1, 1988, to terminate this Agreement without
liability or further obligation by providing written notice to TOUR before such
date.
(b) Approval of Design of TPC Facilities. Prior to the beginning of
construction of the TPC Facilities, LANDMARK shall submit to TOUR for TOUR's
reasonable approval the proposed design for the TPC Facilities. TOUR shall have
thirty (30) days after receipt of such proposed design during which to approve
or disapprove thereof. If TOUR fails to notify LANDMARK of its disapproval of
the proposed design within such thirty (30)-day period, TOUR shall be deemed to
have approved of such proposed design. In the event TOUR notifies LANDMARK of
its disapproval of the proposed design for the TPC Facilities within such thirty
(30)-day period, LANDMARK shall make such changes to the proposed design as TOUR
may reasonably request; notwithstanding, if LANDMARK and TOUR are unable to
agree on the proposed design of the TPC Facilities within ninety (90) days after
the submission to TOUR of the proposed design, either LANDMARK or TOUR shall
have the right and option, for a period of sixty (60) days after the expiration
of the abovesaid ninety (90)-day period, to terminate this Agreement.
(c) Approval of TPC-Related Documents. LANDMARK shall submit to TOUR
for TOUR's reasonable approval, all proposed TPC rules and regulations,
membership documents, and membership applications. TOUR shall have fourteen (14)
days after receipt of any such proposed documents during which to approve or
disapprove thereof. If TOUR fails to notify LANDMARK of its disapproval of any
such proposed documents within such fourteen (14)-day period, TOUR shall be
deemed to have approved of such documents. In the event TOUR notifies LANDMARK
of its disapproval of any such proposed documents within such fourteen (14)-day
period, LANDMARK shall make such changes to such documents as TOUR may
reasonably request; notwithstanding, in the event that LANDMARK and TOUR are
unable to agree on such documents within ninety (90) days after the submission
to TOUR of such documents, either LANDMARK or TOUR shall have the right and
option, for a period of sixty (60) days after the expiration of the abovesaid
ninety (90)-day period, to terminate this Agreement.
3. License With Respect To TOUR Marks.
(a) Grant of License. Subject to the terms and conditions contained
herein, TOUR hereby grants to LANDMARK during the term of this Agreement an
exclusive right and license
<PAGE>
5
to use the TOUR Marks in connection with the sales, promotion, advertising and
development of the Property, including the TPC. During the term of this
Agreement, TOUR will not permit any other golf course, resort or real estate
development located in the Palm Springs/Coachella Valley, California, area to
utilize any of the TOUR Marks in its name or to otherwise use any of the TOUR
Marks in connection with the advertising or promotion thereof.
(b) Prior Approval of Uses of TOUR Marks. All specific uses of the
TOUR Marks by LANDMARK shall be subject to the prior written approval of TOUR,
which approval shall not be unreasonably withheld. It is specifically agreed
that once a proposed use of the TOUR Marks is submitted to TOUR for approval,
such use shall be deemed approved unless TOUR reasonably disapproves same in
writing within fourteen (14) calendar days after submission of the proposed use.
TOUR agrees not to withhold its approval of any specific use of the TOUR Marks
unless the standard of quality of such use is clearly inferior to the standard
of quality of other uses now or hereafter licensed and/or approved by TOUR.
(c) Ownership of TOUR Marks. TOUR represents and warrants that it is
the proprietor of the TOUR Marks and has the right to license, on an exclusive
basis, the TOUR Marks as provided herein. LANDMARK acknowledges that TOUR is the
proprietor of the TOUR Marks, that all of its uses of the TOUR Marks pursuant to
this Agreement shall inure to the benefit of TOUR, and that it is not acquiring
any interest or rights in the TOUR Marks apart from the rights set forth herein.
LANDMARK will not contest or deny the validity of the TOUR Marks or the title of
TOUR thereto. Upon termination of this Agreement for any reason, LANDMARK shall
forthwith discontinue entirely all use of the TOUR Marks and all rights granted
herein shall revert to TOUR.
(d) Ownership of LANDMARK Marks. TOUR acknowledges that LANDMARK is
the proprietor of certain trademarks and/or service marks, including without
limitation, the "Oak Tree" trademark, (hereinafter the "LANDMARK Marks"), that
any uses of the LANDMARK Marks pursuant to this Agreement shall inure to the
benefit of LANDMARK, and that TOUR is not acquiring any interest or rights in
the LANDMARK Marks of whatsoever kind or nature. TOUR further agrees that it
will not contest or deny the validity of the LANDMARK Marks or the title of
LANDMARK thereto.
(e) TOUR Members. LANDMARK acknowledges that TOUR does not have the
right to use the name, signature, photograph or likeness of any TOUR member.
LANDMARK agrees that it will not exercise the rights granted herein in any
manner that constitutes or implies an endorsement of LANDMARK, the Property or
the TPC by a TOUR member without having obtained proper advance authorization
from such member.
<PAGE>
6
(f) Indemnification. LANDMARK agrees to indemnify TOUR and its
members, officers, directors, agents and employees, and to hold each of them
harmless from and against any and all claims, demands, causes of action, losses,
damages, expenses, judgments, awards or liabilities that any of them may incur
as a result of any third party claim resulting from any action or inaction by
LANDMARK which directly relates to the use by LANDMARK of the TOUR Marks
pursuant to the terms of this Agreement. TOUR will notify LANDMARK promptly upon
receipt of notice of any such claim, demand or cause of action and LANDMARK will
assume responsibility therefor (including the hiring of counsel) and conduct the
defense thereof on TOUR's behalf or on behalf of the person to be indemnified;
provided, that TOUR or the person to be indemnified shall have the right to
employ counsel at its or his own expense, who shall have the right to consult
with the counsel hired by LANDMARK regarding disposition of the claim, demand or
cause of action. TOUR's obligation under this subsection shall survive the
termination of this Agreement.
Notwithstanding the above, TOUR agrees to indemnify LANDMARK and its
approved sublicensees, officers, directors, agents and employees, and to hold
each of them harmless from and against any and all claims, demands, causes of
action, losses, damages, expenses, judgments, awards or liabilities arising from
trademark infringement or other similar claims relating to the right of TOUR to
license the TOUR Marks or to the right of LANDMARK to use the TOUR Marks as
authorized in this Agreement. LANDMARK will notify TOUR promptly upon receipt of
notice of any such claim, demand or cause of action and TOUR will assume
responsibility therefor (including the hiring of counsel) and conduct the
defense thereof on LANDMARK's behalf; provided, that LANDMARK shall have the
right to employ counsel at its one expense, who shall have the right to consult
with the counsel hires by TOUR regarding disposition of such claim, demand or
cause of action. TOUR's obligation under this subsection shall survive the
termination of this Agreement.
4. The Events.
(a) 1984-1986 Qualifying Tournaments. Subject to the terms and
conditions of this Agreement, at least two (2) out of three (3) years during the
three (3)-year period from 1984 through 1986, TOUR shall hold the Qualifying
Tournament at one or more of the Clubs. TOUR shall have the right to select the
particular years in which the Qualifying Tournament will be held at the Clubs.
In addition, for each Qualifying Tournament held at one of the Clubs during such
three (3)-year period, TOUR shall have the right, subject to prior booking of
events at the Clubs, to select (a) the Club at which the Qualifying Tournament
will be held and (b) the play dates for the Qualifying Tournament. TOUR will
provide LANDMARK with at least six (6) months' prior written notice of the
intended play dates and location for each Qualifying Tournament to be played at
one of the Clubs. In the event such play dates are not available at such Club,
LANDMARK
<PAGE>
7
shall promptly so notify TOUR and TOUR shall have the right to select an
alternate Club and/or alternate play dates.
(b) 1987 and Subsequent Qualifying Tournaments. Subject to the terms
and conditions of this Agreement and provided the TPC Facilities are completed
to TOUR's reasonable satisfaction, TOUR shall hold the Qualifying Tournament at
the TPC at least two (2) out of three (3) years during the three (3)- year
period from 1987 through 1989, and at least two (2) out of the three (3) years
during each subsequent three (3)-year period. TOUR shall have the right to
select the particular years in which the Qualifying Tournament will be held at
the TPC. In addition, for each Qualifying Tournament held at the TPC pursuant to
this subsection b, TOUR shall have the right, subject to prior booking of events
at the TPC, to select play dates. TOUR shall provide LANDMARKS with at least six
(6) months prior written notice of the intended play dates for the Qualifying
Tournament. In the event such play dates are not available, LANDMARK shall
promptly so notify TOUR and TOUR shall have the right to select alternate play
dates.
(c) Classic/Super Bowl/Major Event. Subject to the terms and
conditions of this Agreement, TOUR shall use its best efforts to have the
Classic, Super Bowl and/or Major Events (the "Events") played at the TPC, on an
annual basis, beginning in 1986. TOUR shall have the right, subject to prior
bookings of events at the TPC, to select play dates for the Events played at the
TPC, provided that TOUR shall provide LANDMARK with at least six (6) months'
prior written notice of such play dates. Nothing contained in this Agreement
shall be construed as requiring TOUR to retain the Classic a current format,
personnel, charities, name or other similar details normally within TOUR's
discretion.
(d) Senior TOUR Event. Subject to the terms and conditions hereof,
in the event The Vintage Invitational is discontinued by its current sponsors,
LANDMARK shall have the option of having a Senior TOUR event held at the TPC.
Upon becoming aware that The Vintage Invitational is to be discontinued by its
current sponsors, TOUR shall provide notice thereof to LANDMARK. For thirty (30)
days after receipt of such notice, LANDMARK shall have the option of notifying
TOUR that it desires to hold a Senior TOUR event at the TPC. Provided LANDMARK
so notifies TOUR, TOUR and LANDMARK shall negotiate in good faith toward
entering into an agreement for the holding of a Senior TOUR event at the TPC,
which agreement shall contain such terms and conditions as TOUR and LANDMARK may
mutually agree. In the event that TOUR and LANDMARK are unable to mutually agree
on the terms and conditions of such agreement within ninety (90) days after
receipt by LANDMARK of the notice that The Vintage Invitational is to be
discontinued by its current sponsors, then TOUR shall have the right to hold the
tournament elsewhere.
(e) Use of Facilities. For each golfing event to be held at a Club
pursuant to paragraph 4 of this Agreement,
<PAGE>
8
LANDMARK shall make the Facilities at such Club available, on a non-exclusive
basis, to TOUR and a reasonable number of its guests, invitees and licensees,
free of charge, one week prior to the start and during all play days of such
event. Notwithstanding the above, TOUR's use of the golf course(s) on which such
event is played, together with a driving range, locker room, and such other
Facilities at the Club holding such event as may be mutually agreed upon between
the parties, shall be exclusive during the play days of any TOUR event.
(f) Administration, Costs and Revenues. Except as otherwise provided
by this Agreement or expressly agreed by TOUR and LANDMARK, as between TOUR and
LANDMARK, TOUR shall be responsible for the administration of and all costs
associated with the conduct of each of the golf events contemplated by paragraph
4 of this Agreement and shall be entitled to receive and retain all revenues
from admissions, parking, concessions and other sources arising therefrom.
Notwithstanding, revenues from the sales of goods, merchandise, food and
beverages from within the golf clubhouse(s) shall be the sole property of
LANDMARK.
(g) Use of Other Clubs. For each golf event contemplated by
paragraph 4 of this Agreement that is to be played at the TPC, TOUR shall have
the right, subject to prior commitments by LANDMARK, to use any or all
Facilities of other golf clubs located on the Property for use in connection
with such event provided TOUR gives LANDMARK not less than six (6) months prior
written notice of its intention to so use such Facilities. In the event a Club
is unavailable for a golf event scheduled to be played thereat pursuant to this
Agreement for reasons beyond the control of LANDMARK (e.g., flooding) or the TPC
is unavailable for a golf event scheduled to be played thereat pursuant to the
Agreement due to its not being completed to TOUR's reasonable satisfaction, TOUR
shall have the right, subject to prior commitments by LANDMARK, to use the
Facilities of any golf clubs located on the Property or the Facilities of any
other Club for such event. Any such use of alternate Facilities for an event
shall be on the same terms as specifies in this Agreement for use of the
originally scheduled Club for such event.
5. Payment of Fees by LANDMARK.
(a) Payment Upon Sales of Residential Lots/Units or Sales or Leases
of Commercial Units. LANDMARK agrees to pay to TOUR, in consideration for the
rights granted to LANDMARK and the obligations assumed by TOUR hereunder, the
sums set forth on Exhibit C attached hereto and made a part hereof, which sums
shall be due and payable within thirty (30) days subsequent to a closing of a
sale by LANDMARK of a Residential Lot/Unit to an original retail unrelated third
party purchaser. Notwithstanding, sales of Residential Lots/Units to
developer(s) or builder(s) for further construction or development shall not be
deemed sales of Residential Lots/Units for the purposes of
<PAGE>
9
this paragraph; however, subsequent sales by such developer(s) or builder(s) of
fully improved residential units or residential lots to original retail third
party purchasers shall trigger the obligation of LANDMARK to pay to the TOUR the
sums set forth on Exhibit C.
In addition, LANDMARK agrees to pay unto TOUR the fees set forth on
Exhibit C at such time that a Commercial Unit is sold or leased to an original
unrelated third party. Such fee shall be due and payable unto TOUR within thirty
(30) days subsequent to (a) the closing of a sale by LANDMARK of a Commercial
Unit or (b) the commencement date of a lease having a tens in excess of one
year, which covers such Commercial Unit. Notwithstanding, LANDMARK shall not be
obligated to pay more than (a) one fee with respect to any Commercial Unit or
(b) sixty fees with respect to all Commercial Units, provided, however, that if
additional Commercial Units are added to the sixty that are presently
contemplated (as a result of additions to the Property or otherwise), then the
maximum limit of sixty fees shall be increased by the number of such additional
Commercial Units. As partial Commercial Units are sold or leased, they shall be
aggregated and fees to TOUR for a full Commercial Unit shall become payable
within thirty (30) days subsequent to the sale or lease (as the case may be) of
the last additional partial Commercial Unit(s) necessary to form a complete
Commercial Unit.
In addition, beginning in the calendar year 1986, and continuing
each successive year thereafter until the Computation Date, LANDMARK shall
guarantee that, by the end of each such calendar year, the TOUR will have
received from fees generated from sales and leases as aforesaid, on a cumulative
basis, the sums set forth on Exhibit D attached hereto and made a part hereof.
In the event sales of Residential Lots/Units and sales and leases of Commercial
Units do not generate such guaranteed sums, then LANDMARK shall pay to the TOUR
such monies as may be necessary to cover the amount so guaranteed for that
particular year; and such monies so paid by LANDMARK shall be credited to sums
due from LANDMARK on sales of Residential Lots/Units and on sales and leases of
Commercial Units occurring during subsequent years.
(b) Fees After Computation Date. Provided the Classic, the Super
Bowl Event and/or a Major Event is being held on the Property on an annual basis
as of the Computation Date, LANDMARK shall pay TOUR either:
(1) $50,000 in cash each year during which a Major Event (but no Classic
or Super Bowl Event? is heft on the Property, or
(2) $100,000 in cash each year during which the Classic or the Super
Bowl Event is held on the Property (whether or not a Major Event is
held on the Property),
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10
on December 31 of such year, beginning in the year during which the Computation
Date occurs and continuing until the Termination Date; however, in no event
shall LANDMARK be required to make more than twenty (20) such annual payments to
TOUR. The annual payment shall be pro-rated for partial calendar years and in
the event that TOUR receives any payments from LANDMARK with respect to sales of
Residential Lots/Units or sales or leases of Commercial Units between the
Computation Date and the Termination Date, then all such payments shall be
credited to the annual payments set forth in this subparagraph 5.b.
6. Inspection Rights. TOUR shall have the right, during business
hours and upon at least twenty-four (24) hours' prior written notice to
LANDMARK, to inspect the Golf Facilities as well as other facilities owned by
LANDMARK as to which TOUR Marks are used by LANDMARK or its sublicensees. In the
event TOUR reasonably determines that the Golf Facilities or such other
facilities, or goods sold or services performed at the Golf Facilities or such
other facilities, do not meet reasonable TOUR standards of quality, TOUR may so
notify LANDMARK, in writing, of those items to which it specifically objects in
order that LANDMARK may take such steps as are reasonably necessary to cure such
objections, provided that TOUR hereby agrees that it shall not unreasonably
object to any such goods or services or otherwise unreasonably exercise its
quality review powers hereunder.
7. Promotion of Association. TOUR shall use best efforts to promote
its association with the golf clubs and other developments presently or
hereafter located on the Property so as to further the success of Such
developments. TOUR shall make reasonable use of periodicals and other mediums of
public exposure at its disposal to effectuate such promotion.
8. Use of Facilities. All exempt TOUR members shall have a
non-exclusive right [subject to rules and regulations of the golf club(s)] to
use the golf clubhouse facilities at the TPC and any other golf clubs located
upon the Property and shall be entitled to a twenty percent (20%) discount off
prevailing greens fees for all such clubs, provided that play by an exempt TOUR
member on the TPC golf course shall be considered a practice round for the
Classic or Major Event held or to be held at the TPC and such exempt TOUR member
shall be entitled to play on a priority basis without the payment of greens
fees. Exempt TOUR members shall be given priority with respect to the booking of
tee times on the TPC golf course. In the event a TOUR member desires to join the
TPC or other clubs located on the Property, such member shall be entitled to a
twenty percent (20%) discount off prevailing membership fees and dues of such
clubs.
9. Playing Privileges. Subject to the rules and regulations of "PGA
West", members of Other Tournament Players Clubs shall have playing privileges
at the TPC course. When playing at the TPC course, members of the Other
Tournament
<PAGE>
11
Players Clubs will be behind members of the PGA, the TOUR, and the other golf
clubs located on the Property, in priority of play (e.g., selection of tee
times) and shall pay the applicable use fees.
10. Furnished House. During the term of this Agreement, LANDMARK
shall provide TOUR with the exclusive use of a furnished house near the TPC (or
the proposed location of the TPC), which house shall be reasonably acceptable to
TOUR for use as living and office accommodations.
11. Sale of Golf Facilities.
(a) Right of First Refusal. In the event an offer acceptable to
LANDMARK is made by a third party to purchase or acquire, or LANDMARK offers to
sell, the Golf Facilities or any material portion thereof or material interest
therein, LANDMARK shall simultaneously deliver a copy of the Offer Documents
relating to such offer to TOUR. TOUR and PGA shall have the joint and several
right for a period of thirty (30) days after receipt of such Offer Documents to
elect to acquire the estate or interest in or to the Golf Facilities or portion
thereof designated in the Offer Documents on the terms set forth in the Offer
Documents by providing notice thereof to LANDMARK within such thirty (30)-day
period. In the event the consideration offered for an estate or interest in or
to the Golf Facilities or a portion thereof, as specified in the Offer
Documents, consists in whole or in part of consideration other than cash, TOUR
and/or PGA may pay such consideration by making a payment in cash equal to the
fair market value thereof. The first refusal rights of TOUR and PGA set forth in
this paragraph shall not apply to transfers of the Golf Facilities or any
portion thereof or interest therein (i) to any parent corporation of LANDMARK or
any subsidiary or subsidiary thereof, (ii) to members the membership of a "golf
club" or "country club" utilizing the Golf Facilities or portion thereof so
transferred, (iii) insofar as they relate to sales of merchandise, goods, food
or beverages, or (iv) insofar as they relate to any portion of the Golf
Facilities which LANDMARK reasonably does not deem necessary for the operation
of such golf club, i.e., outer portions of fairways required for residential
development.
(b) LANDMARK'S Right to Sell the Golf Facilities. In the event TOUR
and/or PGA fails to notify LANDMARK within thirty (30) days after its receipt of
Offer Documents of its desire to acquire the interest or estate in the Golf
Facilities or a portion thereof specified in the Offer Documents, LANDMARK shall
be free to sell such interest or estate in the Golf Facilities or portion
thereof to the transferee specified in the Offer Documents on substantially the
same terms as are set forth in the Offer Documents. Upon a sale of the Golf
Facilities or any portion thereof or interest therein by LANDMARK, the right of
first refusal in favor of TOUR and PGA, as set forth herein, shall immediately
cease and terminate.
<PAGE>
12
(c) PGA Subordination. It is understood and agreed between the
parties that PGA has a prior right of first refusal to purchase the Golf
Facilities pursuant to an agreement between LANDMARK and PGA dated March 5, 1984
("Prior First Refusal Right"). It is agreed that the Prior First Refusal Right
shall be superior to the right of first refusal granted herein to TOUR and PGA,
jointly, unless PGA agrees to subordinate the Prior First Refusal Right to the
first refusal right granted herein.
12. Term of Agreement. This Agreement shall become effective as of
the date hereof and shall terminate in all respects on the Termination Date
unless sooner terminated pursuant to the terms hereof.
13. Assignment. This Agreement may not be assigned by either party
hereto without the prior written approval of the other party, which approval
shall not be unreasonably withheld. Notwithstanding the above, either party
hereto may assign this Agreement to its parent corporation or any subsidiary or
sub- subsidiary thereof without the prior written consent of the other party. In
addition, notwithstanding the above, LANDMARK shall have the exclusive right and
option to sublicense the use of the TOUR Marks in connection with the
development of the Property pursuant to the terms and conditions of Article 3
hereof. In this regard, TOUR acknowledges that LANDMARK intends to sublicense
the TOUR Marks with respect to one or more hotels and other commercial office
and residential developments on the Property. In the event that LANDMARK
sublicenses the TOUR Marks pursuant to the terms and conditions of this
Agreement, TOUR agrees that it shall not hold LANDMARK responsible or liable for
any action or non-action taken by any such sublicensee in connection with its
use of the TOUR Mark(s), and TOUR further agrees that any such action or
non-action shall not adversely affect the validity of this Agreement; but TOUR
shall have, as its exclusive remedy, the right to proceed directly against such
sublicensee.
14. Unacceptable Change in TPC Management. In the event the
management of the TPC changes from LANDMARK to an unrelated third party not
acceptable to TOUR, TOUR may terminate this Agreement without any liability or
further obligation to LANDMARK by providing written notice to LANDMARK.
15. Notices. Any notices contemplated hereunder shall be given by
letter addressed to the respective addresses shown below by depositing such
letter in the United States mail, postage prepaid, return receipt requested; and
such notice shall be deemed received on the third day thereafter.
As to TOUR:
112 TPC Boulevard
Sawgrass
Ponte Vedra, Florida 32082
Attention: Deane R. Beman
<PAGE>
13
As to LANDMARK:
Post Office Box 1000
La Quinta, California 92253
Attention: Joe U. Falser, Jr., and
Ernest O. Vossler
Any change of address by a party hereto shall be furnished to the other party by
notice as provided herein.
16. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
17. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties hereto with respect to the matters covered hereby and
may not be altered or amended except by a writing duly executed by both parties
hereto. This Agreement shall supersede all previous communications,
representations or agreements, either verbal or written, between the parties,
including the letter agreement dated January 23, 1984, between the parties.
18. Relationship of Parties. Nothing contained in this Agreement
shall be construed to make the parties hereto partners or joint venturers, or
either as an agent of the other. Neither party hereto shall have any power to
obligate or bind the other in any manner whatsoever except as expressly provided
herein. Subject to any restrictions of assignment contained herein, this
Agreement shall be binding on all legal representatives, successors or assigns
of either party.
19. Void or Unenforceable Provisions. If any provision or any
portion of any provision of this Agreement shall be held to be void or
unenforceable, the remaining provisions of this Agreement and the remaining
portion of any provision held void or unenforceable in part shall continue in
full force and effect.
20. No Recordation. Neither this Agreement nor any memorandum hereof
shall be recorded by either party hereto.
<PAGE>
14
21. Counterparts. This Agreement may be executed in one or more
separate counterparts, each of which, when so executed, shall be deemed an
original. Such counterparts shall together constitute and be one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
representatives, have executed this Agreement as of the date first above
written.
PGA TOUR, INC.
By: _____________________________________
Deane R. Beman, Commissioner
LANDMARK LAND COMPANY OF
CALIFORNIA, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
Exhibit 10.6
ASSIGNMENT AND ASSUMPTION AGREEMENT
(PGA WEST)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated December 24, 1993, is
by and between LANDMARK LAND COMPANY OF CALIFORNIA, INC., a Delaware
corporation, ("Assignor"), and KSL LANDMARK CORPORATION, a Delaware corporation
("Assignee").
The Resolution Trust Corporation, as conservator or receiver for Oak
Tree Federal Savings Bank and on behalf of Assignor entered into that certain
Purchase and Sale Agreement with KSL Recreation Corporation, which was assigned
to Assignee, dated July 14, 1993 (the "Purchase Agreement") for the sale and
purchase of certain "Properties", consisting of certain "Property" (as more
particularly described in Exhibit No. 1), "Intangibles", "Leases" and "Executory
Contracts", and other property (as more particularly described in this
Assignment and Assumption Agreement), as such terms are defined in the Purchase
Agreement;
Assignor desires to quitclaim unto Assignee all of Assignor's right,
title and interest in and to the Intangibles, Leases, Executory Contracts and
other property as hereinafter provided.
Assignee desires to assume the duties and obligations of Assignor
with respect to the Leases and Executory Contracts.
NOW, THEREFORE, in accordance with the Purchase Agreement and in
consideration of the sum of Ten Dollars ($10.00), the sufficiency and receipt of
which are hereby acknowledged, the parties agree as follows and take the
following actions:
1. Assignor hereby quitclaims unto Assignee all of the Assignor's
right, title and interest in and to the following property to the extent
Assignor has the right to transfer such property (collectively, "Intangible
Property"):
(a) any and all leases, tenancies, licenses and other rights of
occupancy or use of or for any portion of the Property or the Personalty
(including all amendments, renewals and extensions thereof), listed on Exhibit
No. 2 of this Assignment and Assumption Agreement (collectively, "Leases"), if
any;
(b) the contracts and agreements for the management, repair or
operation of the Property (other than Leases) listed in Exhibit No. 3 of this
Assignment and Assumption Agreement (collectively, "Executory Contracts");
(c) any and all licenses, permits, authorizations, certificates of
occupancy and other approvals that are in effect as of the date of this
Assignment and Assumption Agreement and
<PAGE>
2
necessary for the current use and operation of the Property (collectively,
"Permits");
(d) any and all warranties, guaranties, telephone exchange numbers,
architectural or engineering plans and specifications, and development rights
that exist as of the date of this Assignment and Assumption Agreement and relate
to the Property or the Personalty (collectively, "General Intangibles"); and
(e) any and all rights to the name of the improvements upon the
Property, a non-exclusive right to the Oak Tree logo and a right to other
relevant logos, trademarks, tradenames and identifying marks ("Name").
"Intangible Property" means the Leases, Permits, General Intangibles, and Name.
Executory Contracts,
2. THE INTANGIBLE PROPERTY IS BEING QUITCLAIMED "AS IS," "WHERE IS,"
AND "WITH ALL FAULTS" AS OF THE DATE OF THIS ASSIGNMENT AND ASSUMPTION
AGREEMENT, WITHOUT ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO ITS
CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED, EXCEPT AS SPECIFICALLY SET FORTH IN ANY SELLER'S
ESTOPPEL. ASSIGNOR SPECIFICALLY DISCLAIMS ANY WARRANTY, GUARANTY OR
REPRESENTATION, ORAL OR WRITTEN, PAST OR PRESENT, EXPRESS OR IMPLIED, CONCERNING
THE INTANGIBLE PROPERTY OR ASSIGNOR'S TITLE THERETO, EXCEPT AS SPECIFICALLY SET
FORTH IN ANY SELLER'S ESTOPPEL. ASSIGNEE IS ACQUIRING THE INTANGIBLE PROPERTY
BASED SOLELY UPON ASSIGNEE'S OWN INDEPENDENT INVESTIGATIONS AND INSPECTIONS OF
THAT PROPERTY AND NOT IN RELIANCE UPON ANY INFORMATION PROVIDED BY ASSIGNOR OR
ASSIGNOR'S AGENTS OR CONTRACTORS, EXCEPT AS SPECIFICALLY SET FORTH IN ANY
SELLER'S ESTOPPEL.
3. Assignee hereby accepts the foregoing assignment of the
Intangible Property and hereby assumes all duties and obligations of Assignor
with respect to (a) the Intangible Property for the period on and after the date
of this Assignment and Assumption Agreement, and (b) the "Tenants' Deposits"
credited pursuant to the Agreement as shown on Exhibit No. 4. Assignee shall
defend, indemnify and hold harmless Assignor from and against any and all
"Claims" asserted against or incurred by Assignor in connection with (a) any
acts or omissions, on or after the date of this Assignment and Assumption
Agreement, with respect to the Intangible Property, or (b) the Tenants'
Deposits. "Claims" means claims, demands, causes of action, losses, damages,
liabilities, judgments, costs and expenses (including attorneys' fees, whether
suit is instituted or not).
4. This Assignment and Assumption Agreement shall be (a) binding
upon, and inure to the benefit of, the parties to
<PAGE>
3
this Assignment and Assumption Agreement and their respective heirs, legal
representatives, successors and assigns, and (b) construed in accordance with
the laws of the jurisdiction in which the Property consisting of real property
is located, without regard to the application of choice of law principles,
except to the extent preempted by federal law.
IN WITNESS WHEREOF, the parties have signed and delivered this
Assignment and Assumption Agreement as of the date first above written.
ASSIGNOR:
LANDMARK LAND COMPANY OF CALIFORNIA,
INC., a Delaware corporation
By:______________________________________
Print name: Jack M. Rosenfield
Title: Authorized Representative
ASSIGNEE:
KSL LANDMARK CORPORATION, a Delaware
corporation
By:______________________________________
Larry E. Lichliter
Executive Vice President
<PAGE>
Exhibit "U" Rev. 12/22/93
(Executory Contracts)
PGA WEST
PURCHASE AGREEMENTS:
1. Master Agreement dated October 10, 1984 by and between William Bone and
Landmark Land Company of California, Inc., as amended by Addendum to
Master Agreement dated October 10, 1984, and assigned by Bone to Sunrise
Desert Partners, a California Limited Partnership October 31, 1986,
regarding sale of residential land at PGA West.
2. [Intentionally Deleted]
PGA/PGA TOUR AGREEMENTS:
3. Agreement dated March 5, 1984 by and between the Professional Golfers'
Association of America and Landmark Land Development Corporation of
California, regarding affiliation with the PGA.
4. Agreement dated January 10, 1985 by and between PGA Tour, Inc. and
Landmark Land Company of California, Inc., regarding use of Tour marks,
construction of TPC facilities and holding of Tour events at PGA West.
SCHOOL DISTRICT AGREEMENTS:
5. Agreement for Financing Public School Facilities dated December 29, 1986
by and between Coachella Valley Unified School District of Riverside
County, California and Landmark Land Company, Inc., regarding mitigation
fees to be paid to the District.
6. Agreement for Financing Public Schools Facilities within the Desert Sands
Unified School District dated December 12, 1986 by and between Desert
Sands Unified School District of Riverside County California and Landmark
Land Company, Inc., regarding mitigation fees to be paid to the District.
7. Agreement for Financing Public School Facilities within the Desert Sands
Unified School District dated December 12, 1986 by and between Desert
Sands Unified School District and Landmark Land Company, Inc., regarding
mitigation fees to be paid to the District for Specific Plan 85-006 (Oak
Tree West).
<PAGE>
2
COACHELLA VALLEY WATER DISTRICT:
8. Agreement (undated) by and between Coachella Valley Water District and
Landmark Land Company of California, Inc., regarding provision of canal
water for golf course irrigation
<PAGE>
Exhibit 10.7
Execution Copy
LICENSE AND ASSIGNMENT AGREEMENT
This LICENSE AGREEMENT (this "Agreement") has been executed and
delivered this 30th day of December, 1993 by and between CAROL MANAGEMENT
CORPORATION, a New York corporation ("Doral Licensor" or "Blue Monster
Assignor") with an office at 122 East 42nd Street -- Suite 1601, New York, New
York 10168-3410, C.A.H. SPA OF FLORIDA CORP., a Florida corporation ("Saturnia
Assignor") with an office at 4950 N.W. 93rd Doral Place, Miami, Florida, and KSL
HOTEL CORP. ("KSL Hotel") and KSL SPA CORP. ("KSL Spa"), each a Delaware
corporation with its principal office at 56-140 PGA West Boulevard, La Quinta,
California 92253 (KSL Hotel and KSL Spa are collectively referred to as
"Purchaser").
WITNESSETH:
WHEREAS, Doral Licensor and its affiliates own and manage hotel and
resort properties and is the former owner of the resort known as the Doral
Resort and Country Club located in Dade County, Florida (the "Country Club");
WHEREAS, Saturnia Assignor is the former owner of the spa property
known as Doral Saturnia International Spa located in Dade County, Florida (the
"Spa");
WHEREAS, the Purchaser intends to use the "Doral" name in accordance
with the terms and conditions of this Agreement;
WHEREAS, Doral Licensor has the right to use the name "Doral" in
connection with the Country Club and Spa and desires
<PAGE>
2
to permit the use of such name on the terms and conditions described herein;
WHEREAS, Saturnia Assignor has the right to use the name "Saturnia"
at the Spa on the terms and conditions set forth in that certain Agreement dated
November 20, 1992 among Saturnia Assignor, Terme di Saturnia S.r.l., and Elebel
S.p.A. and that certain License Agreement made as of September 28, 1986 among
Elebel S.p.A. and Saturnia Assignor, a copy of each of which is attached hereto
as Exhibit A (such two agreements are collectively referred to as the "Saturnia
License"); and
WHEREAS, Saturnia Assignor intends to assign all of its right, title
and interest in and to the Saturnia License to Purchaser on the terms and
conditions of this Agreement;
WHEREAS, Blue Monster Assignor intends to assign all of its right,
title and interest in and to the "Blue Monster" name and mark to Purchaser; and
WHEREAS, Doral Licensor intends to assign all of its right, title
and interest in and to all other trade names, trademarks, service marks, designs
and logos, except the Marks (as hereinafter defined), that are used at the
Country Club or Spa in connection with the operations of the Country Club or Spa
or the amenities therein, such as names of food and beverage operations, golf
course designations, and designations and names used on other resort amenities
at the Country Club or Spa.
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein and other good and valuable consideration, the receipt and
sufficiency of which are
<PAGE>
3
acknowledged, Doral Licensor (also known as Blue Monster Assignor), Saturnia
Assignor and Purchaser agree as follows:
1. Definitions. In addition to the terms defined elsewhere herein,
as used herein, the terms set forth below shall have the following respective
meanings:
(a) "Accessory Products" shall mean products and merchandise.
(b) "Amenities" shall mean fixed supplies and consumables offered to
guests, licensees and invitees solely at the Resort such as towels, ashtrays,
bathrobes, toiletries and sports and other equipment that bear the Licensed
Marks.
(c) "Golf Facility" shall mean any hotel, lodging business or other
hotel or lodging facility with overnight accommodations that includes at least
18-holes of golf and in which golf is more than an incidental amenity, but
constitutes a substantial portion of the hospitality experience.
(d) "Future Territory" shall mean any real property that (1) is
contiguous or adjacent to the Original Territory, and (2) is acquired from time
to time after the date hereof by the Purchaser, and (3) consists substantially
of resort amenities or operations that become integrated with the operations of
the Resort so that such additional parcels and the Original Territory are
operated as a single, integrated resort and hospitality operation.
(e) "Greater Miami Area" shall mean any area that is located fully
or partially within any of the following geographic designations (1) the city
limits of the City of Miami, Florida,
<PAGE>
4
(2) the surrounding 60-mile radius of the Territory, and (3) the boundaries of
any of Dade, Broward or Palm Beach County, Florida, whether within or beyond
such 60-mile radius.
(f) "License" shall mean the rights of the Purchaser to use the
Licensed Marks as described in Section 2 of this Agreement.
(g) "Licensed Mark" shall mean the name "Doral" and logos and
abbreviations thereof described on Exhibit B attached hereto alone or in
combination with any other trademark, service mark, trade name, design, logo or
phrase (including in combination with or as a "tag-line" with another name or
mark of another hotel or hospitality company) other than the existing licensed
uses of "Doral" that are listed on Exhibit C attached hereto.
(h) "Marks" shall mean the Licensed Marks and the Resort Name
(i) "Multi-Property Catalog Standards" shall mean the following
standards: (1) in addition to Accessory Products that use the Marks and
Accessory Products that are not marked with a hot_____ or resort trademark the
catalog includes items that are limited to Accessory Products from other resorts
or hotels that Purchaser or Purchaser's affiliates own or manage, (2) the title
of the catalog does not include the name "Doral", (3) and (4) the catalog
includes prominent notification so that the average reader of the catalog is
made aware that the Accessory Products that use the Marks identify the Resort in
Miami, Florida. Notwithstanding anything in the foregoing to the contrary, such
a
<PAGE>
5
catalog may include products from other properties, not owned or managed by
Purchaser or Purchaser's affiliates provided that such products are first-class,
luxury goods and merchandise-targeted at the middle to upper segments of the
purchasing public and such catalog is approved in advance by Doral Licensor,
which approval shall not be unreasonably withheld or delayed.
(j) "Operating Standard" shall mean standards of maintenance,
service, operation and amenities so that the Resort qualifies and is actually
rated at least a three-star Mobil resort or a three-diamond Automobile
Association of America ("AAA") resort, as evidenced by the annual certification
of such rating services, as the requirements for such ratings may change from
time. If the rating services change the scale of their rating standards, then
the "three-star" or "three-diamond" rating, as the case may be, for purposes of
this definition shall be changed to reflect the rating that is closest to the
rating of the respective "three-star" or "three-diamond" rating as of the date
hereof. If both of such ratings services cease to rate resorts, then a
substitute rating service and rating classification system that is generally
used throughout the resort hospitality industry in the United States, that is
reasonably comparable to the Mobil and AAA rating services and that is
reasonably acceptable to both Doral Licensor and Purchaser shall be the
substitute rating service used for this Operating Standard and the applicable
rating standard shall be the standard that most closely resembles the
"three-star" Mobil or "three-diamond" AAA rating as of the date hereof.
<PAGE>
6
(k) "Original Territory" shall mean that certain real property more
particularly described on Exhibit D attached hereto.
(l) "Promotional Products" shall mean accessories, goods and
merchandise, including books and written material, that (1) use any of the Marks
and (2) are distributed for the purpose of promoting or advertising the Resort
and increasing and improving the business thereof and (3) for which the
Purchaser charges the buyer thereof no more than the actual costs of production
and distribution thereof and not for the purpose of making a profit on the sale
thereof.
(m) "Resort" shall mean the resort that is solely within the
Territory.
(n) "Resort Name" shall mean the names "Doral Resort and Country
Club" and "Doral Saturnia International Spa" for the Resort within the Territory
or such other Licensed Mark chosen by Purchaser for the name of the Resort.
(o) "Territory" shall mean the Original Territory plus any Future
Territory.
2. Grant of License for "Doral" Name. (a) Notwithstanding anything
to the contrary in this Agreement or otherwise, Purchaser shall have no rights
to use the Licensed Marks or the "Doral" name, except as explicitly set forth in
this Section 2.
(b) On the terms and subject to the provisions set forth herein,
Doral Licensor hereby grants to-Purchaser and Purchaser shall have the perpetual
and irrevocable right to:
<PAGE>
7
(1) use the Resort Name as the name of the Resort and to use any
other Licensed Marks within the Territory;
(2) use the Marks on Accessory Products that are (i) sold
over-the-counter at a retail location that is solely within
the Territory or (ii) sold through catalog sales provided that
(A) such catalog (the "Predominantly Doral Catalog") includes
predominantly Accessory Products that are also sold at the
Resort and the catalog is prominently marked so that the
consumer is made aware that such Accessory Products included
in the Predominantly Doral Catalog are also sold at the Resort
or (B) such catalog (the "Multi-Property Catalog") satisfies
the Multi-Property catalog Standards;
(3) use the Marks on Promotional Products that are distributed
anywhere;
(4) use the Marks to advertise, promote or market anywhere for the
uses permitted under this Section 2(b) hereof;
(5) use the Marks on Amenities;
(6) register and maintain a security interest against the Licensed
Mark in the U.S. Patent and Trademark Office solely-for the
purpose of providing public notice of and securing the License
and rights granted to Purchaser pursuant to this Agreement
<PAGE>
8
and for no other purpose. Such security interest for such
purposes is hereby granted to Purchaser and, in furtherance
thereof, Doral Licensor agrees to execute and deliver to
Purchaser the form of Notice of Security Interest attached
hereto as Exhibit E for submission to the U.S. Patent and
Trademark Office for recording. Without limiting the
generality of the foregoing, except as this Agreement
explicitly restricts Doral Licensor's use or licensing of the
Marks or grants use or licensing of the Marks to Purchaser the
rights granted under this clause (6) to Purchaser do not
permit Purchaser to (i) interfere with Doral Licensor's
ownership or use of the Licensed Marks in any manner, whether
by foreclosure or by the seeking of any remedy to acquire any
interest, whether legal or beneficial, in the Licensed Mark,
and Purchaser waives any of such rights that Purchaser may
have now or hereafter at law or equity or (ii) impede or
hinder in any manner whatsoever, Doral Licensor's rights to
exercise any and all rights arising out of its ownership of
the Licensed Mark and rights to use it.
(c) Notwithstanding anything to the contrary set forth herein, the
License granted to Purchaser is subject to the following covenants, restrictions
and limitations:
<PAGE>
9
(1) In no event shall the Resort Name be used for any real
property, except the real property that is located within the
Territory;
(2) Except as set forth in clauses (b)(2), (b)(3) and (b)(4) of
this Section, in no event shall any accessory or any other
product or item that bears the Marks be sold outside the
Territory;
(3) The license granted under this Section 2 shall be indivisible
and may not be partially assigned or sold, but this
restriction does not limit (i) Purchaser's right to assign or
transfer all of its rights hereunder without Doral Licensor's
consent, (ii) Purchaser's right to transfer all of its right,
title and interest in and to its rights hereunder with respect
to the Spa, or (ii) sub-licensing Purchaser's rights hereunder
to third-parties provided, however, that at all times
Purchaser shall be responsible for the activities of such
third-parties and such third parties shall only hold
sub-licenses of Purchaser's rights hereunder;
(d) Commencing December 1, 1993 Doral Licensor shall not further use
or license the Marks in a manner that uses the five word block "Doral Resort and
Country Club," the five word block "Doral Country Club and Resort" or three word
block "Doral International Spa" as a block, and only as a block anywhere in the
world, such as, for example, "Doral Resort and Country Club
<PAGE>
10
of Arizona" or "Arizona Doral Resort and Country Club," except, however, that
nothing in this Agreement, other than as provided in this subparagraph (d) and
subparagraphs (e) and (f) of this Section, shall restrict Doral Licensor's right
to use any other combination of the words in such block or any of such words in
such block alone or with other words such as, for example, "Doral," "Doral
Resort, "Doral Country Club," "Doral Golf," "Doral Club" or words of similar
import so long as such words do not include any of such five word blocks or
three word block as a block in the name;
(e) Commencing December 1, 1993 Doral Licensor shall not further use
or license the Marks in a manner that uses or permits the use of the name
"Doral" as the tradename or "doing business" name of any Golf Facility in the
area that is within the State of Florida and south of the boundary designated on
the map attached hereto as Exhibit F;
(f) Commencing December 1, 1993 Doral Licensor shall not further use
or license the use of the Marks for any business enterprise, including, without
limitation, a hotel or resort, within the Greater Miami Area, except that this
restriction shall not apply to the use of the name "Doral" in connection with
the existing resort known as "Doral Ocean Beach Resort" located at 4833 Collins
Avenue, Miami Beach, Florida or in connection with uses associated with Doral
Properties, Inc. as of the date hereof provided, however, that such use does not
relate to golf, golf equipment, golf resorts or golf accessories within the
Greater Miami Area;
<PAGE>
11
(g) Except as explicitly set forth in this Section 2, nothing in the
foregoing or this Agreement shall prevent or limit the use of the name "Doral"
in any way by Doral Licensor or Doral Licensor's authorized users that have been
authorized to use the name "Doral" either solely or in conjunction with any
names, terms or phrases;
(h) Except as set forth in this Section 2, in no event shall any
rights of Purchaser or Doral Licensor to use the Marks be implied out of or
interpreted within the meaning of any other provision of this Agreement or
otherwise;
(i) From and after December 31, 1994, Purchaser shall not have the
right to designate any item or property, including, without limitation, an
Accessory Product, Promotional Product or Amenities, using the exact words
"Doral Exclusive" or "Doral Exclusive Collection" or use such exact words in
connection with any of its activities hereunder, but Purchaser may continue to
use any other designations permitted hereunder including, for example,
"Exclusivity By Doral"; and
(j) In no event shall the Purchaser have the right to use the name
"Doral" or "The Doral" itself solely as the name of the Resort, but nothing in
this clause shall impose additional restrictions or limitations on Purchaser's
rights to use the name "Doral" on Accessory Products, Amenities or Promotional
Products as otherwise provided to Purchaser herein.
3. Cooperation and Infringement. (a) Neither party hereto shall hold
itself or its property out to others, whether through advertising or otherwise,
as having any current
<PAGE>
12
affiliation with any property of the other party. Doral Licensor shall not
advertise, promote or otherwise use in written material its former affiliation
with the Resort, including, without limitation, the use of its former
affiliation in the marketing of its development expertise, without the prior
approval of Purchaser, which approval Purchaser shall not unreasonably withhold.
Nothing in this paragraph shall prohibit Doral Licensor or its beneficial owners
from accurately describing or confirming the ownership of a beneficial interest
in the Resort during the period that Doral Licensor or its beneficial owners
actually hold such interest so long as such description or confirmation is not
included as part of a marketing, promotion or public advertisement.
(b) Each party hereto shall promptly notify the other party in
writing of any legal proceeding that is instituted or written claim or demand
asserted by any third party of which such party becomes aware with respect to
the validity or infringement of any trademark or tradename that the other party
is using or owns. If, as a result of either party's use of the Marks in
violation of this Agreement, any legal proceeding or written claim or demand is
asserted by any third party with respect to the validity or infringement of any
trademark or trade name, the violating party will assume the duties,
responsibilities and financial liabilities and costs and expenses with respect
to such legal proceeding, claim or demand and shall indemnify and hold the other
party harmless from and against any losses, liability,
<PAGE>
13
costs (including reasonable attorneys' fees) that the other party may incur in
connection with such proceeding, claim or demand.
(c) Each party shall promptly notify the other party in writing of
any infringement of a trademark or tradename by any third party of which such
party becomes aware, which infringement commences after execution of this
Agreement and which affects the rights of the other party to use any Mark;
provided, however, that neither party is required to engage in any independent
investigation of such violations. Doral Licensor and Purchaser shall cooperate
with and generally assist each other in taking such action as may be necessary
or desirable against any such infringement. Either Doral Licensor or Purchaser
shall have the right to protect and preserve the Marks, including the right to
commence and prosecute an infringement action to the extent such infringement
affects such party's rights to the Mark provided, however, that if Doral
Licensor elects to undertake an enforcement proceeding and continues to
prosecute such action with reasonable diligence, then Purchaser shall not have
the right to undertake such proceeding, but shall cooperate and assist Doral
Licensor if Purchaser so elects. Neither party shall enter into any settlement
or consent agreement that may affect the rights of the other party with respect
to the Marks without the prior written consent of such other party. Each party
shall pay its own legal fees and expenses in connection with any undertaking
hereunder.
4. Assignments. (a) Assignment of Saturnia License. Saturnia
Assignor hereby transfers and assigns all of its right,
<PAGE>
14
title and interest in and to the Saturnia License to Purchaser. The assignment
set forth herein shall survive the expiration or termination of this Agreement.
(b) Representations Concerning Saturnia License. In connection with
such transfer and assignment, Saturnia Assignor hereby represents and warrants
that as of the date hereof (i) the Saturnia License attached hereto is the true
and complete copy of the agreement setting forth the right of Saturnia Assignor
to use the "Saturnia" and "Terme di Saturnia" names, (ii) Saturnia Assignor has
not encumbered or subjected the Saturnia License to any liens, (iii) Saturnia
License has not received any written notice of default or notice that the
Saturnia License is or has been terminated and that the Saturnia License is in
full force and effect and (iv) the payments due under the Saturnia License are
current. Except as explicitly set forth herein, Saturnia Assignor makes no
warranty or representation with respect to the Saturnia License or the subject
matter of the Saturnia License.
(c) Assumption of Saturnia License. Purchaser hereby assumes all of
the obligations of Saturnia Assignor arising out of or in connection with the
Saturnia License that are incurred on or after the date hereof and indemnifies
and holds Saturnia Assignor harmless from and against any loss, liability,
claims, expenses, and damages, including reasonable attorneys' fees, that are
incurred on or after the date hereof. Saturnia Assignor hereby holds Purchaser
harmless from and against any loss, liability, claims, expenses and damages,
including reasonable
<PAGE>
15
attorneys' fees, arising out of the Saturnia License that are incurred prior to
the date hereof.
(d) Assignment of Blue Monster Mark. Blue Monster Assignor hereby
assigns to Purchaser all right, title and interest in and to the trademark BLUE
MONSTER. Concurrently with the execution and delivery of this Agreement, Blue
Monster Assignor shall execute and deliver to Purchaser the form of Trademark
Assignment attached hereto as Exhibit G.
(e) Assignment of Other Names. To the extent Doral Licensor or
Saturnia Assignor has any interest in any other names or goodwill not otherwise
explicitly described in this Agreement that are used within the Territory in the
operation of the Resort, except the Licensed Marks, such as, but not limited to,
names of food and beverage operations, golf course designations, and other such
designations and names of resort amenities, Doral Licensor and Saturnia Licensor
hereby transfer all of their right, title and interest therein to Purchaser, but
nothing herein purports to transfer an interest in any name that is owned by any
on-site third-party, if any, such as franchisees, lessees, or other operators
that carry out business within the Territory with the U.S. Patent and Trademark
Office or any state agency with state jurisdiction over such matters, except as
Doral Licensor may, from time to time, consent in writing, which consent Doral
Licensor shall not unreasonably withhold or delay in providing, provided,
however, the Licensed Mark or any other mark or name that uses any of the Marks
that Purchaser requests be so registered shall only be registered in the name of
Doral
<PAGE>
16
Licensor. To protect Purchaser in the event Doral Licensor unreasonably
withholds or delays in providing the consented requested pursuant to this
Agreement, Purchaser is irrevocably appointed as the attorney-in-fact of Doral
Licensor solely for the limited purpose of completing the registration (the "New
Registration") of the mark or name included in such request in the name of Doral
Licensor in the U.S. Patent and Trademark Office or any state agency with state
jurisdiction over such matters and for the additional purpose of executing a
Notice of Security Interest for the New Registration in substantially the form
of Exhibit E attached hereto.
(d) Purchaser shall regard and preserve as confidential any
information received from Doral Licensor after the date of this Agreement
concerning Doral Licensor or Doral Licensor's affiliates' strategy concerning
the Licensed Marks, including marketing approach, enforcement methods and
strategy, litigation strategy, infringements and general business plan, except
information that is or becomes part of the public domain with the U.S. Patent
and Trademark office or any state agency with state jurisdiction over such
matters, except as Doral Licensor may, from time to time, consent in writing,
which consent Doral Licensor shall not unreasonably withhold or delay in
providing, provided, however, the Licensed Mark or any other mark or name that
uses any of the Marks that Purchaser requests be so registered shall only be
registered in the name of Doral Licensor. To protect Purchaser in the event
Doral Licensor unreasonably withholds or delays in providing the consented
<PAGE>
17
requested pursuant to this Agreement, Purchaser is irrevocably appointed as the
attorney-in-fact of Doral Licensor solely for the limited purpose of completing
the registration (the "New Registration") of the mark or name included in such
request in the name of Doral Licensor in the U.S. Patent and Trademark Office or
any state agency with state jurisdiction over such matters and for the
additional purpose of executing a Notice of Security Interest for the New
Registration in substantially the form of Exhibit E attached hereto.
(d) Purchaser shall regard and preserve as confidential any
information received from Doral Licensor after the date of this Agreement
concerning Doral Licensor or Doral Licensor's affiliates' strategy concerning
the Licensed Marks, including marketing approach, enforcement methods and
strategy, litigation strategy, infringements and general business plan, except
information that is or becomes part of the public domain.
(e) At all times, Purchaser, at its sole expense, shall cause the
business of the Resort to be conducted in a manner that satisfies the Operating
Standard. To confirm such Operating Standard Purchaser, at its own expense,
shall apply for a review, inspection and determination of the applicable ratings
service and complete such review and determination no less than once each
calendar year, use all due diligence to complete such inspection and review, and
submit to Doral Licensor within twenty (20) days after delivery thereof a copy
of the rating service's determination and conclusion. Notwithstanding anything
in the foregoing to the contrary, the failure to satisfy the Operating
<PAGE>
18
Standard shall not be deemed a breach by Purchaser hereunder unless the
Operating Standard is not satisfied for two (2) consecutive years commencing
during the calendar year 1995.
(f) Neither Purchaser nor any entity related to or controlled by
Purchaser shall form an entity, including a corporation or partnership, that
uses or incorporates the name "Doral," except, however, that Purchaser shall
have the right to name an entity "Doral Golf of Florida, _______" where the
blank may be completed with "Inc.," "Corp," "Corporation," "Ltd.," "L.P." or
"Limited Partnership," provided, however, that (1) such entity, directly or
indirectly, holds no other significant assets, including management contracts,
other than the Resort and the business of the Resort, or relating to the Resort
and (2) upon a transfer of the assets or business of the Resort to another
entity, the Purchaser shall cause the entity named "Doral Golf of Florida, " to
either be dissolved in accordance with applicable law or change its corporate
name to a name that does not include the Licensed Mark for all purposes.
5. Perpetual Grant/Remedies. (a) This Agreement will commence on the
date of execution and delivery hereof and shall continue perpetually and be
irrevocable and not be terminated.
(b) Each party shall have, and hereby reserves all of the rights and
remedies, other than the right of termination by Doral Licensor, which it has or
which are granted to it by operation of law or in equity, for injunctive relief,
specific
<PAGE>
19
performance and damages for breach of this Agreement by the other party.
(c) In any proceeding brought by either party hereto to enforce the
provisions of this Agreement, the prevailing party therein shall be entitled to
reasonable attorneys' fees and disbursements incurred in connection with such
enforcement.
(d) In any Proceeding (as hereinafter defined) brought by Doral
Licensor to enforce the provisions of this Agreement in which Doral Licensor
prevails, in addition to all attorneys' fees and disbursements that are required
to paid in accordance with this Agreement or as a matter of law, Doral Licensor
shall be entitled to damages in the amount that is the greater of (i) damages
awarded by the court in such proceeding or (ii) the Minimum Damages Amount (as
hereinafter defined). For purposes of determining the Minimum Damages Amount a
"Proceeding" shall mean and include all proceedings arising out of the same
facts or circumstances or brought in a single action that form the basis for the
enforcement of this Agreement. For purposes of this Agreement "Minimum Damage
Amount" shall mean an amount as follows:
(i) the first (1st) Proceeding, $100,000,
(ii) the second (2nd) Proceeding, $200,000,
(iii) the third (3) and each Proceeding thereafter, $300,000.
6. Intentionally Deleted.
7. Representations and Warranties. (a) The parties hereto each
represent and warrant as follows:
<PAGE>
20
(i) It is a duly organized and validly existing corporation or
partnership in good standing under the laws of the state or jurisdiction
under which it was formed and has taken all required corporate or
partnership action to authorize the execution, delivery and performance of
this Agreement;
(ii) It has the corporate or partnership right, power and authority
to enter into this Agreement and to perform all of its obligations
hereunder;
(iii) The execution and delivery of this Agreement and the
consummation of such party of the transactions contemplated by this
Agreement do not violate, conflict with or constitute a default or require
a consent under (A) such party's Articles or Certificate of Incorporation
or Partnership, as the case may be, or By-Laws or Partnership or Joint
Venture Agreement, as the case may be, or (B) the terms and provisions of
any agreement, license, trust, indenture or other instrument or
restriction to which it is a party or by which it or any material part of
its assets may be bound, or any order, award, judgment or decree to which
it is a- party or by which it or any material part of its assets may be
bound; and
(iv) Upon execution and delivery, this Agreement will constitute the
legal, valid and binding obligation of such party, enforceable against it
in accordance with its terms.
(b) Doral Licensor represents and warrants to Purchaser that: (1)
Doral Licensor has not licensed or
<PAGE>
21
otherwise granted any rights to any third party to the names "Doral Resort &
Country Club" or "Doral Saturnia Spa" or "Doral International Spa" or the "Blue
Monster" or any other marks that Doral Licensor has assigned hereunder, (2) to
the best of Doral Licensor`s knowledge, Doral Licensor owns the trademark for
the Licensed Marks and, prior to the date hereof, the Blue Monster Mark, (3)
prior to the date hereof Doral Licensor has not received any notice of a claim
that the Marks or any other names assigned hereunder infringe on any other
rights or marks held by any other person, (4) to the best of its knowledge,
without independent investigation, the rights licensed or assigned hereunder are
materially sufficient to operate the Resort in substantially the manner and to
the extent operated by Doral Licensor immediately prior to this Agreement, (5)
Doral Licensor has not licensed or authorized the use of any of the Marks within
the Greater Miami Area except Doral Ocean Beach Resort and Doral Properties,
Inc., (6) since October 1, 1993 Doral Licensor has not granted a security
interest in the Licensed Marks, (7) that certain mortgage dated September _,
1991 encumbering Block 2111, Lot 11, Queens County, New York is the only grant
of a security interest in connection with those certain WCC-1 Financing
Statements Nos. 208610 and 208611 filed 10/2/91 with the Secretary of State of
New York and (8) WCC-1 Financing Statement No. 92-252705 filed 12/9/92 with the
Florida Secretary of State has been terminated.
<PAGE>
22
8. General.
8.1 Notices. Notices, statements and other communications to be
given under the terms of this Agreement shall be in writing and delivered (i) by
hand against receipt, or (ii) by certified or registered mail, return receipt
requested, addressed as follows:
(a) if to the Purchaser:
KSL Recreation Corporation
56-140 PGA West Boulevard
La Quinta, California 92252
Attention: President
with a copy to:
KSL Recreation Corporation
56-140 PGA West Boulevard
La Quinta, California 92252
Attention: General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attention: Gary Horowitz, Esq.
with a copy to:
Glenn Beaton, Esq.
Beaton & Swanson
4582 South Ulster -- Suite 403
Denver, CO 80237
(b) if to Doral Licensor:
Carol Management Corporation
122 East 42nd Street -- 16th Floor
New York, New York 10168-1694
Attention: President
with a copy to:
John G. Calotta, Esq.
Calotta Levine Samuel & Schreiber
12 East 41st Street
New York, New York 10017
<PAGE>
23
Service of any such notice or demand so made by mail shall be deemed complete on
the day of actual delivery as shown by the addressee's receipt or, if sent by
mail, at the expiration of the third day after the date of mailing, whichever is
earlier in time. Either party hereto may from time to time, by notice in writing
served upon the others as aforesaid, designate a different mailing address or a
different person to which all such notices or demands are thereafter to be
addressed.
8.2 Waiver. All rights of the parties hereto are separate and
cumulative, and no one of them, whether exercised or not, will be deemed to be
to the exclusion of any other rights or will be deemed to limit or prejudice any
other legal or equitable rights or remedies that the parties hereto may have.
The parties hereto will not be deemed to waive, either expressly or by
implication, any of their rights or remedies under this Agreement except by a
duly executed written waiver. No delay or omission on the part of either party
in exercising any right will operate as a waiver of such right or any other
rights. Waiver on any one occasion will not be construed as a bar to or waiver
or any right on any future occasion.
8.3 Applicable Law; Consent to Jurisdiction and Venue. The parties
hereto expressly and irrevocably submit to the non-exclusive jurisdiction of the
courts (either federal or state), found within the County of New York, State of
New York in connection with any matter arising out of this Agreement or the
subject matter hereof. The parties hereto waive to the fullest extent that they
may effectively do so, the defense of an
<PAGE>
24
inconvenient forum to the maintenance of any such action or proceeding in the
courts of the jurisdiction specified above. This Agreement shall be construed
under and shall be governed by the internal laws of the State of New York
without giving effect to principles of conflicts of law. Each party represents
and warrants to the other that it is not entitled to the defense of sovereign
immunity in any matter in connection with this Agreement or the ownership,
management, or operation of the Resort.
8.4 Intentionally Deleted.
8.5 Entire Agreement. This Agreement contains the entire agreement
of the parties hereto, and supersedes all other oral or written representations,
statements, promises, agreements or letter or other expressions of intent of any
kind with respect to the subject matter hereof. This Agreement may not be
modified or amended without the written consent of all parties hereto. This
Agreement shall not be construed more strictly against one party than against
the other merely by virtue of the fact that it may have been prepared by counsel
for one of the parties, it being recognized that all parties hereto have
contributed substantially and materially to the preparation of this Agreement.
8.6 Binding Nature of Aqreement. This Agreement is binding upon and
inures to the benefit of the parties hereto and, to the extent assignable, their
respective successors and permitted assigns.
<PAGE>
25
8.7 Force Majoure. Neither party hereto shall have any liability for
delay or non-fulfillment of any terms of this Agreement caused by any
circumstance not within such party's reasonable control (but excluding financial
inability) such as acts of God, force majeure, riots or civil disturbance,
strikes, embargoes, accidents or fire.
8.8 Indemnification. Each party ("Indemnifying Party") shall
indemnify the other and the other's affiliates, officers, agents, directors and
shareholders (individually, "Indemnified Party," and collectively, "Indemnified
Parties") and hold the Indemnified Parties harmless with respect to any loss,
liability, damage, expense or fine (including all reasonable attorneys' fees and
expenses) to which any Indemnified Party become subject by reason of any act or
omission of the Indemnifying Party or such Indemnifying Party's agent, officer,
director, or beneficial owner arising out of or in connection with the use of
the Licensed Marks after the date of this Agreement in the case of such act or
omission by Purchaser and both before and after the date of this Agreement in
the case of such act or omission by Doral Licensor.
8.9 Execution of Additional Documents. The parties hereto shall
execute and deliver such other instruments or documents as may be necessary or
desirable to effectuate the purposes of this Agreement.
8.10 Intentionally Deleted.
8.11 Headings. The titles set forth in this Agreement are for
convenience only and shall not be considered as part of
<PAGE>
26
the Agreement in any respect nor shall they in any way affect the substance of
any provisions contained in this Agreement.
8.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
8.13 Assignment. Neither party shall be restricted from assigning
this Agreement, except as otherwise restricted hereunder. Any assignment of
rights hereunder that is in violation of this Agreement shall be null and void.
Any assignment or other encumbrance by Doral Licensor shall be subject to the
security interest granted hereunder. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto and any
such successors and assigns, except, however, that any purported assignee that
claims rights hereunder arising out of an assignment that violates this
Agreement shall have no rights or benefits under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and duly witnessed, all as of the day and year first above written.
KSL Hotel Corp.
By:______________________________________
Name:
Office:
KSL Spa Corp.
By_______________________________________
<PAGE>
Exhibit 10.8
KSL RECREATION CORPORATION
1995 STOCK PURCHASE AND OPTION PLAN
1. Purpose of Plan
The KSL Recreation Corporation 1995 Stock Purchase and Option Plan (the
"Plan") is designed:
(a) to promote the long term financial interests and growth of KSL
Recreation Corporation (the "Corporation") and its subsidiaries by
attracting and retaining management personnel with the training,
experience and ability to enable them to make a substantial contribution
to the success of the Corporation's business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the identity of interests of participants with those
of the stockholders of the Corporation through opportunities for increased
stock, or stock-based, ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Grant" means an award made to a Participant pursuant to the
Plan and described in Paragraph 5, including, without limitation, an award
of an Incentive Stock Option, Stock Option, Stock Appreciation Right,
Dividend Equivalent Right, Restricted Stock, Purchase Stock, Performance
Units, Performance Shares or Other Stock Based Grant or any combination of
the foregoing.
(b) "Grant Agreement" means an agreement between the Corporation and
a Participant that sets forth the terms, conditions and limitations
applicable to a Grant.
(c) "Board of Directors" means the Board of Directors of the
Corporation.
(d) "Committee" means the Compensation Committee of the Board of
Directors.
(e) "Common Stock" or "Share" means common stock of the Corporation
which may be authorized but unissued, or issued and reacquired.
(f) "Employee" means a person, including an officer, in the regular
full-time employment of the Corporation or one of its Subsidiaries who, in
the opinion of the Committee, is, or is expected, to be primarily
responsible
<PAGE>
2
for the management, growth or protection of some part or all of the
business of the Corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means such value of a Share as reported for
stock exchange transactions and/or determined in accordance with any
applicable resolutions or regulations of the Committee in effect at the
relevant time.
(i) "Participant" means an Employee, or other person having a unique
relationship with the Corporation or one of its Subsidiaries, to whom one
or more Grants have been made and such Grants have not all been forfeited
or terminated under the Plan; provided, however, a non-employee director
of the Corporation or one of its Subsidiaries may not be a Participant.
(j) "Stock-Based Grants" means the collective reference to the grant
of Stock Appreciation Rights, Dividend Equivalent Rights, Restricted
Stocks, Performance Units, Performance Shares and Other Stock Based
Grants.
(k) "Stock Options" means the collective reference to "Incentive
Stock Options" and "Other Stock Options".
(l) "Subsidiary" means any corporation other than the Corporation in
an unbroken chain of corporations beginning with the Corporation if each
of the corporations other than the last corporation in the unbroken chain
owns 50% or more of the voting stock in one of the other corporations in
such chain.
3. Administration of Plan
(a) The Plan shall be administered by the Committee. None of the members
of the Committee shall be eligible to be selected for Grants under the Plan, or
have been so eligible for selection within one year prior thereto; provided,
however, that the members of the Committee shall qualify to administer the Plan
for purposes of Rule 16b-3 (and any other applicable rule) promulgated under
Section 16(b) of the Exchange Act to the extent that the Corporation is subject
to such rule. The Committee may adopt its own rules of procedure, and the action
of a majority of the Committee, taken at a meeting or taken without a meeting by
a writing signed by such majority, shall constitute action by the Committee. The
Committee shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make changes in
such rules. Any such interpretations, rules, and administration shall be
consistent with the basic purposes of the Plan.
<PAGE>
3
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Grants, and all members of the Committee shall be fully
protected by the Corporation with respect to any such action, determination or
interpretation.
4. Eligibility
The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a unique relationship with Corporation or any
of its Subsidiaries, and in such form and having such terms, conditions and
limitations as the Committee may determine. No Grants may be made under this
Plan to non-employee directors of Corporation or any of its Subsidiaries. Grants
may be granted singly, in combination or in tandem. The terms, conditions and
limitations of each Grant under the Plan shall be set forth in a Grant
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan; provided, however, such Grant Agreement shall contain
provisions dealing with the treatment of Grants in the event of the termination,
death or disability of a Participant, and may also include provisions concerning
the treatment of Grants in the event of a change of control of Corporation.
5. Grants
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) Incentive Stock Options - These are stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), to purchase Common Stock. In addition to other restrictions
contained in the Plan, an option granted under this Paragraph 5(a), (i)
may not be exercised more than 12 years after the date it is granted, (ii)
may not have an option price less than the Fair Market Value of Common
Stock on the date the option is granted, (iii) must otherwise comply with
Code Section 422, and (iv)
<PAGE>
4
must be designated as an "Incentive Stock Option" by the Committee. The
maximum aggregate Fair Market Value of Common Stock (determined at the
time of each Grant) with respect to which any Participant may first
exercise Incentive Stock Options under this Plan and any Incentive Stock
Options granted to the Participant for such year under any plans of the
Corporation or any Subsidiary in any calendar year is $100,000. Payment of
the option price shall be made in cash or in shares of Common Stock, or a
combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at
the time.
(b) Other Stock Options - These are options to purchase Common Stock
which are not designated by the Committee as "Incentive Stock Options". At
the time of the Grant the Committee shall determine, and shall have
contained in the Grant Agreement or other Plan rules, the option exercise
period, the option price, and such other conditions or restrictions on the
grant or exercise of the option as the Committee deems appropriate, which
may include the requirement that the grant of options is predicated on the
acquisition of Purchase Shares under Paragraph 5(e) by the Optionee. In
addition to other restrictions contained in the Plan, an option granted
under this Paragraph 5(b), (i) may not be exercised more than 12 years
after the date it is granted, (ii) may not have an option exercise price
less than 50` of the Fair Market Value of Common Stock on the date the
option is granted, and (iii) may not be exercisable within 6 months of the
date of Grant except in the event of death, or disability of a
Participant. Payment of the option price shall be made in cash or in
shares of Common Stock, or a combination thereof, in accordance with the
terms of the Plan and of any applicable guidelines of the Committee in
effect at the time.
(c) Stock Appreciation Rights - These are rights that on exercise
entitle the holder to receive the excess of (i) the Fair Market Value of a
share of Common Stock on the date of exercise over (ii) the Fair Market
Value on the date of Grant (the "base value") multiplied by (iii) the
number of rights exercised as determined by the Committee. Stock
Appreciation Rights granted under the Plan may, but need not be, granted
in conjunction with an Option under Paragraph 5(a) or 5(b). The Committee,
in the Grant Agreement or by other Plan rules, may impose such conditions
or restrictions on the exercise of Stock Appreciation Rights as it deems
appropriate, and may terminate, amend, or suspend such Stock Appreciation
Rights at any time. No Stock Appreciation Right granted under this Plan
may be exercised less than 6 months or more than 12 years after the date
it is granted except in the event of death or disability of a Participant.
To the extent that any Stock Appreciation Right that shall have become
exercisable, but shall not have been exercised
<PAGE>
5
or cancelled or, by reason of any termination of employment, shall have
become non-exercisable, it shall be deemed to have been exercised
automatically, without any notice of exercise, on the last day of which it
is exercisable, provided that any conditions or limitations on its
exercise are satisfied (other than (i) notice of exercise and (ii)
exercise or election to exercise during the period prescribed) and the
Stock Appreciation Right shall then have value. Such exercise shall be
deemed to specify that, the holder elects to receive cash and that such
exercise of a Stock Appreciation Right shall be effective as of the time
of automatic exercise.
(d) Restricted Stock - Restricted Stock is Common Stock delivered to
a Participant with or without payment of consideration with restrictions
or conditions on the Participant's right to transfer or sell such stock;
provided that the price of any Restricted Stock delivered for
consideration and not as bonus stock may not be less than 50% of the Fair
Market Value of Common Stock on the date such Restricted Stock is granted
or the price of such Restricted Stock may be the par value. If a
Participant irrevocably elects in writing in the calendar year preceding a
Grant of Restricted Stock, dividends paid on the Restricted Stock granted
may be paid in shares of Restricted Stock equal to the cash dividend paid
on Common Stock. The number of shares of Restricted Stock and the
restrictions or conditions on such shares shall be as the Committee
determines, in the Grant Agreement or by other Plan rules, and the
certificate for the Restricted Stock shall bear evidence of the
restrictions or conditions. No Restricted Stock may have a restriction
period of less than 6 months, other than in the case of death or
disability.
(e) Purchase Stock - Purchase Stock are shares of Common Stock
offered to a Participant at such price as determined by the Committee, the
acquisition of which will make him eligible to receive under the Plan,
including, but not limited to, Other Stock Options; provided, however,
that the price of such Purchase Shares may not be less than 50` of the
Fair Market Value of the Common Stock on the date such shares of Purchase
Stock are offered.
(f) Dividend Equivalent Rights - These are rights to receive cash
payments from the Corporation at the same time and in the same amount as
any cash dividends paid on an equal number of shares of Common Stock to
shareholders of record during the period such rights are effective. The
Committee, in the Grant Agreement or by other Plan rules, may impose such
restrictions and conditions on the Dividend Equivalent Rights, including
the date such rights will terminate, as it deems appropriate, and may
terminate, amend, or suspend such Dividend Equivalent Rights at any time.
<PAGE>
6
(g) Performance Units - These are rights to receive at a specified
future date, payment in cash of an amount equal to all or a portion of the
value of a unit granted by the Committee. At the time of the Grant, in the
Grant Agreement or by other Plan rules, the Committee must determine the
base value of the unit, the performance factors applicable to the
determination of the ultimate payment value of the unit and the period
over which Corporation performance will be measured. These factors must
include a minimum performance standard for the Corporation below which no
payment will be made and a maximum performance level above which no
increased payment will be made. The term over which Corporation
performance will be measured shall be not less than six months.
(h) Performance Shares - These are rights to receive at a specified
future date, payment in cash or Common Stock, as determined by the
Committee, of an amount equal to all or a portion of the Fair Market Value
for all days that the Common Stock is traded during the last forty-five
(45) days of the specified period of performance of a specified number of
shares of Common Stock at the end of a specified period based on
Corporation performance during the period. At the time of the Grant, the
Committee, in the Grant Agreement or by Plan rules, will determine the
factors which will govern the portion of the rights so payable and the
period over which Corporation performance will be measured. The factors
will be based on Corporation performance and must include a minimum
performance standard for the Corporation below which no payment will be
made and a maximum performance level above which no increased payment will
be made. The term over which Corporation performance will be measured
shall be not less than six months. Performance Shares will be granted for
no consideration.
(i) Other Stock-Based Grants - The Committee may make other Grants
under the Plan pursuant to which shares of Common Stock (which may, but
need not, be shares of Restricted Stock pursuant to Paragraph 5(d)), are
or may in the future be acquired, or Grants denominated in stock units,
including ones valued using measures other than market value. Other
Stock-Based Grants may be granted with or without consideration; provided,
however, that the price of any such Grant made for consideration that
provides for the acquisition of shares of Common Stock or other equity
securities of the Corporation may not be less than 50` of the Fair Market
Value of the Common Stock or such other equity securities on the date of
grant of such Grant. Such Other Stock-Based Grants may be made alone, in
addition to or in tandem with any Grant of any type made under the Plan
and must be consistent with the purposes of the Plan.
<PAGE>
7
6. Limitations and Conditions
(a) The number of Shares available for Grants under this Plan shall be
77,224.47 million shares of the authorized Common Stock as of the effective date
of the Plan. Shares related to Grants that are forfeited, terminated, cancelled
or expire unexercised, shall immediately become available for Grants.
(b) No Grants shall be made under the Plan beyond twelve years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration thereof may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.
(c) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.
(e) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Subsidiary, along with interest, dividend, and
other expenses accrued on deferred Grants shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Subsidiary or by both the Corporation and a Subsidiary
during the period for which the Grant is made, the Participant's Grant and
related expenses will be allocated between the companies employing the
Participant in a manner prescribed by the Committee.
(f) Other than as specifically provided with regard to the death of a
Participant, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit shall, prior to
receipt thereof by the Participant, be in any manner liable for or subject to
the debts, contracts, liabilities, engagements, or torts of the Participant.
(g) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Grant unless and until certificates
representing any such Shares have been issued by the Corporation to such
Participants.
(h) No election as to benefits or exercise of Stock Options, Stock
Appreciation Rights, or other rights may be made during a Participant's lifetime
by anyone other than the Participant except by a legal representative appointed
for or by the Participant.
<PAGE>
8
(i) Any grant under this Plan shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of the
Corporation or its Subsidiaries and shall not affect any benefits under any
other benefit plan of any kind or subsequently in effect under which the
availability or amount of benefits is related to level of compensation. This
Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Corporation or any of
its Subsidiaries, nor shall any assets of the Corporation or any of its
Subsidiaries be designated as attributable or allocated to the satisfaction of
the Corporation's obligations under the Plan.
7. Transfers and Leaves of Absence
For purposes of the Plan: (a) a transfer of a Participant's
employment without an intervening period of separation among the Corporation and
any Subsidiary shall not be deemed a termination of employment, and (b) a
Participant who is granted in writing a leave of absence shall be deemed to have
remained in the employ of the Corporation during such leave of absence.
8. Adjustments
In the event of any change in the outstanding Common Stock by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, change of control, or similar
event, the Committee may adjust appropriately the number of Shares subject to
the Plan and available for or covered by Grants and Share prices related to
outstanding Grants and make such other revisions to outstanding Grants as it
deems are equitably required.
9. Merger, Consolidation, Exchange,
Acquisition, Liquidation or Dissolution
In its absolute discretion, and on such terms and conditions as it
deems appropriate, coincident with or after the grant of any Stock Option or any
Stock-Based Grant, the Committee may provide that such Stock Option or
Stock-Based Grant cannot be exercised after the merger or consolidation of the
Corporation into another corporation, the exchange of all or substantially all
of the assets of the Corporation for the securities of another corporation, the
acquisition by another corporation of 80% or more of the Corporation's then
outstanding shares of voting stock or the recapitalization, reclassification,
liquidation or dissolution of the Corporation, and if the Committee so provides,
it may, in its absolute discretion and on such terms and conditions as it deems
appropriate, also provide, either by the terms of such Stock Option or
Stock-Based Grant or
<PAGE>
9
by a resolution adopted prior to the occurrence of such merger, consolidation,
exchange, acquisition, recapitalization, reclassification, liquidation or
dissolution, that, for some period of time prior to such event, such Stock
Option or Stock- Based Grant shall be exercisable as to all shares subject
thereto, notwithstanding anything to the contrary herein (but subject to the
provisions of Paragraph 6(b)) and that, upon the occurrence of such event, such
Stock Option or Stock-Based Grant shall terminate and be of no further force or
effect; provided, however, that the Committee may also provide, in its absolute
discretion, that even if the Stock Option or Stock-Based Grant shall remain
exercisable after any such event, from and after such event, any such Stock
Option or Stock-Based Grant shall be exercisable only for the kind and amount of
securities and/or other property, or the cash equivalent thereof, receivable as
a result of such event by the holder of a number of shares of stock for which
such Stock Option or Stock-Based Grant could have been exercised immediately
prior to such event.
10. Amendment and Termination
The Committee shall have the authority to make such amendments to
any terms and conditions applicable to outstanding Grants as are consistent with
this Plan provided that, except for adjustments under Paragraph 8 or 9 hereof,
no such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant.
The Board of Directors may amend, suspend or terminate the Plan
except that no such action, other than an action under Paragraph 8 or 9 hereof,
may be taken which would, without shareholder approval, increase the aggregate
number of Shares available for Grants under the Plan, decrease the price of
outstanding Options or Stock Appreciation Rights, change the requirements
relating to the Committee or extend the term of the Plan.
11. Foreign Options and Rights
The Committee may make Grants to Employees who are subject to the
laws of nations other than the United States, which Grants may have terms and
conditions that differ from the terms thereof as provided elsewhere in the Plan
for the purpose of complying with foreign laws.
12. Withholding Taxes
The Corporation shall have the right to deduct from any cash payment
made under the Plan any federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a condition to
the obligation of the Corporation to deliver shares upon the exercise of an
Option or Stock Appreciation Right, upon payment of Performance units or
<PAGE>
10
shares, upon delivery of Restricted Stock or upon exercise, settlement or
payment of any Other Stock-Based Grant that the Participant pay to the
Corporation such amount as may be requested by the Corporation for the purpose
of satisfying any liability for such withholding taxes. Any Grant Agreement may
provide that the Participant may elect, in accordance with any conditions set
forth in such Grant Agreement, to pay a portion or all of such withholding taxes
in shares of Common Stock.
13. Effective Date and Termination Dates
The Plan shall be effective on and as of the date of its approval by
the stockholders of the Corporation and shall terminate twelve years later,
subject to earlier termination by the Board of Directors pursuant to Paragraph
10.
<PAGE>
Exhibit 10.9
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT (the "Agreement") entered into as of
____________________, 19___ (the "Purchase Date") between KSL RECREATION
CORPORATION, a Delaware corporation ("KSL"), and ____________________ (the
"Recipient") (KSL and the Recipient being hereinafter collectively referred to
as the "Parties").
RECITALS
KSL has granted to the Recipient an option or options (the
"Options") to purchase _____ shares of its common stock, par value $.01 per
share (the "Common Stock") at a purchase price of $500 per share, pursuant to
the terms of the KSL Recreation Corporation 1995 Stock Purchase and Option Plan
(the "Option Plan") and the Non-Qualified Stock Option Agreement attached hereto
as Exhibit A.
This Agreement is one of several agreements ("Other Recipients'
Agreements") which have been, or which in the future will be, entered into
between KSL and other individuals who are or will be key employees of KSL or one
of its subsidiaries (collectively, the "Other Recipients"). In addition, KSL has
entered into, or may in the future enter into, agreements (the "Investors'
Agreements") with certain institutional investors and other purchasers
(collectively, the "Investors") pursuant to which the Investors purchased or
will purchase shares of Common Stock.
AGREEMENT
To implement the foregoing and in consideration of the mutual
agreements contained herein, the Parties agree as follows:
1. Trigger Date.
(a) For purposes solely of determining whether the time periods set
forth herein have expired, the "Trigger Date" will be deemed to be
_______________, 19___.
2. Recipient's Representations, Warranties and Agreements.
(a) The Recipient represents and warrants that he is acquiring the
Common Stock issuable upon exercise of the Options (sometimes referred to herein
as the "Stock," which term also includes the shares of Common Stock issuable
upon the exercise of options provided for in Section 8(a) of this Agreement) for
investment for his own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. The Recipient
agrees and acknowledges that he will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares
of the Stock (any
<PAGE>
2
such act being herein referred to as a "transfer") unless such transfer complies
with Section 3 of this Agreement and (i) the transfer is pursuant to an
effective registration statement under the Securities Act of 1933 as amended,
and the rules and regulations in effect thereunder (the "Act"), and in
compliance with applicable provisions of state securities laws or (ii) (A)
counsel for the Recipient (which counsel shall be reasonably acceptable to KSL)
shall have furnished KSL with an opinion, reasonably satisfactory in form and
substance to KSL, that no such registration is required because of the
availability of an exemption from registration under the Act and (B) if the
Recipient is a citizen or resident of any country other than the United States,
or the Recipient desires to effect any transfer in any such country, counsel for
the Recipient (which counsel shall be reasonably satisfactory to KSL) shall have
furnished KSL with an opinion or other advice reasonably satisfactory in form
and substance to KSL to the effect that such transfer will comply with the
securities laws of such jurisdiction. Notwithstanding the foregoing, KSL
acknowledges and agrees that any of the following transfers are deemed to be in
compliance with the Act and this Agreement and no opinion of counsel is required
in connection therewith: (w) a transfer made pursuant to Sections 4, 5 or 6
hereof, (x) a transfer upon the death of the Recipient to his executors,
administrators, testamentary trustees, legatees or beneficiaries (the
"Recipient's Estate") or a transfer to the executors, administrators,
testamentary trustee, legatees or beneficiaries of a person who has become a
holder of Stock in accordance with the terms of this Agreement, provided that it
is expressly understood that any such transferee shall be bound by the
provisions of this Agreement as if such transferee were the Recipient, (y) a
transfer made after the Trigger Date in compliance with the federal securities
laws to a trust or custodianship the beneficiaries of which may include only the
Recipient, his spouse or his lineal descendants by blood or adoption (a
"Recipient's Trust") or a transfer made after the third anniversary of the
Trigger Date to such a trust by a person who has become a holder of Stock in
accordance with the terms of this Agreement, provided that such transfer is made
expressly subject to this Agreement and that the transferee agrees in writing to
be bound by the terms and conditions hereof as if such transferee were the
Recipient and (z) a pledge or hypothecation by the Recipient or the Recipient's
Trust, as the case may be, of the Stock or his or its interest therein to KSL, a
bank or other financial institution or other entity ("Pledgee") reasonably
satisfactory to KSL to secure a loan by KSL, such bank or financial institution
or such other entity to the Recipient or the Recipient's Trust, as the case may
be, for the purchase of Stock, or refinancing of any indebtedness incurred to
purchase Stock; provided that (A) such bank or financial institution or other
entity (other than KSL) agrees in writing to accept the Stock or interest
therein subject to all of the terms and conditions of this Agreement as if such
institution were the Recipient and to notify KSL upon the happening of any
default or event of default under the terms of its agreement with the
<PAGE>
3
Recipient or the Recipient's Trust, as the case may be, relating to such pledge
or hypothecation, and (B) the Recipient or the Recipient's Trust, as the case
may be, delivers to KSL a copy of all proposed documentation relating to such
pledge or hypothecation at least ten days before the scheduled date of such
pledge or hypothecation, and prior to such scheduled date KSL has confirmed that
such documentation is reasonably satisfactory in form and substance to it.
(b) The certificate (or certificates) representing the Stock shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE
PROVISIONS OF THE COMMON STOCK PURCHASE AGREEMENT DATED AS OF _______________,
19___ BETWEEN KSL RECREATION CORPORATION ("KSL") AND THE Recipient NAMED ON THE
FACE HEREOF (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF KSL). EXCEPT AS
OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IN COMPLIANCE WITH
APPLICABLE PROVISIONS OF STATE SECURITIES LAWS OR (B) IF (I) KSL HAS BEEN
FURNISHED WITH A REASONABLY SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT
SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS
EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT OR THE RULES AND REGULATIONS
IN EFFECT THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE PROVISIONS OF STATE
SECURITIES LAWS, AND (II) IF THE HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY
OTHER THAN THE UNITED STATES, OR THE HOLDER DESIRES TO EFFECT ANY SUCH
TRANSACTION IN ANY SUCH COUNTRY, KSL HAS BEEN FURNISHED WITH A REASONABLY
SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH COUNTRY."
(c) The Recipient acknowledges that he has been advised that (i) the
Stock has not been registered under the Act, (ii) the Stock must be held
indefinitely and the Recipient must continue to bear the economic risk of the
investment in the Stock unless subsequently registered under the Act or an
exemption from such registration is available, (iii) it is not anticipated that
there will be any public market for the Stock, (iv) Rule 144 promulgated under
the Act is not currently available with respect to the sales of any securities
of KSL, and KSL has made no covenant to make such Rule available (except as
provided in Section 9 hereof), (v) when and if Stock may be disposed of without
registration in reliance on Rule 144, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule, (vi)
if the Rule 144 exemption is not available, public sale without registration
will require compliance with Regulation A or some other exemption under the
<PAGE>
4
Act, (vii) a restrictive legend in the form heretofore set forth shall be placed
on the certificates representing the Stock and (viii) a notation shall be made
in the appropriate records of KSL indicating that the Stock is subject to
restriction on transfer and, if KSL should at some time in the future engage the
services of a transfer agent, appropriate stop transfer restrictions will be
issued to such transfer agent with respect to the Stock.
(d) If any shares of the Stock are to be disposed of in accordance
with Rule 144 under the Act or otherwise, the Recipient shall promptly notify
KSL of such intended disposition and shall deliver to KSL at or prior to the
time of such disposition such documentation as KSL may reasonably request in
connection with such sale and, in the case of a disposition pursuant to Rule
144, shall deliver to KSL an executed copy of any notice on Form 144 required to
be filed with the Securities and Exchange Commission ("SEC").
(e) The Recipient agrees that, if any shares of capital stock of KSL
are offered to the public pursuant to an effective registration statement under
the Act, the Recipient will not effect any public sale or public distribution of
any shares of Stock not covered by such registration statement within 7 days
prior to, or within 180 days (or in an underwritten public offering, any such
lesser period as the underwriters may agree to) after, the effective date of
such registration statement, unless otherwise agreed to in writing by KSL.
(f) The Recipient represents and warrants that (i) his net worth is
not less than the amount set forth in the questionnaire previously delivered by
him to KSL and his financial condition is such that he can afford to bear the
economic risk of holding the Stock for an indefinite period of time and has
adequate means for providing for his current needs and personal contingencies,
(ii) he can afford to suffer a complete loss of his investment in the Stock,
(iii) all information which he has provided to KSL concerning himself and his
financial position is correct and complete as of the date of this Agreement,
(iv) he understands and has taken cognizance of all risk factors related to the
purchase of the Stock, and (v) his knowledge and experience in financial and
business matters are such that he is capable of evaluating the merits and risks
of his purchase of the Stock as contemplated by this Agreement.
3. Restriction on Transfer.
Except for transfers permitted by clauses (w), (x), (y) and (z) of
Section 2(a) or a sale of shares of Stock pursuant to an effective registration
statement under the Act filed by KSL, the Recipient agrees that he will not
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares
of Stock (any such act being herein referred to as a "transfer") at any time
prior to the fifth anniversary of the Trigger Date; provided that after the
closing of a Qualified Public Offering (as defined
<PAGE>
5
in Section 7), the restriction on the transfer provided in this Section 3 shall
not apply as of any date (a "Calculation Date") to a number of shares of Stock
(the "Unrestricted Shares") held in the aggregate by the Recipient, the
Recipient's Trust, the Recipient's Estate and/or any Pledgee equal to (i) that
number of shares of Stock acquired by the Recipient through the exercise of
Options which does not exceed the product of the total number of shares of Stock
covered by the options issued on the Trigger Date times the Unrestricted
Percentage less (ii) the total number of shares of Stock transferred by the
Recipient, the Recipient's Trust, the Recipient's Estate or a Pledgee after the
date hereof, other than through transfers permitted by clauses (x), (y) and (z)
of Section 2(a) or a sale of Stock pursuant to an effective registration
statement filed by KSL. No transfer of any such shares of Stock in violation
hereof shall be made or recorded on the books of KSL and any such transfer shall
be void and of no effect. The Unrestricted Percentage shall be determined as
follows:
Unrestricted
Calculation Date Percentage
- ---------------- ----------
Trigger Date through and including the -0-
first anniversary of the Trigger Date
After the first anniversary of the 20%
Trigger Date through and including the
second anniversary of the Trigger Date
After the second anniversary of the 40%
Trigger Date through and including the
third anniversary of the Trigger Date
After the third anniversary of the 60%
Trigger Date through and including the
fourth anniversary of the Trigger Date
After the fourth anniversary of the 80%
Trigger Date through and including the
fifth anniversary of the Trigger Date
After the fifth anniversary of the 100%
Trigger Date
4. Right of First Refusal.
If prior to a Public Offering, the Recipient receives a bona fide
offer to purchase any or all of his shares of Stock (the "Offer") from a third
party (the "Offeror") which the Recipient wishes to accept, the Recipient shall
cause the Offer to be reduced to writing and shall notify KSL in writing of his
wish to accept the Offer. The Recipient's notice shall contain an irrevocable
offer to sell such shares of Stock to KSL (in the manner set forth below) at a
purchase price equal to the price
<PAGE>
6
contained in, and on the same terms and conditions of the Offer, and shall be
accompanied by a true copy of the Offer (which shall identify the Offeror). At
any time within 45 days after the date of the receipt by KSL of the Recipient's
notice, KSL shall have the right and option to purchase, or to arrange for a
third party to purchase, all of the shares of Stock covered by the Offer either
(i) at the same price and on the same terms and conditions as the Offer or (ii)
if the Offer includes any consideration other than cash, at the equivalent all
cash price, determined in good faith by the Board of Directors of KSL, by
delivering a certified bank check or checks in the appropriate amount (and any
such non-cash consideration to be paid) to the Recipient at the principal office
of KSL against delivery of certificates or other instruments representing the
shares of Stock so purchased, appropriately endorsed by the Recipient. If at the
end of such 45-day period, KSL or such third party has not tendered the purchase
price for such shares of Stock in the manner set forth above, the Recipient may
during the succeeding 30-day period sell not less than all of the shares of
Stock covered by the Offer to the Offeror at a price and on terms no less
favorable to Recipient than those contained in the offer. No sale may be made to
any Offeror unless the Offeror agrees in writing with KSL to be bound by the
provisions of this Section 4 in connection with any resale by the Offeror.
Promptly after such sale, the Recipient shall notify KSL of the consummation
thereof and shall furnish such evidence of the completion and time of completion
of such sale and of the terms thereof as may reasonably be requested by KSL. If,
at the end of 30 days following the expiration of the 45-day period for KSL to
purchase the shares of Stock, the Recipient has not completed the sale of such
shares of Stock as aforesaid, all the restrictions on sale, transfer or
assignment contained in this Agreement shall again be in effect with respect to
such shares of Stock.
5. Recipient's Resale of Shares of Stock and Options to KSL upon
Recipient's Death Disability or Retirement.
(a) Except as otherwise provided herein, if (i)(X) the Recipient
either dies or becomes Permanently Disabled and (Y) the Recipient was, at the
time of death or disability, still in the employ of KSL or any subsidiary of
KSL, or had retired from KSL and its subsidiaries at age 65 or over (or such
other age as may be approved by the Board of Directors of KSL) after having been
employed by KSL and its subsidiaries for at least three years after the Trigger
Date or (ii) with the prior consent of the Board of Directors of KSL (such
consent not to be withheld unless the Board of Directors reasonably determines
that KSL would be financially impaired by reason of the purchase described
herein), the Recipient retires from KSL and its subsidiaries at age 65 or over
after having been employed by KSL and its subsidiaries for at least three years
after the Trigger Date, then the Recipient, the Recipient's Estate or a
Recipient's Trust, as the case may be, shall have the right, for six months
following the date of
<PAGE>
7
death, Permanent Disability or retirement, to (A) sell to KSL, and KSL shall be
required to purchase, on one occasion, all or any portion of the shares of Stock
then held by the Recipient, the Recipient's Trust and/or the Recipient's Estate,
as the case may be, at an aggregate purchase price equal to the Section 5
Repurchase Price per Share, as determined in accordance with Section 7 and (B)
to require KSL to pay to the Recipient, the Recipient's Estate or the
Recipient's Trust, as the case may be, an additional amount equal to the Option
Excess Price determined on the basis of the excess, if any, of the Section 5
Repurchase Price per Share over the Option Price multiplied by the applicable
number of shares of Stock covered by then exercisable Options as provided in
Section 8 with respect to the termination of outstanding Options held by the
Recipient, the Recipient's Estate or the Recipient's Trust. The Recipient, the
Recipient's Estate and/or the Recipient's Trust, as the case may be, shall send
written notice to KSL of his or its intention to sell,shares of Stock and to
terminate such Options in exchange for the payments referred to in the preceding
sentence (the "Redemption Notice"). The completion of the purchase shall take
place at the principal office of KSL on the 15th business day after the giving
of the Redemption Notice. The Section 5 Repurchase Price per Share shall be paid
by delivery to the Recipient, the Recipient's Estate or the Recipient's Trust,
as the case may be, of a certified bank check or checks in the appropriate
amount payable to the order of the Recipient, the Recipient's Estate or the
Recipient's Trust, as the case may be, against delivery of certificates or other
instruments representing the shares of Stock so purchased and appropriate
documents canceling the Options so terminated appropriately endorsed or executed
by the Recipient, the Recipient's Estate or the Recipient's Trust, or his or its
duly authorized representative. For purposes of this Agreement, the Recipient
shall be deemed to have a "Permanent Disability" if the Recipient is unable to
engage in the activities required by the Recipient's job by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
(b) Notwithstanding any other provision of this Section 5 and
subject to Section 11, KSL shall not be obligated to repurchase any of the
shares of Stock or the Options from the Recipient, the Recipient's Estate, or
the Recipient's Trust, as the case may be, if there exists and is continuing a
default or any event which after notice or lapse of time or both would cause a
default under any loan, guarantee or other agreement under which KSL or any
subsidiary of KSL has borrowed money or such repurchase would result in a
default or any event which after notice or lapse of time or both would cause a
default under any such agreement or if the capital of KSL or any such subsidiary
is then impaired or such purchase would cause an impairment of the capital of
KSL or such subsidiary or would otherwise violate the Delaware General
Corporation Law, 8 Del. C. ss.1-101 et seq., as
<PAGE>
8
amended from time to time (each such occurrence being an "Event"); provided,
however, that if there are two or more unsatisfied Redemption Notices pending
and satisfaction of such Redemption Notices would result in the occurrence of an
Event, KSL shall repurchase Stock and Options pursuant to such pending
Redemption Notices pro rata to the extent that no Event has occurred and
continues and such repurchase would not result in the occurrence of an Event;
provided, further, that the Recipient, the Recipient's Estate or the Recipient's
Trust, as the case may be, shall have the right to withdraw any Redemption
Notice which has been pending for 120 or more days and which has remained
unsatisfied in whole or in part because of the provisions of this Section 5(b).
6. KSL's Option to Repurchase Stock and Options of Recipient.
(a) If (i) the Recipient's active employment with KSL and its
subsidiaries is involuntarily terminated with Cause (as defined in Section
7(g)), (ii) prior to the fifth anniversary of the Trigger Date the Recipient
voluntarily terminates his employment with KSL for any reason other than death,
Permanent Disability or retirement at age 65 or over, (iii) subsequent to a
transfer permitted by clause (y) of Section 2(a), the beneficiaries of a
Recipient's Trust shall include any person or entity other than the Recipient,
his spouse or his lineal descendants, or (iv) the Recipient shall effect a
transfer of any of the shares of Stock other than as permitted in this
Agreement, then KSL shall have an option to purchase all, but not less than all,
of the shares of Stock then held by the Recipient, the Recipient's Estate, a
Recipient's Trust or any Pledgee at the Section 6 Repurchase Price per Share
determined in accordance with Section 7 hereof, provided, however, that the
Section 5 Repurchase Price per Share shall apply to shares repurchased as a
result of an event set forth in clause (ii) of this Section 6(a). The Section 5
Repurchase Price per Share and the Section 6 Repurchase Price per Share are
sometimes referred to herein as the "Repurchase Price". KSL shall have a period
of 75 days from the date of any event described in (i) hereof, or 75 days after
KSL has knowledge of any event described in clauses (ii), (iii) or (iv) hereof,
in which to give notice in writing to the Recipient of the exercise of such
option. In the case of any of the events set forth in clauses (i), (iii) or (iv)
of this Section 6(a), KSL may also pay the Recipient, the Recipient's Estate or
the Recipient's Trust as the case may be, an amount equal to the Option Excess
Price, if any, determined on the basis of the Section 6 Repurchase Price per
Share in respect of exercisable Options, as provided in Section 8, with respect
to the termination of outstanding Options held by the Recipient. In the case of
an event set forth in clause (ii) of this Section 6(a), exercisable Options held
by Recipient shall be forfeited and no payment of any nature whatsoever shall be
made to Recipient therefor.
<PAGE>
9
(b) Subject to Section 11 hereof, the completion of the purchases
pursuant to the foregoing shall take place at the principal office of KSL on the
15th business day after the giving of notice of the exercise of the option to
purchase. The Repurchase Price for the shares of Stock and any payment with
respect to the Options as described above shall be paid by delivery to the
Recipient, the Recipient's Estate or the Recipient's Trust of a certified bank
check or checks in the appropriate amount payable to the order of the Recipient,
the Recipient's Estate or the Recipient's Trust against delivery of certificates
or other instruments representing the shares of Stock so purchased and
appropriate documents canceling the Options so terminated, appropriately
endorsed or executed by the Recipient, the Recipient's Estate, the Recipient's
Trust, the Pledgee or his or its duly authorized representative.
7. Determination of Repurchase Price.
(a) The Repurchase Price for the Stock pursuant to Section 5 or
Section 6 shall be calculated on the basis of the Section 5 Repurchase Price per
Share (as determined in accordance with Section 7(b)) or the Section 6
Repurchase Price per Share (as determined in accordance with Section 7(c)), as
the case may be, as of the last day of the fiscal month preceding the fiscal
month in which the event giving rise to the repurchase occurs (the "Repurchase
Calculation Date"). For all purposes of this Agreement, the event giving rise to
the repurchase shall be the death, Permanent Disability or retirement of the
Recipient or the happening of any event set forth in Sections 6(a)(i), (ii) or
(iii) above, not the giving of any notice required pursuant to Section 5 or 6.
(b) Prior to a Public Offering (as hereinafter defined) the Section
5 Repurchase Price per Share shall be equal to the Book Value Per Share (as
defined in Section 7(d)) as of the Repurchase Calculation Date. After a Public
Offering, the Section 5 Repurchase Price per Share shall be equal to the Market
Value per Share (as defined in Section 7(d)) as of the Repurchase Calculation
Date.
(c) Prior to a Public Offering, the Section 6 Repurchase Price per
Share, as of any Repurchase Calculation Date, shall be equal to the lesser of
(i) the Book Value Per Share and (ii) $500. After a Public Offering, the Section
6 Repurchase Price per Share shall be a equal to the lesser of (i) Market Value
Per Share and (ii) $500.
(d) For purposes of this Agreement, "Book Value Per Share", as of
any calculation date, shall be (i)(a) the difference between (1) $28,000,000
plus the net income (or loss) determined in accordance with generally accepted
accounting principles applied on a basis consistent with any prior periods (a
"GAAP Basis") for the period from June 28, 1993, through the last day of the
last full calendar month preceding such
<PAGE>
10
calculation date (the "Period"), plus depreciation and amortization determined
on a GAAP Basis for the Period, plus income tax expense determined on a GAAP
Basis for the Period, plus capital contributions for the Period, and (2) cash
capital expenditures (excluding amounts allocated to capital expenditures in any
purchase accounting transaction) for the Period determined on a GAAP Basis, plus
income taxes currently paid or payable during the Period, plus dividends for the
Period, plus (b) the aggregate exercise prices of all outstanding options and
other rights to acquire shares of Common Stock, divided by (ii) the sum of (a)
the number of shares of Common Stock then outstanding, (b) the number of shares
of Common Stock issuable upon the exercise of all outstanding options and other
rights to acquire shares of Common Stock and (c) the number of share equivalents
issuable pursuant to any equity appreciation rights or other "phantom" equity
plans of KSL, appropriately reduced to reflect the base price provided in the
relevant plan and any book accruals actually made in respect of the relevant
plan; provided that any options and rights, and all such share equivalents (to
the extent not reflected in any such book accruals), shall be excluded from the
foregoing formula (together with the exercise, conversion or base prices
thereof) to the extent that the exercise, conversion or base prices thereof
would be greater than the Book Value Per Share if calculated without reference
to such options, rights and share equivalents.
(e) As used herein the term "Public Offering" shall mean the sale of
shares of Common Stock to the public pursuant to a registration statement under
the Act which has been declared effective by the SEC (other than a registration
statement on Form S-8 or any other similar form or any other form utilized in
offering these or other securities of KSL to the officers or employees of KSL or
its subsidiaries) which results in an active trading market in the shares of
Common Stock; provided that an active trading market in the shares of Common
Stock shall be deemed to exist if the shares of Common Stock are listed on the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System, but the failure of the shares of Common Stock to be so listed
shall not per se be determinative as to whether an active trading market does
not exist. A "Qualified Public Offering" shall mean either (i) a Public Offering
pursuant to an effective registration statement relating to the sale of shares
of the Common Stock held by any or all of Golf Associates, L.P., Resort
Associates, L.P., KKR Partners II, L.P. or any other investment partnership
affiliated with Kohlberg Kravis Roberts & Co. or (ii) any Public Offering
resulting in an active trading market in 40% or more of the Common Stock or
(iii) any Public Offering after there already exists an active trading market in
40% or more of the Common Stock.
(f) As used herein the term "Market Price Per Share" shall mean the
price per share equal to the average of the last sales price of the shares of
Common Stock on each of the ten trading days prior to the Repurchase Calculation
Date on the
<PAGE>
11
principal exchange on which the shares of Common Stock may at the time be listed
or, if there shall have been no sales on such exchange on any such trading day,
the average of the closing bid and asked prices on such exchange at the end of
such trading day or if there is no such bid and asked price on such trading day
on the next preceding date when such bid and asked price occurred or, if the
shares of Common Stock shall not be so listed, the average of the closing sales
prices as reported by NASDAQ at the end of each of the ten trading days prior to
the Repurchase Calculation Date in the over-the-counter market. If the shares of
Common Stock are not so listed or reported by NASDAQ, then the Market Price Per
Share shall be the Book Value Per Share.
(g) For purposes of this Agreement, a Recipient's employment shall
be deemed to have been terminated for "Cause" if the termination results from
the Recipient's: (i) criminal conduct (other than traffic violations), (ii)
after notice from KSL and failure of the Recipient to cure within 10 days of
receipt of such notice, deliberate misconduct which could be materially damaging
to KSL or any of its business operations without a reasonable good faith belief
by the Recipient that such conduct was in the best interests of KSL and its
subsidiaries taken as a whole or (iii) willful and continued failure to perform
Recipient's duties with respect to the Company or its subsidiaries. A
termination of the Recipient's employment shall not be deemed to be for "Cause"
hereunder unless the board of directors of KSL shall confirm that any such
termination is for "Cause" as defined hereunder. Any voluntary termination by
Recipient in anticipation of an involuntary termination of the Recipient's
employment for "Cause" shall be deemed to be a termination of the Recipient's
employment for "Cause".
(h) In determining the Repurchase Price, appropriate adjustments, if
any, shall be made for any future issuances of rights to acquire and securities
convertible into shares of Stock and any dividends, splits, combinations,
recapitalizations or any other similar adjustment in the number of shares
outstanding.
8. Shares Issued to Recipient upon Exercise of Options;
Termination of Options.
(a) KSL may from time to time grant to the Recipient, in addition to
the Options, options under the Option Plan or otherwise to purchase shares of
Common Stock at $500 per share or at a different option exercise price. The term
"Stock" as used in this Agreement shall include all shares of Common Stock of
KSL purchased by the Recipient by KSL upon exercise of the Options and of any
other options held by the Recipient and any other shares of Common Stock
otherwise acquired by the Recipient at any time when this Agreement is in
effect.
(b) All outstanding options granted to the Recipient under the
Option Plan or otherwise, whether or not then exercisable, will be automatically
terminated upon the payment by
<PAGE>
12
KSL to the Recipient, pursuant to the provisions of Section 5 or 6 of this
Agreement, of an amount equal to the Option Excess Price. If the Option Excess
Price is zero or a negative number, all such outstanding options granted to the
Recipient under the Option Plan or otherwise, whether or not then exercisable
(except for Options which KSL does not have the option to repurchase pursuant to
Section 6 or is not then repurchasing pursuant to Section 5, as the case may
be), shall be automatically terminated upon the repurchase of shares of Stock
provided in Sections 5 or 6. The "Option Excess Price" is the excess, if any, of
the Section 5 Repurchase Price per Share or the Section 6 Repurchase Price per
Share, depending on which Repurchase Price is being used to repurchase the
remainder of the shares of Stock, over the Option Price (as defined in the
Option Plan) multiplied by the number of shares of Stock which, at the time of
determination of the Option Excess Price, could be purchased by the Recipient
upon exercise of his outstanding Options which are then exercisable.
Notwithstanding anything to the contrary in the foregoing, KSL may provide, in
the terms of the options or by decision of the Board of Directors, that
different terms are to be applicable to options which are not issued under the
Option Plan.
9. KSL's Representations and Warranties.
If KSL shall have filed a registration statement pursuant to the
requirements of Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or engaged in a Public Offering, KSL will file the reports
required to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, to the extent required from time to
time to enable the Recipient to sell Options and the Stock without registration
under the Act within the limitations of the exemptions provided by (i) Rule 144
under the Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Notwithstanding
anything contained in this Section 9, KSL may deregister under Section 12 of the
Exchange Act if it is then permitted to do so pursuant to the Exchange Act and
the rules and regulations thereunder. Nothing in this Section 9 shall be deemed
to limit in any manner the restrictions on sales of Stock contained in this
Agreement.
10. "Piggyback" Registration Rights.
(a) Until the later of the first occurrence of a Qualified Public
Offering or the fifth anniversary of the date hereof or the date when the
Recipient ceases to be an "affiliate" for purposes of Rule 144 under the Act,
the Recipient hereby agrees to be bound by all of the terms, conditions and
obligations of the Registration Rights Agreements among KSL and the Investors
(the "Registration Rights Agreements") and, in the case of a Qualified Public
Offering and subject to the limitations set forth in this Section 10, shall have
all of the rights and privileges of the Registration Rights Agreements, in
<PAGE>
13
each case as if the Recipient were an original party (other than KSL) thereto;
provided, however, that the Recipient shall not have any rights to request
registration under Section 4 of the Registration Rights Agreements; and provided
further, that the Recipient shall not be bound by any amendments to the
Registration Rights Agreements unless Recipient consents thereto.
Notwithstanding anything to the contrary contained in the Registration Rights
Agreements, the Recipient's rights and obligations under the Registration Rights
Agreements shall be subject to the limitations and additional obligations set
forth in this Section 10. All shares of Stock purchased by the Recipient
pursuant to this Agreement and held by the Recipient, the Recipient's Trust or
the Recipient's Estate, including shares purchased upon the exercise of Options,
shall be deemed to be Registrable Securities as defined in the Registration
Rights Agreements.
(b) If KSL in connection with a Qualified Public Offering other than
a deemed Qualified Public Offering plans to register any shares of Common Stock
held by an Investor for public offering pursuant to the Act, KSL will promptly
notify the Recipient in writing (a "Notice") of such proposed registration (a
"Proposed Registration"). If within 15 days of the receipt by the Recipient of
such Notice, KSL receives from the Recipient, the Recipient's Trust or the
Recipient's Estate a written request (a "Request") to register shares of Stock
held by the Recipient, the Recipient's Estate or the Recipient's Trust (which
Request will be irrevocable unless otherwise mutually agreed to in writing by
the Recipient and KSL), shares of Stock will be so registered as provided in
this Section 10; provided, however, that for each such registration statement
only one Request, which shall be executed by the Recipient, the Recipient's
Trust or the Recipient's Estate, as the case may be, may be submitted for all
Registrable Securities held by the Recipient, the Recipient's Estate and the
Recipient's Trust.
(c) The maximum number of shares of Stock which will be registered
pursuant to a Request will be the lowest of (i) the number of shares of Stock
then held by the Recipient (which for purposes of this subparagraph (c) shall
include shares of Stock held by the Recipient's Estate or a Recipient's Trust),
including all shares of Stock which the Recipient is then entitled to acquire
under an unexercised Option to the extent then exercisable or (ii) the maximum
number of shares of Stock which the Recipient (pro rata based upon the aggregate
number of shares of Stock the Recipient and all Other Recipients have requested
to be registered) and all Other Recipients are permitted to register in the
offering under the Registration Rights Agreements or (iii) the maximum number of
shares of Stock which the Recipient can register in the offering without adverse
effect on the offering in the view of the managing underwriters (reduced pro
rata with all Other Recipients). The number of shares of Stock which will be
registered under this Section 10, however, shall not include shares of Stock for
which the Recipient no longer has
<PAGE>
14
registration rights pursuant to the first sentence of Section 10(a).
(d) Upon delivering a Request the Recipient will, if requested by
KSL, execute and deliver a custody agreement and power of attorney in form and
substance satisfactory to KSL with respect to the shares of Stock to be
registered pursuant to this Section 10 (a "Custody Agreement and Power of
Attorney"). The Custody Agreement and Power of Attorney will provide, among
other things, that the Recipient will deliver to and deposit in custody with the
custodian and attorney-in-fact named therein a certificate or certificates
representing such shares of Stock (duly endorsed in blank by the registered
owner or owners thereof or accompanied by duly executed transfer powers in
blank) and irrevocably appoint said custodian and attorney-in-fact as the
Recipient's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on the Recipient's behalf with
respect to the matters specified therein.
(e) The Recipient agrees that he will execute such other agreements
as KSL may reasonably request to further evidence the provisions of this Section
10.
11. Continued Exercisability of KSL's Right to Repurchase.
Notwithstanding anything to the contrary contained in Section 5, 6
or 7, if at the time of the exercise of a right of KSL to purchase shares of
Stock from the Recipient, a Recipient's Trust or Recipient's Estate or to pay
the Option Excess Price to the Recipient, Recipient's Trust or Recipient's
Estate or at the time the Recipient, the Recipient's Estate or a Recipient's
Trust exercises his or its rights to sell shares of Stock to, and receive
payment for Options from, KSL pursuant to such Sections, there is, or if as a
result of such purchase or payment there would be an Event, then the closing of
any such purchase and payment shall be deferred until the day that is five
business days after the first business day that it may occur without any Event
existing or resulting. If at any time consummation of all purchases and payments
to be made by KSL pursuant to this Agreement and the Other Recipient's
Agreements would result in an Event, then KSL shall make purchases from, and
payments to, the Recipient and Other Recipients pro rata (on the basis of the
proportion of the number of shares of Stock and the number of Options each such
Recipient and all Other Recipients have elected or are required to sell to KSL)
for the maximum number of shares of Stock and shall pay the Option Excess Price
for the maximum number of Options permitted without resulting in an Event;
provided, however, that the provisions of the first sentence of this Section 11
shall apply in respect of all shares of Stock and Options not purchased. Until
all of such shares of Stock and Options are purchased and paid for by KSL, the
Recipient and the Other Recipients whose shares of Stock and Options are not
<PAGE>
15
purchased in accordance with this Section 11 shall have priority on a pro rata
basis, over other purchases of shares of Stock and Options by KSL pursuant to
this Agreement and Other Recipients' Agreements.
12. Rights to Negotiate Purchase Price.
Nothing in this Agreement shall be deemed to restrict or prohibit
KSL from purchasing shares of Stock or Options from the Recipient, at any time,
upon such terms and conditions, and for such price, as may be mutually agreed
upon between the Parties, whether or not at the time of such purchase
circumstances exist which specifically grant KSL the right to purchase, or the
Recipient the right to sell shares of Stock or KSL has the right to pay, or the
Recipient has the right to receive, the Option Excess Price under the terms of
this Agreement, and all such purchases shall be deemed to be in accordance with
the terms of this Agreement.
13. Covenant Regarding 83(b) Election.
Except as KSL may otherwise agree in writing, the Recipient hereby
covenants and agrees that he will make an election provided pursuant to Treasury
Regulation 1.83-2 with respect to the Stock to be acquired upon each exercise of
the Recipient's Options within 30 days of such exercise; and Recipient further
covenants and agrees that he will furnish KSL with copies of the forms of
election the Recipient files within 30 days after the date hereof, and with
evidence that each such election has been filed in a timely manner.
14. Notice of Change of Beneficiary.
Immediately prior to any transfer of Stock to a Recipient's Trust,
the Recipient shall provide KSL with a copy of the instruments creating the
Recipient's Trust and with the identity of the beneficiaries of the Recipient's
Trust. The Recipient shall notify KSL immediately prior to any change in the
identity of any beneficiary of the Recipient's Trust.
15. Expiration of Certain Provisions.
The provisions contained in Sections 4, 5 and 6 of this Agreement,
and the portion of any other provision of this Agreement which incorporates the
provisions of Sections 4, 5 and 6, shall terminate and be of no further force or
effect with respect to any shares of Stock sold by the Recipient pursuant to an
effective registration statement filed by KSL pursuant to Section 10 hereof.
The provisions contained in Sections 2(e), 3, 4, 5, 6 and 13 of this
Agreement, and the portion of any other provisions of this Agreement which
incorporates the provisions of Sections 2(e), 3, 4, 5, 6 and 13 shall terminate
and be of no further
<PAGE>
16
force and effect upon the consummation of a merger, reorganization or
liquidation of KSL, or a sale of shares of Stock owned by the Investors if (but
only if) such transaction results in KKR Associates, a New York limited
partnership, and/or its affiliates neither owning a majority of the outstanding
voting securities of KSL nor having the power (i) to elect a majority of the
Board of Directors of KSL or the successor corporation to KSL's rights and
obligations pursuant to such transaction, or (ii) if the surviving entity of
such transaction is not a corporation, to select the general partner(s) or other
persons or entities controlling the operations and business of the surviving
entity.
16. Recapitalization. Etc.
Except to the extent otherwise provided by Section 15 hereof, the
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to the Stock or Options, to any and all capital stock of KSL or any
capital stock, partnership units or any other security evidencing ownership
interests in any successor or assign of KSL (whether by merger, consolidation,
sale of assets or otherwise) which may be issued in respect of, in exchange for,
or in substitution of the Stock or the Options, by reason of any stock dividend,
split, reverse split, combination, recapitalization, liquidation,
reclassification, merger, consolidation or otherwise.
17. Recipient's Employment by KSL.
Nothing contained in this Agreement or in any other agreement
entered into by KSL and the Recipient contemporaneously with the execution of
this Agreement (i) obligates KSL or any subsidiary of KSL to employ the
Recipient in any capacity whatsoever or (ii) prohibits or restricts KSL (or any
such subsidiary) from terminating the employment, if any, of the Recipient at
any time or for any reason whatsoever, with or without Cause, and the Recipient
hereby acknowledges and agrees that neither KSL nor any other person has made
any representations or promises whatsoever to the Recipient concerning the
Recipient's employment or continued employment by KSL or any subsidiary of KSL.
18. State Securities Laws.
KSL hereby agrees to use its best efforts to comply with all state
securities or "blue sky" laws which might be applicable to the sale of the Stock
and the issuance of the Options to the Recipient.
19. Binding Effect.
The provisions of this Agreement shall be binding upon and accrue to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
<PAGE>
17
In the case of a transferee permitted under Section 2(a) hereof, such transferee
shall be deemed the Recipient hereunder; provided, however, that no transferee
(including without limitation, transferees referred to in Section 2(a) hereof)
shall derive any rights under this Agreement unless and until such transferee
has delivered to KSL a valid undertaking and becomes bound by the terms of this
Agreement.
20. Amendment.
This Agreement may be amended only by a written instrument signed by
the Parties thereto.
21. Closing.
Except as otherwise provided herein, the closing of each purchase
and sale of the Stock and the payment of the Option Excess Price, if any,
pursuant to this Agreement shall take place at the principal office of KSL on
the 15th business day following delivery of the Notice by either Party to the
other of its exercise of the right to purchase or sell such Stock hereunder or
to cause the payment of the Option Excess Price, if any.
22. Applicable Law.
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Agreement, without reference to
rules relating to conflicts of law. Any suit, action, or proceeding against the
Recipient with respect to this Agreement, or any judgment entered by any court
in respect of any thereof, may be brought in any court of competent jurisdiction
in the State of Delaware or New York, as KSL may elect in its sole discretion,
and the Recipient hereby submits to the non-exclusive jurisdiction of such
courts for the purpose of any such suit, action proceeding or judgment. By the
execution and delivery of this Agreement, the Recipient appoints The Corporation
Trust Company, at its office in New York, New York or Wilmington, Delaware, as
the case may be, as his agent upon which process may be served in any such suit,
action or proceeding. Service of process upon such agent, together with notice
of such service given to the Recipient in the manner provided in Section 25
hereof, shall be deemed in every respect effective service of process upon his
in any suit, action or proceeding. Nothing herein shall in any way be deemed to
limit the ability of KSL to serve any such writs, process or summonses in any
other manner permitted by applicable law or to obtain jurisdiction over the
Recipient, in such other jurisdictions and in such manner, as may be permitted
by applicable law. The Recipient hereby irrevocably waives any objections which
he may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in any court or
competent jurisdiction in the State of Delaware or New York, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any
<PAGE>
18
such court has been brought in any inconvenient forum. No suit, action or
proceeding against KSL with respect to this Agreement may be brought in any
court, domestic or foreign, or before any similar domestic or foreign authority
other than in a court of competent jurisdiction in the State of Delaware or New
York, and the Recipient hereby irrevocably waives any right which he may
otherwise have had to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority. KSL hereby submits
to the jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
23. Assignability of Certain Rights by the Corporation.
KSL shall have the right to assign any or all of its rights
hereunder or to delegate any of its obligations hereunder to any affiliate
thereof; provided that KSL shall remain obligated hereunder notwithstanding such
assignment. The rights of the Optionee hereunder may not be assigned, and the
obligations of the Optionee hereunder may not be delegated, to another person.
24. Miscellaneous.
In this Agreement (i) all references to "dollars" or "$" are to
United States dollars and (ii) the word "or" is not exclusive. If any provision
of this Agreement shall be declared illegal, void or unenforceable by any court
of competent jurisdiction, the other provisions shall not be affected, but shall
remain in full force and effect.
25. Notices.
All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if delivered by hand
(whether by overnight courier or otherwise) or sent by registered or certified
mail, return receipt request, postage prepaid, to the Party to whom it is
directed:
(a) If to KSL, to it at the following address:
c/o KSL Recreation Corporation
56-140 PGA Blvd.
La Quinta, CA 92253
Attn: Nola S. Dyal, Esq.
with copies to:
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
<PAGE>
19
Attn: Michael T. Tokarz
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Gary I. Horowitz, Esq.
(a) If to the Recipient, to his at the address set forth below
under his signature;
or at such other address as either party shall have specified
by notice in writing to the other.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
KSL RECREATION CORPORATION
By:_____________________________________
Name: Michael S. Shannon
Title: President
_________________________________________
RECIPIENT
Address:_______________________________________
_______________________________________
_______________________________________
<PAGE>
EXHIBIT A
Non-Qualified Stock Option Agreement
(Attached)
<PAGE>
Exhibit 10.10
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of _______________, 19___ is made by and
between KSL Recreation Corporation, a Delaware corporation hereinafter referred
to as "KSL", and _________, an employee of KSL or a Subsidiary (as defined
below) or Affiliate (as defined below) of KSL, hereinafter referred to as
"Optionee".
WHEREAS, KSL wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, KSL wishes to carry out the Plan (as hereinafter defined),
the terms of which are hereby incorporated by reference and made a part of this
Agreement; and
WHEREAS, the Compensation Committee (as hereinafter defined),
appointed to administer the Plan, has determined that it would be to the
advantage and best interest of KSL and its stockholders to grant the
Non-Qualified Option provided for herein to the Optionee as an incentive for
increased efforts during his term of office with KSL or its subsidiaries, and
has advised KSL thereof and instructed the undersigned officers to issue said
Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
Section 1.1 - Affiliate
"Affiliate" shall mean, with respect to KSL, any corporation
directly or indirectly controlling, controlled by, or under common control with,
KSL or any other entity designated by the Board of Directors of KSL in which KSL
or an Affiliate has an interest.
Section 1.2 - Cause
"Cause" means criminal conduct (other than traffic violations).
Section 1.3 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
2
Section 1.4 - Committee
"Committee" shall mean the Compensation Committee of KSL.
Section 1.5 - Grant Date
"Grant Date" shall mean the date on which the Option provided for in
this Agreement was granted.
Section 1.6 - Option
"Option" shall mean the non-qualified option to purchase common
stock of KSL granted under this Agreement.
Section 1.7 - Permanent Disability
The Employee shall be deemed to have a "Permanent Disability" if the
Employee is unable to perform the services required by the Employee's job by
reason of any medically determined physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
Section 1.8 - Plan
"Plan" shall mean the KSL Recreation Corporation 1995 Stock Purchase
and Option Plan.
Section 1.9 - Pronouns
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.10 - Purchase Agreement
"Purchase Agreement" shall mean the Common Stock Purchase Agreement
dated as of _______________, 19___, between KSL and the Optionee.
Section 1.11 - Retirement
"Retirement" shall mean retirement at age 65 or over (or such other
age as may be approved by the Board of Directors of KSL) after having been
employed by KSL or a Subsidiary for at least three years after the Trigger Date.
Section 1.12 - Secretary
"Secretary" shall mean the Secretary of KSL.
<PAGE>
3
Section 1.13 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with KSL if each of the corporations, or group of
commonly controlled corporations, tether than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.14 - Trigger Date
"Trigger Date" shall mean _______________, 19___.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
For good and valuable consideration, on and as of the date hereof
KSL irrevocably grants to the Employee the option to purchase any part or all of
an aggregate of the number of shares set forth on the signature page hereof of
its $.01 par value Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Exercise Price
The exercise price of the shares of stock covered by the Option
shall be $500 per share without commission or other charge.
Section 2.3 - Consideration to KSL
In consideration of the granting of this Option by KSL, the Optionee
agrees to render faithful and efficient services to KSL or a Subsidiary or
Affiliate, with such duties and responsibilities as KSL shall from time to time
prescribe. Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of KSL or any Subsidiary or
Affiliate or shall interfere with or restrict in any way the rights of KSL and
its Subsidiaries or Affiliates, which are hereby expressly reserved, to
terminate the employment of the Optionee at any time for any reason whatsoever,
with or without cause.
Section 2.4 - Adjustments in Option
Subject to Section 9 of the Plan, in the event that the outstanding
shares of the stock subject to the Option are, from time to time, changed into
or exchanged for a different number or kind of shares of KSL or other securities
of KSL by reason of a
<PAGE>
4
merger, consolidation, recapitalization, reclassification, stock split, stock
dividend, combination of shares, or otherwise, the Committee shall make an
appropriate and equitable adjustment in the number and kind of shares or other
consideration as to which the Option, or portions thereof then unexercised,
shall be exercisable. Any such adjustment made by the Committee shall be final
and binding upon the Optionee, KSL and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
The Option shall become exercisable as follows:
Number of Option Shares
Date Option Becomes As to Which Option Is
Exercisable Exercisable
- ------------------- -----------------------
Trigger Date through the
first anniversary of
the Trigger Date 0%
After the first anniversary
of the Trigger Date ____%
After the second anniversary
of the Trigger Date ____%
After the third anniversary
of the Trigger Date ____%
After the fourth anniversary
of the Trigger Date ____%
After the fifth anniversary
of the Trigger Date 100%
Notwithstanding the foregoing, the Option shall become (i)
immediately exercisable as to 100% of the shares of Common Stock subject to such
Option immediately prior to a Change of Control, (ii) immediately prior to a
Sale Participation Event, exercisable as to that number of shares which when
added to the number of shares as to which the Option is then exercisable will
equal the Sale Participation Share Amount and (iii) immediately exercisable as
to 100% of the shares of Common Stock subject to such Option immediately upon
termination of employment because of death, Permanent Disability or Retirement
of the Optionee (but in each case only to the extent such Option has not
otherwise terminated or become exercisable). A "Change of Control" means (i) a
sale of all or substantially all of the assets of KSL to a
<PAGE>
5
Person who is not an affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR"),
(ii) a sale of stock by KKR or any of its affiliates resulting in (x) more than
50% of the voting stock of KSL being held by a Person or Group that does not
include KKR or any of its affiliates and (y) individuals designated by KKR
ceasing to comprise a majority of the members of the KSL Board of Directors or
(iii) a merger or consolidation of KSL into another Person which is not an
affiliate of KKR. "Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature. "Group"
means two or more Persons acting together as a partnership, limited partnership,
syndicate or other group for the purpose of acquiring, holding or disposing of
securities of KSL. A "Sale Participation Event" means any event giving rise to
the receipt by the Optionee of a notice under Section 1 of the Sale
Participation Agreement of even date herewith (the "Sale Participation
Agreement") among the Optionee and certain investment partnerships affiliated
with KKR. The "Sale Participation Share Amount" means the amount equal to (i)
the number of shares as to which the Option is exercisable assuming full vesting
of the Option multiplied by (ii) a fraction the numerator of which is the number
of shares being sold by the Fund Partnerships (as defined in the Sale
Participation Agreement) in the Sale Participation Event and the denominator of
which is the number of shares owned by the Fund Partnerships.
Notwithstanding the foregoing, the Option shall not become
exercisable as to any additional shares following the termination of employment
of the Optionee for any reason other than a termination of employment because of
death, Permanent Disability or Retirement of the Optionee.
Section 3.2 - Expiration of Option
The Option may not be exercised to any extent by Optionee after the
first to occur of the following events:
(a) June 30, 2005; or
(b) The date the Option is terminated pursuant to Section 5, 6 or
8(b) of the Purchase Agreement; or
(c) Immediately upon termination for Cause; or
(d) Prior to the fifth Anniversary of the Trigger Date, immediately
upon voluntary termination of employment for any reason other than death,
Permanent Disability, or retirement after age 65.
(e) If the Committee so determines pursuant to Section 9 of the
Plan, upon the merger or consolidation of KSL into another corporation, or
the exchange or acquisition by another corporation of all or substantially
all of KSL's
<PAGE>
6
assets or 80% or more of its then outstanding voting stock, or the
recapitalization, reclassification, liquidation or dissolution of KSL. At
least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, recapitalization, reclassification,
liquidation or dissolution, the Committee shall give the Employee notice
of such event if the Option has then neither been fully exercised nor
become unexercisable under this Section 3.2.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.2; provided, however, that any partial exercise shall be for whole shares
only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or his office all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.2:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion thereof, stating that the
Option or portion thereof is thereby exercised, such notice complying with
all applicable rules established by the Committee;
(b) Full payment (in cash, by check or by a combination thereof) for
the shares with respect to which such Option or portion thereof is
exercised, except (i) that to the extent that such exercise is in
connection with a merger and the per share consideration in such merger
exceeds the per share exercise price hereunder, no payment shall be
required under this Section 4.3(b) but the consideration to be received by
the Optionee in the merger for the shares underlying the Option shall be
reduced by the
<PAGE>
7
amount which would have been paid under this Section 4.3(b) and (ii) to
the extent that such exercise is in connection with the exercise of
registration rights in Section 10 of the Purchase Agreement, KSL will use
its reasonable efforts to arrange with any underwriters for a "cashless"
exercise.
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion thereof, stating that the
shares of stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or
any of them except as may be permitted under the Securities Act of 1933,
as amended (the "Act"), and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion thereof will indemnify KSL against and
hold it free and harmless from any loss, damage, expense or liability
resulting to KSL if any sale or distribution of the shares by such person
is contrary to the representation and agreement referred to above;
provided, however, that the Committee may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the
observance and performance of such representation and agreement and to
effect compliance with the Act and any other federal or state securities
laws or regulations;
(d) Full payment to KSL of all amounts which, under federal, state
or local law, it is required to withhold upon exercise of the Option; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
option.
Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subjection (c) above
shall, however, not be required if the shares to be issued pursuant to such
exercise have been registered under the Act, and such registration is then
effective in respect of such shares.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then
<PAGE>
8
been reacquired by KSL. Such shares shall be fully paid and nonassessable. KSL
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of the Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish
for reasons of administrative convenience.
Section 4.5 - Rights as Stockholder
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of KSL in respect of any shares purchasable upon
the exercise of the Option or any portion thereof unless and until certificates
representing such shares shall have been issued by KSL to such holder.
ARTICLE V
MISCELLANEOUS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, KSL and all
other interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or the Option. In its absolute discretion, the Board may at any time
and from time to time exercise any and all rights and duties of the Committee
under the Plan and this Agreement.
Section 5.2 - Option Not Transferable
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and
<PAGE>
9
of no effect; provided, however, that this Section 5.2 shall not prevent
transfers by will or by the applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
KSL shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to KSL
shall be addressed to KSL in care of its Secretary, and any notice to be given
to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed KSL of his status and address by written
notice under this Section 5.4. Any notice shall have been deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Applicability of Plan and Purchase Agreement
This Option and the shares of KSL Common Stock issued to the
Optionee upon exercise of this Option shall be subject to all of the terms and
provisions of the Plan and the Purchase Agreement, to the extent applicable to
this Option and such shares. In the event of any conflict between this Agreement
and the Purchase Agreement, the terms of the Purchase Agreement shall control.
Section 5.7 - Amendment
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
Section 5.8 - Governing Law
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this
<PAGE>
10
Agreement regardless of the law that might be applied under principles of
conflicts of laws.
Section 5.9 - Jurisdiction
Any suit, action or proceeding against the Employee with respect to
this Agreement, or any judgement entered by any court in respect of any thereof,
may be brought in any court of competent jurisdiction in the State of Delaware
of New York, as KSL may elect in its sole discretion, and the Optionee hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action, proceeding or judgment. The Optionee hereby irrevocably
waives any objection which he may now or hereafter have to the laying of the
venue of any suit, action or proceeding arising out of or relating to this
Agreement brought in any court of competent jurisdiction in the State of
Delaware or New York, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum. No suit, action or proceeding against KSL with respect
to this Agreement may be brought in any court, domestic or foreign, or before
any similar domestic or foreign authority other than in a court of competent
jurisdiction in the State of Delaware or New York, and the Optionee hereby
irrevocably waives any right which he may otherwise have had to bring such an
action in any other court, domestic or foreign, or before any similar domestic
or foreign authority. KSL hereby submits to the jurisdiction of such courts for
the purpose of any such suit, action or proceeding.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
KSL RECREATION CORPORATION
By_________________________
Its President
_________________________ Aggregate number of shares of Common
Optionee Stock for which this Option is
exercisable:
Optionee's Tax payer
Identification Number __________
(Social Security Number):
_________________________
<PAGE>
Exhibit 10.11
EXPENSE ALLOCATION AGREEMENT
EXPENSE ALLOCATION AGREEMENT, dated as of April 30, 1997 (the
"Agreement"), between KSL Recreation Corporation, a Delaware corporation (the
"KSL"), and KSL Recreation Group, Inc., a Delaware corporation ("Group").
W I T N E S S E T H:
WHEREAS, KSL has agreed to provide to Group and its subsidiaries
services necessary for the management of the businesses of Group and its
subsidiaries, and Group has agreed to pay for such services from KSL; and
WHEREAS, KSL and Group desire to make provision for certain ongoing
relationships among them.
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual promises of the parties hereinafter set forth, KSL and Group hereby agree
as follows:
SECTION 1. ENGAGEMENT.
1.1 Group engages KSL to provide the services specified in Section 2
of this Agreement to its businesses, and KSL accepts this engagement, on the
terms and conditions set forth in this Agreement.
SECTION 2. CERTAIN SERVICES RELATED TO MANAGEMENT.
2.1 Commencing on the date of this Agreement, and for the period
provided under Section 4 hereof, KSL shall make available to Group or any of its
subsidiaries, upon request by such party, management services, including without
limitation the following services (individually a "Service" and collectively,
the "Services"):
(a) The services of KSL's officers in management of Group and the
subsidiaries of Group.
(b) The services of KSL's officers in rendering general business
advice, including, without limitation, advice regarding operations and
production, distribution, marketing and the acquisition and disposition of
assets.
(c) The services of KSL's officers for financial advice and
services, including, without limitation, assistance with respect to matters such
as the raising of additional capital, cash management, treasury and financial
controls.
<PAGE>
(d) The services of KSL's general counsel for legal advice.
(e) The services of KSL's officers for advice concerning foreign and
domestic taxes.
(f) The services of KSL's officers for personnel advice and
services, including, without limitation, administration of insurance, pension
and other employee benefit plans.
(g) The services of KSL's other staff, and the use of equipment,
office space, and facilities for such other advice and services related to the
operation of the business of Group or any of its subsidiaries as Group or any of
its subsidiaries may request from time to time.
2.2 Notwithstanding the provisions of subsection 2.1 hereof, KSL may
contract with third parties to perform any or all of the Services. Such third
parties will be engaged by KSL after consultation with Group.
SECTION 3. PRICING.
3.1 For the Services, Group shall pay to KSL an amount necessary to
pay reasonable compensation of the employees of KSL and the other reasonable
overhead expenses of KSL including, without limitation, its allocable share of
any space rented by KSL.
3.2 In addition to the payments under Section 3.1, Group shall,
within 15 days after its receipt of an invoice from KSL, reimburse KSL for its
reasonable out-of-pocket expenses (including, without limitation, the reasonable
fees and disbursements of its outside legal counsel and accountants) incurred by
it in providing Services to Group or any of its subsidiaries, as set forth in
the invoice.
SECTION 4. TERM OF AGREEMENT.
4.1 The initial term of this Agreement will be for one year
commencing on the Closing Date (the "Initial Term") and automatically renewed on
each anniversary of the end of the Initial Term, subject to earlier termination
as provided herein.
<PAGE>
4.2 After the Initial Term, either party may terminate the Agreement
upon at least 30 days written notice to the other party.
SECTION 5. ACCESS TO INFORMATION.
5.1 Group shall provide to KSL all information necessary for KSL to
provide the Services.
SECTION 6. NOTICE.
6.1 Any notice, request, instruction, consent, approval or other
communication provided for herein shall be in writing and shall be delivered
personally, sent by certified or registered mail, postage prepaid, sent by
facsimile transmission, and shall be deemed given when so delivered personally,
if sent by facsimile transmission when sent, or if mailed, two business days
after the date of deposit in the United States mails, as follows:
To KSL: KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Attention:
Facsimile No.: 760-564-4880
To Group: KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Attention:
Facsimile No.: 760-564-4880
<PAGE>
SECTION 7. INDEMNIFICATION.
7.1 To the fullest extent permitted by the Delaware General
Corporation Law, Group shall indemnify and hold harmless KSL and its affiliates
(other than Group and its subsidiaries), the respective directors, officers,
agents, employees and legal representatives of KSL and its affiliates (other
than Group and its subsidiaries) from and against any and all losses, claims,
damages, liabilities, joint or several (and all actions in respect thereof),
caused by, related to or arising out of KSL acting for, or providing Services
to, Group or any of its subsidiaries pursuant to this Agreement, and to
reimburse KSL and any other parties entitled to be indemnified hereunder for all
reasonable expenses (including attorneys' fees) incurred by KSL or any such
other indemnified party in connection with investigating, preparing or defending
any such action or claim.
SECTION 8. MISCELLANEOUS PROVISIONS.
(a) Assignment. No party to this Agreement may assign its rights or,
expect as permitted hereby, delegate its obligations under this Agreement to any
person, without the prior written consent of the other party.
(b) Successors Bound. Subject to the provisions of paragraph 8(a)
above, this Agreement is binding on, and inures to the benefit of, parties'
respective successors and permitted assigns.
(c) Headings. The paragraph headings in this Agreement are for
reference purposes only and will not affect the interpretation of this
Agreement.
(d) Entire Agreement. This Agreement records the final, complete and
entire agreement among the parties regarding engagement of KSL to provide
management and consulting services to Group, and it supersedes all prior oral
and written agreements, commitments or understandings with respect to the
matters provided for herein.
(e) Counterparts. This Agreement may be executed in counterparts,
each of which will constitute an original document and all of them, together,
will constitute the same agreement.
(f) Governing Law. The validity, construction, enforcement of this
Agreement are governed by the laws of California.
(g) Modification. A waiver, amendment, or modification of any
provision of this Agreement will be valid and effective only if it is evidenced
by a writing signed by each party to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands effective as of
the date first above.
KSL RECREATION CORPORATION
By:______________________________________
Name:
Title:
KSL RECREATION GROUP, INC.
By:______________________________________
Name:
Title:
<PAGE>
Exhibit 10.12
TAX SHARING AGREEMENT
This Tax Sharing Agreement (this "Agreement") is made and entered
into as of April 30, 1997 by and between KSL Recreation Corporation, a
California corporation, ("REC") and each of the entities described on Schedule A
annexed hereto (the "Signator Corporations").
WITNESSETH:
WHEREAS, each of the Signator Corporations and REC will qualify, as
of the "Effective Date" (as defined in Section 1.1), as a member of an
affiliated group within the meaning of Section 1504 of the Internal Revenue Code
of 1986 (IRC), as amended (the "REC Group"), or a controlled group within the
meaning of IRC Section 1563;
WHEREAS, REC has previously filed consolidated federal income tax
returns on behalf of the then existing members of the REC Group and is generally
obligated to continue to file consolidated income tax returns on behalf of the
REC Group as comprised in the future;
WHEREAS, each of the Signator Corporations will qualify, as of the
"Effective Date" (as defined in Section 1.1), as a member of a unitary group
within the meaning of Sections 25101 and 25102 of the California Revenue and
Taxation Code and the regulations thereunder;
WHEREAS, REC has previously filed combined California income tax
returns on behalf of the then existing members of the REC and Land Groups;
WHEREAS, it is the desire and intent of the parties that procedures
be established for the administration of the REC Group from and after the
"Effective Date" and that a method be established for allocating the
consolidated federal and combined California income tax liabilities of the REC
Group among the members of the two groups from and after the "Effective Date,"
and
WHEREAS, it is also the desire of the parties that procedures be
established for the administration of certain state and local matters involving
one or more of the parties and that a method be established for allocating
non-California state and local income tax liabilities among one or more of the
parties;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein, and for other good and valuable
consideration, each of the parties hereby agrees from and after the "Effective
Date" as follows:
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4
ARTICLE I
DEFINITIONS
1.1 General. For purposes of this Agreement, the following terms
shall have the following meanings:
Amortization - "Amortization" shall mean the allowance for
exhaustion, including obsolescence, of Intangible Assets.
Code - "Code" shall mean the Internal Revenue Code of 1986 as
amended.
Combined Tax Liability - "Combined Tax Liability" shall mean, with
respect to a particular Taxable Year, the combined California franchise tax
liability of the REC and Land Groups for such Taxable Year (including interest
and penalties). It is expressly provided that the term Combined Tax Liability as
defined herein shall be determined by taking into consideration all applicable
losses and credits, including applicable net operating losses.
Combined Tax Return - "Combined Tax Return" shall mean the
California tax return required to be filed by REC pursuant to the California
Revenue and Taxation Code ss.ss. 25101 and 25102 and the regulations thereunder.
Consolidated Tax Liability - "Consolidated Tax Liability" shall
mean, with respect to a particular Taxable Year, either the consolidated federal
income tax liability of the REC Group for such Taxable Year (including interest
and penalties and including the environmental tax of Section 59A of the Code),
or the consolidated federal alternative minimum tax liability of the REC Group
for such Taxable Year (including interest and penalties and the environmental
tax of Section 59A of the Code), whichever shall be applicable. It is expressly
provided that the term Consolidated Tax Liability as defined herein shall be
determined by taking into consideration all applicable losses and credits,
including applicable net operating losses.
Consolidated Tax Return - "Consolidated Tax Return" shall mean the
tax return required to be filed by the Parent pursuant to Chapter 6 of the Code.
Corrected Recomputation Notice - "Corrected Recomputation Notice"
shall have the meaning set forth in Section 5.1.
Effective Date - "Effective Date" shall mean November 1, 1996.
Estimated Combined Tax Liability - "Estimated Combined Tax
Liability" shall mean, with respect to a particular Taxable Year, the estimated
combined California tax liability of the
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5
combined REC and Land Groups for such Taxable Year determined in accordance with
Section 3.2.
Estimated Consolidated Tax Liability - "Estimated Consolidated Tax
Liability" shall mean, with respect to a particular Taxable Year, the estimated
consolidated federal tax liability of the REC Group for such Taxable Year
determined in accordance with Section 3.2.
Group - "Group" shall mean either the REC Group or the Land Group.
Group Agent - "Group Agent" shall mean the entity designated by the
Parent to exercise various administrative and financial responsibilities on
behalf of each Group. Unless otherwise designated in writing by the Parent, the
Group Agent in respect to the REC Group shall be REC and the Group Agent with
respect to the Land Group shall be KSL Land Corporation (Land). It is expressly
provided herein that the Group Agent of each of the respective Groups shall be
responsible for satisfying any and all of the conditions or obligations set
forth in this Agreement with respect to the Group with respect to which it
serves as Group Agent and for satisfying any and all of the conditions and
obligations set forth in this Agreement with respect to each of the Group
Members of the respective Groups which is not a Signator Corporation,
irrespective of whether such Group Member is referred to in this Agreement as a
Group Member or a Member. Further, where expressly provided, each Group Agent
shall also be responsible for satisfying those conditions and obligations set
forth in this Agreement on behalf of any Group Member of the respective Groups
which is a Signator Corporation, irrespective of whether such Group Member is
referred to in this Agreement as a Group Member or a Member.
Group Members - "Group Members" shall, as the context indicates,
mean either REC Group Members or Land Group Members.
Intangible Assets - "Intangible Assets" shall mean, with respect to
an asset acquisition, the excess of purchase price over fair market value of the
tangible assets acquired. "Intangible Assets" shall mean, with respect to a
stock acquisition, the excess of purchase price over the fair market value of
tangible assets within the acquired entity.
Land - "Land" shall mean KSL Land Corporation.
Land Group - "Land Group" shall mean the affiliated group of
corporations within the meaning of Section 1504 of the Code with respect to
which Land is the common parent.
Land Group Members - "Land Group Members" shall mean those Members
described as Land Group Members on Schedule C annexed hereto. Appropriate
amendments shall be made to Schedule
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6
C to reflect changes in the identity of the Land Group Members occurring after
the date of execution of this Agreement.
Loss Member - "Loss Member" shall mean a Member that for the
relevant Taxable Year lacks positive Taxable Income.
Member - "Member" shall, except as otherwise provided herein, mean
the Parent and any entity now or hereafter entitled or obligated to file a
Consolidated Return with the Parent pursuant to Section 1504 of the Code.
Additionally, the term "Member" for purposes of Section 9 and all other
provisions of this Agreement that have relevance as a result of Section 9 shall,
except as otherwise provided herein, mean any entity now or hereafter entitled
or obligated to file a state or local income tax return with one or more parties
to this Agreement or with one or more entities that are related, directly or
indirectly, to one or more parties to this Agreement.
Original Recomputation Notice - "Original Recomputation Notice"
shall have the meaning set forth in Section 5.1.
Parent - "Parent" shall mean REC or its successor.
Parent's Representatives - "Parent's Representatives" shall mean any
or all of the Parent's accountants, attorneys, directors, officers, employees,
and shareholders, as well as any other persons or entities identified as the
Parent's Representatives in a writing delivered to the Group Agent of the Land
Group.
REC - "REC" shall mean KSL Recreation Corporation.
REC Group - "REC Group" shall mean the affiliated group of
corporations within the meaning of Section 1504 of the Code with respect to
which REC is the common parent.
REC Group Members - "REC Group Members" shall mean those Members
described as REC Group Members on Schedule B annexed hereto. Appropriate
amendments shall be made to Schedule B to reflect changes in the identity of the
REC Group Members occurring after the date of execution of this Agreement.
Recomputation Due Date - "Recomputation Due Date" shall have the
meaning set forth in Section 5.1.
Signator Corporation - "Signator Corporation" shall mean any
corporation which is a signator of this Agreement or which shall consent to this
Agreement in accordance with Section 2.5.
Subgroup - "Subgroup" shall mean an aggregation of REC Group members
as detailed in the Schedules which are contained in this Agreement.
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7
Subgroup Agent - "Subgroup Agent" shall mean the entity designated
by the Parent to exercise various administrative and financial responsibilities
on behalf of each Subgroup. Unless otherwise designated in writing by the
Parent, the Subgroup Agents with respect to the Landmark, Florida, Fairways,
Georgia, Wild West, Xochimilco, Vacation and Travel Subgroups shall be KSL
Landmark Corporation, KSL Florida Holdings, Inc., KSL Fairways Golf Corporation,
KSL Georgia Holdings, Inc., Wild West Desert Properties, Inc., Xochimilco
Properties, Inc., KSL Vacation Resorts, Inc. and KSL Travel Inc.; respectively.
It is expressly provided herein that the Subgroup Agent of each of the
respective Subgroups shall be responsible for satisfying any and all of the
conditions or obligations set forth in this Agreement with respect to the
Subgroup with respect to which it serves as Subgroup Agent and for satisfying
any and all of the conditions and obligations set forth in this Agreement with
respect to each of the Subgroup Members of the respective Subgroups which is not
a Signator Corporation, respective of whether such Subgroup Member is referred
to in this Agreement as a Subgroup Member or a Member. Further, where expressly
provided, each Subgroup Agent shall also be responsible for satisfying those
conditions and obligations set forth in this Agreement on behalf of any Subgroup
Member of the respective Subgroups which is a Signator Corporation, irrespective
of whether such Subgroup Member is referred to in this Agreement as a Subgroup
Member or a Member.
Subgroup Members - "Subgroup Members" shall mean those members
described as the Landmark Subgroup on Schedule D, the Florida Subgroup on
Schedule E, the Fairways Subgroup on Schedule F, the Georgia Subgroup on
Schedule G, Wild West Subgroup on Schedule H, the Xochimilco Subgroup on
Schedule I, the Travel Subgroup on Schedule J, the Vacation Subgroup on Schedule
K and any additional Subgroups that join the REC Group after the effective date
of this agreement. Appropriate amendments shall be made to Schedules D, E, F, G,
H, I, J and K to reflect changes in identity of Subgroup members or
reorganizations of Subgroups occurring after the date of execution of this
Agreement.
Taxable Income - "Taxable Income" shall, except as otherwise
provided herein, mean, with respect to a particular Group or Subgroup, the
aggregate taxable income of all Group or Subgroup Members for the relevant
Taxable Year determined with respect to each Group Member in accordance with
Treas. Reg. ss. 1.1502-12. In the event a Member shall fail to be a Member of
the REC Group for the entire Taxable Year, the taxable income of such Member
shall mean the taxable income (determined in accordance with Treas. Reg. ss.
1.1502-12) of the Member for the portion of the Taxable Year during which the
Member is a Member of the REC Group. In determining any such Member's taxable
income for such period, unless otherwise mutually agreed, the entering or
departing Member shall be required to "close its books" as of the day the Member
joins or departs the REC Group (whichever shall be applicable).
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8
Taxable Loss - "Taxable Loss" shall, except as otherwise provided
herein, mean, with respect to a particular Group or Subgroup, the aggregate
taxable loss of all Group or Subgroup Members for the relevant Taxable Year
determined with respect to each Group Member in accordance with Treas. Reg. ss.
1.1502-12. In the event a Member shall fail to be a Member of the REC Group for
the entire Taxable Year, the taxable loss of such Member shall mean the taxable
loss (determined in accordance with Treas. Reg. ss. 1.1502-12) of the Member for
the portion of the Taxable Year during which the Member is a Member of the REC
Group. In determining any such Member's taxable loss for such period, unless
otherwise mutually agreed, the entering or departing Member shall be required to
"close its books" as of the day the Member joins or departs the REC Group
(whichever shall be applicable).
Taxable Year - "Taxable Year" shall mean the taxable year of the
Parent. It is expressly provided herein that to the extent permitted by law,
commencing with the first taxable year of the Parent that includes the Effective
Date, the Taxable Year of the Parent shall be the fiscal year ending October
31st.
ARTICLE II
ADMINISTRATIVE PROVISIONS
2.1 Filing Returns. The Parent is hereby authorized and directed,
and hereby agrees, to prepare and timely file Consolidated and Combined Tax
Returns for each Taxable Year during the term of this Agreement in accordance
with the requirements of the Code and state statutes and the regulations
promulgated thereunder. The Parent is also authorized and directed, and hereby
agrees, to pay any Consolidated and Combined Tax Liabilities as determined in
the Consolidated and Combined Tax Returns, subject to the obligation of the
Group Agents, on behalf of their respective Groups, to pay amounts to the Parent
in accordance with this Agreement. In any case where the Parent cannot, for any
reason, file a Consolidated or Combined Return that includes a Group Member,
such Group Member is hereby authorized and directed to file on its own behalf
(or with any similar Group Member) such returns and reports as are necessary.
2.2 Agent on Behalf of Group. The Parent is hereby authorized and
directed, and hereby agrees, to act as the agent and attorney-in-fact for each
Member to file the Consolidated and Combined Tax Returns, and to take any action
necessary or appropriate (in its sole discretion) in connection with the
determination of the Consolidated and Combined Tax Liabilities of the REC Group
associated with the Consolidated and Combined Tax Returns for any Taxable Year,
including, without limitation, contesting the assessment of any deficiency,
entering into any closing agreement, compromise or settlement, filing any
amended return, prosecuting any action for refund, and making any election or
exercising any option. It is expressly provided
<PAGE>
9
herein that if all or part of an unused consolidated net operating loss is
allocated to a Member; pursuant to Treas. Reg. ss. 1.1502-79A for years
beginning before January 1, 1997 and ss. l.1502-21T(b) for years beginning after
December 31, 1996; and is capable of being carried back to a taxable year with
respect to which the Member filed a separate return or a consolidated return
with another affiliated group, the Parent shall determine whether or not an
election shall be made not to carry back part or all of a consolidated net
operating loss for any taxable year in accordance with Section 172(b) (3) of the
Code.
2.3 Assistance and Sharing of Information. Each Member shall provide
the Parent and the Parent's Representatives with such assistance as may
reasonably be requested by the Parent in connection with the discharge of its
responsibilities as agent on behalf of the REC Group as set forth in Section
2.2. Such assistance shall include, without limitation, analyzing and compiling
financial information and data with accompanying schedules and related
workpapers, preparing documents relating to rulings or other determinations by
taxing authorities, maintaining records concerning the ownership and tax basis
of property and operations of the Member, and preparing and maintaining such
other records or substantiation as may be relevant. Each Member shall make its
employees and representatives available to the Parent and the Parent's
Representatives on a mutually convenient basis to provide information and
explanations of any documents or information provided. Each Member shall retain
all tax returns, schedules, and workpapers, and all material records or other
documents relating in any manner to the affairs of the REC Group or to the
affairs of the Member until the expiration of the applicable statute of
limitations (including extensions) to which tax returns and other documents
relate. At the expiration of such statute of limitations, a Member shall have
the right to dispose of such material after providing thirty (30) days notice to
the Parent.
Any information provided pursuant to this provision or similar provision of this
Agreement shall be kept confidential, except as may otherwise be necessary in
connection with any required disclosure to any relevant taxing authority.
2.4 Scope of Agreement. This Agreement relates solely to the
administration of the REC Group and the determination of the Consolidated and
Combined Tax Liabilities of the REC Group and, to the extent applicable under
Section 9, to the administration of state and local tax affairs and the
determination of state and local income tax liabilities.
2.5 Future Members. If an entity at a future date becomes a Member,
such entity shall be deemed a party and shall be bound by the terms of this
Agreement as if it were a party and signator to this Agreement. Any new Member
or Member of a Subgroup shall provide to the Parent a statement setting forth
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10
all tax attributes carried over to the REC Group by the new Member including,
without limitation, the amount of any net operating losses, net capital losses
and investment credit carryforwards, as well as the identity of all elections
made by or on behalf of such new Member. Anything in this Agreement to the
contrary notwithstanding, any Member which is not a signator to this Agreement
shall also be deemed a party and shall be bound by the terms of this Agreement
notwithstanding that all or a portion of the obligations of such party shall be
borne by the Group Agent of the respective Group of which the Member is a
member.
ARTICLE III
DETERMINATION OF ESTIMATED TAX
3.1 Informational Reporting. In addition to its obligations under
Section 2.3 generally, each Member shall, at its own expense, compile and
furnish such items of financial information pertaining to such Member covering
such portions of all Taxable Years as requested by the Parent in order to enable
the Parent to compute the amount of estimated consolidated or similar taxes
required to be paid by the Parent to avoid the imposition of penalties with
respect to the REC Group under Section 6655 of the Code including, without
limitation, the amount of all items of income, gain, loss, deduction and credit
derived by the Member for the period of time specified by the Parent. The Member
shall furnish the information as of the date prescribed by the Parent.
3.2 Amount. The amount of estimated consolidated and combined tax or
similar payments required to be paid by the REC Group shall be determined by the
Parent in accordance with the provisions of the Code and applicable state
statutes.
3.3 Allocation of Estimated Consolidated and Combined Tax
Liabilities. The Parent, in its sole discretion shall allocate the Estimated
Consolidated and Combined Tax Liabilities of the REC Group among the Subgroups
in accordance with the method for allocating the consolidated and combined tax
liabilities defined in Section 4.2
3.4 Payments to Parent. Each Subgroup Agent shall pay to the Parent
the portion of each installment of estimated tax liability allocated to its
Subgroup or Member in accordance with Section 3.3 above not later than the due
date prescribed by law for the payment of such estimated tax installment.
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11
ARTICLE IV
PREPARATION OF CONSOLIDATED AND COMBINED TAX RETURNS AND
ALLOCATION OF CONSOLIDATED AND COMBINED RETURN TAX LIABILITIES
4.1 Return Preparation. In addition to its obligations under Section
2.3 generally, each Member shall, at its own expense, compile and furnish to the
Parent such items of financial information pertaining to the Member with respect
to the relevant Taxable Year that shall be required in order to enable the
Parent to prepare the Consolidated and Combined Tax Returns with respect to such
Taxable Year and to determine the Consolidated and Combined Tax Liabilities of
the REC Group for the Taxable Year. Such information shall be furnished to the
Parent not later than the date prescribed therefor by the Parent. In the event
that the Parent shall request an extension of time to file the Consolidated or
Combined Tax Return of the REC Group and payment shall be required of the REC
Group as of the due date of the Consolidated or Combined Tax Return (determined
without regard to extensions) (the "Extension Payment"), the Parent shall
determine the amount of the Extension Payment and allocate the liability for the
Extension Payment among the Subgroups in the same manner as set forth in Section
3.3 pertaining to the allocation of the Estimated Tax Liability. Not later than
the due date of the Consolidated or Combined Tax Return (determined without
regard to extensions), each Subgroup Agent on behalf of the respective Subgroup
shall pay to the Parent the Subgroup's allocable portion of the liability for
the Extension Payment. For purposes of Section 4.3, the portion of the Extension
Payment paid by each Subgroup, if any, shall be considered an estimated tax
payment paid by the respective Subgroup.
4.2 Allocation of Liability
(a) Income Taxes. As promptly as is reasonably practicable following
the preparation of the Consolidated Tax Return with respect to a Taxable
Year, the Parent shall allocate the Consolidated Tax Liability of the REC
Group for such Taxable Year among each Subgroup in accordance with the
Taxable Income or Loss of that Subgroup calculated as if that Subgroup for
such Taxable Year were not included in the REC consolidated tax return, as
illustrated at Exhibit I.
The Parent may, at its discretion, adjust the allocation of the
consolidated tax liability of the Parent and the Subgroups for purposes of
this agreement, for the amortization of intangible assets included in the
Parent's taxable income pursuant to Treas. Reg. ss. 1.1502-12. This
adjustment may only be effected by the Parent for intangible assets which
were not contributed to a Subgroup member concurrently with the
contribution of the assets acquired in the transaction giving rise to the
intangible.
(b) Alternative Minimum Taxes. If for any Taxable Year the REC Group
shall have a liability for federal
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12
alternative minimum taxes, the Consolidated Tax Liability of the REC Group
for such Taxable Year, as determined in the Consolidated Tax Return, shall
be allocated by the Parent, as promptly as is reasonably practicable
following the preparation of the Consolidated Return, among Subgroups in
accordance with their taxable income calculated as if that Subgroup for
such Taxable Year were not included in the REC consolidated tax return.
For purposes of this Section 4.2(b), the term "Taxable Income" shall mean,
with respect to a particular Subgroup, the aggregate alternative minimum
taxable income of all Subgroup Members for the relevant Taxable Year
determined with respect to each Subgroup Member in accordance with Prop.
Treas. Reg. ss. 1.1502-55(b)(2)(ii)(A), reduced by the Subgroup's portion
of any consolidated alternative minimum tax net operating loss deduction.
In the event that the REC Group shall have a liability for consolidated
federal alternative minimum taxes, the resulting consolidated minimum tax
credit shall be allocated among each of the Subgroups in accordance with
their relative portion of the alternative minimum tax liability described
in this Section 4.2(b) and shall be applied in determining the allocation
of liability of the Subgroups under Section 4.2(a) in subsequent Taxable
Years.
(c) Franchise Taxes. As promptly as is reasonably practicable
following the preparation of the Combined Tax Return with respect to a
Taxable Year, the Parent shall allocate the Combined Tax Liability of the
REC and Land Groups for such Taxable Year, as determined in the Combined
Tax Return, among each Member of the REC Group in accordance with the
Combined Taxable Income or Loss of that Member as reflected on the
Combined Tax Return as filed. A separate agreement shall govern the
allocation of the Combined Tax Liability between REC and the Land Group.
The Parent may, at its discretion, adjust the allocation of the
combined tax liability of the Parent and the Subgroups for purposes of
this agreement, for the amortization of intangible assets included in the
Parent's taxable income pursuant to Treas. Reg ss. 1.1502-12. This
adjustment may only be effected by the Parent for intangible assets which
were not contributed to a Subgroup member concurrently with the
contribution of the assets acquired in the transaction giving rise to the
intangible.
4.3 Allocation Payments.
(a) Payments by Members. Not later than the date prescribed by the
Parent, each Subgroup Agent on behalf of its Subgroup shall pay to the
Parent the excess, if any, of the Subgroup's allocable share of the
Consolidated or Combined Tax Liability determined in accordance with
Section 4.2 over the amount of estimated tax payments paid
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13
by the Subgroup Agent on behalf of such Subgroup to the Parent with
respect to such Taxable Year.
(b) Payments by Parent. The Parent shall pay to the Subgroup Agent
on behalf of its Subgroup, the excess, if any, of the amount of estimated
tax payments paid to the Parent by such Subgroup Agent on behalf of such
Subgroup for such Taxable Year over the respective Subgroup's allocable
share of the Consolidated or Combined Tax Liability of the REC Group for
such Taxable Year as determined in accordance with Section 4.2. With
respect to such excess, if any, an amount not in excess of the amount paid
to the Parent in accordance with Section 4.3(a) shall be paid by the
Parent to the Subgroup Agent on behalf of its Subgroup not later than
twenty (20) days following the receipt by the Parent of such amount. The
balance, if any, shall be payable not later than twenty (20) days
following the receipt by the Parent of a refund attributable to the
payment of estimated taxes by the Parent with respect to such Taxable Year
in excess of the Consolidated or Combined Tax Liability of the REC Group
for such Taxable Year. Notwithstanding the foregoing, the Parent shall be
authorized to apply all or a portion of the excess of the Estimated Tax
Liability of the REC Group for a Taxable Year over the Consolidated or
Combined Tax Liability of the REC Group for such Taxable Year as a credit
to the Consolidated or Combined Tax Liability of the REC Group for the
subsequent Taxable Year in which event the amounts otherwise payable to a
Subgroup Agent on behalf of its Subgroup in accordance with this Section
4.3(b) shall be treated as an estimated tax payment by such Subgroup for
the subsequent Taxable Year.
(c) Payments to Loss Members. It is expressly provided herein that
REC and the Subgroups shall each be compensated by other Members or
Subgroups for utilization of federal tax losses or tax credits generated
by either the Parent or the Subgroups. The term "tax loss" shall include a
"capital loss." There will be no payment for credits or net operating
losses when used by the party which generated the losses or credits.
Payment will occur between Subgroups of the REC Group when these losses or
credits are utilized by parties that did not generate the losses or
credits, if the total losses of loss Subgroups are not fully utilized in
any one year, such utilization of federal tax losses shall be determined
on a prorate basis amongst the loss Subgroups.
ARTICLE V
ADJUSTMENTS
5.1 Recomputation. Except as otherwise provided in Section 8.1, if
the Consolidated or Combined Tax Liability of the REC Group is adjusted for any
Taxable Year, whether by means of an amended return, a claim for refund, an
audit, a carryback or
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14
carryforward of losses or credits, or any other reason, the liability of each
Subgroup shall be re-computed under Section 4.2 in order to give effect to such
adjustments. In the case of an increase of a Subgroup's liability as a
consequence of a recomputation under this Section 5.1, the Parent shall furnish
to the Subgroup Agent of such Subgroup a notice setting forth (a) the
circumstances triggering the recomputation and (b) the amount of the increased
tax liability payable by the Subgroup in connection with such recomputation (the
"Original Recomputation Notice"). Payment by the Subgroup Agent of the amount
reflected in the Original Recomputation Notice shall be due not later than sixty
(60) days following the furnishing of the Original Recomputation Notice by the
Parent to the Subgroup Agent (the "Recomputation Due Date"). In the event of a
reduction in a Subgroup's liability, the Parent shall pay to the Subgroup Agent
on behalf of its Subgroup the share of such decreased liability not later than
sixty (60) days following the receipt by the Parent of a refund or other revenue
associated with such decreased liability.
ARTICLE VI
EARNINGS AND PROFITS
6.1 General. The REC Group did not make the election described in
Treas. Reg. ss. 1.1552-1(c) and, accordingly, the earnings and profits of each
Member is currency determined by allocating the tax liability of the REC Group
among the Members in accordance with the method described in Treas. Reg. ss.
1.1552-1(a) (1). Further, the REC Group did not make the election described in
Treas. Reg. ss. 1.1502-33(d) (5) and, accordingly, none of the complementary
methods described in Treas. Reg. ss. 1.1502-33(d) for allocating the liability
of the REC Group among the Members for earnings and profits purposes currently
applies. If the Parent, whether pursuant to Revenue Procedure 90-39 or
otherwise, elects an alternative method for allocating the tax liability of the
REC Group among the Members for earnings and profits purposes, the Parent shall
provide notice to the Members.
ARTICLE VII
COSTS
7.1 General. All costs associated with items of administration of
the REC Group which either (a) relate solely to a particular Member or Members
of the same Subgroup or (b) are, with the approval of the Parent, billed
directly to a particular Member or the Subgroup Agent on behalf of Members of
the same Subgroup, including without limitation, the costs associated with an
audit that relates solely to adjustment associated with a single Member or
Members of the same Subgroup and costs associated with the preparation of a
state tax return filed on behalf of one Member or Members of the same Subgroup,
shall be
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15
paid by such Member, Subgroup Members or Subgroup Agent. All other costs,
including without limitation, the costs incurred by the Parent in connection
with the preparation of the Consolidated and Combined Returns for a particular
Taxable Year and the costs incurred by the Parent in connection with the
preparation of the estimated tax returns for a particular Taxable Year shall be
allocated among all Subgroups. Anything in the preceding provisions of this
Section 7.1 to the contrary notwithstanding, in connection with an audit that
involves Members of more than one Subgroup, the Parent shall be authorized to
allocate the Parent's costs between the Subgroups on any reasonable basis.
ARTICLE VIII
DEPARTURE FROM AFFILIATED GROUP
8.1 Former Member. If any Member ceases to be a Member (a "Former
Member"), such Former Member shall continue to be liable for all obligations
wing hereunder with respect to the period during which the Former Member was a
Member.
8.2 Indemnification by Former Member. It is expressly provided
herein that the indemnities set forth in Section 2.4, if applicable, shall
survive the departure of any Member from the REC Group.
8.3 Election Under Treas. Reg. ss. 1.1502-20(g). If (a) a Member
becomes a Former Member as a consequence of a disposition by the Parent or other
Member of the stock of the Former Member, (b) the Parent or other Member's loss,
if any, on such disposition would be disallowed under Treas. Reg. ss. 1.1502-20
and (c) the Parent provides notice to the Former Member that the Parent desires
to make the election to reattribute to the REC Group the net operating loss
carryovers and capital loss carryovers attributable to the Former Member (not in
excess of the amount of the disallowed loss), the Former Member shall consent to
such election as of the date prescribed by the Parent and shall perform all such
other actions as shall be required in order to accomplish the reattribution of
such losses to the Parent.
ARTICLE IX
STATE AND LOCAL RETURNS
9.1 General. The parties also desire that the principles of this
Agreement apply to the preparation of, and payment and allocation of liability
for payment with respect to, tax returns of Members, either required by law or
filed on behalf of Members by or at the direction of the Parent (to the extent
permitted by law), doing business in a state or locality of the United States
that require taxes determined with respect to income to be filed on a combined
or consolidated basis by two or more Members irrespective of whether REC is or
is not included in
<PAGE>
16
such return ("Other Applicable Returns"). For purposes of the preceding
sentence, "taxes determined with respect to income" shall include taxes
determined on a basis other than with respect to income if taxes determined on
such other bases are determined for the Taxable Period on a combined or
consolidated basis in lieu of taxes determined with respect to income.
Accordingly, REC and the Members shall prepare such Other Applicable Returns and
pay (subject to reimbursement), and allocate the liability for payment with
respect to the Other Applicable Returns in accordance with the general
principles set forth in this Agreement. For purposes of the preceding sentence,
it is intended, by way of illustration, that defined terms such as the "REC
Group", "Consolidated Tax Liability", and "Combined Tax Liability" shall be
defined as the context indicates but in a manner consistent with the definition
of the terms provided in Section 1.1. It is expressly provided, however, for
purposes of this Section 9.1 that returns required under state or local law on a
basis other than combined or consolidated methods are expressly excluded from
the definition of "Other Applicable Returns."
ARTICLE X
MISCELLANEOUS
10.1 Medium of Payment; Interest on Late Payments. Any payment
required under this Agreement shall be paid in immediately available U.S. funds.
10.2 Joint and Several Liability. Each Member shall have joint and
several liability for all payments required of all members of the same Group.
The foregoing provision is, however, in no way intended to minimize or to limit
the several liability of each Member of the REC Group imposed under Treas. Reg.
ss. 1.1502-6.
10.3 Approval of Tax Preparer. Anything in this Agreement to the
contrary notwithstanding including particularly the last sentence of Section
9.1, the Parent shall designate the return preparer in connection with the
preparation of any tax return based upon taxable income which is filed in a
United States jurisdiction by or on behalf of any Member. The foregoing
provision shall, however, in no way minimize or limit the indemnity of each
Member as set forth in Section 2.4 if applicable.
10.4 Duration. This Agreement shall be effective as of the date
hereof and shall continue in effect unless or until the Parent elects to
terminate the Agreement. Notwithstanding such termination, this Agreement shall
continue in effect with respect to matters affecting Taxable Years prior to the
date of termination.
<PAGE>
17
10.5 Arbitration. Except as may be mutually agreed by the parties,
any dispute involving the interpretation of this Agreement between or among any
of the Members, including any Former Member, may, at the written request of the
Group Agent of the Group with respect to which the Member is a Group Member, be
submitted for the review and professional opinion of the public accounting firm
which is then the auditor of the books of the Parent; provided, however, that
any Group Agent may elect not to be bound by such opinion if the election is
made in writing and delivered to the Parent within thirty (30) days after the
date such an opinion has been rendered, in which event any dispute shall
thereupon be settled in accordance with the rules of the American Arbitration
Association then obtaining, and judgment upon the award rendered by the
arbitrator(s) shall be entered in any court maintaining jurisdiction thereto and
shall be binding upon all the Members.
All costs of any proceeding contemplated by this Section 10.5 shall be borne by
the party who fails to prevail or whose assertion is farthest in financial
amount or substance from the ultimate determination of the amount or issue in
dispute.
10.6 Necessary Documents. Each party hereto shall execute and
deliver such consents and instruments in a timely manner take such other and
further action as shall be necessary or appropriate to comply with the
provisions of this Agreement.
10.7 Successors in Interest. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, including any Former Member, and
their respective successors and assigns.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts and, when such counterparts shall have been executed by the Parent
and each of the Members described herein, all such counterparts shall constitute
the binding agreement of the parties hereto.
10.9 Entire Agreement; Amendment. This Agreement constitutes the
entire understanding and agreement of the parties hereto in relation to its
subject matter. Except insofar as the termination of the Agreement by the Parent
in accordance with Section 10.4, none of the Agreements terms or conditions may
be changed, modified, amended, rescinded, waived, or canceled except by a
writing signed by all parties specifying such change, modification, amendment,
rescission, waiver, or cancellation. No promise, representation, warranty or
covenant not included in this Agreement has been or is relied upon by the
parties. Each party has relied upon his or its own examination of the full
Agreement and the provisions thereof the failure or refusal of any party to
inspect the Agreement or other documents, or to obtain legal advice or other
advice relevant to this Agreement, constitutes a waiver of any objection,
contention, or claim that might have been based upon such reading, inspection or
advice.
<PAGE>
18
No modification or amendment of this Agreement shall be of any force or effect
unless in writing and executed by all parties.
10.10 Section Headings and Titles. The section headings and titles
of this Agreement do not constitute a part of this Agreement, having been
inserted for convenience and reference only and shall have no effect upon the
construction or interpretation of this Agreement, in the pursuit of any remedy
whether provided hereunder or by the statutes or other law of the State of
California, regardless of whether such remedy is pursued by filing a suit or
otherwise.
10.11 Interpretation of Agreement. This Agreement shall be governed
by the laws applicable to contracts entered into and to be fully performed
within the state of California by residents thereof. Unless otherwise provided,
all terms shall have the meaning given them in ordinary English usage and as
customarily used. Words with the masculine gender include the feminine and
neuter. A waiver by either Party of a breach of any term or condition of this
Agreement shall not constitute a waiver of any further breach of a term or
condition.
10.12 Notices. Any notice or other communication under this
Agreement shall be in writing and shall be deemed to have been provided upon the
delivery or making thereof, as the case may be, if delivered personally, or sent
by certified mail, return receipt requested, postage prepaid, to the parties at
the addresses designated by the parties from time to time, or if an address is
not designated by a party, at the last known address of such party.
10.13 References to Treasury Regulations. All references herein to
provisions of the Treasury Regulations shall incorporate references to the
corresponding provisions of amended Treasury Regulations.
[Signature Page to Follows]
<PAGE>
SIGNATOR CORPORATIONS
KSL RECREATION CORPORATION
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL RECREATION GROUP, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL LANDMARK CORPORATION
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL DESERT RESORTS, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL VACATION RESORTS, INC.
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
<PAGE>
2
XOCHIMILCO PROPERTIES, INC.
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
WILD WEST DESERT PROPERTIES, INC.
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
KSL TRAVEL, INC.
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
KSL GOLF HOLDINGS, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL FAIRWAYS GOLF CORPORATION
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL FLORIDA HOLDINGS, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
<PAGE>
3
KSL GEORGIA HOLDINGS, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL HOTEL CORPORATION
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL LAKE LANIER, INC.
/s/ Steven Elliott April 30, 1997
- ------------------------ ------------------------
Signed by Steven Elliott Date
KSL LAND CORPORATION
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
KSL LAND II CORPORATION
/s/ John Saer April 30, 1997
- ------------------------ ------------------------
Signed by John Saer Date
<PAGE>
SCHEDULE B
REC GROUP MEMBERS
KSL RECREATION CORPORATION
KSL VACATION RESORTS, INC.
KSL LANDMARK CORPORATION
KSL DESERT RESORTS, INC.
XOCHIMILCO PROPERTIES, INC.
WILD WEST DESERT PROPERTIES, INC.
KSL TRAVEL, INC.
KSL GOLF HOLDINGS, INC.
KSL FAIRWAYS WISCONSIN I, INC.
KSL FAIRWAYS WISCONSIN II, INC.
KSL FAIRWAYS WISCONSIN III, INC.
KSL FAIRWAYS GOLF CORPORATION
KSL FLORIDA HOLDINGS, INC.
KSL HOTEL CORPORATION
KSL FAIRWAYS MIDWEST, INC.
KSL GEORGIA HOLDINGS, INC.
KSL LAKE LANIER, INC.
<PAGE>
SCHEDULE C
LAND GROUP MEMBERS
KSL LAND CORPORATION
KSL LAND II CORPORATION
<PAGE>
SCHEDULE D
LANDMARK SUBGROUP
KSL LANDMARK CORPORATION
KSL DESERT RESORTS, INC.
<PAGE>
SCHEDULE F
FAIRWAYS SUBGROUP
KSL GOLF HOLDINGS, INC.
KSL FAIRWAYS WISCONSIN I, INC.
KSL FAIRWAYS WISCONSIN II, INC.
KSL FAIRWAYS WISCONSIN III, INC.
KSL FAIRWAYS GOLF CORPORATION
KSL FAIRWAYS MIDWEST, INC.
<PAGE>
SCHEDULE E
FLORIDA SUBGROUP
KSL FLORIDA HOLDINGS, INC.
KSL HOTEL CORP.
<PAGE>
SCHEDULE G
GEORGIA SUBGROUP
KSL GEORGIA HOLDINGS, INC.
KSL LAKE LANIER, INC.
<PAGE>
SCHEDULE H
WILD WEST SUBGROUP
WILD WEST DESERT PROPERTIES, INC.
<PAGE>
SCHEDULE I
XOCHIMILCO SUBGROUP
XOCHIMILCO PROPERTIES, INC.
<PAGE>
SCHEDULE J
TRAVEL SUBGROUP
KSL TRAVEL, INC.
<PAGE>
SCHEDULE K
VACATION SUBGROUP
KSL VACATION RESORTS, INC.
<PAGE>
EXHIBIT I
ILLUSTRATION OF THE CALCULATION REQUIRED PURSUANT TO
PARAGRAPH 4.2(e)
<TABLE>
<CAPTION>
LANDMARK FLORIDA FAIRWAYS GEORGIA WILD WEST
ENTITY SUBGROUP SUBGROUP SUBGROUP SUBGROUP SUBGROUP TOTAL
- ------ -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
KSL Landmark Corporation (10,500)
KSL Desert Resorts, Inc. (27,00)
KSL Florida Holdings (9,000)
KSL Hotel Corp. (25,000)
KSL Golf Holdings, Inc. (500)
KSL Fairways Wisconsin I, Inc. 0
KSL Fairways Wisconsin II, Inc. 0
KSL Fairways Wisconsin III, Inc. 0
KSL Fairways Golf Corp. (23,000)
KSL Fairways Midwest 5,000
KSL Georgia Holdings 1,000
KSL Lake Lanier, Inc. 4,000
Wild West Desert Properties 10,000
-----------------------------------------------------------------------------
Taxable Income (Loss) (37,500) (34,000) (18,500) 5,000 10,000 (75,000)
Federal Tax Rate 34% 34% 34% 34% 34% 34%
-----------------------------------------------------------------------------
Tax Affect of Income/(Loss) (12,750) (11,560) (6,290) 1,700 3,400 (25,500)
=============================================================================
Allocation of Loss to Subgroups** (31,250) (28,333) (15,417) (75,000)
Loss as if Subgroups Filed Separate
Tax Returns (37,500) (34,000) (18,500) (90,000)
-----------------------------------------------------------------------------
Difference in Allocation Resulting
from Consolidated Tax Return 6,250 5,667 3,083 15,000
Federal Tax Rate 34% 34% 34% 34%
-----------------------------------------------------------------------------
Tax on Difference 2,125 1,927 1,048 5,100
=============================================================================
Intercompany Receivable/Payable 2,125 1,927 1,048 (1,700) (3,400) 0
=============================================================================
</TABLE>
** Allocation is calculated by dividing subgroup's separate loss into the
sum of all losses, and multiplying the resulting fraction by the
consolidated net income/loss.
Example: KSL Landmark Corp.
Subgroup Loss (37,500)
Total Losses (90,000)
--------
Ratio 41.67%
Consolidated Taxable Loss (75,000)
--------
Allocated Loss (31,250)
=======
<PAGE>
EXHIBIT II
ILLUSTRATION OF THE CALCULATION REQUIRED PURSUANT TO
PARAGRAPH 4.2(a)
(After Effective Date of the Amendment)
<TABLE>
<S> <C> <C> <C> <C>
KSL Recreation Group, Inc. 5,000
KSL Landmark Corporation 10,000
KSL Desert Resorts, Inc. (160,000)
KSL Florida Holdings 75,000
KSL Hotel Corp. 80,000
KSL Golf Holdings, Inc. 2,000
KSL Fairways Golf Corp. 4,000
KSL Fairways Midwest 12,500
KSL Georgia Holdings 2,000
KSL Lake Lanier, Inc. 500,000
KSL Travel, Inc. (175,000)
Wild West Desert Properties (600,000)
-------------------------------------------------------
Taxable Income/(Loss) 530,500 (175,000) (600,000) (244,500)
Federal Tax Rate 34% 34% 34% 34%
-------------------------------------------------------
Tax Affect of Income/(Loss) 180,370 (59,500) (204,000) (83,130)
=======================================================
Allocation of Loss to Subgroups** (56,210) (189,290) (244,500)
Income/(Loss) as if Subgroups Filed Separate Tax Returns (175,000) (600,000) (775,000)
-------------------------------------------------------
Difference in Allocation Resulting from Consolidated Tax
Return 119,790 410,710 530,500
Federal Tax Rate 34% 34% 34%
Tax on Difference 40,729 139,641 180,370
=======================================================
Intercompany Receivable/Payable (180,370) 40,729 139,641 0
=======================================================
</TABLE>
<PAGE>
AMENDMENT
of
TAX SHARING AGREEMENT
This amendment to the Tax Sharing Agreement dated April 30, 1997
by and between KSL Recreation Corporation, a California corporation, ("REC")
and each of the entities described on Schedule A annexed hereto (the
"Signator Corporations") shall be effective on the date of incorporation of
KSL Recreation Group, Inc.
Concurrent with the incorporation of KSL Recreation Group, Inc. and
for taxes payable for periods after the incorporation of KSL Recreation Group,
Inc., KSL Recreation Group, Inc. and the Landmark, Fairways, Hotel and Lanier
Subgroups will be treated as a single Subgroup, the Bond Subgroup. Exhibit A of
this amendment shall become Schedule L of the Tax Sharing Agreement on the
effective date of this agreement. Schedule B of the Tax Sharing Agreement shall
be amended to add KSL Recreation Group, Inc. Schedules D, E, F and G will not be
applicable to income and franchise taxes of the Rec Group for periods commencing
with the effective date of this amendment.
In the event that a Subgroup currently has, as of the date of this
Amendment, a net Taxable loss, such taxable loss, to the extent not compensated
for in accordance with Paragraph 4.3(c), shall be carried forward or carried
back in computing the amount to be paid by it to such Subgroup, as if such
Subgroup continued to file a separate consolidated tax return that included only
Members of such Subgroup.
The Parent hereby designates KSL Recreation Group, Inc. as the
Subgroup Agent for the Bond Subgroup.
[Signature Page to Follow]
<PAGE>
2
EXHIBIT A
SCHEDULE L
BOND SUBGROUP
KSL RECREATION GROUP, INC.
KSL LANDMARK CORPORATION
KSL DESERT RESORTS, INC.
KSL FLORIDA HOLDINGS, INC.
KSL HOTEL CORP.
KSL GOLF HOLDINGS, INC.
KSL FAIRWAYS GOLF CORPORATION
KSL FAIRWAYS MIDWEST, INC.
KSL GEORGIA HOLDINGS, INC.
KSL LAKE LANIER, INC.
<PAGE>
EXHIBIT 11
KSL RECREATION GROUP, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS):
Income (loss) before extraordinary item................ $ (5,527) $ (16,330) $ (12,580) $ 8,994 $ 13,034
Extraordinary gain (loss) on early extinguishment of
debt................................................. (2,202) 0 32,120 32,120 (3,138)
--------- ---------- ---------- ---------- ---------
Net income (loss)...................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------
DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT SHARES:
Weighted average number of common shares outstanding... 1,000 1,000 1,000 1,000 1,000
Common equivalent shares............................... -- -- -- -- --
--------- ---------- ---------- ---------- ---------
Weighted average number of common and common equivalent
shares outstanding................................... 1,000 1,000 1,000 1,000 1,000
--------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------
EARNINGS (LOSS) PER SHARE -- Primary & Fully Diluted:
Income (loss) per share before extraordinary item...... $ (5,527) $ (16,330) $ (12,580) $ 8,994 $ 13,034
Extraordinary gain (loss) per share.................... (2,202) 0 32,120 32,120 (3,138)
--------- ---------- ---------- ---------- ---------
EARNINGS (LOSS) PER SHARE -- Primary & Fully Diluted..... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------
</TABLE>
<PAGE>
KSL RECREATION GROUP, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995, and 1996
AND THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(in thousands, except ratios)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended October 31, April 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) before income taxes and
extraordinary items $ (5,527) $(16,330) $(12,871) $ 8,991 $ 15,229
Minority interests in losses of subsidiaries (458) (201) (58) (78) (182)
Interest and amortization of debt issuance costs 17,784 23,945 28,768 13,068 15,850
-------- --------- -------- -------- --------
Total earnings $ 11,799 $ 7,414 $ 15,839 $ 21,981 $ 30,897
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Fixed Charges
Interest and amortization of debt issuance costs $ 17,784 $ 23,945 $ 28,768 $ 13,068 $ 15,850
Capitalized Interest 79 1,043 577 373 -
Implicit rental interest expense - - - - -
-------- --------- -------- -------- --------
Total fixed charges $ 17,863 $ 24,988 $ 29,345 $ 13,441 $ 15,850
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Ratio of earnings to fixed charges - - - 1.6x 1.9x
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Excess of fixed charges over earnings $ 6,064 $ 17,574 $ 13,506 - -
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
</TABLE>
<PAGE>
Exhibit 21
List of Subsidiaries
Name State of Incorporation
KSL Landmark Corporation Delaware
KSL Desert Resorts, Inc. Delaware
KSL Florida Holdings, Inc. Delaware
KSL Hotel Corp. Delaware
KSL Golf Holdings, Inc. Delaware
KSL Fairways Golf Corporation Delaware
The Fairways Group L.P. Delaware
KSL Georgia Holdings, Inc. Delaware
KSL Lake Lanier, Inc. Delaware
Mequon Country Club, Inc. Wisconsin
Monroe Associates, L.P Pennsylvania
Liberty Golf Park, Inc. Pennsylvania
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of KSL Recreation
Group, Inc. on Form S-4 of our report dated April 9, 1997 (April 30, 1997 as to
the first paragraph of Note 1) appearing in the Prospectus, which is a part of
this Registration Statement, and to the reference to us under the headings
"Summary Financial Data," "Selected Financial Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
July 9, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T - 1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
13-3781471
(I. R. S. Employer
Identification No.)
100 Wall Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
FOR INFORMATION, CONTACT:
Dennis Calabrese, President
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telephone: (212) 361-2506
(Exact name of obligor as specified in its charter)
Delaware 33-0747103
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
KSL Recreation Group, Inc.
56-140 PGA Boulevard
La Quinta, California 92253
(Address of principal executive offices) (Zip Code)
<PAGE>
Item 1. GENERAL INFORMATION.
Furnish the following information as to the trustee - -
(a) Name and address of each examining or supervising authority to which
it is subject.
NAME ADDRESS
---- -------
Comptroller of the Currency Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. LIST OF EXHIBITS.
Exhibit 1. Articles of Association of First Trust of New York,
National Association, incorporated herein by
reference to Exhibit 1 of Form T-1, Registration No.
33-83774.
Exhibit 2. Certificate of Authority to Commence Business for First
Trust of New York, National Association, incorporated
herein by reference to Exhibit 2 of Form T-1,
Registration No. 33-83774.
Exhibit 3. Authorization of the Trustee to exercise corporate
trust powers for First Trust of New York, National
Association, incorporated herein by reference to
Exhibit 3 of Form T-1, Registration No. 33-83774.
Exhibit 4. By-Laws of First Trust of New York, National
Association.
Exhibit 5. Not applicable.
Exhibit 6. Consent of First Trust of New York, National
Association, required by Section 321(b) of the Act,
incorporated herein by reference to Exhibit 6 of Form
T-1, Registration No. 33-83774.
Exhibit 7. Report of Condition of First Trust of New York,
National Association, as of the close of business on
March 31, 1997, published pursuant to law or the
requirements of its supervising or examining authority.
<PAGE>
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Trust of New York, National Association, a national
banking association organized and existing under the laws of the United States,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of
New York, and State of New York, on the 26th day of June, 1997.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
By: /s/ Catherine F. Donohue
----------------------------
Catherine F. Donohue
Vice President
<PAGE>
Exhibit 7
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
STATEMENT OF FINANCIAL CONDITION
AS OF 3/31/97
($000's)
3/31/97
ASSETS
Cash and Balances Due From Depository Institutions $34,695
Federal Reserve Stock 3,502
Fixed Assets 892
Intangible Assets 78,849
Other Assets 5,576
TOTAL ASSET 123,514
LIABILITIES
Other Liabilities 7,171
TOTAL LIABILITIES 7,171
EQUITY
Common and Preferred Stock 1,000
Surplus 120,932
Undivided Profits (5,589)
TOTAL EQUITY CAPITAL 116,343
TOTAL LIABILITIES AND EQUITY CAPITAL $123,514
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
First Trust of New York, National Association
By: /s/ Catherine F. Donohue
----------------------------
Vice President
Dated: June 26, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
10 1/4% SENIOR SUBORDINATED NOTES
DUE 2007
OF
KSL RECREATION GROUP, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY QUALITY FOOD CENTERS, INC.
EXCHANGE AGENT:
FIRST TRUST NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY HAND: BY MAIL:
First Trust National Association (INSURED OR REGISTERED RECOMMENDED)
100 Wall Street, Suite 2000 First Trust National Association
New York, New York 10005 100 Wall Street, Suite 2000
Attention: Cathy Donohue New York, New York 10005
Attention: Cathy Donohue
BY OVERNIGHT EXPRESS:
First Trust National Association
100 Wall Street, Suite 2000
New York, New York 10005
Attention: Cathy Donohue
</TABLE>
BY FACSIMILE:
(212) 514-7431
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 361-2546
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated , 1997
(the "Prospectus") of KSL Recreation Group, Inc. (the "Company"), and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe the
Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of
its new 10 1/4% Series B Senior Subordinated Notes due 2007 (the "Exchange
Notes") for each $1,000 in principal amount of outstanding 10 1/4% Senior
Subordinated Notes due 2007 (the "Old Notes"). The terms of the Exchange Notes
are identical in all material respects (including principal amount, interest
rate and maturity) to the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes are freely
transferable by holders thereof (except as provided herein or in the Prospectus)
and are not subject to any covenant regarding registration under the Securities
Act of 1933, as amended (the "Securities Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<PAGE>
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
AGGREGATE
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY OLD NOTES* TENDERED**
<S> <C> <C> <C>
Total
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes. See
instruction 2.
This Letter of Transmittal is to be used either if certificates representing
Old Notes are to be forwarded herewith or if delivery of Old Notes is to be made
by book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company, pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer-- Procedures for Tendering Old Notes."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
/ / The Depository Trust Company
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Name of Eligible Institution that Guaranteed Delivery ______________________
Date of Execution of Notice of Guaranteed Delivery _________________________
If Delivered by Book-Entry Transfer:
Account Number _____________________________________________________________
<PAGE>
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON
SIGNING THE LETTER OF TRANSMITTAL:
Name _________________________________________________________________________
(Please Print)
Address ______________________________________________________________________
(Including Zip Code)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM
THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address ______________________________________________________________________
(Including Zip Code)
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name _______________________________________________________________________
Address ____________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Any holder who is an "affiliate" of the Company or who has
an arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act must
comply with the registration and prospectus delivery requirements under the
Securities Act.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of the Old Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Old Notes. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company, in connection with the Exchange
Offer) to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Old Notes, and that, when the
same are accepted for exchange, the Company will acquire good and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes or transfer ownership of such Old Notes on the account books maintained by
the book-entry transfer facility. The undersigned further agrees that acceptance
of any and all validly tendered Old Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement (as defined
in the Prospectus) and that the Company shall have no further obligations or
liabilities thereunder except as provided in Section 2 of said agreement.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Old Notes tendered hereby and, in such event, the Old Notes not exchanged
will be returned to the undersigned at the address shown above. In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth under "The Exchange Offer--Certain Conditions to
the Exchange Offer" occur.
By tendering, each holder of Old Notes represents that the Exchange Notes
acquired in the exchange will be obtained in the ordinary course of such
holder's business, that such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes, that such holder is not
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and that such holder is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. Any holder of Old Notes using
the Exchange Offer to participate in a distribution of the Exchange Notes (i)
cannot rely on the position of the staff of the Securities and Exchange
Commission (the "Commission") enunciated in its interpretive letter with respect
to Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (ii) must comply with the registration and prospectus requirements
of the Securities Act in connection with a secondary resale transaction.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes, however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time
prior to the Expiration Date in accordance with the terms of this Letter of
Transmittal. See Instruction 2.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, and registered in
the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
TENDER HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Holder(s)
Dated ___________________ Area Code and Telephone Number ___________________
(MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR OLD NOTES. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR,
ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER
PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE
FULL TITLE OF SUCH PERSON.) SEE INSTRUCTION 3.
Name(s) ________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ____________________________________________________
Taxpayer Identification No. ____________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
Title __________________________________________________________________________
Address ________________________________________________________________________
Name of Firm ___________________________________________________________________
Area Code and Telephone No. ____________________________________________________
Dated __________________________________________________________________________
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
A holder of Old Notes may tender the same by (i) properly completing and
signing this Letter of Transmittal or a facsimile hereof (all references in the
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other document required by this Letter of Transmittal, to the Exchange
Agent at its address set forth above on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT
AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY
DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended. If the Exchange Notes and/or Old Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Old Notes, the signature on the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received on
or prior to the Expiration Date, a letter, telegram or facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date, the Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), will be delivered
by such Eligible Institution together with a properly completed and duly
executed Letter of Transmittal (and any other required documents). Copies of the
notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
<PAGE>
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Old Notes to be withdrawn, (iv) include a statement that such holder
is withdrawing his election to have such Old Notes exchanged, (v) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (vi) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn Old Notes or othewise comply with the book-entry transfer facility
procedure. All questions as to the validity of notices of withdrawals, including
time of receipt, will be determined by the Company and such determination will
be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under the caption "Procedures for Tendering Old Notes" in
the Prospectus at any time on or prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Old Notes.
<PAGE>
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes listed and tendered hereby, no endorsements
of certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holder of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the OldNotes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of such Old Notes, for the holder of such Old Notes; or (ii) for the
account of an Eligible Institution.
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exception therefrom
is not submitted herewith the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS.
The Company reserves the right to waive in its reasonable judgment, in whole
or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated above for further
instructions.
7. SUBSTITUTE FORM W-9.
Each holder of Old Notes whose Old Notes are accepted for exchange (or other
payee) is required to provide a correct taxpayer identification number ("TIN"),
generally the holder's Social Security or federal employer identification
number, and with certain other information, on Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify that the holder
(or other payee) is not subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the holder (or other payee)
to a $50 penalty imposed by the Internal Revenue Service and 31% federal income
tax backup withholding on payments made in connection with the Exchange Notes.
The box in Part 3 of the Substitute Form W-9 may be checked if the holder (or
other payee) has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is
not provided by the time any payment is made in connection with the Exchange
Notes, 31% of all such payments will be withheld until a TIN is provided.
<PAGE>
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to KSL Recreation Group, Inc., 56-140 PGA West
Boulevard, La Quinta, California 92253, attention: Corporate Secretary
(telephone: 619-564-1088).
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Old Notes whose Old Notes are
accepted for exchange may be subject to backup withholding unless the holder
provides First Trust National Association (as payor) (the "Paying Agent"),
through the Exchange Agent, with either (i) such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 attached hereto, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such holder of
Old Notes is awaiting a TIN) and that (A) the holder of Old Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Old Notes that he or she
is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Old Notes is an individual,
the TIN is such holder's social security number. If the Paying Agent is not
provided with the correct taxpayer identification number, the holder of Old
Notes may be subject to certain penalties imposed by the Internal Revenue
Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Old Notes should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt receipient, the holder must submit a Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Paying Agent. See the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Old Notes or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Old Notes has not been issued a TIN and has applied for a
TIN or intends to apply for a TIN in the near futue. If the box in Part 3 is
checked, the holder of Old Notes or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding . Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the Paying
Agent will withhold 31% of all payments made prior to the time a properly
certified TIN is provided to the Paying Agent.
The holder of Old Notes is required to give the Paying Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the Old Notes. If the Old Notes are in more than one name or are not in the name
of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
<PAGE>
<TABLE>
<S> <C> <C>
PAYOR'S NAME: FIRST TRUST NATIONAL ASSOCIATION, AS PAYING AGENT
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN Social Security number(s) or
IN THE BOX AT RIGHT AND CERTIFY Employer Identification
BY SIGNING AND DATING BELOW. Number(s)
PART 2--CERTIFICATION--Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued
for me), and
FORM W-9 (2) I am not subject to backup withholding because: (a) I am
DEPARTMENT OF THE TREASURY exempt form backup withholding, or (b) I have not been notified
INTERNAL REVENUE SERVICE by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding.
PAYOR'S REQUEST FOR CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if
TAXPAYER IDENTIFICATION you have been notified by the IRS that you are currently subject
NUMBER ("TIN") to backup withholding because of underreporting interest or
dividends on your tax return.
Signature PART 3--Awaiting TIN / /
Date
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all reportable cash
payments made to me thereafter will be withheld until I provide a taxpayer
identification number.
<TABLE>
<S> <C>
------------------------------------------------ --------------------------------
Signature Date
</TABLE>
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
10 1/4% SENIOR SUBORDINATED NOTES
DUE 2007
IN EXCHANGE FOR NEW
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
OF
KSL RECREATION GROUP, INC.
Registered holders of outstanding 10 1/4% Senior Subordinated Notes due 2007
(the "Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of new 10 1/4% Series B Senior Subordinated Notes due 2007 (the
"Exchange Notes") and whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to First Trust National
Association (the "Exchange Agent") prior to the Expiration Date, may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) or mail to the Exchange Agent. See "The Exchange
Offer--Procedure for Tendering Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY HAND: BY MAIL:
First Trust National Association (INSURED OR REGISTERED RECOMMENDED)
100 Wall Street, Suite 2000 First Trust National Association
New York, New York 10005 100 Wall Street, Suite 2000
Attention: Cathy Donohue New York, New York 10005
Attention: Cathy Donohue
BY OVERNIGHT EXPRESS:
First Trust National Association
100 Wall Street, Suite 2000
New York, New York 10005
Attention: Cathy Donohue
</TABLE>
BY FACSIMILE:
(212) 514-7431
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 361-2546
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
dated , 1997 of KSL Recreation Group, Inc. (the "Prospectus"), receipt of
which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT
APPEARS ON THE OLD NOTES OF OLD NOTES OF OLD NOTES
NAME OF TENDERING HOLDER (PLEASE PRINT) TENDERED TENDERED
<S> <C> <C> <C>
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
</TABLE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth above, the certificates representing the Old Notes (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at the book-entry transfer facility), together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the Expiration Date (as defined in
the Prospectus and the Letter of Transmittal).
<TABLE>
<S> <C>
Name of Firm:
Address: (Authorized Signature)
Title:
(Zip Code) Name:
Area Code and Telephone No.: (Please type or print)
Date:
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
