<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
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SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6869
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PRIME HOSPITALITY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2640625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004
(address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(201)882-1010
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Par Value $.01 Per Share,
Common Stock New York Stock Exchange
7% Convertible Subordinated Notes due 2002 New York Stock Exchange
9 1/4% First Mortgage Bond Notes due 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
---
The aggregate market value of the registrant's common stock held by
non-affiliates on March 20, 1996 based on the last sale price as reported by the
National Quotation Bureau, Inc. on that date was approximately $380,450,000.
The Registrant had 31,057,151 shares of Common Stock outstanding as of
March 20, 1996.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
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<PAGE> 2
PART I AND PART II
Items 1 and 2. Business and Properties
GENERAL
BUSINESS
THE COMPANY
Prime Hospitality Corp. (The "Company or Prime") is a leading hotel
owner/operator with a portfolio of 95 hotels totaling 13,622 rooms as of March
20, 1996. Located primarily in secondary markets in 21 states and the U.S.
Virgin Islands, Prime's hotels operate either under franchise agreements with
hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn, Ramada and
Howard Johnson, or under the Company's proprietary brand names, AmeriSuites and
Wellesley Inns. The Company owns or leases 78 hotels (the "Owned Hotels") and
manages 17 hotels for third parties (the "Managed Hotels"). Prime holds
financial interests in the form of mortgages on or profit participations in 10
of the Managed Hotels. In total, the Company has equity or financial interests
in 88 hotels containing 12,229 rooms.
The Company operates in three major lodging industry segments: full-service,
all-suites and limited-service. Approximately 50% of Prime's hotel rooms are in
full-service hotels. The Company's 22 AmeriSuites hotels, which comprise
approximately 19% of the Company's hotel rooms, are mid-priced, all-suites
hotels, situated near office parks and travel destinations in the Southern and
Central United States. The Company is expanding its operation of AmeriSuites
hotels and expects to have 40 AmeriSuites hotels in operation by the end of
1996. Prime competes in the limited-service segment, which comprises
approximately 31% of its hotel rooms, primarily through its economically priced
Wellesley Inns, which are located in Florida, the Middle Atlantic and the
Northeast.
As a leading owner/operator of hotels, Prime believes that it is well
positioned to benefit from the continuing strong performance of the lodging
industry. Industry improvements in recent years have been driven by a favorable
supply/demand imbalance resulting primarily from increased economic activity and
the sharp decline in the growth of the supply of new hotel rooms since 1991.
Demand growth exceeded new supply growth during each year in the period from
1991 to 1994, and in 1995 demand growth exceeded supply growth by 1.4%, as
reported by Smith Travel Research. This trend has resulted in an increase in
industry-wide occupancy levels from 60.9% in 1991 to 65.5% for 1995. Higher
occupancy levels have allowed the industry to increase rates. The industry-wide
average daily rate ("ADR") increased in 1995 by 4.8% over 1994 levels. Revenue
per available room ("REVPAR"), which measures the combined impact of rate and
occupancy, increased by 6.1% for 1995. Because of the operating leverage
inherent in the lodging industry, increases in REVPAR have had a major impact on
hotel operating performance, with industry pretax profits growing from breakeven
levels in 1992 to approximately $7.5 billion in 1995, as estimated by Coopers &
Lybrand.
1
<PAGE> 3
Prime intends to continue to capitalize on its strengths and improve its
position in the lodging industry through the implementation of the following
strategies:
Hotel Equity Ownership. Prime is fundamentally committed to hotel equity
ownership, which it believes assures consistent high quality standards at its
hotels. Significant elements of Prime's ownership strategy are strong in-house
hotel management and control of its proprietary brands, both of which have
contributed to improved hotel operating performance. Reflecting Prime's
operating strengths, the Company's hotels generated average operating profit
margins that exceeded comparable industry averages for 1994, as reported by
industry sources, by approximately 19% for full-service hotels, 8% for
all-suites hotels and 2% for limited-service hotels.
Enhance Operating Performance at Existing Hotels. The Company's strategy for
improving results at its existing hotels includes using sophisticated operating,
marketing and financial systems and capitalizing on the operating leverage
inherent in the lodging industry. Implementation of the Company's strategy,
together with positive industry trends, has produced improved performance in
recent years. Exemplifying the Company's operating leverage, for 1995, REVPAR
increased 9.5% while net operating income (i.e. operating income plus
depreciation and amortization, minus an imputed management fee and a reserve for
capital replacements) increased 13.7%, as compared to 1994, for Company-owned
comparable hotels, which are hotels that have been open for all of 1995 and
1994. The Company expects further improvement for the lodging sector and
continued improvement in the performance of its existing hotels.
Opportunistic Acquisition of Hotels. The Company seeks to capitalize on its
strength as a hotel owner/operator by continuing to pursue the acquisition of
hotels. In 1994 the Company acquired four hotels with approximately 1,000 rooms
and in 1995 the Company acquired seven hotels, also containing approximately
1,000 rooms. In March 1996, the Company acquired 18 hotels with approximately
1,700 rooms, including 16 Wellesley Inns, a proprietary brand of the Company.
The acquisition enables the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns now owned and
operated by the Company. The acquisition should also provide the Company with
significant new opportunities to maximize the value of its brand. With a
continued industry outlook for limited new room supply, steady demand growth and
acquisition prices generally at discounts to replacement cost, Prime believes
that hotel acquisitions will continue to provide growth opportunities.
Expand AmeriSuites All-Suites Hotel Brand. Prime is committed to expanding
its proprietary AmeriSuites all-suites hotel brand. The Company believes that
its AmeriSuites brand is well-positioned within the rapidly-growing all-suites
segment, providing an excellent guest experience and offering desirable suite
accommodations and other amenities at mid-scale prices. In the all-suites
segment, demand growth exceeded new supply growth in 1995 by 2.6%, which is
approximately twice the rate by which demand growth exceeded supply for the
lodging industry as a whole. The operating performance of the
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<PAGE> 4
AmeriSuites hotels is benefiting from this favorable trend. For the eight owned
AmeriSuites hotels which were open for all of 1995 and 1994, REVPAR increased by
11.9% during 1995.
In addition to the 22 existing AmeriSuites hotels located in 13 states, the
Company has an additional 12 AmeriSuites hotels under construction and 19
AmeriSuites sites under contract. The Company plans to open 20 AmeriSuites
hotels in 1996, including three hotels which have opened in the first quarter of
1996. The Company believes that AmeriSuites provide attractive economic returns
due to their reasonable cost and rapid stabilization rate. The Company's
AmeriSuites have generally achieved positive net operating income within 12
months after opening. Management believes that economic returns from AmeriSuites
development have generally equalled or exceeded those prevalent in the hotel
acquisition markets.
The Company believes it has the financial ability to execute its growth
strategy. In January, the Company received net proceeds of $63.9 million, after
repayment of debt and other expenses, from the issuance of 9 1/4% First Mortgage
Notes due 2006. In addition, the Company had cash and cash equivalents and
marketable securities totaling approximately $61.5 million as of December 31,
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The Company is the successor in interest to Prime Motor Inns, Inc. ("PMI").
PMI restructured its operations and capital structure pursuant to a bankruptcy
reorganization completed on July 31, 1992. Under its restructuring, PMI
recruited new management and directors, reduced its liabilities by $448.8
million, revalued its assets to reflect fair market value and eliminated
unprofitable contract commitments. During the period from July 31, 1992 through
December 31, 1995, the Company further reduced its reorganization debt by $130.9
million and reduced its portfolio of notes receivable through cash collections
and collateral recoveries by $160.1 million. In the process, the Company
increased its investment in hotel fixed assets by $237.8 million and increased
stockholders' equity by $97.3 million. With a strengthened balance sheet, a
diminished note receivable portfolio and a significantly increased base of Owned
Hotels, the Company believes that it is well positioned to implement its growth
strategy.
LODGING INDUSTRY
Lodging industry analysts expect further improvement for the lodging sector.
The primary reasons contributing to continued growth include:
- Overall hotel supply growth is expected to remain modest in 1996 as
replacement costs continue to exceed acquisition prices and the availability
of construction financing remains limited.
- Hotel room demand growth is expected to continue due to continued
economic growth, expected increases in leisure and international travel and
favorable demographics.
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<PAGE> 5
- Higher occupancy rates have provided the industry with pricing power
as evidenced by the 4.8% increase in ADR in 1995, which has outpaced the
growth in the consumer price index.
The following table was compiled from industry operating data as reported by
Smith Travel Research and highlights industry data for the United States and the
regions in which most of the Company's hotels are located: the Middle Atlantic
region, which is comprised of New Jersey, New York and Pennsylvania; and the
South Atlantic region, which is comprised of Florida, Georgia, South Carolina,
North Carolina, Virginia, West Virginia, Maryland and Delaware. The table also
includes operating data concerning the three price levels (of the five price
levels classified by Smith Travel Research) in which the Company competes:
upscale, mid-price and economy. REVPAR data was calculated by the Company based
on occupancy and ADR data supplied by Smith Travel Research.
<TABLE>
<CAPTION>
%CHANGE IN:
ROOM SUPPLY ROOM DEMAND REVPAR
----------- ----------- ------
1993VS. 1994 VS. 1995 VS . 1993 VS. 1994 VS.1995 VS. 1993 VS. 1994 VS. 1995 VS.
1992 1993 1994 1992 1993 1994 1992 1993 1994
------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States..... 1.0% 1.4% 1.6% 4.0% 4.7% 3.0% 4.8% 7.3% 6.1%
BY REGION:
Middle Atlantic... 0.6 0.4 1.1 4.8 4.0 1.2 6.3 10.5 5.8
South Atlantic.... 0.7 1.1 1.3 4.1 3.2 3.6 4.1 4.9 6.9
BY SERVICE
(PRICE LEVEL):
Upscale........... 0.9 2.0 1.9 2.9 3.8 2.6 1.7 5.0 4.7
Mid-Price......... 1.4 2.0 2.4 2.9 4.2 3.8 3.5 5.5 5.9
Economy........... 0.8 1.1 2.0 1.6 2.6 3.0 (2.7) 5.0 6.2
</TABLE>
PRIME'S LODGING OPERATIONS
The following table sets forth information with respect to the Owned and
Managed Hotels as of March 20, 1996:
<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED(1) INTEREST(2) OTHER MANAGED TOTAL
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service:
Marriott.................. 1 517 -- -- 1 525 2 1,042
Radisson.................. 1 272 1 204 1 192 3 668
Sheraton.................. 4 944 0 0 0 0 4 944
Holiday Inn............... 3 602 4 810 0 0 7 1,412
Ramada.................... 8 1,214 3 672 2 276 13 2,162
Howard Johnson............ 1 210 1 116 1 115 3 441
Independent............... 1 149 0 0 0 0 1 149
---- ------- ---- --------- --- -------- ---- -------
Total Full-Service...... 19 3,908 9 1,802 5 1,108 33 6,818
All Suites:
AmeriSuites............... 22 2,640 0 0 0 0 22 2,640
Limited Service:
Wellesley Inn............. 30 3,013 0 0 0 0 30 3,013
Howard Johnson............ 4 372 1 149 2 285 7 806
Other..................... 3 345 0 0 0 -- 3 345
--- ------- --- -------- -- -------- ---- -------
Total Limited Service... 37 3,730 1 149 2 285 40 4,164
Total................... 78 10,278 10 1,951 7 1,393 95 13,622
== ====== == ===== = ===== == ======
</TABLE>
4
<PAGE> 6
- ----------
(1) Of the 78 Owned Hotels, ten are leased. The leases covering the Company's
leased hotels provide for fixed lease rents and, in most instances,
additional percentage rents based on a percentage of room revenues. The
leases also generally require the Company to pay the cost of repairs,
insurance and real estate taxes. In addition, some of the Company's Owned
Hotels are located on land subject to long-term leases, generally for terms
in excess of the depreciable lives of the improvements.
(2) Ten Managed Hotels in which the Company holds a mortgage or profit
participation on the property.
The following table sets forth the location of the Company's hotels as
of March 20, 1996:
<TABLE>
<CAPTION>
MANAGED
WITH FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona.......... 1 118 -- -- -- -- 1 118
Arkansas......... 1 130 -- -- -- -- 1 130
California....... -- -- -- -- 1 96 1 96
Connecticut...... 4 589 -- -- -- -- 4 589
Florida.......... 23 2,529 -- -- 1 115 24 2,644
Georgia.......... 3 351 -- -- 1 189 4 540
Illinois......... 1 113 -- -- -- -- 1 113
Indiana.......... 1 126 -- -- -- -- 1 126
Kansas........... 1 126 -- -- -- -- 1 126
Kentucky......... 1 123 -- -- -- -- 1 123
Maryland......... 1 84 -- -- 1 525 2 609
Nevada........... 2 350 -- -- -- -- 2 350
New Jersey....... 14 2,127 8 1,693 3 468 25 4,288
New York......... 8 941 -- -- -- -- 8 941
North Carolina... 1 126 -- -- -- -- 1 126
Ohio............. 4 508 -- -- -- -- 4 508
Oregon........... 1 161 -- -- -- -- 1 161
Pennsylvania..... 3 467 2 258 -- -- 5 725
South Carolina... 1 111 -- -- -- -- 1 111
Tennessee........ 2 251 -- -- -- -- 2 251
U.S. Virgin Islands 1 517 -- -- -- -- 1 517
Virginia......... 4 430 -- -- -- -- 4 430
---- -------- ---- --------- ------ -------- ---- --------
Total....... 78 10,278 10 1,951 7 1,393 95 13,622
== ====== == ===== ====== ===== == ======
</TABLE>
5
<PAGE> 7
The following table sets forth for the five years ended December 31,
1995, operating data for the 92 hotels in the Company's portfolio as of
December 31, 1995. Operating data for the Owned Hotels built or acquired
during the period are presented from the dates such hotels commenced
operations or became Owned Hotels. For purposes of showing operating trends,
the results of 26 Owned Hotels that were managed by the Company prior to
their acquisition by the Company are presented as if they had been Owned
Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 53 7,080 10 1,951 4 993 67 10,024
1992 56 7,428 10 1,951 4 993 70 10,372
1993 60 7,917 10 1,951 5 1,108 75 10,976
1994 67 8,983 10 1,951 7 1,393 84 12,327
1995 75 9,957 10 1,951 7 1,393 92 13,301
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------ --------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 66.4% $59.27 $39.34 62.3% $60.86 $37.89 61.6% $82.44 $50.74 65.1% $61.74 $40.20
1992 67.9 59.83 40.62 70.3 61.88 43.47 66.2 82.83 54.81 68.2 62.39 42.54
1993 71.3 61.77 44.07 72.3 63.92 46.22 67.2 84.09 56.47 71.1 64.16 45.63
1994 69.7 64.54 44.96 71.7 69.26 49.63 69.5 77.58 53.94 70.0 66.92 46.84
1995 69.8 68.97 48.13 73.1 72.09 52.67 71.9 80.95 58.18 70.5 70.80 49.93
</TABLE>
Full-Service Hotels
The Company operates 33 full-service hotels under franchise agreements
with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne Plaza),
Ramada and Howard Johnson. The full-service hotels are concentrated in the
Northeast. The hotels are generally positioned along major highways within
close proximity to corporate headquarters, office parks, airports,
convention or trade centers and other major facilities. The customer base
for full-service hotels consists primarily of business travelers.
Consequently, the Company's sales force markets to companies which have a
significant number of employees traveling in the Company's operating regions
who consistently produce a high volume demand for hotel room nights. In
addition, the Company's sales force actively markets meeting and banquet
services to groups and individuals for seminars, business meetings, holiday
parties and weddings.
The Company owns and operates one resort hotel, the Marriott's
Frenchman's Reef Hotel (the "Frenchman's Reef) in St. Thomas, U.S. Virgin
Islands. The Frenchman's Reef is a 517-room resort hotel which includes a
421-room eight-story building and 96 rooms in the adjacent Morningstar Beach
Resort. The Frenchman's Reef has seven restaurants, extensive convention
facilities, complete sports and beach facilities and a self-contained total
energy system. Certain of these facilities were damaged in the September
1995 hurricane described in the following paragraph. The Frenchman's Reef is
marketed directly through its own sales force in New York City and at the
hotel, and through the Marriott reservation system. The Frenchman's Reef
market includes tour groups, corporate meetings, conventions and individual
vacationers.
6
<PAGE> 8
In September 1995, the Frenchman's Reef suffered damage when Hurricane
Marilyn struck the U.S. Virgin Islands. Due to extensive property and
business interruption insurance, the Company believes that its capital
resources will be impacted only to the extent of its insurance deductibles,
which the Company estimates at $2.2 million. The majority of damaged rooms
at the Frenchman's Reef have been repaired on an interim basis and
approximately 95% of the rooms are currently available for occupancy. The
Company anticipates that extensive renovation at the Frenchman's Reef in
1996 will reduce the number of rooms available for occupancy. Such reduction
in rooms available and related revenue will be a component of the Company's
claim under its business interruption insurance. The Company is engaged in
discussions with its insurance carrier regarding the amount of insurance
proceeds to be paid and is assessing the extent of further refurbishments
required at the Frenchman's Reef.
The Company's full-service hotels generally have between 150 and 300
rooms and pool, restaurant, lounge, banquet and meeting facilities. Other
amenities include fitness rooms, room service, remote-control cable
television and facsimile services. In order to enhance guest satisfaction,
the Company also has theme concept lounges such as sports bars, fifties
clubs and country and western bars in a number of its hotels. In recent
years, the Company has received recognition from various franchisors and
associations for its hotel quality and service.
The following table sets forth for the five years ended December 31,
1995, operating data for the 33 full-service hotels in the Company's
portfolio as of December 31, 1995. Operating data for the hotels built or
acquired during the period are presented from the dates such hotels
commenced operations or became Owned Hotels. For purposes of showing
operating trends, the results of eight Owned Hotels that were managed by the
Company prior to their acquisition by the Company during the five-year
period are presented as if they had been Owned Hotels from the dates the
Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
HOTELS ROOMS HOTELS ROOMS
------ ----- ------ -----
<S> <C> <C> <C> <C>
1991 17 3,404 30 6,199
1992 17 3,404 30 6,199
1993 17 3,404 31 6,314
1994 18 3,759 32 6,669
1995 19 3,908 33 6,818
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1991 63.6% $79.27 $50.38 65.1% $75.55 $49.16
1992 62.6 75.22 47.11 62.5 72.55 45.37
1993 63.6 77.27 49.12 66.2 73.63 48.72
1994 67.9 80.93 54.96 69.4 76.51 53.06
1995 66.5 85.78 57.07 68.8 81.28 55.90
</TABLE>
The Company has taken advantage of opportunities for acquisitions of
full-service hotels at attractive multiples of cash flow or at significant
discounts to replacement values. During 1994, the Company acquired the
183-room Ramada Inn in Clifton, New Jersey, the 272-room Ramada Inn in
Trevose, Pennsylvania, which the Company has since converted to a Radisson,
7
<PAGE> 9
the 355-room Sheraton in Hasbrouck Heights, New Jersey and the 225-room
Sheraton hotel in Mahwah, New Jersey. In addition, the Company obtained
ownership of the 517-room Frenchman's Reef hotel through a note receivable
settlement in 1994. The Company does not anticipate the acquisition of other
resort hotels. The Company continued its acquisition program in 1995 with
the acquisition of the 240-room Princeton Ramada Inn in New Jersey, which
the Company has since converted to a Holiday Inn, and the 149-room St.
Tropez Hotel and Shopping Center in Las Vegas, Nevada. With a continued
outlook for limited new room supply, steady demand growth and acquisition
prices at discounts to replacement cost in the full-service segment, Prime
believes its full-service hotels will continue to provide significant growth
opportunities.
The majority of the Company's repositioning efforts have been performed
at the full-service hotels. Since 1993, the Company successfully completed
the repositioning of ten of its full-service hotels which included changing
the franchise affiliations of five such hotels. The Company is in the
process of repositioning the Hasbrouck Heights Sheraton Hotel to a Crowne
Plaza.
All-Suites Hotels
The Company currently owns 22 AmeriSuites hotels. AmeriSuites are
all-suite, mid-priced hotels which offer guests an attractively designed
suite with a complimentary continental breakfast in a spacious lobby cafe,
remote-control cable television, fully-equipped business centers, fitness
centers and pool facilities. The hotels provide group meeting space, but do
not include restaurant or lounge facilities. AmeriSuites attract customers
principally because of the quality of the guest suites, which offer distinct
living, sleeping and kitchen areas and the consistency of product quality.
AmeriSuites contain approximately 128 suites and two to four meeting rooms.
AmeriSuites are primarily located near corporate office parks and travel
destinations in the Southern and Central parts of the United States. The
target customer is primarily the business traveler with an average length of
stay of two to three nights. AmeriSuites are marketed primarily through
direct sales, national marketing programs and a central reservation system.
The following table sets forth for the five years ended December 31,
1995, certain data with respect to AmeriSuites hotels, all of which are
owned by the Company. Operating data for the hotels built during the period
are presented from the dates such hotels commenced operations.
<TABLE>
<CAPTION>
HOTELS ROOMS OCCUPANCY ADR REVPAR
------ ----- --------- --- ------
<S> <C> <C> <C> <C> <C>
1991 4 497 48.5% $55.33 $26.83
1992 6 749 59.9 54.99 32.97
1993 8 993 64.1 56.21 36.01
1994 12 1,494 65.9 56.21 39.50
1995 19 2,319 67.2 65.45 43.98
</TABLE>
8
<PAGE> 10
The Company believes that the all-suites segment will continue to be a
high growth segment of the industry. In the all-suites segment, demand
growth exceeded new supply growth in 1995 by 2.6%, which is approximately
twice the rate by which demand growth exceeded supply for the lodging
industry as a whole. The operating performance of the AmeriSuites hotels is
benefiting from this favorable trend. For the eight owned AmeriSuites hotels
which were open for all of 1995 and 1994, REVPAR increased by 11.9% during
1995.
The Company plans to develop the AmeriSuites brand primarily through new
construction to assure product consistency and quality. The average age of
the AmeriSuites hotels is 4.5 years. The Company believes that AmeriSuites
provide attractive economic returns due to their reasonable cost and rapid
stabilization rate. The Company's AmeriSuites have generally achieved
positive net operating income within 12 months after opening. The Company
believes that economic returns from AmeriSuites development have generally
equalled or exceeded those prevalent in the hotel acquisition markets. The
Company plans to open 20 AmeriSuites hotels in 1996. In 1995, AmeriSuites
hotels were opened in Atlanta, Greensboro, Jacksonville, Chicago, Columbia
and Augusta. In addition, in 1996, the Company opened two new AmeriSuites
hotels in Miami and one new AmeriSuites hotel in Cleveland, bringing the
number of AmeriSuites owned and operated by the Company to 22. The Company
currently has 12 AmeriSuites hotels under construction and 19 additional
AmeriSuites sites under contract and scheduled for the commencement of
development in 1996.
In March 1995 the Company purchased an AmeriSuites hotel in Richmond,
Virginia and the option of ShoLodge, Inc. to acquire a 50% interest in 11 of
the Company's AmeriSuites hotels. As a result of the transaction, the
Company assumed management of all AmeriSuites hotels, including these twelve
which had previously been managed by ShoLodge, Inc.
Limited-Service Hotels
The Company's limited-service hotels consist of 30 Wellesley Inns and 10
other hotels operated under franchise agreements, primarily with Howard
Johnson. On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited-service hotels for approximately $65.1
million in cash. The acquisition enables the Company to establish full
control over its proprietary Wellesley Inns brand with all 30 Wellesley Inns
owned and operated by the Company. The acquisition should also provide the
Company with significant new opportunities to maximize the value of its
brand.
Of the Company's 30 Wellesley Inns, 16 are located in Florida and the
remainder in the Middle Atlantic and Northeast United States. The
prototypical Wellesley Inn has 105 rooms and is distinguished by its classic
stucco exterior, spacious lobby and amenities such as pool facilities,
continental breakfast, remote control cable television and facsimile
services. In connection with the acquisition of the 16 Wellesley Inns, the
Company intends to refurbish
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<PAGE> 11
these hotels to ensure consistent product quality throughout the chain.
Marketing efforts for the Wellesley Inn chain will continue to rely heavily
on direct marketing and billboard advertising. In Florida, where the
population has grown rapidly and development opportunities continue to
exist, the Company has built a geographically concentrated group of
Wellesley Inns, thereby developing regional brand name recognition in
Florida. The majority of the Florida Wellesley Inns were constructed within
the past five years. The Company historically has constructed these
properties at a cost of approximately $40,000 per room and a construction
period of approximately seven to nine months. Florida Wellesley Inns have a
low cost structure and have had rapid stabilization periods generally within
six to twelve months of opening.
The Company's other limited-service hotels have an average of between
100 and 120 rooms and offer complimentary continental breakfast, remote
control cable television, pool facilities and facsimile services, generally
with restaurant facilities within a short distance of the hotel. They are
designed to appeal primarily to business travelers.
The following table sets forth for the five years ended December 31,
1995 operating data for the 40 limited-service hotels as of December 31,
1995. Operating data for the Owned Hotels built or acquired during the
period are presented from the dates such hotels commenced operations or
became Owned Hotels. For purposes of showing operating trends, the results
of 18 Owned Hotels that were managed by the Company prior to their
acquisition by the Company are presented as if they had been Owned Hotels
from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
HOTELS ROOMS HOTELS ROOMS
------ ----- ------ -----
<S> <C> <C> <C> <C>
1991 32 3,179 33 3,328
1992 33 3,275 34 3,424
1993 35 3,520 36 3,669
1994 37 3,730 40 4,164
1995 37 3,730 40 4,164
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- --- ------ --------- --- ------
<S> <C> <C> <C> <C> <C> <C>
1991 72.6% $44.57 $32.37 71.8% $44.78 $32.16
1992 74.3 44.41 32.97 73.6 44.46 32.74
1993 76.8 45.43 34.89 76.1 45.46 34.61
1994 73.9 47.57 35.15 73.1 47.31 34.60
1995 74.7 50.77 37.93 74.1 50.53 37.46
</TABLE>
REFURBISHMENT PROGRAM
The Company continuously refurbishes its Owned Hotels in order to
maintain consistent quality standards. The Company generally spends
approximately 4% to 6% of hotel revenue on capital improvements at its Owned
Hotels and typically refurbishes each hotel approximately every five years.
The Company believes that its Owned Hotels are in generally good physical
condition, with over half of the Owned Hotels being five years old or less.
The
10
<PAGE> 12
Company recommends the refurbishment and repair projects on its Managed
Hotels although spending amounts vary based on the plans of such hotels'
owners and the significance of the Company's interest as a mortgagee.
In addition to making normal capital improvements, the Company reviews
on an on-going basis each hotel's competitive position in the local market
in order to decide the types of product that will best meet the market's
demand characteristics. During the past three years, the Company has
implemented a program of repositioning its Owned Hotels. Repositioning a
hotel generally requires renovation and refurbishment of the exterior and
interior of the building and may result in a change of brand name. In 1993,
1994 and 1995, the Company spent $2.8 million, $8.9 million and $13.7
million, respectively, on the repositioning of 16 of its Owned Hotels, which
included changing the franchise affiliation of ten of such hotels. Major
refurbishment efforts in 1996 will focus on the Hasbrouck Heights Crowne
Plaza conversion and the 18 hotels acquired on March 6, 1996, 16 of which
are Wellesley Inns. The Company expects to spend approximately $13.5 million
in connection with these repositionings.
MORTGAGES AND NOTES RECEIVABLE
As of December 31, 1995, mortgages and notes receivable totaled $66.5
million (including current portion) and consisted of an aggregate principal
amount of $43.3 million of mortgages and notes secured by Managed Hotels,
$13.9 million of mortgages secured by hotels that are leased by the Company
from third parties and $9.3 million of other mortgages and notes secured
primarily by other hotels. The Company has pursued a strategy of converting
its mortgage and notes receivable into cash or operating hotel assets. Since
July 31, 1992, the Company has received $100.7 million in cash and added
eight operating hotel assets through note settlements. The Company will
continue to pursue settlements with mortgage and note obligors and will
utilize the cash for debt repayments or for general corporate purposes.
During 1995, the Company received $13.1 million in cash in settlements of
notes receivable resulting in gains of $822,000. In May 1995, the Company
obtained control of the 240-room Princeton Holiday Inn by converting its
$2.7 million mortgage note receivable into a long-term leasehold position
and assuming $1.5 million of debt. The hotel was recently repositioned to a
Holiday Inn from a Ramada Inn. In January 1996, the Company obtained control
of the 210-room Cocoa Beach Howard Johnson Plaza by converting its $9.7
million mortgage note receivable into a long-term leasehold position.
The Company's mortgage notes secured by Managed Hotels bear interest at
rates ranging from 8.0% to 13.5% per annum and have various maturities
through 2015. The mortgages were derived from the sales of hotel properties.
The loans secured by Managed Hotels pay interest and principal based upon
available cash and include a participation in the future excess cash flow of
such hotel properties. Two of these mortgages have been structured to
include a "senior portion" featuring defined payment terms, and a "junior
portion" payable annually based on cash flow.
11
<PAGE> 13
In addition to the mortgage positions referred to above, the Company
holds junior or cash flow mortgages and subordinated interests on six other
hotel properties operated by the Company under management agreements.
Pursuant to these mortgage agreements, the Company is entitled to receive
the majority of excess cash flow generated by these hotel properties and to
participate in any future sales proceeds. With regard to these properties,
third parties hold significant senior mortgages. The junior mortgages mature
on various dates from 1999 through 2002.
In accordance with the adoption of fresh start reporting under SOP 90-7,
no value was assigned to the junior portions of the notes or the junior
mortgages and subordinated interests on the other hotels as there was
substantial doubt at the time of valuation that the Company would recover
any of their value. As a result, interest income on these junior or cash
flow mortgages is recognized when cash is received. During 1993, 1994 and
1995, the Company recognized $976,000, $2,000,000 and $1,950,000,
respectively, of interest income related to these mortgages. Future
recognition of interest income on these mortgages is dependent primarily
upon the net cash flow of the underlying hotels after debt service, which is
senior to the Company's junior positions.
In June 1995, the Company purchased $17.4 million in face amount of
first mortgage notes for $12.7 million in cash. These first mortgage notes
were secured by two hotels. The purchase of such notes was intended to
provide the Company with the opportunity to acquire the underlying
properties. On December 21, 1995, the Company received $12.7 million plus
all accrued interest as payment in full on the first mortgage notes.
In addition to mortgages and notes receivable, as of December 31, 1995,
the Company had other assets that totaled $13.6 million, which consisted
primarily of real property not related to Owned Hotels.
MANAGEMENT AGREEMENTS
As of March 20, 1996, the Company provides hotel management services to
third party hotel owners of 17 Managed Hotels. Management fees are based on
fixed percentages of the property's total revenues and incentive payments
based on certain measures of hotel income. Additional fees are also
generated from the rendering of specific services such as accounting
services, construction services, design services and sales commissions. The
Company's fixed management fee percentages range from 1.0% to 5.0% and
average 3.5% total revenues before giving consideration to performance
related incentive payments. The base and incentive fees comprised 56.2%, or
$4.6 million, of the total management and other fees for 1995. Terms of the
management agreements vary but the majority are short-term and, therefore,
there are risks associated with termination of these agreements. Although
management agreements may be terminated in connection with a change in
ownership of the underlying hotels, such risks may be limited due to the
Company's other financial interests in these hotels.
12
<PAGE> 14
The Company holds financial interests in the form of mortgages or profit
participations in 10 of the 17 Managed Hotels.
OPERATIONS
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With 95 hotels
covering a number of price points and broad geographic regions, the Company
possesses the critical mass to support sophisticated operating, marketing
and financial systems. The Company believes that its broad array of central
services permits on-site hotel general managers to effectively focus on
providing guest services, results in economies of scale and leads to
above-market hotel profit margins. As a result of these operating
strategies, the Company's hotels generated average operating profit margins
that exceeded comparable industry averages for 1994, as reported by industry
sources, by approximately 19% for full-service hotels, 8% for all-suites
hotels and 2% for limited-service hotels.
The Company's operating strategy combines operating service and guidance
from its central management team with decentralized decision-making
authority delegated to each hotel's on-site management. The on-site hotel
management teams consist of a general manager and, depending on the hotel's
size and market positioning, managers of sales and marketing, food and
beverage, front desk services, housekeeping and engineering. The Company's
operating objective is to exceed guest expectations by providing quality
services and comfortable accommodations at a fair value. On-site hotel
management is responsible for efficient expense controls and uses operating
standards provided by the Company. Within parameters established in the
operating and capital planning process, on-site management possesses broad
decision-making authority on operating issues such as guest services,
marketing strategies, hiring practices and incentive programs. Each hotel's
management team is empowered to take all necessary steps to ensure guest
satisfaction within established guidelines. Key on-site personnel
participate in an incentive program based on hotel revenues and profits.
The central management team, located in Fairfield, New Jersey, provides
four major categories of services: (i) operations management, (ii) sales and
marketing management, (iii) financial reporting and control and (iv) hotel
support services.
Operations Management. Operations management consists of the
development, implementation and monitoring of hotel operating standards and
is provided by a network of regional operating officers who are each
responsible for the operations of 10 to 30 hotels. They are supported by
training, food and beverage and human resources departments, each staffed
full-time by specialized professionals. The cornerstone of operations
management is employee training, with a staff of professionals dedicated to
training in sales, housekeeping, food service, front desk services and
leadership. The Company believes these efforts increase employee
effectiveness, reduce turnover and improve the level of guest services.
13
<PAGE> 15
The Company's cost-effective centralized management services benefit not
only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
hotels, the Company's central management has assumed certain of the
operational responsibilities which previously had been performed by the
on-site hotel management. In addition, the Company believes it has improved
operating efficiencies for each of the hotels that it has acquired.
Sales and Marketing Management. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a
corporate staff of 20 professionals, including regional marketing directors
who are responsible for each hotel's sales and marketing strategies, and the
Company's national sales group, Market Segments, Inc. ("MSI"). In
cooperation with the regional marketing staff, on-site sales management
develops and implements short- and intermediate-term marketing plans. The
Company focuses on yield management techniques, which optimize the
relationship between hotel rates and occupancies and seek to maximize
profitability. In addition, the Company assumes prominent roles in franchise
marketing associations to obtain maximum benefit from franchise
affiliations. The Company's in-house creative department develops hotel
advertising materials and programs at cost-effective rates.
Complementing regional and on-site marketing efforts, MSI's marketing
team targets specific hotel room demand generators including tour operators,
major national corporate accounts, athletic teams, religious groups and
others with segment-specialized sales initiatives. MSI's primary objective
is to book hotel rooms at the Company's hotels and its secondary objective
is to market its services on a commission basis to hotels throughout the
industry. Sales activities on behalf of non-affiliated hotels increase the
number of hotels where bookings can be made to support marketing efforts and
defray the costs of the marketing organization.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on
site. Centralized accounting personnel produce detailed financial and
operating reports for each hotel. Additionally, central management directs
budgeting and analysis, processes payroll, handles accounts payable, manages
each hotel's cash, oversees credit and collection activities and conducts
on-site hotel audits.
Hotel Support Services. The Company's hotel support services combine a
number of technical functions in central, specialized management teams to
attain economies of scale and minimize costs. Central management handles
purchasing, directs construction and maintenance and provides design
services. Technical staff teams support each hotel's information and
communication systems needs. Additionally, the Company directs safety/risk
management activities and provides central legal services.
14
<PAGE> 16
FRANCHISE AGREEMENTS
The Company enters into non-exclusive franchise licensing agreements
with franchisors, which agreements typically have a ten year term and allow
the Company to benefit from franchise brand recognition and loyalty. The
non-exclusive nature of the franchise agreement allows the Company the
flexibility to continue to develop properties with the brands that have
shown success in the past or to develop in conjunction with other brand
names. This flexibility also plays an important role in the Company's
repositioning strategy which emphasizes proper positioning of its properties
within their respective markets to maximize their return on investment. Over
the past three years, the Company has repositioned several hotels. These
repositionings include the Portland, Oregon Crowne Plaza (formerly Howard
Johnson), the Las Vegas, Nevada Crowne Plaza (formerly Howard Johnson), the
Saratoga Springs, New York Sheraton (formerly Ramada Renaissance), the
Fairfield, New Jersey Radisson (formerly Sheraton), the Orlando, Florida
Shoney's Inn (formerly Howard Johnson), the Trevose, Pennsylvania Radisson
(formerly Ramada) and the Princeton, New Jersey Holiday Inn (formerly
Ramada). The Company believes its relationships with numerous nationally
recognized franchisors provides significant benefits for both its existing
hotel portfolio and prospective hotel acquisitions. While the Company
currently enjoys good relationships with its franchisors, there can be no
assurance that a desirable replacement would be available if any of the
franchise agreements were to be terminated.
The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating.
The payment of annual fees, which typically total 7% to 8% of room revenues,
cover royalties and the costs of marketing and reservation services provided
by the franchisors. Franchise agreements, when initiated, generally provide
for an initial fee in addition to annual fees payable to the franchisor.
WORKING CAPITAL
The Company has financed its operations and capital needs principally
through a combination of cash flow from operations, proceeds from the public
offerings of convertible notes and first mortgage notes and other mortgage
financings. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation - Financial Condition."
SEASONALITY
The impact of seasonality on the Company as a whole is insignificant due
to the seasonal balance achieved from the geographical location of the
Company's hotel properties in the Northeast and Southeast.
15
<PAGE> 17
COMPETITION
The Company operates and manages hotel properties in areas that contain
numerous other hotels, some of which are affiliated with national or
regional brands. The Company competes with other hotels primarily on the
basis of price, physical facilities and customer service.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 5,500
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its
employees are good.
ENVIRONMENTAL MATTERS
The Hotels are subject to environmental regulations under Federal, state
and local laws. Certain of these laws may require a current or previous
owner or operator of real estate to clean up designated hazardous or toxic
substances or petroleum product releases affecting the property. In
addition, the owner or operator may be held liable to a governmental entity
or to third parties for damages or costs incurred by such parties in
connection with the contamination. The Company does not believe that it is
subject to any material environmental liability.
Item 3. Legal Proceedings
In April 1995, the Company received a favorable ruling in its litigation
with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31.2 million previously received by the Company in settlement
of a note and guaranty from Allan V. Rose and Arthur G. Cohen ("Rose and
Cohen"). In an order dated April 25, 1995, the U.S. District Court for the
Southern District of Florida affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone
was entitled to the settlement proceeds. The Company reached a settlement in
1993 with Rose and Cohen which provided for Rose or his affiliate to pay the
Company $25.0 million plus proceeds from the sale of approximately 1.1
million shares of the Company's common stock held by Rose, bringing the
total settlement proceeds to approximately $31.2 million. FSA asserted that,
under the terms of an intercreditor agreement, it was entitled to receive
the settlement proceeds otherwise payable to the Company. The U.S.
Bankruptcy Court for the Southern District of Florida ruled in favor of the
Company in April 1994 and the Company used $25.0 million of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the U.S.
District Court, which affirmed the Bankruptcy Court's ruling. On May 12,
1995, the Company used the remaining proceeds plus accrued interest to
prepay senior secured notes. On May 23, 1995, FSA filed a notice of appeal
with the U.S. Court of Appeals for the 11th Circuit. The Company believes
that the U.S. Court of Appeals will affirm the U.S. District Court ruling
and that there will be no effect on the Company's financial position,
results of operations or liquidity.
16
<PAGE> 18
In addition to the foregoing legal proceedings, the Company is involved
in various other proceedings incidental to the normal course of its
business. Management does not expect that any of such other proceedings will
have a material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fiscal quarter ended December 31,
1995 to a vote of the security holders of the Company.
17
<PAGE> 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock, par value $.01 per share, commenced trading
on the New York Stock Exchange (the "NYSE") on August 3, 1992 under the
symbol "PDQ." As of March 20, 1996 there were 31,057,151 shares of common
stock outstanding. In addition, warrants to purchase an aggregate of
1,392,193 shares of common stock are outstanding as of March 20, 1996. The
warrants are not listed on any exchange.
The following table sets forth the reported high and low closing sales
prices of the common stock on the NYSE.
<TABLE>
<CAPTION>
High Low Dividend/Share
---- --- --------------
<S> <C> <C> <C>
Year Ended December 31, 1994
First Quarter ................................. 8 1/8 5 3/8 -0-
Second Quarter ................................ 7 5/8 5 3/8 -0-
Third Quarter ................................. 8 3/4 6 3/4 -0-
Fourth Quarter ................................ 9 6 7/8 -0-
Year Ended December 31, 1995
First Quarter.................................. 10 3/8 7 3/8 -0-
Second Quarter................................. 10 5/8 9 1/4 -0-
Third Quarter.................................. 11 9 1/2 -0-
Fourth Quarter................................. 10 1/4 9 3/8 -0-
</TABLE>
As of March 20, 1996, the closing sales price of the common stock on the
NYSE was $12 1/4, and there were approximately 2,532 holders
of record of common stock.
The Company has not declared any cash dividends on its common stock
since the Effective Date and does not currently anticipate paying any
dividends on the common stock in the foreseeable future. The Company
currently anticipates that it will retain any future earnings for use in its
business. The Company is prohibited by the terms of certain debt agreements
from paying cash dividends.
18
<PAGE> 20
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY AND ITS PREDECESSOR
The Company is the successor in interest to PMI, which emerged from
chapter 11 reorganization on July 31, 1992 (the "Effective Date"). PMI had
filed for protection under chapter 11 of the United States Bankruptcy Code
in September 1990. The Company implemented "fresh start" reporting pursuant
to the Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" of the American Institute of
Certified Public Accountants, as of the Effective Date. Accordingly, the
consolidated financial statements of the Company are not comparable in all
material respects to any such financial statement as of any date or any
period prior to the Effective Date. Subsequent to the Effective Date, the
Company changed its fiscal year end from June 30 to December 31. The table
below presents selected consolidated financial data derived from: (i) the
Company's historical financial statements for the years ended December 31,
1993, 1994 and 1995, (ii) the Company's historical financial statements as
of and for the five-month period ended December 31, 1992, (iii) the
Company's "fresh start" balance sheet as of the Effective Date, and (iv) the
historical consolidated financial statements of PMI for the one month ended
July 31, 1992 and for the years ended June 30, 1991 and 1992. This data
should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information included herein.
<TABLE>
<CAPTION>
PRE-REORGANIZATION POST-REORGANIZATION
------------------------------ ----------------------------------------------
AS OF AND
AS OF AND FOR THE FOR THE AS OF AND
FOR THE YEAR ONE MONTH FIVE MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, ENDED AS OF ENDED DECEMBER 31,
-------------- JULY 31, JULY 31, DEC. 31, ------------
1991(1) 1992(1) 1992(1) 1992(1) 1992 1993 1994 1995
------- ------- ------- ------- ---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues $205,699 $134,190 $ 8,793 $ 41,334 $108,860 $134,303 $205,628
Valuation writedowns and
reserves (59,149) (62,123) (13,000) -- -- -- -- --
Reorganization items (181,655) (23,194) 1,796 -- -- -- -- --
Income (loss) from
continuing operations
before extraordinary
items(2) .......... (246,110) (71,965) (10,274) -- 1,393 8,175 18,258 17,465
Extraordinary items-gains
on discharge of
indebtedness (net of
income taxes) ..... -- -- 249,600 -- -- 3,989 172 104
Net income (loss) ... (227,188) (71,965) 239,326 -- 1,393 12,164 18,430 17,569
BALANCE SHEET DATA:
Total assets ........ $679,916 $554,118 -- $468,650 $403,314 $410,685 $434,932 $573,241
Long-term debt, net of
current portion ... 2,851 8,921 -- 204,438 192,913 168,618 178,545 276,920
Stockholders' equity
(deficiency) ...... (157,327) (229,292) -- 135,600 137,782 171,364 204,065 232,916
</TABLE>
19
<PAGE> 21
Item 6. (Continued) Selected Quarterly Financial Data (Unaudited)
(1) PMI filed for chapter 11 bankruptcy protection on September
18, 1990, at which time it owned or managed 141 hotels. During
its approximately two-year reorganization, PMI restructured
its assets, operations and capital structure. On the Effective
Date, the Company emerged from chapter 11 reorganization with
75 Owned or Managed Hotels, $135.6 million of stockholders'
equity and $266.4 million of total debt.
(2) Approximately $2.3 million, $28.0 million and $25.3 million of
contractual interest expense during the one month ended July
31, 1992 and for the fiscal years ended June 30, 1992 and
1991, respectively, was not accrued and was not paid due to
the chapter 11 proceeding.
Quarterly financial data for the years ending December 31, 1994 and
1995 is presented as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
March 31, June 30, September 30, December 31,
1994 (a) 1994 (a) 1994 1994
--------- -------- ---- ----
<S> <C> <C> <C> <C>
Net revenue ................. $28,079 $33,194 $36,063 $36,967
Operating income ............ 6,850 8,632 9,394 8,492
Net income before
extraordinary items ........ 2,840 6,869 4,117 4,432
Extraordinary items
(net of tax) ............... 111 58 3 --
Net income .................. 2,951 6,927 4,120 4,432
Income per common share:
Income before
extraordinary items ........ 0.08 0.22 0.13 0.14
Extraordinary items ......... 0.01 -- -- --
----- -------- -------- --------
Net income .................. $0.09 $0.22 $0.13 $0.14
===== ===== ===== =====
<CAPTION>
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue ................ $48,238 $51,703 $52,703 $52,985
Operating income ........... 10,600 12,058 12,141 11,012
Net income before
extraordinary items ....... 4,208 4,915 4,060 4,282
Extraordinary items
(net of tax) .............. 7 54 12 32
Net income ................. 4,215 4,969 4,072 4,314
Income per common share:
Income before
extraordinary items....... 0.13 0.15 0.13 0.13
Extraordinary items ........ -- -- -- --
-------- ----- ------- --------
Net income ................. $0.13 $0.15 $0.13 $0.13
===== ===== ===== =====
</TABLE>
(a) Income per share has been restated to reflect a 9.4%
retroactive reduction in the number of shares distributed
under PMI's plan of reorganization.
20
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading hotel owner/operator which, as of March 20,
1996, owns or leases 78 hotels and manages 17 hotels for third parties. The
Company has a financial interest in the form of mortgages or profit
participations (primarily incentive management fees) in 10 of the Managed
Hotels. The Company consolidates the results of operations of its Owned Hotels
and records management fees (including incentive management fees) and interest
income, where applicable, on the Managed Hotels.
The Company has implemented a growth strategy which focuses on improving
results at existing hotels, maximizing the value of its proprietary
AmeriSuites and Wellesley Inn hotels and acquiring hotels with potential for
operating and marketing improvements. For 1995, earnings from recurring
operations have increased by 36.2% reflecting a 9.5% REVPAR increase at
comparable hotels, the addition of 20 hotels primarily through acquisition
or construction in the past two years and the impact of increased operating
leverage. Although future results of operations may be adversely affected in
the short term by the costs associated with the acquisition and construction
of new hotels, it is expected that this impact will be offset, after an
initial period, by revenues generated by such new hotels. The Company
believes that it is well positioned to benefit from the expected continued
improvements in the lodging industry due to its hotel equity ownership
position and its growth strategy.
In 1994 and 1995, the Company acquired ownership of three hotels,
including the Frenchman's Reef, as a result of restructuring mortgage notes
receivable secured by these hotels. The transactions have not had a material
impact on operating income but have affected operating margins
significantly. Prior to these settlements, the Company recorded revenues
related to these hotels in the form of interest income and management fees,
with no corresponding operating expenses. For the year ended December 31,
1995, the Company recorded the operating revenues and operating expenses
related to these hotels.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1994
The following table presents the components of operating income,
operating expense margins and other data for the Company and the Company's
comparable Owned Hotels for the years ended December 31, 1994 and 1995. The
results of the four hotels divested during 1994
21
<PAGE> 23
and 1995 are not material to an understanding of the results of the
Company's operations in such periods and, therefore, are not separately
discussed.
<TABLE>
<CAPTION>
COMPARABLE
TOTAL HOTELS(1)
1994 1995 1994 1995
------ ------ ------ -----
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging....................................... $ 88,753 $146,184 $76,604 $83,190
Food and Beverage............................. 18,090 37,955 13,601 13,299
Management and Other Fees..................... 10,021 8,115
Interest on Mortgages and Notes Receivable.... 15,867 11,895
Rental and Other.............................. 1,572 1,479
-------- --------
Total Revenues ............. 134,303 205,628
Direct Hotel Operating Expenses:
Lodging....................................... 25,490 38,383 20,722 21,908
Food and Beverage............................. 13,886 28,429 10,634 10,467
Selling and General........................... 27,244 49,753 23,009 24,338
Occupancy and Other Operating................... 9,799 11,763
General and Administrative...................... 15,089 15,515
Depreciation and Amortization................... 9,427 15,974
Operating Income................................ 33,368 45,811
Operating Expense Margins:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue... 28.7% 26.3% 27.1% 26.3%
Food and Beverage, as a percentage of
food and beverage revenue................... 76.8% 74.9% 78.2% 78.7%
Selling and General, as a percentage of
lodging and food and beverage revenue....... 25.5% 27.0% 25.5% 25.2%
Occupancy and Other Operating, as a
percentage of lodging and food and
beverage revenue............................ 9.2% 6.4%
General and Administrative, as a percentage
of total revenue............................ 11.2% 7.5%
Other Data:
Occupancy..................................... 68.0% 69.2% 70.4% 72.3%
Average Daily Rate ("ADR").................... $60.36 $73.28 $59.92 $63.97
Revenue Per Available Room ("REVPAR")......... $41.04 $50.71 $42.21 $46.22
Gross Operating Profit........................ $40,223 $67,605 $35,824 $39,926
</TABLE>
(1) For purposes of this discussion of results of operations, comparable
Owned Hotels refers to the 37 Owned Hotels that were owned or leased by
the Company during all of 1994 and 1995.
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $57.4 million, or
64.7%, from $88.8 million in 1994 to $146.2 million in 1995. The increase
was due to $52.1 million of lodging revenues from the
22
<PAGE> 24
addition of the Frenchman's Reef and the 19 new hotels added during 1994 and
1995 with the balance coming from growth in revenues at comparable Owned
Hotels. Lodging revenues for comparable Owned Hotels increased by $6.6
million, or 8.6%, in 1995 as compared to 1994.
The Company operates in three major segments of the industry:
full-service, all-suites and limited-service. The following table sets forth
the growth in REVPAR at the comparable Owned Hotels for 1995, as compared to
1994, by industry segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Full-service....................... 8.7%
All-suites......................... 11.9%
Limited-service.................... 9.2%
Total..................... 9.5%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in
each of the Company's industry segments. Repositioning efforts at both
full-service and limited-service hotels also contributed to the REVPAR
increases. The improvements in REVPAR were generated by increases in ADR,
which rose by 6.8% and gains in occupancy of 2.7%.
Food and beverage revenues increased by $19.9 million, or 109.8%, from
$18.1 million in 1994 to $38.0 million in 1995. The increase was primarily
due to the additional food and beverage operations related to the
Frenchman's Reef and six other full-service hotels acquired since January 1,
1994. Food and beverage revenues for comparable Owned Hotels decreased by
$302,000 in 1995 compared to 1994. The decrease was primarily due to
decreased banquet business and lower beverage revenues at the Company's
sports lounges.
Management and other fees consist of base and incentive fees earned
under management agreements, fees for additional services rendered to
Managed Hotels and sales commissions earned by the Company's national sales
group, Market Segments, Inc. ("MSI"). Management and other fees decreased by
$1.9 million, or 19.0%, from $10.0 million in 1994 to $8.1 million in 1995.
The decrease was primarily due to the loss of management fees on five
Managed Hotels acquired by the Company during 1994 and 1995 and six
additional hotels which were sold by a third party hotel owner in 1994.
Partially offsetting these decreased management fees were increased base and
incentive management fees associated with the remaining Managed Hotels and
increased revenues generated by MSI.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes
receivable decreased by $4.0 million, or 25.0%, from $15.9 million in 1994
to $11.9 million in 1995, primarily due to the Company's conversion of a
$50.0 million note receivable secured by the Frenchman's Reef into an
operating hotel asset in December 1994. Partially offsetting the decrease
was interest income related to the purchase of $17.4 million of first
mortgages secured by two hotels for $12.7 million in June 1995.
23
<PAGE> 25
Direct lodging expenses increased by $12.9 million, or 50.6%, from $25.5
million in 1994 to $38.4 million in 1995, due primarily to the addition of
new hotels. Direct lodging expenses, as a percentage of lodging revenue,
decreased from 28.7% in 1994 to 26.3% in 1995. This decrease was primarily
due to increases in ADR which had minimal corresponding increases in
expenses. For comparable Owned Hotels, direct lodging expenses as a
percentage of lodging revenues decreased from 27.1% in 1994 to 26.3% in
1995.
Direct food and beverage expenses increased by $14.5 million, or 104.7%,
from $13.9 million in 1994 to $28.4 million in 1995, primarily due to the
addition of seven new full-service hotels. As a percentage of food and
beverage revenues, direct food and beverage expenses decreased from 76.8% in
1994 to 74.9% in 1995. The decrease was primarily due to increased revenues
in higher margin areas such as banquet departments at the new hotels. For
comparable Owned Hotels, direct food and beverage expenses as a percentage
of food and beverage revenue increased slightly from 78.2% in 1994 to 78.7%
in 1995.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or
food and beverage activities, such as administration, selling and
advertising, utilities, repairs and maintenance. Direct hotel selling and
general expenses increased by $22.6 million, or 82.6%, from $27.2 million in
1994 to $49.8 million in 1995, due primarily to the addition of new hotels.
As a percentage of hotel revenues (defined as lodging and food and beverage
revenues), direct hotel selling and general expenses increased from 25.5% in
1994 to 27.0% in 1995 due to the addition of new full-service properties
which generally require higher levels of unallocated expenses. For
comparable Owned Hotels, direct selling and general expenses as a percentage
of revenues decreased slightly from 25.5% in 1994 to 25.2% in 1995.
Occupancy and other operating expenses consist primarily of insurance,
real estate and other taxes and rent expense. Occupancy and other operating
expenses increased by $2.0 million, or 20.0%, from $9.8 million in 1994 to
$11.8 million in 1995 as the additional costs associated with the new hotels
were offset by real estate tax refunds of approximately $600,000 during the
year. As a percentage of hotel revenues, occupancy and other operating
expenses decreased from 9.2% in 1994 to 6.4% in 1995, primarily due to
operating leverage.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing,
finance and hotel support services associated with operating both the Owned
and Managed Hotels and general corporate expenses. General and
administrative expenses increased by $426,000, or 2.8%, from $15.1 million
in 1994 to $15.5 million in 1995, due to ordinary inflationary increases,
which were partially offset by central office payroll reductions. As a
percentage of total revenues, general and administrative expenses decreased
from 11.2% in 1994 to 7.5% in 1995 due to operating leverage.
24
<PAGE> 26
Depreciation and amortization expense increased by $6.6 million, or
69.4%, from $9.4 million in 1994 to $16.0 million in 1995, due to the impact
of new hotel properties acquired in the past year and refurbishment efforts
at several hotels.
Interest expense increased by $7.6 million, or 54.4%, from $14.0 million
in 1994 to $21.6 million in 1995, primarily due to new mortgage borrowings
of $39.0 million incurred in February 1995 and $86.3 million of 7%
Convertible Subordinated Notes due 2002 (the "Convertible Notes") issued in
April 1995. Investment income increased by $2.9 million from $2.0 million in
1994 to $4.9 million in 1995 primarily due to higher average cash balances
generated by the new borrowings.
Other income consists of items which are not part of the Company's
recurring operations. For the year ended December 31, 1995, other income
consisted of a gain on the settlement of a note receivable of $822,000 and
gains on the sale of land parcels of $1.4 million. Other income for the year
ended December 31, 1994 consisted primarily of a gain on the settlement of
the Rose and Cohen note receivable of $6.2 million, gains on property sales
of $1.0 million and rebates of prior years' insurance premiums of $1.2
million. Other expense of $2.2 million for the year ended December 31, 1995
consists of a reserve for insurance deductibles related to hurricane damage
at the Frenchman's Reef hotel in St. Thomas, U.S. Virgin Islands.
Pretax extraordinary gains of approximately $174,000 for the year ended
December 31, 1995 relate to the retirement of secured notes with a face
value of $22.2 million. Pretax extraordinary gains of approximately $292,000
for the year ended December 31, 1994 relate to the retirement of debt with a
face value of $8.3 million.
25
<PAGE> 27
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1993
The following table presents the components of operating income,
operating expense margins and other data for the Company and the Company's
comparable Owned Hotels for 1993 and 1994. The results of the four hotels
divested during 1993 and 1994 are not material to an understanding of the
results of the Company's operations in such periods and, therefore, are not
separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
1993 1994 1993 1994
------ ------ ------ -----
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging....................................... $ 69,487 $88,753 $62,305 $66,821
Food and Beverage............................. 12,270 18,090 10,875 11,410
Management and Other Fees..................... 10,831 10,021
Interest on Mortgages and Notes Receivable.... 14,765 15,867
Rental and Other.............................. 1,507 1,572
-------- -------
Total Revenues ............. 108,860 134,303
Direct Hotel Operating Expenses:
Lodging....................................... 19,925 25,490 16,870 17,281
Food and Beverage............................. 10,230 13,886 9,029 9,143
Selling and General........................... 21,180 27,244 17,779 18,889
Occupancy and Other Operating................... 9,827 9,799
General and Administrative...................... 15,685 15,089
Depreciation and Amortization................... 7,117 9,427
-------- --------
Operating Income................................ 24,896 33,368
Operating Expense Margins:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue... 28.7% 28.7% 27.1% 25.9%
Food and Beverage, as a percentage of
food and beverage revenue................... 83.4% 76.8% 83.0% 80.1%
Selling and General, as a percentage of
lodging and food and beverage revenue....... 25.9% 25.5% 24.3% 24.1%
Occupancy and Other Operating, as a
percentage of lodging and food and
beverage revenue............................ 12.0% 9.2%
General and Administrative, as a percentage
of total revenue............................ 14.4% 11.2%
Other Data:
Occupancy..................................... 70.4% 68.0% 73.2% 73.1%
Average Daily Rate ("ADR").................... $56.14 $60.36 $56.84 $61.16
Revenue Per Available Room ("REVPAR")......... $39.52 $41.04 $41.61 $44.71
Gross Operating Profit........................ $30,422 $40,223 $29,500 $32,917
</TABLE>
26
<PAGE> 28
(1) For purposes of this discussion of results of operations for 1994
compared to 1993, comparable Owned Hotels refers to the 31 Owned Hotels
that were owned or leased by the Company during all of 1994 and 1993.
Lodging revenues increased by $19.3 million, or 27.7%, from $69.5 million in
1993 to $88.8 million in 1994. This increase was primarily due to incremental
lodging revenues of $17.6 million from hotels acquired or built in 1993 and 1994
and an increase in lodging revenues at comparable Owned Hotels. Lodging revenues
for comparable Owned Hotels increased by $4.5 million, or 7.2%, in 1994 compared
to 1993 due to improvements in ADR. ADR increased by $4.22 or 7.5% for all
hotels and $4.32 or 7.6% for comparable Owned Hotels due to repositioning and
refurbishment efforts at several full-service hotels and the continued
improvements in the lodging industry. In 1994, the industry continued its
recovery, as demand growth continued to outpace new hotel supply growth,
resulting in higher occupancy levels which have allowed the industry to increase
room rates. The Company has pursued a strategy of increasing ADR, which has a
greater impact on net operating income than changes in occupancy. Occupancy
rates for all hotels decreased from 70.4% in 1993 to 68.0% in 1994 due to the
lower occupancy rates normally associated with new hotels, including both newly
constructed hotels and repositioned hotels during the refurbishment period.
Occupancy rates for comparable Owned Hotels remained constant in 1994 compared
to 1993.
The Company operates in three major segments of the industry: full-service,
all-suites and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for the year ended December 31, 1994 as
compared to the prior year, by industry segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Full-service...................... 7.7%
All-suites........................ 13.1%
Limited-service................... 4.1%
Total.................... 7.5%
</TABLE>
Food and beverage revenues increased by $5.8 million, or 47.4%, from $12.3
million in 1993 to $18.1 million in 1994. This increase was primarily due to the
impact of incremental revenues of $5.7 million from additional food and beverage
operations of four full-service hotels acquired in 1994. Food and beverage
revenues for comparable Owned Hotels increased by $535,000, or 4.9%, in 1994
compared to 1993 primarily as a result of increased banquet sales and the
repositioning of three lounges to a sports bar theme.
Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, Market
Segments, Inc. Management and other fees decreased by $810,000, or 7.5%, from
$10.8 million in 1993 to $10.0 million in 1994 primarily due to the loss of
management fees on four Managed Hotels acquired by the Company during
27
<PAGE> 29
1994. In addition, the Company's management contracts covering six additional
hotels were terminated during 1994 upon divestiture of those hotels by the third
party hotel owners. Partially offsetting these decreased management fees were
the addition of two new management contracts and increased revenues associated
with the remaining Managed Hotels.
Interest on mortgages and notes receivable in 1993 and 1994 primarily
related to mortgages secured by certain Managed Hotels including the Frenchman's
Reef. Interest income on mortgages and notes receivable increased by $1.1
million, or 7.5%, from $14.8 million in 1993 to $15.9 million in 1994 primarily
due to interest recognized on the Company's cash flow notes, which are
subordinated or junior mortgages which remit payment based on hotel cash flow.
In accordance with fresh start reporting adopted on the Effective Date, assets
and liabilities were recorded at their then-current fair market values. As these
cash flow notes bear many of the characteristics and risks of operating hotel
equity investments, no value was assigned to these notes on the Company's
balance sheet due to substantial doubt as to their recoverability. The Company's
policy is to recognize interest on cash flow notes when cash is received. In
1994, the portion of interest on mortgages and other notes receivable
attributable to cash flow notes increased to $2.0 million from $1.0 million in
1993 primarily due to the execution of revised cash flow note agreements on
three hotels and the improved operating performance of the underlying hotels.
See "Business -Mortgages and Notes Receivable."
Approximately $4.3 million and $4.6 million of interest on mortgages and
notes receivable in 1993 and 1994, respectively, was derived from the Company's
$50.0 million note receivable secured by the Frenchman's Reef. This note was
restructured in December 1994 and pursuant to such restructuring, the Company
obtained ownership and control of the Frenchman's Reef (see "-Liquidity and
Capital Resources").
Direct lodging expenses increased by $5.6 million, or 27.9%, from $19.9
million in 1993 to $25.5 million in 1994 due primarily to the addition of new
hotels. As a percentage of lodging revenue, direct lodging expenses remained
constant at 28.7% in 1993 and 1994. For comparable Owned Hotels, direct
lodging expenses increased $411,000, or 2.4%, but decreased as a percentage of
comparable lodging revenue from 27.1% in 1993 to 25.9% in 1994 primarily due to
increases in ADR which had minimal corresponding increases in expenses.
Direct food and beverage expenses increased by $3.7 million, or 35.7%, from
$10.2 million in 1993 to $13.9 million in 1994 due primarily to the addition of
new full-service hotels. As a percentage of food and beverage revenue, direct
food and beverage expenses decreased from 83.4% in 1993 to 76.8% in 1994
primarily due to increased revenues in higher margin areas such as banquet
departments and sports lounges. For comparable Owned Hotels, direct food and
beverage expenses increased $114,000, or 1.3%, but decreased as a percentage of
food and beverage revenue from 83.0% in 1993 to 80.1% in 1994.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as
28
<PAGE> 30
administration, selling and advertising, utilities, repairs and maintenance.
Direct hotel selling and general expenses increased by $6.1 million, or 28.6%,
from $21.2 million in 1993 to $27.2 million in 1994 due primarily to the
addition of 11 new hotels. Of these 11 hotels, four were managed by the Company
in 1993 or during a portion of 1994, while the other seven had no previous
relationship to the Company. As a percentage of hotel revenues (defined as rooms
and food and beverage revenues), direct hotel selling and general expenses
decreased slightly from 25.9% in 1993 to 25.5% in 1994. For comparable Owned
Hotels, direct selling and general expenses increased $1.1 million, or 6.2%, but
decreased slightly as a percentage of comparable Owned Hotel revenues from 24.3%
in 1993 to 24.1% in 1994.
Occupancy and other operating expenses, which consist primarily of
insurance, real estate and other taxes, and rent expense, decreased by $28,000
in 1994. As a percentage of hotel revenues, occupancy and other operating
expenses decreased from 12.0% in 1993 to 9.2% in 1994 primarily due to operating
leverage, lower property and liability insurance charges based on favorable
claims experiences and reductions in real estate taxes as a result of successful
tax appeals on certain properties.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned and Managed
Hotels and general corporate expenses. General and administrative expenses
decreased by $596,000, or 3.8%, from $15.7 million in 1993 to $15.1 million in
1994 primarily due to savings realized from the restructuring of the Company's
centralized management operations in 1993. As a percentage of total revenues,
general and administrative expenses decreased from 14.4% in 1993 to 11.2% in
1994.
Depreciation and amortization expense increased by $2.3 million, or 32.5%,
from $7.1 million in 1993 to $9.4 million in 1994, due to the impact of new
hotel properties acquired in the past year and refurbishment efforts at several
hotels.
Interest expense decreased by $2.1 million, or 13.2%, from $16.1 million in
1993 to $14.0 million in 1994, primarily due to the net reduction of
approximately $27.4 million of debt over the past two years. Interest income on
cash investments increased by approximately $700,000, or 55.2%, from $1.3
million in 1993 to $2.0 million in 1994 due to higher average cash balances in
1994.
Other income for 1994 consisted primarily of a gain of approximately $6.2
million related to the settlement of the Rose and Cohen note receivable (see "--
Liquidity and Capital Resources"), gains on sales of other hotel assets of
approximately $1.0 million and rebates of prior years' insurance premiums of
$1.2 million.
Pretax extraordinary gains of approximately $292,000 for 1994 relate to the
retirement of secured notes with a face value of $8.3 million. Pretax
extraordinary gains of approximately $6.8 million in 1993 relate to the
retirement of debt with a face value of $25.8 million.
29
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth strategy focuses on increasing its equity ownership in
strategically positioned hotels. The Company is expanding its AmeriSuites hotel
brand and expects to open 20 AmeriSuites hotels in 1996. Additionally, the
Company has acquired and is repositioning 18 hotels acquired in March 1996, 16
of which are Wellesley Inns.
The Company's development and acquisition program was funded in 1995
primarily with the proceeds from the issuance of $86.3 million of Convertible
Notes and mortgage financings of $39.0 million incurred in 1995. The Company
intends to finance future acquisitions and development with the net proceeds
from the issuance of $120.0 million of 9 1/4% First Mortgage Notes due 2006 (the
"First Mortgage Notes") in January 1996, cash flow from operations, and other
secured financings. The Company believes that these sources will be adequate to
fund the implementation of its growth strategy through 1996. Additionally, the
Company believes that its cash flow from operations is sufficient to fund its
anticipated working capital needs, routine capital expenditures and debt service
obligations through 1996.
The Company believes it has the financial resources available to execute its
growth and hotel acquisition strategy. At December 31, 1995, the Company had
cash and cash equivalents of $49.5 million, current marketable securities of
$11.9 million and restricted cash, which is primarily collateral for various
debt obligations, of $9.0 million. In addition, the First Mortgage Notes
offering generated $63.9 of net cash proceeds, after debt repayments and
underwriting expenses, in January 1996. Cash and cash equivalents and current
marketable securities increased by $47.8 million during 1995 primarily due to
new borrowings and cash flow from operations offset by development and
acquisition spending.
Cash flow from operations was approximately $40.9 million in 1995 as
compared to $28.7 million in 1994. Cash flow from operations was positively
impacted by the utilization of net operating loss carryforwards ("NOLs") and
other tax basis differences of $9.5 million and $12.8 million in 1995 and 1994,
respectively. At December 31, 1995, the Company had federal NOLs relating to its
predecessor, PMI, of approximately $114.3 million which are subject to annual
utilization limitations and expire beginning in 2005 and continuing through
2007.
The Company's other major sources of cash were net proceeds of approximately
$83.2 million from the issuance of the Convertible Notes, mortgage financings of
$39.0 million and collections of mortgages and notes receivable of $27.6
million. The Company's major uses of cash in 1995 were capital expenditures of
$113.5 million, debt payments of $34.0 million, the purchase of first mortgage
notes for $12.7 million and purchases of marketable securities of $11.5 million.
Debt. In April 1995, the Company issued $86.3 million of 7% Convertible
Subordinated Notes due 2002. The Convertible Notes bear interest at 7%, are
convertible into common stock of the Company at a price of $12 per share at the
option of the holder and mature April 15, 2002. The Convertible Notes are
redeemable, in whole or in part, at the option of the Company after three
30
<PAGE> 32
years at premiums to principal which decline on each anniversary date. The
Company utilized the proceeds primarily to finance the development and
acquisition of hotels.
In February 1995, the Company obtained $39.0 million of mortgage financing
on 11 of its hotels under two separate loan agreements. Both loans bear interest
at variable rates (approximately 10.5% at December 31, 1995) and have five-year
maturities. The funds were used to finance the Company's acquisition and
development program. The Company also incurred an additional $3.6 million of
debt in connection with the ShoLodge transaction. See "-- Capital Investments."
During 1995, the Company prepaid and retired $22.3 million of its senior
secured notes resulting in pre-tax extraordinary gains of $174,000.
As of December 31, 1995, the Company has $32.1 million of debt related to
the Frenchman's Reef which was scheduled to mature in December 1996. In March
1996, the Company and the lender entered into an agreement to extend the
maturity of the loan to July 1997. The loan will bear interest at the same rate
currently in effect and principal payments will be waived until July 1997. All
other terms and conditions of the loan shall remain in effect. See
"--Capital Investments."
At December 31, 1995, the Company had $282.7 million in debt outstanding. Of
this debt, approximately $78.5 million bears interest at floating rates. In
August 1995, the Company entered into an interest rate protection agreement with
a major financial institution which reduces the Company's exposure to
fluctuations in interest rates by effectively fixing interest rates on $40.0
million of variable interest rate debt. Under the agreement, on a monthly basis
the Company will pay a fixed rate of interest of 6.18% per annum and will
receive a floating interest rate payment equal to the 30-day LIBOR rate on a
$40.0 million notional principal amount. The agreement commenced in October
1995 and expires in 1999.
In January 1996, the Company issued $120.0 million of 9 1/4% First Mortgage
Notes due 2006. Interest on the First Mortgage Notes is payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, divided payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. The Notes are redeemable, in whole or in part, at the option of
the Company on or after January 15, 2001 at premiums to principal which decline
on each anniversary date thereafter. The Company utilized a portion of the
proceeds to pay down approximately $51.6 million of indebtedness, with the
remainder of the proceeds to be used to finance the development or acquisition
of hotels or hotel portfolios.
31
<PAGE> 33
Capital Investments. The Company has implemented a hotel development and
acquisition program which focuses on the development of its AmeriSuites hotel
chain and the consolidation of its Wellesley Inns chain. In connection with this
program, the Company spent approximately $91.2 million in cash on the
acquisition and construction of hotels, purchased first mortgage notes for $12.7
million and assumed $5.1 million of debt in 1995. The cash portion was funded by
a combination of cash flow from operations, mortgage financings and the
Convertible Notes offering.
The Company plans to double the size of its AmeriSuites chain in 1996. In
1995, new AmeriSuites hotels were opened in Atlanta and Greensboro. The Company
also converted four Bradbury Suites hotels to AmeriSuites in the fourth quarter
of 1995 bringing the year end total to 19 hotels. In addition in the first
quarter of 1996, the Company opened two new AmeriSuites hotels in Miami and an
AmeriSuites hotel in Cleveland, bringing the number of AmeriSuites to 22 as of
March 20, 1996. The Company has 12 AmeriSuites hotels under construction in the
Dallas, Detroit, Baltimore, Richmond, Atlanta and Memphis areas. The Company
also has 19 additional AmeriSuites sites under contract as of March 20, 1996
which are scheduled for the commencement of construction in 1996.
In March 1995, the Company purchased an AmeriSuites hotel in Richmond,
Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the
Company's 12 AmeriSuites hotels. The total consideration payable by the Company
in the transaction was $19.7 million, comprised of (i) $16.1 million which was
paid during 1995 plus (ii) $18.5 million in notes maturing in 1997 less (iii)
$14.9 million of existing debt on five hotels which was forgiven at face value.
The transaction resulted in a net increase of $3.6 million of long-term debt. As
a result of the transaction, the Company assumed management of these 12
AmeriSuites hotels.
In August 1995, the Company purchased four Bradbury Suites hotels for $18.7
million. The hotels, comprising 447 rooms, are located in Augusta, Georgia;
Columbia, South Carolina; Arlington Heights, Illinois and Jacksonville, Florida.
The Company converted these hotels to the AmeriSuites brand in the fourth
quarter of 1995. In August 1995, the Company also purchased the 149 room full
service, all-suite St. Tropez Hotel and Shopping Center in Las Vegas for $15.2
million.
In June 1995, the Company purchased $17.4 million in face amount of first
mortgage notes for $12.7 million in cash. These first mortgage notes were
secured by two hotels. The purchase of such notes was intended to provide the
Company with the opportunity to acquire the underlying properties. On December
21, 1995, the Company received $12.7 million plus all accrued interest as
payment in full on the first mortgage notes.
In September 1995, the Frenchman's Reef hotel suffered significant hurricane
damage. Due to extensive property and business interruption insurance, the
Company believes that its liquidity will be affected only to the extent of its
insurance deductibles which the Company estimates at $2.2 million. The majority
of damaged rooms at the Frenchman's Reef have been repaired on an interim
32
<PAGE> 34
basis and approximately 95% of the rooms are currently available for occupancy.
The Company anticipates that extensive renovation at the Frenchman's Reef in
1996 will reduce the number of rooms available for occupancy. Such reduction in
rooms available and related revenue will be a component of the Company's claim
under its business interruption insurance. The Company is engaged in discussions
with its insurance carrier regarding the amount of insurance proceeds to be paid
and is assessing the extent of further refurbishments required at the
Frenchman's Reef. Additionally, the Company's debt in the amount of $32.1
million related to the Frenchman's Reef is further secured by an assignment of
property issuance proceeds. The lender has sole discretion concerning the
utilization of such proceeds for refurbishment. The Company is discussing with
the lender the terms under which the lender will make such funds available for
refurbishment.
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley
Inns and two other limited service hotels for approximately $65.1 million in
cash. The acquisition enables the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns owned and operated
by the Company. The Company intends to refurbish these hotels to ensure
consistent quality and enhance the value of its brand.
During 1995, the Company spent approximately $22.0 million on capital
improvements at its Owned Hotels, of which approximately $13.7 million related
to refurbishments and repositionings of recently acquired hotels. The Company
intends to spend a total of approximately $13.5 million in 1996 relating to the
refurbishing and repositioning of the Hasbrouck Heights Crowne Plaza and the
16 recently acquired Wellesley Inns.
Asset Realizations. The Company has pursued a strategy of converting
mortgage notes receivable and other assets into cash or operating hotel assets.
Since July 31, 1992, the Company has received $100.7 million in cash and added
seven operating hotel assets through note settlements, lease terminations and
property sales. The Company will continue to pursue settlements with mortgage
and note obligors to further reduce its portfolio. During 1995, the Company
received $13.1 million in cash in settlement of notes receivable and $8.2
million in cash on sales of properties resulting in gains of $2.2 million. In
May 1995, the Company obtained control of the 240-room Princeton Holiday Inn by
converting its $2.7 million mortgage note receivable into a long-term lease and
assuming $1.5 million of debt. The hotel was recently repositioned to a Holiday
Inn from a Ramada Inn. In January 1996, the Company obtained control of the
210-room Cocoa Beach Howard Johnson Hotel by converting its $9.7 million
mortgage note receivable into a long-term lease.
In April 1995, the Company received a favorable ruling in its litigation
with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31.2 million previously received by the Company in settlement of
a note and guaranty from Allan V. Rose and Arthur G. Cohen ("Rose and Cohen").
In an order dated April 25, 1995, the U.S. District Court for the Southern
District of Florida affirmed a lower court ruling approving the Company's
settlement with Rose and Cohen and finding that the Company alone was entitled
to the settlement proceeds. The Company reached a settlement in 1993 with Rose
and Cohen which provided for Rose or his affiliate to pay the Company $25.0
million plus proceeds from the sale of approximately 1.1 million shares of the
Company's common stock held by Rose, bringing the total settlement proceeds to
approximately $31.2 million. FSA asserted that, under the terms of an
intercreditor agreement, it was entitled to receive the settlement proceeds
otherwise payable to the Company.
33
<PAGE> 35
The U.S. Bankruptcy Court for the Southern District of Florida ruled in favor of
the Company in April 1994 and the Company used $25.0 million of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the District
Court, which affirmed the Bankruptcy Court's ruling. On May 12, 1995, the
Company used the remaining proceeds plus accrued interest to prepay senior
secured notes. On May 23, 1995, FSA filed a notice of appeal with the U.S. Court
of Appeals for the 11th Circuit. The Company believes that the U.S. Court of
Appeals will affirm the U.S. District Court ruling and that there will be no
effect on the Company's financial position or results of operations.
Item 8. Financial Statements and Supplementary Data.
See Index to Financial Statements included in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
34
<PAGE> 36
PART III
Item 10. Directors and Executive Officers of the Registrant.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Simon 43 President, Chief Executive Officer and Chairman of the
Board of Directors
John M. Elwood 41 Executive Vice President, Chief Financial Officer and
Director
Howard M. Lorber(1) 47 Director
Herbert Lust, II(1) 69 Director
Jack H. Nusbaum 55 Director
Allen J. Ostroff(1) 59 Director
A.F. Petrocelli(1) 52 Director
Paul H. Hower 61 Executive Vice President
Timothy E. Aho 52 Senior Vice President/Development
Denis W. Driscoll 51 Senior Vice President/Human Resources
John H. Leavitt 43 Senior Vice President/Sales and Marketing
Joseph Bernadino 49 Senior Vice President, Secretary and General Counsel
Richard T. Szymanski 38 Vice President and Corporate Controller
Douglas W. Vicari 36 Vice President and Treasurer
----------
</TABLE>
(1) Member of the Compensation and Audit Committee.
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
David A. Simon has been President, Chief Executive Officer and a Director
since 1992 and Chairman of the Board of Directors of the Company since 1993. Mr.
Simon was a director of PMI from 1991 to 1992. Mr. Simon was the Chief Executive
Officer of PMI from 1991 to 1992.
John M. Elwood has been a Director and Executive Vice President of the
Company since 1992 and Chief Financial Officer since 1993. Mr. Elwood was the
Director of Reorganization of PMI from 1991 through the Effective Date of the
PMI reorganization.
35
<PAGE> 37
Howard M. Lorber has been a Director and a member of the Compensation and
Audit Committee since 1994. Mr. Lorber is Chairman of the Board of Directors of
Nathan's Famous, Inc. and Hallman & Lorber Associates, Inc. and a director of
New Valley Corporation, United Capital Corp. and Alpine Lace Brands, Inc. Mr.
Lorber has been Chief Executive Officer of Hallman & Lorber Associates, Inc. for
more than the past five years, President and Chief Operating Officer of New
Valley Corporation since 1994 and Chief Executive Officer of Nathan's Famous,
Inc. since 1993. Mr. Lorber has also been a general partner or shareholder of a
corporate general partner of various limited partnerships organized to acquire
and operate real estate properties. Several of these partnerships filed for
protection under the federal bankruptcy laws in 1991.
Herbert Lust, II has been a Director since 1992 and Chairman of the
Compensation and Audit Committee of the Company since 1993. Mr. Lust was a
member of the Committee of Unsecured Creditors of PMI from 1991 to 1992. Mr.
Lust has been a private investor and President of Private Water Supply Inc. for
more than the past five years. Mr. Lust is a director of BRT Realty Trust.
Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum is the Chairman
of the New York law firm of Willkie Farr & Gallagher where he has been a partner
for more than the past twenty five years. He also is a director of Pioneer
Companies, Inc., W.R. Berkley Corporation and The Topps Company, Inc.
Allen J. Ostroff has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Ostroff has been a Managing
Director of the Prudential Realty Group, a subsidiary of The Prudential
Insurance Company of America, since June 1994 and was a Senior Vice President of
the Prudential Realty Group from 1991 to June 1994.
A.F. Petrocelli has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Petrocelli has been the
Chairman of the Board of Directors and Chief Executive Officer of United Capital
Corp. for more than the past five years. He is also a director of Nathan's
Famous, Inc.
Paul H. Hower has been an Executive Vice President of the Company since
1993. Mr. Hower was President of Integrity Hospitality Services from 1991 to
1993 and Vice President and Hotel Division Manager of B.F. Saul Co. in 1991.
Timothy E. Aho has been a Senior Vice President of the Company since 1994.
Mr. Aho was a Senior Vice President of Development for Boykin Management Company
from 1993 to 1994 and Vice President of Development for Interstate Hotels
Corporation from 1991 to 1993.
Denis W. Driscoll has been a Senior Vice President of the Company since
1993. Mr. Driscoll was President of Driscoll Associates, a human resources
consulting organization, from 1991 to 1993.
36
<PAGE> 38
John H. Leavitt has been a Senior Vice President of the Company since 1992.
Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a Senior
Vice President of Medallion Hotel corporation in 1991.
Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1992. Mr. Bernadino was an Assistant Secretary and
Assistant General Counsel of PMI from 1991 to 1992.
Richard T. Szymanski has been a Vice President and Corporate Controller of
the Company since 1992. Mr. Szymanski was Corporate Controller of PMI from 1991
to 1992.
Douglas W. Vicari has been a Vice President and Treasurer of the Company
since 1992 and was Vice President and Treasurer of PMI during 1992. Mr. Vicari
was the Director of Budget and Financial Analysis of PMI from 1991 to 1992.
Item 11. Executive Compensation
The following summary compensation table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to the
persons who were, at December 31, 1995, the Company's Chief Executive Officer
and the four other most highly compensated executive officers of the Company
(the "named executive officers"). The information shown reflects compensation
for services in all capacities awarded to, earned by or paid to these persons
for the years ending December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
--------------------------- ---- -------- ------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
David A. Simon.................... 1995 $336,808 $218,297 $-0- 100,000 $8,774(1)
President and Chief.............. 1994 312,552 161,538 -0- 0 5,507
Executive Officer................ 1993 303,853 -0- -0- 45,000 6,211
John M. Elwood.................... 1995 272,982 184,305 -0- 80,000 5,642(2)
Executive Vice President......... 1994 249,423 129,231 -0- 50,000 3,147
and Chief Financial Officer...... 1993 240,000 -0- -0- 45,000 21,981
Paul H. Hower..................... 1995 205,675 50,000 -0- 36,000 7,174(3)
Executive Vice President......... 1994 190,000 20,000 -0- 15,000 5,410
1993 94,320 -0- -0- 20,000 113
Denis W. Driscoll................. 1995 168,974 20,000 -0- 18,000 1,873(4)
Senior Vice President - Human.... 1994 159,961 10,000 -0- 8,000 959
Resources........................ 1993 68,565 -0- -0- 8,000 73
Joseph Bernadino.................. 1995 132,667 30,000 -0- 23,000 1,697(5)
Senior Vice President,.......... 1994 126,184 24,150 -0- 8,000 614
Secretary and General Counsel... 1993 120,750 -0- -0- 8,000 87
</TABLE>
37
<PAGE> 39
1. Represents $102 for premiums of Company-provided life insurance, $2,731
related to 401K matching contributions and $5,941 in value of use of
Company-provided car.
2. Represents $102 for premiums for Company-provided life insurance,
$2,276 related to 401K matching contributions and $3,264 in value of
use of Company-provided car.
3. Represents $702 for premiums for Company-provided life insurance,
$1,500 related to 401K matching contributions and $4,972 in value of
use of Company-provided car.
4. Represents $288 for premiums for Company-provided life insurance and
$1,585 related to 401K matching contributions.
5. Represents $174 for premiums for Company-provided life insurance and
$1,523 related to 401K matching contributions.
STOCK OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
The following table sets forth information concerning individual grants
of stock options made during the year ending December 31, 1995 to each of the
officers listed below. The Company did not grant any stock appreciation rights
during such period.
<TABLE>
<CAPTION>
Individual Grants
------------------------
% of Total
Number of Options Potential Realized Value at
Securities Granted to Assumed Annual Rates of
Underlying Employees Exercise Stock Price Appreciation For
Options in Fiscal Price Per Expiration Option Terms
Name Granted Year Share Date 5% 10%
---- ------- ------ ------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
David A. Simon ....... 100,000(1) 15.1% $9.75 8/01/2005 613,172 1,553,899
John M. Elwood........ 80,000(2) 12.1% $9.25 5/15/2005 465,382 1,179,369
Paul H. Hower......... 36,000(3) 5.4% $9.63 7/28/2005 217,912 552,232
Denis W. Driscoll .... 18,000(3) 2.7% $9.63 7/28/2005 108,956 276,116
Joseph Bernadino...... 18,000(3) 2.7% $9.63 7/28/2005 108,956 276,116
5,000(4) 0.8% $9.88 5/01/2001 16,792 38,096
</TABLE>
(1) These stock options vest with respect to one third of the grant on each
of August 1, 1996, 1997 and 1998 and will continue to be exercisable
through August 1, 2005. These options become immediately exercisable
upon a change in control of the Company.
(2) These stock options vest with respect to one third of the grant on each
of May 15, 1996, 1997 and 1998 and will continue to be exercisable
through May 15, 2005. These options become immediately exercisable upon
a change in control of the Company.
(3) These stock options vest with respect to one third of the grant on each
of July 28, 1996, 1997 and 1998 and will continue to be exercisable
through July 28, 2005. These options become immediately exercisable
upon a change in control of the Company.
(4) These stock options vest with respect to one third of the grant on each
of May 1, 1996, 1997 and 1998 and will continue to be exercisable
through May 1, 2001. These options become immediately exercisable upon
a change in control of the Company.
38
<PAGE> 40
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1995 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-
Acquired on Value Options at Year End The-Money Options
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Simon .......... -0- -0- 375,000 100,000 $2,711,700 $25,000
John M. Elwood .......... -0- -0- 77,500 117,500 $462,613 $158,438
Paul H. Hower ........... -0- -0- 25,000 46,000 $131,875 $37,250
Denis W. Driscoll ....... -0- -0- 7,999 26,001 $40,330 $36,420
Joseph Bernadino ........ -0- -0- 7,999 31,001 $40,330 $37,045
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Simon and the Company executed an employment agreement dated August 1,
1995 which provides for a term of three years, with automatic successive
one-year extensions unless a prior election is made by either party not to
extend the agreement.
The employment agreement provides for an annual base salary of $350,000
(which will increase annually based upon increases in the consumer price index),
a discretionary annual bonus based on attainment of performance objectives set
by the Board of Directors, a life insurance policy in an amount not less than
$1,000,000, an automobile and other customary welfare benefits, including
medical and disability insurance. The agreement also provides that, to the
extent payments made by the Company for disability insurance, life insurance and
the use of the automobile are subject to federal, state or local income taxes,
the Company will pay Mr. Simon the amount of such additional taxes plus such
additional amount as will be reasonable to hold him harmless from the obligation
to pay such taxes.
Pursuant to this employment agreement, Mr. Simon was granted stock options
on August 1, 1995 to purchase 100,000 shares of Common Stock. The agreement also
provides that the Company will grant options to purchase 100,000 shares of
Common Stock on each of the first and second anniversary dates of the agreement.
Such stock options are exercisable as to one-third of the grant on each of the
first, second and third anniversaries of the option grant date, provided his
employment has not been terminated by such date.
This employment agreement may be terminated by the Company at any time, with
or without cause. If the agreement is terminated by the Company prior to the
expiration of the three-year term without cause, or if Mr. Simon resigns because
of circumstances amounting to constructive termination of employment, severance
would be paid in a single lump sum equal to one-year's base salary or, if
greater, the base salary that would have been payable over the remainder of the
initial term. All stock options would become fully vested. Any bonus awarded for
the year of termination would not be prorated. If the agreement is terminated by
the Company for cause (as such term is defined in the employment agreement), or
if Mr. Simon resigns voluntarily under circumstances not amounting to a
constructive termination of employment, no benefits are payable other than
accrued but unpaid salary and any unpaid bonus earned prior to such termination
or resignation.
39
<PAGE> 41
As of May 15, 1995, Mr. Elwood and the Company executed an employment
agreement which had a term of one year. This employment agreement provided for
an annual base salary of $280,000 (which will increase annually based upon
increases in the consumer price index), a discretionary annual bonus based on
attainment of performance objectives set by the Board of Directors, a life
insurance policy in the amount of $1,000,000, an automobile, and other customary
welfare benefits, including medical and disability insurance. Pursuant to this
employment agreement, Mr. Elwood was granted stock options on May 15, 1995 to
purchase 80,000 shares of Common Stock. The agreement also provides that the
Company will grant options to purchase 80,000 shares of Common Stock on each of
the first and second anniversary dates of the agreement. Such options are
exercisable as to one-third of the grant on each of the first, second and third
anniversaries of the option grant date, provided his employment has not been
terminated by such date.
This employment agreement may be terminated by the Company at anytime, with
or without cause. If the agreement is terminated by the Company prior to the
expiration of the three-year term without cause, or if Mr. Elwood resigns
because of circumstances amounting to constructive termination of employment,
severance would be paid in a single lump sum equal to one-year's base salary or,
if greater, the base salary that would have been payable over the remainder of
the term. All stock options would become fully vested. Any bonus awarded for the
year of termination would not be prorated. If the agreement is terminated by the
Company for cause (as such term is defined in the employment agreement), or if
Mr. Elwood resigns voluntarily under circumstances not amounting to a
constructive termination of employment, no benefits are payable other than
accrued but unpaid salary and any unpaid bonus earned prior to such termination
or resignation.
CHANGE IN CONTROL AGREEMENTS
As of February 15, 1995, the Company executed change in control agreements
with ten officers of the Company, including each named executive officer. These
agreements provide that, if within two years of a change in control of the
Company, the officer's employment with the Company is terminated by the Company
without cause or if the officer resigns for good reason (as defined in the
agreements), the Company will pay the beneficiary two and one-half times the
aggregate cash compensation earned by the beneficiary during the fiscal year
immediately preceding the termination of employment. Such payments are to be
reduced, however, to the extent necessary to avoid characterization as "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code. In addition, any outstanding options to purchase shares of the Company
held by the officer will vest and become exercisable as of the date of the
change in control.
BOARD OF DIRECTORS COMPENSATION AND BENEFITS
Directors who are employees of the Company do not receive additional
compensation for serving on the Board of Directors. Non-employee Directors
receive $30,000 annually. In addition,
40
<PAGE> 42
each non-employee Director receives $1,500 for each Board of Directors meeting
attended, $1,500 for each committee meeting attended and $500 for each
telephonic meeting if such meeting extends beyond a period of 15 minutes. The
Chairman of the Compensation and Audit Committee receives an additional $15,000
annually. The Directors' remuneration is paid quarterly. All Directors are
reimbursed for their expenses.
In addition, on the date of the Company's Annual Meeting of Stockholders,
each non-employee Director receives an automatic grant of options to purchase
10,000 shares of the Company's Common Stock in accordance with the Company's
1995 Non-Employee Director Stock Option Plan. The options vest one year from the
date of grant at an option price equal to the mean price of a share of the
Company's Common Stock on the New York Stock Exchange for the trading day
immediately prior to the date of grant.
The Board of Directors held twelve meetings during 1995. All members of the
Board of Directors attended at least 75% of the aggregate number of meetings of
the Board of Directors.
COMPENSATION AND AUDIT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Audit Committee are Herbert Lust, II
(Chairman), A. F. Petrocelli, Allen J. Ostroff and Howard M. Lorber. Mr.
Petrocelli has certain business relationships with the Company, which are
described under the heading "Certain Relationships and Related Transactions."
41
<PAGE> 43
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 15, 1996, information with
respect to the beneficial ownership of the Company's common stock by (i) each
person known by the Company to own beneficially 5% or more of the Company's
common stock, (ii) each director of the Company, (iii) the Company's Chief
Executive Officer and each of the four remaining most highly compensated
executive officers, and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name of Beneficial Owner Ownership Class(p)
------------------------ --------- --------
<S> <C> <C>
FMR Corp.(a) .................................. 3,930,931 12.66
82 Devonshire Street
Boston, MA 02109
Denver Investment Advisors LLC(b).............. 3,849,760 12.40
1225 17th Street, 26th Floor
Denver, CO 80208
Neuberger & Berman L.P. (c).................... 2,151,034 6.93
605 Third Avenue
New York, NY 10158-3698
David A. Simon (d) ............................ 533,895 1.72
John M. Elwood (e) ............................ 176,288 *
Herbert Lust, II (f) .......................... 78,151 *
Allen J. Ostroff (g) .......................... 60,000 *
A.F. Petrocelli (h) ........................... 63,276 *
Jack H. Nusbaum (i) ........................... 40,000 *
Howard M. Lorber (j) .......................... 30,000 *
Paul H. Hower (k) ............................. 27,300 *
Denis W. Driscoll (l) ......................... 13,883 *
Joseph Bernadino (m) .......................... 10,665 *
John H. Leavitt (n) ........................... 8,110 *
Richard T. Szymanski (o) ...................... 7,332 *
Douglas W. Vicari (p) ......................... 7,332 *
Timothy E. Aho (q)............................. 3,666 *
All directors and executive officers
as a group (14 persons) (r) ................. 1,059,898 3.41
</TABLE>
(a) FMR Corp. filed a Schedule 13G, dated February 14, 1996 with the
Securities and Exchange Commission (the "SEC") reporting ownership of
3,930,931 shares of Common Stock, with sole voting power with respect
to 44,999 shares and sole dispositive power with respect to 3,930,931
shares.
42
<PAGE> 44
(b) Denver Investment Advisors LLC filed a Schedule 13G, dated March 4,
1996 with the SEC reporting ownership of 3,849,760 shares of Common
Stock, with sole voting power with respect to 2,382,160 and sold
dispositive power with respect to 3,849,760 shares.
(c) Neuberger & Berman L.P. filed a Schedule 13G, dated February 12, 1996
with the SEC reporting ownership of 2,151,034 shares of Common Stock,
with sole voting power with respect to 461,450 shares, with shared
voting power with respect to 253,600 and shared dispositive power with
respect to 2,151,034 shares.
(d) Includes 151,726 shares owned by David A. Simon, 146 shares owned by
his wife and 249 shares held by Mr. Simon as custodian for his
children. Mr. Simon disclaims beneficial ownership of the shares owned
by his wife and held as custodian for his children. Also includes
warrants to purchase 5,510 shares with an exercise price of $2.71 per
share owned by Mr. Simon, 467 warrants owned by his wife, and 797
warrants held as custodian for his children. Mr. Simon disclaims
beneficial ownership of the warrants owned by his wife and held as
custodian for his children. Also includes options to purchase 375,000
shares with an exercise price of $3.20 per share as to 45,000 shares
and $2.71 as to 300,000 shares.
(e) Includes 47,500 shares, warrants to purchase 12,122 shares with an
exercise price of $2.71 per share and options to purchase 20,000 shares
at an exercise price of $3.81 per share, options to purchase 45,000
shares at an exercise price of $3.20 per share and options to purchase
25,000 at an exercise price of $7.38 per share and 26,666 shares with
an exercise price of $9.25 per share.
(f) Includes 10,000 shares owned by Herbert Lust, 23,151 shares held by a
trust under which Mr. Lust and his wife are co-trustees and
beneficiaries and options held by Mr. Lust to purchase 45,000 shares
with an exercise price of $3.20 per share as to 35,000 and 10,000
shares with an exercise price of $9.31 per share.
(g) Includes 5,000 shares and options to purchase 45,000 shares with an
exercise price of $3.20 per share and 10,000 shares with an exercise
price of $9.31 per share.
(h) Includes 8,276 shares held by United Capital Corp. of which Mr.
Petrocelli is Chairman of the Board of Directors and Chief Executive
Officer and options held by Mr. Petrocelli to purchase 45,000 shares
with an exercise price of $3.20 per share and 10,000 shares with an
exercise price of $9.31 per share.
(i) Includes 10,000 shares and options to purchase 10,000 shares with an
exercise price of $7.25 per share, 10,000 shares with an exercise price
of $9.50 per share, and 10,000 shares with an exercise price of $9.31
per share.
43
<PAGE> 45
(j) Includes options to purchase 30,000 shares with an exercise price of
$7.25 per share as to 10,000 shares, 10,000 shares with an exercise
price of $9.50 per share and 10,000 shares with an exercise price of
$9.31 per share.
(k) Includes 2,000 shares owned by Paul H. Hower, 300 shares owned by his
wife and options to purchase 25,000 shares with an exercise price of
$4.00 per share as to 20,000 shares and 5,000 shares with an exercise
price of $7.63 per share.
(l) Includes 5,520 shares owned by Mr. Driscoll, 200 shares held by Mr.
Driscoll as custodian for his children and 100 shares held as custodian
for his grandchild, warrants to purchase 64 shares with an exercise
price of $2.71 per share, and options to purchase 7,999 shares with an
exercise price of $3.63 per share as to 5,333 shares and 2,666 shares
with an exercise price of $7.63 per share.
(m) Includes 1,000 shares and options to purchase 9,665 shares with an
exercise price of $3.63 per share as to 5,333 shares, 2,666 shares with
an exercise price of $7.63, and 1,666 shares with an exercise price of
$9.88 per share.
(n) Includes 26 shares, warrants to purchase 85 shares with an exercise
price of $2.71 per share and options to purchase 7,999 shares with an
exercise price of $3.63 per share as to 5,333 shares and 2,666 shares
with an exercise price of $7.63.
(o) Includes options to purchase 7,332 shares with an exercise price of
$3.63 per share as to 3,333 shares, 2,333 shares with an exercise price
of $7.63 per share, and 1,666 shares with an exercise price of $9.88
per share.
(p) Includes options to purchase 7,332 shares with an exercise price of
$3.63 per share as to 3,333 shares, 2,333 shares with an exercise price
of $7.63 per share, and 1,666 shares with an exercise price of $9.88
per share.
(q) Includes 1,000 shares and options to purchase 2,666 shares with an
exercise price of $7.625 per share.
(r) With the exception of David Simon, the Directors and executive officers
each owns less than one percent of the outstanding Common Stock and own
approximately two percent of the outstanding Common Stock as a group.
Percentages were based on 31,057,151 shares outstanding as of March 20,
1996. The asterisk indicates ownership of less than 1% of the shares
outstanding.
44
<PAGE> 46
Item 13. Certain Relationships and Related Transactions.
A.F. Petrocelli, a Director of the Company, is the Chairman of the Board and
Chief Executive Officer of United Capital Corp. and Howard Lorber, a Director of
the Company, is also a director of United Capital Corp. In March 1994, the
Company entered into management agreements with the corporate owners of two
hotels who are affiliates of United Capital Corp. The Company received $120,000
in management fees for 1995.
In March 1996, United Capital Corp. agreed to loan $4,000,000 to an entity
in which the Company expects to have a 50% interest to finance the construction
of a new hotel. United Capital Corp. has received $20,000 in commitment fees
through March 1996 relating to this proposed loan.
During 1989, a partnership in which Peter E. Simon, father of David A.
Simon, is a partner acquired an interest in three hotels from PMI. In partial
payment PMI received non-recourse junior loans aggregating $21,590,000. As of
December 31, 1995, the aggregate balance owed on these loans was $21,472,766.
The interest rates on these loans ranged from 9 1/2% to 11% per annum. The
Company has restructured these loans in order to obtain payment based upon the
available cash flow of the hotels. During 1995, the Company recognized $630,000
of interest income related to these loans. The Company managed these three
hotels for the partnership and received $510,000 in management fees for 1995.
During 1989, this same partnership acquired PMI's interest in eight hotel
properties. In partial payment PMI received a junior non-recourse mortgage note
in the principal amount of $9,647,450. The Company restructured this transaction
as of December 1, 1992 by (i) conveying to the partnership its interest in one
hotel property, and (ii) amending the principal amount and interest rate of the
note to $8,103,362 and 8.2% per annum, respectively. No debt payments were made
on these loans during 1995. The Company managed these nine hotels for the
partnership and received $562,000 in accounting and management fees for 1995. In
March 1996, the Company purchased these nine hotels from the partnership
together with an additional nine hotels from two unrelated entities for an
aggregate purchase price of $4,700,000. In a simultaneous transaction, the
Company purchased from unrelated holders the first mortgage notes secured by the
eighteen properties for $60,400,000. The partnership received $1,900,000 out of
the purchase proceeds and the junior non-recourse note held by the Company was
canceled.
During February 1990, this same partnership purchased from PMI a note owed
by a third party in the original principal amount of $3,255,380. This
partnership paid PMI $488,318 in cash and granted PMI an 85% note participation.
In partial settlement of its claim on the note, the Company acquired a hotel
located in Miami, Florida in which the partnership has a 15% interest.
In December 1993, the Company entered into a management agreement with the
corporate owner of a hotel in which Peter E. Simon is a stockholder. The Company
received $50,000 in management fees for 1995.
45
<PAGE> 47
The Company has a note receivable from John H. Leavitt, Senior Vice
President- Sales and Marketing, with a balance of $38,065 at December 31, 1995.
The note bears interest at 8.5% and is due in 2011.
The Company has retained Willkie Farr & Gallagher as its legal counsel
involving certain matters during its last fiscal year and anticipates it will
continue such relationship with the firm in this fiscal year. Mr. Nusbaum, a
Director of the Company, is the Chairman of the firm.
46
<PAGE> 48
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statement
The Financial Statements listed in the accompanying
index to financial statements are filed as part of
this Annual Report.
2. Exhibits
(2) (a) Reference is made to the
Disclosure Statement for Debtors'
Second Amended Joint Plan of
Reorganization dated January 16,
1992, which includes the Debtors'
Second Amended Plan of
Reorganization as an exhibit thereto
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(b) Reference is made to the Contract of
Purchase and Sale between
Hillsborough Associates, Meriden
Hotel Associates, L.P., Wellesley I,
L.P., Multi-Wellesley Limited
Partnership and the Company dated
March 6, 1996 filed as an Exhibit to
the Company's 8-K dated March 21,
1996, which is incorporated herein
by reference.
(c) Reference is made to Consent of the
Holders Thereof to the Purchase by
the Company of the Outstanding First
Mortgage Notes filed as an Exhibit
to the Company's 8-K dated March 21,
1996, which is incorporated herein
by reference.
(3) (a) Reference is made to the
Restated Certificate of
Incorporation of the Company dated
June 5, 1992 filed as an Exhibit to
the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Restated
Bylaws of the Company filed as an
Exhibit to the Company's Form 10-K
dated September 25, 1992, which is
incorporated herein by reference.
47
<PAGE> 49
(4) (a) Reference is made to the Form of
8.20% Fixed Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Form of
Adjustable Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(c) Reference is made to the Form of
9.20% Junior Secured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the Form of
8.20% Tax Note of the Company filed
as an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(e) Reference is made to the Form of
10.20% Secured UND Restructured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(f) Reference is made to the Form of 8%
Secured UND Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the Form of
9.20% OVR Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(h) Reference is made to the Collateral
Agency Agreement among the Company,
U.S. Trust and the Secured Parties,
dated as of July 31, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(i) Reference is made to the Security
Agreement between the Company and
U.S. Trust, dated as of July 31,
1992, filed as
48
<PAGE> 50
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(j) Reference is made to the Subsidiary
Guaranty from FR Delaware, Inc. to
United States Trust Company of New
York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(k) Reference is made to the Security
Agreement between FR Delaware, Inc.
and United States Trust Company of
New York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(l) Reference is made to the Subsidiary
Guaranty from Prime Note Collections
Company, Inc. to United States Trust
Company of New York, dated as of
July 31, 1992, filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(m) Reference is made to the Security
Agreement between Prime Note
Collections Company, Inc. and United
States Trust Company of New York,
dated as of July 31, 1992, filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(n) Reference is made to a Form 8-A of
the Company as filed on June 5, 1992
with the Securities and Exchange
Commission, as amended by Amendment
No. 1 and Amendment No. 2, which is
incorporated herein by reference.
(o) Indenture, dated April 26, 1995,
between the Company and the Trustee
related to the issuance of 7%
Convertible Subordinated Notes due
2002.
(p) Indenture, dated January 23, 1996,
between the Company and the Trustee
related to 9 1/4% First Mortgage
Notes due 2006.
49
<PAGE> 51
(10) (a) Reference is made to the Agreement
of Purchase and Sale between
Flamboyant Investment Company, Ltd.
and VMS Realty, Inc. dated June 3,
1985, and its related agreements,
each of which was included as
Exhibits to the Form 8-K dated
August 14, 1985 of PMI, which are
incorporated herein by reference.
(b) Reference is made to PMI's Flexible
Benefit Plan, filed as an Exhibit to
the Form 10-Q dated February 12,
1988 of PMI, which is incorporated
herein by reference.
(c) Reference is made to the Employment
Agreement dated as of July 31, 1992,
between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the 1992
Performance Incentive Stock Option
Plan of the Company dated as of July
31, 1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(e) Reference is made to the 1992 Stock
Option Plan of the Company filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(f) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David A.
Simon filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David L.
Barsky filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(i) Reference is made to the Employment
Agreement dated as of December 31,
1992 between John Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 26,
1993, which is incorporated herein
by reference.
50
<PAGE> 52
(j) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and John Elwood
filed as an Exhibit to the Company's
Form 10-K dated March 26, 1993,
which is incorporated herein by
reference.
(k) Reference is made to the Employment
Agreement dated as of May 18, 1993
between Paul Hower filed as an
Exhibit to the Company's Form 10-K
dated March 25, 1994, which is
incorporated herein by reference.
(l) Reference is made to the
Consolidated and Amended Settlement
Agreement dated as of October 12,
1993 between Allan V. Rose and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 25,
1994, which is incorporated herein
by reference.
(m) Reference is made to the Consent and
Amendment to Prime Hospitality Corp.
9.20% Junior Secured Notes filed as
an Exhibit to the Company's Form
10-K dated March 10, 1995.
(n) Reference is made to the Agreement
dated February 6, 1995 among Suites
of America, Inc., ShoLodge, Inc. and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(o) Reference is made to the Change of
Control Agreement dated February 15,
1995 between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(p) Reference is made to the Change of
Control Agreement dated February 15,
1995 between John M. Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(q) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Paul H. Hower and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(r) Reference is made to the Change of
Control Agreement dated February 15,
1995 between John H. Leavitt and the
51
<PAGE> 53
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(s) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Denis W. Driscoll and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(t) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Timothy E. Aho and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(u) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Joseph Bernadino and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(v) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Richard T. Szymanski
and the Company filed as an Exhibit
to the Company's Form 10- K dated
March 10, 1995.
(w) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Douglas W. Vicari and
the Company filed as an Exhibit to
the Company's Form 10- K dated March
10, 1995.
(x) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Richard Moskal and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(y) Employment Agreement dated May 15,
1995 between John Elwood and the
Company.
(z) Employment Agreement dated August 1,
1995 between David Simon and the
Company.
52
<PAGE> 54
(21) Subsidiaries of the Company are as follows:
Jurisdiction of
Name Incorporation
---- -------------
Dynamic Marketing Group, Inc. Delaware
Fairfield Holding Corp. Delaware
Fairfield-Meridian Claims Service, Inc. Delaware
FR Delaware, Inc.
(Subsidiary of FR Management Corporation) Delaware
FR Management Corporation Virginia
KSA Management, Inc. Kansas
Mahwah Holding Corp. Delaware
Market Segments, Incorporated Delaware
PHC Construction Corp. Delaware
PHC Disaster Relief Fund, Inc. New Jersey
PHC Hotels, Inc. Delaware
Prime-American Realty Corp. Delaware
Prime Note Collections Company, Inc. Delaware
Prime-O-Lene, Inc. New Jersey
Republic Motor Inns, Inc Virginia
(23) (a) Consent of Arthur Andersen LLP
(b) Reports on Form 8-K: An 8-K was filed on March 21, 1996
announcing the Company's acquisition of 18 hotels, including
16 Wellesley Inns, for $65.1 million.
53
<PAGE> 55
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP........................... F-2
Consolidated:
Balance Sheets at December 31, 1994 and 1995........ F-3
Statements of Income for the Years
Ended December 31, 1993, 1994 and 1995 ......... F-4
Statements of Stockholders' Equity for the Years
Ended December 31, 1993, 1994 and 1995 ......... F-5
Statements of Cash Flows for the Years
Ended December 31, 1993, 1994 and 1995 ......... F-6
Notes to Consolidated Financial Statements ............. F-7
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Separate financial statements of 50% or less owned entities accounted
for by the equity method have been omitted because such entities considered in
the aggregate as a single subsidiary would not constitute a significant
subsidiary.
F-1
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of December 31, 1994 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Prime Hospitality
Corp. and subsidiaries as of December 31, 1994 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Roseland, New Jersey
January 31, 1996, except with
respect to the matter discussed in
Note 16 as to which the date is
March 6, 1996
F-2
<PAGE> 57
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 12,524 $ 49,533
Marketable securities available for sale ........................... 1,117 11,929
Restricted cash .................................................... 9,725 8,973
Accounts receivable, net of reserves of $125 and $213
in 1994 and 1995, respectively ................................... 7,819 13,139
Current portion of mortgages and notes receivable .................. 1,925 1,533
Other current assets ............................................... 7,196 8,070
-------- --------
Total current assets ....................................... 40,306 93,177
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization ...................................... 299,291 398,201
Mortgages and notes receivable, net of current portion ............... 81,260 64,962
Other assets ......................................................... 14,075 16,901
-------- --------
TOTAL ASSETS ............................................... $434,932 $573,241
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ............................................ $ 5,284 $ 5,731
Other current liabilities .......................................... 23,904 38,961
-------- --------
Total current liabilities .................................. 29,188 44,692
Long-term debt, net of current portion ............................... 178,545 276,920
Other liabilities .................................................... 23,134 18,713
-------- --------
Total liabilities .......................................... 230,867 340,325
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized;
none issued ..................................................... -- --
Common stock, par value $.01 per share; 75,000,000 shares authorized
30,409,371 and 31,004,499 shares issued and outstanding in 1994
and 1995, respectively .......................................... 304 310
Capital in excess of par value ..................................... 171,774 183,050
Retained earnings .................................................. 31,987 49,556
-------- --------
Total stockholders' equity ................................. 204,065 232,916
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $434,932 $573,241
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 58
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Lodging .......................................... $ 69,487 $ 88,753 $ 146,184
Food and beverage ................................ 12,270 18,090 37,955
Management and other fees ........................ 10,831 10,021 8,115
Interest on mortgages and notes receivable ....... 14,765 15,867 11,895
Rental and other ................................. 1,507 1,572 1,479
--------- --------- ---------
Total revenues ........................... 108,860 134,303 205,628
--------- --------- ---------
Costs and expenses:
Direct hotel operating expenses:
Lodging ....................................... 19,925 25,490 38,383
Food and beverage ............................. 10,230 13,886 28,429
Selling and general ........................... 21,180 27,244 49,753
Occupancy and other operating .................... 9,827 9,799 11,763
General and administrative ....................... 15,685 15,089 15,515
Depreciation and amortization .................... 7,117 9,427 15,974
--------- --------- ---------
Total costs and expenses ................. 83,964 100,935 159,817
--------- --------- ---------
Operating income ................................... 24,896 33,368 45,811
Investment income .................................. 1,267 1,966 4,861
Interest expense ................................... (16,116) (13,993) (21,603)
Other income ....................................... 3,809 9,089 2,239
Other expense ...................................... -- -- (2,200)
--------- --------- ---------
Income before income taxes and extraordinary items . 13,856 30,430 29,108
Provision for income taxes ......................... 5,681 12,172 11,643
--------- --------- ---------
Income before extraordinary items .................. 8,175 18,258 17,465
Extraordinary items -- gains on discharges of
indebtedness (net of income taxes of $2,772,
$120 and $70 in 1993, 1994 and 1995, respectively) 3,989 172 104
--------- --------- ---------
Net income ......................................... $ 12,164 $ 18,430 $ 17,569
========= ========= =========
Net income per common share:
Income before extraordinary items ................ $ .27 $ .57 $ .54
Extraordinary items .............................. .13 .01 --
--------- --------- ---------
Net income per common share ........................ $ .40 $ .58 $ .54
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 59
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
---------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
------ ------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992 .................. 29,912,794 $299 $136,090 $ 1,393 $137,782
Net income ................................. -- -- -- 12,164 12,164
Utilization of net operating loss
carryforwards ............................ -- -- 4,525 -- 4,525
Federal income tax refund .................. -- -- 16,462 -- 16,462
Compensation expense related to stock option
plan ..................................... -- -- 225 -- 225
Proceeds from exercise of stock options .... 30,000 -- 81 -- 81
Proceeds from exercise of stock warrants ... 45,880 1 124 -- 125
---------- ---- -------- ------- --------
Balance December 31, 1993 .................. 29,988,674 300 157,507 13,557 171,364
Net income ................................. -- -- -- 18,430 18,430
Utilization of net operating loss
carryforwards ............................ -- -- 5,861 -- 5,861
Amortization of pre-fresh start tax
basis differences ........................ -- -- 6,954 -- 6,954
Federal income tax refund .................. -- -- 200 -- 200
Compensation expense related to stock option
plan ..................................... -- -- 60 -- 60
Proceeds from exercise of stock options .... 216,080 2 640 -- 642
Proceeds from exercise of stock warrants ... 204,617 2 552 -- 554
---------- ---- -------- ------- --------
Balance December 31, 1994 .................. 30,409,371 304 171,774 31,987 204,065
Net income ................................. -- -- -- 17,569 17,569
Utilization of net operating loss
carryforwards ............................ -- -- 3,370 -- 3,370
Amortization of pre-fresh start tax
basis differences ........................ -- -- 6,167 -- 6,167
Compensation expense related to stock option
plan ..................................... -- -- 16 -- 16
Proceeds from exercise of stock options .... 220,159 2 705 -- 707
Proceeds from exercise of stock warrants ... 374,969 4 1,018 -- 1,022
---------- ---- -------- ------- --------
Balance December 31, 1995 .................. 31,004,499 $310 $183,050 $49,556 $232,916
========== ==== ======== ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 60
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 12,164 $ 18,430 $ 17,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 7,117 9,427 15,974
Utilization of net operating loss carryforwards ..... 4,525 5,861 3,370
Gains on settlements of notes receivable ............ -- (6,224) (822)
Gains on discharges of indebtedness ................. (6,761) (292) (174)
Gains on sales of assets ............................ (1,769) (1,099) (1,957)
Amortization of pre-fresh start tax basis
differences ....................................... -- 6,954 6,167
Deferred income taxes ............................... 1,541 (205) 1,556
Compensation expense related to stock options ....... 225 60 16
Increase (decrease) from changes in other operating
assets and liabilities:
Accounts receivable ................................. 269 (1,945) (5,320)
Other current assets ................................ (1,791) 127 (887)
Other liabilities ................................... 4,208 (2,422) 5,359
-------- -------- ---------
Net cash provided by operating activities ........... 19,728 28,672 40,851
-------- -------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and other notes receivable . 10,861 36,198 27,603
Disbursements for mortgages and notes receivable ....... (515) (1,100) (12,704)
Proceeds from sales of property, equipment and leasehold
improvements ........................................ 3,715 1,480 8,167
Purchases of property, equipment and leasehold
improvements ........................................ (14,346) (63,360) (113,517)
Decrease in restricted cash ............................ 1,903 1,268 752
Proceeds from sales of marketable securities ........... -- 1,116 2,928
Purchase of marketable securities ...................... -- (5,885) (11,520)
Insurance advances in excess of renovation payments .... -- -- 6,518
Other .................................................. 663 (3,965) 846
-------- -------- ---------
Net cash provided by (used in) investing
activities ........................................ 2,281 (34,248) (90,927)
-------- -------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ..................... 2,771 19,026 119,360
Payments of debt ....................................... (30,890) (43,771) (33,961)
Proceeds from the exercise of stock options and
warrants ........................................... 206 1,196 1,729
Principal proceeds from federal income tax refund ...... 16,462 200 --
Reorganization items after emergence from bankruptcy ... (5,605) (120) (43)
-------- -------- ---------
Net cash provided by (used in) financing activities . (17,056) (23,469) 87,085
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents ..... 4,953 (29,045) 37,009
Cash and cash equivalents at beginning of period ......... 36,616 41,569 12,524
-------- -------- ---------
Cash and cash equivalents at end of period ............... $ 41,569 $ 12,524 $ 49,533
======== ======== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 61
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS ACTIVITIES:
Prime Hospitality Corp. (the "Company") is a hotel owner/operator with
ownership or management of hotels in the United States and the U.S.
Virgin Islands. The Company's hotels primarily provide moderately
priced, quality accommodations in secondary markets, and operate under
franchise agreements with national hotel chains or under the Company's
proprietary Wellesley Inns or AmeriSuites brand names.
BASIS OF PRESENTATION:
The Company emerged from the Chapter 11 reorganization proceeding of
its predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries
("PMI"), which consummated its Plan of Reorganization ("the Plan") on
July 31, 1992.
Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company
adopted fresh start reporting as of July 31, 1992. Under fresh start
reporting, the reorganization value of the entity was allocated to the
reorganized Company's assets on the basis of the purchase method of
accounting. The reorganization value (the approximate fair value) of
the assets of the emerging entity was determined by consideration of
many factors and various valuation methods, including discounted cash
flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximate the present
values of amounts to be paid determined at appropriate interest rates.
Under fresh start reporting, the consolidated balance sheet as of July
31, 1992 became the opening consolidated balance sheet of the emerging
Company.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
F-7
<PAGE> 62
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 period. Actual results could differ
from those estimates.
CASH EQUIVALENTS:
Cash equivalents are highly liquid unrestricted investments with a
maturity of three months or less when acquired.
MARKETABLE SECURITIES:
Marketable securities consist primarily of commercial paper and other
corporate debt and equity securities which mature or are available for
sale within one year. Marketable securities are valued at current
market value, which approximates cost.
RESTRICTED CASH:
Restricted cash consists primarily of highly liquid investments that
serve as collateral for debt obligations due within one year.
MORTGAGES AND NOTES RECEIVABLE:
Mortgages and notes receivable are reflected at their fair value as of
July 31, 1992, adjusted for payments and other advances since that
date. The amount of interest income recognized on mortgages and notes
receivable is generally based on the stated interest rate and the
carrying value of the notes. The Company has a number of subordinated
or junior mortgages which remit payment based on hotel cash flow.
Because there was substantial doubt that the Company would recover any
value, these mortgages were assigned no value in the Company's
consolidated financial statements when the Company adopted fresh-start
reporting on July 31, 1992. Interest on cash flow mortgages and
delinquent loans is generally recognized when cash is received.
F-8
<PAGE> 63
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 114, "Accounting by Creditors for Impairment of a
Loan (SFAS 114)" and SFAS 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures (SFAS 118)." As defined
in SFAS 114 and SFAS 118, a loan is impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. SFAS 114 and SFAS 118 require that the measurement of
impairment of a loan be based on the present value of expected future
cash flows (net of estimated costs to sell) discounted at the loan's
effective interest rate. Impairment can also be measured based on a
loan's observable market price or the fair value of collateral, if the
loan is collateral dependent. If the measure of the impaired loan is
less than the recorded investment in the loan, the Company will
establish a valuation allowance, or adjust existing valuation
allowances, with a corresponding charge or credit to operations. The
effect of adopting these new accounting standards was immaterial in
1995.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements that the Company intends
to continue to operate are stated at their fair market value as of July
31, 1992 plus the cost of acquisitions subsequent to that date less
accumulated depreciation and amortization from August 1, 1992.
Provision is made for depreciation and amortization using the
straight-line method over the estimated useful lives of the assets.
Properties identified for disposal are stated at their estimated net
realizable value.
During 1995, the Company adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS 121)". Following this standard, the Company evaluates
whether impairment has occurred at each of its properties based upon
the future cash flows (undiscounted and before interest charges) as
compared to the carrying value of the property. Based upon its
evaluation as of December 31, 1995, the Company has determined that no
impairment has occurred.
OTHER ASSETS:
Other assets consist primarily of deferred issuance costs related to
the Company's 7% Convertible Subordinated Notes due 2002 and other debt
obligations.
F-9
<PAGE> 64
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred issuance costs are amortized over the respective terms of the
loans using the effective interest method.
SELF-INSURANCE PROGRAMS:
The Company uses an incurred loss retrospective insurance plan for
general and auto liability and workers' compensation. Predetermined
loss limits have been arranged with insurance companies to limit the
Company's per occurrence and aggregate cash outlay.
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is
partially funded by payroll deductions. Payments for major medical and
hospitalization below specified aggregate annual amounts are
self-insured by the Company. Claims for benefits in excess of these
amounts are covered by insurance purchased by the Company.
Provisions have been made in the combined financial statements which
represent the expected future payments based on the estimated ultimate
cost for incidents incurred through the balance sheet date.
INCOME TAXES:
The Company and its subsidiaries file a consolidated Federal income tax
return. For financial reporting purposes, the Company follows SFAS No.
109 "Accounting for Income Taxes". In accordance with SFAS 109, as well
as SOP 90-7, income taxes have been provided at statutory rates in
effect during the period. Tax benefits associated with net operating
loss carryforwards and other temporary differences that existed at the
time fresh start reporting was adopted are reflected as a contribution
to stockholders' equity in the period in which they are realized.
NET INCOME PER COMMON SHARE:
Primary net income per common share is computed based on the weighted
average number of common shares and common share equivalents (dilutive
stock options and warrants) outstanding during each year. The weighted
average number of common shares used in computing primary net income
per share was
F-10
<PAGE> 65
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30,721,000, 32,022,000 and 32,461,000 for the years ended December 31,
1993, 1994 and 1995, respectively.
Fully diluted net income per share, in addition to the adjustments for
primary net income per share, reflects the elimination of interest
expense and the issuance of additional common shares from the assumed
conversion of the 7% Convertible Subordinated Notes from their issuance
in April 1995. The weighted average number of common share used in
computing fully diluted net income per share was 37,423,000 for the
year ended December 31, 1995. Fully diluted net income per share has
not been presented in the consolidated financial statements because the
dilutive effect is not material.
PRE-OPENING COSTS:
Non-capital expenditures incurred prior to opening new or renovated
hotels such as payroll and other operating supplies are deferred and
expensed within one year after opening. Preopening costs charged to
expense were $-0-, $86,000 and $364,000 for the years ended December
31, 1993, 1994 and 1995. As of December 31, 1995, $261,000 of
pre-opening costs are included in other current assets.
INTEREST RATE SWAPS:
The Company has entered into an interest rate swap agreement which
reduces the Company's exposure to interest rate fluctuations. The
accounting treatment for the Company's off balance sheet interest rate
swap agreement is to accrue net interest to be received or to be paid
as an adjustment to interest expense.
RECLASSIFICATIONS:
Certain reclassifications have been made to the December 31, 1993 and
1994 consolidated financial statements to conform them to the December
31, 1995 presentation.
NOTE 2 -- HOTEL PROPERTY ACQUISITIONS
In March 1995, the Company acquired the option of ShoLodge, Inc.
("ShoLodge") to purchase a 50% interest in eleven of the Company's AmeriSuites
hotels
F-11
<PAGE> 66
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and also acquired the remaining AmeriSuites hotel not already owned by the
Company. In 1993, the Company and its wholly-owned subsidiary, Suites of
America, Inc. ("SOA") entered into agreements with ShoLodge, a company
controlled by a former director, designed to further the growth of its
AmeriSuites hotels from the six hotels owned by the Company at that time.
Pursuant to these agreements, (i) ShoLodge agreed to build and finance six
additional AmeriSuites hotels and received an option to purchase a 50% interest
in SOA and (ii) the Company received an option pursuant to which it could
require ShoLodge to purchase a 50% interest in SOA. The exercise of the option
by ShoLodge was scheduled to occur in January 1995, when the Company and
ShoLodge began to negotiate the Company's buyout of ShoLodge's option. The
consideration payable by the Company was based upon the fair market value of the
properties. The consideration totaled $19,700,000 and was comprised of (i)
$16,100,000 in cash, which was paid in 1995, plus (ii) $18,500,000 in
notes maturing in 1997, less (iii) $14,900,000 of existing debt on five hotels,
which was forgiven at face value. The transaction resulted in a net increase of
approximately $3,600,000 of long-term debt. No gain or loss was recorded on the
forgiveness of debt. As a result of this transaction, the Company assumed
management of these hotels.
In August 1995, the Company entered into an agreement to purchase four
Bradbury Suites hotels for $18,700,000. The hotels, comprising 447 rooms, were
subsequently converted to the Company's proprietary AmeriSuites brand. In August
1995, the Company also purchased the 149 room all-suite St. Tropez Hotel and
Shopping Center in Las Vegas for $15,200,000. Revenues and expenses from these
transactions have been included in reported results from the date of
acquisition. If these operations had been included in the consolidated financial
statements for the full year, reported results would not have been materially
different.
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
---- ----
<S> <C> <C>
Cash.............................................. $ 5,953 $ 4,312
Commercial paper and other cash equivalents....... 6,571 45,221
------- ------
Totals.......................... $12,524 $49,533
======= =======
</TABLE>
F-12
<PAGE> 67
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- MARKETABLE SECURITIES
Marketable securities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
---- ----
<S> <C> <C>
Equity securities.................. $ 1,117 $ 3,796
Corporate debt securities.......... -- 8,133
------- -------
Totals........... $ 1,117 $11,929
======= =======
</TABLE>
NOTE 5 -- MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
---- ----
<S> <C> <C>
Properties operated by the Company(a) .... $60,609 $57,171
Other(b) ................................. 22,576 9,324
------ ------
Total .......................... 83,185 66,495
Less current portion ..................... (1,925) (1,533)
------- -------
Long-term portion ........................ $81,260 $64,962
======= =======
</TABLE>
- ------------
(a) At December 31, 1995, the Company is the holder of mortgage notes
receivable with a book value of $43,293,000 secured primarily by four
hotel properties operated by the Company under management agreements
and $13,878,000 in mortgages secured primarily by four properties
operated under lease agreements. These notes bear interest at rates
ranging from 8.0% to 13.5% and mature through 2015. The mortgages were
derived from the sales of hotel properties.
The loans secured by hotel properties operated under management
agreements pay interest and principal based upon available cash and
include a participation in the future excess cash flow of such hotel
properties. Two of these mortgages have been structured to include a
"senior portion" featuring defined payment terms, and a "junior
portion" payable annually based on cash flow.
In addition to the mortgage positions referred to above, the Company
holds junior or cash flow mortgages and subordinated interests on six
other hotel properties
F-13
<PAGE> 68
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operated by the Company under management agreements. Pursuant to these
mortgage agreements, the Company is entitled to receive the majority of
excess cash flow generated by these hotel properties and to participate
in any future sales proceeds. With regard to these properties, third
parties hold significant senior mortgages. The junior mortgages mature
on various dates from 1999 through 2002.
In accordance with the adoption of fresh start reporting under SOP
90-7, no value was assigned to the junior portions of the notes or the
junior mortgages and subordinated interests on the other hotels as
there was substantial doubt at the time of valuation that the Company
would recover any of their value. As a result, interest income on these
junior or cash flow mortgages is recognized when cash is received.
During 1993, 1994 and 1995, the Company recognized $976,000, $2,000,000
and $1,950,000, respectively, of interest income related to these
mortgages. Future recognition of interest income on these mortgages is
dependent primarily upon the net cash flow of the underlying hotels
after debt service, which is senior to the Company's junior positions.
(b) Other notes receivable currently bear interest at effective rates
ranging from 4.0% to 10.0%, mature through 2011 and are secured
primarily by hotel properties not currently managed by the Company.
NOTE 6 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, YEARS OF
----------------------
1994 1995 USEFUL LIFE
------ ------ -----------
<S> <C> <C>
Land and land leased to others ........................... $ 49,438 $ 69,765
Hotels ................................................... 200,706 246,278 20 to 40
Furniture, fixtures and autos ............................ 46,021 67,001 3 to 10
Leasehold improvements ................................... 11,336 26,038 3 to 40
Construction in progress ................................. 1,457 22,667
Properties held for sale ................................. 8,898 --
------- -------
Sub-total .............................................. 317,856 431,749
Less accumulated depreciation
and amortization ..................................... (18,565) (33,548)
-------- --------
Totals ......................................... $299,291 $398,201
======== ========
</TABLE>
F-14
<PAGE> 69
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $7,493,000 pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are
$9,599,000, of which $4,079,000 is scheduled to be received in the aggregate
during the five-year period ending December 31, 2000.
Depreciation and amortization expense on property, equipment and
leasehold improvements was $7,015,000, $9,300,000 and $14,800,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
During the years ended December 31, 1993, 1994 and 1995, the Company
capitalized $0, $836,000 and $2,596,000, respectively, of interest related to
borrowings used to finance hotel construction.
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
---- ----
<S> <C> <C>
Accounts payable ............................ $ 4,436 $6,940
Interest .................................... 3,115 3,616
Accrued payroll and related benefits ........ 2,490 3,151
Accrued expenses ............................ 4,182 4,303
Insurance reserves .......................... 5,123 6,007
Hurricane damage reserve..................... -- 8,718
Other ....................................... 4,558 6,226
------- ------
Totals ............................ $23,904 $38,961
======= =======
</TABLE>
In September 1995, the Marriott's Frenchman's Reef Hotel (the
"Frenchman's Reef") in St. Thomas, United States Virgin Islands suffered damages
when Hurricane Marilyn struck the U.S. Virgin Islands. At December 31, 1995, the
Company has a reserve of $8,718,000 which consists of a $2,200,000 reserve (See
Notes 8 and 11) established to cover the cost of the insurance deductible and
$6,518,000 of insurance advances, net of funds that have been used to begin
the restoration process.
F-15
<PAGE> 70
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
---- ----
<S> <C> <C>
10% Senior Secured Notes(a) .................. $ 52,580 $ 30,374
7% Convertible Subordinated Notes(b).......... -- 86,250
Mortgages and other notes payable(c) ......... 131,249 158,904
Capitalized lease obligations(d).............. -- 7,123
-------- --------
Total debt ................................... 183,829 282,651
Less current maturities ...................... (5,284) (5,731)
-------- --------
Long-Term debt, net of current portion .... $178,545 $276,920
======== ========
</TABLE>
(a) The 10% Senior Secured Notes were issued pursuant to the Plan, and
mature on July 31, 1999. The collateral for the 10% Senior Secured
Notes consists primarily of mortgages and notes receivable and real
property, net of related liabilities (the "10% Senior Secured Note
Collateral"), with a book value of $68,812,000 as of December 31, 1995.
Interest on the 10% Senior Secured Notes is payable semi-annually. The
10% Senior Secured Notes require that 85% of the cash proceeds from the
10% Senior Secured Note Collateral be applied first to interest then to
prepayment of principal. Aggregate principal payments on the 10% Senior
Secured Notes are required in order that one-third of the principal
balance outstanding on December 31, 1996 is paid by July 31, 1998 and
all of the balance is paid by July 31, 1999. To the extent the cash
proceeds from the 10% Senior Secured Note Collateral are insufficient
to pay interest or required principal payments on the 10% Senior
Secured Notes, the Company will be obligated to pay any deficiency out
of its general corporate funds.
The 10% Senior Secured Notes contain covenants which, among other
things, require the Company to maintain a net worth of at least
$100,000,000, and preclude cash distributions to stockholders,
including dividends and redemptions, until the 10% Senior Secured Notes
have been paid in full. As of December 31, 1995, the Company was in
compliance with all covenants applicable to the 10% Senior Secured
Notes.
During 1994 the Company purchased through a third party agent
approximately $5,200,000 of its 10% Senior Secured Notes for aggregate
consideration of
F-16
<PAGE> 71
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $4,800,000. These notes are currently held by the third
party agent and have not been retired due to certain restrictions under
the note agreements. The purchases were recorded as investments on the
Company's balance sheet and no gains are recorded until the notes
mature or are redeemed. During 1994, approximately $1,137,000 of the
notes were retired resulting in a pretax extraordinary gain of
approximately $105,000. During 1995, approximately $1,738,000 of the
notes were retired resulting in a pretax extraordinary gain of
$174,000. As of December 31, 1995, the Company had unrecognized holding
gains of approximately $177,000 related to these securities.
(b) In 1995, the Company sold $86,250,000 of 7% Convertible Subordinated
Notes due 2002. The notes are convertible into common stock at a price
of $12 per share at the option of the holder and mature on April 15,
2002. The notes are redeemable, in whole or in part, at the option of
the Company after April 17, 1998 at premiums to principal which decline
on each anniversary date.
(c) The Company has mortgage and other notes payable of approximately
$158,904,000 that are secured by mortgage notes receivable and hotel
properties with a book value of $260,116,000. Principal and interest on
these mortgages and notes are generally paid monthly. At December 31,
1995 these notes bear interest at rates ranging from 6.6% to 10.5%,
with a weighted average interest rate of 9.3%, and mature from 1996
through 2007.
Subsequent to December 31, 1995, the Company entered into an agreement
to extend the maturity of a loan in the amount of $32,097,000 secured
by the Frenchman's Reef from December 1996 to July 1997. The loan will
bear interest at the same rate currently in effect and principal
payments will be waived until July 1997. All other terms and
conditions of the loan shall remain in effect. The December 31, 1995
consolidated financial statements reflect the impact of this amendment.
Additionally, the Company's debt related to the Frenchman's Reef is
further secured by an assignment of property insurance proceeds related
to the hurricane damage (See Notes 7 and 11). The lender has sole
discretion concerning the utilization of such proceeds for
refurbishment. The Company is discussing with the lender the terms
under which the lender will make such funds available for
refurbishment.
(d) The Company has $7,123,000 of capital lease obligations. Principal and
interest on these capital lease obligations are generally paid monthly.
At December 31,
F-17
<PAGE> 72
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995, these leases bear interest at rates ranging from 6.7% to 12.45%,
with a weighted average interest rate of 10.8%, and mature through
2001.
In August 1995, the Company entered into an interest rate protection
agreement with a major financial institution which reduces the
Company's exposure to fluctuations in interest rates by effectively
fixing interest rates on $40 million of variable interest rate debt.
Under the agreement, on a monthly basis the Company will pay a fixed
rate of interest of 6.18% and will receive a floating interest rate
payment equal to the 30 day LIBOR rate on a $40 million notional
principal amount. The agreement commenced in October 1995 and expires
in 1999.
Maturities of long-term debt for the next five years ending December 31
are as follows (in thousands):
<TABLE>
<S> <C>
1996 .......................................... $ 5,731
1997 .......................................... 83,127
1998 .......................................... 4,877
1999 .......................................... 33,714
2000........................................... 28,277
Thereafter .................................... 126,925
--------
Total ......................................... $282,651
========
</TABLE>
On January 23, 1996, the Company issued $120,000,000 of 9 1/4% First
Mortgage Notes due 2006 (See Note 16). The Company utilized a portion of the
proceeds to pay down $51,601,000 of debt outstanding at December 31, 1995.
Included in this amount was $45,798,000 due in 1997.
NOTE 9 -- LEASE COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various hotels under lease agreements with initial
terms expiring at various dates from 1998 through 2022. The Company has options
to renew certain of the leases for periods ranging from 1 to 99 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.
F-18
<PAGE> 73
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996 ..................................... $ 4,854
1997 ..................................... 4,808
1998 ..................................... 4,762
1999 ..................................... 4,976
2000...................................... 4,681
Thereafter ............................... 42,829
------
Total .................................... $66,910
=======
</TABLE>
Rental expense for all operating leases, including those with terms of
less than one year, consist of the following for the years ended December 31,
1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Rentals .............................. $5,009 $4,654 $4,630
Contingent rentals ................... 764 823 745
----- ------ -----
Rental expense ............. $5,773 $5,477 $5,375
====== ====== ======
</TABLE>
Employee Benefits
The Company does not provide any material post employment benefits to
its current or former employees.
Contingent Claims
In April 1995, the Company received a second favorable ruling in its
litigation with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31,200,000 previously received by the Company in settlement of a
note and guaranty from Allen V. Rose and Arthur Cohen ("Rose and Cohen"). In an
order dated April 25, 1995, the U.S. District Court for the Southern District of
Florida (the "U.S. District Court") affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone was
entitled to the settlement proceeds. The Company had previously reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company's common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000.
F-19
<PAGE> 74
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FSA asserted that, under the terms of an intercreditor agreement, it was
entitled to receive the settlement proceeds otherwise payable to the Company.
The U.S. Bankruptcy Court for the Southern District of Florida (the "Bankruptcy
Court") ruled in favor of the Company in April 1994 and the Company used
$25,000,000 of the settlement proceeds to retire certain senior secured notes.
FSA appealed to the U.S. District Court, which affirmed the Bankruptcy Court's
ruling. On May 12, 1995, the Company used the remaining proceeds plus accrued
interest to prepay the 10% Senior Secured Notes. On May 23, 1995, FSA filed a
notice of appeal with the U.S. Court of Appeals for the 11th Circuit. The
Company believes that the U.S. Court of Appeals will affirm the U.S. District
Court ruling and that there will be no effect on the Company's financial
position or results of operations.
The Company is involved in various other proceedings incidental to the
normal course of its business. The Company believes that the resolution of these
contingencies will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
NOTE 10 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the years ended December 31,
1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal ................................ $ 2,167 $ 970 $ 320
State .................................. 220 28 299
------- ------- -------
2,387 998 619
Deferred:
Federal ................................ 5,049 9,780 9,929
State .................................. 1,017 1,514 1,165
------- ------- -------
6,066 11,294 11,094
------- ------- -------
Total .......................... $ 8,453 $12,292 $11,713
======= ======= =======
</TABLE>
Income taxes are provided at the applicable federal and state statutory
rates.
F-20
<PAGE> 75
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the years ended December 31,
1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Utilization of net operating loss ................ $ 4,525 $ 5,861 $ 3,370
Amortization of pre-fresh start basis
differences -- properties and notes ............ 1,322 5,632 6,167
Depreciation ..................................... 144 200 1,400
Leasehold reserves ............................... -- 450 158
Property transactions ............................ -- 320 --
Compensation expense.............................. -- -- 604
Other ............................................ 75 (1,169) (605)
------ ------- ------
Total .................................. $ 6,066 $11,294 $11,094
======= ======= =======
</TABLE>
At December 31, 1995, the Company had available federal net operating
loss carryforwards of approximately $114,271,000 which will expire beginning in
2005 and continuing through 2007. Of this amount, $96,080,000 is subject to an
annual limitation of $8,735,000 under the internal revenue code due to a change
in ownership of the company upon consummation of the Plan. The Company also has
potential state income tax benefits relating to net operating loss carryforwards
of approximately $8,673,000 which will expire during various periods from 1996
to 2006. Certain of these potential benefits are subject to annual limitations
similar to federal requirements due to factors such as the level of business
conducted in each state and the amount of income subject to tax within each
state's carryforward period.
In accordance with SFAS 109, the Company has not recognized the future
tax benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $39,995,000 against the deferred tax asset as of
December 31, 1995. To the extent any available carryforwards or other tax
benefits are utilized, the amount of tax benefit realized will be treated as a
contribution to stockholders' equity and will have no effect on the income tax
provision for financial reporting purposes. For the years ended December 31,
1993, 1994 and 1995, the Company recognized $4,525,000, $5,861,000 and
$3,370,000, respectively of such benefits as a contribution to stockholders'
equity.
Additionally, the Company recognized $6,954,000 and $6,167,000 as a
contribution to stockholders' equity for the years ended December 31, 1994 and
1995,
F-21
<PAGE> 76
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which represents the amortization of pre-fresh start tax basis differences
related to properties and notes receivable. As a result of reflecting
substantially all of the deferred tax provisions as a contribution to
stockholders' equity, the Company had no material deferred tax assets or
liabilities as of December 31, 1994 and 1995.
NOTE 11 -- OTHER INCOME/EXPENSE
Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following as of December
31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Gains on settlements of notes receivable $ -- $6,355 $ 822
Gain on sale of property 2,109 1,099 1,417
Rebates of prior year's insurance premiums -- 1,579 --
Interest on federal income tax refund 1,200 56 --
Other 500 -- --
----- ------ ------
Total $3,809 $9,089 $2,239
====== ====== ======
</TABLE>
Other expense of $2,200,000 for the year ended December 31, 1995,
consists of a reserve for insurance deductibles related to hurricane damage at
the Frenchman's Reef (See Note 7).
NOTE 12 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT
RISK
The fair values of non-current financial assets and liabilities and
other financial instruments are shown below. The fair values of current assets
and current liabilities are assumed to be equal to their reported carrying
amounts.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage and notes receivable $ 81,260 $ 91,604 $ 64,962 $ 76,058
Long-term debt 178,545 178,250 276,920 278,899
Other financial instruments
(Interest rate swap agreement) -- -- -- (15)
</TABLE>
F-22
<PAGE> 77
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value for mortgages and notes receivable is based on the
valuation of the underlying collateral utilizing discounted cash flows and other
methods applicable to the industry. Valuations for long-term debt are based on
quoted market prices or at current rates available to the Company for debt of
the same maturities. The fair value of the interest rate swap agreement is
based on the estimated amount the Company would pay to terminate the agreement.
The Company's mortgages and other notes receivable (See Note 5) are
derived primarily from and are secured by hotel properties, which constitutes a
concentration of credit risk. These notes are subject to many of the same risks
as the Company's operating hotel assets. A significant portion of the collateral
is located in the Northeastern and Southeastern United States.
NOTE 13 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect
to transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest for
the years ended December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Management and other fee income(a) ........................... $ 810 $ 1,165 $1,427
Interest income(a) ........................................... 14 1,283 518
Management fee expense(b) .................................... 222 679 --
Interest expense(b) .......................................... 475 461 --
Reservation fee expense(b) ................................... 468 317 --
</TABLE>
(a) During 1995, the Company managed 15 hotels for partnerships in which
related parties own various interests. The income amounts shown above
primarily include transactions related to these hotel properties. On
March 6, 1996, the Company acquired nine of these hotels (See Note 16).
(b) In 1991, the Company entered into an agreement with ShoLodge, a company
controlled by a former director, whereby ShoLodge was appointed the
exclusive agent to develop and manage certain hotel properties.
In March 1995, the Company acquired ShoLodge's option to purchase the
remaining 50% interest in all eleven hotels developed by ShoLodge and
also
F-23
<PAGE> 78
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquired the ownership interest of the remaining AmeriSuites hotel not
already owned by the Company (See Note 2).
NOTE 14 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
STOCK OPTIONS
The Company has adopted various stock option and performance incentive
plans under which options to purchase shares of common stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. Total options reserved under these plans (net of amounts granted to
date) as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1995 Employee Stock Option Plan 574,000
1995 Non-Employee Director Stock Option Plan 250,000
-------
Total 824,000
=======
</TABLE>
Under the 1995 Employee Stock Option Plan, options to purchase shares
of common stock may be granted at the fair market value of the common stock at
the date of grant. Options can generally be exercised during a participant's
employment with the Company in equal annual installments over a three-year
period and expire ten years from the date of grant. During 1995, options to
purchase 648,000 shares of common stock were granted under this plan.
Under the 1995 Non-Employee Director Stock Option Plan, options to
purchase 10,000 shares of common stock are automatically granted to each
non-employee director at the fair market value of the common stock at the date
of grant. All options will be fully vested and exercisable one year after the
date of grant and will expire ten years after the date of grant, or earlier if
the non-employee director ceases to be a director. During 1995, options to
purchase 50,000 shares of common stock were granted under this plan.
Under the Company's 1992 Stock Option and Performance Incentive Plans,
options to purchase 413,000, 367,000 and 15,000 shares of common stock were
issued to employees in 1993, 1994 and 1995, respectively. The options were
granted at prices which approximate fair market value at the date of grant.
Generally, these options can be exercised during a participant's employment in
equal annual installments over a three year period and expire six years from the
date of grant.
F-24
<PAGE> 79
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase 315,000, 30,000 and 60,000 shares of common stock
were issued to non-employee directors of the Company in 1993, 1994 and 1995,
respectively, under the Company's 1992 Stock Option Plan. The options were
granted at prices which approximate fair market value at the date of grant.
Generally, one-third of these options were exercisable at the date of grant and
the remaining options vest in equal annual installments over a two-year period.
The options expire six years after the date of grant.
During 1992, options to purchase 350,000 shares were granted to
employee officers and directors under the Company's 1992 Stock Option Plan. All
350,000 shares are currently exercisable at December 31, 1995. In addition,
options to purchase 330,000 shares were granted to a former officer in 1992. At
December 31, 1995, all of these options were exercised. The exercise prices of
the above options are based on the average market price one year from the date
of grant which was determined to be $2.71 per share. Based on this exercise
price, the amount of compensation expense attributable to these options was
$225,000, $60,000 and $16,000 for the years ended December 31, 1993, 1994 and
1995, respectively.
During 1995, the Financial Accounting Standards Board issued
"Accounting for Stock Based Compensation (SFAS 123)." The new standard specifies
permissible methods for valuing compensation attributable to stock options, as
well as certain required disclosures. The Company is required to adopt the new
standard beginning in 1996.
The Company intends to continue to follow the compensation measurement
method currently used, which is one of the permissible methods under SFAS 123.
As a result, compensation expense attributable to stock option plans will
continue to be measured by the excess, if any, of the market price of the
Company's common stock on the date of grant over the exercise price of the
option. Additional disclosures showing the pro forma effect of an alternative
method will be included in the notes to financial statements.
F-25
<PAGE> 80
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the various stock option plans:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARES
--------- ----------
<S> <C> <C>
Outstanding at December 31, 1993 ............ 1,301,000
Granted ..................................... 397,000 $7.38-$7.63
Exercised ................................... (216,000) $2.71-$3.63
Canceled .................................... (40,000) $3.63-$7.63
---------
Outstanding at December 31, 1994 ............ 1,442,000
---------
Granted ..................................... 773,000 $9.25-$10.88
Exercised ................................... (222,000) $2.71-$7.63
Canceled .................................... (165,000) $3.63-$9.63
---------
Outstanding at December 31, 1995............. 1,828,000
=========
Exercisable at December 31, 1995 ............ 798,000 $2.71-$9.31
=========
</TABLE>
WARRANTS
Pursuant to the Plan, warrants to purchase 2,106,000 shares of the
Company's common stock were issued to former shareholders of the Company's
predecessor, PMI, in partial settlement of their bankruptcy interests. The
warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per
share and expire five years after the date of grant. The exercise price was
determined from the average per share daily closing price of the Company's
common stock during the year following its reorganization on July 31, 1992. As
of December 31, 1995 warrants to purchase 625,466 shares have been exercised.
NOTE 15 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities
for the years ended December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995
---- ----
<S> <C> <C> <C>
Hotels acquired in exchange for the
assumption of mortgage notes payable .......... $ 9,161 $18,718 $5,120
Hotels received in settlement of mortgage
notes receivable .............................. 3,500 54,521 2,702
Sale of hotel in exchange for a mortgage
note receivable ............................... $ 6,500 $ 1,497 $ --
</TABLE>
F-26
<PAGE> 81
Cash paid for interest was $16,347,000, $15,504,000 and $22,444,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Cash paid for income taxes was $2,697,000, $1,900,000 and $1,237,000
for the years ended December 31, 1993, 1994 and 1995, respectively.
NOTE 16 -- SUBSEQUENT EVENTS
On January 23, 1996, the Company issued $120,000,000 of 9 1/4% First
Mortgage Notes due 2006. Interest on the notes will be payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, dividend payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the option
of the Company after five years at premiums to principal which decline on each
anniversary date. The Company utilized a portion of the proceeds to pay down
$51,601,000 of debt outstanding as of December 31, 1995.
On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited-service hotels for approximately
$65,100,000 in cash. The acquisition enables the Company to establish full
control over its proprietary Wellesley Inns brand with all 30 Wellesley Inns
owned and operated by the Company. The acquisition price was comprised of
approximately $60,400,000 million to purchase the first mortgage on the 18
hotels with a face value of approximately $70,500,000 million and $4,700,000 to
purchase the interests of the three partnerships which owned the hotels.
Approximately $1,900,000 of the total purchase price was paid to a partnership
in which a general partner is the father of David A. Simon, the Company's
President and Chief Executive Officer. In connection with the transaction, the
Company also terminated its management agreements and junior subordinated
mortgages related to the 18 hotels.
F-27
<PAGE> 82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRIME HOSPITALITY CORP.
DATE: March 27, 1996 By:
/s/ DAVID A. SIMON
---------------------------------
David A. Simon, Chairman of the
Board of Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1996.
SIGNATURE TITLE
- --------- -----
/s/ DAVID A. SIMON
- ------------------------
David A. Simon Chairman of Board of Directors,
President, Chief Executive Officer
and Director (Principal Executive
Officer)
/s/ JOHN M. ELWOOD
- ------------------------
John M. Elwood Chief Financial Officer, Executive
Vice President and Director (Principal,
Financial and Accounting Officer)
/s/ ALLEN J. OSTROFF
- ------------------------
Allen J. Ostroff Director
/s/ HERBERT LUST, II
- ------------------------
Herbert Lust, II Director
/s/ A.F. PETROCELLI
- ------------------------
A.F. Petrocelli Director
/s/ JACK H. NUSBAUM
- ------------------------
Jack H. Nusbaum Director
/s/ HOWARD M. LORBER
- ------------------------
Howard M. Lorber Director
<PAGE> 83
Exhibit Index
(2) (a) Reference is made to the
Disclosure Statement for Debtors'
Second Amended Joint Plan of
Reorganization dated January 16,
1992, which includes the Debtors'
Second Amended Plan of
Reorganization as an exhibit thereto
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(b) Reference is made to the Contract of
Purchase and Sale between
Hillsborough Associates, Meriden
Hotel Associates, L.P., Wellesley I,
L.P., Multi-Wellesley Limited
Partnership and the Company dated
March 6, 1996 filed as an Exhibit to
the Company's 8-K dated March 21,
1996, which is incorporated herein
by reference.
(c) Reference is made to Consent of the
Holders Thereof to the Purchase by
the Company of the Outstanding First
Mortgage Notes filed as an Exhibit
to the Company's 8-K dated March 21,
1996, which is incorporated herein
by reference.
(3) (a) Reference is made to the
Restated Certificate of
Incorporation of the Company dated
June 5, 1992 filed as an Exhibit to
the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Restated
Bylaws of the Company filed as an
Exhibit to the Company's Form 10-K
dated September 25, 1992, which is
incorporated herein by reference.
<PAGE> 84
Exhibit Index (continued)
(4) (a) Reference is made to the Form of
8.20% Fixed Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Form of
Adjustable Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(c) Reference is made to the Form of
9.20% Junior Secured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the Form of
8.20% Tax Note of the Company filed
as an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(e) Reference is made to the Form of
10.20% Secured UND Restructured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(f) Reference is made to the Form of 8%
Secured UND Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the Form of
9.20% OVR Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(h) Reference is made to the Collateral
Agency Agreement among the Company,
U.S. Trust and the Secured Parties,
dated as of July 31, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(i) Reference is made to the Security
Agreement between the Company and
U.S. Trust, dated as of July 31,
1992, filed as
<PAGE> 85
Exhibit Index (continued)
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(j) Reference is made to the Subsidiary
Guaranty from FR Delaware, Inc. to
United States Trust Company of New
York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(k) Reference is made to the Security
Agreement between FR Delaware, Inc.
and United States Trust Company of
New York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(l) Reference is made to the Subsidiary
Guaranty from Prime Note Collections
Company, Inc. to United States Trust
Company of New York, dated as of
July 31, 1992, filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(m) Reference is made to the Security
Agreement between Prime Note
Collections Company, Inc. and United
States Trust Company of New York,
dated as of July 31, 1992, filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(n) Reference is made to a Form 8-A of
the Company as filed on June 5, 1992
with the Securities and Exchange
Commission, as amended by Amendment
No. 1 and Amendment No. 2, which is
incorporated herein by reference.
(o) Indenture, dated April 26, 1995,
between the Company and the Trustee
related to the issuance of 7%
Convertible Subordinated Notes due
2002.
(p) Indenture, dated January 23, 1996,
between the Company and the Trustee
related to 9 1/4% First Mortgage
Notes due 2006.
<PAGE> 86
Exhibit Index (continued)
(10) (a) Reference is made to the Agreement
of Purchase and Sale between
Flamboyant Investment Company, Ltd.
and VMS Realty, Inc. dated June 3,
1985, and its related agreements,
each of which was included as
Exhibits to the Form 8-K dated
August 14, 1985 of PMI, which are
incorporated herein by reference.
(b) Reference is made to PMI's Flexible
Benefit Plan, filed as an Exhibit to
the Form 10-Q dated February 12,
1988 of PMI, which is incorporated
herein by reference.
(c) Reference is made to the Employment
Agreement dated as of July 31, 1992,
between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the 1992
Performance Incentive Stock Option
Plan of the Company dated as of July
31, 1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(e) Reference is made to the 1992 Stock
Option Plan of the Company filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(f) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David A.
Simon filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David L.
Barsky filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(i) Reference is made to the Employment
Agreement dated as of December 31,
1992 between John Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 26,
1993, which is incorporated herein
by reference.
<PAGE> 87
Exhibit Index (continued)
(j) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and John Elwood
filed as an Exhibit to the Company's
Form 10-K dated March 26, 1993,
which is incorporated herein by
reference.
(k) Reference is made to the Employment
Agreement dated as of May 18, 1993
between Paul Hower filed as an
Exhibit to the Company's Form 10-K
dated March 25, 1994, which is
incorporated herein by reference.
(l) Reference is made to the
Consolidated and Amended Settlement
Agreement dated as of October 12,
1993 between Allan V. Rose and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 25,
1994, which is incorporated herein
by reference.
(m) Reference is made to the Consent and
Amendment to Prime Hospitality Corp.
9.20% Junior Secured Notes filed as
an Exhibit to the Company's Form
10-K dated March 10, 1995.
(n) Reference is made to the Agreement
dated February 6, 1995 among Suites
of America, Inc., ShoLodge, Inc. and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(o) Reference is made to the Change of
Control Agreement dated February 15,
1995 between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(p) Reference is made to the Change of
Control Agreement dated February 15,
1995 between John M. Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(q) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Paul H. Hower and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(r) Reference is made to the Change of
Control Agreement dated February 15,
1995 between John H. Leavitt and the
<PAGE> 88
Exhibit Index (continued)
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(s) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Denis W. Driscoll and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(t) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Timothy E. Aho and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(u) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Joseph Bernadino and
the Company filed as an Exhibit to
the Company's Form 10-K dated March
10, 1995.
(v) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Richard T. Szymanski
and the Company filed as an Exhibit
to the Company's Form 10- K dated
March 10, 1995.
(w) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Douglas W. Vicari and
the Company filed as an Exhibit to
the Company's Form 10- K dated March
10, 1995.
(x) Reference is made to the Change of
Control Agreement dated February 15,
1995 between Richard Moskal and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 10,
1995.
(y) Employment Agreement dated May 15,
1995 between John Elwood and the
Company.
(z) Employment Agreement dated August 1,
1995 between David Simon and the
Company.
<PAGE> 89
Exhibit Index (continued)
(21) Subsidiaries of the Company are as follows:
Jurisdiction of
Name Incorporation
---- -------------
Dynamic Marketing Group, Inc. Delaware
Fairfield Holding Corp. Delaware
Fairfield-Meridian Claims Service, Inc. Delaware
FR Delaware, Inc.
(Subsidiary of FR Management Corporation) Delaware
FR Management Corporation Virginia
KSA Management, Inc. Kansas
Mahwah Holding Corp. Delaware
Market Segments, Incorporated Delaware
PHC Construction Corp. Delaware
PHC Disaster Relief Fund, Inc. New Jersey
PHC Hotels, Inc. Delaware
Prime-American Realty Corp. Delaware
Prime Note Collections Company, Inc. Delaware
Prime-O-Lene, Inc. New Jersey
Republic Motor Inns, Inc Virginia
(23) (a) Consent of Arthur Andersen LLP
<PAGE> 1
================================================================================
PRIME HOSPITALITY CORP.
---------------------------------------------
$75,000,000
(With an Over-Allotment Option for an Additional $11,250,000)
7% CONVERTIBLE SUBORDINATED NOTES DUE 2002
---------------------------------------------
-----------------
INDENTURE
Dated as of April 26, 1995
-----------------
---------------------------------------------
BANK ONE, COLUMBUS, N.A.
---------------------------------------------
as Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
310 (a)(1).................................................. 6.9
(a)(2)................................................. 6.9
(a)(3) ................................................ N.A.
(a)(4)................................................. N.A.
(a)(5)................................................. 6.9
(b) ................................................... 6.8; 6.10
311 (a) .................................................... 6.13
(b) ................................................... 6.13
312 (a)..................................................... 7.1; 7.2(a)
(b).................................................... 7.2(b)
(c) ................................................... 7.2(c)
313 (a)..................................................... 7.3(a)
(a)(4).................................................. 1.1
(b).................................................... 7.3(a)
(c).................................................... 7.3(a)
(d).................................................... 7.3(b)
314 (a) .................................................... 7.4
(b) ................................................... N.A.
(c)(1) ................................................ 1.2
(c)(2) ................................................ 1.2
(c)(3) ................................................ N.A.
(d).................................................... N.A.
(e) .................................................. 1.2
315 (a)..................................................... 6.1
(b).................................................... 6.2
(c) .................................................. 6.1
(d).................................................... 6.1
(e).................................................... 5.14
316 (a)..................................................... 1.1
(a)(1)(A).............................................. 5.2; 5.12
(a)(1)(B) ............................................. 5.13
(a)(2) ................................................ N.A.
(b) ................................................... 5.8
(c) ................................................... 1.4(c)
317 (a)(1) ................................................. 5.3
(a)(2)................................................. 5.4
(b) ................................................... 10.3
318 (a)..................................................... 1.7
</TABLE>
N.A. means not applicable.
- ----------------------------
*THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C> <C>
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION......................... 1
1.1 Definitions........................................................... 1
-----------
"Act"................................................................. 2
"Affiliate"........................................................... 2
"Authenticating Agent"................................................ 2
"Beneficial owner..................................................... 2
"Board of Directors".................................................. 2
"Board Resolution".................................................... 2
"Business Day"........................................................ 2
"Closing Price"....................................................... 2
"Commission".......................................................... 2
"Common Stock"........................................................ 2
"Company"............................................................. 2
"Company Request" or "Company Order".................................. 3
"Corporate Trust Office".............................................. 3
"Corporation"......................................................... 3
"Defaulted Interest".................................................. 3
"Event of Default".................................................... 3
"Exchange Act"........................................................ 3
"Holder".............................................................. 3
"Indenture"........................................................... 3
"Interest Payment Date"............................................... 3
"Maturity............................................................. 3
"Note"................................................................ 3
"Note Register"....................................................... 3
"Officers' Certificate"............................................... 3
"Opinion of Counsel".................................................. 3
"Outstanding,"........................................................ 3
"Paying Agent"........................................................ 4
"Person".............................................................. 4
"Predecessor Note".................................................... 4
"Redemption Date,".................................................... 4
"Redemption Price,"................................................... 4
"Regular Record Date"................................................. 4
"Repurchase Date"..................................................... 4
"Repurchase Price".................................................... 4
"Risk Event".......................................................... 5
"Senior Indebtedness"................................................. 5
"Significant Subsidiary".............................................. 5
"Special Record Date"................................................. 5
"Stated Maturity,".................................................... 5
"Subsidiary".......................................................... 5
"Trading Day"......................................................... 5
"Trustee"............................................................. 6
"Trust Indenture Act"................................................. 6
"Vice President,"..................................................... 6
</TABLE>
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<TABLE>
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1.2 Compliance Certificates and Opinions.................................. 6
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1.3 Form of Documents Delivered to Trustee................................ 6
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1.4 Acts of Holders; Record Dates......................................... 7
-----------------------------
1.5 Notices to Trustee and Company........................................ 8
------------------------------
1.6 Notice to Holders; Waiver............................................. 8
-------------------------
1.7 Conflict with Trust Indenture Act..................................... 8
---------------------------------
1.8 Effect of Headings and Table of Contents.............................. 8
----------------------------------------
1.9 Successors and Assigns................................................ 8
----------------------
1.10 Separability Clause................................................... 9
-------------------
1.11 Benefits of Indenture................................................. 9
---------------------
1.12 Governing Law......................................................... 9
-------------
1.13 Legal Holidays........................................................ 9
--------------
1.14 No Security Interest Created.......................................... 9
----------------------------
1.15 Immunity of Incorporators, Stockholders, Officers and Directors....... 9
---------------------------------------------------------------
1.16 Acceptance by Trustee................................................. 9
---------------------
ARTICLE 2
NOTE FORMS............................... 10
2.1 Forms Generally....................................................... 10
2.2 Form of Face of Note.................................................. 10
2.3 Form of Reverse Side of Note.......................................... 11
2.4 Form of Trustee's Certificate of Authentication....................... 20
ARTICLE 3
THE NOTES............................... 20
3.1 Title and Terms....................................................... 20
3.2 Denominations......................................................... 20
3.3 Execution, Authentication, Delivery and Dating........................ 21
3.4 Temporary Notes....................................................... 21
3.5 Registration, Registration of Transfer and Exchange................... 21
3.6 Mutilated, Destroyed, Lost and Stolen Notes........................... 22
3.7 Payment of Interest; Interest Rights Preserved........................ 23
3.8 Persons Deemed Owners................................................. 24
3.9 Cancellation.......................................................... 24
3.10 Computation of Interest............................................... 24
ARTICLE 4
SATISFACTION AND DISCHARGE....................... 24
4.1 Satisfaction and Discharge of Indenture............................... 24
4.2 Application of Trust Money............................................ 25
4.3 Reinstatement......................................................... 25
ARTICLE 5
REMEDIES................................ 26
5.1 Events of Default..................................................... 26
5.2 Acceleration of Maturity; Rescission and Annulment.................... 27
5.3 Collection of Indebtedness and Suits for Enforcement by Trustee....... 28
5.4 Trustee May File Proofs of Claim...................................... 28
</TABLE>
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<TABLE>
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5.5 Trustee May Enforce Claims Without Possession of Notes................ 29
5.6 Application of Money Collected........................................ 29
5.7 Limitation on Suits................................................... 29
5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert............................................... 30
5.9 Restoration of Rights and Remedies.................................... 30
5.10 Rights and Remedies Cumulative........................................ 30
5.11 Delay or Omission Not Waiver.......................................... 30
5.12 Control by Holders.................................................... 30
5.13 Waiver of Past Defaults............................................... 31
5.14 Undertaking for Costs................................................. 31
5.15 Waiver of Stay or Extension Laws...................................... 31
ARTICLE 6
THE TRUSTEE.............................. 31
6.1 Certain Duties and Responsibilities................................... 31
6.2 Notice of Defaults.................................................... 32
6.3 Certain Rights of Trustee............................................. 32
6.4 Not Responsible for Recitals or Issuance of Notes..................... 33
6.5 May Hold Notes........................................................ 33
6.6 Money Held in Trust................................................... 34
6.7 Compensation and Reimbursement........................................ 34
6.8 Disqualification; Conflicting Interests............................... 34
6.9 Corporate Trustee Required; Eligibility............................... 34
6.10 Resignation and Removal; Appointment of Successor..................... 34
6.11 Acceptance of Appointment by Successor................................ 35
6.12 Merger, Conversion, Consolidation or Succession to Business........... 36
6.13 Preferential Collection of Claims Against Company..................... 36
6.14 Appointment of Authenticating Agent................................... 36
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY........... 37
7.1 Company to Furnish Trustee Names and Addresses of Holders............. 37
7.2 Preservation of Information Communications to Holders................. 38
7.3 Reports by Trustee.................................................... 38
7.4 Reports by Company.................................................... 38
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.......... 38
8.1 Company May Consolidate, Etc., Only on Certain Terms.................. 38
8.2 Successor Substitute.................................................. 39
ARTICLE 9
SUPPLEMENTAL INDENTURES........................ 39
9.1 Supplemental Indentures Without Consent of Holders.................... 39
9.2 Supplemental Indentures with Consent of Holders....................... 40
9.3 Execution of Supplemental Indentures.................................. 40
9.4 Effect of Supplemental Indentures..................................... 41
</TABLE>
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<TABLE>
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9.5 Conformity with Trust Indenture Act................................... 41
9.6 Reference in Notes to Supplemental Indentures......................... 41
9.7 Notice of Supplemental Indenture...................................... 41
ARTICLE 10
COVENANTS............................... 41
10.1 Payment of Principal, Premium and Interest............................ 41
10.2 Maintenance of Office or Agency....................................... 41
10.3 Money for Note Payments to Be Held in Trust........................... 42
10.4 Statement by Officers as to Default................................... 42
10.5 Existence............................................................. 43
10.6 Maintenance of Properties............................................. 43
10.7 Payment of Taxes and Other Claims..................................... 43
10.8 Waiver of Certain Covenants........................................... 43
ARTICLE 11
REDEMPTION OF NOTES.......................... 43
11.1 Right of Redemption................................................... 43
11.2 Applicability Of Article.............................................. 44
11.3 Election to Redeem; Notice to Trustee................................. 44
11.4 Selection by Trustee of Notes to Be Redeemed.......................... 44
11.5 Notice of Redemption.................................................. 44
11.6 Deposit of Redemption Price........................................... 45
11.7 Notes Payable on Redemption Date...................................... 45
11.8 Notes Redeemed in Part................................................ 45
ARTICLE 12
SUBORDINATION OF NOTES......................... 46
12.1 Notes Subordinate to Senior Indebtedness.............................. 46
12.2 Payment Over of Proceeds Upon Dissolution, Etc........................ 46
12.3 No Payment on Notes in Certain Circumstances.......................... 47
12.4 Payment Permitted if No Default....................................... 47
12.5 Subrogation to Rights of Holders of Senior Indebtedness............... 48
12.6 Provisions Solely to Define Relative Rights........................... 48
12.7 Trustee to Effectuate Subordination................................... 48
12.8 No Waiver of Subordination Provisions................................. 48
12.9 Notice to Trustee..................................................... 49
12.10 Reliance on Judicial Order or Certificate of Liquidating Agent...... 49
12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness...... 50
12.12 Rights of Trustee as Holder of Senior Indebtedness; Preservation of
Trustee's Rights...................................................... 50
12.13 Article Applicable to Paying Agents...... 50
12.14 Certain Conversions Deemed Payment...... 50
ARTICLE 13
CONVERSION OF NOTES.......................... 50
13.1 Conversion Privilege and Conversion Price............................. 50
13.2 Exercise of Conversion Privilege...................................... 51
</TABLE>
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13.3 Fraction of Shares.................................................... 51
13.4 Adjustment of Conversion Price........................................ 52
13.5 Notice of Adjustments of Conversion Price............................. 57
13.6 Notice of Certain Corporate Action.................................... 57
13.7 Company to Reserve Common Stock....................................... 58
13.8 Taxes on Conversions.................................................. 58
13.9 Covenant as to Shares of Common Stock................................. 58
13.10 Cancellation of Converted Notes...... 58
13.11 Provisions in Case of Consolidation, Merger or Sale of Assets...... 58
13.12 Disclaimer of Responsibility for Certain Matters...... 59
ARTICLE 14
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON A RISK EVENT.................... 59
14.1 Right to Require Repurchase........................................... 59
14.2 Notices; Method of Exercising Repurchase Right, Etc................... 59
14.3 Certain Definitions................................................... 61
</TABLE>
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<PAGE> 8
INDENTURE, dated as of April 26, 1995, between Prime
Hospitality Corp., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 700 Route 46 East, Fairfield, New Jersey 07004, and Bank One, Columbus, N.A.,
a national banking association, as Trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture).
RECITALS
The Company has duly authorized the creation of an issue of
its 7% Convertible Subordinated Notes Due 2002 (herein called the "Notes") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Notes, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the promises and the purchase of
the Notes by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
1.1 Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to then in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation;
(4) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(5) "or" is not exclusive.
<PAGE> 9
"Act" when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Notes.
"Beneficial owner" shall have the meaning specified in Section 14.3(a).
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or the city in which the Corporate Trust Office is located are authorized or
obligated by law or executive order to close or to be closed.
"Closing Price" has the meaning specified in Section 13.4(h).
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 13.11, shares issuable on conversion of Notes shall
include only shares of the class designated as Common Stock of the Company at
the date of this instrument or shares of any class or classes resulting from any
reclassification or reclassification thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassification bears to the total
number of shares of all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
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<PAGE> 10
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
As of the date hereof, the Corporate Trust Office of the Trustee is located at
100 East Broad Street, 8th Floor, Columbus, Ohio 43271-0181.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and to govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Maturity," when used with respect to any Note, means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Note" has the meaning specified in the Recitals of the Company to this
Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.5.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Chief Financial
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 10.4 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding," when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
3
<PAGE> 11
(ii) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Notes;
provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(iii) Notes which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands such Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost, or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 14.1.
"Repurchase Price" has the meaning specified in Section 14.1.
4
<PAGE> 12
"Risk Event" has the meaning specified in Section 14.3(c).
"Senior Indebtedness" means the principal of (and premium, if any) and
interest on (a) all indebtedness of the Company for money borrowed, other than
the Notes, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, except any such indebtedness that, by
the terns of the instrument or instruments by which such indebtedness was
created or incurred, expressly provides that it (i) is junior in right of
payment to the Notes or (ii) ranks pari passu in right of payment with the
Notes, and (b) any amendments, renewals, extensions, deferrals, modifications,
refinancings and refundings of any such indebtedness. For the purposes of this
definition, "indebtedness for money borrowed," when used with respect to the
Company, means (u) any obligation of the Company for the repayment of borrowed
money (including, without limitation, fees, penalties, expenses, collection
expenses, interest yield amounts and other obligations in respect thereof, and,
to the extent permitted by applicable law, interest accruing after the filing of
a petition initiating any proceeding under the Bankruptcy Code, whether or not
allowed as a claim in such proceeding), whether or not evidenced by bonds,
debentures, notes or other written instruments, and any other obligations
evidenced by notes, bonds, debentures or similar instruments, (v) any deferred
payment obligation of the Company for the payment of the purchase price of
property or assets evidenced by a note or similar instrument (excluding any
obligations for trade payables or constituting the deferred purchase price of
assets incurred in ordinary course of business), (w) any obligation of the
Company for the payment of rent or other amounts under a lease of property or
assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Company under generally accepted
accounting principles, (x) any obligation of the Company due and payable under
interest rate and currency swaps, floors, caps or similar arrangements intended
to fix interest rate obligations or currency fluctuation risks, (y) any
obligation of the Company evidenced by a letter of credit or any reimbursement
obligation of the Company in respect of a letter of credit, and (z) any
obligations of others of the kinds described in the preceding clauses (u), (v),
(w), (x) or (y) assumed by or guaranteed by the Company and the obligations of
the Company under guarantees of such obligations.
"Significant Subsidiary" means, with respect to any person, a
Subsidiary of such Person that would constitute a "significant subsidiary" as
such term in defined under Rule 1.02(v) of Regulation S-X of the Securities and
Exchange Commission.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest,
as applicable, is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
5
<PAGE> 13
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
1.2 Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee such certificates and
opinions as may be required under the Trust Indenture Act. Each such certificate
or opinion shall be given in the form of an Officers' Certificate, if to be
given by an officer of the Company, or an Opinion of Counsel, if to be given by
counsel, and shall comply with the requirements of the Trust Indenture Act and
any other requirement set forth in this Indenture.
Every certificate (other than certificates provided pursuant
to Section 10.4) or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with; provided,
however, that, with respect to matters of fact, an Opinion of Counsel may rely
on an Officers' Certificate or certificates of public officials.
1.3 Form of Documents Delivered to Trustee. In any case where several
matters are required to be certified by, or covered by an opinion of, any
specified Person, it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be so certified or
covered by only one document, but one such Person may certify or give an opinion
with respect to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care, as to factual matters, should know, that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual
6
<PAGE> 14
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
1.4 Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 7.1)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Notes shall be proved by the Note Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
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<PAGE> 15
1.5 Notices to Trustee and Company. Any request, demand, authorization,
direction, notice, consent, waiver or other Act of Holders or other document
provided or permitted by this Indenture to be made upon, given or furnished to,
or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company, Attention: Chief Financial Officer, or
(3) the Company by the Trustee or the Trustee by the Company
shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if transmitted by facsimile transmission to
the Company at (201) 882-8577 or to the Trustee at (614) 248-5195 (or
to such other facsimile transmission number previously furnished in
writing to the Company by the Trustee or to the Trustee by the Company)
and in each case confirmed by a copy sent to the Company or to the
Trustee, as the case may be, by guaranteed overnight courier.
1.6 Notice to Holders; Waiver. Where this Indenture provides for notice
to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date (if any), and not
earlier than the earliest date (if any), prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification to every purpose hereunder.
1.7 Conflict with Trust Indenture Act. If, and to the extent, any
provision hereof limits, qualifies or conflicts with a provision of the Trust
Indenture Act that is required under such Act to be a part of and govern this
Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
1.8 Effect of Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
1.9 Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
8
<PAGE> 16
1.10 Separability Clause. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
1.11 Benefits of Indenture. Nothing in this Indenture or in the Notes,
express or implied, shall give to any Person, other than the parties hereto and
their successors hereunder, the holders of Senior Indebtedness and the Holders
of Notes, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
1.12 Governing Law. This Indenture and the Notes shall be governed by
and construed in accordance with the laws of the State of New York.
1.13 Legal Holidays. In any case where any Interest Payment Date,
Redemption Date or Stated Maturity of any Note or the last date on which a
Holder has the right to convert his Notes shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of interest or principal (and premium, if any), Repurchase Price or conversion
of the Notes need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated
Maturity, or on such last day for conversion, provided that no additional
interest shall accrue as a result of such delayed payment for the period from
and after such Interest Payment Date, Redemption Date, Repurchase Date or Stated
Maturity, as the case may be.
1.14 No Security Interest Created. Nothing in this Indenture or in the
Notes, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction where property of the
Company or its Subsidiaries is located.
1.15 Immunity of Incorporators, Stockholders, Officers and Directors.
No recourse shall be had for the payment of the principal of (and premium, if
any), or the interest, if any, on any Note, or for any claim based thereon, or
upon any obligation, covenant or agreement of this Indenture, against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
indirectly through the Company or of any successor corporation, whether by
virtue of any constitution, statute or rule of law or by the enforcement of any
assessment of penalty or otherwise; it being expressly agreed and understood
that this Indenture and all of the Notes are solely corporate obligations, and
that no personal liability whatever shall attach to, or is incurred by, any
incorporator, stockholder, officer or director, past, present or future, of the
Company or of any successor corporation, either directly or indirectly through
the Company or any successor corporation, because of the incurring of the
indebtedness hereby authorized or under or by reason of any of the obligations,
covenants or agreements contained in this Indenture or in the Notes, or to be
implied herefrom or therefrom; and that all such personal liability is hereby
expressly released and waived as a condition of, and as part of the
consideration for, the execution of this Indenture and the issuance of the
Notes.
1.16 Acceptance by Trustee. The Trustee hereby accepts the trusts in
this Indenture declared and provided, upon the terms and conditions set forth
herein.
9
<PAGE> 17
ARTICLE 2
NOTE FORMS
2.1 Forms Generally. The Notes and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange
on which the Notes may be listed or as may, consistently herewith, be determined
by the officers executing such Notes, as evidenced by their execution of the
Notes.
The definitive Notes shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Notes may be listed, all as determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
2.2 Form of Face of Note.
No. _______ $_______
Prime Hospitality Corp.
7% Convertible Subordinated Note Due 2002
CUSIP 741917 AB 4
Prime Hospitality Corp., a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to or registered assigns, the principal
sum of Dollars on April 15, 2002, and to pay interest thereon from April 26,
1995 or from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on April 15 and
October 15 in each year, commencing October 15, 1995, at the rate of 7% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is, registered at the close of
business on the Regular Record Date for such interest, which shall be April 1 or
October 1 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Note (or one
or more Predecessor Notes) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice of which shall be given to Holders of Notes not less than ten
(10) days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture. Payment of the
principal of (and premium, if any) and interest on this Note will be made at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York or at the Corporate Trust Office, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made
10
<PAGE> 18
by check mailed to the address of the Person entitled thereto as such address
shall appear in the Note Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trust referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: PRIME HOSPITALITY CORP.
TRUSTEE'S CERTIFICATE OF BY: ____________________
AUTHENTICATION President
This is one of the Notes
referred to in the within- ATTEST: ________________
mentioned Indenture. Secretary
BANK ONE, COLUMBUS, N.A.,
as Trustee
BY: ______________________________
Authorized Signatory
2.3 Form of Reverse Side of Note.
PRIME HOSPITALITY CORP.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the
Company designated as its 7% Convertible Subordinated Notes Due 2002 (herein
called the "Notes"), limited in aggregate principal amount to $75,000,000
(subject to increase as provided in the Indenture up to $86,250,000 aggregate
principal amount), issued and to be issued under an Indenture, dated as of April
26, 1995 (herein called the "Indenture"), between the Company and Bank One,
Columbus, N.A. as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, the holders of Senior Indebtedness and the Holders of the Notes and
of the terms upon which the Notes are, and are to be, authenticated and
delivered.
11
<PAGE> 19
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Note is entitled, at his option, at any time on or
before the close of business on April 15, 2002, or in case this Note or a
portion hereof is called for redemption or submitted for repurchase upon the
occurrence of a Risk Event, then in respect of this Note or such portion hereof
until and including, but (unless the Company defaults in making the payment due
upon redemption or repurchase, as the case may be) not after, the close of
business on the last Trading Day prior to the Redemption Date or Repurchase
Date, respectively, to convert this Note (or any portion of the principal amount
hereof which is $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100 of a share) of Common Stock of the
Company at a conversion price equal to $12.00 aggregate principal amount of
Notes for each share of Common Stock (or at the current adjusted conversion
price if an adjustment has been made as provided in the Indenture) by surrender
of this Note, duly endorsed or assigned to the Company or in blank, to the
Company at its office or agency maintained for that purpose in the Borough of
Manhattan, The City of New York or the Corporate Trust Office, accompanied by
written notice to the Company in the form provided in this Note (or such other
notice as is acceptable to the Company) that the Holder hereof elects to convert
this Note, or if less than the entire principal amount hereof is to be
converted, the portion hereof to be converted, and, in case such surrender shall
be made during the period from the close of business on any Regular Record Date
next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (unless this Note or the portion thereof being converted
has been called for redemption on a Redemption Date within such period), also
accompanied by payment in New York Clearing House or other funds acceptable to
the Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of this Note then being converted. Subject to the
aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder of this Note (or any
Predecessor Note) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made on conversion for interest accrued hereon or
for dividends on the Common Stock issued on conversion. No fractional shares or
scrip representing fractional shares will be issued on conversion, but instead
of any fractional share the Company shall pay a cash adjustment as provided in
the Indenture. The conversion price is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
reclassifications, consolidations or mergers to which the Company is a party or
the sale or transfer of substantially all of the assets of the Company, the
Indenture shall be amended, without the consent of any Holders of Notes, so that
this Note, if then outstanding, will be convertible thereafter, during the
period this Note shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the
reclassification, consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which this Note might have been converted
immediately prior to such consolidation, merger or transfer (assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount received per share by a plurality of non-electing
shares).
The Notes are subject to redemption upon not less than thirty
(30) nor more than sixty (60) days' notice by mail, at any time on or after
April 17, 1998 and prior to maturity, as a whole or in part, at the election of
the Company, at the following Redemption Prices' (expressed as percentages of
the principal amount):
12
<PAGE> 20
If redeemed during the twelve (12) month period beginning
April 15 (or April 17, in the case of 1998) of the years indicated,
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
1998 .............................................. 104.0%
1999 .............................................. 103.0%
2000 .............................................. 102.0%
2001 .............................................. 101.0%
</TABLE>
and at maturity at 100% of principal, together in the case of any such
redemption with accrued interest to the Redemption Date, but interest
installments whose Stated Maturity is on or prior to such Redemption Date will
be payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Record Dates referred to on the
face hereof, all as provided in the Indenture.
The Indenture provides that if a Risk Event (as defined
therein) occurs, each Holder of Notes shall have the right, in accordance with
the provisions of the Indenture, to require the Company to repurchase all of
such Holder's Notes, or any portion thereof that is an integral multiple of
$1,000, for cash at a price equal to 100% of the principal amount of such Notes
to be repurchased together with accrued interest to the Repurchase Date.
In the event of redemption, conversion or repurchase of this
Note in part only, a new Note or Notes for the portion hereof not redeemed,
converted or repurchased will be issued in the name of the Holder hereof upon
the cancellation hereof.
The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Note is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the
principal of all the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Notes under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time Outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued
13
<PAGE> 21
upon the registration of transfer hereof or in exchange therefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Note at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Note as provided in the
Indenture.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registrable in the
Note Register, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan, The City of New York or the Corporate Trust Office, duly endorsed by
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, in each case, with an appropriate signature
guarantee, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(except as provided in the Indenture).
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
No recourse shall be had for the payment of the principal,
premium, if any, or the interest on this Note, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto, against any incorporator, stockholder, officer
or director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
14
<PAGE> 22
ABBREVIATIONS
The following abbreviations, when used in the inscription the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the ________ Custodian _______
entireties (Cust) (Minor)
JT TEN - as joint tenants with Under Uniform Gifts to
right of survivorship Minors Act ___________
and not as tenants in (State)
common
Additional abbreviations may also be used though not in above
list.
15
<PAGE> 23
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
TO PRIME HOSPITALITY CORP.
The undersigned registered owner of this Note hereby irrevocably exercises
the option to convert this Note, or the portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of the
Company in accordance with the terms of the Indenture referred to in this Note,
and directs that the shares issuable and deliverable upon the conversion,
together with any check in payment for fractional shares and any Notes
representing any unconverted principal amount hereof, be issued and delivered to
the registered holder hereof unless a different name has been indicated below.
If shares or any portion of this Note not converted are to be issued in the name
of a Person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto. Any amount required to be paid by the
undersigned on account of interest accompanies this Note.
Dated:
-------------------
Signature(s)
Signature(s) must be guaranteed by
a commercial bank or trust company
or a member firm of a major stock
exchange if shares of Common Stock
are to be delivered, or Notes to be
issued, other than to and in the
name of the registered owner.
- --------------------------
Signature Guarantee
Fill in for registration of
shares of Common Stock if they
are to be delivered, or Notes
if they are to be issued,
other than to and in the name
of the registered owner:
Register: Common Stock
--
- --------------------------
(Name)
Notes
--
- --------------------------
(Street Address) (Check appropriate line(s))
16
<PAGE> 24
Principal amount to be converted
(City, State and Zip Code) (if less than all):
(Please print name and address) $____________,000
Social Security or Other
Taxpayer Identification Number
17
<PAGE> 25
[FORM OF OPTION TO ELECT REPAYMENT
UPON A RISK EVENT]
OPTION TO ELECT REPAYMENT UPON A RISK EVENT
TO PRIME HOSPITALITY CORP.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from the Company as to the occurrence of a Risk
Event with respect to the Company and requests and instructs the Company to
repay the entire principal amount of this Note, or the portion thereof (which is
$1,000 or an integral multiple thereof) below designated, in accordance with the
terms of the Indenture, together with accrued interest to such date, to the
registered holder hereof.
----------------------------
Date:
--------- ----------------------------
Signature(s)
----------------------------
Social Security or Other
Taxpayer Identification Number
Principal amount to be
repaid (if less than all):
$ ,000
-----------
NOTICE: The above signatures of the
holder(s) hereof must correspond
with the name as written upon the
face of the Note in every particular
without alteration or enlargement or
any change whatever.
18
<PAGE> 26
[FORM OF ASSIGNMENT]
ASSIGNMENT
----------------------------
Date:
--------- ----------------------------
Signature(s)
----------------------------
Social Security or Other
Taxpayer Identification Number
Principal amount to be
repaid (if less than all):
$ ,000
-----------
NOTICE: The above signatures of the
holder(s) hereof must correspond
with the name as written upon the
face of the Note in every particular
without alteration or enlargement or
any change whatever.
19
<PAGE> 27
2.4 Form of Trustee's Certificate of Authentication. This is one of the
Notes referred to in the within-mentioned Indenture.
BANK ONE, COLUMBUS, N.A.,
as Trustee
By
------------------------------
Authorized Signatory
ARTICLE 3
THE NOTES
3.1 Title and Terms. The aggregate principal amount of Notes which may
be authenticated and delivered under this Indenture is limited to (a)
$75,000,000 plus (b) such additional aggregate principal amount (which may not
exceed $11,250,000 principal amount) of Notes as may be purchased by the
Underwriters pursuant to the Underwriting Agreement, dated April 19, 1995, among
the Company, Montgomery Securities and Smith Barney Inc., as Underwriters,
solely to cover over-allotments, except for Notes authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Sections 3.4, 3.5, 3.6, 9.6, 11.8 or 13.2.
The Notes shall be known and designated as the "7% Convertible
Subordinated Notes Due 2002" of the Company. Their Stated Maturity shall be
April 15, 2002, and they shall bear interest at the rate of 7% per annum, from
the date of initial issuance or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually on April 15 and October 15 of each year, commencing October 15,
1995, until the principal thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the Notes shall
be payable and the transfer of Notes will be registrable at the office or agency
of the Company in the Borough of Manhattan, The City of New York or the
Corporate Trust Office, maintained for such purpose and at any other office or
agency maintained by the Company for such purpose; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Note
Register.
The Notes shall be redeemable as provided in Article 11.
The Notes shall be subordinated in right of payment to Senior
Indebtedness as provided in Article 12.
The Notes shall be convertible as provided in Article 13.
The Notes shall be subject to repurchase by the Company, at the
election of Holders, as provided in Article 14.
3.2 Denominations. The Notes shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
20
<PAGE> 28
3.3 Execution, Authentication, Delivery and Dating. The Notes shall be
executed on behalf of the Company by its Chairman of the Board, its President or
one of its Vice Presidents, under its corporate seal reproduced thereon attested
by its Secretary or one of its Assistant Secretaries. The signature of any of
these officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes as in this Indenture provided
and not otherwise.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
3.4 Temporary Notes. Pending the preparation of definitive Notes, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Notes which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as evidenced by
their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at any office or agency of the Company
designated pursuant to Section 10.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of authorized denominations. Until so
exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
3.5 Registration, Registration of Transfer and Exchange. The Company
shall cause to be kept at the Corporate Trust Office of the Trustee a register
(the register maintained in such office and in any other office or agency
designated pursuant to Section 10.2 being herein sometimes collectively referred
to as the "Note Register") in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration of Notes and of
transfers of Notes. The Trustee is hereby appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at an office or
agency of the Company designated pursuant to Section 10.2 for such purpose, the
Company shall execute, and the Trustee shall
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authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations and of a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Note Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Sections 3.4, 9.6, 11.8, 13.2 or 14.2 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business
fifteen (15) days before day of the mailing of a notice of redemption of Notes
selected for redemption under Section 11.4 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
3.6 Mutilated, Destroyed, Lost and Stolen Notes. If any mutilated Note
is surrendered to the Trustee, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Note of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, or theft of any Note and (ii) such
security or indemnity as may be required by them to save each of them and any
agent of either of them harmless, then, in the absence of notice to the Company
or the Trustee that such Note has been acquired by a bona fide purchaser, the
Company shall execute, and the Trustee shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Note, a new Note of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost
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or stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
3.7 Payment of Interest; Interest Rights Preserved. Interest on any
Note which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than fifteen (15) days and
not less than ten (10) days prior to the date of the proposed payment
and not less than ten (10) days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it
appears in the Note Register, not less than ten (10) days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
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In the case of any Note which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Note whose Maturity is prior to such Interest Payment Date), interest whose
Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Note (or one or more Predecessor Notes) is registered
at the close of business on such Regular Record Date. Except as otherwise
expressly provided in the immediately preceding sentence, in the case of any
Note which is converted, interest whose Stated Maturity is after the date of
conversion of such Note shall not be payable.
3.8 Persons Deemed Owners. Prior to due presentment of a Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name such Note is registered as the
owner of such Note for the purpose of receiving payment of principal of (and
premium, if any) and (subject to Section 3.7) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
3.9 Cancellation. All Notes surrendered for payment, redemption,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be disposed of as directed by a Company Order.
3.10 Computation of Interest. Interest on the Notes shall be computed
on the basis of a 360- day year of twelve 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE
4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease
to be of further effect (except as to any surviving rights of conversion,
registration of transfer or exchange of Notes herein expressly provided for),
and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or stolen and
which have been replaced or paid an provided in Section 3.6 and (ii)
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 10.3)
have been delivered to the Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
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(ii) will become due and payable at their Stated
Maturity within one (1) year,
or
(iii) are to be called for redemption within one (1)
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
that purpose an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the
date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may
be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
4.2 Application of Trust Money. Subject to the provisions of the last
paragraph of Section 10.3, all money deposited with the Trustee pursuant to
Section 4.1 shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Persons entitled thereto, of the principal
(and premium, if any) and interest for whose payment such money has been
deposited with the Trustee. All moneys deposited with the Trustee pursuant to
Section 4.1 (and held by it or any Paying Agent) for the payment of Notes
subsequently converted shall be returned to the Company upon Company Request.
4.3 Reinstatement. If the Trustee or the Paying Agent is unable to
apply any money in accordance with this Article 4 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 4 until such time as the Trustee
or Paying Agent is permitted to apply all money held in trust with respect to
the Notes; provided, however, that if the Company makes any payment of principal
of or any premium or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders to
receive such payment from the money so held in trust.
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ARTICLE 5
REMEDIES
5.1 Events of Default. "Event of Default," wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(1) default in the payment of the principal of (or premium, if
any, on) any Note at its Maturity, whether or not such payment is
prohibited by the provisions of Article 12; or
(2) default in the payment of any interest upon any Note when
it becomes due and payable, and continuance of such default for a
period of thirty (30) days, whether or not such payment is prohibited
by the provisions of Article 12; or
(3) a default in the payment of the Repurchase Price in
respect of any Note on the Repurchase Date therefor in accordance with
the provisions of Article 14, whether or not such payment is prohibited
by the provisions of Article 12; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of sixty (60) days after there has been given,
by registered or certified mail, to the Company by the Trustee, or to
the Company and the Trustee by the Holders of at least 10% in principal
amount of the Outstanding Notes, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of
its Significant Subsidiaries or under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company
or any Significant Subsidiary in an amount, together with all other
such indebtedness, exceeding $5,000,000, whether such indebtedness now
exists or shall hereafter be created, which default shall constitute a
failure to pay any portion of principal or interest on such
indebtedness when due and payable after the expiration of any
applicable grace period with respect thereto or shall have resulted in
such indebtedness in an amount exceeding $5,000,000 becoming or being
declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled,
within a period of ten (10) days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in principal
amount of the Outstanding Notes a written notice specifying such
default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; or
(6) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company or any Significant Subsidiary which remains
undischarged for a period (during which execution shall not be
effectively stayed) of sixty (60) days, provided that the aggregate of
all such outstanding judgments exceeds $5,000,000
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(excluding any amounts covered by insurance as to which the insurer has
not denied liability);
or
(7) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or a
Significant Subsidiary in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Company or a
Significant Subsidiary bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant
Subsidiary under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of sixty (60)
consecutive days; or
(8) the commencement by the Company or any Significant
Subsidiary of a voluntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or
order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Significant Subsidiary or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action.
5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Notes may declare the principal of all the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal shall become
immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the outstanding Notes, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on) any
Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at
the rate borne by the Notes,
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(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate
borne by the Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest on any Note
when such interest becomes due and payable and such default continues for a
period of thirty (30) days, or
(2) default is made in the payment of the Repurchase Price in
respect of any Note on the Repurchase Date therefor in accordance with the
provisions of Article 14, or
(3) default is made in the payment of the principal of (or
premium, if any, on) any Note at the Maturity thereof, the Company will, upon
demand of the Trustee, pay to it, for the benefit of the Holders of such Notes,
the whole amount then due and payable on such Notes for principal (and premium,
if any) and interest, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any) and
on any overdue interest, at the rate borne by the Notes, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
5.4 Trustee May File Proofs of Claim. In case of any judicial
proceeding relative to the Company (or any other obligor upon the Notes), its
property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee shall
be authorized to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
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amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 6.7.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
5.5 Trustee May Enforce Claims Without Possession of Notes. All rights
of action and claims under this Indenture or the Notes may be prosecuted and
enforced by the Trustee without the possession of any of the Notes or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
5.6 Application of Money Collected. Subject to Article 12, any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Notes and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any) and interest on the Notes in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such Notes
for principal (and premium, if any) and interest, respectively; and
THIRD: To the payment of the remainder, if any, to the Company, its
successors or assigns, or to whomsoever may be lawfully entitled to the same, or
as a court of competent jurisdiction may determine.
5.7 Limitation on Suits. No Holder of any Note shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Notes shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for sixty (60) days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
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(5) no direction inconsistent with such written request has
been given to the Trustee during such sixty (60) day period by the Holders of a
majority in principal amount of the Outstanding Notes.
It being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert. Notwithstanding any other provision in this Indenture,
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Section 3.7) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date), to have such Note repurchased in accordance with Article 14
and to convert such Note in accordance with Article 13 and to institute suit for
the enforcement of any such payment, right to require repurchase and right to
convert, and such rights shall not be impaired without the consent of such
Holder.
5.9 Restoration of Rights and Remedies. If the Trustee or any Holder
has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
5.10 Rights and Remedies Cumulative. Except as otherwise provided with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Notes in the last paragraph of Section 3.6, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee
or of any Holder of any Note to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
5.12 Control by Holders. The Holders of a majority in principal amount
of the Outstanding Notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
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(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
5.13 Waiver of Past Defaults. The Holders of not less than a majority
in principal amount of the Outstanding Notes may on behalf of the Holders of all
the Notes waive any past default hereunder and its consequences, except
(1) a default in the payment of the principal of (or premium,
if any) or interest on any
Note, or
(2) a default with respect to the right of a Holder to require
repurchase of or convert a
Note, or
(3) a default with respect to any covenant or provision hereof
which under Article 9 cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
5.14 Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, a court may require any
party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and to
the extent provided in the Trust Indenture Act; provided that neither this
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit instituted
by the Company or in any suit for the enforcement of the right to convert any
Note in accordance with Article 13 or the right to require the Company to
repurchase any Note in accordance with Article 14.
5.15 Waiver of Stay or Extension Laws. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE 6
THE TRUSTEE
6.1 Certain Duties and Responsibilities. Except during the continuance
of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
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(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; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this paragraph shall not be construed to limit the effect
of paragraph (a) of this Section 6.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a responsible officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in principal amount of the
Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred upon the Trustee, under this Indenture,
and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
6.2 Notice of Defaults. The Trustee shall give the Holders notice of
any default hereunder known to the Trustee as and to the extent provided by the
Trust Indenture Act; provided, however, that in the case of any default of the
character specified in Section 5.1(4), no such notice to Holders shall be given
until at least thirty (30) days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default.
6.3 Certain Rights of Trustee. Subject to the provisions of Section
6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order,
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bond, debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be held responsible for having knowledge of
any defaults, of which it does not have actual knowledge, except money defaults
unless specifically notified in writing by the Company and/or the Holders of the
Notes.
6.4 Not Responsible for Recitals or Issuance of Notes. The recitals
contained herein and in the Notes, except the Trustee's certificates of
authentication, shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of Notes or the proceeds thereof.
6.5 May Hold Notes. The Trustee, any Paying Agent, any Note Registrar
or any other agent of the Company, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to Sections 6.8 and 6.13, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Note Registrar or such other agent.
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6.6 Money Held in Trust. Money held by the Trustee in trust hereunder
need not be segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Company.
6.7 Compensation and Reimbursement. The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
6.8 Disqualification; Conflicting Interests. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
6.9 Corporate Trustee Required; Eligibility. There shall at all times
be a Trustee hereunder which shall be a Person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000. If such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
6.10 Resignation and Removal; Appointment of Successor. (a) No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within thirty (30) days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Note for at least six (6) months, or
(2) the Trustee shall cease to be eligible under Section 6.9
and shall fail to resign after written request therefor by the Company or by any
such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (I) the Company by a Board Resolution may remove the
Trustee, or (II) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Note for at least six (6) months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within ninety (90) days after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six (6) months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 1.6. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
6.11 Acceptance of Appointment by Successor. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to the Company and to
the retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its fees and expenses (including counsel fees, if any)
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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6.12 Merger, Conversion, Consolidation or Succession to Business. Any
corporation into which the Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
6.13 Preferential Collection of Claims Against Company. If and when the
Trustee shall be or become a creditor of the Company (or any other obligor upon
the Notes), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
6.14 Appointment of Authenticating Agent. The Trustee may appoint an
Authenticating Agent or Agents which shall be authorized to act on behalf of the
Trustee to authenticate Notes issued upon original issue and upon exchange,
registration of transfer, partial conversion or partial redemption or pursuant
to Section 3.6, and Notes so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Whenever reference is made in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustees certificate of authentication, such references shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such
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appointment by first-class mail, postage prepaid, to all Holders as their names
and addresses appear in the Note Register. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustees certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Notes described in the within mentioned Indenture.
BANK ONE, COLUMBUS, N.A.,
as Trustee
By _____________________
as authorized agent
By:_____________________
as Authenticating Agent
By:_____________________
Authorized Signatory
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
7.1 Company to Furnish Trustee Names and Addresses of Holders. The
Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than fifteen (15) days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
thirty (30) days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than fifteen (15) days prior to
the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Note Registrar.
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7.2 Preservation of Information Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 7.1 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Notes, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
7.3 Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Notes are listed, with the Commission and with the Company. The Company will
notify the Trustee when the Notes are listed on any stock exchange.
7.4 Reports by Company. The Company shall file with the Trustee and the
Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be
filed with the Trustee within fifteen (15) days after the same is so required to
be filed with the Commission.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
8.1 Company May Consolidate, Etc., Only on Certain Terms. The Company
shall not consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person, and
the Company shall not permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company in merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws of the United
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States of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of (and premium, if any) and interest on all the Notes and the
performance or observance of every covenant of this Indenture on the part of the
Company to be performed or observed and shall have provided for conversion
rights in accordance with Section 13.11;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or a
Subsidiary as a result of such transaction as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
8.2 Successor Substitute. Upon any consolidation of the Company with,
or merger of the Company into, any other Person or any conveyance, transfer or
lease of the properties and assets of the Company substantially as an entirety
in accordance with Section 8.1, the successor person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the Notes.
ARTICLE 9
SUPPLEMENTAL INDENTURES
9.1 Supplemental Indentures Without Consent of Holders. Without the
consent of any Holders, the Company, when authorized by a Board Resolution, and
the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company; provided, however, that in respect of any such additional covenant such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default; or
(3) to secure the Notes; or
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(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 13.11; or
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by more than one
Trustee; or
(6) to add any additional Events of Default; or
(7) to cure any ambiguity, to correct or supplement any
provision herein or any supplemental indenture which may be inconsistent with
any other provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided that such action
pursuant to this Clause (7) shall not adversely affect the interests of the
Holders in any material respect.
9.2 Supplemental Indentures with Consent of Holders. With the consent
of the Holders of not less than a majority in principal amount of the
Outstanding Notes, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby,
(1) change the Stated Maturity of, the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof or
the rate of interest thereon or any premium payable upon the redemption thereof,
or change the place of payment where, or the coin or currency in which, any Note
or any premium or interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
adversely affect the right to convert any Note as provided in Article 13 (except
as permitted by Section 9.1(4)), or adversely affect the right to cause the
Company to repurchase any Note pursuant to Article 14, or modify the provisions
of this Indenture with respect to the subordination of the Notes in a manner
adverse to the Holders, or
(2) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section
5.13 or Section 10.8, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
9.3 Execution of Supplemental Indentures. In executing, or accepting
the additional trusts created by, any supplemental indenture permitted by this
Article or the modifications thereby of the trusts
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created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
9.4 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such-supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
9.5 Conformity with Trust Indenture Act. Every supplemental indenture
executed pursuant to this Article shall conform to the requirements of the Trust
Indenture Act.
9.6 Reference in Notes to Supplemental Indentures. Notes authenticated
and delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, Notes so modified as to conform,
in the opinion of Trustee and the Company, to any such supplemental indenture
may be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for outstanding Notes.
9.7 Notice of Supplemental Indenture. Promptly after execution by the
Company and the Trustee of any supplemental indenture pursuant to Section 9.2,
the Company shall transmit to the Holders a notice setting forth the substance
of such supplemental indenture.
ARTICLE 10
COVENANTS
10.1 Payment of Principal, Premium and Interest. The Company will duly
and punctually pay the principal of (and premium, if any) and interest on the
Notes (including the Repurchase Price) in accordance with the terms of the Notes
and this Indenture.
10.2 Maintenance of Office or Agency. The Company will maintain in the
Borough of Manhattan, The City of New York an office or agency where Notes may
be presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange, where Notes may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company will give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes.
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The Company will give prompt written notice to the Trustee of any such
designation or rescission of any change in the location of any such other office
or agency.
10.3 Money for Note Payments to Be Held in Trust. If the Company shall
at any time act as its own Paying Agent, it will, on or before each due date of
the principal of (and premium, if any) or interest on any of the Notes,
aggregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Notes, deposit with a Paying Agent a sum sufficient to pay such amount, such
sum to be held as provided by the Trust Indenture Act, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Notes) in the making of
any payment in respect of the Notes, upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent as
such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Note and remaining unclaimed for two (2) years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of the Company cause
to be published once, in a paper published in the English language, customarily
published on each Business Day and of general circulation in City of New York,
notice that such money remains unclaimed that, after a date specified therein,
which shall not be less than thirty (30) days from the date of such publication,
any unclaimed balance of such money then remaining will be paid to the Company.
10.4 Statement by Officers as to Default. The Company will deliver to
the Trustee, within sixty (60) days after the end of each fiscal year of the
Company ending after the date hereof, an Officers' Certificate, stating as to
each signer thereof that he or she is familiar with the affairs of the Company
and whether or not to his or her knowledge the Company is in default in the
performance and observance of the terms, provisions or conditions of this
Indenture (without regard to any period of grace or requirement
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of notice provided hereunder) and, if the Company shall be in default,
specifying all such defaults and the nature and status thereof of which he or
she may have knowledge.
10.5 Existence. Subject to Article 8, the Company will cause to be done
all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises and the existence,
rights (charter and statutory) and franchises of each Significant Subsidiary;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Board Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries and that the loss thereof is not disadvantageous in any
material respect to the Holders.
10.6 Maintenance of Properties. The Company will cause properties used
or useful in the conduct of its business or the business of any Significant
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business and the business of its Subsidiaries and not
disadvantageous in any material respect to the Holders.
10.7 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Significant Subsidiary or upon the income,
profits or property he Company or any Significant Subsidiary, and (2) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Company or any Significant Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
10.8 Waiver of Certain Covenants. The Company need not in any
particular instance comply with any covenant or condition set forth in Section
10.5, 10.6 or 10.7, if before the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Notes shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE 11
REDEMPTION OF NOTES
11.1 Right of Redemption. The Notes may be redeemed at the election of
the Company, as a whole or from time to in part, at any time on or after April
17, 1998, at the Redemption Prices specified in the form of Note hereinbefore
set forth, together with accrued interest to the Redemption Date.
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11.2 Applicability Of Article. Redemption of Notes at the election of
the Company, as permitted by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
11.3 Election to Redeem; Notice to Trustee. The election of the Company
to redeem any Notes pursuant to Section 11.1 shall be evidenced by a Board
Resolution. In case of any redemption at the election of the Company of less
than all the Notes, the Company shall, at least sixty (60) days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed.
11.4 Selection by Trustee of Notes to Be Redeemed. If less than all the
Notes are to be redeemed, the particular Notes to be redeemed shall be selected
not more than sixty (60) days prior to the Redemption Date by the Trustee, from
the Outstanding Notes not previously called for redemption, by lot or such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $1,000 or any integral
multiple thereof) of the principal amount of Notes of a denomination larger than
$1,000.
If any Note selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Note so
selected, the converted portion of such Note shall be deemed (so far as may be)
to be the portion selected for redemption. Notes which have been converted
during a selection of Notes to be redeemed shall be treated by the Trustee as
Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
11.5 Notice of Redemption. Notice of redemption shall be given by
first-class mail, postage prepaid, mailed not less than thirty (30) nor more
than sixty (60) days prior to the Redemption Date, to each Holder of Notes to be
redeemed, at his address appearing in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Notes are to be redeemed,
the identification (and, in the case of partial redemption of any Notes, the
principal amounts) of the particular Notes to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Note to be redeemed and that interest
thereon will cease to accrue on and after said date,
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(5) the conversion price, the date on which the right to
convert the Notes to be redeemed will terminate and the place or places where
such Notes may be surrendered for conversion, and
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at Company's request, by the Trustee
in the name and at the expense of the Company.
11.6 Deposit of Redemption Price. On or prior to any Redemption Date,
the Company shall deposit with the Trustee or a Paying Agent (or, if the Company
is acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.3) an amount of money sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Notes which are to be redeemed on that date other than
Notes called for redemption on that date which have been converted prior to the
date of such deposit.
If any Note called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or segregated and held in trust for
the redemption of such Note shall (subject to any right of the Holder of such
Note or any Predecessor Note to receive interest as provided in the last
paragraph of Section 3.7) be paid to the Company upon Company Request or, if
then held by the Company, shall be discharged from such trust.
11.7 Notes Payable on Redemption Date. Notice of redemption having been
given as aforesaid, the Notes so redeemed shall, on the Redemption Date, become
due and payable at the Redemption Price therein specified, and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued interest) such Notes shall cease to bear interest. Upon
surrender of such Note for redemption in accordance with said notice, such Note
shall be paid by the Company at the Redemption Price, together with accrued
interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Notes, or one or more Predecessor Notes,
registered as such at the close of business on the relevant record dates
according to their terms and the provisions of Section 3.7.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Note.
11.8 Notes Redeemed in Part. Any Note which is to be redeemed only in
part shall be surrendered at an office or agency of the Company designated for
that purpose pursuant Section 10.2 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company or the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder of such Note without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered.
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ARTICLE 12
SUBORDINATION OF NOTES
12.1 Notes Subordinate to Senior Indebtedness. The Company covenants
and agrees, and each Holder of a Note, by his acceptance thereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth in this Article (subject to the provisions of Article 4), the payment of
the principal of (and premium, if any) and interest on each and all of the Notes
(including any repurchases or payments pursuant to Article 14) are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness.
12.2 Payment Over of Proceeds Upon Dissolution, Etc. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization other similar case or proceeding in connection
therewith, relative to the Company or to its creditors, as such, or to its
assets or (b) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company, then and in any such event
specified in (a) or (b) above (each such event, if any, herein sometimes
referred to as a "Proceeding") the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to become due on or in
respect of all Senior Indebtedness, or provision shall be made for such payment
in cash or cash equivalents or otherwise in a manner satisfactory to the holders
of Senior Indebtedness, before the Holders of the Notes are entitled to receive
any payment or distribution of any kind or character, whether in cash, property
or securities, on account of principal of (or premium, if any) or interest on
the Notes or on account of any purchase (including any repurchase pursuant to
Article 14) or other acquisition of Notes by the Company or any Subsidiary of
the Company (all such payments, distributions, purchases and acquisitions herein
referred to, individually and collectively, as a "Notes Payment"), and to that
end the holders of all Senior Indebtedness shall be entitled to receive, for
application to the payment thereof, any Notes Payment which may be payable or
deliverable in respect of the Notes in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any Notes
Payment before all Senior Indebtedness is paid in full or payment thereof
provided for in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Indebtedness, and if such fact shall, at or prior to
the time of such Notes Payment, have been made known to the Trustee or, as the
case may be, such Holder, then and in such event such Notes Payment shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment
authorized by an order or decree of a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law or of any other
corporation provided for by such plan of reorganization or readjustment which
stock or securities are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as the Notes are so
subordinated as provided in this Article. The consolidation of the Company with,
or the merger of the Company into, another Person or the liquidation or
dissolution or the Company following the conveyance or transfer of all or
substantially all of its properties and assets as an entirety to another Person
upon the terms and
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conditions set forth in Article 8 shall not be deemed a Proceeding for the
purposes of this Section if the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer such properties and assets as an entirety, as the case may be, all, as
a part of such consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article 8.
12.3 No Payment on Notes in Certain Circumstances. In the event that
any Notes are declared due and payable before their Stated Maturity, then and in
such event the holders of the Senior Indebtedness outstanding at the time such
Notes so become due and payable shall be entitled to receive payment in full of
all amounts due or to become due on or in respect of all Senior Indebtedness, or
provision shall made for such payment in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of such Senior Indebtedness, before the
Holders of the Notes are entitled to receive any Notes Payment (including any
payment which may be payable by reason of the payment of any other indebtedness
of the Company being subordinated to the payment of the Notes).
In the event and during the continuation of (i) any default in the
payment of principal of (or premium, if any) or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or (ii)
any other event of default with respect to any Senior Indebtedness shall have
occurred and be continuing permitting the holders of such Senior Indebtedness
(or a trustee or other representative on behalf of the holders thereof) to
declare such Senior Indebtedness due and payable prior to the date on which it
would otherwise have become due and payable, upon written notice thereof to the
Company and the Trustee by any holders of Senior Indebtedness (or a trustee or
other representative on behalf of the holders thereof) (the "Default Notice"),
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (iii) any judicial proceeding shall be pending with respect to any
such default payment or event of default, then no Notes Payment shall be made;
provided, however, that clause (ii) of this paragraph shall not prevent the
making of any Notes Payment for more than 179 days after a Default Notice shall
have been received by the Trustee unless the Senior Indebtedness in respect of
which such event of default exists has been declared due and payable in its
entirety in which case no such payment may be made until such acceleration has
been rescinded or annulled or such Senior Indebtedness has been paid in full;
provided, however, no event of default which existed or was continuing on the
date of any Default Notice shall be made the basis for the giving of a second
Default Notice; and provided, further, however, that only one such Default
Notice may be given in any 365 day period.
In the event that, notwithstanding the foregoing, the Company shall
make any Notes Payment to the Trustee or any Holder prohibited by the foregoing
provisions of this Section, and if such fact shall, at or prior to the time of
such Notes Payment, have been made known to the Trustee or, as the case may be,
such Holder, then and in such event such Notes Payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any Notes Payment
with respect to which Section 12.2 would be applicable.
12.4 Payment Permitted if No Default. Nothing contained in this Article
or elsewhere in this Indenture or in any of the Notes shall prevent (a) the
Company, at any time except during the pendency of any Proceeding referred to in
Section 12.2 or under the conditions described in Section 12.3, from making
Notes Payments, or (b) the application by the Trustee of any money deposited
with it hereunder to Notes Payments or the retention of such Notes Payment by
the Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such Notes Payment would have been prohibited by the provisions
of this Article.
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12.5 Subrogation to Rights of Holders of Senior Indebtedness. Subject
to the payment in full of all amounts due or to become due on or in respect of
Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Notes shall be subrogated to the extent of the
payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company which by its express terms is subordinated to
indebtedness of the Company to substantially the same extent as the Notes are
subordinated and is entitled to like rights of subrogation) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property or securities to which the
Holders of the Notes or the Trustee would be entitled except for the provisions
of this Article, and no payments over pursuant to the provisions of this Article
to the holders of Senior Indebtedness by Holders of the Notes or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
12.6 Provisions Solely to Define Relative Rights. The provisions of
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Indenture or in the Notes is intended to or shall (a) impair, as among
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Notes, the obligation of the Company, which is absolute and
unconditional (and which, subject to the rights under this Article of the
holders of Senior Indebtedness, is intended to rank equally with all other
general obligations of the Company), to pay to the Holders of the Notes the
principal of (and premium, if any) and interest on, and to make any repurchases
required by Article 14 of, the Notes as and when the same shall become due and
payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders of the Notes and creditors of the Company
other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the
Holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article of the holders of Senior Indebtedness to receive cash,
property and securities otherwise payable or deliverable to the Trustee or such
Holder.
12.7 Trustee to Effectuate Subordination. Each Holder of a Note by his
acceptance thereof authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article and appoints the Trustee his attorney-in-fact for any
and all such purposes.
12.8 No Waiver of Subordination Provisions. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the
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Holders of the Notes to the holders of Senior Indebtedness, do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend
or supplement in any manner Senior Indebtedness, any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
12.9 Notice to Trustee. The Company shall give prompt written notice to
the Trustee of any fact known to the Company which would prohibit the making of
any payment to or by the Trustee in respect of the Notes. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the Notes,
unless and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.1, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section at least three (3) Business Days prior
to the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest on, or amounts payable upon repurchase of, any
Note), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may received by it within three (3)
Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
12.10 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 6.1, and the Holders
of the Notes shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Notes, for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
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12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Notes or to the Company or
to any other Person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article or otherwise.
12.12 Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights. The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.
12.13 Article Applicable to Paying Agents. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall in
such case (unless the context otherwise requires) be construed as extending to
and including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article in addition to or in
place of the Trustee; provided, however, that Section 12.12 shall not apply to
the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
12.14 Certain Conversions Deemed Payment. For the purposes of this
Article only, (1) the issuance and delivery of junior securities upon conversion
of Notes in accordance with Article 13 shall not be deemed to constitute a
payment or distribution on account of the principal of (or premium, if any) or
interest on Notes or on account of the purchase or other acquisition of Notes,
and (2) the payment, issuance or delivery of cash, property or securities (other
than junior securities) upon conversion of a Note shall be deemed to constitute
payment on account of the principal of such Note. For the purposes of this
Section, the term "junior securities" means (a) shares of any stock of any class
of the Company, (b) securities of the Company which are subordinated in right of
payment to all Senior Indebtedness which may be outstanding at the time of
issuance or delivery of such securities to substantially the same extent as, or
to a greater extent than, the Notes are so subordinated as provided in this
Article and (c) securities into which the Notes become convertible pursuant to
Section 13.11. Nothing contained in this Article or elsewhere in this Indenture
or in the Notes is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Notes, the right, which is absolute and unconditional, of the Holder of any Note
to convert such Note in accordance with Article 13.
ARTICLE 13
CONVERSION OF NOTES
13.1 Conversion Privilege and Conversion Price. Subject to and upon
compliance with the provisions of this Article, at the option of the Holder
thereof, any Note or any portion of the principal amount thereof which is $1,000
or an integral multiple of $1,000 may be converted at the principal amount
thereof, or of such portion thereof, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company at the conversion price, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right shall
expire
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at the close of business on April 15, 2002. In case a Note or portion thereof is
called for redemption at the election of the Company or delivered for repurchase
pursuant Article 14, such conversion right in respect of the Note or portion so
called shall expire at the close of business on the last Trading Day prior to
the Redemption Date or the Repurchase Date, as the case may be, unless the
Company defaults in making the payment due upon redemption or repurchase.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $12.00 per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in this Article 13.
13.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder of any Note to be converted shall surrender
such Note, duly endorsed or assigned to the Company or in blank, at any office
or agency of the Company maintained for that purpose pursuant to Section 10.2,
accompanied by written notice to the Company (in form and substance satisfactory
to the Company) at such office agency that the Holder elects to convert such
Note or, if less than the entire principal amount thereof is to be converted,
the portion thereof to be converted. Notes surrendered for conversion during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date
shall (except in the case of Notes or portions thereof which have been called
for redemption on a Redemption Date within such period) be accompanied by
payment in New York Clearing House funds or other funds acceptable to Company of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount of Notes being surrendered for conversion. Subject to the
provisions Section 3.7 relating to the payment of Defaulted Interest by the
Company, the interest payment with respect to a Note called for redemption on a
Redemption Date during the period from the close of business on any Regular
Record Date next preceding any Interest Payment Date to the opening of business
on such Interest Payment Date shall be payable on such Interest Payment Date to
the Holder of such Note at the close of business on such Regular Record Date
notwithstanding the conversion of such Note after such Regular Record Date and
prior to such Interest Payment Date, and the Holder converting such Note need
not include a payment of such interest payment amount upon surrender of such
Note for conversion. Except as provided in the preceding sentence and subject to
the final paragraph of Section 3.7, no payment or adjustment shall be made upon
any conversion on account of any interest accrued on the Notes surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
Notes shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders shall cease, and the Person or Persons entitled
to receive the Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the Conversion Date, the Company shall issue
and shall deliver at such office or agency a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, together with
payment in lieu of any fraction of a share, as provided in Section 13.3.
In the case of any Note which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Note or
Notes of authorized denominations in aggregate principal amount equal to the
unconverted portion of the principal amount of such Note.
13.3 Fraction of Shares. No fractional shares of Common Stock shall be
issued upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same
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Holder, the number of full shares which shall issuable upon conversion thereof
shall be computed on the basis of the aggregate principal amount of the Notes
(or specified portions thereof) so surrendered. Instead of any fractional share
of Common Stock which would otherwise be issuable upon conversion of any Note or
Notes (or specified portions thereof), the Company shall pay a cash adjustment
in respect of such fraction in an amount equal to the fraction of the daily
Closing Price per share of Common Stock (consistent with Section 13.4(h) below)
at the close of business on the day of conversion.
13.4 Adjustment of Conversion Price.
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Common Stock, the
conversion price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such conversion
price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this paragraph (a), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company.
(b) Subject to the provisions of paragraph (g) of this Section, in case
the Company shall issue rights, options or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price (determined as provided in
paragraph (h) of this Section) on the date fixed for the determination of
stockholders entitled to receive such rights, options or warrants (other than
pursuant to a dividend reinvestment plan), the conversion price in effect at the
opening of business on the day following the date fixed for such determination
shall be reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock offered for subscription or purchase would purchase at
such Current Market Price and the denominator shall be the number shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or repurchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (b), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
will not issue any rights, options or warrants in respect of shares of Common
Stock held in the treasury of the Company.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the conversion price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
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(d) Subject to the last sentence of this paragraph (d) and the
provisions of paragraph (g) of this Section, in case the Company shall, by
dividend or otherwise, distribute to all holders of the Common Stock evidences
of its indebtedness, shares of any class of its capital stock, cash or other
assets (including securities, but excluding any rights, options or warrants
referred to in paragraph (b) of this Section, excluding any dividend or
distribution paid exclusively in cash and excluding any dividend or distribution
referred to in paragraph (a) of this Section), the conversion price shall be
reduced by multiplying the conversion price in effect immediately prior to the
close of business on the date fixed for the determination of stockholders
entitled to such distribution by a fraction of which the numerator shall be the
Current Market Price (determined as provided in paragraph (h) of this Section)
on such date less the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) on such date of the portion of the evidences of indebtedness, shares
of capital stock, cash and other assets to be distributed applicable to one
share of Common Stock and the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening of business
on the day following such date. If the Board of Directors determines the fair
market value of any distribution for purposes of this paragraph (d) by reference
to the actual or when- issued trading market for any securities comprising part
or all of such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price pursuant
to paragraph (h) of this Section, to the extent possible. For purposes of this
paragraph (d), any dividend or distribution that includes shares of Common
Stock, rights, options or warrants to subscribe for or purchase shares of Common
stock or securities convertible into or exchangeable for shares of Common Stock
shall be deemed to be (x) a dividend or distribution of the evidences of
indebtedness, cash, assets or shares of capital stock other than such shares of
Common Stock, such rights, options or warrants or such convertible or
exchangeable securities (making any conversion price reduction required by this
paragraph (d)) immediately followed by (y) in the case of such shares of Common
Stock or such rights, options or warrants, dividend or distribution thereof
(making any further conversion price reduction required by (a) and (b) of this
Section, except any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at close of business on the date
fixed for such determination" within the meaning of paragraph (a) of this
Section), or (z) in the case of such convertible or exchangeable securities, a
dividend or distribution of the number of shares of Common Stock as would then
be issuable upon the conversion or exchange thereof, whether or not the
conversion or exchange of such securities is subject to any conditions (making
any further conversion price reduction required by paragraph (a) of this
Section, except the shares deemed to constitute such dividend or distribution
shall not be deemed "outstanding at the close of business on the date fixed for
such determination" within the meaning of paragraph (a) of this Section).
(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 13.11 applies or as part of a
distribution referred to in paragraph (d) of this Section) in an aggregate
amount that, combined together with (1) the aggregate amount of any other
distributions to all holders of its Common Stock exclusively in cash within the
twelve (12) months preceding the date of payment of such distribution, and in
respect of which no adjustment pursuant to this paragraph (e) has been made, and
(2) the aggregate of any cash plus the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described in a
Board Resolution) of consideration paid or payable in respect of any tender
offer by the Company or any Subsidiary for all or any portion the Common Stock
concluded within the twelve (12) months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to paragraph (f) of
this Section has been made, exceeds 12.5% of the product of the Current Market
Price (determined as provided in paragraph (h) of this Section) on the date for
the determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
date, then,
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and in each such case, immediately after the close of business on such date for
determination, the conversion price shall be reduced so that same shall equal
the price determined by multiplying the conversion price in effect immediately
prior to the close of business on the date fixed for determination of the
stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the Current Market Price (determined as
provided in paragraph (h) of this Section) on the date fixed for such
determination less an amount equal to the quotient of (x) the excess of such
combined amount over such 12.5% and (y) the number of shares of Common Stock
outstanding on such date for determination and (ii) the denominator of which
shall be equal to the Current Market Price (determined as provided in paragraph
(h) of this Section) on such date for determination.
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) that
combined together with (1) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of such
tender offer, of consideration paid or payable in respect of any other tender
offer, by the Company or any Subsidiary for all or any portion of the Common
Stock expiring within the twelve (12) months preceding the expiration of such
tender offer and in respect of which no adjustment pursuant to this paragraph
(f) has been made and (2) the aggregate amount of any distributions to all
holders of the Company's Common Stock made exclusively in cash within twelve
(12) months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to paragraph (e) of this Section has been made,
exceeds 12.5% of the product of the Current Market Price (determined as provided
in paragraph (h) of this Section) as of the last time (the "Expiration Time")
tenders could have been made pursuant to such tender offer (as it may be
amended) times the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date of the
Expiration Time, the conversion price shall be adjusted so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to close of business on the date of the Expiration Time by a
fraction (i) the numerator of which shall be equal to (A) the product of (I) the
Current Market Price (determined as provided in paragraph (h) of this Section)
on the date of the Expiration Time and (II) the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time less (B) the
amount of cash plus the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender offer) of Purchased Shares, and
(ii) the denominator of which shall be equal to the product of (A) the Current
Market Price (determined as provided in paragraph (h) of this Section) as of the
Expiration Time and (B) the number of shares of Common Stock outstanding
(including any tendered shares) as of the Expiration Time less the number of all
shares validly tendered and not withdrawn as of the Expiration Time (the shares
deemed to be accepted up to any such maximum, being referred to as the
"Purchased Shares").
(g) The reclassification of Common Stock into securities, including
securities other than Common Stock (other than any reclassification upon a
consolidation or merger to which Section 13.11 applies), shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and the "date fixed for such determination" within
the meaning of paragraph (d) of this Section), and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately
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prior to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section). Rights,
options or warrants issued by the Company to all holders of the Common Stock
entitling the holders thereof to subscribe for or purchase shares of Common
Stock (either initially or under certain circumstances), which rights, options
or warrants (i) are deemed to be transferred with such shares of Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of paragraphs (b) and (d) above not be deemed issued until the occurrence of the
earliest Trigger Event. Notwithstanding any provision of paragraphs (b) and (d)
above to the contrary, no adjustment shall be made pursuant to paragraphs (b) or
(d) above for any dividend, distribution or issuance of rights, options or
warrants to all holders of Common Stock if the Company makes proper provision so
that each Holder of a Note who converts such Note (or any portion thereof) after
the date fixed for the determination of stockholders entitled to such issuance,
dividend or distribution, shall be entitled to receive upon such conversion, in
addition to the shares of Common Stock issuable upon such conversion, that
number of rights, options or warrants as would have been issuable to a holder of
a number of shares of Common Stock equal to the number of shares to which the
Notes were convertible as of the date fixed for such issuance, dividend or
distribution (with adjustments to the rights and privileges under such rights,
options or warrants given effect as if such rights, options or warrants had been
issued as of such date), provided that the foregoing provisions set forth in
this sentence shall only apply to the extent (and so long as) such rights,
options or warrants receivable upon conversion of the Notes would be exercisable
without any loss of rights or privileges for a period of at least 90 days
following conversion of the Notes. In addition, in the event of any issuance or
distribution of rights, options or warrants, or any Trigger Event with respect
thereto, which shall have resulted in an adjustment to the conversion price with
respect to the Notes under paragraphs (b) or (d) above, (a) in the case of any
such rights, options or warrants which shall all have been redeemed or
repurchased without exercise by any holders thereof, the conversion price shall
be readjusted upon such final redemption or repurchase to give effect to such
issuance or distribution (or Trigger Event, as the case may be) as though a cash
distribution had been made to all of the holders of Common Stock equal to the
per share redemption or repurchase price received by a holder of Common Stock
with respect to the rights, options or warrants received by such holder
(assuming such holder had retained such rights, options or warrants), and (b) in
the case of any such rights, options or warrants all of which shall have expired
without exercise by any holder thereof, the conversion price with respect to the
Notes shall be readjusted as if such issuance had not occurred.
(h) For the purpose of any computation under this paragraph and
paragraphs (b), (d), (e) and (f) of this Section, the current market price per
share of Common Stock (the "Current Market Price") on any date shall be deemed
to be the average of the daily Closing Prices (as hereinafter defined) for the
five consecutive Trading Days selected by the Company commencing not more than
20 Trading Days before, and ending not later than the date in question;
provided, however, that (i) if the "ex" date (as hereinafter defined) for any
event (other than the issuance or distribution requiring such computation) that
requires an adjustment to the conversion price pursuant to paragraph (a), (b),
(c), (d), (e) or (f) above occurs on or after the 20th Trading Day prior to the
date in question and prior to the "ex" date for the issuance or distribution
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the conversion price is so required to be
adjusted as a result of such other event, (ii) if the "ex" date for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the conversion price pursuant to paragraph (a), (b),
(c), (d), (e) or (f) above occurs on or
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after the "ex" date for the issuance or distribution requiring such computation
and on or prior to the date in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by which the conversion
price is so required to be adjusted as a result of such other event, and (iii)
if the "ex" date for the issuance or distribution requiring such computation is
on or prior to the date in question, after taking into account any adjustment
required pursuant to this proviso, the Closing Price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto the amount of any cash
and the fair market value on the date in question (as determined by the Board of
Directors in a manner consistent with any determination of such value for
purposes of paragraph (d) or (e) of this Section, whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For the purpose of any computation under paragraph (f) of this
Section, the Current Market Price on any date shall be deemed to be the average
of the daily Closing Prices for the 5 consecutive Trading Days selected by the
Company commencing on or after the latest (the "Commencement Date") of (i) the
date 20 Trading Days before the date in question, (ii) the date of commencement
of the tender offer requiring such computation, and (iii) the date of the last
amendment, if any, of such tender offer involving a change in the maximum number
of shares for which tenders are sought or a change in the consideration offered,
and ending not later than the Expiration Time of such tender offer; provided,
however, that if the "ex" date for any event (other than the tender offer
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the Commencement Date and prior to the Expiration Time for the tender offer
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the conversion price is so required to be
adjusted as a result of such other event. The closing price for any Trading Day
(the "Closing Price") shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to trading or, if not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated Quotations National
Market System or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on such National Market System, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for that purpose. The term "ex date," (i) when used with respect
to any issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from which
the Closing Prices were obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (iii) when used with respect
to any tender offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the last time that tenders
may be made pursuant to such tender offer (as it shall have been amended).
(i) No adjustment in the conversion price shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(i) would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this paragraph (i)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph (i) shall be
made to the nearest percent.
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(j) No upward adjustment in the conversion price will be made other
than in the event of a reverse stock split.
(k) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section, as it considers to be advisable in order to avoid or diminish any
income tax to any holders of shares of Common Stock resulting from any dividend
or distribution of stock or issuance of rights, options or warrants to purchase
or subscribe for stock or from any event treated as such for income tax purposes
or for any other reasons. The Company shall have the power to resolve any
ambiguity or correct any error in this paragraph (k) and its actions in so doing
shall be final and conclusive.
(l) Notwithstanding any other provision of this Section 13.4, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action to increase par value per share of the Common
Stock.
13.5 Notice of Adjustments of Conversion Price. Whenever conversion
price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.4 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted conversion price and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency maintained for the
purpose of conversion of Notes pursuant to Section 10.2; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be required, and as
soon as practicable after it is required, such notice shall be mailed by the
Company to all Holders at their last addresses as they shall appear in the Note
Register.
13.6 Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution)
payable (i) otherwise than exclusively in cash and (ii) exclusively in cash in
an amount that would require a conversion price adjustment pursuant to paragraph
(e) of Section 13.4; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common Stock), or
of any consolidation, or share exchange to which the Company is a party and
which approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
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(e) the Company or any Subsidiary shall commence a tender offer for all
or a portion of the outstanding shares of Common Stock (or shall amend any such
tender offer to change the maximum number of shares being sought or the amount
or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Notes pursuant to Section 10.2, and shall cause to
be mailed to all Holders at their last addresses as they shall appear in the
Note Register, at least twenty-one (21) days (or eleven days in any case
specified in clause (a), (b) or (c) above) prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, share exchange, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up. Neither the failure to give
such notice nor any defect therein shall affect the legality or validity of the
proceedings described in clauses (a) through (e) of this Section 13.6.
13.7 Company to Reserve Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued Common Stock, for
the purpose of effecting the conversion of Notes, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Notes.
13.8 Taxes on Conversions. The Company will pay any and all taxes that
may be payable in respect of the issue or delivery of shares of Common Stock on
conversion of Notes pursuant hereto. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that of the
Holder of the Note or Notes to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or established to the satisfaction of the
Company that such tax has been paid.
13.9 Covenant as to Shares of Common Stock. The Company covenants that
all shares of Common Stock which may be issued upon conversion of Notes will
upon issue be fully paid and nonassessable and, except as provided in Section
13.8, the Company will pay all taxes, liens and charges with respect to the
issue thereof.
13.10 Cancellation of Converted Notes. All Notes delivered for
conversion shall be delivered to the Trustee to be canceled by or at the
direction of the Trustee, which shall dispose of the same as provided in Section
3.9.
13.11 Provisions in Case of Consolidation, Merger or Sale of Assets. In
case of any consolidation of the Company with, or merger of the Company into,
any other Person, any merger of another Person into the Company (other than a
merger which does not result in any reclassification, conversion, change or
cancellation of outstanding shares of Common Stock of the Company) or any sale
or transfer of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Note then outstanding
shall have the right thereafter, during the period such Note shall be
convertible as specified
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in Section 13.1, to convert such Note only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock of the
Company into which such Note might have been converted immediately prior to such
consolidation, merger, sale or transfer, assuming such holder of Common Stock of
the Company is not a Person with which the Company consolidated or into which
the Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent Person"), or an Affiliate of
a constituent Person, and failed to exercise his rights of election, if any, to
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer is not the same for each share of Common Stock of the Company
held immediately prior to such consolidation, merger, sale or transfer by others
than a constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("nonelecting share"), then for
the purpose of this Section the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
13.12 Disclaimer of Responsibility for Certain Matters. The Trustee
shall not be accountable with respect to the listing or registration or the
validity or value (or the kind or amount) or any shares of Common Stock, or of
any securities, cash or other property, which may at any time be issued or
delivered upon the conversion of any Note; and the Trustee makes no
representation with respect thereto. The Trustee shall not be responsible for
any failure of the Company to issue, transfer or deliver any shares of Common
Stock or stock certificates or other securities or property or to make any cash
payment upon the surrender of any Note for the purpose of conversion or, subject
to the provisions of Section 6.01, to comply with any of the covenants contained
in this Article Thirteen.
ARTICLE 14
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON A RISK EVENT
14.1 Right to Require Repurchase. In the event that a Risk Event (as
hereinafter defined) shall occur, then each Holder shall have the right, at the
Holder's option, to require the Company to repurchase, and upon the exercise of
such right the Company shall repurchase, all of such Holder's Notes, or any
portion of the principal amount thereof that is an integral multiple of $1,000,
on the date (the "Repurchase Date") that is forty-five (45) calendar days after
the date of the Company Notice (as defined in Section 14.2) for cash at a
purchase price equal to 100% of the principal amount the Notes to be repurchased
(the "Repurchase Price"), together in each case with accrued interest to the
Repurchase Date. Such right to require the repurchase of the Notes shall not
continue after a discharge of the Company from its obligations with respect to
the Notes in accordance with Article 4, unless a Risk Event shall have occurred
prior to such discharge.
14.2 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all
of the Outstanding Notes, on or before the fifteenth (15th) calendar day after
the occurrence of a Risk Event, the Company
59
<PAGE> 67
or, at the request of the Company, the Trustee, shall mail to all Holders a
notice (the "Company Notice") of the occurrence of the Risk Event and of the
repurchase right set forth herein arising as a result thereof. The Company shall
also deliver a copy of such notice of a repurchase right to the Trustee and
cause a copy of such Notice of a repurchase right, or a summary of the
information contained therein, to be published in a newspaper of general
circulation in The City of New York.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a Holder must follow
to exercise a repurchase right, and
(5) the conversion price then in effect, the date which the
right to convert the principal amount of the Notes to be repurchased will
terminate and the place or places where Notes may be surrendered for conversion.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a purchase right or affect
the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee on or before the close of business on the fifth day preceding the
Repurchase Date (i) written notice of the Holder's exercise of such right, which
notice shall set forth the name the Holder, the principal amount of the Notes to
be repurchased, a statement that an election to exercise the repurchase right is
being made thereby, and (ii) the Notes with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the Company. Such
written notice shall be irrevocable, except that the right of the Holder to
convert the Notes with respect to which the repurchase right is being exercised
shall continue until the close of business on the last Trading Day preceding the
Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid the Repurchase
Price in cash to the Holder on the Repurchase Date, together with accrued and
unpaid interest to the Repurchase Date payable with respect to the Notes to
which the purchase right has been exercised; provided, however, that
installments of interest that mature on or prior the Repurchase Date shall be
payable in cash to the Holders of such Notes, or one or more predecessor Notes,
registered as such at the close of business on the relevant Regular Record Date
according to the terms and provisions of Article 3.
(d) If any Note surrendered for repurchase shall be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate borne by the
Note and each Note shall remain convertible into Common Stock until the
principal of such Note shall have been paid or duly provided for.
60
<PAGE> 68
(e) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, containing identical terms and conditions, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unrepurchased portion of the principal
of the Note so surrendered.
(f) Prior to the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.3) an amount of
money sufficient to pay the Repurchase Price of the Notes that are to be repaid
on the Repurchase Date.
14.3 Certain Definitions. For purposes of this Article 14,
(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the final execution of this Indenture,
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act;
(b) the term "Person" shall include any syndicate or group which would
be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in
effect on the date of the original execution of this Indenture; and
(c) a "Risk Event" shall be deemed to have occurred at such time as:
(i) any Person (other than the Company, any Subsidiary of the
Company or any current or future employee or director benefit plan of
the Company or any subsidiary of the Company or any entity holding
capital stock of the Company for or pursuant to the terms of such plan
or any underwriter engaged in a firm commitment underwriting in
connection with a public offering of capital stock of the Company) is
or becomes the beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in the
elections of directors (any shares of voting stock of which such person
or group is the beneficial owner that are not then outstanding being
deemed outstanding for purposes of calculating such percentage); or
(ii) the Company adopts a plan relating to the liquidation or
dissolution of the Company;
(iii) any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of all or substantially all of the
assets of the Company to another Person (other than a merger (x) which
does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or (y) which is
affected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock);
or
61
<PAGE> 69
(iv) a change in the Board of Directors of the Company in
which the individuals who constituted the Board of Directors of the
Company at the beginning of the twelve-month period immediately
preceding such change (together with any other director whose election
by the Board of Directors of the Company or whose nomination for
election by the shareholders of the Company was approved by a vote of
at least a majority of the directors then in office either who were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office.
provided, however, that a Risk Event shall not be deemed to have occurred if the
closing price per share of Common Stock for any five (5) Trading Days within the
period of ten (10) consecutive Trading Days ending immediately before the Risk
Event shall equal or exceed 105% of the conversion price of such Notes in effect
on each such Trading Day.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[signature page follows]
62
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
PRIME HOSPITALITY CORP.
By________________________________
Title:
Attest:___________________________
BANK ONE, COLUMBUS, N.A.,
as Trustee
By________________________________
Authorized Signatory
Attest:___________________________
63
<PAGE> 1
EXECUTION COPY
================================================================================
PRIME HOSPITALITY CORP.
$120,000,000
(subject to increase to up to $200,000,000)
9 1/4% First Mortgage Notes due 2006
--------------------------------------
INDENTURE
Dated as of January 23, 1996
--------------------------------------
--------------------------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
--------------------------------------------
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1).................................................... 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.08;7.10
(c)....................................................... N.A.
311(a)....................................................... 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
312(a)....................................................... 2.06
(b)....................................................... 12.03
(c)....................................................... 12.03
313(a)....................................................... 7.06
(b)....................................................... 7.06
(c)....................................................... 7.06;12.02
(d)....................................................... 7.06
314(a)....................................................... 4.03;12.02
(a)(4).................................................... 4.03;12.05
(b)....................................................... 10.02
(c)(1).................................................... 12.04
(c)(2).................................................... 12.04
(c)(3).................................................... N.A.
(d)....................................................... 10.04
(e)....................................................... 12.05
(f)....................................................... N.A.
315(a)....................................................... 7.01(2)
(b)....................................................... 7.05;12.02
(c)....................................................... 7.01
(d)....................................................... 7.01(3)
(e)....................................................... 6.11;7.08
316(a)(last sentence)........................................ 2.09;2.10
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... N.A.
(b)....................................................... 6.07
(c)....................................................... 9.04;2.14
317(a)(1).................................................... 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318(a)....................................................... 12.01
(b)....................................................... N.A.
(c)....................................................... 12.01
</TABLE>
- ----------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions......................................................................... 1
Section 1.02. Other Definitions................................................................... 14
Section 1.03. Incorporation by Reference of Trust Indenture Act................................... 15
Section 1.04. Rules of Construction............................................................... 15
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating..................................................................... 16
Section 2.02. Additional Notes.................................................................... 16
Section 2.03. Execution and Authentication........................................................ 16
Section 2.04. Registrar and Paying Agent.......................................................... 17
Section 2.05. Paying Agent to Hold Money in Trust................................................. 17
Section 2.06. Holders Lists....................................................................... 18
Section 2.07. Transfer and Exchange............................................................... 18
Section 2.08. Replacement Notes................................................................... 18
Section 2.09. Outstanding Notes................................................................... 19
Section 2.10. Treasury Notes...................................................................... 19
Section 2.11. Temporary Notes..................................................................... 19
Section 2.12. Cancellation........................................................................ 19
Section 2.13. Defaulted Interest.................................................................. 20
Section 2.14. Record Date......................................................................... 20
Section 2.15. CUSIP Number........................................................................ 20
ARTICLE 3
REDEMPTIONS AND OFFERS TO PURCHASE
Section 3.01. Notices to Trustee.................................................................. 20
Section 3.02. Selection of Notes to Be Redeemed or Purchased...................................... 21
Section 3.03. Notice of Redemption................................................................ 21
Section 3.04. Effect of Notice of Redemption...................................................... 22
Section 3.05. Deposit of Redemption Price......................................................... 22
Section 3.06. Notes Redeemed in Part.............................................................. 23
Section 3.07. Optional Redemption................................................................. 23
Section 3.08. Mandatory Redemption................................................................ 23
Section 3.09. Offer to Purchase by Application of Excess Collateral Proceeds or Excess Proceeds... 23
</TABLE>
i
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.................................................................... 25
Section 4.02. Maintenance of Office or Agency..................................................... 25
Section 4.03. SEC Reports......................................................................... 26
Section 4.04. Compliance Certificate.............................................................. 26
Section 4.05. Taxes............................................................................... 27
Section 4.06. Stay, Extension and Usury Laws...................................................... 27
Section 4.07. Limitation on Restricted Payments................................................... 27
Section 4.08. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries........ 30
Section 4.09. Limitation on Additional Indebtedness and Issuance of Disqualified Stock............ 30
Section 4.10. Limitation on Sale of Assets........................................................ 32
Section 4.11. Limitation on Transactions With Affiliates.......................................... 34
Section 4.12. Limitation on Liens................................................................. 35
Section 4.13. Corporate Existence................................................................. 35
Section 4.14. Change of Control................................................................... 36
Section 4.15. Subsidiary Guarantees............................................................... 37
Section 4.16. Line of Business.................................................................... 37
Section 4.17. Payments for Consent................................................................ 37
Section 4.18. Maintenance of Insurance............................................................ 37
Section 4.19. Collateral Documents................................................................ 38
Section 4.20. Further Assurances.................................................................. 38
Section 4.21. Liquidation......................................................................... 39
Section 4.22. Maintenance of Collateral........................................................... 39
Section 4.23. Convertible Note Indenture.......................................................... 39
ARTICLE 5
SUCCESSORS
Section 5.01. When the Company May Merge, etc..................................................... 40
Section 5.02. Successor Substituted............................................................... 40
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default................................................................... 41
Section 6.02. Acceleration........................................................................ 43
Section 6.03. Other Remedies...................................................................... 43
Section 6.04. Waiver of Past Defaults............................................................. 44
Section 6.05. Control by Majority................................................................. 44
Section 6.06. Limitation on Suits................................................................. 44
Section 6.07. Rights of Holders to Receive Payment................................................ 44
Section 6.08. Collection Suit by Trustee.......................................................... 45
Section 6.09. Trustee May File Proofs of Claim.................................................... 45
Section 6.10. Priorities.......................................................................... 45
Section 6.11. Undertaking for Costs............................................................... 46
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee................................................................... 46
Section 7.02. Rights of Trustee................................................................... 47
Section 7.03. Individual Rights of Trustee........................................................ 47
Section 7.04. Trustee's Disclaimer................................................................ 48
Section 7.05. Notice of Defaults.................................................................. 48
Section 7.06. Reports by Trustee to Holders....................................................... 48
Section 7.07. Compensation and Indemnity.......................................................... 48
Section 7.08. Replacement of Trustee.............................................................. 49
Section 7.09. Successor Trustee by Merger, etc.................................................... 50
Section 7.10. Eligibility; Disqualification....................................................... 50
Section 7.11. Preferential Collection of Claims Against Company................................... 50
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Defeasance and Discharge of this Indenture and the Notes............................ 50
Section 8.02. Legal Defeasance and Discharge...................................................... 51
Section 8.03. Covenant Defeasance................................................................. 51
Section 8.04. Conditions to Legal or Covenant Defeasance.......................................... 52
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions............................................................ 53
Section 8.06. Repayment to the Company............................................................ 54
Section 8.07. Reinstatement....................................................................... 54
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.......................................................... 54
Section 9.02. With Consent of Holders............................................................. 55
Section 9.03. Compliance with Trust Indenture Act................................................. 56
Section 9.04. Revocation and Effect of Consents................................................... 56
Section 9.05. Notation on or Exchange of Notes.................................................... 56
Section 9.06. Trustee to Sign Amendments, etc..................................................... 56
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Collateral and Security............................................................. 58
Section 10.02. Recording, Title Insurance, Etc. ................................................... 58
Section 10.03. Protection of the Trust Estate...................................................... 59
Section 10.04. Release of Lien..................................................................... 59
Section 10.05. Collateral Agent.................................................................... 60
Section 10.06. Authorization of Actions to Be Taken by the Trustee Under the Collateral
Documents. ......................................................................... 60
Section 10.07. Authorization of Receipt of Funds by the Trustee Under the Collateral Documents..... 60
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. Subsidiary Guarantees............................................................... 61
Section 11.02. When a Guarantor May Merge, Etc..................................................... 62
Section 11.03. Limitation of Guarantor's Liability................................................. 62
Section 11.04. Release of a Guarantor.............................................................. 63
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls........................................................ 63
Section 12.02. Notices............................................................................. 63
Section 12.03. Communication by Holders with Other Holders......................................... 65
Section 12.04. Certificate and Opinion as to Conditions Precedent.................................. 65
Section 12.05. Statements Required in Certificate or Opinion....................................... 65
Section 12.06. Rules by Trustee and Agents......................................................... 65
Section 12.07. Legal Holidays...................................................................... 65
Section 12.08. Recourse Against Others............................................................. 66
Section 12.09. Duplicate Originals................................................................. 66
Section 12.10. Governing Law....................................................................... 66
Section 12.11. No Adverse Interpretation of Other Agreements....................................... 66
Section 12.12. Successors.......................................................................... 66
Section 12.13. Severability........................................................................ 66
Section 12.14. Counterpart Originals............................................................... 66
Section 12.15. Table of Contents, Headings, etc.................................................... 67
SIGNATURES.......................................................................................... 68
EXHIBITS
Exhibit A Form of First Mortgage Note
Exhibit B Form of Supplemental Indenture
Exhibit C Form of Deed of Trust
</TABLE>
iv
<PAGE> 7
n
INDENTURE dated as of January 23, 1996 between Prime Hospitality
Corp., a Delaware corporation (the "Company"), and Norwest Bank Minnesota,
National Association, a national banking association, as trustee (the
"Trustee").
Each of 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 9 1/4%
First Mortgage Notes due 2006 of the Company (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS.
"Acquired Debt" 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 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 Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.
"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.
"Asset Sale" means (i) the sale, lease (other than operating leases
in respect of facilities which are ancillary to the operation of the Company's
or a Restricted Subsidiary's hotel properties), conveyance or other disposition
of any property or assets of the Company or any Restricted Subsidiary (including
by way of a sale and leaseback transaction and including a disposition by the
Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), (ii) the issuance or sale of Equity Interests of any of the
Company's Restricted Subsidiaries or (iii) any Event of Loss, other than, with
respect to clauses (i), (ii) and (iii) above, the following: (1) the sale or
disposition of personal property held for sale in the ordinary course of
business, (2) the sale or disposal of damaged, worn out or other obsolete
<PAGE> 8
property in the ordinary course of business so long as such property is no
longer necessary for the proper conduct of the business of the Company or such
Restricted Subsidiary, as applicable, (3) the transfer of assets by the Company
to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company, (4)
the exchange of assets (other than assets which constitute Collateral) held by
the Company or a Restricted Subsidiary of the Company for one or more hotels
and/or one or more Hospitality-Related Businesses of any Person or entity owning
one or more hotels and/or one or more Hospitality-Related Businesses; provided,
that the Board of Directors of the Company has determined that the terms of any
exchange are fair and reasonable and that the fair market value of the assets
received by the Company, as set forth in an opinion of a Qualified Appraiser,
are equal to or greater than the fair market value of the assets exchanged by
the Company or a Restricted Subsidiary of the Company, (5) any Restricted
Payment, dividend or purchase or retirement of Equity Interests permitted under
Section 4.07 hereof, (6) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company in compliance with Section
4.14 and Article V hereof, (7) the conversion of or foreclosure on any mortgage
or note, provided that the Company or a Restricted Subsidiary receives the real
property underlying any such mortgage or note, or (8) any transaction or series
of related transactions that would otherwise be an Asset Sale where the fair
market value of the assets sold, leased, conveyed or otherwise disposed of was
less than $5.0 million or, in the case of Collateral, less than $1.5 million, or
an Event of Loss or related series of Events of Loss pursuant to which the
aggregate value of property or assets involved in such Event of Loss or Events
of Loss is less than $5.0 million or, in the case of Collateral, less than $1.5
million.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York or the city in which the
Corporate Trust Office is located are authorized or obliged by law or executive
order to close.
"Capital 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 so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, with respect to partnerships, 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.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months from the date of
acquisition and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (i) and (ii) entered into with any
financial institution meeting the qualifications specified in clause (ii) above,
(iv) commercial paper or commercial paper Master Notes having a rating of P-2 or
the equivalent thereof by Moody's Investors Service, Inc. or A-2 or the
equivalent thereof by Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition, (v) money market mutual funds
that provide daily purchase and redemption features and (vi) corporate debt with
<PAGE> 9
maturities of not greater than six months and with a rating of A or the
equivalent thereof by Standard & Poor's Corporation and a rating of A2 or the
equivalent thereof by Moody's Investors Service, Inc.
"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 Company's assets to any person or group (as such
term is used in Section 13 (d) (3) of the Exchange Act) other than to a Wholly
Owned Restricted Subsidiary that is a Guarantor, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the acquisition
by any person or group (as such term is used in Section 13 (d) (3) of the
Exchange Act) of a direct or indirect interest in more than 50% of the ownership
of the Company or the voting power of the voting stock of the Company by way of
purchase, merger or consolidation or otherwise (other than a creation of a
holding company that does not involve a change in the beneficial ownership of
the Company as a result of such transaction), (iv) the merger or consolidation
of the Company with or into another corporation or the merger of another
corporation into the Company with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers, or trustees
of the Person surviving such merger or consolidation or (v) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Collateral" means (i) first mortgage Liens on the following 15 hotel
properties owned by the Company: AmeriSuites, Atlanta Duluth, Georgia;
AmeriSuites, Brentwood, Tennessee; AmeriSuites, Cincinnati Blue Ash, Ohio;
AmeriSuites, Cincinnati Forest Park, Ohio; AmeriSuites, Columbus, Ohio; Ramada,
Danbury, Connecticut; AmeriSuites, Flagstaff, Arizona; Crowne Plaza, Las Vegas,
Nevada; AmeriSuites, Little Rock, Arkansas; Ramada, Meriden, Connecticut;
AmeriSuites, Nashville Opryland, Tennessee; AmeriSuites, Overland Park, Kansas;
AmeriSuites, Richmond, Virginia; St. Tropez Hotel, Las Vegas, Nevada; and
AmeriSuites, Tampa, Florida and any and all related real property thereto; (ii)
property consisting of furniture, furnishings, fixtures and equipment and
machinery forming a part thereof or used in connection therewith; (iii)
trademarks, to the extent assignable (other than the Company's proprietary
tradenames including, without limitation, "AmeriSuites" and "Wellesley Inns") as
provided in the Collateral Documents; (iv) assignments of rents, contracts and
franchise rights, to the extent assignable, all as provided in the Collateral
Documents; (v) after-acquired personal property and improvements relating to the
properties listed in clause (i); (vi) Substitute Collateral, if any; (vii)
Qualified Collateral, if any; and (viii) proceeds of the foregoing.
"Collateral Agent" means Norwest Bank Minnesota, National
Association, a national banking association, as collateral agent under any of
the Collateral Documents and any successor thereto, or any other person
appointed by the Trustee as a collateral agent hereunder.
"Collateral Documents" means, collectively, the Deed of Trust
agreements, and any other instruments, financing statements and other documents
that evidence, set forth or limit the Lien in favor of the Trustee or a
collateral agent, appointed by the Trustee, in the Collateral, including any
environmental indemnity agreement entered into with respect to the Collateral.
"Company" means Prime Hospitality Corp., a Delaware corporation,
until a successor replaces it in accordance with the applicable provisions of
this Indenture, and thereafter, means such successor.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus: (a) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale, to the extent such losses were deducted in computing
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<PAGE> 10
Consolidated Net Income, plus (b) provision for taxes based on income or profits
of such Person for such period, to the extent such provision for taxes was
included in computing Consolidated Net Income, plus (c) Consolidated Interest
Expense of such Person for such period to the extent such expense was deducted
in computing Consolidated Net Income, plus (d) Consolidated Depreciation and
Amortization Expense of such Person for such period, to the extent deducted in
computing Consolidated Net Income in each case, on a consolidated basis for such
Person and its Restricted Subsidiaries and determined in accordance with GAAP,
less (e) other income as reflected on such Person's consolidated financial
statements, as prepared in accordance with GAAP, to the extent such other income
was included in computing Consolidated Net Income. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, the depreciation
and amortization of and the interest expense of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to such Person by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders. Any calculation of the Consolidated Cash Flow of
an individual hotel property shall be calculated in a manner consistent with the
foregoing.
"Consolidated Depreciation and Amortization Expense" means, with
respect to any Person for any period, the total amount of depreciation and
amortization expense (including amortization of goodwill and other intangibles
but excluding amortization of prepaid cash expenses that were paid in a prior
period) and the total amount of non-cash charges (other than non-cash charges
that represent an accrual or reserve for cash charges in future periods or which
involved a cash expenditure in a prior period) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis as determined in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication, the sum of (a) interest expense, whether paid
or accrued, to the extent such expense was deducted in computing Consolidated
Net Income (including amortization of original issue discount, non-cash interest
payments, the interest component of Capital Lease Obligations, and net payments
(if any) pursuant to Hedging Obligations, but excluding amortization of deferred
financing fees), (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers' acceptance financing and
(c) interest for which such Person or its Restricted Subsidiaries is liable,
whether or not actually paid, pursuant to Indebtedness or under a Guarantee of
Indebtedness of any other Person; in each case, calculated for such Person and
its Restricted Subsidiaries for such period on a consolidated basis as
determined in accordance with GAAP.
"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, determined in accordance
with GAAP; provided, that the following shall be excluded: (i) the Net Income of
any Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, (ii) the Net Income of any Person
that is a Restricted Subsidiary and that is restricted from declaring or paying
dividends or other distributions, directly or indirectly, by operation of the
terms of its charter, any applicable agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation or otherwise shall be included
only to the extent of the amount of dividends or distributions paid to the
referent Person or a Wholly Owned Restricted Subsidiary, (iii) the Net Income of
any Person
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<PAGE> 11
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of change
in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person, as of any
date of determination, the sum of (i) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of such date
plus (ii) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such Preferred Stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Issuance Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments) and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issuance Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of at least a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Corporate Trust Office" shall be at the address of the Trustee
specified in Section 12.02 or such other address as the Trustee may give notice
to the Company.
"Credit Facility" means one or more borrowing arrangements, to be
entered into, by and between the Company and/or one or more Restricted
Subsidiaries and a commercial bank or other institutional lender, including any
related notes, security documentation, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each case as
amended, modified, supplemented, restructured, renewed, restated, refunded,
replaced or refinanced or extended from time to time on one or more occasions.
"Deed of Trust" means, collectively, mortgages, deeds to secure debt,
deeds of trust, security agreements, assignment of rents and leases and fixture
filings encumbering the hotel properties, substantially in the form of Exhibit
C, hereto each as may be reasonably modified to conform to the rules and
requirements of the respective jurisdictions in which they are to be filed.
"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.
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
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, on or prior to January
15, 2007.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for Capital Stock).
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<PAGE> 12
"Event of Loss" means, with respect to any property or asset
(tangible or intangible, real or personal) any of the following: (A) any loss,
destruction or damage of such property or asset; (B) any institution of any
proceedings for the condemnation or seizure of such property or asset or for the
exercise of any right of eminent domain; or (C) any actual condemnation, seizure
or taking by the power of eminent domain or otherwise of such property or asset,
or confiscation of such property or asset or the requisition of the use of such
property or asset.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than under any Indebtedness permitted under
clause (ii) of the second paragraph of Section 4.09 hereof) in existence on the
Issuance Date (after giving effect to the use of the proceeds of the sale of the
Notes as contemplated by the Prospectus).
"Existing Real Estate" means any real estate owned, leased or
optioned by the Company or any of its Subsidiaries on the Issuance Date, or any
real estate on which the Company or any of its Subsidiaries holds a mortgage on
the Issuance Date.
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the 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 revolving credit borrowings that provide
working capital in the ordinary course of business) 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 date on which 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 reference
period. For purposes of making the computation referred to above, acquisitions,
dispositions and discontinued operations (as determined in accordance with GAAP)
that have been made by the Company or any of its Restricted Subsidiaries,
including all mergers, consolidations and dispositions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be calculated on a pro forma basis assuming that all such
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations resulting
therefrom) had occurred on the first day of the four-quarter reference period.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income and (b) the product of
(i) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Restricted Subsidiary) on any series of Preferred Stock of such
Person or its Restricted Subsidiaries (other than Preferred Stock owned by such
Person or its Restricted Subsidiaries), times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"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
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<PAGE> 13
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.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business) or
otherwise incurring, assuming or becoming liable for the payment of any
principal, premium or interest, 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.
"Guarantor" means such Persons that become a guarantor of the Notes
pursuant to the terms of the Indenture, and each of their respective successors.
"Hedging Obligations" means, with respect to any person, the
obligations of such person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such person against fluctuations
in interest rates.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Hospitality-Related Business" means the hotel business and other
businesses necessary for, incident to, in support of, connected with or arising
out of the hotel business, including, without limitation (i) developing,
constructing, managing, operating, improving or acquiring lodging facilities,
restaurants and other food-service facilities, sports or entertainment
facilities, and convention or meeting facilities, and marketing services related
thereto, (ii) acquiring, developing, operating, managing or improving the
Existing Real Estate, any real estate taken in foreclosure (or similar
settlement) by the Company or any of its Subsidiaries, or any real estate
ancillary or connected to any hotel owned, managed or operated by the Company or
any of its Restricted Subsidiaries, (iii) owning and managing mortgages in, or
other Indebtedness secured by Liens on hotels and real estate related or
ancillary to hotels or (iv) other related activities thereto.
"Indebtedness" means, with respect to any person, any indebtedness of
such person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, 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, and also includes, to the extent not otherwise
included, the Guarantee of any Indebtedness of such Person or any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding 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
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<PAGE> 14
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
the Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issuance Date" means the closing date for the sale and original
issuance of the Notes.
"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).
"Make-Whole Amount" with respect to a Note means an amount equal to
the excess, if any, of (A) the present value of the remaining interest, premium
and principal payments due on such Note as if such Note were redeemed on the
First Redemption Date, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, less (B) the outstanding principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of the computation of
United States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15(519),
which has become publicly available at least two Business Days prior to the date
fixed for prepayment or, if such Statistical Release is no longer published, any
publicly available source of similar market data) most nearly equal to the then
remaining Average Life of the Notes assuming redemption of the Notes on the
First Redemption Date, provided, however, that if the Average Life of such Note
is not equal to the constant maturity of the United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Average Life of such Notes is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used. "Average Life" means,
when applied to Notes subject to purchase pursuant to a Collateral Asset Sale
Offer at any date, the number of years (calculated to the nearest one-twelfth)
between the date of such purchase and the First Redemption Date.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Asset Sale, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, 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 Indebtedness secured by a Lien on the asset or assets the
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<PAGE> 15
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (a) as to which neither the Company nor any of its Restricted
Subsidiaries (i) provides credit support (other than in the form of a Lien on an
asset serving as security for Non-Recourse Indebtedness) pursuant to any
undertaking, agreement or instrument that would constitute Indebtedness, (ii) is
directly or indirectly liable (other than in the form of a Lien on an asset
serving as security for Non-Recourse Indebtedness) or (iii) constitutes the
lender, and (b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other 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.
"Notes" means the Notes issued under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers" means the Chairman of the Board, the President, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, Controller,
Secretary, any Assistant Secretary or any Vice President
of the Company.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors, the President or a Vice President and by the Chief
Financial officer, the Treasurer, an Assistant Treasurer, the Controller, the
Secretary or an Assistant Secretary of the Company, as applicable, except with
respect to certificates required to be furnished by the Company to the Trustee
pursuant to Section 4.04 hereof, in which event "Officers' Certificate" means a
certificate signed by the principal executive officer or principal financial
officer.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Investments" means (a) any Investments in the Company or
any Guarantor; (b) Investments in any Restricted Subsidiary that is not a
Guarantor not to exceed an aggregate of $2.0 million per Restricted Subsidiary;
(c) any Investments in Cash Equivalents; (d) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or any Guarantor or (ii) such Person 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 Wholly Owned Restricted
Subsidiary of the Company or any Guarantor; (e) Investments, in an amount not to
exceed $20.0 million at any one time outstanding in joint ventures for the
development of (i) an "all-suites" hotel in Kansas City, Missouri and (ii) a
"full-service" hotel in Jersey City, New Jersey; and (f) net cash advances to
Restricted Subsidiaries in the ordinary course of business and consistent with
the Company's past cash management practices in an amount not to exceed $ 10.0
million at any one time outstanding.
"Permitted Liens" means:
(i) Liens in favor of the Company or a Restricted Subsidiary;
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<PAGE> 16
(ii) Liens securing the Notes sold in the offering as contemplated by
the Prospectus, Liens securing Indebtedness incurred pursuant to one or
more Credit Facilities, and Liens securing any Additional Notes (and the
Notes) issued by the Company in accordance with the provisions described
in Section 2.02 hereof, in an aggregate principal amount at any one time
outstanding (taking into account only the principal amount of one or more
Credit Facilities and the Additional Notes, if any), not to exceed $80.0
million;
(iii) Liens for taxes, assessments and governmental charges not yet
delinquent or that are being contested in good faith and that are
appropriately reserved for in accordance with GAAP;
(iv) Liens incurred in the ordinary course of business that are not
incurred in connection with the borrowing of money;
(v) Liens existing as of the Issuance Date provided the same were
agreed to by the Trustee;
(vi) Liens on property of a Person at the time such Person was merged
with the Company or a Restricted Subsidiary, Liens on acquired property
existing at the time of acquisition thereof, and Liens upon any property
of a Person existing at the time such Person becomes a Restricted
Subsidiary; provided in each case that such Liens were not created in
contemplation of such merger or acquisition, as the case may be, and such
Liens only extend to such merged or acquired property;
(vii) Liens arising after the date hereof (1) securing purchase
money, construction, permanent financing, refurbishment or lease
obligations (a "Designated Financing") otherwise permitted by this
Indenture incurred or assumed in connection with the acquisition,
purchase, construction, development, refurbishment or lease of real or
personal property (the "Financed Assets") used or to be used in a
Hospitality-Related Business, which Designated Financing (other than a
Designated Financing constituting a financing of furniture, fixtures or
equipment), in the aggregate, does not exceed 75% of the fair market value
of such Financed Assets as set forth in an opinion of a Qualified
Appraiser or, in the case of a Designated Financing constituting a
financing of furniture, fixtures or equipment, shall not, in the
aggregate, exceed 90% of the fair market value of such Financed Assets, at
the time of such financing, as set forth in an Officers' Certificate, (2)
securing any refinancing of any Designated Financing which has an
aggregate principal amount which is equal to or less than the aggregate
outstanding amount of the Designated Financing being refinanced, (3)
securing any refinancing of any Designated Financing which has an
aggregate principal amount which is greater than the aggregate outstanding
amount of the Designated Financing being refinanced, which refinancing, in
the aggregate, does not exceed 75% of the fair market value of the
Financed Assets, at the time of such refinancing, as set forth in an
opinion of a Qualified Appraiser, (4) encumbering any real or personal
property acquired with the proceeds of a sale of such Financed Assets or
(5) encumbering after-acquired personal property and improvements relating
to such Financed Assets or relating to any real property or personal
property acquired with the proceeds of a sale of such assets; provided,
however, that such Lien does not extend to any property or assets of the
Company or any Restricted Subsidiary other than the property or assets so
acquired, purchased, constructed, developed, refurbished or leased;
(viii) mechanics', workmen's, materialmen's, operator's or similar
Liens arising in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith and by appropriate action;
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(ix) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action;
(x) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money),
leases, public or statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar obligations arising
in the ordinary course of business;
(xi) survey exceptions, encumbrances, easements or reservations, or
restrictions as to the use of real properties, and other minor defects in
title which, in the case of any of the foregoing, were not incurred or
created to secure the payment of borrowed money or the deferred purchase
price of property or services.
(xii) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal
proceedings that are currently being contested in good faith and that are
appropriately reserved for in accordance with GAAP;
(xiii) Liens in favor of collecting or payor banks having a right to
setoff, revocation, refund or chargeback with respect to money or
instruments of the Company or any Restricted Subsidiary on deposit with or
in possession of such bank;
(xiv) Liens now or hereafter securing any Hedging Obligations to the
extent such Hedging Obligations are permitted to be incurred herein;
(xv) Liens securing Indebtedness incurred after the Issuance Date
permitted to be incurred under the Indenture, provided that the Holders of
Notes are secured on an equal and ratable basis with the Indebtedness
secured by such Liens (or on a senior basis with respect to any
subordinated Indebtedness secured by such Liens), until such time as such
Indebtedness is no longer secured by such Liens; and
(xvi) Liens securing Permitted Refinancing Indebtedness (and any
Permitted Refinancing Indebtedness with respect thereto) which constitutes
a refinancing of Existing Indebtedness, which is secured on the date of
this Indenture, permitted by Section 4.09 hereof.
"Permitted Refinancing" means Refinancing Indebtedness or Refinancing
Disqualified Stock, as the case may be, to the extent (a) the principal amount
of Refinancing Indebtedness or the liquidation preference amount of Refinancing
Disqualified Stock, as the case may be, does not exceed the principal amount of
Indebtedness or the liquidation preference amount of Disqualified Stock, as the
case may be, so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of premiums and reasonable expenses incurred in connection
therewith); (b) such Refinancing Indebtedness or Refinancing Disqualified Stock,
as the case may be, is scheduled to mature or is redeemable at the option of the
holder, as the case may be, no earlier than the Indebtedness or Disqualified
Stock, as the case may be, being refinanced; (c) in the case of Refinancing
Indebtedness, the Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (d) in the case of Refinancing Disqualified Stock, the Disqualified
Stock has a Weighted Average Life to Mandatory Redemption equal to or greater
than the Weighted Average Life to Mandatory Redemption of the Disqualified Stock
being extended, refinanced, renewed, replaced, defeased or refunded; (e) if the
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Indebtedness or the Disqualified Stock, as the case may be, being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, the Refinancing Indebtedness or Refinancing Disqualified
Stock, as the case may be, is subordinated in right of payment to the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness or the Disqualified Stock, as the case
may be, being extended, refinanced, renewed, replaced, defeased or refunded or
is payable solely in Equity Interests of the Person whose Indebtedness is being
purchased, redeemed or otherwise acquired or retired for value.
"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
in the payment of dividends or liquidation or any Disqualified Stock.
"Prospectus" means the Company's Prospectus dated January 18, 1996
pertaining to the offer and sale of $120,000,000 in aggregate principal amount
of Notes, as filed with the SEC pursuant to Rule 424(b) of the Securities Act.
"Qualified Collateral" means (i) any property subject to a Lien
consistent with the requirements of this Indenture which is a "full-service" or
"all-suites" property as determined in good faith by the Company and consistent
with industry standards; (ii) any and all related real property thereto; (iii)
property consisting of furniture, furnishings, fixtures and equipment and
machinery forming a part thereof or used in connection therewith; (iv)
trademarks, to the extent assignable (other than the Company's proprietary
tradenames including, without limitation, "AmeriSuites" and "Wellesley Inns"),
as provided in the Collateral Documents; (v) assignments of rents, contracts and
franchise rights, to the extent assignable, all as provided in the Collateral
Documents; and (vi) proceeds of the foregoing.
"Refinancing Disqualified Stock" means Disqualified Stock issued in
exchange for, or the proceeds of which are used, to extend, refinance, renew,
replace, defease or refund Disqualified Stock or Indebtedness permitted to be
issued pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof or Indebtedness referred to in clauses (iii),
(v), (vii) and (ix) of the second paragraph of Section 4.09 hereof.
"Refinancing Indebtedness" means Indebtedness issued in exchange for,
or the proceeds of which are used to extend, refinance, renew, replace, defease
or refund Indebtedness permitted to be incurred pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof or
Indebtedness referred to in clauses (iii), (v), (vii) and (ix) of the second
paragraph of Section 4.09 hereof.
"Registration Statement" means the Registration Statement (No.
33-64685) on Form S-3 relating to the Notes filed with the SEC on December 1,
1995 and all exhibits, schedules and amendments thereto.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
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<PAGE> 19
"Securities Act" means the Securities Act of 1933, as amended.
"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 date hereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity 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 owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof
"Substitute Collateral" means any Qualified Collateral.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Trust Officer" means any officer in the Corporate Trust Office of
the Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Indebtedness; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. 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 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Company shall be in default of
such covenant). 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 4.09 of this Indenture and (ii) no Default or Event
of Default would be in existence following such designation.
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<PAGE> 20
"Weighted Average Life to Mandatory Redemption" means, when applied
to any Disqualified Stock at any date, the number of years obtained by dividing
(a) the sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
liquidation preference amount of such Disqualified Stock.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all 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 Restricted
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Additional Notes"..................................... 2.02
"Additional Properties"................................ 2.02
"Affiliate Transaction"................................ 4.11
"Asset Sale Offer"..................................... 3.09
"Asset Sale Offer Price"............................... 4.10
"Bankruptcy Law"....................................... 6.01
"Change of Control Date"............................... 4.14
"Change of Control Offer".............................. 4.14
"Change of Control Payment Date"....................... 4.14
"Collateral Asset Sale Offer".......................... 3.09
"Collateral Asset Sale Offer Price".................... 4.10
"Collateral Proceeds".................................. 4.10
"Computation Period"................................... 4.07
"Convertible Note Indenture"........................... 4.23
"Convertible Notes".................................... 4.23
"Covenant Defeasance".................................. 8.03
"Custodian"............................................ 6.01
"defeasance trust"..................................... 8.02
"Designated Financing"................................. 1.01
"Event of Default"..................................... 6.01
"Excess Collateral Proceeds"........................... 4.10
"Excess Proceeds"...................................... 4.10
"Financed Assets"...................................... 1.01
"First Redemption Date"................................ 3.07
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Legal Defeasance"..................................... 8.02
"Legal Holiday"........................................ 12.07
"Paying Agent"......................................... 2.04
"Payment Default"...................................... 6.01(5)
"Property"............................................. 4.21
"Qualified Appraiser".................................. 2.02
"Redemption Percentages"............................... 3.07
"Registrar"............................................ 2.04
"Restricted Payments".................................. 4.07
"Subsidiary Guarantee"................................. 4.15
"Substitute Collateral"................................ 4.10
</TABLE>
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;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, any Guarantor and any
successor obligor.
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.
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.
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<PAGE> 22
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 Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. Subject to Section 2.02 and
2.08 hereof, the Notes shall be in an aggregate principal amount of
$120,000,000. The Notes may have notations, legends or endorsements required by
law, stock exchange rule, agreements to which the Company or any Guarantor is
subject or usage. Each Note shall be dated the date of its authentication. The
Securities shall be issued initially in denominations of $1,000 and integral
multiples thereof.
SECTION 2.02. ADDITIONAL NOTES.
The Company may issue additional Notes under this Indenture in an
aggregate principal amount not to exceed $80,000,000 (the "Additional Notes");
provided that (a) the Company would be permitted, after giving pro forma effect
to any issuance of the Additional Notes and the application of the proceeds
therefrom, to incur at least $1.00 of Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof, (b)
the Additional Notes are secured by first mortgage liens on otherwise
unencumbered hotel properties owned by the Company which constitute Qualified
Collateral (the "Additional Properties") pursuant to Deeds of Trust
substantially in the form of Exhibit C hereto and other instruments, financing
statements and other documents, substantially similar to the Collateral
Documents, (c) the aggregate principal amount of Additional Notes does not
exceed 75% of the fair market value of such Additional Properties as set forth
in an opinion of an independent, qualified appraiser that is a member of the
American Institute of Real Estate Appraisers (a "Qualified Appraiser") and (d)
the aggregate principal amount of the Additional Notes issued does not exceed
75% of the product of (A) ten times (B) the combined Consolidated Cash Flow of
the Additional Properties for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which the Additional Notes are issued. If issued, the
Additional Notes will be equally and ratably secured by the Collateral securing
the Notes offered pursuant to the Prospectus, and the Notes offered pursuant to
the Prospectus will be equally and ratably secured by first mortgage liens on
the Additional Properties. Additional Notes, if any, will be treated for all
purposes as "Notes" under this Indenture, unless the context requires otherwise.
SECTION 2.03. EXECUTION AND AUTHENTICATION.
An Officer of the Company 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 the 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 of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in Exhibit A hereto.
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<PAGE> 23
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Notes for original issue up to an
aggregate principal amount stated in Section 2.01 hereof. The aggregate
principal amount of Notes outstanding at any time may not exceed the amount set
forth herein, except as provided in Sections 2.02 and 2.08.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
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 the Company or an Affiliate of the Company.
SECTION 2.04. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Notes may be
presented for payment (the "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 "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 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 shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the
Trustee shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.05. 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 of, premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company or Guarantor, if any, 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) shall have no
further liability for the money delivered to the Trustee. If the Company or any
of its Subsidiaries 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.
SECTION 2.06. HOLDERS 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
Holders and shall otherwise comply with TIA Section 312(a). If
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<PAGE> 24
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven (7) 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
Holders, including the aggregate principal amount thereof, and the Company shall
otherwise comply with TIA Section 312(a).
SECTION 2.07. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register,
transfer or exchange them for an equal principal amount of Notes of other
denominations, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met; provided, however, that any Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Company shall issue and the Trustee shall
authenticate Notes at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Company nor the Registrar shall be required (i) to issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day fifteen (15) days before the day of any
selection of Notes for redemption or purchase under Section 3.02 and ending at
the close of business on the day of selection, (ii) to register the transfer of
or exchange any Note selected for redemption or purchase in whole or in part,
except the unredeemed or unpurchased portion of any Note being redeemed in part
or (iii) to register the transfer or exchange of a Note between a record date
and the next succeeding Interest Payment Date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), 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 such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.11, 3.06 or 9.05 hereof, which shall be paid by the Company).
Prior to due presentment for registration of 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, premium, if any, and interest on such Note
and for all other purposes whatsoever, whether or not such Note is overdue, and
neither the Trustee, any Agent, nor the Company shall be affected by notice to
the contrary.
SECTION 2.08. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee 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 an indemnity bond is supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, each Agent and each authenticating agent from any loss
which any of them may suffer if a Note is replaced. The Company and the Trustee
may charge for its expenses in replacing a Note.
Every replacement Note is an additional Obligation of the Company.
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<PAGE> 25
SECTION 2.09. 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 and those described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.08 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.
Subject to Section 2.10 hereof, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
SECTION 2.10. 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, a Guarantor, if any, or any Affiliate of the Company or a Guarantor, if
any, shall be considered as though not outstanding, except that for purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Trust Officer knows to be so
owned shall be so considered.
SECTION 2.11. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company and the Trustee consider appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the written order of the Company signed by two Officers of the
Company, shall authenticate definitive Notes in exchange for temporary Notes.
Until such exchange, temporary Notes shall be entitled to the same rights,
benefits and privileges as definitive Notes.
SECTION 2.12. 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 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) unless the
Company directs them to be returned to them. The Company may not issue new Notes
to replace Notes that have been redeemed or paid or that have been delivered to
the Trustee for cancellation. All cancelled Notes held by the Trustee shall be
destroyed and certification of their destruction delivered to the Company unless
by a written order, signed by an Officer of the Company, the Company shall
direct that cancelled Notes be returned to them.
SECTION 2.13. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons
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<PAGE> 26
who are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five (5) Business Days
prior to the payment date, in each case at the rate provided in the Notes and in
Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each such special record date and payment date. At least
fifteen (15) days before the special record date, the Company (or the Trustee,
in the name of and at the expense of the Company) shall mail to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
SECTION 2.14. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.15. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number, and if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTIONS AND OFFERS TO PURCHASE
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 90 days before a redemption date (unless a
shorter notice period shall be satisfactory to the Trustee), an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Notes to be redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Notes
pursuant to the provisions of Sections 4.10 or 4.14, it shall furnish to the
Trustee, an Officers' Certificate setting forth (i) the Section of this
Indenture pursuant to which the offer to purchase shall occur, (ii) the offer's
terms, (iii) the purchase price, (iv) the principal amount of the Notes to be
purchased and (v) a statement to the effect that (a) the Company or one of its
Restricted Subsidiaries has made an Asset Sale and that the conditions set forth
in Sections 3.09 and 4.10 have been satisfied or (b) a Change of Control has
occurred and the conditions set forth in Section 4.14 have been satisfied, as
applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED OR PURCHASED.
If less than all of the Notes are to be redeemed or are to be
purchased in an Asset Sale Offer or a Collateral Asset Sale Offer, the Trustee
shall select the Notes to be redeemed or purchased among the Holders of the
Notes in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, on a pro rata basis, by
20
<PAGE> 27
lot or by such method as the Trustee shall deem fair and appropriate (and in
such manner as complies with applicable legal requirements). The Company shall
give notice to the Trustee of such requirements of any securities exchange not
less than forty-five (45) nor more than ninety (90) days prior to the date on
which notice of such redemption or purchase is to be given. In the event of
partial redemption, other than pro rata, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption. In the event that less than all of
the Notes properly tendered in an Asset Sale Offer or Collateral Asset Sale
Offer are to be purchased, the particular Notes to be purchased shall be
selected promptly upon the expiration of such Asset Sale Offer or Collateral
Asset Sale Offer, as the case may be.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption or purchase and, in the case of any Note selected for
partial redemption or purchase, the principal amount thereof to be redeemed or
purchased. Notes and portions of them selected shall be in principal amounts of
$1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder
are to be redeemed or purchased, the entire outstanding principal amount of
Notes held by such Holder shall be redeemed or purchased. Except as provided in
the preceding sentence, provisions of this Indenture that apply to Notes called
for redemption also apply to portions of Notes called for redemption.
In the event the Company is required to make an Asset Sale Offer or
Collateral Asset Sale Offer pursuant to Sections 3.09 and 4.10 hereof and the
amount of Excess Proceeds or Excess Collateral Proceeds, as applicable, to be
applied to such purchase would result in the purchase of a principal amount of
Notes which is not evenly divisible by $1,000, the Trustee shall promptly refund
to the Company the portion of such Excess Proceeds or Excess Collateral
Proceeds, as applicable, that is not necessary to purchase the immediately
lesser principal amount of Notes that is so divisible.
SECTION 3.03. NOTICE OF REDEMPTION.
At least thirty (30) days but not more than sixty (60) days before a
redemption date, the Company shall mail, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.
The notice shall identify the CUSIP number of the Notes, if any, and
the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note of the same series
in principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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<PAGE> 28
(6) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least five Business Days prior
to the date such notice is to be given, an Officers' Certificate requesting that
the Trustee give such notice and setting forth the information to be stated in
such notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become due and payable on the redemption
date at the redemption price. On and after the redemption date, unless the
Company defaults in the payment of the redemption price, interest will cease to
accrue on the Notes or portions of them called for redemption and all rights of
Holders of such Notes will terminate except for the right to receive the
redemption price. Upon surrender to the Paying Agent, the Holders of such Notes
shall be paid the redemption price plus accrued interest, if any, to the
redemption date, but interest installments whose maturity is on or prior to the
redemption date will be payable to the Holder of record at the close of business
on the relevant record dates referred to in the Notes. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
At least two Business Days before the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money in immediately
available funds sufficient to pay the redemption price of and, if applicable,
accrued interest on all Notes to be redeemed on that date. The Trustee or the
Paying Agent shall promptly, and in any event within two Business Days after the
redemption date, return to the Company any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, interest on the Notes or the portions of Notes to be redeemed will
cease to accrue on the applicable redemption date, whether or not such Notes are
presented for payment. If any Note called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest will be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest not paid on such unpaid principal, from the redemption date
until such unpaid interest is paid, in each case at the rate provided in the
Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount
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<PAGE> 29
to the unredeemed portion of the Note surrendered; provided, however, that no
Note of $1,000 or less in principal amount shall be purchased or redeemed in
part.
SECTION 3.07. OPTIONAL REDEMPTION.
The Notes are not redeemable at the Company's option prior to January 15,
2001 (the "First Redemption Date"). Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, at any time upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below (the "Redemption
Percentages") plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on January
15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 ......................................................... 104.625%
2002 ......................................................... 103.083%
2003 ......................................................... 101.542%
2004 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 1999, the Company may
redeem, on any one or more occasions, with the net cash proceeds of any public
offering of its common equity (within 60 days of the consummation of any such
public offering), up to $30.0 million in aggregate principal amount of the Notes
at a redemption price equal to 109.25% of the principal amount of such Notes
plus accrued and unpaid interest thereon, if any, to the redemption date;
provided, however, that at least $100.0 million in aggregate principal amount of
Notes (including Additional Notes, if any) must remain outstanding immediately
following any such redemption.
SECTION 3.08. MANDATORY REDEMPTION.
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS COLLATERAL PROCEEDS
OR EXCESS PROCEEDS.
Within 30 days after the date that (i) Excess Collateral Proceeds
exceed $1.0 million and a Collateral Asset Sale Offer is required under Section
4.10 hereof or (ii) Excess Proceeds exceed $10.0 million and an Asset Sale Offer
is required under Section 4.10 hereof, the Company shall mail or cause the
Trustee to mail (in the Company's name and at its expense and pursuant to an
Officers' Certificate) an offer to purchase (in the case of Excess Collateral
Proceeds, a "Collateral Asset Sale Offer" and in the case of Excess Proceeds, an
"Asset Sale Offer") to each Holder of Notes pursuant to the terms of this
Section 3.09.
The Collateral Asset Sale Offer or Asset Sale Offer shall be mailed
by the Company (or the Trustee) to Holders of Notes at their last registered
address with a copy to the Trustee and the Paying Agent and shall set forth (a)
notice that an Asset Sale has occurred, that the Company is making a Collateral
Asset Sale Offer or an Asset Sale Offer, as applicable, pursuant to this Section
3.09, and that each Holder of Notes then outstanding has the right to require
the Company to repurchase, for cash, such
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<PAGE> 30
Holder's Notes at the Collateral Asset Sale Offer Price or Asset Sale Offer
Price, as applicable, plus accrued and unpaid interest thereon to the payment
date; (b) the purchase price per $1,000 of principal amount and the payment date
of the Collateral Asset Sale Offer or Asset Sale Offer, as applicable; (c) the
maximum amount of Collateral Excess Proceeds or Excess Proceeds, as applicable,
required to be applied to such Collateral Asset Sale Offer or Asset Sale Offer;
(d) that any Notes properly tendered pursuant to the Collateral Asset Sale Offer
or Asset Sale Offer, as applicable, will be accepted for payment (subject to
reduction as provided in this Section 3.09) on the payment date of the
Collateral Asset Sale Offer or Asset Sale Offer, as applicable, and any Notes
not properly tendered will remain outstanding and continue to accrue interest;
(e) that unless the Company defaults in the payment of the Collateral Asset Sale
Offer Price or the Asset Sale Offer Price, as applicable, all Notes accepted for
payment pursuant to the Collateral Asset Sale Offer or Asset Sale Offer, as
applicable, shall cease to accrue interest after the payment date of the
Collateral Asset Sale Offer or Asset Sale Offer, as applicable; (f) that Holders
electing to have any Notes purchased pursuant to a Collateral Asset Sale Offer
or Asset Sale 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, or transfer by book-entry transfer, to the Company, the Depository or
the Paying Agent specified in the notice at the address specified in the notice
prior to the close of business on the third Business Day preceding the payment
date of the Collateral Asset Sale Offer or the Asset Sale Offer, as applicable;
(g) that Holders will be entitled to withdraw their tendered Notes and their
election to require the Company to purchase the Notes provided that the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the payment date of the Collateral Asset Sale Offer or Asset Sale
Offer, as applicable, 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 such Holder's tendered
Notes and such Holder's election to have such Notes purchased; (h) that, if the
aggregate principal amount of Notes surrendered by Holders exceeds the amount of
the Collateral Asset Sale Offer or Asset Sale Offer, as applicable, the Company
shall select the Notes to be purchased by lot 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 or
otherwise in accordance with the Indenture); and (i) 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 (or transferred by
book-entry transfer). If the payment date of the Collateral Asset Sale Offer or
Asset Sale Offer is on or after an interest payment record date and on or before
the related interest payment date, any accrued interest will be paid to the
Person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders who tender a
Note pursuant to the Collateral Asset Sale Offer or Asset Sale Offer, as
applicable.
The Company shall fix the payment date of the Collateral Asset Sale
Offer or Asset Sale Offer for such purchase no earlier than 30 but no more than
60 days after the Collateral Asset Sale Offer or Asset Sale Offer, as
applicable, is mailed as set forth above, except as may otherwise be required by
applicable law.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to this Section 3.09.
On the payment date of the Collateral Asset Sale Offer or Asset Sale
Offer, as applicable, the Company shall, to the extent permitted by law, (x)
accept for payment Notes or portions thereof properly tendered pursuant to the
Collateral Asset Sale Offer or Asset Sale Offer, as applicable, (y) deposit with
the Paying Agent the amount of money, in immediately available funds, equal to
the maximum Collateral
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<PAGE> 31
Excess Proceeds or Excess Proceeds, as applicable, required under Section 4.10
to be applied to such Collateral Asset Sale Offer or Asset Sale Offer and (z)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. If the aggregate purchase price of all Notes properly tendered exceeds
the maximum amount of Collateral Excess Proceeds or Excess Proceeds, as
applicable, required to be applied to such Collateral Asset Sale Offer or Asset
Sale Offer, as applicable, the Notes or portions thereof to be purchased shall
be selected pursuant to Section 3.02 hereof. The Paying Agent shall promptly
mail to each Holder of Notes so accepted for payment a check in an amount equal
to the aggregate purchase price of the Notes purchased by the Company from such
Holder and the Trustee shall promptly authenticate and mail to each Holder a new
Note of the same series equal in principal amount to any unpurchased portion of
any Note surrendered, if any, or return any unpurchased Note to such Holder;
provided, however, that each such new Note shall be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly announce in a
newspaper of national circulation or in a press release provided to a nationally
recognized financial wire service the results of the Collateral Asset Sale Offer
or Asset Sale Offer, as applicable, on the payment date.
Other than as specifically provided in this Section 3.09, each
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
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
this Indenture and 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 of the Company, holds as of 9:00 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. Such Paying Agent shall return to the Company promptly, and
in any event, no later than five days following the date of payment, any money
(including accrued interest) that exceeds such amount of principal, premium, if
any, and interest paid on the Notes.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the interest rate then applicable to the Notes to
the extent lawful. In addition, 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 period) at the same rate to the
extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee or Registrar) 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 shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
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<PAGE> 32
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.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.04.
SECTION 4.03. SEC REPORTS.
(i) The Company shall, whether or not required by the rules and
regulations of the SEC, submit to the SEC for public availability and provide to
the Trustee and the Holders copies of all quarterly and annual reports and other
information, documents and reports specified in Sections 13 and 15(d) of the
Exchange Act for so long as the Notes are outstanding. If, at any time during
the period presented in such quarterly or annual report, the Company has one or
more Unrestricted Subsidiaries that singly or together constitute a Significant
Subsidiary, each such quarterly and annual report shall contain "summarized
financial information" (as defined in Rule 1-02(aa)(1) of Regulation S-X under
the Exchange Act) for the Company and its Restricted Subsidiaries, on a
consolidated basis, in addition to the financial information required by the
Act. The summarized financial information required pursuant to the preceding
sentence may, at the election of the Company, be included in the footnotes to
audited consolidated financial statements of the Company and shall be as of the
same dates and for the same periods as the consolidated financial statements of
the Company and its Subsidiaries required pursuant to the Exchange Act.
(ii) If the Company or a Guarantor, if any, is required to furnish
annual or quarterly reports to its stockholders pursuant to the Exchange Act,
the Company shall cause such annual report or quarterly or other financial
report furnished to be filed with the Trustee and mailed to the Holders at their
addresses appearing in the register of Notes maintained by the Registrar.
(iii) The Company and the Guarantors, if any, shall deliver all
reports and other documents and information to the Holders under this Section
4.03. The Trustee shall, if requested to by the Company, deliver such reports,
other documents and information to the Holders, but at the sole expense of the
Company.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within sixty (60) days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether each of the Company and its
Subsidiaries has kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge each of the Company and
its Subsidiaries has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
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<PAGE> 33
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 each of
the Company and its Subsidiaries is taking or propose 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 are prohibited (or if such event has occurred,
a description of the event and what action each is taking or proposes to take
with respect thereto).
(b) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of (i) any
Default or Event of Default or (ii) any event of default under any other
mortgage, indenture or instrument which with the passage of time or giving of
notice would be a Default or an Event of Default under Section 6.01 hereof, an
Officers' Certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall, and shall cause each of its Subsidiaries to pay
prior to delinquency, all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants, and the Company shall cause any Guarantor to
covenant (to the extent they may lawfully do so), that it will not at any time
insist upon, 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. The Company (to the extent it may lawfully do so) hereby
expressly waives, and the Company will cause any Guarantor (to the extent it may
lawfully do so) expressly to waive all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, 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 has been enacted.
SECTION 4.07. 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 (other than (1) dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
(2) dividends or distributions by a Restricted Subsidiary of the Company,
provided that to the extent that a portion of such dividend or distribution is
paid to a holder of Equity Interests of a Restricted Subsidiary other than the
Company or a Restricted Subsidiary, such portion of such dividend or
distribution is not greater than such holder's pro rata aggregate common equity
interest in such Restricted Subsidiary)); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any
Restricted Subsidiary or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (iii) purchase, redeem or otherwise acquire or retire for value
any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated in right of payment, by its terms, to the Notes or any Subsidiary
Guarantee thereof prior to the scheduled final maturity or sinking fund payment
dates for payment of principal and interest in accordance with the original
documentation for such subordinated Indebtedness; or (iv) make any Restricted
Investment (all
27
<PAGE> 34
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;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii), (iv) and (v) of the next
succeeding paragraph), is less than the sum of (v) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from January 1, 1996 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,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (w) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale since the
Issuance Date of Equity Interests of the Company or of debt
securities of the Company that have been converted or exchanged into
such Equity Interests (other than Equity Interests (or convertible or
exchangeable debt securities) sold to a Restricted Subsidiary of the
Company and other than Disqualified Stock or debt securities that
have been converted or exchanged into Disqualified Stock), plus (x)
in case any Unrestricted Subsidiary has been redesignated a
Restricted Subsidiary and becomes a Guarantor pursuant to the terms
of the Indenture or has been merged, consolidated or amalgamated with
or into, or transfers or conveys assets to, or is liquidated into,
the Company or a Restricted Subsidiary that is a Guarantor, and
provided that no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof, the lesser of
(i) the book value (determined in accordance with GAAP) at the date
of such redesignation, combination or transfer of the aggregate
Investments made by the Company and its Restricted Subsidiaries in
such Unrestricted Subsidiary (or of the assets transferred or
conveyed, as applicable) and (ii) the fair market value of such
Investments in such Unrestricted Subsidiary at the time of such
redesignation, combination or transfer (or of the assets transferred
or conveyed, as applicable), in each case as determined in good faith
by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a resolution of such Board and, in
each case, after deducting any Indebtedness associated with the
Unrestricted Subsidiary so designated or combined or with the assets
so transferred or conveyed, plus (y) 100% of any dividends or
interest actually received in cash by the Company or a Restricted
Subsidiary that is a Guarantor after the Issuance Date from (1) a
Restricted Subsidiary the Net Income of which has been excluded from
the computation of Consolidated Net Income, (2) an Unrestricted
Subsidiary, (3) a Person that is not a Subsidiary or (4) a Person
that is accounted for on the equity method plus (z) $25.0 million.
Notwithstanding the foregoing, the provisions of this Section 4.07 will
not prohibit:
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<PAGE> 35
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the redemption, purchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of other Equity Interests
of the Company (other than any Disqualified Stock); provided that the amount of
any proceeds that is utilized for such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c) (w) of the preceding
paragraph; (iii) the defeasance, redemption, repayment or purchase of
Indebtedness of the Company or any Restricted Subsidiary that is subordinated in
right of payment, by its terms, to the Notes or any Subsidiary Guarantee thereof
in a Permitted Refinancing; (iv) the defeasance, redemption, repayment or
purchase of Indebtedness of the Company or any Restricted Subsidiary that is
subordinated in right of payment, by its terms, to the Notes or any Subsidiary
Guarantee thereof with the proceeds of a substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests (other than
Disqualified Stock) of the Company; provided that the amount of any proceeds
that is utilized for such defeasance, redemption, repayment or purchase shall be
excluded from clause (c) (w) of the preceding paragraph; and (v) the purchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company pursuant to any management equity subscription agreement or stock
option agreement in effect as of the Issuance Date; provided, however that the
aggregate price paid for all such purchased, redeemed, acquired or retired
Equity Interests shall not exceed $250,000 per year on a cumulative basis since
the Issuance Date; provided that, in the case of clauses (ii) through (v) above,
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof.
In determining whether any Restricted Payment is permitted by this Section
4.07, the Company may allocate or reallocate all or any portion of such
Restricted Payment among the clauses (i) through (v) of the preceding paragraph
or among such clauses and the first paragraph of this Section 4.07 including
clauses (a), (b) and (c), provided that at the time of such allocation or
reallocation, all such Restricted Payments, or allocated portions thereof, would
be permitted under the various provisions of this Section 4.07.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based upon the Company's latest available financial statements.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or Event
of Default. For purposes of making the determination as to whether such
designation would cause a Default or Event of Default, 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 at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this Section 4.07. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted
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<PAGE> 36
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
SECTION 4.08. LIMITATION ON 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 or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) (i) pay dividends or make any other consensual
distributions to the Company or any of its Restricted Subsidiaries (A) on its
Capital Stock or (B) with respect to 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 or capital
contributions 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 for such encumbrances or restrictions existing
under or by reasons of (i) Existing Indebtedness as in effect on the Issuance
Date, (ii) this Indenture and the Notes, (iii) applicable law, (iv) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries or of any Person that becomes a
Restricted Subsidiary as in effect at the time of such acquisition or such
Person becoming a Restricted Subsidiary (except to the extent such Indebtedness
was incurred in connection with or, if incurred within one year prior to such
acquisition or such Person becoming a Restricted Subsidiary, in contemplation of
such acquisition or such Person becoming a Restricted Subsidiary), 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, provided that the Consolidated Cash Flow of such Person is
not taken into account (to the extent of such restriction) in determining
whether such acquisition was permitted by the terms of this Indenture, (v) any
instrument governing Indebtedness or Capital Stock of a Person who becomes a
Guarantor as in effect at the time of becoming a Guarantor (except to the extent
such Indebtedness was incurred in connection with or, if incurred within one
year prior to the time of becoming a Guarantor, in contemplation of such
Subsidiary Guarantee), 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 who became a Guarantor, (vi) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (vii) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in this clause (c) on the property so
acquired, (viii) permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (ix) customary restrictions in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements and mortgages.
SECTION 4.09. LIMITATION ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF
DISQUALIFIED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to
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(collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness
(including Acquired Debt) and that the Company will not issue any, and will not
permit any of its Restricted Subsidiaries to issue any, shares of Disqualified
Stock; provided, however, that the Company or any of its Restricted Subsidiaries
may incur Indebtedness or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio 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 at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
Notwithstanding the foregoing, if no Default or Event of Default shall
occur as a consequence thereof, the foregoing provisions shall not apply to:
(i) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Indebtedness; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company;
(ii) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness pursuant to one of more Credit Facilities in an aggregate
principal amount not to exceed $50.0 million at any one time outstanding,
less the aggregate amount of all proceeds of all sales or other
dispositions of assets that have been applied to permanently reduce the
outstanding amount of such Indebtedness pursuant to Section 4.10 hereof;
(iii) the incurrence by the Company and its Restricted Subsidiaries
of Existing Indebtedness;
(iv) Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(v) the incurrence or the issuance by the Company of Refinancing
Indebtedness or Refinancing Disqualified Stock of the Company or any
Restricted Subsidiary or the incurrence or issuance by a Restricted
Subsidiary of Refinancing Indebtedness or Refinancing Disqualified Stock
of such Restricted Subsidiary, as the case may be; provided, however, that
such Refinancing Indebtedness or Refinancing Disqualified Stock, as the
case may be, is a Permitted Refinancing;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(a) any subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than a Wholly Owned
Restricted Subsidiary and (b) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vii) the incurrence of Indebtedness represented by the Notes and any
Subsidiary Guarantee thereof; provided, however, that the Company may only
issue Additional Notes if the conditions set forth in Section 2.02 hereof
are satisfied;
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(viii) the incurrence by the Company or any of its Restricted
Subsidiaries, in the ordinary course of business and consistent with past
practice, of Indebtedness to secure performance bonds not to exceed $7.5
million at any one time outstanding; or
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount at any
time outstanding not to exceed $5,000,000; provided that the net proceeds
of such Indebtedness are used to finance the renovation or refurbishment
of properties owned by the Company or a Restricted Subsidiary which are
employed in a Hospitality-Related Business.
SECTION 4.10. LIMITATION ON SALE OF ASSETS.
(i) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, conduct or suffer to exist an Asset Sale, unless (x) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) and (y) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided, however, that if the assets
which were the subject of the Asset Sale constitute Collateral, then (i) 100% of
the consideration received in connection with the Asset Sale must be in the form
of cash or Cash Equivalents and (ii) the Company must deliver to the Trustee the
opinion of a Qualified Appraiser that the consideration received in connection
with the Asset Sale is equal to or greater than the fair market value of the
assets which were the subject of the Asset Sale; provided, further, that except
for Asset Sales in which the assets that are the subject of the Asset Sale
constitute Collateral, the principal amount of the following shall be deemed to
be cash for purposes of this provision: (A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or any Subsidiary
Guarantee thereof) that are assumed or forgiven by the transferee of any such
assets and (B) 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 within 90 days of the closing of
such Asset Sale (to the extent of the cash received). Notwithstanding the
foregoing, (a) the restriction in clause (y) above will not apply, as to Asset
Sales of assets not constituting Collateral, with respect to mortgages or other
notes receivable received by the Company or any such Restricted Subsidiary from
such transferee to the extent such mortgages or other notes receivable are
Restricted Investments permitted to be made by the Company or such Restricted
Subsidiary under Section 4.07 hereof and (b) any Asset Sale of real property
constituting Collateral which is released from the Lien of the Collateral
Documents pursuant to the provisions of the applicable Deed of Trust relating to
the sub-division of real property shall constitute an Asset Sale of an asset not
constituting Collateral.
(ii) Notwithstanding any provision of this Section 4.10 to the
contrary, the Company may (a) invest all or a portion of the Net Proceeds of any
Asset Sale of assets which constitute Collateral (such proceeds, "Collateral
Proceeds") in Substitute Collateral or (b) elect to redesignate, at the time of
such Asset Sale, an existing hotel property of the Company as Substitute
Collateral and to treat the Collateral Proceeds as Net Proceeds of an Asset Sale
of an asset not constituting Collateral as set forth in the next paragraph and
the transaction as not constituting an Asset Sale of Collateral; provided,
however, that, in either case, (i) the Substitute Collateral is subject to a
perfected Lien in favor of the Trustee pursuant to deeds of trust, substantially
in the form of Exhibit C hereto, and other instruments, financing statements and
other documents, substantially similar to the Collateral Documents, which Lien
has at least the same priority as the assets which were the subject of the Asset
Sale (and the Company delivers to the Trustee
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an Opinion of Counsel reasonably satisfactory to the Trustee regarding the
perfection and priority of the Lien on the Substitute Collateral in favor of the
Trustee, which Opinion of Counsel may be based on a binder or policy of a real
estate title insurance company of national standing), (ii) the fair market value
of the Substitute Collateral (plus any portion of the Collateral Proceeds not
invested in the Substitute Collateral) is equal to or greater than the fair
market value of the assets which were the subject of the Asset Sale (and the
Company delivers to the Trustee an Officers' Certificate and an opinion of a
Qualified Appraiser stating that the fair market value of the Substitute
Collateral (plus any portion of the Collateral Proceeds not invested in the
Substitute Collateral) is equal to or greater than the fair market value of the
assets which were the subject of the Asset Sale), (iii) the combined
Consolidated Cash Flow of the hotel properties constituting Substitute
Collateral for the most recently ended four fiscal quarters for which internal
financial statements are available immediately preceding the date on which the
Asset Sale occurs (the "Calculation Period") is greater than the combined
Consolidated Cash Flow of the hotel properties constituting assets which were
the subject of the Asset Sale for the Calculation Period (and the Company
delivers to the Trustee an Officers' Certificate to such effect) and (iv) the
Substitute Collateral is acquired or designated, as the case may be, and the
Opinion of Counsel, Officers' Certificate and appraisal referenced in clauses
(i), (ii) and (iii) above are delivered, substantially concurrently with the
consummation of the Asset Sale; provided, however, that in the case of an Asset
Sale of any asset constituting Collateral that results from an Event of Loss,
the opinion of counsel, officers' certificate and appraisal referenced in
clauses (i), (ii) and (iii) above shall be delivered on or prior to the earlier
of (A) 180 days after such Event of Loss, (B) 90 days after the receipt of any
proceeds payable in respect of such Event of Loss and (C) the date of investment
or redesignation pursuant to clause (a) or (b) above, respectively. Any
Collateral Proceeds that are (A) not so invested so as to constitute Substitute
Collateral or (B) not treated as Net Proceeds of an Asset Sale of an asset not
constituting Collateral in accordance with the next succeeding paragraph in
connection with the Company's election to redesignate an existing hotel property
as Substitute Collateral, each as provided above, will be deemed to constitute
"Excess Collateral Proceeds." When the amount of Excess Collateral Proceeds
exceeds $1.0 million, the Company shall make an offer to all Holders of Notes (a
"Collateral Asset Sale Offer") to purchase the maximum amount of Notes that is
an integral multiple of $1,000, that may be purchased out of the Excess
Collateral Proceeds at the following offer price (the "Collateral Asset Sale
Offer Price") in cash: (i) if the purchase is required to be consummated between
the Issuance Date and the First Redemption Date, the greater of (a) 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase plus the Make-Whole Amount or (b) the principal amount thereof
multiplied by the Redemption Percentage on the First Redemption Date, plus
accrued and unpaid interest thereon to the date of purchase and (ii) if the
purchase is consummated after the First Redemption Date, the principal amount
thereof multiplied by the Redemption Percentage corresponding to the applicable
redemption period in which the date of purchase is required to occur, as set
forth in Section 3.07 hereof, plus accrued and unpaid interest thereon to the
date of purchase in accordance with the procedures set forth in Section 3.09
hereof. As provided in Section 3.09 hereof, the Collateral Asset Sale Offer
shall be commenced as soon as practicable following the date that the Excess
Collateral Proceeds exceeds $1.0 million, but in any event within 30 days
following such date. Pending final application of any Collateral Proceeds, the
Company shall deposit any such Collateral Proceeds with the Trustee for the
benefit of the Holders of the Notes and such Collateral Proceeds shall be
subject to a perfected Lien in favor of the Trustee, which Lien shall have at
least the same priority as the Lien on the assets which were the subject of the
Asset Sale. To the extent that the aggregate amount of Notes tendered pursuant
to a Collateral Asset Sale Offer is less than the Excess Collateral Proceeds,
any remaining Excess Collateral Proceeds shall be permitted to be used to
permanently reduce Indebtedness of the Company that ranks pari passu in right of
payment of the Notes or invested in a Hospitality-Related Business as provided
in the following paragraph (without regard to the time period set forth
therein); provided, however, that until so applied, the remaining Excess
Collateral Proceeds shall remain pledged as security for the Notes and any newly
acquired assets, when
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acquired, shall be subject to a perfected Lien in favor of the Trustee, which
Lien has at least the same priority as the assets which were the subject of the
Asset Sale. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Collateral Proceeds, the Trustee shall
select the Notes to be purchased in the manner described under Section 3.02
hereof. Upon completion of any Collateral Asset Sale Offer, the amount of Excess
Collateral Proceeds shall be reset at zero. If any of the Collateral is sold and
the Collateral Proceeds are applied in accordance with this paragraph, the
Trustee shall release the Lien in favor of the Trustee in the assets so sold in
accordance with the provisions of Section 10.04 hereof.
Within 365 days of any Asset Sale (other than an Asset Sale of assets
which constitute Collateral), the Company or such Restricted Subsidiary may (a)
apply the Net Proceeds from such Asset Sale to permanently reduce (x)
Indebtedness of the Company or a Restricted Subsidiary of the Company that is a
Guarantor that ranks by its terms pari passu in right of payment with the Notes
or (y) pari passu Indebtedness of a Restricted Subsidiary to the extent of the
proceeds of the Asset Sale by such Restricted Subsidiary or (b) invest the Net
Proceeds from such Asset Sale in property or assets used in a
Hospitality-Related business; provided that the Company or such Restricted
Subsidiary will have complied with this clause (b) if, within 365 days of such
Asset Sale, the Company or such Restricted Subsidiary shall have commenced and
not completed or abandoned an investment in compliance with this clause (b) and
shall have segregated such Net Proceeds from the general funds of the Company
and its Subsidiaries for that purpose and such investment is substantially
completed within 180 days after the first anniversary of such Asset Sale. Any
Net Proceeds from an Asset Sale (other than an Asset Sales of assets which
constitute Collateral) that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 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 in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Asset Sale Offer Price"), in
accordance with the procedures set forth in Section 3.09 hereof. 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 such deficiency 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 in the manner described in Section 3.02 hereof. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero. Pending the final application of any Net Proceeds from an Asset
Sale pursuant to this paragraph, the Company or any Restricted Subsidiary may
temporarily reduce Indebtedness of the Company or a Restricted Subsidiary that
is a Guarantor that ranks by its terms pari passu with the Notes or otherwise
invest such Net Proceeds in Cash Equivalents.
(iii) Any offer to purchase the Notes pursuant to this Section 4.10
shall be made pursuant to the provisions of Section 3.09 hereof. Simultaneously
with the notification of such offer to the Trustee, the Company shall provide
the Trustee with an Officers' Certificate setting forth the calculations used in
determining the amount of Collateral Excess Proceeds or Excess Proceeds, as
applicable, to be applied to the purchase of the Notes.
SECTION 4.11. LIMITATION ON 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"), unless (a) such Affiliate
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Transaction is on terms that are no 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 on an arm's
length basis with an unrelated Person, (b) the Company delivers to the Trustee
(i) with respect to any Affiliate Transaction involving aggregate payments in
excess of $5.0 million, an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above and such Affiliate Transaction is
approved by a majority of the disinterested nonemployee members of the Board of
Directors and (ii) with respect to any Affiliate Transaction involving aggregate
payments in excess of $10.0 million (other than an Affiliate Transaction
involving the acquisition or disposition of a hotel by the Company or a
Restricted Subsidiary of the Company), an opinion as to the fairness to the
Company or such Restricted Subsidiary from a financial point of view issued, at
the option of the Company, by an investment banking firm of national standing or
a Qualified Appraiser and (c) the Company delivers to the Trustee in the case of
an Affiliate Transaction involving the acquisition or disposition of a hotel by
the Company or a Restricted Subsidiary of the Company and (x) involving
aggregate payments of less than $25.0 million, an appraisal by a Qualified
Appraiser to the effect that the transaction is being undertaken at fair market
vale or (y) involving aggregate payments of $25.0 million or more, an opinion as
to the fairness of the transaction to the Company or such Restricted Subsidiary
from a financial point of view issued by an investment banking firm of national
standing; provided, however, that the following shall not be deemed Affiliate
Transactions: (A) any employment, deferred compensation, stock option,
noncompetition, consulting or similar agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(B) transactions between or among the Company and/or its Wholly Owned Restricted
Subsidiaries or any Guarantor, (C) the incurrence of fees in connection with the
provision of hotel management services, provided that such fees are paid in the
ordinary course of business and are consistent with past practice and (D)
Restricted Payments permitted by Section 4.07 hereof.
SECTION 4.12. LIMITATION ON LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired by the Company or
any Restricted Subsidiary, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Section 4.14 and Article 5 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence and the corporate existence of each of its
Subsidiaries, in accordance with its respective organizational documents (as the
same may be amended from time to time) and (ii) its (and its Subsidiaries')
rights (charter and statutory), licenses and franchises; provided, however, that
the Company shall not be required to preserve any such right, license or
franchise, or the corporate existence of any of its Subsidiaries, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.
SECTION 4.14. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at a purchase offer
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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 10 Business Days following any Change of Control, the
Company will mail a notice of each Holder stating: (1) that the Change of
Control Offer is being made pursuant to this Section 4.14, the period in which
such offer will remain open and the expiration date of such offer; (2) that all
Notes tendered will be accepted for payment, the purchase price and the purchase
date (the "Change of Control Payment Date"); (3) that any Note not tendered will
continue to accrue interest; (4) that, 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 after the
Change of Control Payment Date; (5) that 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 at the address specified in
the notice prior to the expiration of such offer; (6) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not later than
the expiration of such offer, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Notes
delivered for purchase, and a statement that such Holder is withdrawing his
election to have such Notes purchased; (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; and (8) the
circumstances and material facts regarding such Change of Control (including,
but not limited to, information with respect to pro forma and historical
financial information after giving effect to such Change of Control and
information regarding the Person or Persons acquiring control).
The Company shall comply, to the extent applicable, with the
requirements of Rule 14e-1 under the Exchange Act and other applicable
securities laws and regulations thereunder in the event that a Change of Control
occurs and the Company is required to repurchase the Notes pursuant to this
Section 4.14.
On the Change of Control Payment Date, the Company will, to the
extent permitted by law, (x) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (y) 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 (z) deliver, or cause
to be delivered, to the Trustee for cancellation the Notes so accepted together
with an Officers' Certificate stating that the aggregate principal amount of
Notes or portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to each Holder of Notes so accepted the Change of Control Payment
for such Notes, and the Trustee shall 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, however, that each such new Note shall be
in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce in a newspaper of national circulation or in a press
release provided to a nationally recognized financial wire service the results
of the Change of Control Offer on the Change of Control Payment Date.
SECTION 4.15. SUBSIDIARY GUARANTEES.
If (i) the Company or any Restricted Subsidiary shall transfer or
cause to be transferred, in one or a series of related transactions, any assets
(including cash or Cash Equivalents other than pursuant to clause (f) of the
definition of Permitted Investments), business, divisions, real property or
equipment having a book value or fair market value (as determined in good faith
by the Board of Directors of the Company, whose determination shall be
conclusive and evidenced by a resolution of such Board) in excess of $2.0
million to any Restricted Subsidiary that is not a Guarantor or (ii) if the
Company or any
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of its Restricted Subsidiaries shall acquire or create after the Issuance Date
another Restricted Subsidiary having total assets with a fair market value in
excess of $2.0 million at the time of such acquisition or creation, the Company
shall cause such Restricted Subsidiary to execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit B hereto pursuant to which such
Restricted Subsidiary shall guarantee all of the obligations of the Company with
respect to the Notes on a senior basis together with an Opinion of Counsel
(which counsel may be an employee of the Company) to the effect that the
supplemental indenture has been duly executed, delivered by, and is valid and
binding on, such Restricted Subsidiary and is in compliance in all material
respects with the terms of this Indenture.
SECTION 4.16. LINE OF BUSINESS.
For so long as any Notes are outstanding, the Company shall not, and
shall not permit any of its Subsidiaries to, engage in any business or activity
other than a Hospitality-Related Business.
SECTION 4.17. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.18. MAINTENANCE OF INSURANCE.
Until the Notes have been paid in full, the Company shall, and shall cause
its Subsidiaries to, maintain insurance with responsible carriers against such
risks and in such amounts as is customarily carried by similar businesses with
deductibles, retentions, self-insured amounts and coinsurance customarily
carried by similar businesses of similar size, including, without limitation,
property and casualty loss, and interruption of business insurance, and shall
provide satisfactory evidence of such insurance to the Trustee prior to the
anniversary or renewal date of each such policy, which certificate shall
expressly state such expiration date for each policy listed. Notwithstanding the
foregoing, customary insurance coverage for the purposes of this Section 4.18
shall include the following: (i) workers' compensation insurance to the extent
required to comply with all applicable state or United States laws and
regulations or the laws and regulations of any other applicable jurisdiction,
(ii) property insurance protecting property against loss or damage by fire,
lightning, windstorm, tornado, water, flood, vandalism, riot, earthquake, civil
commotion, malicious mischief, hurricane and such other risks and hazards as are
from time to time covered by an "all risk" policy or property policy covering
"special" causes of loss, such property insurance providing coverage of not less
than 100% of actual replacement value (as determined at each policy renewal
based on the EW Dodge Building Index or some other recognized means) of any
improvements with a deductible no greater than $2.0 million (other than
earthquake insurance, for which the deductible may be up to 5% of the
replacement value, and which may be limited to an aggregate of $15.0 million per
occurrence in California and $50.0 million per occurrence in other states,
unless the Board of Directors of the Company determines in good faith that such
insurance, with such deductibles, is not available at commercially reasonable
rates and on commercially reasonable terms in which case the Company may procure
earthquake insurance with appropriate deductibles which can be obtained at
commercially reasonable rates and on commercially reasonable terms) and (iii)
business interruption insurance for a period of not less than one year, and in
an amount based upon 100% of estimated continuing expenses and lost cash flow
for the fiscal year with
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respect to which the insurance coverage is in effect less non-continuing
expenses. All insurance under this Section 4.18 shall name the Trustee as an
additional insured or loss payee, as applicable, to the extent of the interest
of the Trustee in any assets covered by such insurance. All such insurance shall
be issued by carriers having an A.M. Best & Company, Inc. rating of A or higher
and a financial size category of not less than X, or if such carrier is not
rated by A.M. Best & Company, Inc., having the financial stability and size
deemed appropriate by the Company after consultation with a reputable insurance
broker. The Company will furnish to the Trustee within 30 days of each
anniversary of the Issuance Date evidence to the Trustee from an insurance
broker or consultant that the provisions of this Section 4.18 have been complied
with.
SECTION 4.19. COLLATERAL DOCUMENTS.
Neither the Company nor any Restricted Subsidiary will amend, waive
or modify, or take or refrain from taking any action which has the effect of
amending, waiving or modifying, any provision of the Collateral Documents to the
extent that such amendment, waiver, modification or action would have an adverse
effect on the rights of the Trustee or the Holders of Notes (as provided in the
Collateral Documents); provided, however, that:
(1) Collateral may be released or modified as expressly provided
herein and in the Collateral Documents;
(2) Guarantees, Liens, and pledges may be released as expressly
provided herein and in the
Collateral Documents; or
(3) this Indenture and any of the Collateral Documents may be
otherwise amended, waived or modified pursuant to Article 9
hereof.
SECTION 4.20. FURTHER ASSURANCES.
The Company and the Restricted Subsidiaries shall do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments, as may be required
from time to time in order (i) to carry out more effectively the purposes of the
Collateral Documents, (ii) to subject the Collateral to the Liens created by any
of the Collateral Documents or any of the properties, rights or interests
covered by any of the Collateral Documents, (iii) to perfect and maintain the
validity, effectiveness and priority of any of the Collateral Documents and the
Liens intended to be created thereby and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Trustee any of the rights
granted or now or hereafter intended to be granted to the Trustee hereunder or
under any other instrument executed in connection therewith or granted to the
Company under the Collateral Documents or under any other instrument executed in
connection therewith.
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SECTION 4.21. LIQUIDATION.
A plan of liquidation or dissolution may not be adopted for the
Company which provides for, contemplates or the effectuation of which is
preceded by (a) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company otherwise than substantially as
an entirety (Article 5 of this Indenture being the Article hereof which governs
any such sale, lease, conveyance or other disposition substantially as an
entirety) and (b) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and of the remaining assets
of the Company to the holders of Equity Interests in the Company, unless the
Company, prior to making any liquidating distribution pursuant to such plan,
makes provision for the satisfaction of the Company's Obligations hereunder and
under the Notes as to the payment of principal and interest. The Company shall
be deemed to make provision for such payments only if (i) the Company delivers
in trust to the Trustee or Paying Agent (other than the Company or its
Restricted Subsidiaries) cash or Government Securities maturing as to principal
and interest in such amounts and at such times as are sufficient without
consideration of any reinvestment of such interest to pay, when due, the
principal of and interest on the Notes or (ii) there is an express assumption
and observance of all covenants and conditions to be performed by the Company
hereunder by the execution and delivery of a supplemental indenture in the form
of Exhibit B hereto by a Person that acquires or will acquire (otherwise than
pursuant to a lease) a portion of the assets of the Company which person will
have Consolidated Net Worth (immediately after the acquisition) and Consolidated
Net Income (for such Person's four full fiscal quarters immediately preceding
the acquisition) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the acquisition and the Consolidated Net Income of
the Company (for its four full fiscal quarters immediately preceding such
acquisition), respectively, and which is organized and existing under the laws
of the United States, any state thereof or the District of Columbia; provided,
however, that the Company shall not make any liquidating distribution until
after the Company shall have certified to the Trustee with an Officers'
Certificate at least five days prior to the making of any liquidating
distribution that it has complied with the provisions of this Section 4.21 and
that no Default or Event of Default then exists or would occur as a result of
any such liquidating distribution.
SECTION 4.22. MAINTENANCE OF COLLATERAL
The Company shall maintain the Collateral in a manner consistent with
its maintenance policies with respect to all of the hotels owned by it
(including its policies with respect to making requisite capital expenditures
for the maintenance of such hotels).
SECTION 4.23. CONVERTIBLE NOTE INDENTURE
Without the consent of at least 75% in principal amount of the Notes
outstanding, the Company shall not amend, modify or alter the indenture (the
"Convertible Note Indenture") governing its 7% Convertible Subordinated Notes
due 2002 (the "Convertible Notes") in any way that will (i) increase the rate of
or change the time for payment of interest on any Convertible Notes, (ii)
increase the principal of, advance the final maturity date of or shorten the
Weighted Average Life to Maturity of any Convertible Notes, (iii) alter the
redemption provisions or the price or terms at which the Company is required to
offer to purchase such Convertible Notes or (iv) amend the provisions of Article
Twelve of the Convertible Note Indenture (which relate to subordination).
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<PAGE> 46
ARTICLE 5
SUCCESSORS
SECTION 5.01. WHEN THE COMPANY MAY MERGE, ETC.
The Company shall not consolidate or merge with or into or wind up
into (whether or not the Company as the case may be, is the surviving entity),
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, another corporation, Person or entity 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 shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) 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
assumes all the obligations of the Company under the Notes, this Indenture
and the Collateral Documents pursuant to a supplemental indenture in the
form of Exhibit B hereto;
(iii) at the time of such transaction and immediately after such
transaction after giving pro forma effect thereto, no Default or Event of
Default exists or would exist;
(iv) the Company or any Person formed by or surviving such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) shall have
Consolidated Net Worth (immediately after the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) shall, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof; and
(v) the Company shall have delivered to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate and an
Opinion of Counsel to the combined effect that such sale, assignment,
transfer, lease, conveyance or other disposition, and, if applicable, any
supplemental indenture executed in connection therewith, comply with this
Indenture. The Trustee shall be entitled to conclusively rely upon such
Officers' Certificate and Opinion of Counsel.
SECTION 5.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation, merger, lease, conveyance or transfer of all or
substantially all of the assets of the Company, as the case may be, in
accordance with Section 5.01 hereof, the successor formed by such consolidation
or into which the Company is merged or to which such sale, lease, conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture, the Notes and the
Collateral Documents with the same effect as if such successor had been named as
the Company herein or therein and thereafter the predecessor corporation shall
be relieved of all further obligations and covenants under this Indenture, the
Notes and the Collateral Documents.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Indenture:
(1) default for 30 days in the payment when due of interest on the
Notes;
(2) default in payment when due of principal of or premium, if any,
on the Notes;
(3) failure by the Company or any Restricted Subsidiaries of the
Company to comply with Sections 3.09, 4.07, 4.09, 4.10, 4.14 or 5.01
hereof;
(4) failure by the Company or any Guarantor for 60 days in the
performance of any other covenant, warranty or agreement in this Indenture
or the Notes after written notice shall have been given to the Company by
the Trustee or to the Company and the Trustee from Holders of at least 25%
in principal amount of the Notes then outstanding;
(5) default under (a) Non-Recourse Indebtedness of the Company or any
of its Restricted Subsidiaries with an aggregate principal amount in
excess of 10% of the aggregate assets of the Company and its Restricted
Subsidiaries measured as of the end of the Company's most recent fiscal
quarter for which internal financial statements are available immediately
preceding the date on which such default occurred, determined on a pro
forma basis, or (b) any other mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness
or Guarantee now exists, or is created after the Issuance Date and, in
each case, the principal amount of which, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default (as defined below) or the maturity of which has been so
accelerated, aggregates $10.0 million or more, which default, in either
case, (x) is caused by a failure to pay when due principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (y) results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment
of such issue of Indebtedness at final maturity of such issue;
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments rendered against them (other than judgment liens
without recourse to any assets or property of the Company or any of its
Restricted Subsidiaries other than assets or property securing
Non-Recourse Indebtedness) aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 90 days
(other than any judgments as to which a reputable insurance company has
accepted full liability);
(7) breach by the Company of any material representation or warranty
set forth in any of the Collateral Documents, or default by the Company
for 30 days in the performance of any covenant set forth in the Collateral
Documents after written notice shall have been given to the Company by the
Trustee or to the Company and the Trustee from Holders of at least 25% in
principal amount of the Notes then outstanding, or the repudiation by the
Company of its obligations under, or the
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<PAGE> 48
unenforceability of any of the Collateral Documents for any reason that
would materially impair the benefits to the Trustee or the Holders of the
Notes thereunder;
(8) except as permitted by this Indenture, any Subsidiary Guarantee
with respect to the Notes shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor (or its successors or assigns), or any Person
acting on behalf of such Guarantor (or its successors or assigns), shall
deny or disaffirm its obligations or shall fail to comply with any
obligations under its Subsidiary Guarantee;
(9) the Company, any Guarantor or any of the Company's Subsidiaries
that would constitute a Significant Subsidiary or any group of the Company's
Subsidiaries that, taken together, would constitute a Significant Subsidiary
pursuant to or within the meaning of the Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
or
(e) admits in writing its inability to pay its debts as they
become due; and
(10) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief in an involuntary case against the Company,
any Guarantor or any Subsidiary that is a Significant Subsidiary of
the Company or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary of the Company,
(b) appoints a Custodian of the Company, any Guarantor or any
Subsidiary that is a Significant Subsidiary of the Company or any
group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary of the Company, or for all or substantially
all of the property of the Company, any Guarantor or any Subsidiary
that is a Significant Subsidiary of the Company, or any group of
Subsidiaries that, taken together, would constitute a Significant
Subsidiary of the Company, or
(c) orders the liquidation of the Company, any Guarantor or any
Subsidiary that is a Significant Subsidiary of the Company or any
group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary of the Company,
and the order or decree remains unstayed and in effect for 60 consecutive
days.
The term "Bankruptcy Law" means, title 11, U.S. Code or any similar
federal or state law for the relief of debtors, each as amended from time to
time. The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium
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<PAGE> 49
that the Company would have had to pay if the Company then had elected to redeem
the Notes pursuant to Section 3.07 hereof, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to January
15, 2001, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to January 15, 2001, then the premium specified
below (expressed as a percentage of the principal amount that would otherwise be
due) shall also become immediately due and payable to the extent permitted by
law upon acceleration of the Notes:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
1996.............................................. 112.335%
1997.............................................. 110.793%
1998.............................................. 109.251%
1999.............................................. 107.709%
2000.............................................. 106.167%
</TABLE>
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clauses (9) and (10) of Section 6.01 hereof) occurs and is continuing, the
Trustee by written notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the then outstanding Notes by written notice to
the Company and the Trustee, may declare all Notes to be due and payable
immediately. Upon the effectiveness of such declaration, all amounts due and
payable on the Notes, as determined in the succeeding paragraphs, shall be due
and payable effective immediately. If an Event of Default specified in clause
(9) or (10) of Section 6.01 hereof occurs, all outstanding Notes shall ipso
facto become and be immediately due and payable immediately without further
action or notice within part of or by the Trustee or any Holder.
In the event that the maturity of the Notes is accelerated pursuant
to this Section 6.02, 100% of the principal amount thereof shall become due and
payable plus premium, if any, accrued and unpaid interest, if any, to the date
of payment.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of, premium, if
any, or interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture and, in addition, may pursue any remedy available
under any of the Collateral Documents or otherwise available under applicable
law with respect to any of the Collateral.
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 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.
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SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Section 9.02 hereof, Holders of a majority in aggregate
principal amount of the then outstanding Notes by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest on any Note held by a non-consenting Holder. 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 and the Collateral Documents 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 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, or that the Trustee determines may be
unduly prejudicial to the rights of other Holders or that may involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Notes only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default or the Trustee receives such notice from the Company;
(2) the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the Holders of a majority in aggregate
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.07. RIGHTS OF HOLDERS 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 the Note, on or after the respective due dates expressed in the
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 the
Holder.
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<PAGE> 51
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(1) or (2) 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 or any Guarantor for the
whole amount of principal, 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 any other
amounts due the Trustee under Section 7.07 hereof) and the Holders allowed in
any judicial proceedings relative to the Company or any Guarantor (or any other
obligor upon the Notes), their creditors or their property and shall be entitled
and empowered to collect, receive and distribute any money or securities or
other property payable or deliverable on any such claims and to distribute the
same, and any custodian in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due 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 of the Notes 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 thereof, 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 or receives any money or securities or other
property pursuant to this Article, it shall pay out the money or securities or
other property in the following order:
First: to the Trustee, its agents and counsel 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 for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind (including defaulted interest), according to the amounts
due and payable on the Notes for principal, premium, if any, and interest,
respectively;
Third: without duplication, to Holders for any other obligations
owing to the Holders under the Notes, this Indenture or the Collateral
Documents; and
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<PAGE> 52
Fourth: 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 such
payment to Holders.
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 such party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(1) 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 the Collateral Documents, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(a) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Collateral Documents and the
Trustee need perform only those duties that are specifically set forth in
this Indenture and the Collateral Documents and no others, and no implied
covenants or obligations shall be read into this Indenture or the
Collateral Documents against the Trustee; and
(b) 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.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture or the Collateral Documents.
(3) 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:
(a) this paragraph does not limit the effect of paragraph (2) of this
Section;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
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<PAGE> 53
(c) 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.
(4) Whether or not therein expressly so provided, every provision of
this Indenture and the Collateral Documents that in any way relates to the
Trustee is subject to paragraphs (1), (2) and (3) of this Section.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(6) 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.
Subject to TIA Section 315:
(1) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting 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.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. 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.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed and monitored with due
care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by the Indenture.
(5) Unless otherwise specifically provided in the Indenture or the
Collateral Documents, any demand, request, direction or notice from the Company
shall be sufficient if signed by an Officer of the Company.
(6) Without limiting the provisions of Section 7.01(5), 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 the Holders of a majority in
aggregate principal amount of the then outstanding Notes pursuant to this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(7) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
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<PAGE> 54
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, any
Subsidiary of the Company or any Affiliate of the foregoing with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee is 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, the Notes or the Collateral
Documents, 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 Company's direction
under any provision hereof, 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 by a Trust Officer of the Trustee, the Trustee shall mail to Holders 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 or interest
on any Note, the Trustee may withhold the notice if and so long as a Trust
Officer in good faith determines that withholding the notice is in the interests
of Holders. The Trustee shall comply with TIA Section 315(b).
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with the May 15, 1996
following the date hereof, the Trustee shall mail to Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to Holders shall be
submitted to the SEC and each stock exchange, if any, on which the Notes are
listed. The Company shall promptly notify the Trustee when the Notes are listed
on or delisted by any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company agrees to pay to the Trustee from time to time 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 agrees to 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,
including disbursements, advances and expenses made or incurred pursuant to the
Collateral Documents. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
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<PAGE> 55
The Company agrees to 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, except
as set forth in the next paragraph. 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
except to the extent the Company has been prejudiced thereby. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and, if the Company or the Trustee shall have been advised
by its respective counsel that representation of the Trustee and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed), 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 provisions of this
paragraph shall survive the satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own gross negligence or
willful misconduct.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture and the Collateral Documents.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Lien securing 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 the Indenture and the Collateral Documents.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(9) or (10) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
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.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in aggregate principal amount of the then outstanding
Notes may remove the Trustee by so notifying the Trustee and the Company.
The Company may remove the Trustee at its discretion or if:
(1) the Trustee fails to comply with Section 7.10;
(2) 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;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
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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 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
Subject to the provision of TIA Section 315(e), if the Trustee after
written request by any Holder who has been a bona fide holder of a Note or Notes
for at least six months fails to comply with Section 7.10, such Holder, on
behalf of himself and others similarly situated, 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 and the Collateral Documents. The successor Trustee shall
mail a notice of its succession to the Holders. 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. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company' 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 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 which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee powers, shall be subject to supervision or examination by Federal or
state authority and shall have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a). The Trustee is subject to TIA Section
310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE NOTES.
(a) The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
with respect to the Notes, elect to have either Section 8.02 or 8.03 hereof be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
(b) If the Company and all of the Guarantors, if any, elect to have
either Section 8.02 or 8.03 hereof applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8, then upon
request of the Company and all of the Guarantors, if any, and after the
effective time of such Legal Defeasance or Covenant Defeasance, the Trustee
shall release all Collateral subject to a Lien held by the Trustee pursuant to
the Collateral Documents other than the defeasance trust (as defined in Section
8.04 hereof).
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors, if any, shall
be deemed to have been discharged from their obligations with respect to all
outstanding Notes and Subsidiary Guarantees thereof, if any, on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in clauses (i) and (ii) of this Section 8.02, and to have satisfied
all its other obligations under such Notes 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: (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due solely from
amounts deposited with the Trustee as provided in Section 8.04 hereof, (ii) the
Company's and the Guarantors' obligations with respect to the Notes under
Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.11 and 4.02 hereof, (iii) the rights,
powers, trusts, duties, indemnities and immunities of the Trustee and the
Company's obligations in connection therewith and (iv) this Article 8.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors, if any, shall
be released from their obligations under the covenants contained in Sections
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.18, 4.22, 4.23 5.01,
11.02 and the Collateral Documents (other than with respect to any
indemnification obligations contained in the Environmental Indemnity Agreement)
with respect to the outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes
shall thereafter be deemed 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 shall not be deemed outstanding for accounting purposes). For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Notes, the Company and the Guarantors may omit
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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(3) hereof but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, any event described in Sections 6.01(4) through
6.01(10) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 hereof to the outstanding Notes:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of
this Article 8 applicable to it), in trust (the "defeasance trust"), for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of such
Notes, (a) cash in United States dollars in an amount, or (b) non-callable
Government Securities which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, cash in United
States dollars in an amount, or (c) a combination thereof, in such
amounts, as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge the principal of, premium, if any, and interest (including
defaulted interest) on the outstanding Notes and any other obligations
owing to the Holders of the Notes, under the Notes, this Indenture or the
Collateral Documents on the stated maturity or on the applicable
redemption date, as the case may be, of such principal or installment of
principal of, premium, if any, and interest on the outstanding Notes,
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such non-callable Government Securities to
said payments with respect to the Notes;
(ii) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States (which counsel may be an employee of the Company or any
Subsidiary of the Company) reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the Issuance Date,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same time, as would have been
the case if such Legal Defeasance had not occurred;
(iii) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States (which counsel may be an employee of the Company or any
Subsidiary of the Company) reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the
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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 with respect to the Notes shall
have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds applied
to such deposit) or, insofar as Section 6.01(9) or 6.01(10) hereof is
concerned, at any time in the period ending on the 91st day after the date
of such deposit (or greater period of time in which any such deposit of
trust funds may remain subject to bankruptcy or insolvency laws insofar as
those apply to the deposit by the Company) (it being understood that this
condition shall not be deemed 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 any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(vi) in the case of an election under either Section 8.02 or 8.03
hereof, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the deposit
and assuming no Holder of the Notes is an insider of the Company, after
the 91st day following the deposit, as of the date of such opinion, the
trust funds will not be subject to avoidance under Section 547 of the
United States Bankruptcy Code (or any successor provision thereto) and
related judicial decisions or any other applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any United States or state law;
(vii) in the case of an election under either Section 8.02 or 8.03
hereof, the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 8.02 or 8.03 hereof was not made by the Company
with the intent of preferring the Holders of Notes over other creditors of
the Company or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which counsel
may be an employee of the Company or any Subsidiary of the Company), each
stating that all conditions precedent provided for relating to either the
Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance
under Section 8.03 hereof (as the case may be) have been complied with as
contemplated by this Section 8.04.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable 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 hereof in respect of the outstanding Notes
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 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, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
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The Company and the Guarantors, if any, shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
cash or non-callable Government Securities deposited pursuant to Section 8.04
hereof or the principal, premium, if any, and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof 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) hereof), 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. REPAYMENT TO THE COMPANY.
The Trustee shall promptly pay to the Company after request therefor
any excess money held at such time in excess of amounts required to pay any of
the Company's Obligations then owing with respect to the Notes.
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 one year after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its 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, may at the expense of the Company cause to
be published once, in The New York Times and The Wall Street Journal (national
edition), notice 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 or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any cash or
non-callable Government Securities in accordance with Section 8.02 or 8.03
hereof, 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 obligations of the Company and the Guarantors, if any,
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 hereof 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 hereof, as the
case may be; provided, however, that, if the Company or any Guarantor makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company or such Guarantor shall be
subrogated to the rights of the Holders of such Note to receive such payment
from the money held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company, any Guarantor and the Trustee, as applicable, may amend
or supplement this Indenture, the Notes, and Subsidiary Guarantee and the
Collateral Documents without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(4) to provide for the assumption of the Company's obligations to
Holders of the Notes under this Indenture or any Guarantor's obligations
under its Subsidiary Guarantee in the case of a merger, consolidation or
sale of assets involving the Company or such Guarantor, as applicable,
pursuant to Article 5 or Article 11 hereof;
(5) to make any change that would provide any additional rights or
benefits to the Holders of the Notes (including providing for Subsidiary
Guarantees and any supplemental indenture required pursuant to Section
4.15 hereof) or that does not adversely affect the legal rights under the
Indenture of any such Holder;
(6) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; and
(7) to enter into additional or supplemental Collateral Documents or
to amend any Collateral Documents to evidence a Lien on any additional
Collateral securing the Notes, including the Additional Notes, if any.
Upon the request of the Company and any Restricted Subsidiary, in its
capacity as a Guarantor, accompanied by a resolution of the Board of Directors
of the Company or such Restricted Subsidiary, as applicable, authorizing the
execution of any such supplemental indenture or supplemental Collateral
Document, and upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company and any such Restricted
Subsidiary in the execution of any supplemental indenture or supplemental
Collateral Document authorized or permitted by the terms of this Indenture and
to make any further appropriate agreements and stipulations which may be therein
contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or supplemental Collateral Document which adversely
affects its own rights, duties or immunities under this Indenture, the
Collateral Documents or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Except as provided below in this Section 9.02, the Company, any
Guarantor and the Trustee together may amend this Indenture, the Notes, any
Subsidiary Guarantee or the Collateral Documents with the written consent of the
Holders of at least a majority in aggregate principal amount of the then
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outstanding Notes (including consents obtained in connection with a purchase of
or a tender offer or exchange offer for Notes).
Upon the request of the Company, accompanied by a resolution of the
Board of Directors of the Company, authorizing the execution of any such
supplemental indenture or supplemental Collateral Document, and upon the filing
with the Trustee of evidence satisfactory to the Trustee of the consent of the
Holders as aforesaid, and upon receipt by the Trustee of the documents described
in Section 9.06 hereof, the Trustee shall join with the Company and any
Guarantor, as the case may be, in the execution of such supplemental indenture
or supplemental Collateral Document unless such supplemental indenture or
supplemental Collateral Document adversely affects the Trustee's own rights,
duties or immunities under this Indenture, the Collateral Documents or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture or supplemental Collateral
Document.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders of each Note affected thereby a
notice briefly describing the amendment 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 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 (including consents obtained in connection
with a purchase of or a tender offer or exchange offer for Notes) may waive any
existing default or compliance in a particular instance by the Company or any
Guarantor with any provision of this Indenture, the Notes or the Collateral
Documents. However, without the consent of each Holder affected, an amendment or
waiver under this Section may not (with respect to any Notes held by a
non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note
or waive any of the provisions with respect to the redemption of the
Notes;
(3) reduce the rate of or change the time for payment of interest on
any Note;
(4) waive a Default or an Event of Default in the payment of
principal of or 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 the then outstanding Notes and a
waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the
Note;
(6) make any change in the provisions of this Indenture or the
Collateral Documents relating to waivers of past Defaults or the rights of
Holders of Notes to receive payments of principal of or interest on the
Notes;
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(7) release all or substantially all of the Collateral from the Lien
of the Indenture or the Collateral Documents;
(8) waive a redemption payment with respect to any Note;
(9) make any change in Section 6.04 or 6.07 hereof;
(10) except pursuant to Article 8 or pursuant to Section 11.04,
release any Guarantor from its obligations under a Subsidiary Guarantee,
or change any Subsidiary Guarantee in any manner that would adversely
affect the Holders in any material respect; or
(11) make any change in the foregoing amendment and waiver
provisions.
In addition, without the consent of at least 662/3% in principal
amount of the Notes then outstanding, an amendment or waiver may not make any
change to, or be effective with respect to, Section 4.14 hereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Notes shall be set forth in
an amendment or supplemental indenture that complies with the TIA as then in
effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Note is a continuing consent by the Holder 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 or subsequent Holder may revoke the consent as to
his or her Note if the Trustee receives written notice of revocation before the
date the waiver or amendment becomes effective. An amendment or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may fix a record date for determining which Holders must
consent to such amendment or waiver. If the Company fixes a record date, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.06, or
(ii) such other date as the Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment 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 or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment or waiver.
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SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture or
supplemental Collateral Document authorized pursuant to this Article 9 if the
amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign it.
In signing such amendment or supplemental indenture or supplemental Collateral
Document, the Trustee shall be entitled to receive, and, subject to Section 7.01
hereof, shall be fully protected in relying upon, an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture or supplemental Collateral Document is authorized or permitted by this
Indenture or the Collateral Documents, that it is not inconsistent herewith, and
that it will be valid and binding upon the Company in accordance with its terms.
The Company may not sign an amendment or supplemental indenture or supplemental
Collateral Document until the Board of Directors of the Company or any
Restricted Subsidiary in its capacity as a Guarantor, as applicable, approves
it.
ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.01. COLLATERAL AND SECURITY.
The due and punctual payment of the principal of, premium, if any,
and interest on the Notes when and as the same shall be due and payable, whether
on an interest payment date, at maturity, by acceleration, repurchase,
redemption or otherwise, and interest on the overdue principal of, interest (to
the extent permitted by law), if any, on the Notes and performance of all other
Obligations of the Company to the Holders or the Trustee under this Indenture
and the Notes, according to the terms hereunder or thereunder, shall be secured
as provided in the Collateral Documents. Each Holder, by its acceptance of a
Note, consents and agrees to the terms of the Collateral Documents (including,
without limitation, the provisions providing for foreclosure and release of
Collateral) as the same may be in effect or may be amended from time to time in
accordance with the terms thereof and hereof and authorizes and directs the
Trustee to enter into each of the Collateral Documents and to perform its
respective obligations and exercise its respective rights thereunder in
accordance therewith. The Company will do or cause to be done all such acts and
things as may be necessary or proper, or as may be required by the provisions of
the Collateral Documents, to assure and confirm to the Trustee the security
interest in the Collateral contemplated hereby and by the Collateral Documents,
as from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Notes secured hereby,
according to the intent and purposes herein expressed. The Company shall take
any and all actions reasonably required to cause the Collateral Documents to
create and maintain, as security for the Obligations of the Company under this
Indenture and the Notes, valid and enforceable, perfected (except as expressly
provided therein and for such liens that can not be perfected by the filing of a
mortgage or financing statement in an appropriate office) Liens in and on all
the Collateral, in favor of the Trustee, superior to and prior to the rights of
all third persons, and subject to no other Liens, other than as provided herein
and therein.
SECTION 10.02. RECORDING, TITLE INSURANCE, ETC.
(a) The Company shall furnish to the Trustee promptly after the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel, assuming the taking of certain
actions with respect to the recording, registering and filing of this Indenture,
financing statements or other instruments, the Lien intended to be created by
the Collateral Documents will become
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effective, and reciting the details of such action, or (ii) stating that, in the
opinion of such counsel, no such action is necessary to make such Lien
effective.
(b) The Company shall furnish to the Trustee within 3 months after
each anniversary of the date of this Indenture, an Opinion of Counsel, dated as
of such date, stating either that (i) in the opinion of such counsel, all action
has been taken with respect to the recording, registering, filing, re-recording,
re-registering and refiling of this Indenture and all supplemental indentures,
financing statements, continuation statements or other instruments of further
assurance as is necessary to maintain the Lien of the Collateral Documents and
reciting the details of such action or (ii) in the opinion of such counsel, no
such action is necessary to maintain such Lien.
(c) The Company shall furnish to the Trustee promptly after the
execution and delivery of this Indenture (or promptly after the imposition of a
Lien on Substitute Collateral or Qualified Collateral which constitutes real
property) the commitment of a title insurance company reasonably satisfactory to
the Trustee agreeing to issue to the Trustee, for the benefit of the Holders,
lenders policies of title insurance relating to the Collateral.
SECTION 10.03. PROTECTION OF THE TRUST ESTATE.
The Trustee shall have the power to enforce the obligations of the
Company and the Restricted Subsidiaries under this Indenture or the Collateral
Documents, to institute and maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Collateral under any of the
Collateral Documents and in the profits, rents, revenues and other income
arising therefrom, including the power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair any Collateral or be prejudicial to the interests of
the Holders or the Trustee, to the extent permitted thereunder. Upon receipt of
notice that the Company is not in compliance with any of the requirements of the
Deeds of Trust, with respect to maintenance of insurance, the Trustee may, but
shall have no obligation to purchase, at the Company's expense, such insurance
coverage necessary to comply with the appropriate section of the respective
Collateral Documents.
SECTION 10.04. RELEASE OF LIEN.
(a) Collateral may be released from the Lien and security interest
created by this Indenture and the Collateral Documents at any time or from time
to time in accordance with the provisions of the Collateral Documents and as
provided hereby. Concurrently with the payment in full of all of the Company's
Obligations under the Notes, this Indenture and the Collateral Documents (other
than with respect to any indemnification obligations), the Collateral shall be
released from the Lien and security interest created by this Indenture
(b) Upon the request of the Company pursuant to an Officers'
Certificate certifying that all conditions precedent hereunder have been met
(and at the sole cost and expense of the Company) and upon the satisfaction of
such conditions precedent hereunder, the Trustee, must release (upon presentment
to it of documents in execution forms adequate to effect the requested release)
(i) Collateral which is sold, disposed of, or is the subject of a Restricted
Payment (other than any such sale, disposition or Restricted Payment to the
Company or any Restricted Subsidiary) provided such transaction is or will be in
accordance with all of the provisions of this Indenture including, without
limitation, the requirement that the Net Proceeds from such Asset Sale are or
will be applied in accordance with Section 4.10 hereof, to
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the extent applicable, and that no Default or Event of Default has occurred or
would be continuing immediately following such release, (ii) Collateral which
may be released with the consent of the Holders pursuant to Article 9 hereof and
(iii) all Collateral (except as provided in Article 8 hereof) upon discharge or
defeasance of this Indenture in accordance with Article 8 hereof.
Notwithstanding any provision in any Collateral Document to the contrary, the
Trustee shall have no obligation or discretion to release any Collateral from
the Lien created by this Indenture or any Collateral Document unless all
conditions precedent under the Indenture, including those contained in this
Section 10.04, have been met.
(c) Upon receipt of such Officers' Certificate, the Trustee must
execute, deliver or acknowledge any necessary or proper instruments of
termination, satisfaction or release presented to it for execution to evidence
the release of any Collateral permitted to be released pursuant to this
Indenture or the Collateral Documents.
(d) The release of any Collateral from the terms of this Indenture
and the Collateral Documents will not be deemed to impair the security under
this Indenture in contravention of the provisions hereof if and to the extent
the Collateral is released pursuant to the terms hereof. To the extent
applicable, the Company and any other obligor shall cause TIA Section 314(d)
relating to the release of property from the Lien arising out of the Collateral
Documents to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Company; provided, however, that
to the extent required by TIA Section 314(d), any such certificate or opinion
shall be made by an independent engineer, appraiser or other expert (as such
terms are set forth in TIA Section 314(d)), who is not an Affiliate of the
Company or any Restricted Subsidiary of the Company.
Whenever Collateral is to be released pursuant to this Section 10.04,
the Trustee will execute any reasonable document or termination statement
presented to it in execution form necessary to release the Lien of this
Indenture and Collateral Documents.
SECTION 10.05. COLLATERAL AGENT.
The Trustee may, from time to time, appoint one or more Collateral
Agents hereunder. Each of such Collateral Agents may be delegated any one or
more of the duties or rights of the Trustee hereunder or under the Collateral
Documents or which are specified in any Collateral Documents, including without
limitation, the right to hold any Collateral in the name of, registered to, or
in the physical possession of such Collateral Agent, for the ratable benefit of
the Holders. Each such Collateral Agent shall have such rights and duties as may
be specified in an agreement between the Trustee and such Collateral Agent.
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
Each Holder, by acceptance of a Note, authorizes and directs the
Trustee to enter into the Collateral Documents. The Trustee may, in its sole
discretion and without the consent of the Holders, on behalf of the Holders,
take all actions it deems necessary or appropriate in order to (a) enforce any
of the terms of the Collateral Documents and (b) collect and receive any and all
amounts payable in respect of the Obligations of the Company hereunder. The
Trustee in its own name or through a Collateral Agent shall have power to
institute and to maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Collateral by any acts that may be unlawful or in
violation of the Collateral Documents or this Indenture, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and the interests of the Holders in the Collateral (including
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the power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest hereunder or be prejudicial to the interests of the
Holders or of the Trustee).
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
The Trustee is authorized to receive in its own name or through any
Collateral Agent any funds for the benefit of the Holders distributed under the
Collateral Documents, and to make further distributions of such funds to the
Holders according to the provisions of this Indenture.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01. SUBSIDIARY GUARANTEES.
The Company's Obligations under the Notes, this Indenture and the
Collateral Documents will be jointly and severally guaranteed by any Restricted
Subsidiary (a "Guarantor") which is required to execute and deliver a
supplemental indenture pursuant to Section 4.15 hereof (the "Subsidiary
Guarantees"). Subject to the provisions of this Article 11, any such Guarantor
will, jointly and severally, unconditionally guarantee to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the Obligations of the Company under this Indenture or the Notes,
that: (i) the principal of, premium, if any, and interest on the Notes will be
paid in full when due, whether at the maturity or interest payment or mandatory
redemption date, by acceleration, call for redemption, offer to purchase or
otherwise, and interest on the overdue principal of, premium, and interest, if
any, on the Notes and all other Obligations of the Company to the Holders or the
Trustee under this Indenture, the Collateral Documents, or the Notes will be
promptly paid in full or performed, all in accordance with the terms of this
Indenture, the Collateral Documents, and the Notes; (ii) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, they will be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at maturity, by acceleration or
otherwise; and (iii) any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights
under any Subsidiary Guarantee will be paid. Failing payment when due of any
amount so guaranteed for whatever reason, any Guarantor will be obligated (
subject to any grace periods allowed pursuant to Section 6.01 hereof) to pay the
same whether or not such failure to pay has become an Event of Default which
could cause acceleration pursuant to Section 6.02 hereof. An Event of Default
under this Indenture or the Notes shall constitute an event of default under any
Subsidiary Guarantee, and shall entitle the Holders of Notes to accelerate the
Obligations of any Guarantor hereunder in the same manner and to the same extent
as the Obligations of the Company. Any Guarantor will agree that its Obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this 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 judgment 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 any Guarantor.
Any Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of either or both
of the Company, protest, notice and all demands whatsoever and covenants that
its Subsidiary Guarantee will not be
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discharged except by complete performance of its Obligations under the Notes and
this Indenture. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor or any Custodian, Trustee,
liquidator or other similar official acting in relation to either the Company or
any Guarantor any amount paid by any such entity to the Trustee or such Holder,
any Subsidiary Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Any Guarantor agrees that it shall not be
entitled to any right of subrogation in relation to the Holder in respect of any
Obligations guaranteed hereby until payment in full of all Obligations
guaranteed hereby. Any Guarantor will agree that, as between it, on the one
hand, and the Holders of Notes and the Trustee, on the other hand, (x) the
maturity of the Obligations guaranteed hereby may be accelerated as provided in
Article 6 hereof for the purposes hereof, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any acceleration of such Obligations
as provided in Article 6 hereof, such Obligations (whether or not due and
payable) shall forthwith become due and payable by such Guarantor for the
purpose of such Subsidiary Guarantee. A Guarantor shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holder under its Subsidiary Guarantee.
SECTION 11.02. WHEN A GUARANTOR MAY MERGE, ETC.
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving person), another corporation, Person or entity
whether or not affiliated with such Guarantor unless:
(i) the person formed by or surviving any such consolidation or
merger (if other than such Guarantor) assumes all the Obligations of such
Guarantor pursuant to a supplemental indenture in the form of Exhibit B
hereto and appropriate Collateral Documents in form and substance
reasonably satisfactory to the Trustee, under the Notes, this Indenture
and the Collateral Documents;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and
(iii) such Guarantor or any person formed by or surviving any such
consolidation or merger, (A) will have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of such Guarantor immediately preceding the
transaction and (B) would be permitted by virtue of the Company's Fixed
Charge Coverage Ratio set forth in the first paragraph of Section 4.09
hereof to incur, immediately after giving effect to such transaction, at
least $1.00 of additional Indebtedness.
The Guarantor shall deliver to the Trustee prior to the consummation
of the proposed transaction an Officers' Certificate to the foregoing effect and
an Opinion of Counsel, covering clauses (i) and (ii) (in the case of clause
(ii), to such counsel's knowledge), stating that the proposed transaction and
such supplemental indenture comply with this Indenture. The Trustee shall be
entitled to conclusively rely upon such Officers' Certificate and Opinion of
Counsel.
Notwithstanding the foregoing, (A) a Guarantor may consolidate with
or merge with or into the Company; provided, however, that the surviving
corporation (if other than the Company) shall expressly assume by supplemental
indenture complying with the requirements of this Indenture, the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes, and the due and
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punctual performance and observance of all the covenants and conditions of this
Indenture and the Collateral Documents to be performed by the Company and (B) a
Guarantor may consolidate with or merge with or into any other Guarantor.
SECTION 11.03. LIMITATION OF GUARANTOR'S LIABILITY.
For purposes of the this Article 11 and any Subsidiary Guarantee,
each Guarantor's liability will be that amount from time to time equal to the
aggregate liability of such Guarantor hereunder and thereunder, but shall be
limited to the least of (i) the aggregate amount of the obligations of the
Company under the Notes and this Indenture or (ii) the amount, if any, which
would not have (A) rendered such Guarantor "insolvent" (as such term is defined
in the federal Bankruptcy Code and in the Debtor and Creditor Law of the State
of New York) or (B) left it with unreasonably small capital at the time its
Subsidiary Guarantee was entered into, after giving effect to the incurrence of
existing Indebtedness immediately prior to such time; provided that, it shall be
a presumption in any lawsuit or other proceeding in which a Guarantor is a party
that the amount guaranteed pursuant to the Subsidiary Guarantee is the amount
set forth in clause (i) above unless any creditor, or representative of
creditors of such guarantor, or debtor in possession or trustee in bankruptcy of
the Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of the Guarantor is limited to the amount set forth in clause (ii). In making
any determination as to the solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of such Guarantor to
contribution from other Guarantors and any other rights such Guarantor may have,
contractual or otherwise, shall be taken into account.
SECTION 11.04. RELEASE OF A GUARANTOR.
Concurrently with the payment in full of all of the Company's
Obligations under the Notes, this Indenture and the Collateral Documents (other
than with respect to any indemnification obligations), each Guarantor shall be
released from and relieved of its Obligations under this Article 11. In the
event of a sale or other disposition of all of the assets of any Guarantor,
which sale or other disposition is otherwise in compliance with the terms of
this Indenture, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be automatically and
unconditionally released and relieved of any obligations under its Subsidiary
Guarantee. The Trustee shall deliver an appropriate instrument evidencing any
such release under this Section 11.04 upon receipt of a request by the Company
accompanied by an Officers' Certificate and an Opinion of Counsel certifying as
to the compliance with this Section 11.04. The provisions of Section 11.02 shall
not apply to any merger or consolidation pursuant to which a Guarantor is
released from its Obligations under this 11.04.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by operation of TIA Section 318(c), the imposed duties
shall control.
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SECTION 12.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in Person or mailed by
first-class mail (registered or certified, return receipt requested), or sent by
telex, telecopier or overnight air courier guaranteeing next Business Day
delivery, to the other's address:
If to the Company:
Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, N.J. 07007-2700
Attention: Corporate Secretary
Telecopier No.: (201) 882-8577
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, N.Y. 10022
Attention: William N. Dye, Esq.
Telecopier No.: (212) 821-8111
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street & Marquette Avenue
Minneapolis, MN 55479-0069
Attention: Corporate Trust
Telecopier No.: (612) 667-9825
The Company or the Trustee by notice to the other 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 Business Day
delivery.
Any notice or communication to a Holder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
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 or given in the manner
provided above within the time prescribed, it is duly given, whether or not the
addressee receives it.
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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 WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 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 Section 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:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05) 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 complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to Section 4.04 and TIA Section 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with; provided, however, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificate of public officials.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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SECTION 12.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking
institutions in The City of New York are authorized or obligated by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue on such
payment for the intervening period.
SECTION 12.08. RECOURSE AGAINST OTHERS.
No director, officer, partner, employee, agent, manager, stockholder,
incorporator or other Affiliate, as such, of the Company or of a Guarantor, if
any, shall have any liability for any obligations of the Company or any
Guarantor under the Notes or the Indenture or a Subsidiary Guarantee, if any, or
for any claim based upon, in respect of or by reason of such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Notwithstanding the foregoing, nothing in this provision shall be
construed as a waiver or release of any claims under the federal securities
laws.
SECTION 12.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 12.10. GOVERNING LAW.
The internal law of the State of New York shall govern and be used,
without reference to its choice of law principles (other than Sec. 5-1401 of the
General Obligation Law), to construe this Indenture, the Notes and any
Subsidiary Guarantees.
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 12.12. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.13. 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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SECTION 12.14. 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 12.15. 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 hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed hereto by their respective duly authorized officers as of the date first
written above.
SIGNATURES
PRIME HOSPITALITY CORP.
By:
-----------------------------
Its:
-----------------------------
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:
-----------------------------
Its:
-----------------------------
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EXHIBIT A
(Face of Note)
9 1/4% First Mortgage Note due 2006
No. $__________
PRIME HOSPITALITY CORP.
promises to pay to _____________________________ or registered assigns, the
principal sum of _____________________________ Dollars on January 15, 2006.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Dated:
PRIME HOSPITALITY CORP.
By:______________________________
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Notes
referred to in the within-
mentioned Indenture:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By:__________________________________
A-1
<PAGE> 76
(Back of Note)
9 1/4% First Mortgage Note due 2006
of
Prime Hospitality Corp.
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.
1. INTEREST. Prime Hospitality Corp., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this 9 1/4%
First Mortgage Note due 2006 (the "Note") at the rate and in the manner
specified below.
The Company shall pay interest on the principal amount of this Note
in cash at the rate per annum shown above. The Company shall pay interest
semi-annually on each January 15 and July 15, commencing July 15, 1996, or if
any such day is not a Business Day (as defined in the Indenture referred to
below), on the next succeeding Business Day (each an "Interest Payment Date").
Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months for the actual number of days elapsed. Interest shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of this Note. To
the extent lawful, the Company shall pay interest on overdue principal and
premium at the rate of 1% per annum in excess of the then applicable interest
rate on this Note; it shall pay interest on overdue installments of interest
(without regard to any applicable grace periods) at the same rate to the extent
lawful.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the January 1 and July 1 next preceding the Interest
Payment Date, even if such Notes are cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.13 of the
Indenture with respect to defaulted interest. The Notes will be payable as to
principal, premium, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders.
Such payment shall be in such coin or currency of the United Sates of America as
at the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company, any Guarantor or any other of its
Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of January 23, 1996 (the "Indenture") among the Company, as issuer, 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 Sections 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 terms of the Indenture shall govern any inconsistencies between
the Indenture and the Notes. The Notes are secured by the Collateral pursuant to
the Collateral Documents referred to in the Indenture.
5. OPTIONAL REDEMPTION. On or after January 15, 2001, the Company may
redeem all or any portion of the Notes, at any time upon not less than 30 nor
more than 60 days' notice, at the redemption
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prices (expressed as percentages of principal amount) set forth below (the
"Redemption Percentages") plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on January 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 ......................................................... 104.625%
2002 ......................................................... 103.083%
2003 ......................................................... 101.542%
2004 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 1999, the Company may
redeem, on any one or more occasions, with the net cash proceeds of any public
offering of its common equity (within 60 days of the consummation of any such
public offering), up to $30.0 million in aggregate principal amount of the Notes
at a redemption price equal to 109.25% of the principal amount of such Notes
plus accrued and unpaid interest thereon, if any, to the redemption date;
provided, however, that at least $100.0 million in aggregate principal amount of
Notes (including Additional Notes, if any) must remain outstanding immediately
following any such redemption.
6. OFFERS TO PURCHASE. Subject to the Company's obligation to make an
offer to purchase Notes in connection with Asset Sales and a Change of Control
(as described in the Indenture), the Company has no mandatory redemption or
sinking fund obligations with respect to the Notes. Notice of any such offer to
purchase will be given as provided in the Indenture. Holders of Notes that are
the subject of an offer to purchase may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below and taking certain other actions, all as set forth in the Indenture.
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 in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of $1,000
of principal amount. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Company shall not be required to exchange or register the
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 of the Indenture
and ending at the close of business on the day of selection, or to exchange or
register any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part, or to exchange or
register a Note between a record date and the next succeeding Interest Payment
Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes 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 any existing Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the Notes then outstanding. The Change of
Control purchase feature of the Notes may not be amended or waived without the
consent of at least 662/3% in principal amount of the Notes then outstanding.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure
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any ambiguity, defect or inconsistency, to comply with Section 5.01, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
under the Indenture or any Guarantor's Obligations under its Subsidiary
Guarantee in the case of a merger, consolidation or sale of assets involving the
Company or such Guarantor, as applicable, pursuant to Article 5 or Article 11 of
the Indenture, to make any change that would provide any additional rights or
benefits to the Holders of the Notes (including providing for Subsidiary
Guarantees and any supplemental indenture required pursuant to Section 4.15 of
the Indenture) or that does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA and to enter
into additional or supplemental Collateral Documents to evidence a Lien on any
additional Collateral securing the Notes.
11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for
30 days in the payment when due of interest on the Notes; (ii) default in
payment when due of the principal of or premium, if any, on the Notes; (iii)
failure by the Company or any Restricted Subsidiaries of the Company to comply
with Sections 3.09, 4.07, 4.09, 4.10, 4.14 or 5.01 of the Indenture; (iv)
failure by the Company or any Guarantor for 60 days in the performance of any
other covenant, warranty or agreement in the Indenture or the Notes after
written notice shall have been given to the Company by the Trustee or to the
Company and the Trustee from Holders of at least 25% in principal amount of the
Notes then outstanding; (v) default under (a) Non- Recourse Indebtedness of the
Company or any of its Restricted Subsidiaries with an aggregate principal amount
in excess of 10% of the aggregate assets of the Company and its Restricted
Subsidiaries measured as of the end of the Company's most recent fiscal quarter
for which internal financial statements are available immediately preceding the
date on which such default occurred, determined on a pro forma basis, or (b) any
other mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issuance Date and,
in each case, the principal amount of which, together with the principal amount
of any other such Indebtedness under which there has been a Payment Default (as
defined below) or the maturity of which has been so accelerated, aggregates
$10.0 million or more, which default, in either case, (x) is caused by a failure
to pay when due principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (y) results in
the acceleration of such Indebtedness prior to its express maturity or shall
constitute a default in the payment of such issue of Indebtedness at final
maturity of such issue; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments rendered against them (other than judgment
liens without recourse to any assets or property of the Company or any of its
Restricted Subsidiaries other than assets or property securing Non- Recourse
Indebtedness) aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 90 days (other than any judgments as
to which a reputable insurance company has accepted full liability); (vii)
breach by the Company of any material representation or warranty set forth in
any of the Collateral Documents, or default by the Company for 30 days in the
performance of any covenant set forth in the Collateral Documents after written
notice shall have been given to the Company by the Trustee or to the Company and
the Trustee from Holders of at least 25% in principal amount of the Notes then
outstanding, or the repudiation by the Company of its obligations under, or the
unenforceability of any of the Collateral Documents for any reason that would
materially impair the benefits to the Trustee or the Holders of the Notes
thereunder; (viii) except as permitted by the Indenture, any Subsidiary
Guarantee with respect to the Notes shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor (or its successors or assigns), or any Person acting on
behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm
its Obligations or shall fail to comply with any Obligations under its
Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with
respect to the Company, any Guarantor or any of the Company's Subsidiaries that
would constitute a Significant Subsidiary or any group of the Company's
Subsidiaries that, taken together, would constitute a Significant Subsidiary. If
any Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising
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from certain events of bankruptcy or insolvency, with respect to the Company,
any of its Subsidiaries that would constitute a Significant Subsidiary or any
group of its Subsidiaries that, taken together, would constitute a Significant
Subsidiary or any Guarantor, all outstanding Notes will become due and payable
without further action or notice. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any
acceleration with respect to the Notes and its consequences. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, 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 require indemnity satisfactory to it before
it enforces the Indenture or the Notes. The Company must furnish an annual
compliance certificate to the Trustee.
12. SUBSIDIARY GUARANTEES. Payment of principal, premium, if any, and
interest (including interest on overdue principal and overdue interest, if
lawful) on the Notes will be unconditionally guaranteed by the Guarantors, if
any, pursuant to, and subject to the terms of, Article 11 of the Indenture.
13. SECURITY. The Notes will be secured by the Collateral as provided
by the Collateral Documents and the Indenture. From time to time the Collateral
may be released in accordance with the terms of the Indenture and the Collateral
Documents.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, shareholder or agent of the Company or any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Notes, the Subsidiary Guarantees 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 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.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
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).
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, the Company has 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 will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07007
Attention: Corporate Secretary
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Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's Social Security or tax I.D. No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
---------------------
Your Signature:
-------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:*
-------------------------------------------------
- ----------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or Section 4.14 of the Indenture, check the box below:
/ / Section 4.10 / / Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 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:*/
--------------------------
- ---------------
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE
This "Supplemental Indenture", dated as of _______________, between
__________________ (the "Guarantor"), a subsidiary of Prime Hospitality Corp., a
Delaware corporation (the "Company"), and Norwest Bank Minnesota, 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, a Delaware corporation, has heretofore executed and
delivered to the Trustee an indenture (the "Indenture"), dated as of January 23,
1996, providing for the issuance of up to an aggregate principal amount of
$120,000,000 of 9 1/4% First Mortgage Notes due 2006 plus up to $80,000,000 of
Additional Notes that may be issued from time to time pursuant to Section 2.02
thereof (the "Notes");
WHEREAS, Section 4.15 of the Indenture provides that under certain
circumstances the Company is required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the Guarantor
shall unconditionally guarantee all of the Company's Obligations under the Notes
pursuant to 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
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 assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby agrees, jointly and
severally with all other Guarantors, to guarantee the Company's obligations
under the Notes on the terms and subject to the conditions set forth in Article
11 of the Indenture and to be bound by all other applicable provisions of the
Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of the Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental
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.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall
govern and be used to construe this Supplemental Indenture.
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5. 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.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
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: ,
------------ --- ----
[Guarantor]
By:
---------------------------
Name:
Title:
Norwest Bank Minnesota, National Association,
as Trustee
By:
---------------------------
Name:
Title:
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EXHIBIT C
FORM OF DEED OF TRUST
<PAGE> 1
Exhibit 10.Y
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of May 15, 1995, between
John M. Elwood ("Executive") and Prime Hospitality Corp., a Delaware
corporation ("Employer").
In consideration of the premises and the mutual covenants hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE
Employer hereby agrees to employ Executive, and Executive hereby agrees to be
and remain in the employ of Employer, upon the terms and conditions hereinafter
set forth.
2. EMPLOYMENT PERIOD
Subject to earlier termination as provided in section 5, the term of
Executive's employment under this Agreement (the "Employment Period") shall
commence as of the date hereof and shall continue for a period of three (3)
years. Either party may terminate this Agreement at the end of three (3) years
or this Agreement may be renewed on a day to day basis pending the negotiation
of a new agreement.
3. DUTIES AND RESPONSIBILITIES
3.1 GENERAL. During the Employment Period, Executive (i) shall have the
titles of Executive Vice President and Chief Financial Officer of Employer and
(ii) shall devote substantially all of his business time and expend his best
efforts, energies and skills to the business of Employer.
Executive shall perform such duties, consistent with his status as Executive
Vice President and Chief Financial Officer of Employer, as he may be assigned
from time to time by Employer's Chief Executive Officer.
4. COMPENSATION AND RELATED MATTERS
4.1 BASE SALARY. For each twelve-month period of the Employment Period,
commencing with the twelve-month period beginning on the date of this Agreement
(each such period, an "Employment Year"), Employer shall pay to Executive a
base salary (the "Base Salary") equal to $280,000 for the first Employment Year
and for each ensuing Employment Year, the greater of (x) $280,000 and (y)
$280,000 multiplied by a fraction, (i) the numerator of which shall be the
Consumer Price Index for Urban Wage Earners and Clerical Workers (1967
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= 100) (the "Index"), published by the Bureau of Labor Statistics of the United
States Department of Labor in the column for the New York- Northern New Jersey
area entitled "All Items" for the month in which such ensuing Employment Year
commences and (ii) the denominator of which shall be such Index number for the
month of May, 1995. If publication of the Index is discontinued, the parties
shall accept comparable statistics on the cost of living for the New
York-Northern New Jersey area as computed and published by any recognized
authority acceptable to the parties. the Base Salary for each Employment Year
shall be payable in equal weekly installments.
4.2 ANNUAL BONUS. For each calendar year (the "Bonus Year"), at the
discretion of the Board of Directors, Executive may receive a cash bonus
("Bonus") based upon attainment of annual performance objectives to be
reasonably established by the Chief Executive Officer and approved by the Board
of Directors for the Bonus Year in consultation with Executive, such
performance objectives to be established as soon as possible following the
beginning of the Bonus Year. The Bonus earned for the Bonus Year shall be
payable promptly following the determination thereof, on the earlier of (i)
fifteen (15) days after the members of the Board of Directors have received the
audited financial statements for the Bonus Year, or (ii) the next meeting of
the Board of Directors. The Bonus Year 1995 will be deemed to commence on
January 1. To the extent specifically provided in Section 6 hereof, the Bonus
payable for the Bonus Year in which the Employment Period terminates shall
equal the Bonus that would have been paid had the Employment Period not so
terminated, multiplied by a fraction, the numerator of which shall be the
number of days of the Employment Period within the Bonus Year and the
denominator of which shall be 365.
4.3 LIFE INSURANCE. Employer shall maintain in effect at all times during
the Employment Period, at Employer's expense, a policy of term insurance on the
life of Executive in the amount equal to $1,000,000 naming such person as
Executive shall designate from time to time as the owner and beneficiary
thereof. Executive agrees that Employer shall have the right to obtain other
life insurance on Executive's life, at Employer's sole expense and with
Employer or an affiliate thereof as the sole beneficiary thereof. Executive
shall (i) cooperate fully with Employer in obtaining all such insurance, (ii)
sign any necessary consents, applications and other related forms or documents,
and (iii) take any required medical examinations.
4.4 AUTOMOBILE. Employer shall provide Executive with the use of a vehicle
at Employer's expense. Executive will be entitled to continue to use that
automobile for the term of this Agreement. Employer shall be responsible for
all expenses of use, maintenance and operation of that vehicle, except if
Executive's operation of the vehicle causes penalty insurance rates, in which
case Executive will bear such costs.
4.5 OTHER BENEFITS. During the Employment Period, subject to, and to the
extent Executive is eligible under their respective terms, Executive shall be
entitled to receive such
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fringe benefits as are, or are from time to time hereafter generally provided
by Employer to Employer's senior management employees or other employees
(other than those provided under or pursuant to separately negotiated
individual employment agreements or arrangements) under any pension or
retirement plan, disability plan or insurance, group life insurance, medical
and dental insurance, travel accident insurance, phantom stock or other similar
plan or program of Employer. Executive's Base Salary shall (where applicable)
constitute the compensation on the basis of which the amount of Executive's
benefits under any such plan or program shall be fixed and determined.
4.6 EXPENSE REIMBURSEMENT. Employer shall reimburse Executive for all
business expenses reasonably incurred by him in the performance of his duties
under this Agreement upon his presentation of signed, itemized accounts of such
expenditures, all in accordance with Employer's procedures and policies as
adopted and in effect from time to time and applicable to its senior management
employees.
4.7 VACATIONS. Executive shall be entitled to 20 days vacation for each
calendar year during the Employment Period with reasonable one year carry-over
allowances, which vacations shall be taken at such time or times as shall not
unreasonably interfere with Executive's performance of his duties under this
Agreement.
4.8 STOCK OPTIONS. On the date hereof and on the first and second
anniversary dates of this Agreement (with respect to each such date the "Option
Grant Date"), Employer shall grant to Executive an option to purchase 80,000
shares of Common Stock pursuant and subject to the provisions of Employer's
1995 Employee Stock Option Plan. With respect to each grant, the exercise
price per share for the grant shall be equal to the share price of Employer's
stock on the New York Stock Exchange as of the close of business on the Option
Grant Date. Each grant shall vest and be exercisable in equal installments of
one-third each (1/3) on the first, second and third anniversaries of the Option
Grant Date with respect to such grant, subject, however, to Executive's
continuing employment with Employer on the date of vesting. In the event of
the termination of Executive for any reason (except for termination for cause),
the Executive will have the right to all options which are provided for in this
Agreement.
4.9 TAX GROSS-UP. To the extent that payments made by Employer to or on
behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4 hereof
are subject to federal, state or local income taxes, Employer shall pay to
Executive, not later than forty-five (45) days after the end of the calendar
year for which such payments are includable in Executive's gross income, the
amount of such additional taxes, calculated by assuming application of the
highest applicable tax rates, plus such additional amount as shall be necessary
to hold harmless Executive, as nearly as practicable, from the obligation to
pay such taxes in respect of amounts payable pursuant to this Section 4.9.
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5. TERMINATION OF EMPLOYMENT PERIOD
5.1 TERMINATION WITHOUT CAUSE. Employer may, by notice to Executive at any
time during the Employment Period, terminate the Employment Period without
cause. The effective date of termination from the Employer to the Executive
shall be the date on which such notice is given.
5.2 BY EMPLOYER FOR CAUSE. Employer may, at any time during the Employment
Period by notice to Executive (but only after compliance with the procedure
hereinafter set forth in this Section 5.2 in the event of the cause specified
in clause (ii) below), terminate the Employment Period "for cause" effective
immediately. Such notice shall specify the conduct which is the basis for
termination for cause in reasonable detail. For the purposes hereof, "for
cause" means:
(i) the conviction of Executive in a court of competent jurisdiction of a
crime constituting a felony in such jurisdiction involving money or
other property of the Company or any of its affiliates or any other
felony (whether or not involving money or other property of the
Company) involving moral turpitude; or
(ii) the willful engaging in misconduct that is materially injurious to
Employer, monetarily or otherwise. For the purposes hereof, no act,
or failure to act, on Executive's part shall be considered "willful"
unless done, or omitted to be done, by Executive not in good faith and
without reasonable belief that such action or omission was in or not
opposed to the best interests of Employer.
Termination "for cause" pursuant to clause (ii) of the preceding sentence
shall be effected only if (i) Employer has delivered to Executive a copy of a
notice of termination that complies with the foregoing paragraph and that gives
Executive, on at least ten business days' prior notice, the opportunity,
together with Executive's counsel, to be heard before Employer's Board of
Directors, and (ii) the Board of Directors (after such notice and opportunity
to be heard), adopts a resolution that in the good faith opinion of the Board
of Directors Executive was guilty of conduct set forth in clause (ii) of the
preceding sentence, and specifying the particulars thereof in reasonable
detail.
5.3 BY EXECUTIVE FOR GOOD REASON. Executive may, at any time during the
Employment Period by notice to Employer, terminate the Employment Period under
this Agreement "for good reason" effective immediately. For the purposes
hereof, "good reason" means any material breach by Employer of any provision of
this Agreement. Without limiting the generality of the foregoing, each of the
following shall be deemed to be a material breach of
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this Agreement by Employer: (i) a failure by the Employer to comply with any
provision of this Agreement which has not been cured within ten (10) days after
notice of such noncompliance has been given by Executive to the Employer, (ii)
the assignment to Executive by Employer of duties inconsistent with Executive's
position, responsibilities or status with Employer as in effect on the date of
this Agreement including, but not limited to, any reduction whatsoever in such
position, duties, responsibilities or status, any change in Executive's titles,
offices or perquisites, as then in effect, or any removal of Executive from, or
any failure to re-elect Executive to, any of such positions (except for
Executive's election to the Board of Directors), except in connection with the
termination of his employment on account of his death, disability, or for
cause, (iii) any failure to pay (or any reduction in) compensation (including
benefits) paid or payable to Executive pursuant to the provisions of Section 4
hereof, or (iv) any purported termination of Executive's employment for cause
which is not effected in accordance with the requirements of Section 5.2
hereof (and for purposes of this Agreement no such purported termination shall
be effective).
5.4 DISABILITY. During the Employment Period, if, as a result of physical
or mental incapacity or infirmity, Executive shall be unable to perform his
duties under this Agreement for (i) a continuous period of at least 180 days,
or (ii) periods aggregating at least 270 days during any period of 12
consecutive months (each a "Disability Period"), and at the end of the
Disability Period there is no reasonable probability that Executive can
promptly resume his duties hereunder, Executive shall be deemed disabled (the
"Disability") and Employer, by notice to Executive, shall have the right to
terminate the Employment Period for Disability at, as of or after the end of
the Disability Period. The existence of the Disability shall be determined by
a reputable, licensed physician mutually selected by Employer and Executive,
whose determination shall be final and binding on the parties. Executive shall
cooperate in all reasonable respects to enable an examination to be made by
such physician. Notwithstanding the foregoing, Employer may conclusively
determine Executive to be disabled at any time after the end of the Disability
Period if Executive has then commenced receiving benefits under the long-term
disability insurance policy obtained pursuant to Section 4.5 hereof.
5.5 DEATH. The Employment Period shall end on the date of Executive's
death.
6. TERMINATION COMPENSATION
6.1 TERMINATION WITHOUT CAUSE BY EMPLOYER OR FOR GOOD REASON BY EXECUTIVE.
If the Employment Period is terminated by Employer pursuant to the provisions
of Section 5.1 hereof or by Executive pursuant to the provisions of Section 5.3
hereof, Employer will pay to Executive (i) within thirty (30) days following
the date of termination an amount equal to the greater of the (a) Base Salary
for the balance of the Employment Period (assuming no termination) and (b) one
year's Base Salary (calculated in each case at the Base Salary rate then in
effect); and (ii) on the date due pursuant to the provisions of Section 4.2
hereof, the bonus for
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the then current Bonus Year, without proration. All other benefits provided
for in Sections 4.3, 4.4, 4.5 and Section 4.9 shall be continued at the expense
of Employer for the longer of the balance of the unexpired of the Employment
Period (assuming no termination) and twelve months from the date of
termination.
6.2 CERTAIN OTHER TERMINATIONS. If the Employment Period is terminated by
Employer pursuant to the provisions of Section 5.2, or by death, pursuant to
the provisions of Section 5.5, Employer shall pay to Executive, within thirty
(30) days of the date of termination, Executive's Base Salary through the date
of termination. Provided the date of termination is after the end of a
calendar year for which a Bonus is payable, but prior to the date of payment,
Employer shall also pay to Executive, when due pursuant to provisions of
Section 4.2 hereof, the Bonus for the Bonus Year in which the date of
termination occurred. Employer shall have no obligation to continue any other
benefits provided for in Section 4 past the date of termination.
6.3 TERMINATION FOR DISABILITY. If the Employment Period is terminated by
Employer pursuant to the provisions of Section 5.4, Employer shall make all
payments and continue all benefits for the period specified in Section 6.1;
provided, however, that such payment shall be reduced by any amounts actually
paid to Executive pursuant to any disability insurance or other such similar
program maintained by Employer, including amounts paid pursuant to any
long-term disability policy purchased pursuant to Section 4.5 hereof.
6.4 NO OTHER TERMINATION COMPENSATION. Executive shall not, except as set
forth in this Section 6, be entitled to any compensation following termination
of the Employment Period.
6.5 MITIGATION. Executive shall not be required to mitigate the amount of
any payments or benefits provided for hereunder upon termination of the
Employment Period by seeking employment with any other person, or otherwise,
nor shall the amount of any such payments or benefits be reduced by any
compensation, benefit or other amount earned by, accrued for or paid to
Executive as the result of Executive's employment by or consultancy or other
association with any other person or entity, provided, that any medical, dental
or hospitalization insurance or benefits provided to Executive in connection
with his employment by or consultancy with any person or entity unaffiliated
with the Employer during such period shall be primary to the benefits to be
provided to Executive pursuant to this Agreement for the purposes of
coordination of benefits. Notwithstanding the foregoing, if Executive elects
to be covered by the insurance or benefits provided by an entity or person
unaffiliated with the Employer, Executive agrees that Employer may terminate
any insurance or benefits provided to the Executive.
7. INDEMNIFICATION
Employer shall indemnify and hold Executive harmless from and against any
expenses
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(including reasonable attorneys' fees of the attorneys selected by Executive to
represent him, which shall be advanced as incurred), judgments, fines and
amounts paid in settlement incurred by him by reason of his being made a party
or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of any act or omission to act by Executive during or
before the Employment Period or otherwise by reason of the fact that he is or
was an employee, director or officer of Employer, or of Prime Motor Inns, Inc.,
or of any subsidiary or affiliate included as a part of the Company, or of
Prime Motor Inns, Inc., to the fullest extent and in the manner set forth and
permitted by the General Corporation Law of the State of Delaware and any other
applicable law as from time to time in effect. If any action, suit or
proceeding is brought or threatened against Executive in respect of which
indemnity may be sought against Employer, its subsidiaries, affiliates or
predecessors pursuant to the foregoing, Executive shall notify Employer in
writing of the institution of such action, suit or proceeding. In any such
action, suit or proceeding Executive shall have the right to designate separate
counsel acceptable to Executive in his sole discretion.
8. CONFIDENTIALITY
Unless otherwise required by law or judicial process, Executive shall retain
in confidence after termination of Executive's employment with Employer
pursuant to this Agreement all confidential information known to the Executive
concerning the Company and its businesses for the shorter of one (1) year
following such termination or until such information is publicly disclosed by
the Company or otherwise becomes publicly disclosed other than through
Executive's actions.
9. SUCCESSORS; BINDING AGREEMENT
(a) This Agreement shall be binding upon and inure to the benefit of
Employer and any successor of Employer, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or a
substantial portion of the stock, business or assets of Employer, whether by
merger, restructuring, reorganization, consolidation, division, sale or
otherwise (and such successor shall thereafter be deemed "the Employer" for the
purposes of this Agreement).
(b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee, or other beneficiary or, if
there be no such beneficiary, to Executive's estate.
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10. SURVIVORSHIP
The respective rights and obligations of the parties hereunder shall survive
any termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
11. MISCELLANEOUS
11.1 NOTICES. Any notice, consent or authorization required or permitted to
be given pursuant to this Agreement shall be in writing and sent to the party
for or to whom intended, at the address of such party set forth below, by
registered or certified mail, postage paid (deemed given five days after
deposit in the U.S. mails) or personally or by facsimile transmission (deemed
given upon receipt), or at such other address as either party shall designate
by notice given to the other in the manner provided herein.
If to Employer: Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
Attn.: Secretary
If to Executive: Mr. John M. Elwood
Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
11.2 LEGAL FEES. Employer shall promptly reimburse the Executive for the
reasonable legal fees and expenses incurred by Executive in connection with
enforcement of Executive's rights hereunder, provided that Executive shall not
be reimbursed for legal fees and expenses in the event Executive has not acted
in good faith.
11.3 TAXES. Employer is authorized to withhold (from any compensation or
benefits payable hereunder to Executive) such amounts for income tax, social
security, unemployment compensation and other taxes as shall be necessary or
appropriate in the reasonable judgment of Employer to comply with applicable
laws and regulations.
11.4 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New Jersey applicable to
agreements made and to be performed therein.
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11.5 ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Fairfield,
New Jersey in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitration award in any court
having jurisdiction; provided, however, that Executive shall be entitled to
seek specific performance of his right to be paid until expiration of the
Employment Period during the pendency of any arbitration.
11.6 HEADINGS. All descriptive headings in this Agreement are inserted for
convenience only and shall be disregarded in construing or applying any
provision of this Agreement.
11.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
11.8 SEVERABILITY. If any provision of this Agreement, or any part thereof,
is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
11.9 ENTIRE AGREEMENT AND REPRESENTATION. This Agreement contains the entire
agreement and understanding between Employer and Executive with respect to the
subject matter hereof. No representations or warranties of any kind or nature
relating to Employer or its several businesses, or relating to Employer's
assets, liabilities, operations, future plans or prospects have been made by or
on behalf of Employer to Executive. This Agreement supersedes any prior
agreement between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
PRIME HOSPITALITY CORP.
BY:
--------------------------
--------------------------
JOHN M. ELWOOD
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Exhibit 10.Z
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of August 1, 1995, between
David A. Simon ("Executive") and Prime Hospitality Corp., a Delaware
corporation ("Employer").
In consideration of the premises and the mutual covenants hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE
Employer hereby agrees to employ Executive, and Executive hereby agrees to be
and remain in the employ of Employer, upon the terms and conditions hereinafter
set forth.
2. EMPLOYMENT PERIOD
Subject to earlier termination as provided in section 5, the term of
Executive's employment under this Agreement (the "Employment Period") shall
commence as of the date hereof and shall continue for a period of three (3)
years. Either party may terminate this Agreement at the end of three (3) years
or this Agreement may be renewed on a day to day basis pending the negotiation
of a new agreement.
3. DUTIES AND RESPONSIBILITIES
3.1 GENERAL. During the Employment Period, Executive (i) shall have the
titles of President and Chief Executive Officer of Employer and (ii) shall
devote substantially all of his business time and expend his best efforts,
energies and skills to the business of Employer.
Executive shall perform such duties, consistent with his status as President
and Chief Executive Officer of Employer, as he may be assigned from time to
time by Employer's Board of Directors.
4. COMPENSATION AND RELATED MATTERS
4.1 BASE SALARY. For each twelve-month period of the Employment Period,
commencing with the twelve-month period beginning on the date of this Agreement
(each such period, an "Employment Year"), Employer shall pay to Executive a
base salary ("Base Salary") equal to $350,000 for the first Employment Year and
for each ensuing Employment Year, the greater of (x) $350,000 and (y) $350,000
multiplied by a fraction, (i) the numerator of which shall be the Consumer
Price Index for Urban Wage Earners and Clerical Workers (1967 = 100) (the
"Index"), published by the Bureau of Labor Statistics of the United States
Department of Labor in the column for the New York-Northern New Jersey area
entitled "All Items" for the
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month in which such ensuing Employment Year commences and (ii) the denominator
of which shall be such Index number for the month of July, 1995. If
publication of the Index is discontinued, the parties shall accept comparable
statistics on the cost of living for the New York-Northern New Jersey area as
computed and published by any recognized authority acceptable to the parties.
The Base Salary for each Employment Year shall be payable in equal weekly
installments.
4.2 ANNUAL BONUS. For each calendar year (the "Bonus Year"), at the
discretion of the Board of Directors, Executive may receive a cash bonus
("Bonus") based upon attainment of annual performance objectives to be
reasonably established by the Board of Directors for the Bonus Year in
consultation with Executive, such performance objectives to be established as
soon as possible following the beginning of the Bonus Year. Bonus earned for
the Bonus Year shall be payable promptly following the determination thereof,
on the earlier of (i) fifteen (15) days after the members of the Board of
Directors have received the audited financial statements for the Bonus Year, or
(ii) the next meeting of the Board of Directors. The Bonus Year 1995 will be
deemed to commence on January 1. To the extent specifically provided in
Section 6 hereof, the Bonus payable for the Bonus Year in which the Employment
Period terminates shall equal the Bonus that would have been paid had the
Employment Period not so terminated, multiplied by a fraction, the numerator of
which shall be the number of days of the Employment Period within the Bonus
Year and the denominator of which shall be 365.
4.3 LIFE INSURANCE. Employer shall maintain in effect at all times during
the Employment Period, at Employer's expense, a policy of term insurance on the
life of Executive in the amount equal to $1,000,000, naming such person as
Executive shall designate from time to time as the owner and beneficiary
thereof. Executive agrees that Employer shall have the right to obtain other
life insurance on Executive's life, at Employer's sole expense and with
Employer or an affiliate thereof as the sole beneficiary thereof. Executive
shall (i) cooperate fully with Employer in obtaining all such insurance, (ii)
sign any necessary consents, applications and other related forms or documents,
and (iii) take any required medical examinations.
4.4 AUTOMOBILE. Employer shall provide Executive with the use of a vehicle
at Employer's expense. Executive will be entitled to continue to use that
automobile for the term of this Agreement. Employer shall be responsible for
all expenses of use, maintenance and operation of that vehicle, except if
Executive's operation of the vehicle causes penalty insurance rates, in which
case Executive will bear such costs.
4.5 OTHER BENEFITS. During the Employment Period, subject to, and to the
extent Executive is eligible under their respective terms, Executive shall be
entitled to receive such fringe benefits as are, or are from time to time
hereafter generally provided by Employer to Employer's senior management
employees or other employees (other than those provided under or pursuant to
separately negotiated individual employment agreements or arrangements) under
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any pension or retirement plan, disability plan or insurance, group life
insurance, medical and dental insurance, travel accident insurance, phantom
stock or other similar plan or program of Employer. Executive's Base Salary
shall (where applicable) constitute the compensation on the basis of which the
amount of Executive's benefits under any such plan or program shall be fixed
and determined.
4.6 EXPENSE REIMBURSEMENT. Employer shall reimburse Executive for all
business expenses reasonably incurred by him in the performance of his duties
under this Agreement upon his presentation of signed, itemized accounts of such
expenditures, all in accordance with Employer's procedures and policies as
adopted and in effect from time to time and applicable to its senior management
employees.
4.7 VACATIONS. Executive shall be entitled to 20 days vacation for each
calendar year during the Employment Period with reasonable one year carry-over
allowances, which vacations shall be taken at such time or times as shall not
unreasonably interfere with Executive's performance of his duties under this
Agreement.
4.8 STOCK OPTIONS. On the date hereof and on the first and second
anniversary dates of this Agreement (with respect to each such date the "Option
Grant Date"), Employer shall grant to Executive an option to purchase 100,000
shares of Common Stock pursuant and subject to the provisions of Employer's
1995 Employee Stock Option Plan. With respect to each grant, the exercise
price per share for the grant shall be equal to the share price of Employer's
stock on the New York Stock Exchange as of the close of business on the Option
Grant Date. Each grant shall vest and be exercisable in equal installments of
one-third each (1/3) on the first, second and third anniversaries of the Option
Grant Date with respect to such grant, subject, however, to Executive's
continuing employment with Employer on the date of vesting. In the event of
the termination of Executive for any reason (except for termination for cause),
the Executive will have the right to all options which are provided for in this
Agreement.
4.9 TAX GROSS-UP. To the extent that payments made by Employer to or on
behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4 hereof
are subject to federal, state or local income taxes, Employer shall pay to
Executive, not later than forty -five (45) days after the end of the calendar
year for which such payments are includable in Executive's gross income, the
amount of such additional taxes, calculated by assuming application of the
highest applicable tax rates, plus such additional amount as shall be necessary
to hold harmless Executive, as nearly as practicable, from the obligation to
pay such taxes in respect of amounts payable pursuant to this Section 4.9.
5. TERMINATION OF EMPLOYMENT PERIOD
5.1 TERMINATION WITHOUT CAUSE. Employer may, by notice to Executive at any
time
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during the Employment Period, terminate the Employment Period without cause.
The effective date of termination from the Employer to the Executive shall be
the date on which such notice is given.
5.2 BY EMPLOYER FOR CAUSE. Employer may, at any time during the Employment
Period by notice to Executive (but only after compliance with the procedure
hereinafter set forth in this Section 5.2 in the event of the cause specified
in clause (ii) below), terminate the Employment Period "for cause" effective
immediately. Such notice shall specify the conduct which is the basis for
termination for cause in reasonable detail. For the purposes hereof, "for
cause" means:
(i) the conviction of Executive in a court of competent jurisdiction of a
crime constituting a felony in such jurisdiction involving money or
other property of the Company or any of its affiliates or any other
felony (whether or not involving money or other property of the
Company) involving moral turpitude; or
(ii) the willful engaging in misconduct that is materially injurious to
Employer, monetarily or otherwise. For the purposes hereof, no act,
or failure to act, on Executive's part shall be considered "willful"
unless done, or omitted to be done, by Executive not in good faith and
without reasonable belief that such action or omission was in or not
opposed to the best interests of Employer.
Termination "for cause" pursuant to clause (ii) of the preceding sentence
shall be effected only if (i) Employer has delivered to Executive a copy of a
notice of termination that complies with the foregoing paragraph and that gives
Executive, on at least ten business days' prior notice, the opportunity,
together with Executive's counsel, to be heard before Employer's Board of
Directors, and (ii) the Board of Directors (after such notice and opportunity
to be heard), adopts a resolution that in the good faith opinion of the Board
of Directors Executive was guilty of conduct set forth in clause (ii) of the
preceding sentence, and specifying the particulars thereof in reasonable
detail.
5.3 BY EXECUTIVE FOR GOOD REASON. Executive may, at any time during the
Employment Period by notice to Employer, terminate the Employment Period under
this Agreement "for good reason" effective immediately. For the purposes
hereof, "good reason" means any material breach by Employer of any provision of
this Agreement. Without limiting the generality of the foregoing, each of the
following shall be deemed to be a material breach of this Agreement by
Employer: (i) a failure by the Employer to comply with any provision of this
Agreement which has not been cured within ten (10) days after notice of such
noncompliance has been given by Executive to the Employer, (ii) the assignment
to Executive by Employer of duties
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inconsistent with Executive's position, responsibilities or status with
Employer as in effect on the date of this Agreement including, but not limited
to, any reduction whatsoever in such position, duties, responsibilities or
status, any change in Executive's titles, offices or perquisites, as then in
effect, or any removal of Executive from, or any failure to re-elect Executive
to, any of such positions (except for Executive's election to the Board of
Directors), except in connection with the termination of his employment on
account of his death, disability, or for cause, (iii) any failure to pay (or
any reduction in) compensation (including benefits) paid or payable to
Executive pursuant to the provisions of Section 4 hereof, or (iv) any purported
termination of Executive's employment for cause which is not effected in
accordance with the requirements of Section 5.2 hereof (and for purposes of
this Agreement no such purported termination shall be effective).
5.4 DISABILITY. During the Employment Period, if, as a result of physical
or mental incapacity or infirmity, Executive shall be unable to perform his
duties under this Agreement for (i) a continuous period of at least 180 days,
or (ii) periods aggregating at least 270 days during any period of 12
consecutive months (each a "Disability Period"), and at the end of the
Disability Period there is no reasonable probability that Executive can
promptly resume his duties hereunder, Executive shall be deemed disabled (the
"Disability") and Employer, by notice to Executive, shall have the right to
terminate the Employment Period for Disability at, as of or after the end of
the Disability Period. The existence of the Disability shall be determined by
a reputable, licensed physician mutually selected by Employer and Executive,
whose determination shall be final and binding on the parties. Executive shall
cooperate in all reasonable respects to enable an examination to be made by
such physician. Notwithstanding the foregoing, Employer may conclusively
determine Executive to be disabled at any time after the end of the Disability
Period if Executive has then commenced receiving benefits under the long-term
disability insurance policy obtained pursuant to Section 4.5 hereof.
5.5 DEATH. The Employment Period shall end on the date of Executive's
death.
6. TERMINATION COMPENSATION
6.1 TERMINATION WITHOUT CAUSE BY EMPLOYER OR FOR GOOD REASON BY EXECUTIVE.
If the Employment Period is terminated by Employer pursuant to the provisions
of Section 5.1 hereof or by Executive pursuant to the provisions of Section 5.3
hereof, Employer will pay to Executive (i) within thirty (30) days following
the date of termination an amount equal to the greater of the (a) Base Salary
for the balance of the Employment Period (assuming no termination) and (b) one
year's Base Salary (calculated in each case at the Base Salary rate then in
effect); and (ii) on the date due pursuant to the provisions of Section 4.2
hereof, the bonus for the then current Bonus Year, without proration. All
other benefits provided for in Sections 4.3, 4.4, 4.5 and Section 4.9 shall be
continued at the expense of Employer for the longer of the balance of the
unexpired portion of the Employment Period (assuming no termination) and twelve
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months from date of termination.
6.2 CERTAIN OTHER TERMINATIONS. If the Employment Period is terminated by
Employer pursuant to the provisions of Section 5.2, or by death, pursuant to
the provisions of Section 5.5, Employer shall pay to Executive, within thirty
(30) days of the date of termination, Executive's Base Salary through the date
of termination. Provided the date of termination is after the end of a
calendar year for which a Bonus is payable, but prior to the date of payment,
Employer shall also pay to Executive, when due pursuant to provisions of
Section 4.2 hereof, the Bonus for the Bonus Year in which the date of
termination occurred. Employer shall have no obligation to continue any other
benefits provided for in Section 4 past the date of termination.
6.3 TERMINATION FOR DISABILITY. If the Employment Period is terminated by
Employer pursuant to the provisions of Section 5.4, Employer shall make all
payments and continue all benefits for the period specified in Section 6.1;
provided, however, that such payment shall be reduced by any amounts actually
paid to Executive pursuant to any disability insurance or other such similar
program maintained by Employer, including amounts paid pursuant to any
long-term disability policy purchased pursuant to Section 4.5 hereof.
6.4 NO OTHER TERMINATION COMPENSATION. Executive shall not, except as set
forth in this Section 6, be entitled to any compensation following termination
of the Employment Period.
6.5 MITIGATION. Executive shall not be required to mitigate the amount of
any payments or benefits provided for hereunder upon termination of the
Employment Period by seeking employment with any other person, or otherwise,
nor shall the amount of any such payments or benefits be reduced by any
compensation, benefit or other amount earned by, accrued for or paid to
Executive as the result of Executive's employment by or consultancy or other
association with any other person or entity, provided, that any medical, dental
or hospitalization insurance or benefits provided to Executive in connection
with his employment by or consultancy with any person or entity unaffiliated
with the Employer during such period shall be primary to the benefits to be
provided to Executive pursuant to this Agreement for the purposes of
coordination of benefits. Notwithstanding the foregoing, if Executive elects
to be covered by the insurance or benefits provided by an entity or person
unaffiliated with the Employer, Executive agrees that Employer may terminate
any insurance or benefits provided to the Executive.
7. INDEMNIFICATION
Employer shall indemnify and hold Executive harmless from and against any
expenses (including reasonable attorneys' fees of the attorneys selected by
Executive to represent him, which shall be advanced as incurred), judgments,
fines and amounts paid in settlement incurred by him by reason of his being
made a party or threatened to be made a party to any threatened,
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pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of any act or omission to act by
Executive during or before the Employment Period or otherwise by reason of the
fact that he is or was an employee, director or officer of Employer, or of
Prime Motor Inns, Inc., or of any subsidiary or affiliate included as a part of
the Company, or of Prime Motor Inns, Inc., to the fullest extent and in the
manner set forth and permitted by the General Corporation Law of the State of
Delaware and any other applicable law as from time to time in effect. If any
action, suit or proceeding is brought or threatened against Executive in
respect of which indemnity may be sought against Employer, its subsidiaries,
affiliates or predecessors pursuant to the foregoing, Executive shall notify
Employer in writing of the institution of such action, suit or proceeding. In
any such action, suit or proceeding Executive shall have the right to designate
separate counsel acceptable to Executive in his sole discretion.
8. CONFIDENTIALITY
Unless otherwise required by law or judicial process, Executive shall retain
in confidence after termination of Executive's employment with Employer
pursuant to this Agreement all confidential information known to the Executive
concerning the Company and its businesses for the shorter of one (1) year
following such termination or until such information is publicly disclosed by
the Company or otherwise becomes publicly disclosed other than through
Executive's actions.
9. SUCCESSORS; BINDING AGREEMENT
(a) This Agreement shall be binding upon and inure to the benefit of
Employer and any successor of Employer, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or a
substantial portion of the stock, business or assets of Employer, whether by
merger, restructuring, reorganization, consolidation, division, sale or
otherwise (and such successor shall thereafter be deemed "the Employer" for the
purposes of this Agreement).
(b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee, or other beneficiary or, if
there be no such beneficiary, to Executive's estate.
10. SURVIVORSHIP
The respective rights and obligations of the parties hereunder shall survive
any termination
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of this Agreement to the extent necessary to the intended preservation of such
rights and obligations.
11. MISCELLANEOUS
11.1 NOTICES. Any notice, consent or authorization required or permitted to
be given pursuant to this Agreement shall be in writing and sent to the party
for or to whom intended, at the address of such party set forth below, by
registered or certified mail, postage paid (deemed given five days after
deposit in the U.S. mails) or personally or by facsimile transmission (deemed
given upon receipt), or at such other address as either party shall designate
by notice given to the other in the manner provided herein.
If to Employer: Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
Attn.: Secretary
If to Executive: Mr. David A. Simon
Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
11.2 LEGAL FEES. Employer shall promptly reimburse the Executive for the
reasonable legal fees and expenses incurred by Executive in connection with
enforcement of Executive's rights hereunder, provided that Executive shall not
be reimbursed for legal fees and expenses in the event Executive has not acted
in good faith.
11.3 TAXES. Employer is authorized to withhold (from any compensation or
benefits payable hereunder to Executive) such amounts for income tax, social
security, unemployment compensation and other taxes as shall be necessary or
appropriate in the reasonable judgment of Employer to comply with applicable
laws and regulations.
11.4 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New Jersey applicable to
agreements made and to be performed therein.
11.5 ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Fairfield,
New Jersey in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on
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the arbitration award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be
paid until expiration of the Employment Period during the pendency of any
arbitration.
11.6 HEADINGS. All descriptive headings in this Agreement are inserted for
convenience only and shall be disregarded in construing or applying any
provision of this Agreement.
11.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
11.8 SEVERABILITY. If any provision of this Agreement, or any part thereof,
is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
11.9 ENTIRE AGREEMENT AND REPRESENTATION. This Agreement contains the entire
agreement and understanding between Employer and Executive with respect to the
subject matter hereof. No representations or warranties of any kind or nature
relating to Employer or its several businesses, or relating to Employer's
assets, liabilities, operations, future plans or prospects have been made by or
on behalf of Employer to Executive. This Agreement supersedes any prior
agreement between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
PRIME HOSPITALITY CORP.
By:
--------------------------
-----------------------------
DAVID A. SIMON
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Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of Prime Hospitality Corp.:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement No. 33-54995.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 49,533
<SECURITIES> 11,929
<RECEIVABLES> 13,352
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0
0
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</TABLE>
