SHOLODGE INC, S-3/A, 1996-11-08

SHOLODGE INC
S-3/A, 1996-11-08
HOTELS & MOTELS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996

REGISTRATION NO. 333-14463

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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SHOLODGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
TENNESSEE 62-1015641
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

------------------------

217 WEST MAIN STREET
GALLATIN, TENNESSEE 37066
(615) 452-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

JOHN W. TITUS, ESQUIRE
BOULT, CUMMINGS, CONNERS & BERRY, PLC
P. O. BOX 198062
414 UNION STREET
SUITE 1600
NASHVILLE, TENNESSEE 37219
(615) 252-2341
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

Copy to:
J. PAGE DAVIDSON, ESQUIRE
BASS, BERRY & SIMS PLC
FIRST AMERICAN CENTER
NASHVILLE, TENNESSEE 37238
(615) 742-6253
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1996

PRELIMINARY PROSPECTUS SUPPLEMENT

(TO PRELIMINARY PROSPECTUS DATED NOVEMBER 8, 1996)

[SHONEY'S INN LOGO] $35,000,000 [SUMNER SUITES LOGO]
SHOLODGE, INC.

% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
------------------------

ShoLodge, Inc. (the "Company") is offering $35,000,000 in aggregate
principal amount of its % Senior Subordinated Notes due 2006, Series A (the
"Series A Notes"). The Series A Notes mature on , 2006. Interest on
the Series A Notes will be payable quarterly on the first day of February, May,
August and November of each year commencing February 1, 1997. The Series A Notes
will be unsecured and subordinated in right of payment to the prior payment in
full of all existing and future Senior Indebtedness, as defined, of the Company
and will be senior in right of payment to, or pari passu with, all other
subordinated indebtedness of the Company. As of July 14, 1996, after giving pro
forma effect to the sale of the Series A Notes and to the application of the net
proceeds therefrom to reduce indebtedness under the Company's current credit
agreements, as described under "Use of Proceeds," the amount of Senior
Indebtedness of the Company would have been approximately $38.1 million. The
Company had incurred $7.2 million in additional Senior Indebtedness as of
October 6, 1996 and approximately $7.3 million of additional Senior Indebtedness
in connection with the Shoney's Transaction, as defined. The Company may incur
additional Senior Indebtedness subject to the "Restrictions on Additional
Indebtedness" covenant in the Indenture, as defined.

Upon the occurrence of a Change in Control, as defined, of the Company, the
Company will be obligated to purchase the Series A Notes at the holder's option
at par plus accrued interest to the date of purchase. The change in control
feature may have an anti-takeover effect. See "Description of the Notes --
Repurchase at Holder's Option Upon Change in Control." The Series A Notes also
will be redeemable at any time on or after , 1999, at the option of
the Company, in whole or in part, at declining premiums, as set forth herein.
The Company will redeem Series A Notes tendered by the personal representative
or surviving joint tenant, tenant in common or tenant by the entirety of a
deceased holder within 60 days of presentation of the necessary documents, up to
an annual maximum of $50,000 per holder and up to an annual aggregate maximum
amount equal to 5% of the aggregate original principal amount of the Notes of
all series issued under the Indenture. The Company will redeem Series A Notes
tendered by other beneficial holders commencing December 1, 1999 and on each
anniversary thereof subject to the per holder and aggregate limitations. No
sinking fund will be established to redeem the Series A Notes. See "Description
of the Notes."

The Series A Notes will be issued in integral multiples of $1,000 and will
be in fully registered form. The Company does not intend to list the Series A
Notes on the Nasdaq National Market or any securities exchange. The Underwriters
have informed the Company that they intend to make a market in the Series A
Notes; however, no assurance can be given that an active trading market for the
Series A Notes will develop. See "Underwriting."

SEE "RISK FACTORS" APPEARING ON PAGES S-7 THROUGH S-10 OF THIS PROSPECTUS
SUPPLEMENT FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SERIES A NOTES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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<S> <C> <C> <C>
Per Series A Note................................. 100% % %
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Total(4).......................................... $35,000,000 $ $
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</TABLE>

(1) Plus accrued interest, if any, from date of initial issuance.

(2) The Company has agreed to indemnify the several Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(3) Before deducting estimated expenses of $400,000 payable by the Company.

(4) The Company has granted the Underwriters an option to purchase up to an
additional $5,250,000 in principal amount of Series A Notes to cover
over-allotments on the same terms and conditions as set forth above. If all
such Series A Notes are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------

The Series A Notes offered by this Prospectus Supplement and accompanying
Prospectus are offered by the Underwriters when, as and if issued by the
Company, subject to receipt and acceptance by the several Underwriters, prior
sale and the right of the Underwriters to reject any order in whole or in part
and to withdraw, cancel or modify the offer without notice. It is expected that
the Series A Notes will be available for delivery on or about ,
1996.
------------------------
J.C. BRADFORD & CO

DAIN BOSWORTH INCORPORATED

INTERSTATE/JOHNSON LANE CORPORATION

, 1996

<PAGE> 3

This page contains spaces for the following graphic and image materials:

The inside front cover contains a map of a portion of the United
States showing the states where the Company's hotels are located or under
construction.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A NOTES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

S-2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus Supplement
and accompanying Prospectus or incorporated by reference herein. The term
"Company" as used herein includes the operations of ShoLodge, Inc. and its
subsidiaries. Unless otherwise noted, the information in this Prospectus
Supplement does not give effect to the exercise of the Underwriters'
over-allotment option.

THE COMPANY

ShoLodge, Inc. develops, owns and operates all-suites hotels under the
Sumner Suites brand name and is an operator and the exclusive franchisor of
Shoney's Inns and Shoney's Inn & Suites (collectively, "Shoney's Inns"). The
Company's 11 Sumner Suites are mid-scale, all-suites hotels located in Florida,
Georgia, Indiana, New Mexico, Ohio and Texas. The Shoney's Inns lodging system
consists of 88 Shoney's Inns containing 8,985 rooms of which 34 Shoney's Inns
containing 4,164 rooms are owned or managed by the Company. Shoney's Inns are
currently located in 21 states with a concentration in the Southeast.

Sumner Suites hotels are marketed primarily to business travelers and, to a
lesser extent, leisure travelers by offering an all-suite setting in a
convenient location at an attractive price/value relationship. Usually located
in or near business or leisure travel destinations in mid-sized and larger
metropolitan markets, Sumner Suites offer mid-scale accommodations at rates
between $65 and $85 per night. A typical Sumner Suites hotel contains from 110
to 125 rooms, lounge facilities, meeting rooms and an exercise room, and offers
a deluxe continental breakfast.

The Sumner Suites concept was launched in 1995 with three hotels. From 1990
until 1995, the Company developed and managed 12 mid-scale, all-suites hotels
under another brand name before selling its interests in those hotels in March
1995. The Company believes that its experience in developing, constructing and
managing mid-scale, all-suites hotels will enable it to expand effectively its
development and ownership of the Sumner Suites system. As Sumner Suites has a
limited presence in the marketplace, the Company seeks to capitalize on its
proprietary reservation system ("INNLINK") to further expand awareness of Sumner
Suites.

Shoney's Inns operate in the upper economy limited-service segment and are
designed to appeal to both business and leisure travelers, with rooms usually
priced between $39 and $58 per night. The typical Shoney's Inn includes 100 to
125 rooms and, in most cases, meeting rooms. Although Shoney's Inns do not offer
full food service, many offer continental breakfast and 79 of the 88 Shoney's
Inns are located adjacent or in close proximity to Shoney's restaurants.
Management believes that its strategy of locating most of its Shoney's Inns in
close proximity to free-standing Shoney's restaurants has given it a competitive
advantage over other limited-service lodging chains by offering guest services
approximating those of full-service facilities without the additional capital
expenditures and operating costs or higher room rates.

In 1991, the Company became the exclusive franchisor of Shoney's Inns,
including the then existing Shoney's Inns. Management believes that Shoney's
Inns benefit from the association with the Shoney's national brand restaurant
system's reputation for consistency and value which provides an opportunity for
expansion in both existing and new markets. Shoney's Inns benefit directly from
cross-marketing efforts with Shoney's restaurants as well as indirectly from
Shoney's restaurant advertising.

The Company's strategy is to increase cash flow and earnings by (i)
increasing revenue per available room ("REVPAR") while maintaining the Company's
attractive suite and room price/value relationships and controlling operating
costs, (ii) developing additional Sumner Suites, and (iii) expanding the
Shoney's Inn system through the addition of new franchised units and selectively
developing Company-owned hotels. The Company has opened eight Sumner Suites in
fiscal 1996 and has three Sumner Suites under construction scheduled to open
during the remainder of fiscal 1996. The Company intends to open a total of
eight to ten Sumner Suites in fiscal 1997, of which two are currently under
construction. Based on the Company's experience to date, the capital investment
(including land and pre-opening expenses) for a typical 125 suite Sumner Suites
is approximately $6.5 million (approximately $52,000 per suite).

The principal executive offices of the Company are located at 217 West Main
Street, Gallatin, Tennessee 37066. The Company's telephone number is (615)
452-7200.

S-3
<PAGE> 5

RECENT DEVELOPMENTS

Recent Operating Results. On October 30, 1996, the Company announced the
following unaudited financial information for its fiscal quarter ended October
6, 1996, as compared with its fiscal quarter ended October 1, 1995, and the
three fiscal quarters ended October 6, 1996, as compared with the three fiscal
quarters ended October 1, 1995 (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
THREE FISCAL
FISCAL QUARTER ENDED QUARTERS ENDED
------------------------- -------------------------
OCTOBER 1, OCTOBER 6, OCTOBER 1, OCTOBER 6,
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Hotel operating revenues......................... $ 11,076 $ 16,172 $ 34,123 $ 44,393
Total operating revenues......................... 13,419 17,861 66,512 49,018
Earnings from continuing operations.............. 1,981 3,041 16,621 8,075
Earnings (loss) from discontinued operations*.... 24 -- (21) --
Extraordinary items**............................ 8 -- (700) --
------- ------- ------- -------
Net earnings..................................... $ 2,013 $ 3,041 $ 15,900 $ 8,075
Net earnings per share (primary):
From continuing operations..................... $ 0.23 $ 0.36 $ 1.94 $ 0.96
From discontinued operations................... 0.01 -- -- --
Extraordinary items............................ -- -- (0.08) --
------- ------- ------- -------
Net earnings................................... $ 0.24 $ 0.36 $ 1.86 $ 0.96
Net earnings per share (fully diluted):
From continuing operations..................... $ 0.24 $ 0.34 $ 1.71 $ 0.93
From discontinued operations................... -- -- (0.01) --
Extraordinary items............................ -- -- (0.06) --
------- ------- ------- -------
Net earnings................................... $ 0.24 $ 0.34 $ 1.64 $ 0.93
Average shares outstanding:
Primary........................................ 8,516 8,470 8,570 8,451
Fully diluted.................................. 10,832 10,787 10,886 10,768
</TABLE>

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* During first quarter 1996, the Company sold its 60% ownership interest in its
restaurant operations.

** Extraordinary items represent primarily noncash charges net of income taxes
resulting from the early extinguishment of indebtedness in 1995.

Revenues from hotel operations for all hotels and same store hotels in the
third quarter of 1996 increased 46% and 2%, respectively, from the third quarter
of 1995. Operating profit margins from all hotels in the third quarter of 1996
increased to 48.4% from 44.1% in the third quarter of 1995. Operating profit
margins for same store hotels in the third quarter of 1996 increased to 47.3%
from 43.4% in the third quarter of 1995. REVPAR for all hotels increased 5.5%
and REVPAR for same store hotels increased 1.1% in the third quarter of 1996 as
compared with the third quarter of 1995.

S-4
<PAGE> 6

Shoney's Transaction. On October 25, 1996 the Company repurchased for $2.0
million in cash the warrant held by Shoney's Investments, Inc., an affiliate of
Shoney's, Inc. ("Shoney's"), to acquire 5% of the Company's common stock (the
"Common Stock") outstanding on the date of exercise of the warrant, exercisable
through February 20, 1997. As of October 25, 1996, the warrant entitled Shoney's
to acquire 559,589 shares of Common Stock, of which 437,703 warrants were in the
money at an average price of $9.49. In addition, the Company paid to Shoney's
$5.3 million in cash in exchange for (i) the cancellation of Shoney's right to
receive a portion of the franchise fees collected by the Company equal, in
substantially all cases, to 1.5% of 52 Shoney's Inns' gross revenues through
October 1999 and 0.5% of the remaining and all future Shoney's Inns' gross
revenues for the first ten years of their operations; (ii) the repurchase of all
of the Company's Series A Redeemable Nonparticipating Stock and all of the
Series A Redeemable Nonparticipating Stock of the Company's franchising
subsidiary; (iii) the termination of Shoney's right of first refusal with
respect to shares of Common Stock owned by Leon Moore, the Company's Chief
Executive Officer, if he received an offer which would result in his owning less
than 20% of the Company's outstanding Common Stock; and (iv) the amendment of
the Company's License Agreement with Shoney's (the "License Agreement")_to
terminate certain of Shoney's approval rights over various aspects of the
Company's franchise operations, including the selection of franchisees, the
location and design of franchised facilities, the termination of individual
franchisees, and the maximum fees which the Company may charge franchisees. The
Company will continue as the exclusive franchisor of Shoney's Inns and Shoney's
will retain certain rights, including the right to approve the styles, shapes,
colors and forms in which the "Shoney's Inn" and "Shoney's Inn & Suites" marks
are displayed and the terms of the franchise agreements (other than the maximum
fees and other financial terms thereof). Further, Shoney's retains the right to
terminate the License Agreement under limited circumstances, including the
bankruptcy of the Company, the failure to comply with the terms of the License
Agreement and the failure to desist from conduct likely to impair Shoney's
goodwill and reputation. As a result of the repurchase of the Company's Series A
Redeemable Nonparticipating Stock, Shoney's no longer has the right to designate
two members of the Company's board of directors. Management expects that the
repurchase of the warrants will be treated as a reduction of shareholders'
equity and the cancellation of the warrants will reduce the number of common
equivalent shares outstanding. The $5.3 million price for the cancellation of
Shoney's right to receive a portion of the Company's franchise fees is expected
to be treated as a deferred asset and amortized over a fixed period of time.
Franchise operating expenses of the Company will no longer reflect an expense
for the royalty fees to Shoney's. The transactions described above are sometimes
collectively referred to herein as the "Shoney's Transaction."

THE OFFERING

Securities Offered............ $35,000,000 principal amount of % Senior
Subordinated Notes due 2006, Series A. See
"Description of the Series A Notes."

Maturity...................... , 2006

Interest Payment Date......... Quarterly, commencing February 1, 1997 and on
each May 1, August 1, November 1 and February 1
thereafter. The first interest payment will
represent interest from the date of issuance
through February 1, 1997.

Denomination.................. $1,000 and any integral multiple thereof.

Redemption at Company's
Option...................... Not redeemable prior to , 1999. The
redemption price for the 12 months beginning
, 1999 will be 104% of par plus
accrued and unpaid interest, declining 1% each
year thereafter to 100% on , 2003.
See "Description of the Series A
Notes -- Optional Redemption by the Company."

S-5
<PAGE> 7

Repurchase at Holder's Option
upon Change in Control...... The Company is required to repurchase the
Series A Notes at 100% of their principal
amount together with accrued interest, at the
option of the holder, if a Change in Control
occurs. See "Description of the Series A
Notes -- Certain Provisions Regarding
Redemption at Holder's Option" and "Description
of the Notes -- Repurchase at Holder's Option
Upon Change in Control."

Redemption at Holder's
Option...................... Upon the Death of a Noteholder: The Series A
Notes tendered by the personal representative
or surviving joint tenant, tenant by the
entirety or tenant in common of a deceased
beneficial owner shall be redeemed within 60
days of tender, at par plus accrued interest,
subject to the amount limitations set forth
below.

By other Noteholders: The Series A Notes
tendered by November 1 of each year shall be
redeemed at par plus accrued interest, subject
to the amount limitations set forth below, on
December 1 each year, commencing in 1999.

Amount Limitations: Of the Series A Notes
tendered, the Company is only required to
redeem, for any 12 month period ending November
1, an aggregate maximum of 5% of the original
aggregate principal amount of all Notes of all
series issued under the Indenture, subject to a
maximum of $50,000 per beneficial owner. Notes
tendered by representatives of deceased
beneficial owners will be redeemed prior to
Notes tendered by other Noteholders. See
"Description of the Notes -- Redemption at
Holder's Option."

Subordination................. The Notes of all series issued under the
Indenture will be unsecured obligations of the
Company subordinated in right of payment to the
prior payment in full of all Senior
Indebtedness of the Company, as defined in the
Indenture, and will be senior in right of
payment to or pari passu with all other
subordinated indebtedness of the Company. The
Notes will be effectively subordinated to all
indebtedness of the Company's subsidiaries. See
"Description of the Notes -- Subordination."

Certain Covenants of the
Company..................... In the Indenture, the Company agrees to certain
limitations on dividends and additional
indebtedness and to maintain a certain minimum
consolidated net worth.

Sinking Fund.................. None.

Use of Proceeds............... To reduce certain indebtedness of the Company
under its revolving credit facilities incurred
(i) to fund development and renovation of
lodging facilities and (ii) for general
corporate purposes including funding the
Shoney's Transaction. See "Use of Proceeds."

Risk Factors.................. See "Risk Factors" for a discussion of certain
factors that should be considered by
prospective purchasers of the Series A Notes.

Trustee....................... Bankers Trust Company, New York, New York.

S-6
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
TWO FISCAL
QUARTERS ENDED
FISCAL YEAR ENDED ------------------
-------------------------------------------- JULY
DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, 14,
1993 1994 1995(1) 1995(1) 1996(1)
------------ ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total operating revenues........... $ 40,733 $ 60,776 $ 78,620 $53,094 $31,157
Total operating expenses........... 26,980 43,239 43,137 26,355 17,991
Earnings from continuing operations
before income taxes(2).......... 8,316 12,831 28,289 23,331 7,996
Net earnings(2).................... $ 5,198 $ 7,796 $ 16,977 $13,887 $ 5,034
Net earnings per common and common
equivalent share(2)............. $ 0.66 $ 0.90 $ 1.80 $ 1.40 $ 0.60
EBITDA(3).......................... $ 12,404 $ 16,159 $ 33,554 $25,836 $11,674
Ratio of earnings to fixed
charges(4)...................... 2.43x 2.58x 4.20x 5.86x 2.93x
OPERATING DATA:
Shoney's Inns system (end of period):
Number of units................. 58 73 80 77 88
Number of rooms................. 6,359 7,828 8,584 8,307 9,149
REVPAR(5)....................... $ 26.47 $ 26.43 $ 27.31 $ 27.22 $ 28.79
Company-owned Shoney's Inns (end of
period):
Number of units................. 20 28 30 29 32
Number of rooms................. 2,536 3,560 3,789 3,675 3,973
REVPAR(5)....................... $ 29.50 $ 30.20 $ 30.97 $ 30.72 $ 31.72
Sumner Suites (end of period)(6):
Number of units................. -- -- 3 1 8
Number of rooms................. -- -- 299 55 906
</TABLE>

<TABLE>
<CAPTION>
JULY 14, 1996
-------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(7)
-------- --------------
<S> <C> <C>
Working capital.................................................... $(35,569) $ (2,611)
Total assets....................................................... 227,921 232,119
Long-term debt and capitalized leases.............................. 90,067 125,067
Shareholders' equity............................................... 87,575 87,575
</TABLE>

- ---------------

(1) The financial results for the fiscal year ended December 31, 1995 and the
two fiscal quarters ended July 9, 1995 and July 14, 1996 include $17.7
million, $16.3 million and $200,000, respectively, of pre-tax profits
recognized in connection with the AmeriSuites Transaction which are
considered to be non-recurring. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

(2) After deducting minority interest in earnings of consolidated subsidiaries
and partnerships.

(3) EBITDA represents earnings from continuing operations before deducting
minority interest in earnings of consolidated subsidiaries and partnerships,
net interest expense, income taxes, and depreciation and amortization and
before adding other income. EBITDA is not intended to represent net income,
cash flow or any other measures of performance in accordance with generally
accepted accounting principles, but is included because management believes
certain parties find it to be a useful tool for measuring the Company's
performance.

(4) Earnings used in computing ratio of earnings to fixed charges consist of
earnings before minority interest in earnings of consolidated subsidiaries
and partnership and income taxes, plus fixed charges. Fixed charges means
total interest whether capitalized or expensed (including the portion of
rent expense representative of interest costs) on outstanding debt plus
debt-related fees and amortization of deferred financing costs. The ratio of
earnings to fixed charges on a pro forma basis, giving effect to the
offering and the application of the net proceeds therefrom, would have been
3.42x for fiscal 1995 and 2.34x for the two fiscal quarters ended July 14,
1996.

(5) REVPAR is defined as revenue per available room, which is equal to total
room revenue divided by the number of rooms available for sale.

(6) Seven of the eight Sumner Suites open at July 14, 1996 had been in operation
as Sumner Suites for less than eight months and had not yet reached
stabilized occupancy levels. Therefore, management does not believe that the
presentation of REVPAR for Sumner Suites is meaningful.

(7) As adjusted to give effect to the offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."

S-7
<PAGE> 9

RISK FACTORS

Prospective purchasers of the Series A Notes should carefully consider,
among other things, the following risk factors before purchasing the Series A
Notes offered hereby. This Prospectus Supplement, the accompanying Prospectus
and the information incorporated herein by reference contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding the Company's growth strategies and development
plans and anticipated trends in the Company's business. These statements are
subject to a number of risks and uncertainties, including those described below.

Sumner Suites Expansion Risks. In pursuing its business strategy of
developing new Sumner Suites hotels, the Company will incur substantial costs
relating to pre-opening activities and operating expenses prior to reaching
stabilized levels of occupancy and average daily room rates. As the Company
opens additional Sumner Suites hotels, such start-up costs may negatively impact
the Company's results of operations. While the Company has owned and operated
Shoney's Inns and mid-scale, all-suites hotels under another brand name for a
number of years, the Company's current suites concept, Sumner Suites, was
launched in 1995 with three hotels. Currently, the Company owns and operates 11
Sumner Suites. Company-owned or managed hotels have historically attained
occupancy and average daily room rate stabilization within approximately 18
months of opening. However, the stabilization rates achieved by such hotels to
date may not be indicative of future stabilization rates for Sumner Suites or
Shoney's Inns.

The Company's ability to pursue its expansion plans will depend on a number
of factors, including the hiring and training of sufficiently skilled management
and other personnel, the availability of adequate financing and other factors,
some of which are beyond the control of the Company. Construction of hotels
involves certain risks, including the possibility of construction cost overruns
and delays, a lack of attractive sites at acceptable prices, uncertainties as to
market potential and market deterioration after commencement of the development.
There can be no assurance that the Company will be able to pursue its expansion
plans in accordance with its current expectations.

The opening of the new Sumner Suites hotels will be contingent upon, among
other things, receipt of all required licenses, permits and authorizations. The
scope of the approvals required for a new hotel is extensive, including, without
limitation, state and local land use and occupancy permits, building and zoning
permits and health and safety permits. In addition, unexpected changes or
concessions required by local and state regulatory authorities could involve
significant additional costs and could delay or prevent the completion of
construction or the opening of a new Sumner Suites hotel. There can be no
assurance that the necessary permits, licenses and approvals for the
construction and operation of the new Sumner Suites hotels will be obtained, or
that such permits, licenses and approvals will be obtained within the
anticipated time frame.

The Sumner Suites concept does not have a large presence in the marketplace
and does not have extensive brand awareness. The Company competes with other
companies in the all-suites segment, many of which have greater brand
recognition and financial and other resources than the Company. As a result,
there can be no assurance that the Company can successfully expand the Sumner
Suites hotel brand or compete effectively with these other hotel brands.
Expansion of the Sumner Suites brand may present operating and marketing
challenges that are different from those currently encountered by the Company in
its existing markets. There can be no assurance that the Company will anticipate
all of the changing demands that expanding operations will impose on its
financial resources, management and management information systems or its
reservation system. The failure to adapt its systems and procedures could have a
material adverse effect on the Company's business.

Leverage. As of July 14, 1996, the Company's total long-term debt was $90.1
million, and the Company's earnings exceeded fixed charges by $8.2 million for
the two fiscal quarters then ended. In addition, the Company had $30.0 million
outstanding as of July 14, 1996 under unsecured revolving credit facilities
which are set to mature in January, February and May 1997 and which the Company
intends to reduce with the net proceeds of this offering. The Company has
incurred $11.5 million in additional indebtedness under these facilities since
July 14, 1996. The Company is seeking a new $50.0 million to $75.0 million
multi-year senior revolving credit facility to replace the Company's existing
facilities. There can be no assurance,

S-8
<PAGE> 10

however, as to the availability or terms of any such financing. The failure to
obtain senior revolving credit facility financing on reasonable terms would have
a material adverse effect on the Company's results of operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." The Company may in
the future issue additional senior subordinated debt financing under the same
Indenture under which the Series A Notes are to be issued; however, there can be
no assurance as to the availability or terms of any such senior subordinated
note financing in the future. The debt service requirements of any additional
indebtedness could make it more difficult for the Company to make principal and
interest payments on the Series A Notes. The Company's ability to satisfy its
obligations will be dependent upon its future performance, which is subject to
prevailing economic conditions and financial, business and other factors,
including factors beyond the Company's control. There can be no assurance that
the Company's operating cash flow will be sufficient to meet its debt service
requirements or to repay the Series A Notes at maturity or that the Company will
be able to refinance the Series A Notes or other indebtedness at maturity.

Subordination; Series A Notes Are Unsecured Obligations. The Series A Notes
will be unsecured senior subordinated obligations of the Company and will be
subordinated in right of payment to all present and future Senior Indebtedness
of the Company. The Company operates directly and through subsidiaries which are
direct or indirect obligors or guarantors of $24.7 million of the long-term debt
of the Company and its consolidated subsidiaries outstanding at July 14, 1996.
The Series A Notes will be effectively subordinated in right of payment to all
present and future liabilities of the Company's subsidiaries, including
indebtedness of the Company for which one or more subsidiaries are co-obligors
or guarantors. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Series A Notes only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on any or all of
the Series A Notes then outstanding. As of July 14, 1996, the Company had
approximately $68.1 million of outstanding Senior Indebtedness. The Company has
incurred $7.2 million in additional Senior Indebtedness as of October 6, 1996
and incurred approximately $7.3 million of additional Senior Indebtedness in
connection with the Shoney's Transaction. The Company anticipates using a
portion of the net proceeds of this offering to reduce Senior Indebtedness. See
"Use of Proceeds." In the event of a payment default with respect to the Senior
Indebtedness, no payments may be made on account of the Series A Notes until
such default has been cured or waived. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and Capital
Resources" and "Description of the Notes."

Dependence on Key Employees. The success of the Company is dependent in
part upon certain key personnel, including, in particular, Leon Moore, President
and Chief Executive Officer and the founder of the Company. The absence of Mr.
Moore would have a material adverse effect on the Company's business and future
operations. The Company has no employment or noncompetition agreement with Mr.
Moore, who is the Company's largest shareholder of record.

Relationship with Shoney's. The Company has the right to use the service
marks "Shoney's Inn" and "Shoney's Inn & Suites" in its development and
franchising operations pursuant to the License Agreement with Shoney's. The
License Agreement gives Shoney's certain rights, including the right to approve
the styles, shapes, colors and forms in which the service marks are displayed
and the terms of the franchise agreements (other than the maximum fees and other
financial terms thereof). Upon the occurrence of certain events, the License
Agreement may terminate and the Company may lose its right to continue
operations using the Shoney's Inn and Shoney's Inn & Suites marks. The Company
believes that the loss of its rights under the License Agreement would have a
material adverse effect upon its operations. See "Business -- License Agreement
with Shoney's."

Importance of Franchisee and Other Third Party Relationships. The Company's
business strategy calls for the expansion of Shoney's Inns primarily through the
opening of additional franchised units. Competition for new franchisees in the
lodging industry is intense. There can be no assurance that the Company can
successfully attract new franchisees on terms acceptable to the Company or that
such new or current franchisees will open new Shoney's Inns.

S-9
<PAGE> 11

The Company believes its relationships with its major franchisees are
satisfactory and the Company has no reason to believe that such relationships
will not continue. However, from time to time, the Company has terminated
relationships with franchisees for quality or for other reasons and in addition,
the Company's franchisees have in certain cases terminated their franchise
relationships with the Company. If any of the franchise agreements were
terminated by the franchisee, the Company could explore entering into a
franchise agreement with another franchisee. There can be no assurance, however,
that a desirable replacement relationship would be available.

Seven of the Shoney's Inns operated by the Company are held by partnerships
with minority interest holders. The Company has management authority over each
partnership in which there are minority interest holders and, in most cases, the
Company has a right of first refusal to purchase the interest of the other
parties in the event that they receive a bona fide offer for their interests in
the partnerships. The Company, as owner of majority interests in partnerships in
which there are minority interest holders, owes a fiduciary duty to such
minority interest holders and may encounter conflicts between the respective
interests of the Company and the minority holders. In such cases, the Company's
directors are obligated to exercise reasonable, good-faith judgment to resolve
the conflicts and may not be free to act solely in the best interest of the
Company.

Geographic Concentration of Hotels. Most of the Company's hotels are
located in the Southeastern United States, and such geographic concentration
exposes the Company's operating results to events or conditions which
specifically affect those areas, such as local and regional economic, weather
and other conditions. Adverse developments which specifically affect those areas
may have a material adverse effect on the results of operations of the Company.
While the Company's Sumner Suites expansion may reduce these risks over time,
the Company will remain subject to the risks associated with geographic
concentration for the foreseeable future.

Risks of the Lodging Industry; Competition. The Company's business is
subject to all of the risks inherent in the lodging industry. These risks
include, among other things, adverse effects of general and local economic
conditions, an oversupply of lodging facilities or a reduction in demand for
lodging facilities in a geographic area, dependence on tourism, susceptibility
to increases in gasoline prices, changes in travel patterns and routes of major
highways, adverse use of neighboring land, changes in governmental regulations
that influence or determine wages, prices or construction costs, changes in
interest rates, the availability of credit and changes in real estate taxes and
other operating expenses. The Company's ownership of real property, including
hotels, is substantial. Real estate values are sensitive to changes in local
market and economic conditions and to fluctuations in the economy as a whole.
Due in part to the strong correlation between the lodging industry's performance
and economic conditions, the lodging industry is subject to cyclical changes in
revenues and profits.

The lodging industry is highly competitive. During the 1980s, construction
of lodging facilities in the United States resulted in an excess supply of
available rooms. This oversupply had an adverse effect on occupancy levels and
room rates in the industry. Competitive factors in the industry include room
rates, quality of accommodations, name recognition, supply and availability of
alternative lodging facilities, service levels, reputation, reservation systems
and convenience of location. There can be no assurance that demographic,
economic or other changes in markets will not adversely affect the convenience
or desirability of the sites in which the Company's hotels are located. Each of
the Company's hotels is located in a developed area that includes competing
lodging facilities, and the Company expects that future hotels which it
constructs will be located in similar areas. A high concentration of competitive
lodging facilities in a particular area could have a material adverse effect on
occupancy, average daily room rate and REVPAR of the Company's hotels. See
"Business -- Lodging Industry" and " -- Competition."

Employment and Other Government Regulation. The lodging industry is subject
to numerous federal, state and local government regulations, including those
relating to the preparation and sale of food and beverages (such as health and
liquor license laws) and building and zoning requirements. The Company's results
of operations may be adversely affected by increases in the minimum wage or by
the enactment in the future of legislation that would increase the cost of
employee benefits or increase other employment-related costs. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are

S-10
<PAGE> 12

required to meet certain federal requirements related to access and use by
disabled persons. Although the Company believes that it is in substantial
compliance with the ADA, a failure to comply with the ADA could result in the
imposition of fines or an award of damages to private litigants.

Environmental Regulation. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may require
expenditures. In connection with the ownership or operation of hotels, the
Company may be potentially liable for any such costs. The cost of defending
against claims of liability or of remediating a contaminated property could have
a material adverse effect on the results of operations of the Company.

Absence of Public Market for the Series A Notes. The Series A Notes are a
new issue of securities for which there is currently no public market. There can
be no assurance as to the liquidity of the market for the Series A Notes that
may develop, the ability of the holders to sell their Series A Notes or the
prices at which holders of the Series A Notes would be able to sell their Series
A Notes. If a market for the Series A Notes does develop, the Series A Notes may
trade at a discount from their initial public offering price, depending upon
prevailing interest rates, the market for similar securities, performance of the
Company, performance of the lodging sector and other factors. The Underwriters
have informed the Company that they currently intend to make a market for the
Series A Notes. However, the Underwriters are not obligated to do so and any
such market-making may be discontinued at any time without notice. The Company
does not intend to apply for listing of the Series A Notes on the Nasdaq
National Market or any securities exchange. Therefore, no assurance can be given
as to whether an active trading market will develop or be maintained for the
Series A Notes. See "Underwriting."

S-11
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Series A Notes offered
hereby are estimated to be approximately $33.4 million (approximately $38.4
million if the over-allotment option is exercised in full), after deducting the
estimated underwriting discount and offering expenses. The Company intends to
use the net proceeds of this offering to reduce borrowings under three unsecured
revolving credit facilities with an aggregate outstanding principal balance at
October 6, 1996 of $34.2 million. This indebtedness was originally incurred to
fund hotel development and other capital improvements. These facilities bear
interest at the lender's prime rate or two hundred basis points above the 30, 60
or 90 day LIBOR rates, at the Company's option. The blended rate on these
facilities at October 6, 1996 was 7.80%. Although amounts repaid on these
facilities would be available for reborrowing on a short-term basis, these
amounts would mature, and the facilities would cease to be available, in January
and February 1997. On October 25, 1996, the Company incurred additional
borrowings of $7.3 million under the revolving credit facilities to consummate
the Shoney's Transaction. See "Prospectus Summary -- Recent
Developments -- Shoney's Transaction." The Company is seeking a new $50.0
million to $75.0 million senior revolving credit facility to replace these
facilities following the offering. Borrowings under this new facility will be
used to fund development of new Sumner Suites hotels, renovate existing hotels,
fund construction of the Company's headquarters and for general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

Pending the above uses of proceeds, net proceeds of the offering will be
invested in investment grade, short-term, interest-bearing securities, such as
Treasury bills, repurchase agreements, commercial paper and short-term
certificates of deposit.

CAPITALIZATION

The following table sets forth the current portion of long-term debt and
capitalized leases and consolidated capitalization of the Company as of July 14,
1996 and as adjusted to reflect the sale of $35,000,000 in aggregate principal
amount of Series A Notes offered hereby and application of the estimated net
proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
JULY 14, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capitalized leases....... $ 32,052 $ 2,052
======== ========
Revenue participation bonds due April 2001(1).................. $ 11,355 $ 11,355
Other long-term debt and capitalized leases less current
portion...................................................... 24,712 24,712
% Senior subordinated notes due 2006, Series A.............. -- 35,000
7.5% Convertible subordinated debentures due 2004(2)........... 54,000 54,000
Total shareholders' equity..................................... 87,575 87,575
-------- --------
Total capitalization................................. $177,642 $ 212,642
======== ========
</TABLE>

- ---------------

(1) The revenue participation bonds are secured by U.S. Treasury securities that
upon maturity will fund the complete obligation under the revenue
participation bonds.
(2) The 7.5% convertible subordinated debentures due 2004 are subordinate to the
Series A Notes.

S-12
<PAGE> 14

SELECTED FINANCIAL DATA

The following selected financial data as of and for each of the five fiscal
years ended December 31, 1995 have been derived from the Company's audited
Consolidated Financial Statements. The financial statements for the three fiscal
years ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, and have been incorporated herein by reference. The
related financial data as of and for the two fiscal quarters ended July 9, 1995
and July 14, 1996 are derived from the Company's unaudited consolidated
financial statements and, in the opinion of management, include all adjustments
(consisting of only normal recurring entries) necessary for fair presentation of
the financial results of operations for these periods. Operating results for the
two fiscal quarters ended July 14, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 29, 1996. The
information set forth on the following page should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

S-13
<PAGE> 15

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
TWO FISCAL QUARTERS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ -------------------
DECEMBER 31, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, JULY 14,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues:
Hotel.......................... $ 24,022 $ 25,598 $29,890 $36,440 $44,144 $23,048 $28,221
Construction and development... 2,690 6,178 -- 6,213 9,214 7,696 514
Construction and development --
other........................ -- -- -- -- 14,827 13,438 200
Sale of hotels................. -- -- 9,080 17,366 6,174 6,174 --
Profits not recognized on
installment sales............ -- -- (1,295) (2,782) (1,956) (1,956) --
Franchising.................... 270 1,760 2,079 2,623 2,917 1,543 2,106
Management..................... 469 660 979 916 438 289 116
Management -- previously
deferred..................... -- -- -- -- 2,862 2,862 --
------------ ------------ ------------ ------------ ------------ -------- --------
Total operating
revenues............... 27,451 34,196 40,733 60,776 78,620 53,094 31,157
Costs and Expenses:
Operating expenses:
Hotel........................ 14,786 15,354 17,042 20,938 25,962 13,108 15,525
Construction and
development................ 1,330 4,549 -- 5,242 10,096 7,585 691
Cost of hotels sold.......... -- -- 7,785 14,584 4,218 4,218 --
Franchising.................. 304 1,841 2,153 2,475 2,861 1,444 1,775
------------ ------------ ------------ ------------ ------------ -------- --------
Total operating
expenses............... 16,420 21,744 26,980 43,239 43,137 26,355 17,991
------------ ------------ ------------ ------------ ------------ -------- --------
Gross operating profit......... 11,031 12,452 13,753 17,537 35,483 26,739 13,166
General and administrative..... 905 894 1,349 1,378 1,929 903 1,492
------------ ------------ ------------ ------------ ------------ -------- --------
Earnings before interest,
taxes, depreciation and
amortization................. 10,126 11,558 12,404 16,159 33,554 25,836 11,674
Depreciation and
amortization................. 2,876 2,944 3,290 4,083 5,638 2,779 3,820
------------ ------------ ------------ ------------ ------------ -------- --------
Net operating profit..... 7,250 8,614 9,114 12,076 27,916 23,057 7,854
Other Income and Expenses:
Interest expense............... 6,966 4,939 4,642 5,525 5,856 3,504 905
Interest income................ 1,935 2,425 3,345 5,311 5,815 3,551 842
------------ ------------ ------------ ------------ ------------ -------- --------
Net interest expense..... 5,031 2,514 1,297 214 41 (47) 63
Other income................... 1,120 911 1,012 1,263 765 318 434
------------ ------------ ------------ ------------ ------------ -------- --------
Earnings before income taxes,
discontinued operations,
minority interest and
extraordinary items............ 3,339 7,011 8,829 13,125 28,640 23,422 8,225
Income taxes..................... 1,211 2,533 3,077 4,838 10,529 8,691 2,962
Minority interests in earnings of
consolidated subsidiaries &
partnerships................... 123 309 513 294 351 91 229
------------ ------------ ------------ ------------ ------------ -------- --------
Earnings from continuing
operations before extraordinary
items.......................... 2,005 4,169 5,239 7,993 17,760 14,640 5,034
Discontinued Operations:
Income (loss) from operations
of restaurant subsidiary
disposed of, net of
applicable income taxes and
minority interest............ (31) (9) (41) 18 (75) (45) --
Extraordinary losses, net of
income tax benefit............. -- -- -- (215) (708) (708) --
------------ ------------ ------------ ------------ ------------ -------- --------
Net earnings..................... $ 1,974 $ 4,160 $ 5,198 $ 7,796 $ 16,977 $ 13,887 $ 5,034
============ ============ ============ ============ ============ ======== ========
</TABLE>

S-14
<PAGE> 16

SELECTED FINANCIAL DATA -- (CONTINUED)

- ---------------

(1) The ratio of earnings to fixed charges on a pro forma basis, giving effect
to the offering and the application of the net proceeds therefrom, would
have been 3.42x for fiscal 1995 and 2.34x for the two fiscal quarters ended
July 14, 1996.

S-15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company derives revenues primarily from hotel room sales at its Sumner
Suites and Company-owned Shoney's Inn hotels. Through March 1995, the Company
managed AmeriSuites hotels and earned management fees for such services. The
Company also receives management fees for services it performs for two
franchised Shoney's Inns. The Company derives additional revenue from franchise
fees it receives as the exclusive franchisor of Shoney's Inns.

The Company's hotel operations have been supplemented by contract revenues
from construction and development of franchised Shoney's Inns and, until March
1995, AmeriSuites hotels for third parties. Revenues from these activities have
varied widely from period to period, depending upon whether the Company's
construction and development activities were primarily focused on its own
facilities or on projects. The Company has generally undertaken construction and
development projects for third parties only when its capacity has been
underutilized in constructing its own facilities. Construction revenues are
recognized on the percentage of completion basis. Because the Company expects to
concentrate on the development of Sumner Suites, management does not anticipate
generating further significant contract revenues from construction and
development.

From 1990 through the first quarter of fiscal 1995, the Company developed
and owned or managed hotels in the AmeriSuites hotel chain. In March 1995, the
Company terminated its relationship with AmeriSuites by (i) selling its option
to purchase 50% of the voting stock of Suites of America, Inc. ("Suites of
America") to Prime Hospitality Corp. ("Prime Hospitality") for $27.3 million and
(ii) conveying to Suites of America its interest in one additional AmeriSuites
hotel for $6.2 million. Five million dollars of the aggregate purchase price was
paid in cash on closing, while the remaining $28.5 million was paid pursuant to
a note that was repaid in January 1996. In connection with the sale of its
option in Suites of America, the Company canceled $14.9 million in existing
indebtedness of Suites of America to the Company. These transactions, together
with the sale of five AmeriSuites hotels in 1993 and 1994 (collectively, the
"AmeriSuites Transaction"), have been accounted for as installment sales of real
estate in the Company's Consolidated Financial Statements, and a pre-tax gain of
$17.9 million has been recognized through July 14, 1996 in connection therewith.
The transactions also resulted in the recognition in fiscal 1995 and the first
quarter of fiscal 1996 of previously deferred management fee revenue.

During the first quarter of fiscal 1996, the Company sold its 60% ownership
in five restaurants to the 40% owner. The income or loss from restaurant
operations for each of the reported periods is reported as discontinued
operations net of applicable income taxes and minority interests.

The Company's hotel operations have historically been seasonal in nature,
reflecting higher occupancy rates during spring and summer months, which may be
expected to cause fluctuations in the Company's quarterly revenues and earnings
from hotel operations. The Company's fiscal year ends on the last Sunday of the
calendar year. This resulted in fiscal 1995 consisting of 53 weeks as compared
with 52 weeks in fiscal 1994.

S-16
<PAGE> 18

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship of certain items of revenue and expense to the total revenues of
the Company.

<TABLE>
<CAPTION>
TWO FISCAL QUARTERS
FISCAL YEAR ENDED ENDED
------------------------------------------ -------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, JULY 9, JULY 14,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel.................................... 73.4% 60.0% 56.1% 43.4% 90.6%
Construction and development............. -- 10.2 11.7 14.5 1.6
Construction and development-other....... -- -- 18.9 25.3 0.6
Sale of hotels........................... 22.3 28.6 7.9 11.6 --
Profits not recognized on installment
sales................................. (3.2) (4.6) (2.5) (3.7) --
Franchising.............................. 5.1 4.3 3.7 2.9 6.8
Management............................... 2.4 1.5 0.6 0.5 0.4
Management -- previously deferred........ -- -- 3.6 5.5 --
----- ----- ----- ----- -----
Total operating revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Operating expenses:
Hotel................................. 41.8% 34.5% 33.0% 24.7% 49.8%
Construction and development.......... -- 8.6 12.8 14.3 2.2
Cost of hotels sold................... 19.1 24.0 5.4 7.9 --
Franchising........................... 5.3 4.0 3.7 2.7 5.7
----- ----- ----- ----- -----
Total operating expenses......... 66.2 71.1 54.9 49.6 57.7
----- ----- ----- ----- -----
Gross operating profit........... 33.8 28.9 45.1 50.4 42.3
General and administrative............ 3.3 2.3 2.4 1.7 4.8
----- ----- ----- ----- -----
Earnings before interest, taxes,
depreciation and amortization....... 30.5 26.6 42.7 48.7 37.5
Depreciation and amortization......... 8.1 6.7 7.2 5.3 12.3
----- ----- ----- ----- -----
Net operating profit (before
interest and taxes).............. 22.4 19.9 35.5 43.4 25.2
Earnings before income taxes, discontinued
operations, minority interest and
extraordinary items...................... 21.7 21.6 36.4 44.1 26.4
Earnings from continuing operations before
extraordinary items...................... 12.9 13.2 22.6 27.6 16.2
Net earnings............................... 12.8% 12.8% 21.6% 26.2% 16.2%
</TABLE>

For the Fiscal Year-to-date Periods Ended July 14, 1996 and July 9, 1995

For the two fiscal quarters ended July 14, 1996, total operating revenues
decreased 41.3% to $31.2 million from $53.1 million for the same period in 1995.

Revenues from hotel operations in the first two quarters of 1996 increased
22.4% to $28.2 million from $23.0 million for the same period in 1995. For the
29 same store hotels opened for both year-to-date periods, average daily room
rates in the first two quarters of 1996 increased 6.0% to $50.21 from $47.35 in
the first two quarters of 1995, and average occupancy rates decreased to 63.3%
from 65.4%, resulting in a net increase in same store hotel revenues of 2.1%.
The hotels opened during 1995 and the first two quarters of 1996 contributed
$5.3 million to hotel revenues in the first two quarters of 1996 compared to
$69,000 for the same prior year period. Approximately $3.0 million of the $5.3
million in revenues from the hotels opened since December 25, 1994 related to
Sumner Suites hotels. One hotel, which was sold in the first half of 1995,
contributed $550,000 to hotel revenues in the first two quarters of 1995.

S-17
<PAGE> 19

Revenues from regular construction and development activities for the first
two quarters of 1996 were $514,000 in contrast to $7.7 million for the same
prior year period. Revenues from construction and development can vary widely
from quarter to quarter depending upon the volume of outside contract work and
the timing of those projects. Three outside construction projects were in
progress during the first two quarters of 1995 compared with only one during the
comparable period in 1996. No outside construction contracts are currently in
progress.

Revenues of $200,000 from "Construction and development -- other" in the
first two quarters of 1996 represent a portion of profits not previously
recognized on installment sales in connection with the AmeriSuites Transaction.
The $13.4 million reported for the first two quarters of 1995 represented the
earned portion of revenues, a portion of which was deferred from 1993 and 1994,
as a result of the consummation of the AmeriSuites Transaction.

Revenue from the sale of hotels in the first two quarters of 1995 was $4.2
million, net of profits not recognized on installment sales of $2.0 million,
representing the sale of one hotel in the first quarter of 1995 in conjunction
with the AmeriSuites Transaction. These net revenues were offset by the cost of
hotels sold, resulting in no gross operating profit from these transactions.

Franchise revenues in the first two quarters of 1996 increased 36.4% to
$2.1 million from $1.5 million for the same prior year period. This increase
resulted primarily from higher royalty and reservation center fees resulting
from increased revenues in the Shoney's Inn system. The number of franchised
Shoney's Inns at the end of the second quarter of 1996 increased to 56 from 48
at the end of the second quarter of 1995. Initial franchise fees may vary widely
from quarter to quarter.

Management contract revenues for the first two quarters of 1996 decreased
60.0% to $116,000 from $289,000 for the prior year period, due to the
cancellation of management contracts on 11 AmeriSuites hotels on March 31, 1995,
as a part of the AmeriSuites Transaction.

Revenues from "Management -- previously deferred" in the first two quarters
of fiscal 1995 of $2.9 million represent fees collected in 1993 and 1994 for the
Company's relinquishment of its profit participation in four hotels owned by
Suites of America. These profits were previously deferred due to the Company's
option to acquire a 50% ownership interest in Suites of America. In connection
with the sale of this option to Suites of America in March 1995, all of this
previously deferred revenue was recognized in the first quarter of 1995. This is
a non-recurring source of revenue.

Operating expenses from hotel operations for the first two quarters of 1996
increased 18.4% to $15.5 million in the first two quarters of 1996 from $13.1
million in the first two quarters of 1995 resulting from the 22.4% increase in
hotel operating revenues. Operating expenses from hotel operations, expressed as
a percentage of hotel operating revenues, decreased to 55.0% in the first two
quarters of 1996 from 56.9% in the first two quarters of 1995, thus increasing
the gross profit margin on all hotels to 45.0% in the first two quarters of 1996
from 43.1% in the same period of 1995. Hotels opened since 1994 have experienced
higher profit margins than hotels opened before 1994 and have generated a 47.8%
profit margin in the first two quarters of 1996. Seven of the new hotels are
Sumner Suites which generally have higher room rates than Shoney's Inns and
generally operate at a higher gross operating profit margin.

Costs and expenses of construction and development for the first two
quarters of 1996 decreased to $691,000 from $7.6 million for the first two
quarters of 1995. There were three outside construction contracts in the first
two quarters of 1995 compared to one during the comparable period in 1996.

Franchising operating expenses for the first two quarters of 1996 increased
23.0% to $1.8 million from $1.4 million for the same prior year period,
primarily due to additional expenses incurred by the reservation center in
meeting the added demand from additional properties served by that department.
As a result of the Shoney's Transaction, the Company will no longer be required
to pay a portion of its franchise fee revenues to Shoney's in the form of
royalty fees. See "Prospectus Summary -- Recent Developments -- Shoney's
Transaction." During the first two quarters of 1996, franchising operating
expenses included $586,000 of royalty fees to Shoney's.

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General and administrative expense for the first two quarters of 1996
increased 65.3% to $1.5 million from $900,000 for the prior year period, due
primarily to increased outside professional fees and increased payroll and
related expenses associated with increased staffing levels.

For the first two quarters of 1996, depreciation and amortization expense
increased 37.5% to $3.8 million from $2.8 million for the same prior year
period. Depreciation and amortization on the 11 hotels opened since the end of
the fourth quarter of 1994 accounted for $619,000 of the increase while
depreciation due to renovations and other additions to the remaining hotels
accounted for $285,000 of the increase over the first two quarters of 1995.

For the first two quarters of 1996, interest expense and interest income
decreased $2.6 million and $2.7 million, respectively, from the prior year
period resulting in an increase in net interest expense of $110,000. The
decrease in interest income resulted primarily from the collection of the
balance of first mortgage notes receivable of approximately $44 million from
Suites of America in the first quarter of 1996, which resulted in a reduction of
interest income for the first two quarters of 1996 of $2.2 million. The proceeds
were used to reduce outstanding debt, significantly reducing interest expense
for the first two quarters of 1996 as compared to the same prior year period.

The loss from discontinued operations, net of applicable income taxes and
minority interest, in the first two quarters of 1995 resulted from the Company's
sale of its 60% interest in a restaurant subsidiary to the 40% owner in the
first quarter of 1996. The extraordinary loss, net of income tax benefit, in the
first two quarters of 1995 represents the extraordinary non-cash write-off of
unamortized deferred financing costs, and early redemption premiums paid,
associated with the refinancing of certain indebtedness during the first two
quarters of 1995.

For the Fiscal Years Ended December 31, 1995 and December 25, 1994

For the fiscal year ended December 31, 1995, total operating revenues
increased 29.4% to $78.6 million from $60.8 million for the fiscal year ended
December 25, 1994.

Revenues from hotel operations in fiscal 1995 increased 21.1% to $44.1
million from $36.4 million for fiscal 1994. This increase resulted primarily
from more hotels being operated in fiscal 1995 as compared to fiscal 1994.
Eleven hotels which opened during fiscal 1994 and fiscal 1995 contributed $7.9
million more to revenues in fiscal 1995 than in fiscal 1994. One hotel was sold
during the first quarter of 1995, contributing only $549,000 to hotel revenues
in that year compared with $2.3 million in fiscal 1994 when it was owned and
operated for the entire fiscal year. Revenues from the 22 same store hotels
increased 5.0% to $32.8 million in fiscal 1995 from $31.2 million in fiscal
1994. Average daily room rates from same store hotels increased 6.3% to $47.85
in fiscal 1995 from $45.01 in fiscal 1994, and average occupancy rates on these
hotels decreased to 66.6% in fiscal 1995 from 69.1% in fiscal 1994. For all 33
hotels owned at the end of fiscal 1995, total revenues increased 27.8% to $43.6
million in fiscal 1995 from $34.1 million in fiscal 1994. These hotels reflected
an increase of 7.0% in average daily room rates to $48.49 in fiscal 1995 from
$45.31 in fiscal 1994, and average occupancy rates on these hotels declined to
64.1% in fiscal 1995 from 67.0% in fiscal 1994.

Construction and development revenues of $9.2 million in fiscal 1995 and
$6.2 million in fiscal 1994 were due to construction activities for third
parties. In each year construction work was performed on three outside
contracts, but revenues from these activities increased by $3.0 million in
fiscal 1995 over fiscal 1994 due to variances in percentages completed each
year.

Revenues from Construction and development--other and
Management--previously deferred, which together totaled $17.7 million in fiscal
1995, resulted from recognizing, in connection with the consummation of the
AmeriSuites Transaction, profits deferred from fiscal 1993 and fiscal 1994
relating to the development and management of hotels for Suites of America. The
Company's relationship with Suites of America ended on March 31, 1995, allowing
the previously deferred management revenues and a portion of the previously
deferred construction profit to be recognized in the first fiscal quarter of
1995. Additional previously deferred construction profit was recognized
throughout fiscal 1995, with the final portion recognized in the first fiscal
quarter of 1996, when the balance of the note receivable from Suites of America
was collected. The

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Company's 100% financing of five hotels developed and managed for Suites of
America resulted in the deferral of recognition of these profits from 1993 and
1994 to 1995 and 1996. The revenues from sale of hotels, net of profits not
recognized on installment sales, which amounted to $4.2 million in fiscal 1995
and $14.6 million in fiscal 1994, were also part of this arrangement for
developing hotels for Suites of America. In fiscal 1994, there were three hotels
developed and sold under this arrangement, whereas in fiscal 1995 there was only
one hotel which was sold on March 31, 1995. The cost of hotels sold in both
years is equal to the net revenues, resulting in no profit to the Company. All
the profit on these hotels is recognized in revenues from construction and
development -- other.

Franchise revenues in fiscal 1995 increased 11.2% to $2.9 million from $2.6
million in fiscal 1994, as a result of an increase in the number of Shoney's Inn
franchises sold, combined with franchisees' increased hotel revenues upon which
royalty and reservation fees are based. At the end of fiscal 1995 there were 50
franchised Shoney's Inns in operation compared with 45 at the end of fiscal
1994. Management fee revenue in fiscal 1995 decreased 52.2% to $438,000 from
$916,000 in fiscal 1994, due to the cancellation of management contracts on 11
hotels during the first fiscal quarter of 1995 as a part of the AmeriSuites
Transaction.

Hotel operating expenses for fiscal 1995 increased by 24.0% to $26.0
million from $20.9 million in fiscal 1994. The 11 hotels opened during fiscal
1994 and fiscal 1995, which were not in operation during the full year in either
fiscal 1994 or fiscal 1995, accounted for 95.3% of the total increase.
Additionally, operating expenses for the 22 hotels operated for all of both
years increased by $1.1 million, and operating expenses on the hotel sold during
the first fiscal quarter of 1995 declined by $904,000. These increases and
decreases in operating costs and expenses are related to the corresponding
increases and decreases in operating revenues on these hotels. The resulting
gross profit margin from hotel operations in fiscal 1995 declined to 41.2%
versus 42.5% in fiscal 1994. The gross operating profit margin on the 11 hotels
opened during fiscal 1994 and fiscal 1995 improved from 20.5% in fiscal 1994 to
34.3% in fiscal 1995, while the gross profit margin on the 22 hotels operating
for all of both years declined from 44.5% in fiscal 1994 to 43.7% in fiscal
1995.

Construction and development expenses increased by $4.9 million in fiscal
1995 due to the higher level of construction contract work performed in such
year and to cost overruns on certain third party contracts. Cost of hotels sold
declined by $10.4 million in fiscal 1995 from fiscal 1994.

Franchising expenses in fiscal 1995 increased 15.6% from fiscal 1994, while
franchising revenues only increased by 11.2%, due primarily to the decline of
initial franchise fee income in fiscal 1995 for which there was no corresponding
decrease in operating expenses.

General and administrative expense increased 39.9% to $1.9 million in
fiscal 1995 from $1.4 million in fiscal 1994, due primarily to additional
staffing levels for present and future growth of the Company, and to increased
legal and audit fees and expenses incurred.

Depreciation and amortization expense increased by 38.1% to $5.6 million in
fiscal 1995 from $4.1 million in fiscal 1994, due primarily to the 11 hotels
opened during fiscal 1994 and fiscal 1995.

Net interest expense in fiscal 1995 declined to $41,000 from $214,000 in
fiscal 1994, due to a significant reduction in interest rates on five industrial
revenue bond issues in early fiscal 1995 and to increased first mortgage lending
in the first fiscal quarter of 1995 in connection with the AmeriSuites
Transaction. Other income decreased by $498,000 in fiscal 1995 compared to
fiscal 1994 primarily due to a reclassification of certain miscellaneous hotel
revenues from other income to hotel operating revenues in fiscal 1995, and to a
decline of $81,000 in gains on the sale of property and equipment.

The increase in extraordinary charges to $708,000 net of income taxes in
fiscal 1995 from $215,000 in fiscal 1994 is due primarily to the write-off of
unamortized deferred financing costs associated with the refinancing of five
industrial revenue bond issues to substantially lower interest rates in fiscal
1995, compared with similar write-offs of lesser amounts in fiscal 1994.

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For the Fiscal Years Ended December 25, 1994 and December 26, 1993

For the fiscal year ended December 25, 1994, total operating revenues
increased 49.2% to $60.8 million from $40.7 million in 1993. The increase was
primarily due to an increase of $6.6 million in revenues from hotel operations,
$6.2 million from construction and development, $6.8 million from the sale of
hotels, net of deferred profit, and $544,000 from franchising activities.

The increase in revenues from hotel operations resulted primarily from an
increase in average occupancy rates and average daily room rates for the 21
Company-owned hotels open for the full year in both periods, plus hotel revenues
earned on hotels not open for the full two-year period. Same store hotel room
revenues increased by 6.6% in fiscal 1994 from fiscal 1993 due to a combination
of an increase in average occupancy rates from 70.1% in fiscal 1993 to 70.9% in
fiscal 1994 and an increase in average daily room rates of $2.63 from $43.93 in
fiscal 1993 to $46.56 in fiscal 1994. One hotel which opened in the middle of
fiscal 1993 reported room revenues of $1.0 million for the full fiscal year 1994
versus $361,000 for the partial fiscal year 1993. The eight hotels which opened
during fiscal 1994 contributed $3.8 million to fiscal 1994 hotel revenues. All
30 hotels averaged 67.7% occupancy and $46.31 average daily room rates in fiscal
1994.

The construction and development revenues of $6.2 million in fiscal 1994
were derived from construction activities for third parties. No third party
construction and development activities took place in fiscal 1993. In fiscal
1993 and fiscal 1994, the Company acquired real estate, developed AmeriSuites
hotels thereon and sold those hotels, providing 100% financing to the purchaser,
deferring profits to future years based upon the installment sales method of
accounting. As part of the AmeriSuites Transaction in fiscal 1994, three hotels
were developed and sold pursuant to these arrangements for a total sale price of
$17.4 million, of which the profits thereon totaling $2.8 million were deferred.
In fiscal 1993, two hotels were developed and sold for a total of $9.1 million,
of which deferred profits totaled $1.3 million. As of December 25, 1994, all the
profit from both fiscal 1993 and fiscal 1994 had been deferred.

The increase in franchising revenues was the result of an increase in the
number of Shoney's Inn franchises sold combined with franchisees' increased
hotel revenues upon which royalty and reservation fees are based. The decrease
in management revenues was due to the sale of the Company's profit participation
interest in certain AmeriSuites hotels. Profit participation fees earned and
included in management fee revenues in fiscal 1993 were $260,000, whereas only
$26,000 was earned in fiscal 1994. However, 78.2% of this decrease was offset
with management fee increases resulting from managing additional properties for
others in fiscal 1994 as compared to fiscal 1993.

Total operating expenses for fiscal 1994 increased 60.3% to $43.2 million
from $27.0 million in fiscal 1993. Construction and development expenses of $5.2
million in fiscal 1994, of which there were none in fiscal 1993, accounted for
32.2% of this increase, while an additional 41.8% of the increase was from the
increase in cost of hotels sold. Hotel operating expenses increased in fiscal
1994 by 22.9% to $20.9 million from $17.0 million in fiscal 1993, due primarily
to the eight additional hotels opened during fiscal 1994. These additional costs
were incurred in generating additional hotel revenues of $6.6 million. The
resulting gross profit margin from hotel operations in fiscal 1994 was 42.5%
versus 43.0% in fiscal 1993. The decline in hotel profit margin was due to more
new hotel openings (eight versus one) in fiscal 1994 than fiscal 1993.

The increase in franchising expenses from fiscal 1993 to fiscal 1994 was
due primarily to advertising and marketing expenses incurred in the earning of
higher franchising revenues. The increase in franchising expenses represented
59.2% of the increase in revenues from this activity, resulting in a gross
operating profit of $148,000 in fiscal 1994 compared to a $74,000 loss in fiscal
1993.

Depreciation and amortization expense increased by $793,000 in fiscal 1994
from fiscal 1993. Depreciation and amortization on eight hotels during fiscal
1994 which opened during fiscal 1994, combined with a full year's expense on one
hotel which opened in July 1993, resulted in $708,000 additional expense in
fiscal 1994. Additionally, amortization of goodwill from the acquisition of
minority interest in four hotels in early fiscal 1994 and amortization of
deferred charges incurred in fiscal 1994 added an additional $0.2 million to
this expense. Certain capital assets became fully depreciated in fiscal 1994.
General and administrative expense

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increased by $29,000, or 2.2%, in fiscal 1994 from fiscal 1993, due primarily to
increased administrative payroll costs.

Net interest expense declined by 83.5% in fiscal 1994 from fiscal 1993, due
to a reduction in levels of high-rate indebtedness and an increase in interest
income from additional first mortgage notes receivable on lodging facilities as
a result of application of net proceeds received from the Company's issuance of
$54.0 million in 7.5% convertible debentures in June 1994. Other income
increased by $251,000 in fiscal 1994 compared to fiscal 1993 due primarily to
gains on the sale of capital assets in the amount of $293,000 compared to only
$17,000 in fiscal 1993. Minority interest in earnings of consolidated
subsidiaries and partnerships decreased by $219,000 in fiscal 1994 from fiscal
1993 due primarily to the fact that effective February 15, 1994, the Company
acquired a minority interest, owned indirectly by Shoney's, Inc., in three
partnerships and one corporation.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided from operations was $31.6 million in fiscal 1995 and $5.8
million in fiscal 1994. The Company currently has a total of $54.0 million in
unsecured revolving credit facilities with five banks, of which $47.5 million
expires in January 1997, $5.0 million expires in February 1997, and $1.5 million
expires in May 1997. Interest rates on these lines of credit are (i) $40.0
million at the lender's prime rate, or two hundred basis points over the 30, 60
or 90 day LIBOR rates, at the Company's option; (ii) $10.0 million at the
lender's prime rate, or one hundred ninety basis points over the 30, 60 or 90
days LIBOR rates, at the Company's option; and (iii) $1.5 million at the
lender's prime rate. As of October 6, 1996, the Company had $34.2 million
outstanding under these credit facilities. On October 25, 1996 the Company
incurred $7.3 million in additional revolving credit facility indebtedness in
connection with the Shoney's Transaction. The Company expects to use the net
proceeds of the offering of the Series A Notes to reduce the outstanding
balances under the revolving credit facilities. The Company anticipates seeking
a new $50.0 million to $75.0 million senior revolving credit facility following
this offering to replace its existing facilities. Management believes that the
Company will be able to renew the existing lines of credit or secure a new line
of credit prior to January 1997, but there can be no assurance that the Company
will be able to do so. See "Risk Factors -- Leverage."

The Company requires capital principally for the construction and
acquisition of new lodging facilities and the purchase of equipment and
leasehold improvements. Capital expenditures for such purposes were $51.0
million for the first two fiscal quarters of 1996, $56.2 million in fiscal 1995
and $47.1 million in fiscal 1994.

The Company has opened two Shoney's Inns and eight Sumner Suites hotels
thus far in 1996 and three Sumner Suites hotels are scheduled to open during the
remainder of fiscal 1996. Additionally, renovations of several existing
properties are underway, scheduled for completion in fiscal 1996 and early
fiscal 1997. The Company also plans to develop and open an additional eight to
ten Sumner Suites hotels by the end of fiscal 1997. A new corporate headquarters
building is also under construction and is scheduled for completion by early
1997. The Company expects that approximately $100.0 million in additional
capital funds will be necessary through fiscal 1997 to fulfill these plans.

The Company has principal payments totaling $3.9 million due under existing
debt instruments, in addition to the repayment of the Company's revolving credit
facilities, through fiscal 1997. The Company believes that a combination of net
proceeds from this offering, net cash provided from operations, borrowings under
existing or new credit facilities, proceeds from the sale of excess land and
available furniture, fixtures and equipment financing packages will be
sufficient to fund its scheduled development and debt repayments through fiscal
1997.

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BUSINESS

GENERAL

The Company develops, owns and operates all-suites hotels under the Sumner
Suites brand name and is an operator and the exclusive franchisor of Shoney's
Inns. The Company's 11 Sumner Suites are mid-scale, all-suites hotels located in
Florida, Georgia, Indiana, New Mexico, Ohio and Texas. The Shoney's Inn lodging
system consists of 88 Shoney's Inns containing 8,985 rooms of which 34
containing 4,164 rooms are owned or managed by the Company. Shoney's Inns are
currently located in 21 states with a concentration in the Southeast.

Sumner Suites hotels are marketed primarily to business travelers and, to a
lesser extent, leisure travelers by offering an all-suite setting in a
convenient location at an attractive price/value relationship. Usually located
in or near business or leisure travel destinations in mid-sized and larger
metropolitan markets, Sumner Suites offer mid-scale accommodations at rates
between $65 and $85 per night. A typical Sumner Suites contains from 110 to 125
rooms, lounge facilities, meeting rooms and an exercise room, and offers a
deluxe continental breakfast.

The Sumner Suites concept was launched in 1995 with three hotels. From 1990
until 1995, the Company developed and managed 12 mid-scale, all-suites hotels
under another brand name before selling its interests in those hotels in March
1995. The Company believes that its experience in developing, constructing and
managing mid-scale, all-suites hotels will enable it to expand effectively its
development and ownership of the Sumner Suites system. As Sumner Suites has a
limited presence in the marketplace, the Company seeks to capitalize on its
proprietary reservation system, INNLINK, to further expand awareness of Sumner
Suites.

GROWTH STRATEGY

The Company's strategy is to increase cash flow and earnings by (i)
increasing REVPAR while maintaining the Company's attractive suite and room
price/value relationships and controlling operating costs, (ii) developing
additional Sumner Suites and (iii) expanding the Shoney's Inn system through the
addition of new franchised units and selectively developing Company-owned
hotels.

Internal Growth. The Company intends to increase cash flow and earnings
from its existing hotels through increases in REVPAR while controlling operating
costs. The Company seeks to increase REVPAR by increasing average daily room
rates and supporting or increasing occupancy rates through targeted marketing
and advertising strategies, employing promotional activities in local markets
and capitalizing on the Company's proprietary central reservation system. In
addition, the Company is committed to sustaining the quality of its properties
through an ongoing renovation and maintenance program in order to increase
REVPAR. The Company seeks to minimize costs throughout its operations primarily
through the use of an in-house development and construction team and increased
economies of scale in purchasing.

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Development of Additional Sumner Suites. In addition to the two Sumner
Suites that were opened in December 1995 and a property that was converted to a
Sumner Suites in July 1995, the Company has developed and opened eight Sumner
Suites to date in 1996. Currently, three hotels are under construction and are
scheduled to open during the remainder of 1996. The Company intends to continue
expanding the Sumner Suites chain in 1997 by opening approximately eight to ten
additional Sumner Suites hotels, two of which are currently under construction.

Expansion of Shoney's Inn System. The Company is expanding the Shoney's Inn
system through the addition of new franchises and by selectively opening new
Company-owned hotels. The Company opened two Shoney's Inns and added six
franchised units to the system in 1995. Through November 6, 1996, the Company
has added two Company-owned Shoney Inns and a net total of six franchised units
to the system. The Company targets existing Shoney's Inn franchisees, existing
Shoney's restaurant franchisees and contacts within the industry as potential
franchisees for additional Shoney's Inns.

SUMNER SUITES CONCEPT

Sumner Suites are all-suites hotels positioned in the mid-scale segment to
appeal primarily to business travelers and, to a lesser extent, leisure
travelers. The Sumner Suites hotels are generally located in mid-sized to larger
metropolitan markets near business and leisure travel destinations such as
business parks, office buildings, local attractions and restaurants. Although
daily room rates typically range from $65 to $85, room rates at Sumner Suites
vary depending upon a number of factors, including location and competition. For
the first two fiscal quarters of 1996, the average daily room rate for the
Sumner Suites hotels was $74.21.

The Sumner Suites prototype hotel is a five story, interior corridor,
stucco building containing 110 to 125 rooms. The bedroom in each suite is
furnished with either a king size bed or two double beds, a night stand, vanity,
and closet area, and the sitting area contains a sleeper sofa, a desk, chairs
and reading lamps. A kitchenette area includes a sink, refrigerator, microwave
oven and cabinets that contain kitchen and cooking utensils.

The lobby area of each Sumner Suites hotel features marble floors and
seating areas with numerous couches, tables and chairs allowing for informal
meeting and lounge space. Adjacent to the seating area is a combination buffet
and beverage service area. Each Sumner Suites is equipped with large meeting
rooms that can be sectioned to meet individual guests' or groups' needs. An
exercise facility and swimming pool are additional features. The amenities
provided by the hotels include voice mail and facsimile machine services, deluxe
continental breakfast and lounge services in the evening. The Company believes
that Sumner Suites provides its guests with quality accommodations at an
attractive price/value relationship within the all-suites segment.

SHONEY'S INNS CONCEPT

Shoney's Inns are limited-service hotels positioned in the upper economy
segment to appeal to both business and leisure travelers and are located in 21
states in markets ranging from small towns to larger metropolitan areas.
Shoney's Inns are generally located in proximity to interstate highways, major
streets and highways providing convenient access to business establishments.
Seventy-nine of the 88 Shoney's Inns are located adjacent or in close proximity
to a Shoney's restaurant. Management believes that its strategy of locating its
Shoney's Inns in close proximity to free-standing Shoney's restaurants gives it
a competitive advantage over other limited-service lodging chains. Daily room
rates at Shoney's Inns range from $39 to $58 and vary depending upon a number of
factors, including location, competition and type of room. For the first two
fiscal quarters of 1996, the average daily room rate for Company-owned Shoney's
Inns was $50.86.

Historically, the typical Shoney's Inn has been a two story, exterior
corridor, brick veneer building with plate glass fronts, containing 100 to 125
rooms. New prototypes for Shoney's Inns include a four story, interior corridor,
brick or stucco building containing 100 to 120 rooms as well as smaller
prototype buildings containing 80 rooms. Each room is professionally decorated
and is generally furnished with two double beds, a dresser, table and chairs and
a color television.

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Amenities featured at most Shoney's Inns include swimming pools (some
indoors or heated), meeting rooms, facsimile machine service and continental
breakfast. The Company believes that Shoney's Inns provide its guests with
quality accommodations at an attractive price/value relationship within the
upper economy segment.

HOTEL CONSTRUCTION AND DEVELOPMENT

The Company's construction subsidiary has a full time core staff of
approximately 20 people who manage, supervise and control the construction of
the Company's hotels. Local subcontractors are employed by the Company for most
of the major construction components of a new hotel, including plumbing,
electrical, and mechanical subcontracts. The Company intends to continue to
build its own hotels because it believes that its in-house capabilities provide
advantages in controlling costs, quality, and development schedule as compared
to using independent contractors. The Company believes that its construction
experience and its relationship with many subcontractors will facilitate the
effective development of additional hotels.

The Company devotes significant resources to the identification and
evaluation of potential sites for its hotels. The Company generally targets
mid-sized to larger metropolitan markets for locating its Sumner Suites. In
identifying cities for possible expansion, the Company typically targets markets
with populations of 500,000 or more that have high levels of business
development and multiple sources of room demand. The site selection process for
Sumner Suites focuses on the competitive environment, including room and
occupancy rates and proximity to business parks, office buildings, and high
traffic retail and restaurant areas. The Company focuses on sites for its
Shoney's Inns in proximity to interstate highway access roads and major streets
and highways providing convenient access to local business establishments.

The Company anticipates developing Sumner Suites hotels averaging from 110
to 125 suites. Management believes that the development cost of a new Sumner
Suites hotel will be approximately $50,000 to $55,000 per suite, depending on
the location of the hotel, size of the hotel (number of suites), cost of land,
local zoning and permitting costs, construction period and local building costs
which are affected by the cost of building materials and construction labor.
Based on the Company's experience to date, the capital investment (including
land and pre-opening expenses) for a typical 125 suite Sumner Suites is
approximately $6.5 million (approximately $52,000 per suite). The Company's
Shoney's Inns typically range in cost from approximately $32,000 to $38,000 per
room.

The construction phase of a hotel generally requires six months after the
site and all approvals and permits have been obtained. The Company's experience
in selection and acquisition of sites has varied and generally averages six
months. The approval and permitting phase can occur simultaneously with site
acquisition and generally requires three months. The entire development process
generally ranges from 10 to 12 months but may take longer.

SALES AND MARKETING

The Company directs marketing efforts on behalf of both Sumner Suites and
Shoney's Inns primarily to business travelers, whom management believes have
represented the largest segment of its customers in recent years.

Sumner Suites. Marketing of the Sumner Suites brand is targeted primarily
towards the business traveler through a variety of efforts. Initially,
pre-opening sales calls are made by the general manager and director of sales of
each property in the local market area during the 90 days prior to opening. In
addition, advertisements are placed in the Hotel Travel Index, a comprehensive
listing of hotels worldwide used by travel agents for booking clients into
destination cities. The Sumner Suites toll-free reservation number,
1-800-74-SUITE, is promoted to the travel agents through advertising and direct
mailings. The Company believes that approximately one quarter of all Sumner
Suites room sales are booked through the reservation center. Finally, Sumner
Suites has joined TAC-Lite, an automatic, guaranteed payment system for travel
agents, in an effort to continue to expand Sumner Suites brand awareness.

Shoney's Inns. All Shoney's Inns participate in the "Sho Business" frequent
traveler program, entitling members to receive the lowest available rate, car
rental discounts, restaurant coupons, complimentary coffee

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and newspaper, free room upgrades, express check-in and other privileges upon
presentation of a membership card. Approximately 11% of the rooms booked through
INNLINK for Shoney's Inns through October 1, 1996 have been reserved by guests
who are members of the Sho Business program. Historically, the Company has also
marketed its hotels directly to businesses whose employees travel in the
southeastern United States. The Company's marketing department gathers
information on business prospects, secures accounts and makes referrals to
individual hotels for follow up.

Additionally, the Company attempts to take advantage of the positive
reputation attached to the Shoney's name in the over-50 age group and in the
package tour market through advertisement in publications targeting such readers
and by encouraging franchisee participation in promotional discounts for
frequent customers over 50 and for tour operators. The Company's program for the
over-50 age group entitles its members to receive special room rate discounts,
complimentary coffee and newspaper and other benefits. The Shoney's Inn system
also advertises in the approximately 967 Shoney's restaurants, and individual
Shoney's Inns are encouraged to participate in joint mailings and other
promotions with local Shoney's restaurants.

The Company periodically publishes a Shoney's Inn system directory showing,
for each Inn, its address and telephone number, location as indicated on a
locator map, a brief description of the facilities, the services and amenities
provided and other relevant information. These directories are distributed in
each Shoney's Inn and Shoney's restaurant and are provided directly to travel
agents, sponsors of group tours, corporate travel departments and other selected
potential customers.

Most properties have a full-time director of sales whose responsibilities
include local marketing and direct and group sales. At the corporate level, a
Director of Marketing oversees national marketing plans and provides marketing
support for each corporate and franchised property, including smaller corporate
properties which may not have a full-time sales person. The Director of
Marketing also oversees management of the Shoney's Inn national advertising
fund, into which all Shoney's Inns pay 1% of revenue to support national
marketing efforts such as the annual system directory.

LODGING OPERATIONS

Hotel Management. Overall hotel operations are the responsibility of the
Vice President of Operations for Shoney's Inns and the Director of Operations
for Sumner Suites. Shoney's Inns are further managed by regional managers, who
directly supervise the general managers of each property. The Company expects to
add regional managers for its Sumner Suites system as it grows its hotel base
with each regional manager supervising between four and six hotels on a
geographic basis. The general manager of each Shoney's Inns or Sumner Suites is
fully responsible for day-to-day operations and is compensated by salary and
bonus systems which reward revenue and operating margin performance. Each
general manager, in conjunction with senior management, develops the property's
operating budget and is held accountable for meeting the goals and objectives of
the hotel.

Reservation System. The Company's proprietary central reservation system,
INNLINK, provides important support for the room reservation process for both
Sumner Suites and Shoney's Inns and is marketed to other chains as well. Other
chains that contract with the Company for the service include: Country Hearth
Inns, Key West Inns and Wilson Inns & Hotels. INNLINK operates 24 hours a day, 7
days a week. The INNLINK system may be accessed by individual travelers as well
as by travel agents, tour and group booking agents at 1-800-222-2222 for
Shoney's Inns and 1-800-74-SUITE for Sumner Suites. Electronically, INNLINK is
accessed through numerous global distribution systems (e.g., SABRE Travel
Information Network, Galileo International, System One and WorldSpan). The
reservation system includes specially designed hotel reservation software, with
adequate capacity, and state of the art hardware and telecommunications devices.
The Company believes that approximately one quarter and one fifth of room sales
for Sumner Suites and Shoney's Inns, respectively, are made through INNLINK.

Quality Control. To ensure quality and consistency, the Company regularly
inspects each of its hotels and each Shoney's Inn in the Shoney's Inn system for
compliance with facility and service standards. The Company also conducts
unannounced visits by unidentified "guests" who report on the quality of
services at individual hotels. Generally, in addition to its ongoing
refurbishment activities, the Company fully renovates

S-26
<PAGE> 28

each of the Company-owned Shoney's Inns after approximately seven years of
operation and expects a similar renovation schedule for Sumner Suites. In the
last 44 months, the Company has renovated 12 of the 20 Company-owned Shoney's
Inns opened prior to 1994 and plans to renovate seven Shoney's Inns over the
next year.

Training. The Company utilizes the services of an "opening team" to assist
with hiring and training new staff and opening new Company-owned hotels. The
opening team trains local hotel personnel in front desk operations, operational
policies, hotel accounting and cash handling procedures, record-keeping,
housekeeping and laundry, maintenance and repair, marketing, personnel
management, purchasing, quality assurance and sales. Sales training includes a
team of direct sales personnel that assists the local staff in the actual
pre-selling of rooms. An opening team generally remains on site for one to four
weeks depending on the prior experience of the local general manager.

FRANCHISE OPERATIONS

Franchise Marketing. The Company markets the Shoney's Inn franchise
principally to existing Shoney's Inn franchisees, Shoney's restaurant
franchisees and other prospects known through management's contacts in the
lodging industry. The Company also markets franchises through advertisements in
trade publications and participation in trade shows and franchising conventions.

Management believes that the Company attracts potential new franchisees by
offering a high level of franchisee support services at a lower price than its
competitors. Management periodically monitors the initial fee, royalty fee,
advertising fee, reservation fee and other charges imposed by other franchisors
with whom the Company competes and believes that the fees charged by the Company
are competitive and, in many cases, lower than such other franchisors.

Fees. Under the standard Shoney's Inn franchise arrangement offered to
prospective franchisees, a franchisee pays a $2,500 application fee. Upon
approval of the application, the Company and the franchisee enter into a 20-year
license agreement, and the franchisee pays a license fee equal to the greater of
$250 per room or $25,000. The application fee is applied against the license
fee.

Under the standard Shoney's Inn franchise arrangement offered to
prospective franchisees, the franchisee pays monthly royalties of 3.5% of the
licensed hotel's gross sales during the term of the license agreement.
Additionally, a marketing cooperative fee of 1% of gross sales and a fee for
participation in the Shoney's Inn central reservation system of 1% of gross
sales are charged.

Franchisee Services. Management believes that the support the Company
offers to franchisees is a fundamental ingredient in determining its success as
a franchisor and that the Company's successful record as a Shoney's Inn builder,
owner and operator evidences valuable experience and abilities which can enhance
the franchisee support function. As franchisor, the Company draws on its own
operational experience to assist franchisees.

Once a Shoney's Inn is constructed, the Company offers the franchisee, for
an additional fee, training and "opening teams" similar to those used by the
Company when opening one of its own hotels. The Company also makes available
some of the most successful Company-owned Shoney's Inns as training centers.

The Company inspects every Shoney's Inn at least three times a year, at
least two of which are unannounced, through its Quality Standards and Compliance
program, using trained field representatives. The Company encourages franchisees
to renovate each of the Shoney's Inns after approximately seven years of
operations, in the same manner that the Company renovates its own hotels.

The Company offers to provide management services to Shoney's Inn
franchisees pursuant to contractual arrangements. The Company's fee for these
services is a percentage of the managed hotel's gross revenues. Currently, the
Company manages two hotels under contract arrangement.

S-27
<PAGE> 29

LICENSE AGREEMENT WITH SHONEY'S

Under the License Agreement, the Company has certain rights to use and to
license the use of the service marks "Shoney's Inn" and "Shoney's Inn & Suites"
in connection with lodging operations. Under the License Agreement, Shoney's
retains certain rights, including the right to approve the styles, shapes,
colors and forms in which the "Shoney's Inn" and "Shoney's Inn & Suites" marks
are displayed, the nature and extent of on-site food and beverage service and
the terms of franchise agreements (other than the maximum fees and other
financial terms).

Prior to completion of the Shoney's Transaction on October 25, 1996, the
License Agreement entitled Shoney's to receive a portion of the franchise fees
collected by the Company equal, in substantially all cases, to 1.5% of 52
Shoney's Inns' gross revenues through October 1999 and 0.5% of the remaining and
all future Shoney's Inns' gross revenues for the first ten years of their
operation. Shoney's right to receive such fees was terminated as part of the
Shoney's Transaction. See "Prospectus Summary -- Recent Developments -- Shoney's
Transaction".

The rights in the "Shoney's Inn" and "Shoney's Inn & Suites" marks granted
to the Company under the License Agreement may be terminated upon certain
occurrences, including the bankruptcy of the Company, the failure to comply with
the terms of the License Agreement, and the failure to desist from any conduct
likely to impair Shoney's goodwill or reputation.

LODGING INDUSTRY

Smith Travel Research divides lodging chains into five segments based on
price. These segments are: upper and lower upscale, mid-scale, and upper and
lower economy. Smith Travel Research does not have a specific all-suites
segment, but the Company's Sumner Suites hotels would be included in the
mid-scale segment based on average daily room rates.

The following tables illustrate certain comparative information regarding
REVPAR and its components for the years indicated:

<TABLE>
<CAPTION>
AVERAGE AVERAGE DAILY
REVPAR OCCUPANCY RATE ROOM RATE(1)
---------------------------- ---------------------- ----------------------------
1993 1994 1995 1993 1994 1995 1993 1994 1995
------ ------ ------ ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industry-wide............. $39.04 $41.57 $44.04 63.0% 64.6% 65.3% $61.97 $64.35 $67.45
Upper economy segment..... 27.40 28.95 30.59 63.4 64.4 64.4 43.21 44.96 47.50
All Shoney's Inns......... 26.47 26.43 27.31 65.8 63.9 63.1 40.25 41.33 43.27
Company-owned Shoney's
Inns.................... 29.50 30.20 30.97 69.8 67.1 64.3 42.25 44.98 48.17
Mid-scale segment(2)...... 34.46 36.06 38.06 63.2 64.2 64.6 54.53 56.17 58.91
</TABLE>

- ---------------

(1) Room revenues divided by the number of rented rooms.

(2) Information with respect to Sumner Suites is unavailable or not meaningful
as two of the first three Sumner Suites hotels did not open until late 1995.

Source: Smith Travel Accommodation Reports. December year-to-date 1995, for
industry-wide, upper economy and mid-scale, and the Company's internal
data for all Shoney's Inns statistics.

The Company believes that the key elements underlying the improvements in
the industry's operating performance and profitability are favorable economic
conditions and a rate of room demand growth which exceeds the growth rate of
room supply. The rate of room demand growth exceeded the rate of room supply
growth in each of 1993, 1994 and 1995. While the growth in room supply has
increased and will continue to increase with the development of new hotels,
according to Coopers & Lybrand's "Hospitality Directions," October, 1996,
industry-wide room supply is projected to exceed room demand beginning in 1998,
but industry-wide average daily room rate ("ADR") is expected to continue to
increase through 1999 while

S-28
<PAGE> 30

occupancy is expected to decrease. Occupancy and ADR have increased consistently
throughout the lodging industry from 1993 through 1995.

COMPETITION

The lodging industry is highly competitive. In franchising the Shoney's Inn
system and managing its own lodging facilities, the Company encounters
competition from numerous lodging companies, many of which have greater industry
experience, name recognition, and financial and marketing resources than the
Company. While the actual competition for individual lodging facilities varies
by location, the primary competition for Shoney's Inns includes lodging chains
such as Holiday Inn Express, La Quinta, Comfort Inns, Drury Inns, Fairfield Inns
and Travelodges. The Company's Sumner Suites hotels experience competition from
chains such as AmeriSuites, Hampton Inns, Residence Inn, Courtyard by Marriott,
Quality Suites, Embassy Suites and Comfort Suites. Each of the Company's hotels
is located in a developed area that includes competing lodging facilities, and
the Company expects that future hotels which it constructs will be located in
similar areas. Management believes that the principal competitive factors in its
lodging operations are room rates, quality of accommodations, name recognition,
supply and availability of alternative lodging facilities, service levels,
reputation, reservation systems and convenience of location. In its franchising
operations, the principal competitive factors are fee structure and support
services. Management further believes that the Company is presently competitive
in all these respects.

PROPERTIES

The Company's corporate headquarters, owned by the Company, is located in
Gallatin, Tennessee and contains approximately 10,000 square feet of office
space. Another 5,000 square feet of office space is leased by the Company in
close proximity to the headquarters. The Company has purchased a site in
Hendersonville, Tennessee and has begun the process of building a new
headquarters building that will contain approximately 42,000 square feet of
space including storage and food services. Management believes that the new
building will contain sufficient space to accommodate the Company's currently
anticipated needs.

Approximately 38 of the 43 Company-owned hotels are located on sites owned
by the Company or a partnership in which the Company holds a majority interest.
The remaining hotels are located on sites that are leased pursuant to long-term
ground leases.

LITIGATION

The Company is subject to litigation from time to time in the ordinary
course of business. In one case filed during October 1994 the plaintiff, a
limited partner in one of the Company's partnerships, claims, among other
things, that the Company breached the partnership agreement by not offering the
partnership the right to participate in the profits from the management of a
neighboring AmeriSuites hotel. In February 1995, the court entered summary
judgment in favor of the plaintiff on this claim and referred the issue of
damages to a special master of the court. In November 1995, the special master
issued her report finding damages on this claim payable to the partnership (of
which the Company is a 60% partner) in the amount of approximately $3.0 million.
The report of the special master was confirmed by the court in December 1995 and
the Company subsequently appealed the judgment in March 1996. If the Company is
unsuccessful in its efforts to have the judgment reversed, the Company's
earnings could be adversely affected.

S-29
<PAGE> 31

MANAGEMENT

The following table contains certain information concerning the directors
and executive officers of the Company which information has been furnished to
the Company by the individuals named.

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Leon Moore(1) 55 President, Chief Executive Officer, and Director
Richard L. Johnson 55 Executive Vice President, Director
Bob Marlowe 57 Chief Accounting Officer, Secretary and Treasurer,
Director
Earl H. Sadler(1)(2)(3) 73 Director
Helen L. Moskovitz(1)(2)(3) 59 Director
James M. Grout 51 Executive Vice President
Michael A. Corbett 44 Chief Financial Officer
John C. Buttolph 67 Vice President -- Franchising and Development
</TABLE>

- ---------------

(1) Executive Committee member.

(2) Audit Committee member.

(3) Compensation Committee member.

The following is a brief summary of the business experience of each of the
directors and executive officers of the Company.

LEON MOORE founded the Company in 1976 and has served as its President and
Chief Executive Officer and a director since that time. Mr. Moore serves as
Chairman of the Executive Committee. Mr. Moore has more than 25 years of
experience in developing and operating lodging facilities and restaurants,
largely involving franchisees of Shoney's. He is also a director of The Bank of
Nashville.

RICHARD L. JOHNSON has been Executive Vice President and a director of the
Company since 1984 and is primarily responsible for strategic planning and
development. Before joining the Company in 1984, Mr. Johnson was a Vice
President and Manager of the Industrial and Commercial Group -- Municipal
Finance Section with J.C. Bradford & Co.

BOB MARLOWE has been Chief Accounting Officer, Secretary and Treasurer
since November 1995 and a director of the Company since 1984. From 1984 to
November 1995 he served as Chief Financial Officer, Secretary and Treasurer. Mr.
Marlowe is a certified public accountant. Before joining the Company in 1984, he
was the Senior Vice President and director of financial management with United
Southern Bank.

EARL H. SADLER has been a co-owner of Sadler Brothers Trucking and Leasing
Company, Inc. since 1948. Mr. Sadler joined the Company's Board of Directors in
1992, and is Chairman of the Compensation Committee.

HELEN L. MOSKOVITZ has been the President of Helen L. Moskovitz &
Associates, Inc., a destination management company, since 1979. Mrs. Moskovitz
joined the Company's Board of Directors in 1995.

JAMES M. GROUT was elected Executive Vice President of the Company in April
1995 and is primarily responsible for administration. From March 1995 until
April 1995, Mr. Grout was employed by the Company as director of development. He
was employed by Shoney's from 1980 until January 1995 in its hotel operating
division, most recently as President of Shoney's Division from February 1994
until January 1995.

MICHAEL A. CORBETT was elected Chief Financial Officer of the Company in
October 1995. He served as Treasurer of Genesco, Inc., a footwear apparel
manufacturer, from October 1993 until September 1995. From July 1989 to October
1993, Mr. Corbett was managing director of Highland Capital Corporation, a
consulting and advisory company to Fortune 500 clients in the textile,
healthcare, technology, insurance and financial service industries.

JOHN C. BUTTOLPH was elected Vice President -- Franchising and Development
for the Company in May 1993. Prior to that time he was Vice President of Suites
of America, Inc. from September 1991. Before

S-30
<PAGE> 32

joining Suites of America, Inc., he was Vice President of Prime Motor Inns, Inc.
from April 1989 to September 1991.

DESCRIPTION OF THE SERIES A NOTES

The following description of the Series A Notes offered hereby supplements
the description of the general terms and provisions of the Notes set forth in
the accompanying Prospectus, to which description reference is hereby made. The
statements under this caption are summaries of certain other terms applicable to
the Series A Notes. Such summaries do not purport to be complete and are
qualified in their entirety by the terms of the Indenture. Capitalized terms
defined in the Indenture shall have the same meanings herein.

The Series A Notes are the initial issue of Notes to be issued under an
Indenture dated as of , 1996 by and between the Company and Bankers Trust
Company, as Trustee, as supplemented by a First Supplemental Indenture
establishing the terms of the Series A Notes. The Indenture, as so supplemented,
is referred to herein as the "Indenture."

The Series A Notes will be limited in principal amount to $35,000,000, all
of which are being offered hereby. The Series A Notes will be issuable as fully
registered Notes in denominations of $1,000 and any integral multiple thereof.
The Series A Notes will bear interest at the rate per annum set forth on the
cover page of this Prospectus Supplement from and after their date of original
issuance. Payments of interest will be made quarterly on February 1, May 1,
August 1 and November 1 of each year commencing February 1, 1997, to each holder
of record as of the close of business on the fifteenth day of the month
immediately preceding such interest payment date, by check of the Trustee mailed
to each such holder of record, except as provided in the Indenture.

The Series A Notes will mature on , 2006, and payments of the
principal of the Series A Notes will be made at the main trust office of the
Trustee in New York, New York. The Series A Notes are exchangeable and
transferable at such office without charge therefor except for any tax or other
governmental charge connected therewith, and provided that the Company shall not
be required to register a transfer of or to exchange the Series A Notes during
the period of 15 days immediately preceding any selection of Series A Notes for
redemption.

The Series A Notes constitute a separate series of securities for purposes
of the Indenture. For a description of the rights of holders of Notes, including
the Series A Notes, under the Indenture, see "Description of the Notes" in the
accompanying Prospectus.

OPTIONAL REDEMPTION BY THE COMPANY

The Series A Notes shall be redeemable at any time prior to the Stated
Maturity at the option of the Company as a whole at any time, or in part from
time to time, commencing , 1999 on not less than 30 nor more than 60
days notice given as provided in the Indenture upon payment of the then
applicable redemption price (expressed in percentages of the principal amount)
set forth below under the heading "General Redemption Prices," together in each
case with accrued and unpaid interest to the date fixed for redemption. The
General Redemption Prices (expressed in percentages of the principal amount)
applicable during the 12-month period beginning in the years indicated
below are as follows:

GENERAL REDEMPTION PRICES

If redeemed during the 12 month period beginning ,

1999..........................104%
2000..........................103%
2001..........................102%
2002..........................101%
2003 and thereafter...........100%

S-31
<PAGE> 33

In case of the redemption of less than all of the outstanding Series A
Notes, the Series A Notes to be redeemed shall be selected by the Trustee by lot
or such other method as the Trustee shall deem reasonable, not more than sixty
(60) days prior to the Redemption Date, from the outstanding Series A Notes not
previously called for redemption, which method may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of such Series A Notes of a principal amount larger than
$1,000. In the case of any partial redemption, the Trustee is obligated to
notify the Company in writing of the serial numbers (and, in the case of any
Series A Note which is to be redeemed in part only, the portion of the principal
amount thereof to be redeemed) of the Series A Notes selected for redemption.

CERTAIN PROVISIONS REGARDING REDEMPTION AT HOLDER'S OPTION

The Series A Notes tendered by the personal representative or surviving
joint tenant, tenant by the entirety or tenant in common of a deceased
beneficial owner shall be redeemed within 60 days of tender, at par plus accrued
interest, subject to the amount limitations described below and in "Description
of the Notes -- Redemption at Holder's Option." Series A Notes tendered by
November 1 of each year commencing in 1999 shall be redeemed on the following
December 1 at par plus accrued interest, subject to the amount limitations and
other limitations described below and in "Description of the Notes -- Redemption
at Holder's Option." Of the Series A Notes tendered, the Company is only
required to redeem, for any twelve month period ending on December 1 of any
year, an aggregate maximum of 5% of the aggregate amount of all Notes of all
series issued under the Indenture, subject to a maximum of $50,000 per
beneficial owner, per period. Notes tendered by representatives of deceased
beneficial owners will be redeemed prior to Notes tendered by other Noteholders.

S-32
<PAGE> 34

UNDERWRITING

Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the Underwriters named below have each agreed, severally, to
purchase from the Company the principal amount of the Series A Notes set forth
opposite their respective names below.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF
NAME OF UNDERWRITER SERIES A NOTES
-------------------------------------------------------------------- ----------------
<S> <C>
J.C. Bradford & Co.................................................. $
Dain Bosworth Incorporated..........................................
Interstate/Johnson Lane Corporation.................................
-----------
Total..................................................... $ 35,000,000
===========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all of the Series A Notes
offered hereby, if any are purchased, excluding the Series A Notes covered by
the over-allotment option granted to the Underwriters.

The Underwriters have advised the Company that they propose initially to
offer the Series A Notes to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and may offer Series A Notes to
certain dealers at such price less a concession of not more than % of the
principal amount of the Series A Notes. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of % of the principal amount
of the Series A Notes to certain other brokers and dealers. After the
commencement of this offering, the public offering price, and concessions and
reallowances to dealers may be changed by the Underwriters.

The offering of the Series A Notes is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for purchase of the Series A Notes.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus Supplement, to purchase up to
$5,250,000 of additional aggregate principal amount of Series A Notes to cover
over-allotments at the same price per Series A Note to be paid by the
Underwriters for the other Series A Notes offered hereby. The Underwriters may
purchase such Series A Notes only to cover over-allotments, if any, in
connection with the offering made hereby.

There is no public market for the Series A Notes, and the Company does not
intend to apply for quotation of the Series A Notes on the Nasdaq National
Market or any other quotation system or listing of the Series A Notes on any
securities exchange. The Company has been advised by the Underwriters that,
following the public offering of the Series A Notes, the Underwriters presently
intend to make a market in the Series A Notes; however, the Underwriters are not
obligated to do so, and any market-making activity with respect to the Series A
Notes may be discontinued at any time without notice. There can be no assurances
as to the liquidity of the public market for the Series A Notes or that an
active public market for the Series A Notes will develop. If an active market
does not develop, the market price and liquidity of the Series A Notes may be
adversely affected.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including certain liabilities under the Securities Act of 1993, as amended, or
will contribute to payments which the Underwriters or any such controlling
persons may be required to make in respect thereof.

LEGAL MATTERS

Certain matters regarding the Series A Notes will be passed on for the
Company by Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee. Certain
legal matters regarding the Series A Notes will be passed on for the
Underwriters by Bass, Berry & Sims PLC, Nashville, Tennessee.

S-33
<PAGE> 35

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1996

PRELIMINARY PROSPECTUS

$125,000,000

SHOLODGE, INC.

SENIOR SUBORDINATED NOTES

------------------

ShoLodge, Inc. (the "Company") may offer from time to time up to
$125,000,000 in aggregate principal amount of its Senior Subordinated Notes (the
"Notes") at prices and on terms to be determined at the time of sale. The
aggregate principal amount, maturity, any premium, any interest rate (which may
be fixed or variable), any interest payment dates, any optional or mandatory
redemption terms, the initial public offering price and any other terms of the
offering of the series of Notes in respect of which this Prospectus is being
delivered are set forth in the accompanying Prospectus Supplement (the
"Prospectus Supplement"). The Notes will be unsecured and subordinated in right
of payment to the prior payment in full of all existing and future Senior
Indebtedness, as defined, of the Company and will be senior in right of payment
to or pari passu with all other subordinated indebtedness of the Company. The
Company may incur additional Senior Indebtedness subject to the "Restriction on
Additional Indebtedness" covenant in the Indenture, as defined.

Upon the occurrence of a Change in Control, as defined, of the Company, the
Company will be obligated to purchase Notes at the holder's option at par plus
accrued interest to the date of purchase. The change in control feature may have
an anti-takeover effect. See "Description of the Notes -- Repurchase at Holder's
Option Upon Change in Control." The Company will redeem Notes tendered by the
personal representative or surviving joint tenant, tenant in common or tenant by
the entirety of a deceased holder within 60 days of presentation of the
necessary documents, up to an annual maximum of $50,000 per holder and up to an
annual aggregate maximum amount equal to 5% of the aggregate original principal
amount of the Notes of all series issued under the Indenture. The Company will
redeem Notes tendered by other beneficial holders commencing on a certain date
set forth in the Prospectus Supplement and on each anniversary thereof subject
to the per holder and aggregate limitations. No sinking fund will be established
to redeem the Notes. See "Description of the Notes."

The Notes will be issued in integral multiples of $1,000 and will be in
fully registered form. The Company does not intend to list the Notes on the
Nasdaq National Market or any securities exchange.

------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

, 1996
<PAGE> 36

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission") which may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain Regional
Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material may be obtained from the Public Reference
Section of the Commission, at prescribed rates. In addition, the Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. The Company is
required under the Indenture (as hereinafter defined) to file with the
Commission quarterly and annual reports required by the Exchange Act and to
furnish the holders copies of such reports. If the Company is not subject to the
periodic reporting and informational requirements of the Exchange Act, it will
provide the holders of the Notes with annual reports containing the information
required to be contained in Form 10-K promulgated under the Exchange Act,
quarterly reports containing the information required to be contained in Form
10-Q promulgated under the Exchange Act and from time to time such other
information as is required to be contained in Form 8-K promulgated under the
Exchange Act.

The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained herein concerning any contract, agreement or
other document filed as an exhibit are not necessarily complete and, in each
instance, reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference into this Prospectus its (i)
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and (ii)
Quarterly Reports on Form 10-Q for the fiscal quarters ended April 21, 1996 and
July 14, 1996 filed by it with the Commission pursuant to the Exchange Act.

In addition, all reports and other documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference into this Prospectus and to be
made a part hereof from the date of the filing of such reports and documents.

Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for the purpose of this Prospectus
to the extent that a statement contained herein (or in any other subsequently
filed document which also is incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of the documents which are incorporated by reference in this Prospectus (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents). Such request should be directed
to ShoLodge, Inc., 217 West Main Street, Gallatin, Tennessee 37066, Attention:
Michael A. Corbett, Chief Financial Officer.

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<PAGE> 37

THE COMPANY

The Company develops, owns and operates all-suites hotels under the Sumner
Suites brand name and is an operator and exclusive franchisor of Shoney's Inns
and Shoney's Inn & Suites (collectively, "Shoney's Inns"). The Company's 11
Sumner Suites are mid-scale, all-suites hotels located in Florida, Georgia,
Indiana, New Mexico, Ohio and Texas. The Shoney's Inns lodging system consists
of 88 Shoney's Inns containing 8,985 rooms, of which 34 Shoney's Inns containing
4,164 rooms are owned or managed by the Company. Shoney's Inns are currently
located in 21 states with a concentration in the Southeast.

Sumner Suites hotels are marketed primarily to business travelers and, to a
lesser extent, leisure travelers by offering an all-suite setting in a
convenient location at an attractive price/value relationship. Usually located
in or near business or leisure travel destinations in mid-sized and larger
metropolitan markets, Sumner Suites offer mid-scale accommodations at rates
between $65 and $85 per night. A typical Sumner Suites hotel contains
approximately 110 to 125 rooms, lounge facilities, meeting rooms and an exercise
room, and offers a deluxe continental breakfast.

The Company's strategy is to increase cash flow and earnings by (i)
increasing revenue per available room while maintaining the Company's attractive
suite and room price/value relationships and controlling operating costs, (ii)
developing additional Sumner Suites, and (iii) expanding the Shoney's Inn system
through the addition of new franchised units and selectively developing
Company-owned hotels.

The principal executive offices of the Company are located at 217 West Main
Street, Gallatin, Tennessee 37066. The Company's telephone number is (615)
452-7200.

USE OF PROCEEDS

Except as otherwise described in the Prospectus Supplement, the net
proceeds to the Company from the sale of the Notes will be used to fund the
development and renovation of lodging facilities and construction of the
Company's headquarters, finance the Company's capital expenditures and working
capital requirements and reduce outstanding debt incurred for such purposes, as
well as other corporate purposes. A description of any indebtedness to be repaid
with the proceeds of the Notes will be set forth in the Prospectus Supplement.
Pending the above uses, the net proceeds to the Company will be invested in
investment grade, short-term, interest-bearing securities, such as Treasury
bills, repurchase agreements, commercial paper and short-term certificates of
deposit.

DESCRIPTION OF THE NOTES
GENERAL

The Notes are to be issued under an Indenture dated as of ,
and one or more supplemental indentures (the "Indenture") between the Company
and Bankers Trust Company, as trustee (the "Trustee"). The particular terms of
any series of Notes offered by any Prospectus Supplement (each such series
individually the "Offered Notes") will be described in the Prospectus Supplement
relating to such Offered Notes (the "Applicable Prospectus Supplement"). A copy
of the Indenture is an exhibit to the Registration Statement of which this
Prospectus is a part and a copy of a form of Supplemental Indenture will be
filed by the Company with the Commission as an exhibit to a document which will
be incorporated by reference herein. The following summaries of certain
provisions of the Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the

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<PAGE> 38

Indenture and the applicable supplemental indenture, including the definitions
therein of certain terms. Capitalized terms not otherwise defined in this
Prospectus shall have the meanings given to them in the Indenture.

The Indenture provides that Notes may be issued thereunder from time to
time in one or more series in an aggregate principal amount up to $125,000,000.
The Notes will be issued as fully-registered Notes only in integral multiples of
$1,000, and will be unsecured, subordinated obligations of the Company.

The Applicable Prospectus Supplement will describe the following terms of
the Offered Notes: (a) the title of the Offered Notes; (b) any limit of the
aggregate principal amount of the Offered Notes; (c) the date or dates on which
the Offered Notes will mature; (d) the rate or rates per annum at which the
Offered Notes will bear interest and the date or dates from which such interest
will accrue and the dates on which such interest on the Offered Notes will be
payable and the Regular Record Dates for such Interest Payment Dates; (e) the
terms of any rights of the Company to redeem the Offered Notes at its option;
and (f) any other terms of the Offered Notes.

SUBORDINATION

The obligations of the Company to make any payment on account of the
principal of and premium, if any, and interest on the Notes will be subordinate
and junior in right of payment to the prior payment in full of all Senior
Indebtedness (as defined below). The Notes will rank senior to the Company's
7.5% convertible subordinated debentures due 2004 (the "1994 Debentures") and
senior to or pari passu with any other subordinated indebtedness of the Company.

No direct or indirect payment or distribution (other than payments or
distributions of amounts previously deposited in accordance with the defeasance
provisions of the Indenture) shall be made by or on behalf of the Company on
account or in respect of principal of or premium, if any, or interest on the
Notes or on account or in respect of the purchase, redemption or other
acquisition or deposits in trust in respect of defeasance of Notes (including
without limitation any purchase of a Note required as a result of a Change in
Control), if there shall have occurred and be continuing any default in the
payment when due (at maturity, upon acceleration of maturity, upon mandatory
prepayment, or otherwise) in respect of any Senior Indebtedness continuing
beyond the period of grace, if any, specified in the instrument or agreement
creating or evidencing such Senior Indebtedness (a "Payment Default"), unless
such default shall have been effectively waived in writing by the holders of
such Senior Indebtedness in default or unless the holders of such Senior
Indebtedness in default shall have delivered to the Trustee a written notice of
waiver of the benefits of this sentence. In addition, if any event of default
with respect to any Senior Indebtedness, other than a Payment Default, occurs
and is continuing and as a result thereof the maturity of such Senior
Indebtedness may be accelerated (such an event of default being referred to
herein as a "Covenant Default"), and the Company and the Trustee receive written
notice (such notice being herein referred to as a "Deferral Notice") thereof
from the holders of at least 10% in principal amount of Senior Indebtedness,
then no direct or indirect payment or distribution (other than payments or
distributions of amounts previously deposited in accordance with the defeasance
provisions of the Indenture) shall be made by or on behalf of the Company on
account or in respect of principal of or premium, if any, or interest on the
Notes or on account of the purchase, redemption or other acquisition or deposits
in trust in respect of defeasance of Notes (including without limitation any
purchase of a Note required as a result of a Change in Control) until the
earlier to occur of (x) the date such Covenant Default is cured, effectively
waived in writing by the holders of such Senior Indebtedness or otherwise ceases
to exist in accordance with the terms of the instruments or agreements creating
or evidencing such Senior Indebtedness, (y) the date the holders of such Senior
Indebtedness or their respective Representatives shall have delivered to the
Trustee a written notice of waiver of the benefits of this sentence, or (z) the
179th day after receipt by the Company or the Trustee of such Deferral Notice,
if in any such case the subordination provisions of the Indenture otherwise
permits such payment at such time; provided, however, that any number of
Deferral Notices may be given, but during any 365 consecutive day period only
one such period during which such payments on the Notes may not be made may
commence and the duration of such period may not exceed 179 days, and provided,
further, that no subsequent Deferral Notice relating to the same or any other
Covenant Default existing or continuing on the date of receipt of any

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<PAGE> 39

prior Deferral Notice, whether or not such subsequent Deferral Notice is
received by the Company or Trustee within 365 days shall further prohibit such
payments on the Notes unless all events of default in respect of such Senior
Indebtedness shall have been cured or waived after the date of receipt of such
prior Deferral Notice for a period of not less than 180 consecutive days.

Upon any payment or distribution of assets or securities of the Company in
any dissolution, winding up, total or partial liquidation or reorganization of
the Company, payment of the principal or, premium, if any, and interest on, and
any other amounts in respect of, the Notes will be subordinated, to the extent
and in the manner set forth in the Indenture, to the prior payment in full, in
cash, of all Senior Indebtedness, including any interest accruing on such Senior
Indebtedness subsequent to the commencement of a bankruptcy, insolvency or
similar proceeding.

By reason of such subordination, in the event of insolvency, holders of the
Notes may recover less, ratably, than other creditors of the Company.

"Senior Indebtedness" shall mean the following, whether outstanding as of
the date hereof or hereafter created, incurred, assumed or guaranteed by the
Company or any Subsidiary, (a) indebtedness (other than the Notes and the 1994
Debentures) for the payment of which the Company or any Subsidiary is
responsible or liable or the payment of which the Company or any Subsidiary has
guaranteed, (b) capital lease obligations of the Company or any Subsidiary
determined in accordance with generally accepted accounting principles, (c) any
obligation of the Company or any Subsidiary to reimburse banks or others
pursuant to letters of credit or guaranties extended by such banks or others,
advances made by such banks or others and other credit arrangements entered into
with such banks or others in connection with tax-exempt obligations issued for
the benefit of the Company or any Subsidiary, (d) any obligation of the Company
or any Subsidiary for the deferred purchase price of real or personal property,
including any purchase money indebtedness or conditional sales obligations and
obligations under title retention agreements, and (e) renewals, extensions,
modifications and refundings of any such indebtedness or obligations, provided,
however, that Senior Indebtedness shall not include indebtedness which by its
terms refers explicitly to the Notes issued hereunder and states that such
indebtedness shall not be senior thereto and shall be subordinate to the Notes
issued hereunder.

REDEMPTION AT HOLDER'S OPTION

Unless the Notes have been declared due and payable prior to their maturity
by reason of an Event of Default and such Event of Default has not been waived
and such declaration has not been rescinded or annulled, a holder has the right
to present Notes for payment prior to their maturity, and the Company will
redeem the same (or any portion of the principal amount thereof which is $1,000
or an integral multiple thereof, as the holder may specify), subject to the
following limitations: (a) the Company will have no obligation to redeem any
Notes prior to the initial holder's redemption date specified in the Note and
the applicable supplemental indenture (the "Initial Holder's Redemption Date"),
except on the death of a holder as described below, and (b) the Company will
have no obligation to redeem Notes (on the death of a holder or otherwise) in
excess of the following annual maximum amounts (collectively, the "Annual Amount
Limitations") of (i) $50,000 per holder and (ii) an aggregate amount for all
Notes submitted for redemption equal to five percent (5%) of the aggregate
original principal amount of the Notes of all series issued under the Indenture
(the "Five Percent Limitation"). The Initial Holder's Redemption Date and any
subsequent anniversary of such date are each referred to as a "Holder's
Redemption Date." Notes submitted for redemption on any Holder's Redemption
Date, except for Notes submitted for redemption following the death of a holder,
must be submitted by the date specified in the Note and the applicable
supplemental indenture with respect to such Holder's Redemption Date. If the
$50,000 per holder limitation has been reached and the Five Percent Limitation
has not been reached, if Notes have been properly presented for payment on
behalf of beneficial holders who are natural persons, each in an aggregate
principal amount exceeding $50,000, the Company will redeem such Notes in order
of their receipt (except Notes presented for payment in the event of death of a
holder, which will be given priority in order of their receipt), up to the
aggregate limitation of five percent (5%) of the aggregate principal amount of
the Notes of all series issued under this Indenture, notwithstanding the $50,000
limitation.

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<PAGE> 40

Subject to the Annual Amount Limitations (and unless the Notes have been
declared due and payable prior to their maturity by reason of an Event of
Default and such Event of Default has not been waived and such declaration has
not been rescinded or annulled), Notes submitted for redemption upon the death
of any holder (or any portion of the principal amount of such Notes which is
$1,000 or an integral multiple thereof, as the holder may specify), will be
redeemed within sixty (60) days following receipt by the Trustee of a written
request therefor from such holder's personal representative, or surviving joint
tenant(s), tenant by the entirety or tenant(s) in common.

The price to be paid by the Company for all Notes presented to it for
redemption pursuant to these provisions is 100% of the principal amount thereof
to be redeemed, plus accrued but unpaid interest on such principal amount to the
date of payment.

In the case of Notes registered in the name of banks, trust companies or
broker-dealers who are members of a national securities exchange or the National
Association of Securities Dealers, Inc. ("Qualified Institutions"), the $50,000
per holder limitation applies to each beneficial owner of Notes held by any
Qualified Institution as if such beneficial owner were a separate holder. A Note
held in tenancy by the entirety, joint tenancy or tenancy in common will be
deemed to be held by a single holder, and the death of a tenant by the entirety,
joint tenant or tenant in common will be deemed the death of a holder. The death
of a person who, during his or her lifetime, was entitled to substantially all
of the beneficial ownership interest of a Note, will be deemed the death of a
holder, regardless of the registered holder, if such beneficial interest can be
established to the satisfaction of the Trustee. Such beneficial interest will
normally be deemed to exist in typical cases of street name or nominee
ownership, ownership by a custodian for the benefit of a minor under the Uniform
Gifts to Minors Act, community property or other joint ownership arrangements
between a husband and wife (including individual retirement accounts or Keogh
plans maintained solely by or for the decedent, or by or for the decedent and
his or her spouse) and trusts and certain other arrangements whereby a person
has substantially all of the beneficial ownership interests in the Notes during
his or her lifetime. Beneficial interests shall include the power to sell,
transfer or otherwise dispose of a Note and the right to receive the proceeds
therefrom, as well as interest and principal payable with respect thereto.

Notes may be presented for redemption by delivering to the Trustee: (a) a
written request for redemption, in form satisfactory to the Trustee, signed by
the registered holder or his or her duly authorized representative, (b) the Note
to be redeemed and (c) in the case of a surviving tenant or personal
representative of a deceased holder or beneficial owner, appropriate evidence of
death and such other additional documents as the Trustee shall require,
including, but not limited to, inheritance or estate tax waivers and evidence of
authority of the personal representative. In their request for prepayment on
behalf of a beneficial owner, Qualified Institutions must submit evidence,
satisfactory to the Trustee, that they hold Notes on behalf of such beneficial
owner and that the aggregate requests for prepayment tendered by such Qualified
Institution on behalf of such beneficial owner per year do not exceed $50,000.
In addition, any request for prepayment made by a Qualified Institution on
behalf of a beneficial owner must be delivered to the Trustee by registered
mail, return receipt requested.

Any Notes tendered or any request for prepayment may be withdrawn by
written request received by the Trustee prior to the issuance of a check in
payment thereof.

Notes presented for redemption as set forth above will be redeemed in order
of their receipt by the Trustee, except that Notes presented for payment in the
event of death of a holder will be given priority in order of their receipt over
other Notes. Notes not redeemed in any such period because they have not been
presented prior to the date set forth in the Note and the applicable
supplemental indenture with respect to any Holder's Redemption Date or because
of the Annual Amount Limitations will be held in order of their receipt for
redemption during the following twelve (12) month period(s) until redeemed,
unless sooner withdrawn by the holder. Holders of Notes presented for redemption
shall be entitled to and shall receive scheduled monthly payments of interest
thereon on scheduled Interest Payment Dates until their Notes are redeemed.

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<PAGE> 41

by such holder, in aggregate principal amount equal to the unredeemed portion of
the principal of the Notes so presented. The Company may redeem, in acceptance
of tenders made pursuant hereto, Notes in excess of the principal amount that
the Company is obligated to redeem, and may purchase Notes in the open market.
However, the Company may not use any Notes purchased in the open market as a
credit against its redemption obligations hereunder.

The Company's obligation to prepay Notes properly tendered for prepayment
is not cumulative. Although the Company is obligated to prepay in any year up to
5% of the aggregate original principal amount of all series of the Notes issued
under the Indenture, it is not required to establish a sinking fund or otherwise
set aside funds for that purpose, and the Company has no present intention of
setting aside funds for the prepayment of Notes prior to maturity. The Company
intends to prepay Notes tendered out of its internally-generated funds or, if
necessary, short-term or other long-term borrowings. The obligation to prepay
the Notes, however, is an unsecured obligation of the Company.

REPURCHASE AT HOLDER'S OPTION UPON CHANGE IN CONTROL

In the event of any Change in Control (as defined below), each holder of
Notes will have the right, at the holder's option and subject to the terms and
conditions of the Indenture, to require the Company to purchase for cash all or
any part (provided the principal amount of such part is $1,000 or an integral
multiple thereof) of the holder's Notes on the date that is 35 business days
after the occurrence of the Change in Control (the "Change in Control Purchase
Date") at a price equal to 100% of the principal amount thereof plus accrued
interest to the Change in Control Purchase Date (the "Change in Control Purchase
Price").

Within 15 business days after the occurrence of a Change in Control, the
Company is obligated to mail a written notice of Change in Control to the
Trustee and to each holder (and to beneficial owners as required by applicable
law) and shall cause a copy of such notice to be published once in The Wall
Street Journal or another daily newspaper of national circulation. The notice
shall state, among other things, the events causing a Change in Control and the
date of such Change in Control, the date by which the Change in Control Purchase
Notice (as defined below) must be given, the Change in Control Purchase Date,
the Change in Control Purchase Price, the procedures the holder must follow to
exercise the holder's rights and the procedures for withdrawing a Change in
Control Purchase Notice.

A holder may exercise such holder's rights upon delivery of a written
notice of purchase (a "Change in Control Purchase Notice") to the Trustee at any
time prior to the close of business on the business day immediately prior to the
Change in Control Purchase Date, stating, among other things, the certificate
number of the Note which the holder will deliver to be purchased, the portion of
the principal amount of the Note which the holder will deliver to be purchased,
and that such Note will be submitted for purchase on the Change in Control
Purchase Date pursuant to the terms and conditions specified in the Notes.

Any Change in Control Purchase Notice may be withdrawn by the holder by a
written notice of withdrawal delivered to the Trustee or to any other office or
agency maintained for such purpose at any time before the close of business on
the business day immediately preceding the Change in Control Purchase Date. The
notice of withdrawal shall state the principal amount and the certificate
numbers of the Notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to the original Change in Control Purchase
Notice.

Payment of the Change in Control Purchase Price for a Note for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of such Note (together with any endorsements) to the
Trustee or to any other office or agency maintained for such purpose, at any
time (whether prior to, on or after the Change in Control Purchase Date) after
delivery of such Change in Control Purchase Notice. Payment of the Change in
Control Purchase Price for such Note will be made promptly following the later
of the Change in Control Purchase Date or the time of delivery of such Note. If
the Company has deposited with the Trustee, in accordance with the Indenture,
money sufficient to pay the Change in Control Purchase Price of such Note on the
Change in Control Purchase Date, then, on and after the Change in Control
Purchase Date, such Note shall cease to be outstanding and interest on such Note
will cease to accrue, whether or not such Note is delivered to the Trustee or to
any other office maintained for such

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<PAGE> 42

purpose, and all other rights of the holder shall terminate (other than the
right to receive the Change in Control Purchase Price upon delivery of such
Note).

Under the Indenture, a "Change in Control" shall be deemed to have occurred
at such time as either of the following events shall occur: (a) the Company
consolidates with or merges into another corporation, or conveys, transfers or
leases all or substantially all of its assets to any person, or any other
corporation merges into the Company, other than, in any case, a transaction in
which the shareholders of the Company immediately prior to such transaction
owned, directly or indirectly, immediately following such transaction, at least
50% of the combined voting power of the outstanding Voting Stock of the
corporation resulting from such transaction in substantially the same proportion
as their ownership of the Voting Stock of the Company immediately prior to such
transaction; or (b) there is a report filed by any person, including its
Affiliates and Associates (as defined in the Indenture), other than the Company
or its Subsidiaries or employee stock ownership plans or employee benefit plans
of the Company or its Subsidiaries, on Schedule 13D or 14D-1 (or any successor
schedule, form or report) pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that such person (as defined in the
Indenture) has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of more than 50% of the voting power of the Company's Voting
Stock then outstanding.

Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of conveyance, transfer or
lease of less than all of the assets of the Company to another person may be
uncertain.

Except as described above with respect to a Change in Control, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase the Notes in the event of a
takeover or similar transaction. Moreover, a recapitalization of the Company or
a transaction entered into by the Company with management or their affiliates
would not necessarily be included within the definition of a "Change in
Control." Accordingly, while such definition covers a wide variety of
arrangements which have traditionally been used to effect highly-leveraged
transactions, the Indenture does not afford the holders of Notes protection in
all circumstances from highly leveraged transactions, reorganizations,
restructurings, mergers or similar transactions involving the Company that may
adversely affect holders of Notes.

In accordance with the Indenture, no Notes may be purchased pursuant to
these provisions if there has occurred and is continuing an Event of Default
described under "Defaults and Certain Rights on Default" below (other than a
default in the payment of the Change in Control Purchase Price with respect to
such Notes).

The Change in Control feature of the Notes may, in certain circumstances,
make more difficult or discourage a takeover of the Company and thus removal of
incumbent management. The Change in Control feature, however, is not the result
of management's knowledge of any specific effort to obtain control of the
Company or part of a plan by management to adopt a series of antitakeover
provisions.

To the extent that the right of redemption by a holder in the event of a
Change in Control constitutes a tender offer under Section 14(e) of the Exchange
Act and the rules thereunder, the Company will comply with all applicable rules
under Section 14(e) of the Exchange Act.

DEFAULTS AND CERTAIN RIGHTS ON DEFAULT

An event of default will be defined in the Indenture as being: (a) default
in the payment of any installment of interest upon any of the Notes for a period
of 30 days; (b) default in the payment of the principal of and premium, if any,
on any of the Notes either at maturity, upon redemption or purchase by the
Company by declaration or otherwise; (c) failure on the part of the Company duly
to observe or perform in any material respect any other of the covenants
contained in the Notes or in the Indenture for a period of 60 days after the
date on which written notice of such failure shall have been given to the
Company; (d) an event or events of default as defined in any mortgage, bond,
indenture, loan agreement or other evidence of

8
<PAGE> 43

Indebtedness in excess of $1,000,000 in the aggregate, which default or defaults
extend beyond any period of grace provided with respect thereto and which
default or defaults relate to (i) the obligation to pay the principal of or
interest on any such Indebtedness, or (ii) any other obligation which shall have
resulted in the holders of such Indebtedness causing such Indebtedness to become
or to be declared due and payable prior to the date on which it would otherwise
become due and payable; (e) the entry of a final nonappealable judgment for the
payment of money against the Company or any of its subsidiaries by a court
having jurisdiction which results in a liability (after provision for the
proceeds of any policy of insurance with respect to such liability) in excess of
$5,000,000 which remains unpaid for more than 60 days; or (f) certain events of
bankruptcy, insolvency, receivership or reorganization.

The Indenture will require the Company to file annually with the Trustee a
certificate either stating the absence of any default or specifying any default
that may exist, and to deliver to the Trustee within five days of the occurrence
thereof notice of certain defaults described above. The Indenture will provide
that the Trustee shall, within 30 days after the occurrence of a default, give
to the Noteholders notice of all uncured defaults known to it; provided that,
except in the case of default in the payment of principal of or premium, if any,
or interest on any of the Notes, the Trustee shall be protected in withholding
such notice if the Trustee in good faith determines that the withholding of such
notice is in the interest of the Noteholders. The term "default" for the purpose
of this provision only shall mean the happening of any Event of Default
specified in the Indenture or any applicable supplemental indenture excluding
any notice or grace periods.

The Indenture will contain a provision pursuant to which the Company will
indemnify the Trustee against any and all losses or liabilities incurred by the
Trustee in connection with its execution and performance of the Indenture;
provided, however, that such indemnification will not extend to losses resulting
from a breach of the Trustee's duties under the Indenture. The Indenture will
provide that the holders of a majority in principal amount of the outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred upon
the Trustee, subject to certain limitations set forth in the Indenture. The
Trustee is not required to take any action at the direction of the holders of
the Notes unless such holders have provided the Trustee with a reasonable
indemnity.

LIMITATION ON DIVIDENDS AND OTHER PAYMENTS

The Company has agreed pursuant to the Indenture that it will not make, pay
or declare any of the following (each, a "Restricted Payment"): (a) any dividend
or other distribution of property or assets in respect of its capital stock
other than dividends paid solely in the Company's capital stock, (b) any stock
repurchase, (c) any repayment or defeasance of any indebtedness which is
subordinate to the Notes (except, so long as the Notes are not in default,
required payments of principal or interest thereon) or (d) any exchange of
equity for newly issued debt, unless such Restricted Payment, when aggregated
with all other Restricted Payments by the Company after , 1996, is less
than the sum of: (i) $8,500,000 plus (ii) 50% of the Company's aggregate
Consolidated Net Income (as defined in the Indenture) earned during the period
commencing October 7, 1996 and ending on the last day of the fiscal quarter of
the Company preceding such Restricted Payment, (or minus 100% of the Company's
aggregate Consolidated Net Loss (if any) (as defined in the Indenture) during
such period) plus (iii) the aggregate net proceeds (including the fair market
value of non-cash proceeds) received by the Company from public or private
offerings of equity securities after , 1996 (including the issuance of
equity securities upon conversion of convertible debt securities or upon
exercise of any options, warrants or rights to acquire equity securities). In
addition, the Company is prohibited by the Indenture from making any Restricted
Payments if, by doing so, the Company would be in violation of any other
provision of the Indenture or any other loan agreement or indenture to which the
Company is a party.

RESTRICTIONS ON ADDITIONAL INDEBTEDNESS

Pursuant to the Indenture, the Company has agreed not to, and has agreed to
cause its Subsidiaries not to, incur or otherwise become liable for the payment
of any Indebtedness if, at the time of such incurrence, and after giving pro
forma effect thereto, the total Indebtedness of the Company and its
Subsidiaries, including the Notes, would exceed 70% of the Company's Total
Consolidated Capitalization (as defined in the Indenture).

9
<PAGE> 44

MINIMUM CONSOLIDATED NET WORTH

Under the Indenture, the Company has covenanted to maintain a minimum
Consolidated Net Worth of $75,000,000 plus 50% of the Company's cumulative
Consolidated Net Income earned since October 6, 1996.

MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION

The Company has covenanted that it will not merge or consolidate with any
other corporation or sell or convey all or substantially all of its assets to
any person, firm or corporation, unless (a) either the Company shall be the
continuing corporation, or the successor corporation (if other than the Company)
shall be a corporation organized under the laws of the United States of America
or any State thereof and shall expressly assume the due and punctual payment of
the principal of and premium, if any, and interest on all the Notes, and the due
and punctual performance and observance of all of the covenants and conditions
of the Indenture and any applicable supplemental indenture to be performed by
the Company, and (b) the Company or such successor corporation, as the case may
be, shall not, immediately after such merger or consolidation, or such sale or
conveyance, be in default in the performance of any such covenant or condition.

The Company's covenants also provide that if at any time there shall be any
consolidation or merger or sale or conveyance of property to which the foregoing
covenant is applicable, then in any such event the successor corporation will
promptly deliver to the Trustee in connection with the closing thereon: (a) an
Officers' Certificate stating that as of the time immediately after the
effective date of any such transaction the foregoing covenants of the Company
have been complied with and the successor corporation is not in default under
the provisions of the Indenture; and (b) an Opinion of Counsel stating that in
such Counsel's opinion such covenants have been complied with and that any
instrument or instruments executed in the performance of such covenants comply
with the requirements thereof.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, terminate all of its
obligations with respect to any series of outstanding Notes ("Legal Defeasance")
except for (i) the rights of holders of outstanding Notes to receive payment in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, issuing Notes to
replace, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to terminate its obligations with respect to the covenants that
are described in the Indenture with respect to such series of Notes ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to such series of
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to such series of Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to any series of Notes, (i) the Company must irrevocably deposit with
the Trustee, in trust, for the benefit of the holders of the series of Notes,
cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding series of Notes on the stated
maturity or on the applicable redemption date, as the case may be, of such
principal or installment of principal of, premium, if any, or interest on the
outstanding series of Notes; (ii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit (or greater period of time in which any such deposit of trust funds may
remain subject to bankruptcy or insolvency laws insofar as those apply to the
deposit by the Company); (iii) such Legal Defeasance or Covenant Defeasance
shall not cause the Trustee to have a conflicting interest with respect to any
securities of the Company; (iv) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a

10
<PAGE> 45

default under any agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (v) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of outside counsel reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
, 1996, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Notes of such series
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (vi) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
outside counsel reasonably acceptable to the Trustee confirming that the holders
of such series of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (vii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion, (A) the trust funds
will not be subject to any rights of holders of indebtedness of the Company or
any of its Subsidiaries other than the series of Notes being defeased thereby
and (B) assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit and assuming no holder of such
series of Notes is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to the effects of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally under any applicable United States or state law; (viii) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
(ix) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of outside counsel, each stating that all conditions precedent
provided in the Indenture and relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with and (x) the Company
shall have delivered to the Trustee an amount sufficient to cover its fees and
expenses as Trustee under the Indenture through the term of the series of Notes
to be defeased, or made adequate provision therefor to the satisfaction of the
Trustee.

MODIFICATION OF THE INDENTURE

With the consent of the holders of not less than fifty-one percent (51%) in
aggregate principal amount of the Notes then outstanding, the Company may modify
any provisions of the Indenture, any applicable supplemental indenture or the
rights of the Noteholders or the rights and obligations of the Company;
provided, however, that no such modification shall, without the consent of the
holder of each outstanding Note affected thereby (a) change the Stated Maturity
of any Note, or reduce the principal, the rate of interest or any applicable
premium payable upon redemption, (b) reduce the percentage(s) of the aggregate
principal amount of outstanding Notes, the consent of the holders of which is
required for any such modifications or for any waiver provided for in the
Indenture, or (c) modify any of the provisions of the Indenture addressing such
requirements, except to increase any such percentage or to provide that certain
other provisions of the Indenture cannot be modified or waived without the
consent of the holder of each Note affected thereby.

With respect to changes affecting one or more, but less than all, series of
Notes then outstanding, with the consent of the holders of not less than
fifty-one percent (51%) in aggregate principal amount of the Notes of such
affected series then outstanding, the Company may modify any provisions of the
Indenture, any applicable supplemental indenture or the rights of such
Noteholders or the rights and obligations of the Company; provided, however,
that no such supplemental indenture shall, without the consent of the holder of
each outstanding Note of such series affected thereby: (a) change the Stated
Maturity of any such series of Notes, or reduce the principal, the rate of
interest or any applicable premium payable upon redemption of such series of
Notes, (b) reduce the percentage(s) of the aggregate principal amount of
outstanding Notes of any such series, the consent of the holders of which is
required for any such modifications or for any waiver provided for in the
Indenture, or (c) modify any of the provisions of the Indenture addressing such

11
<PAGE> 46

requirements pertaining to such series of Notes, except to increase any such
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each Note affected
thereby.

Notes shall be deemed to be "affected" by a supplemental indenture, if such
modification adversely affects or diminishes the rights of holders thereof
against the Company or against the property of the Company.

Without the consent of the holders of any Notes, the Company and the
Trustee may from time to time, subject to the terms of the Indenture, enter into
one or more supplemental indentures: (i) to evidence the succession of another
corporation to the Company as described above under "--Merger, Consolidation or
Sale of Assets; Successor Corporation," (ii) to add to the covenants of the
Company, to surrender any rights of the Company or ensure enforcement of the
remedies of the Trustee and the Noteholders, (iii) to cure any ambiguity or
inconsistency to the extent such modification does not adversely affect the
interest of the Noteholders or (iv) provide for the creation of any series of
Notes.

THE TRUSTEE

Bankers Trust Company is the Trustee under the Indenture. Its mailing
address is Four Albany Street, New York, New York 10006.

PLAN OF DISTRIBUTION

The Company may sell the Notes to or through one or more underwriters to be
named in the Prospectus Supplement. The Underwriters may include J.C. Bradford &
Co. or a group of underwriters represented by such firm or may be one or more
other firms.

Underwriters may offer and sell the Notes at a fixed price or prices, which
may be changed, or from time to time at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. In connection with the sale of the Notes, Underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive compensation from purchasers of
the Notes for whom they may act as agent. Underwriters may sell the Notes to or
through dealers and such dealers may receive compensation in the form of
discounts, concessions or commissions from the Underwriters or commissions from
the purchasers for whom they may act as agent.

The Company may enter into underwriting agreements to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

There is no public market for the Notes and the Company does not intend to
apply for listing of the Notes on the Nasdaq National Market or any securities
exchange. Any Underwriters or agents to or through whom the Notes are sold by
the Company may make a market in the Notes, although they will not be under any
obligation to do so and may discontinue any market-making at any time. No
assurance can be given as to the liquidity of the trading market for the Notes
or that an active trading market for the Notes will develop. If an active public
market does not develop, the market price and liquidity of the Notes may be
adversely affected.

LEGAL MATTERS

Certain matters regarding the Notes will be passed on for the Company by
Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee.

EXPERTS

The consolidated financial statements and the related supplemental schedule
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.

12
<PAGE> 47
This page contains spaces for the following graphic and image
materials. The inside back cover contains exterior and interior photographs
of the Sumner Suites (Riverwalk) San Antonio, Texas and the Shoney's Inn,
Birmingham, Alabama.

<PAGE> 48

------------------------------------------------------
------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT
AND ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SERIES A NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary.................... S-3
Risk Factors.......................... S-8
Use of Proceeds....................... S-12
Capitalization........................ S-12
Selected Financial Data............... S-13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-16
Business.............................. S-23
Management............................ S-30
Description of the Series A Notes..... S-31
Underwriting.......................... S-33
Legal Matters......................... S-33
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 3
Description of the Notes.............. 3
Plan of Distribution.................. 12
Legal Matters......................... 12
Experts............................... 12
</TABLE>

------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

$35,000,000

SHOLODGE, INC.

[LOGO] SHONEY'S INN [LOGO] SUMNER SUITES

% SENIOR SUBORDINATED
NOTES DUE 2006, SERIES A
------------------------
PROSPECTUS SUPPLEMENT
------------------------
J.C. Bradford & Co.
Dain Bosworth Incorporated
Interstate/Johnson Lane Corporation
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 49

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an itemized statement of all expenses to be
paid by the Registrant in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts. All of the
amounts shown are estimates, except for the SEC registration fee and the NASD
filing fee.

<TABLE>
<S> <C>
SEC Registration fee...................................................... $ 37,879
NASD filing fee........................................................... $ 13,000
Accounting fees and expenses.............................................. $ 60,000
Blue Sky fees and expenses................................................ $ 7,000
Legal fees and expenses................................................... $120,000
Trustee fees and expenses................................................. $ 7,000
Printing and engraving costs.............................................. $120,000
Miscellaneous............................................................. $ 35,121
--------
Total........................................................... $400,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) the director or officer acted in good faith;
(ii) in the case of conduct in his or her official capacity with the
corporation, the director or officer reasonably believed such conduct was in the
corporation's best interests, (iii) in all other cases, the director or officer
reasonably believed that his or her conduct was not opposed to the best
interests of the corporation, and (iv) in connection with any criminal
proceeding, the director or officer had no reasonable cause to believe that his
or her conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged to be liable to the corporation. In cases
where the director or officer is wholly successful, on the merits or otherwise,
in the defense of any proceeding instigated because of his or her status as an
officer or director of a corporation, the TBCA mandates that the corporation
indemnify the director or officer against reasonable expenses incurred in the
proceeding. The TBCA also provides that in connection with any proceeding
charging impersonal benefit to an officer or director, no indemnification may be
made if such officer or director is adjudged liable on the basis that personal
benefit was improperly received. Notwithstanding the foregoing, the TBCA
provides that a court of competent jurisdiction, upon application, may order
that an officer or director be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, whether or not
he met the standard of conduct set forth above.

Section 7 of the Registrant's Amended and Restated Charter (the "Charter")
provides that, to the maximum extent permitted by the cited provisions of the
TBCA, the Registrant shall indemnify and advance expenses to any person, his
heirs, executors and administrators, for the defense of any action or proceeding
brought against such person because he is or was a director, and shall indemnify
such persons against all fines, judgments, penalties and amounts paid in
settlement thereof. The Charter further provides that the Registrant may
indemnify and advance expenses to the Registrant's officers, employees and
agents to the same extent that the corporation indemnifies its directors as long
as such indemnification and advancement of expenses is consistent with public
policy, as determined by the Board of Directors. Finally, the Charter provides
that the rights to indemnification and advancement of expenses described above
are contractual between the Registrant and the persons being indemnified and are
nonexclusive of other similar rights which may be granted by law, the Charter,
resolutions of the Board of Directors or shareholders, insurance or indemnifica-

II-1
<PAGE> 50

tion agreements, all of which means of indemnification and advancement of
expenses are specifically authorized.

The Charter also provides that to the fullest extent permitted by law, no
director shall be personally liable to the Company or its shareholders for
monetary damages for breach of any fiduciary duty as a director. Under the TBCA,
this charter provision relieves the Company's directors from personal liability
to the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director, expect for liability arising from (i) any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, or (iii) any unlawful distributions.

The proposed form of the Underwriting Agreement filed as Exhibit 1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company and its
controlling persons.

ITEM 16. EXHIBITS

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
4.1 Specimen Series A Note included in Exhibit 4.3
4.2 Form of Indenture, between the Company and Bankers Trust Company
4.3 Form of First Supplemental Indenture
5 Opinion of Boult, Cummings, Conners & Berry, PLC
23.1 Consent of Boult, Cummings, Conners & Berry, PLC included in Exhibit 5
24 Power of Attorney, included on page II-4 of the initial filing of this Registration
Statement
</TABLE>

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or

II-2
<PAGE> 51

furnished to the Commission by the registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(d) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(e) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act (the "TIA") in
accordance with the rules and regulations prescribed by the Commission under
section 305(b)(2) of the TIA.

II-3
<PAGE> 52

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to its registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, at Nashville,
Tennessee, on the 7th day of November, 1996.

SHOLODGE, INC.

By: /s/ MICHAEL A. CORBETT
---------------------------------
Michael A. Corbett
Chief Financial 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 and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- ------------------
<C> <S> <C>
* President, Chief November 7, 1996
- ----------------------------------------------- Executive Officer,
Leon Moore Director

/s/ BOB MARLOWE Secretary, Treasurer, November 7, 1996
- ----------------------------------------------- Chief Accounting Officer,
Bob Marlowe Director

/s/ MICHAEL A. CORBETT Chief Financial Officer November 7, 1996
- -----------------------------------------------
Michael A. Corbett

* Executive Vice President, November 7, 1996
- ----------------------------------------------- Director
Richard L. Johnson

* Director November 7, 1996
- -----------------------------------------------
Earl H. Sadler

* Director November 7, 1996
- -----------------------------------------------
Helen L. Moskovitz

*By: /s/ BOB MARLOWE
- -----------------------------------------------
Bob Marlowe
Attorney-in-Fact
</TABLE>

II-4

<PAGE> 1
Exhibit 1

SHOLODGE, INC.

$35,000,000
__% Senior Subordinated Notes Due 2006, Series A

UNDERWRITING AGREEMENT

[ ], 1996

J.C. BRADFORD & CO., L.L.C.
DAIN BOSWORTH INC.
INTERSTATE/JOHNSON LANE CORPORATION
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co., L.L.C.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201

Ladies and Gentlemen:

ShoLodge, Inc., a Tennessee corporation (the "Company"), proposes to
sell to the underwriters named in Schedule I hereto (the "Underwriters") for
whom you are acting as the representatives (the "Representatives") an aggregate
$35,000,000 in principal amount of its __% Senior Subordinated Notes Due 2006,
Series A (the "Firm Notes"). The Firm Notes are to be sold to the Underwriters,
acting severally and not jointly, in such amounts as are set forth in Schedule I
hereto opposite the name of such Underwriter. The Company also proposes to grant
to the Underwriters an option to purchase up to $5,250,000 in principal amount
of ___% Senior Subordinated Notes Due 2006, Series A of the Company as provided
for in Section 2 of this Agreement (the "Option Notes"). The Firm Notes and the
Option Notes purchased pursuant to this Agreement are herein called the "Notes."
The Notes are to be issued pursuant to an Indenture, to be dated as of [ ]
, 1996, between the Company and Bankers Trust Company, New York, New York as
trustee (the "Trustee"). Such Indenture, as amended and supplemented, is herein
referred to as the "Indenture."

1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
<PAGE> 2
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a registration statement on Form S-3
(Registration No.333-_______), including the related preliminary
prospectus, preliminary prospectus supplement and a Statement of
Eligibility on Form T-1 with respect to the Trustee (File No.
22-_______) pursuant to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), has filed such amendment thereto, if any,
and such amended preliminary prospectuses and amended preliminary
prospectus supplements as may have been required to the date hereof,
and will file such additional amendments thereto and such amended
prospectuses and prospectus supplements as may hereafter be required,
relating to the Notes. The Company has met all of the eligibility
requirements for the use of a registration statement on Form S-3.
Copies of such registration statement and any amendments, including any
post-effective amendments, and all forms of the related prospectuses
and prospectus supplements contained therein, any supplements thereto
and all documents incorporated by reference therein, have been
delivered to you. Such registration statement, including the
prospectus, prospectus supplement, Part II, all financial schedules and
exhibits thereto, all documents incorporated therein by reference, and
all information deemed to be a part of such Registration Statement
pursuant to Rule 430A under the Securities Act, as amended at the time
when it shall become effective, and any related registration statement
that is to be effective upon filing filed pursuant to Rule 462(b) is
herein referred to as the "Registration Statement," and the prospectus
and prospectus supplement included as part of the Registration
Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations (as defined below)
and in the form filed pursuant to Rule 424(b) under the Securities Act
is herein referred to as the "Final Prospectus." The prospectus and
prospectus supplement included as part of the Registration Statement,
together with all documents incorporated by reference therein, on the
date when the Registration Statement became effective is referred to
herein as the "Effective Prospectus." Any prospectus and prospectus
supplement included in the Registration Statement and in any amendment
thereto prior to the effective date of the Registration Statement,
together with all documents incorporated by reference therein, is
referred to herein as a "Preliminary Prospectus." For purposes of this
Agreement, "Rules and Regulations" means the rules and regulations
promulgated by the Commission under either the Securities Act, or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the Trust Indenture Act, as applicable.

(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does
not apply to statements or omissions made in reliance upon and in

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<PAGE> 3
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page and under the caption "Underwriting" in the
Final Prospectus). When the Registration Statement becomes effective
and at all times subsequent thereto up to and including the First
Closing Date (as hereinafter defined), (i) the Registration Statement,
the Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are required to
be stated therein in accordance with the Securities Act, the Exchange
Act, the Trust Indenture Act and the Rules and Regulations and will
comply with the requirements of the Securities Act, the Exchange Act,
the Trust Indenture Act and the Rules and Regulations, and (ii) neither
the Registration Statement, the Effective Prospectus nor the Final
Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically
for use therein (it being understood that the only information so
provided is the information included in the last paragraph on the cover
page and under the caption "Underwriting" in the Final Prospectus) or
information contained in the Statement of Eligibility and Qualification
on Form T-1 of the Trustee other than information furnished to the
Trustee by the Company specifically for inclusion therein.

(c) The Company and each subsidiary of the Company (as defined
herein, the term "subsidiary" includes any corporation, joint venture
or partnership in which the Company or any subsidiary of the Company
has an ownership interest) is duly organized and validly existing and
in good standing under the laws of the respective jurisdictions of
their organization or incorporation, as the case may be, with full
power and authority (corporate, partnership and other, as the case may
be) to own, lease and operate their properties and conduct their
businesses as now conducted and are duly qualified or authorized to do
business and are in good standing in all jurisdictions wherein the
nature of its business or the character of property owned or leased may
require it to be qualified or authorized to do business. The Company
and its subsidiaries hold all licenses, consents and approvals, and
have satisfied all eligibility and other similar requirements imposed
by federal and state regulatory bodies, administrative agencies or
other governmental bodies, agencies or officials, in each jurisdiction
in which the Company has an office and any other jurisdiction in which
such license, consent, approval or requirement is material to the
conduct of the business in which it is engaged.

(d) The outstanding shares of capital stock of the Company and
its corporate subsidiaries have been duly authorized and validly
issued, fully paid and nonassessable and were not issued in violation
of any preemptive or similar rights.

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<PAGE> 4

All of the outstanding stock of each of the Company's corporate
subsidiaries is owned by the Company, clear of any lien, encumbrance,
pledge, equity or claim of any kind. The partnership and joint
venture interests of each partnership and joint venture subsidiary are
duly authorized, validly issued, and are owned by the Company,
directly or indirectly, clear of any lien, encumbrance, pledge, equity
or claim of any kind, except as may be set forth in the respective
partnership or joint venture agreement.

(e) The capitalization of the Company as of [July 14], 1996 is
as set forth under the caption "Capitalization" in the Effective
Prospectus and the Final Prospectus. The Notes have been duly and
validly authorized and, when executed, authenticated and delivered in
accordance with the Indenture and paid for by the Underwriters pursuant
to this Agreement and the Indenture, will constitute legal and binding
obligations of the Company entitled to the benefits of the Indenture
and will conform in all material respects to the description thereof
contained in the Effective Prospectus and the Final Prospectus. The
Underwriters will receive good and marketable title to the Notes to be
issued and delivered hereunder, free and clear of all liens,
encumbrances, claims, security interests, and restrictions, whatsoever.

(f) The Company has full legal right, power and authority to
enter into this Agreement and the Indenture and to sell and deliver the
Notes to be issued and sold by the Company to the Underwriters as
provided herein, and this Agreement and the Indenture have been duly
authorized, executed and delivered by the Company and constitute valid
and binding agreements of the Company enforceable against the Company
in accordance with their terms. No consent, approval, authorization or
order of any court or governmental agency or body or third party is
required for the performance of this Agreement or the Indenture by the
Company or the consummation by the Company of the transactions
contemplated hereby or thereby, except such as have been obtained and
such as may be required by the National Association of Securities
Dealers, Inc. ("NASD") or under the Securities Act, the Trust Indenture
Act or state securities or Blue Sky laws in connection with the
purchase and distribution of the Notes by the Underwriters. The issue
and sale of the Notes by the Company, the Company's performance of this
Agreement and the Indenture and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation of, or conflict with, any of the terms and provisions of, or
constitute a default by the Company or any of its subsidiaries under,
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or to which the Company or any of its subsidiaries or any of
their respective properties is subject, the charter or by-laws of the
Company or any of its corporate subsidiaries or the partnership or
joint venture agreements of any partnership or joint venture
subsidiary or any statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to
the Company or

4
<PAGE> 5

any of its subsidiaries or any of their respective properties. Neither
the Company nor any of its subsidiaries is in violation of its
respective charter, certificate of incorporation, partnership agreement
or joint venture agreement, as the case may be, or by-laws or any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there being
no existing state of facts which with notice or lapse of time or both
would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, deed of trust, mortgage, loan agreement, note, lease,
agreement or other instrument or permit to which it is a party or by
which it or any of its properties is or may be bound, except such
violation or defaults which in the aggregate would not be material to
the Company and its subsidiaries taken as a whole.

(g) The consolidated financial statements and the related
notes of the Company included or incorporated by reference in the
Registration Statement, the Effective Prospectus and the Final
Prospectus present fairly the consolidated financial position, results
of operations and changes in financial position and cash flow of the
Company and its subsidiaries, at the dates and for the periods to which
they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods indicated. The other financial statements and schedules
included or incorporated by reference in or as schedules to the
Registration Statement conform to the requirements of the Securities
Act, the Exchange Act, the Trust Indenture Act and the Rules and
Regulations and present fairly the information presented therein for
the periods shown. The financial and statistical data set forth in the
Effective Prospectus and the Final Prospectus under the captions
"Prospectus Summary," "Use of Proceeds," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business" fairly
presents the information set forth therein on the basis stated in the
Effective Prospectus and the Final Prospectus. Deloitte & Touche LLP,
which has examined certain of the financial statements and schedules as
set forth in its reports incorporated by reference into the
Registration Statement, Effective Prospectus and the Final Prospectus,
are independent accountants as required by the Securities Act and the
Rules and Regulations.

(h) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and Quarterly Reports on Form 10-Q for
the fiscal quarters ended April 21, 1996 and July 14, 1996, at the time
of filing with the Commission, conformed in all material respects to
the requirements of the Securities Act and the Exchange Act and
the Rules and Regulations and none of such documents or statements
contained any untrue statement of a material fact or omitted to state
a fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made not misleading.

(i) Subsequent to December 31, 1995, neither the Company nor
any of its subsidiaries has sustained any material loss or interference
with its business or properties

5
<PAGE> 6

from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, which is not disclosed in the
Effective Prospectus and the Final Prospectus; and subsequent to the
respective dates as of which information is given in the Registration
Statement, the Effective Prospectus and the Final Prospectus, (i)
neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or entered
into any material transactions not in the ordinary course of business,
and (ii) there has not been any material change in the capital stock,
partnership interests, joint venture interests, long-term debt, credit
facilities, obligations under capital leases or short-term borrowings
of the Company or any of its subsidiaries, or any material adverse
change, or any development involving a prospective material adverse
change, in the general affairs, management, business, prospects,
financial position, net worth or results of operations of the Company
or any of its subsidiaries, except in each case as described in or
contemplated by the Effective Prospectus and the Final Prospectus.

(j) There are no legal or governmental proceedings required to
be described in the Registration Statement, the Effective Prospectus or
the Final Prospectus that are not described as required. Except as
described in the Effective Prospectus and the Final Prospectus, there
is not pending, or to the knowledge of the Company threatened, any
action, suit, proceeding, inquiry or investigation, to which the
Company or any of its subsidiaries, or any of their respective officers
or directors is a party, or to which the property of the Company or any
of its subsidiaries is subject, before or brought by any court or
governmental agency or body, wherein an unfavorable decision, ruling or
finding could prevent or materially hinder the consummation of this
Agreement or result in a material adverse change in the business
condition (financial or other), prospects, financial position, net
worth or results of operations of the Company or any of its
subsidiaries taken as a whole.

(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.

(l) Except as described in the Effective Prospectus and the
Final Prospectus, the Company and its subsidiaries each have good and
marketable title to all real and material personal property owned by
them, free and clear of all material liens, charges, encumbrances or
defects except those reflected in the financial statements hereinabove
described. The real and personal property and buildings referred to in
the Effective Prospectus and the Final Prospectus which are leased from
others by the Company or its subsidiaries are held under valid,
subsisting and enforceable leases. The Company or its subsidiaries own
or lease all such properties as are necessary to their operations as
now conducted.

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<PAGE> 7
(m) The Company's system of internal accounting controls taken
as a whole is sufficient to meet the broad objectives of internal
accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that
would be material in relation to the Company's financial statements.
Except as disclosed in the Effective Prospectus and the Final
Prospectus, neither the Company nor any of its subsidiaries, nor to the
best of the Company's knowledge any employee or agent of the Company or
any subsidiary, director, officer, agent, employee or other person
acting on behalf of the Company or any of its subsidiaries has,
directly or indirectly used any funds of the Company or any of its
subsidiaries for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate
funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment; or received or retained any funds
in violation of any law, rule or regulation.

(n) The Company and its subsidiaries have filed all federal,
state and all material local income, excise and franchise tax returns
required to be filed through the date hereof and have paid all taxes
shown as due therefrom; and there is no tax deficiency that has been,
nor does the Company or any subsidiary have knowledge of any tax
deficiency which is likely to be, asserted against the Company or any
of its subsidiaries, which if determined adversely could materially and
adversely affect the earnings, assets, affairs, business prospects or
condition (financial or other) of the Company or any of its
subsidiaries taken as a whole.

(o) The Company and its subsidiaries operate their business in
conformity in all material respects with all applicable statutes,
common laws, ordinances, decrees, orders, rules and regulations of
governmental bodies. Each of the hotels owned, leased, operated or
managed, directly or indirectly, by the Company and its subsidiaries is
being operated in compliance in all material respects with all
applicable laws, orders, rules or regulations and has all licenses,
approvals or consents now required to operate as currently being
operated, and the Company and its subsidiaries are not aware of any
existing or imminent matter which may materially adversely impact the
operations or business prospects of any of its hotels other than as
specifically disclosed in the Effective Prospectus and the Final
Prospectus.

(p) The Company and its subsidiaries have filed with the
applicable regulatory authorities all statements, reports, information
or forms now required by any applicable law, regulation or order; all
such filings or submissions were in material compliance with applicable
laws when filed and no deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings
or submissions. Neither the Company nor any of its subsidiaries has
failed to maintain in full force and effect any material license or
permit necessary or proper for the conduct of its business, or received

7
<PAGE> 8

any notification that any revocation or limitation thereof is
threatened or pending, and, except as disclosed in the Effective
Prospectus and the Final Prospectus, the Company is not aware of any
pending change under any law, regulation, license or permit
which would materially adversely affect their businesses, operations,
property or business prospects. Neither the Company nor any of its
subsidiaries has received any notice of violation of or been
threatened with a charge of violating and is not, to the best of the
Company's knowledge, under investigation with respect to a possible
violation of any provision of any law, regulation or order.

(q) No labor dispute exists with the employees of the Company
or its subsidiaries or is imminent which would materially adversely
affect the Company or its subsidiaries taken as a whole. The Company is
not aware of any existing or imminent labor disturbance by its
employees or by any employees of its subsidiaries which could be
expected to materially adversely affect the condition (financial or
otherwise), results of operations, properties, affairs, management,
business affairs or business prospects of the Company or any of its
subsidiaries.

(r) Except as disclosed in the Effective Prospectus and the
Final Prospectus, the Company or its subsidiaries own or possess, or
can acquire on reasonable terms, the patents, licenses, copyrights,
trademarks, service marks and trade names presently employed by
them in connection with the businesses now operated by them,
including all rights necessary to use and franchise the use of the
"Shoney's Inn", "Shoney's Inn & Suites" and "Innlink" and "Sumner
Suites" service marks, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, alone or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in any material adverse
change in the condition (financial or otherwise), results of
operations, properties, affairs, management, business affairs or
business prospects of the Company and its subsidiaries, taken as a
whole.

(s) Neither the Company nor any of its subsidiaries nor to the
knowledge of the Company any of the respective directors, officers,
employees or agents of the Company and its subsidiaries, have taken or
will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might be expected to
constitute, stabilization or manipulation of the price of the capital
stock or other securities of the Company.

(t) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which each is engaged; and the Company has no reason to
believe that it will not be able to renew such existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a comparable cost.

8
<PAGE> 9
(u) Neither the Company nor any of its subsidiaries is or will
be as a result of the consummation of the transactions contemplated by
this Agreement, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act
of 1940.

(v) Neither the Company nor any agent acting on its behalf has
taken or will take any action that might cause this Agreement or the
sale of the Notes to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.

(w) Except as disclosed to the Underwriters in writing,
neither the Company nor any director, officer or holder of five
percent or more of any class of securities of the Company or any of
its subsidiaries is a member or an associate or affiliate of a member
of the "NASD."

(x) The Company has filed with the Commission and the NASD all
reports, documents and statements required to be filed by the Company
pursuant to the Securities Act, the Exchange Act, the Rules and
Regulations and all the rules and regulations of the NASD relating to
the Company's capital stock, and each of such reports, documents and
statements, at the time that they were filed, complied in all material
respects with the requirements of the Securities Act, the Exchange Act
and the Rules and Regulations.

2. Purchase, Sale and Delivery of the Notes.

(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters, severally and not jointly,
agrees to purchase at a purchase price of $[ ] per $1,000 principal
amount, the number of Firm Notes set forth opposite such Underwriter's
name in Schedule I hereto.

(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in the
sale of Firm Notes, all or any portion of the Option Notes at the
purchase price set forth above plus accrued interest. The option
granted hereby may be exercised as to all or any part of the Option
Notes at any time (but only once) within 30 days after the date the
Registration Statement becomes effective. The Underwriters shall not be
under any obligation to purchase any Option Notes prior to the exercise
of such option. The option granted hereby may be exercised by the
Underwriters by the Representatives giving written notice to the
Company setting forth the amount of Option Notes to be purchased and
the date and time for delivery of and payment for such Option Notes and
stating that the Option Notes referred to therein are to be used for
the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Notes. If such notice is given prior
to the First Closing Date (as defined herein), the date set forth
therein for such delivery and payment shall not be earlier than two
full business days thereafter or the First Closing Date, whichever
occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and

9
<PAGE> 10
payment shall not be earlier than three full business days thereafter.
In either event, the date so set forth shall not be more than 15 full
business days after the date of such notice. The date and time set
forth in such notice is herein called the "Option Closing Date." Upon
exercise of the option, the Company shall become obligated to sell to
the Underwriters, and, subject to the terms and conditions herein set
forth, the Underwriters shall become obligated to purchase, for the
account of each Underwriter, from the Company, severally and not
jointly, the amount of Option Notes specified in such notice. Option
Notes shall be purchased for the accounts of the Underwriters in
proportion to the amount of Firm Notes set forth opposite such
Underwriter's name in Schedule I hereto, except that the respective
purchase obligations of each Underwriter shall be adjusted so that no
Underwriter shall be obligated to purchase fractional Option Notes.

(c) Certificates in definitive form for the Firm Notes which
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company to the Underwriters for the account of such
Underwriter against payment by such Underwriter or on its behalf of the
purchase price therefor by certified or official bank check payable in
next day funds to the order of the Company at the offices of J.C.
Bradford & Co., L.L.C., ("Bradford"), 330 Commerce Street, Nashville,
Tennessee 37201, or at such other place as may be agreed upon by
Bradford and the Company, at 10:00 A.M., Nashville time, on the third
full business day after this Agreement becomes effective, or, at the
election of the Representatives, on the fourth full business day after
this Agreement becomes effective, if it becomes effective after 4:30
P.M. Eastern time, or at such other time not later than the seventh
full business day thereafter as the Representatives and the Company may
determine, such time of delivery against payment being herein referred
to as the "First Closing Date." The First Closing Date and the Option
Closing Date are herein individually referred to as the "Closing Date"
and collectively referred to as the "Closing Dates." Certificates in
definitive form for the Option Notes which each Underwriter shall have
agreed to purchase hereunder shall be similarly delivered by or on
behalf of the Company on the Option Closing Date. The certificates in
definitive form for the Notes to be delivered will be in good delivery
form and in such denominations and registered in such names as Bradford
may request not less than 48 hours prior to the First Closing Date or
the Option Closing Date, as the case may be. Such certificates will be
made available for checking and packaging at a location in New York,
New York as may be designated by you, at least 24 hours prior to the
First Closing Date or the Option Closing Date, as the case may be. It
is understood that you may (but shall not be obligated to) make payment
on behalf of any Underwriter or Underwriters for the Notes to be
purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.

3. Offering by the Underwriters. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Notes and any Option Notes which may be sold at the price and
upon the terms set forth in the Final Prospectus. The serveral Underwriters
agree that they will deliver the Preliminary Prospectus, the Effective
Prospectus and the Final Prospectus as required by Rule 15c2-8 enacted under
the Exchange Act.

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<PAGE> 11
4. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:

(a) The Company shall comply with the provisions of and make
all requisite filings with the Commission pursuant to Rules 424 and
430A of the Rules and Regulations and to notify you promptly (in
writing, if requested) of all such filings. The Company shall notify
you promptly of any request by the Commission for any amendment of or
supplement to the Registration Statement, the Effective Prospectus or
the Final Prospectus or for additional information; the Company shall
prepare and file with the Commission, promptly upon your request, any
amendments of or supplements to the Registration Statement, the
Effective Prospectus or the Final Prospectus which, in your opinion,
may be necessary or advisable in connection with the distribution of
the Notes; and the Company shall not file any amendment of or
supplement to the Registration Statement, the Effective Prospectus or
the Final Prospectus which is not approved by you after reasonable
notice thereof, such approval not to be unreasonably withheld or
delayed. The Company shall advise you promptly of the issuance
by the Commission or any jurisdiction or other regulatory body of any
stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any
Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or suspending the qualification of the Notes for offering
or sale in any jurisdiction, or of the institution of any proceedings
for any such purpose; and the Company shall use its best efforts to
prevent the issuance of any stop order or other such order and, should
a stop order or other such order be issued, to obtain as soon as
possible the lifting thereof.

(b) The Company will take or cause to be taken all necessary
action and furnish to whomever you direct such information as may be
reasonably required in qualifying the Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the
distribution of the Notes.

(c) Within the time during which a Final Prospectus relating
to the Notes is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Notes as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Final Prospectus to
comply with the Securities Act, the Company shall promptly notify you
and shall amend the Registration Statement or supplement the Final
Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.

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<PAGE> 12
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, including any which are incorporated by
reference, which have not previously been furnished), each Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus, and all
amendments and supplements thereto, including any prospectus or
supplement prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as
the Underwriters may reasonably request.

(e) The Company will (i) deliver to you at such office or
offices as you may designate as many copies of the Preliminary
Prospectus and Final Prospectus as you may reasonably request, and (ii)
for a period of not more than nine months after the Registration
Statement becomes effective, send to the Underwriters as many
additional copies of the Final Prospectus and any supplement thereto as
you may reasonably request.

(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act as promptly as practicable and in any event no later than 45 days
after the end of its fiscal quarter in which the first anniversary of
the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.

(g) The Company will apply the net proceeds from the sale of
the Notes as set forth under the caption "Use of Proceeds" in the Final
Prospectus.

(h) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to the
Representatives copies of all reports and other communications
(financial or other) furnished by the Company to its stockholders and,
as soon as available, copies of any reports or financial statements
furnished or filed by the Company to or with the Commission or any
national securities exchange on which any class of securities of the
Company may be listed.

(i) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with state securities
commissions in states where the Notes have been sold by you (as you
shall have advised us in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.

(j) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in your opinion, the market price for the Notes has been

12
<PAGE> 13
or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment
of the Final Prospectus), the Company will, after written notice from
you advising it as to the effect set forth above, prepare, consult with
you concerning the substance of and disseminate a press release or
other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.

(k) The Company will not take, directly or indirectly, any
action designed to cause or result in, or which might constitute or be
expected to constitute, stabilization or manipulation of the price of
the Notes or of any other security to facilitate the sale or resale of
the Notes.

5. Expenses. The Company agrees with the Underwriters that (a) whether
or not the transactions contemplated by this Agreement are consummated or this
Agreement becomes effective or is terminated, the Company will pay all fees and
expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration fee,
(ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, any amendments or supplements thereto, the
Indenture and this Agreement and other underwriting documents, including
Underwriter's Questionnaires, Underwriter's Powers of Attorney, Blue Sky
Memoranda, Selected Dealer Agreements and Agreements Among Underwriters, (iii)
fees and expenses of accountants and counsel for the Company, (iv) expenses of
registration or qualification of the Notes under state Blue Sky and securities
laws, including the fees and disbursements of counsel to the Underwriters in
connection therewith, (v) filing fees paid or incurred by the Underwriters and
related fees and expenses of counsel to the Underwriters in connection with
filings with the NASD, (vi) all travel, lodging and reasonable living expenses
incurred by the Company in connection with marketing, dealer and other meetings
attended by the Company and the Underwriters in marketing the Notes, (vii) the
costs and charges of the Company's transfer agent and registrar and the cost of
preparing the certificates for the Notes, (viii) the fees and expenses of the
Trustee in connection with the Indenture and the Notes and (ix) all other costs
and expenses incident to the performance of the Company's obligations hereunder
not otherwise provided for in this Section ; and (b) actual, accountable
out-of-pocket expenses, including counsel fees, disbursements and expenses,
incurred by the Underwriters in connection with investigating, preparing to
market and marketing the Notes and proposing to purchase and purchasing the
Notes under this Agreement, will be borne and paid by the Company if the sale
of the Notes provided for herein is not consummated (i) by reason of the
termination of this Agreement by the Company pursuant to Section 12(a)(i), (ii)
by reason of termination of this Agreement by the Underwriters pursuant to
Sections 12(b)(iii), 12(b)(iv) or 12(b)(v), or (iii) because of any failure or
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement.

6. Conditions of the Underwriters' Obligations. The respective
obligations of the

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<PAGE> 14
Underwriters to purchase and pay for the Firm Notes shall be subject, in their
discretion, to the accuracy of the representations and warranties of the Company
herein as of the date hereof and as of the Closing Date as if made on and as of
the Closing Date, to the accuracy of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company of all
of its covenants and agreements hereunder and to the following additional
conditions:

(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30
P.M., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made; no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission; any request of
the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall have
been complied with to your satisfaction; and the NASD, upon review of
the terms of the public offering of the Notes, shall not have objected
to such offering, such terms or the Underwriters' participation in the
same.

(b) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, any documents incorporated therein by
reference, or any amendment or any supplement thereto, contains an
untrue statement of fact which, in your judgment, is material, or omits
to state a fact which, in your judgment, is material and is required to
be stated therein or necessary to make the statements therein not
misleading and the Company shall not have cured such untrue statement
of fact or stated a statement of fact required to be stated therein.

(c) The Representatives shall have received an opinion, dated
the Closing Date, from Boult, Cummings, Conners & Berry, PLC, counsel
for the Company, to the effect that:

(i) The Company is validly existing in good standing
as a corporation under the laws of the State of
Tennessee, with all requisite corporate power and authority
to own, lease and operate its properties and conduct its
business as now conducted, and is duly qualified to do
business as a foreign corporation in good standing in all
other jurisdictions where the failure to so qualify would
have a material adverse effect upon the business of the
Company and its subsidiaries taken as a whole.

(ii) Each corporate subsidiary of the Company
is validly existing in good standing under the laws of
the jurisdiction of its incorporation, has all requisite
corporate

14
<PAGE> 15

power and authority to own, lease and operate its
properties and to conduct its business as now conducted; each
such corporate subsidiary is duly qualified or authorized to
do business as a foreign corporation and is in good standing
in all jurisdictions where the failure to so qualify would
have a material adverse effect upon the business of the
Company and its subsidiaries taken as a whole. The corporate
records reflect that all outstanding stock of each of the
corporate subsidiaries is owned beneficially and of record by
the Company, free and clear of all liens, encumbrances,
equities and claims. The partnership and joint ventures in
which the Company or its subsidiaries are partners or joint
venturers were formed in accordance with applicable
partnership law and, to the knowledge of such counsel, such
partnership and joint venture interests are owned clear of any
lien, encumbrance, pledge, equity or claim of any kind. To
such counsel's knowledge, no options or warrants or other
rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of
capital stock or of ownership interests in any of the
Company's subsidiaries are outstanding, except such rights as
may be set forth in the partnership or joint venture
agreements.

(iii) The Notes have been duly and validly authorized
and, when executed by the Company, authenticated by the
Trustee in accordance with the Indenture and delivered in
accordance with this Agreement, will constitute legal and
binding obligations of the Company entitled to the benefits of
the Indenture, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfers, fraudulent
conveyances or other laws affecting creditor's rights
generally. Upon issuance and delivery thereof and payment
therefor as provided in the Underwriting Agreement, the
Underwriters will receive good and marketable title to the
Notes to be issued and delivered pursuant to this Agreement,
free and clear of all liens, encumbrances, claims, security
interests and restrictions. The Notes conform in all material
respects to the description thereof contained in the Final
Prospectus.

(iv) The Company has all requisite corporate right,
power and authority to enter into and perform its obligations
under this Agreement and the Indenture and to issue, sell and
deliver the Notes to be sold by it to the Underwriters as
provided herein, and this Agreement and the Indenture have
been duly authorized,

15
<PAGE> 16
executed and delivered by the Company and each constitutes the
valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms,
subject to the usual and customary exceptions in legal
opinions of this nature.

(v) No consent, approval, authorization or order of
any court or governmental agency or body or third party is
required for the performance of this Agreement and the
Indenture by the Company or the consummation by the Company of
the transactions contemplated hereby and thereby, except (i)
such as have been obtained from third parties, (ii) such as
have been obtained under the Securities Act and Trust
Indenture Act and (iii) such as may be required by the NASD
and under state securities or Blue Sky laws in connection with
the purchase and distribution of the Notes by the several
Underwriters and except such as will not, if not obtained,
have a material adverse effect on the transactions
contemplated hereby. The performance of this Agreement and
the Indenture by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including the use of proceeds from the sale of the Notes as
described in the Final Prospectus) will not conflict with or
result in a breach or violation by the Company or any of its
subsidiaries of any of the terms or provisions of, or
constitute a default by the Company under, any material
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or to which
the Company, any of its subsidiaries or any of their
respective properties is subject, the charter or by-laws of
the Company or any of its subsidiaries, any statute, or any
judgment, decree, order, rule or regulation of any court or
governmental agency or body (other than state securities or
blue sky laws, as to which such counsel expresses no opinion)
known to such counsel to be applicable to the Company, any of
its subsidiaries or any of their respective properties.

(vi) Except as described in the Final Prospectus,
there is not pending, or to such counsel's knowledge,
threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, would result in any
material adverse change in the business, financial position,
net worth or results of operations, or would materially
adversely affect the properties or assets, of the Company and
its subsidiaries taken as a whole.

(vii) To such counsel's knowledge, no default exists,
and no event has occurred which with notice or after the lapse
of time to cure or both, would constitute a default, in the
due performance and observance of any term, covenant or
condition of any material indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument known
to such counsel to which the Company or any of its

16
<PAGE> 17

subsidiaries is a party or to which it or its properties is
subject, or of the Charter or by-laws of the Company or any of
its subsidiaries which would result in any material adverse
change in the business, financial condition, net worth or
results of operations, or could materially adversely affect
the properties or assets of the Company and its subsidiaries
taken as a whole.

(viii) The Registration Statement and all post
effective amendments thereto have become effective under the
Securities Act, and, to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or
contemplated by the Commission. All filings required by Rule
424 and Rule 430A of the Rules and Regulations have been made;
the Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto (except
for the financial statements and schedules included therein as
to which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in
all material respects with the requirements of the Securities
Act and the Rules and Regulations; the descriptions in the
Registration Statement, the Effective Prospectus and the Final
Prospectus of statutes, regulations, legal and governmental
proceedings, and contracts and other documents are accurate in
all material respects and present fairly the information
required to be stated; and such counsel does not know of any
pending or threatened legal or governmental proceedings,
statutes or regulations required to be described in the
Registration Statement or the Final Prospectus which are not
described as required or of any contracts or documents of a
character required to be described in the Registration
Statement or the Final Prospectus or to be filed as exhibits
to the Registration Statement which are not described and
filed as required.

(ix) Neither the Company nor any of its subsidiaries
is, or will be as a result of the consummation of the
transactions contemplated by this Agreement, an "investment
company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940.

In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material

17
<PAGE> 18
fact required to be stated therein or necessary to make the statements therein
not misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information included therein).

The opinions to be rendered pursuant to paragraph (c) may be limited to
federal law, and as to state law matters, to the laws of the state of Tennessee.
Such counsel may also rely on opinion of other counsel as to matters of local
law provided that such counsel shall state that they believe both they and you
are justified in relying on such opinion.

(d) The Underwriters shall have received an opinion or
opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel
for the Underwriters, with respect to the Registration Statement and
the Final Prospectus, and such other related matters as the
Underwriters may require, and the Company shall have furnished to such
counsel such documents as they may reasonably request for the purpose
of enabling them to pass upon such matters.

(e) The Representatives shall have received from Deloitte &
Touche LLP, a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date, in form and substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company and its subsidiaries
within the meaning of the Securities Act and the applicable Rules and
Regulations, and to the effect that:

(i) In their opinion, the audited financial
statements and financial statement schedules examined by them
and included or incorporated by reference in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the published Rules and Regulations and are presented in
accordance with generally accepted accounting principles; and
they have made a review in accordance with standards
established by the American Institute of Certified Public
Accountants of the interim financial statements, selected
financial data, and/or condensed financial statements derived
from audited financial statements of the Company;

(ii) The unaudited selected financial information
included in the Final Prospectus under the captions "SUMMARY
FINANCIAL DATA" and "SELECTED FINANCIAL AND OPERATING DATA"
for each of the fiscal years ended December 26, 1993,
December 25, 1994 and December 31, 1995, agrees with the
corresponding amounts in the audited financial statements
incorporated by reference in the Final Prospectus or
previously reported on by them;

(iii) On the basis of a reading of the latest
available interim financial statements (unaudited) of the
Company, if any, a reading of the minute books of

18
<PAGE> 19
the Company and its subsidiaries, inquiries of officials of
the Company responsible for financial and accounting matters
and other specified procedures, all of which have been agreed
to by the Representatives, nothing came to their attention
that caused them to believe that:

(A) Any unaudited interim financial
statements included or incorporated by reference in
the Registration Statement or the Final Prospectus do
not comply as to form in all material respects with
the applicable accounting requirements of the federal
securities laws and the published rules and
regulations thereunder or are not in conformity with
generally accepted accounting principles applied on a
basis substantially consistent with the basis for the
audited financial statements incorporated by
reference in the Registration Statement or in the
Final Prospectus;

(B) Any other unaudited financial statement
data included or incorporated by reference in the
Registration Statement or the Final Prospectus do not
agree with the corresponding items in the unaudited
financial statements from which data was derived and
any such unaudited data were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the unaudited financial
statements included or incorporated by reference in
the Registration Statement or the Final Prospectus;

(C) At a specified date not more than five
days prior to the date of delivery of such respective
letter, there was any decline in stockholders' equity
or increase in long-term debt of the Company, or
other items specified by the Underwriters in each
case as compared with amounts shown in the latest
balance sheets included or incorporated by reference
in the Final Prospectus, except in each case for
changes, decreases or increases which the Final
Prospectus discloses have occurred or may occur or
which are described in such letters; and

(D) For the period from the closing date of
the latest statements of income included or
incorporated by reference in the Effective Prospectus
and the Final Prospectus to a specified date not more
than five days prior to the date of delivery of such
respective letter, there were any decreases in total
revenues or net income of the Company, or other items
specified by the Underwriters, or any increases in
any items specified by the Underwriters, in each case
as compared with the corresponding period of the
preceding year, except in each case for decreases
which the Final Prospectus discloses have occurred or
may occur or which are described in such letter.

19
<PAGE> 20
(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
the Company, which appear or are incorporated by reference in
the Registration Statement and the Final Prospectus and have
compared and agreed such amounts, percentages and financial
information with the accounting records of the Company or to
analyses and schedules prepared by the Company from its
detailed accounting records.

In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
responsible for financial and accounting matters and with Deloitte &
Touche LLP, that such changes, decreases or increases as are set forth
in such letters do not reflect a material adverse change in the
stockholders' equity or long-term debt of the Company as compared with
the amounts shown in the latest balance sheets of the Company included
or incorporated by reference in the Registration Statement or the
Final Prospectus, or a material adverse change in total revenues or
net income of the Company, in each case as compared with the
corresponding period of the prior year.

(f) There shall have been furnished to the Representatives a
certificate, dated the Closing Date and addressed to you, signed by the
Chief Executive Officer and by the Chief Financial Officer of the
Company to the effect that:

(i) the representations and warranties of the Company
in Section 1 of this Agreement are true and correct, as if
made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;

(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or are pending, or to
their knowledge, threatened under the Securities Act;

(iii) all filings required by Rule 424 and Rule 430A
of the Rules and Regulations have been made;

(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
the documents incorporated therein by reference and any
amendments or supplements thereto, and such documents do not
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and

20
<PAGE> 21
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
Statement, the Effective Prospectus or the Final Prospectus
which has not been so set forth.

(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business or properties from fire, flood, hurricane, earthquake,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any court or governmental action, order or
decree, or become a party to or the subject of any litigation which is
material to the Company, nor shall there have been any material adverse
change, or any development involving a prospective material adverse
change, in the business, properties, key personnel, capitalization, net
worth, results of operations or condition (financial or other) of the
Company, which loss, interference, litigation or change, in your
judgment shall render it unadvisable to commence or continue the
offering of the Notes at the offering price to the public set forth on
the cover page of the Prospectus or to proceed with the delivery of the
Notes.

(h) At or prior to the Closing Date, none of the following
events shall have occurred: (i) suspension in the trading in
securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market; (ii) the establishment of minimum or
maximum prices on the New York Stock Exchange, the American Stock
Exchange or the over-the-counter market; (iii) the declaration of a
banking moratorium by federal or state authorities; (iv) suspension
in the trading of securities of the Company on any exchange or market;
or (v) a material change in general economic, political or financial
conditions or the effect of international conditions on the financial
markets in the United States shall, in your reasonable judgment, make
it inadvisable to proceed with the offering of the Notes at the
offering price to the public set forth on the cover page of this Final
Prospectus or to proceed with the delivery of the Notes.

All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.

The respective obligations of the Underwriters to purchase and pay for
the Option Notes shall be subject, in their discretion, to each of the foregoing
conditions to purchase the Firm Notes, except that all references to the
"Closing Date" shall be deemed to refer to the Option Closing Date, if it shall
be a date other than the Closing Date.

7. Condition of the Company's Obligations. The obligations hereunder of
the Company are subject to the condition set forth in Section 6(a) hereof.

<PAGE> 22

8. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in
part upon (i) any inaccuracy in the representations and warranties of
the Company contained herein, (ii) any failure of the Company to
perform its obligations hereunder or under law or (iii)
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Effective Prospectus or Final Prospectus, or any document
incorporated therein by reference or any amendment or supplement
thereto, or in any Blue Sky application or other written information
furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Notes under the securities laws
thereof (a "Blue Sky Application"). The Company agrees to indemnify and
hold harmless each Underwriter, and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, against all
losses, claims, damages, or liabilities, joint or several, to which
such Underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon the Company's omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, any document incorporated therein by
reference or any amendment or supplement thereto or any Blue Sky
Application a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred.
Notwithstanding the foregoing, the Company will not be liable
in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Preliminary Prospectus, the Effective
Prospectus, any document incorporated therein by reference or Final
Prospectus or such amendment or such supplement or any Blue Sky
Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically
for use therein (it being understood that the only information so
provided by the Underwriters is the information included in the last
paragraph on the cover page and under the caption "Underwriting" in
any Preliminary Prospectus and the Final Prospectus and the Effective
Prospectus).

(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act against any

22
<PAGE> 23

losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application, or arise
out of or are based upon the omission or the alleged omission to state
in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or supplement
thereto or any Blue Sky Application a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page and under the caption "Underwriting" in any
Preliminary Prospectus,the Effective Prospectus and the Final
Prospectus); and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are
incurred. This indemnity agreement will be in addition to any
liability which such Underwriters may otherwise have.

(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8 notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its
election to so assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation except that the indemnified party shall have the right to
employ separate counsel if, in its reasonable judgment, it is advisable
for the indemnified party and any other Underwriter to be represented
by separate counsel, and in that event the fees and expenses of
separate counsel shall be paid by the indemnifying party.

The Company will not, without prior written consent of each
Representative, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding
(or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such
Underwriter is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional
release of such Underwriter from all liability arising out

23
<PAGE> 24
of such claim, action, suit or proceeding (or related cause of action
or portion thereof).

(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters, or the Company or is insufficient to
hold harmless an indemnified party, then the Company shall contribute
to the damages paid by the Underwriters, and the Underwriters shall
contribute to the damages paid by the Company provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the
relative benefits received by each party from the offering of the Notes
(taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the underwriting discount applicable to the Notes
purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or
any similar claim. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section , each person,
if any, who controls an Underwriter within the meaning of Section 15 of
the Securities Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the
Securities Act, shall have the same rights to contribution as the
Company.

(e) The obligations of the Company under this Section 8 shall
be in addition to any liability which the Company may otherwise have
and shall extend, upon the same terms and conditions, to each person,
if any, who controls any Underwriter within the meaning of the
Securities Act; and the obligations of the Underwriters under this
Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the
Securities Act.

9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Notes hereunder and if the total amount of Notes which
such defaulting Underwriter agreed but

24
<PAGE> 25
failed to purchase is ten percent or less of the total amount of Notes to be
sold hereunder, the non-defaulting Underwriters shall be obligated severally to
purchase (in the respective proportions which the amount of Notes set forth
opposite the name of each non-defaulting Underwriter in Schedule I hereto bears
to the total amount of Notes set forth opposite the names of all the
non-defaulting Underwriters), the Notes which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter so defaults and
the total number of Notes with respect to which such default or defaults occur
is more than ten percent of the total amount of Notes to be sold hereunder, and
arrangements satisfactory to the other Underwriters and the Company for the
purchase of such Notes by other persons (who may include the non-defaulting
Underwriters) are not made within 36 hours after such default, this Agreement,
insofar as it relates to the sale of the Notes, will terminate without liability
on the part of the non-defaulting Underwriters or the Company except for (i) the
provisions of Section 8 hereof, and (ii) the expenses to be paid or reimbursed
by the Company pursuant to Section 5. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve a defaulting Underwriter from liability
for its default.

10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person, (ii) any termination of this Agreement and (iii) delivery of
and payment for the Notes.

11. Effective Date. This Agreement shall become effective at whichever
of the following times shall first occur: (i) at 11:30 A.M., Washington, D.C.
time, on the next full business day following the date on which the Registration
Statement becomes effective or (ii) at such time after the Registration
Statement has become effective as the Representatives shall release the Firm
Notes for sale to the public; provided, however, that the provisions of Sections
5, 8, 10, and 11 hereof shall at all times be effective. For purposes of this
Section 11, the Firm Notes shall be deemed to have been so released upon the
release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Notes or upon the release by the Representatives of
telegrams offering the Firm Notes for sale to securities dealers, whichever may
occur first.

12. Termination.

(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives (i) at any
time before it becomes effective in accordance with Section 11 hereof,
or (ii) in the event that the condition set forth in Section 7 shall
not have been satisfied at or prior to the First Closing Date.

(b) This Agreement may be terminated by the Representatives by
notice to the Company (i) at any time before it becomes effective in
accordance with Section 11 hereof;

25
<PAGE> 26
(ii) in the event that at or prior to the First Closing Date the
Company shall have failed, refused or been unable to perform any
agreement on the part of the Company to be performed hereunder or any
other condition to the obligations of the Underwriters hereunder is not
fulfilled; (iii) if at or prior to the Closing Date trading in
securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market shall have been suspended or materially
limited or minimum or maximum prices shall have been established on
either of such Exchanges or such market, or a banking moratorium shall
have been declared by Federal or state authorities; (iv) if at or prior
to the Closing Date trading in securities of the Company shall have
been suspended on any exchange or market; or (v) if there shall have
been such a material change in general economic, political or financial
conditions or if the effect of international conditions on the
financial markets in the United States shall be such as, in your
reasonable judgment, makes it inadvisable to commence or continue the
offering of the Notes at the offering price to the public set forth on
the cover page of the Prospectus or to proceed with the delivery of the
Notes.

(c) Termination of this Agreement pursuant to this Section 12
shall be without liability of any party to any other party other than
as provided in Sections 5 and 8 hereof.

13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to the Representatives in care of J.C. Bradford & Co.,
L.L.C., J.C. Bradford Financial Center, 330 Commerce Street, Nashville,
Tennessee 37201, Attention: Robert S. Doolittle, or if sent to the Company shall
be mailed, delivered or telegraphed and confirmed in writing to the Company at
217 West Main Street, Gallatin, Tennessee 37066, Attention: Leon Moore.

14. Miscellaneous. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Company and the several Underwriters and for
the benefit of no other person except that (i) the representations and
warranties of the Company contained in this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Securities Act, and (ii) the indemnities by the
Underwriters shall also be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement, and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Notes from any Underwriter will be deemed a
successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. You hereby represent and warrant to the Company that you have
authority to act hereunder on behalf of the

26
<PAGE> 27
several Underwriters, and any action hereunder taken by you will be binding upon
all the Underwriters.

27
<PAGE> 28
If the foregoing is in accordance with your understanding of
our agreement, please indicate your acceptance thereof in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between the Company and each of the several Underwriters.

Very truly yours,

SHOLODGE, INC.

By:_________________________________
Title: _____________________________

Confirmed and accepted as of the
date first above written.

J.C. BRADFORD & CO., L.L.C.
DAIN BOSWORTH INC.
INTERSTATE/JOHNSON LANE CORPORATION
For themselves and as Representatives
of the several Underwriters

By:________________________________
Partner

28
<PAGE> 29
SCHEDULE I

UNDERWRITERS

<TABLE>
<CAPTION>
Principal Amount of Firm
Underwriter Notes to Be Purchased

<S> <C>
J.C. Bradford & Co., L.L.C................................... $___________
Dain Bosworth Inc............................................ $___________
Interstate/Johnson Lane Corporation ......................... $___________

-------------------------------------------------

TOTAL $35,000,000
=================================================
</TABLE>

<PAGE> 1
EXHIBIT 4.2

SHOLODGE, INC.

AND

BANKERS TRUST COMPANY,
TRUSTEE

-------------------------

INDENTURE
Dated as of , 1996
----------

-------------------------

SENIOR SUBORDINATED NOTES

<PAGE> 2

ShoLodge, Inc.

Senior Subordinated Notes

TIE-SHEET

of provisions of Trust Indenture Act of 1939 and the Indenture
dated as of ______ __, 1996, between ShoLodge, Inc. and Bankers Trust Company,
Trustee.

<TABLE>
<CAPTION>
TRUST INDENTURE
ACT OF 1939
SECTION INDENTURE SECTION
- ------------------------------------------ ------------------------------------------------
<S> <C>
310(a)(1)(2)(3) . . . . . . . . . . . . . 11.1 and 11.12
(a)(4) . . . . . . . . . . . . . . . . Not applicable
(b) . . . . . . . . . . . . . . . . . 11.8 and 11.9
(c) . . . . . . . . . . . . . . . . . Not applicable

311(c) . . . . . . . . . . . . . . . . . Not applicable

312(a) . . . . . . . . . . . . . . . . . 5.1(a) and (b)
(b) . . . . . . . . . . . . . . . . . 5.1(c)
(c) . . . . . . . . . . . . . . . . . 5.1(d)

313(a) . . . . . . . . . . . . . . . . . 5.3
(b) . . . . . . . . . . . . . . . . . Not applicable
(c) . . . . . . . . . . . . . . . . . 5.3
(d) . . . . . . . . . . . . . . . . . 5.3

314(a) . . . . . . . . . . . . . . . . . 5.2(a) and (b)
(b) . . . . . . . . . . . . . . . . . Not applicable
(c) . . . . . . . . . . . . . . . . . 14.3
(d) . . . . . . . . . . . . . . . . . Not applicable
(e) . . . . . . . . . . . . . . . . . 16.3

315(a) . . . . . . . . . . . . . . . . . 16.2
(b) . . . . . . . . . . . . . . . . . 8.7
(c) . . . . . . . . . . . . . . . . . 11.2(b)
(d) . . . . . . . . . . . . . . . . . 11.2(c)
(e) . . . . . . . . . . . . . . . . . 8.8

316(a)(1) . . . . . . . . . . . . . . . . 8.6
(a)(2) . . . . . . . . . . . . . . . . Not applicable
(b) . . . . . . . . . . . . . . . . . 8.6

317(a) . . . . . . . . . . . . . . . . . 8.2
(b) . . . . . . . . . . . . . . . . . 4.4

</TABLE>

<PAGE> 3

This tie-sheet does not constitute a part of the Indenture.
<PAGE> 4

TABLE OF CONTENTS

ARTICLE 1

DEFINITIONS

<TABLE>
<S> <C> <C>
1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"1994 Debentures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Accrued Bankruptcy Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"affected" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Annual Amount Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"applicable supplemental indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Associate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Authenticating Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Bankruptcy Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Board of Directors" or "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"business day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"capital stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Certified Resolution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"common stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Company Order" and "Company Request" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Consolidated Net Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Consolidated Net Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Consolidated Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"covenant defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"daily newspaper" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"date of this Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Equity Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Executive Officer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Fair Market Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Five Percent Limitation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>

i
<PAGE> 5

<TABLE>
<S> <C>
"Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Interest Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"legal defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"main office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"maturity" or "mature," . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Note" or "Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Note Register", "Note Co-Registrar" and "Note Registrar" . . . . . . . . . . . . . . . . . . . . . . 6
"Noteholder," "noteholder," "holder of the Notes," "Holder" or "holder" . . . . . . . . . . . . . . . 6
"Officers' Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Original Issue Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"paying agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"place of payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"predecessor Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Proceeding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Redeemable Capital Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Regular Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Responsible Officers," . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Senior Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Special Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"supplemental indenture" or "indenture supplemental hereto" . . . . . . . . . . . . . . . . . . . . . 8
"Total Consolidated Capitalization" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Trust Indenture Act" or "TIA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"U.S. Government Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>

ARTICLE 2

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES

<TABLE>
<S> <C> <C>
2.1 Designation, Amount and Issue of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Form of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Denominations, Dates, Interest Payment and Record Dates. . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Numbers and Legends on Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

ii
<PAGE> 6

<TABLE>
<S> <C> <C>
2.5 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Exchange and Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes. . . . . . . . . . . . . . 12
2.10 Mutilated, Destroyed, Lost or Stolen Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.11 Authentication of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Surrender and Cancellation of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE 3

SUBORDINATION OF NOTES

3.1 Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Distribution on Dissolution, Liquidation, Bankruptcy or Reorganization. . . . . . . . . . . . . . . 14
3.3 Default on Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 When Distribution must Be Paid over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.5 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6 Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.7 Payments on Notes Permitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.8 Authorization of Noteholders to Trustee to Effect Subordination. . . . . . . . . . . . . . . . . . 17
3.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10 Trustee as Holder of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.11 Modification of Terms of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.12 Trustee Not Fiduciary for Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.13 Subordination May Not Be Impaired by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE 4

PARTICULAR COVENANTS OF THE COMPANY

4.1 Payment of Principal of and Premium, If Any, and Interest on Notes. . . . . . . . . . . . . . . . . 19
4.2 Maintenance of Office or Agency for Registration of Transfer, Exchange and Payment of Notes. . . . 19
4.3 Appointment to Fill a Vacancy in the Office of Trustee. . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Provision as to Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Maintenance of Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Officers' Certificate as to Default and Statement as to Compliance. . . . . . . . . . . . . . . . . 21
4.8 Will Pay Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Will Keep, and Permit Examination of, Records and Books of Account and Will Permit Visitation of
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

iii
<PAGE> 7

<TABLE>
<S> <C> <C>
4.10 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11 Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.12 Limitations on Dividends and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Limitation on Other Senior Subordinated Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 23
4.14 Restrictions on Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.15 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE 5

NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE

5.1 Noteholder Lists, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2 Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE 6

REDEMPTION OF NOTES AT COMPANY'S OPTION

6.1 Election by Company to Redeem Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Redemption of Part of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Date on Which Notes Cease to Bear Interest, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 All Notes Delivered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE 7

REDEMPTION OF NOTES AT HOLDER'S OPTION

7.1 Redemption Right at Holder's Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Redemption Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4 Redemption Register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Purchase of Notes at Option of the Holder Upon Change in Control. . . . . . . . . . . . . . . . . . 31
7.7 Redemption of Notes Subject to Article 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

ARTICLE 8

REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT

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<PAGE> 8

<TABLE>
<S> <C> <C>
8.1 Events of Default Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Payment of Notes on Default; Suit Therefor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Application of Moneys Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Limitation on Suits by Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.5 Proceedings by Trustee; Remedies Cumulative and Continuing; Delay or Omission Not Waiver of Default. . . 40
8.6 Rights of Holders of Majority in Principal Amount of Notes to Direct Trustee and to Waive Defaults . . . 41
8.7 Trustee to Give Notice of Defaults Known to It, but May Withhold in Certain Circumstances. . . . . . . . 41
8.8 Requirement of an Undertaking to Pay Costs in Certain Suits under the Indenture or Against the Trustee . 41
8.9 Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE 9

EVIDENCE OF RIGHTS OF NOTEHOLDERS
AND OWNERSHIP OF NOTES

9.1 Evidence of Ownership of Definitive Notes and Temporary Notes Issued Hereunder in Registered Form. . . . 42

ARTICLE 10

CONSOLIDATION, MERGER AND SALE

10.1 Company May Merge, Consolidate, Etc., Upon Certain Terms. . . . . . . . . . . . . . . . . . . . . . . . 42
10.2 Successor Corporation to be Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE 11

CONCERNING THE TRUSTEE

11.1 Requirement of Corporate Trustee, Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Acceptance of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.3 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.4 Trustee May Own Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.5 Trustee May Rely on Certificates, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.6 Money Held in Trust Not Required to be Segregated. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7 Compensation, Reimbursement, Indemnity, Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.8 Conflict of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.9 Resignation, Removal, Appointment of Successor Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 53
11.10 Acceptance by Successor Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>

v
<PAGE> 9

<TABLE>
<S> <C> <C>
11.11 Cash, Securities, Etc. to be Held by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.12 Merger or Consolidation of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.13 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE 12

DEFEASANCE; DISCHARGE OF INDENTURE

12.1 Termination of the Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.2 Legal Defeasance and Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.3 Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.4 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

ARTICLE 13

MEETING OF NOTEHOLDERS

13.1 Purposes for Which Meetings May be Called. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.2 Call of Meetings by Trustee; Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.3 Call of Meetings by Trustee; Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.4 Meetings, Notice and Entitlement to be Present . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.5 Regulations May be Made by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.6 Manner of Voting at Meetings and Record to be Kept. . . . . . . . . . . . . . . . . . . . . . . . . 65
13.7 Evidence of Action by Holders of Specified Percentage of Notes . . . . . . . . . . . . . . . . . . . 65
13.8 Exercise of Right of Trustee or Noteholders May Not be Hindered or Delayed by Call of Meeting of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

ARTICLE 14

SUPPLEMENTAL INDENTURES

14.1 Purposes for Which Supplemental Indentures May be Executed by Company and Trustee. . . . . . . . . 66
14.2 Modification of Indenture by Written Consent of Noteholders. . . . . . . . . . . . . . . . . . . . 67
14.3 Requirements for Execution; Duties and Immunities of Trustee. . . . . . . . . . . . . . . . . . . . 69
14.4 Supplemental Indentures Part of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.5 Notes Executed After Supplemental Indenture to be Approved by Trustee . . . . . . . . . . . . . . . 69
14.6 Supplemental Indentures Required to Comply with Trust Indenture Act of 1939. . . . . . . . . . . . . 70
</TABLE>

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<PAGE> 10

ARTICLE 15

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS

<TABLE>
<S> <C> <C>
15.1 Immunity of Certain Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

ARTICLE 16

MISCELLANEOUS

16.1 Benefits Restricted to Parties and to Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . 70
16.2 Deposits for Notes Not Claimed for Specified Period to be Returned to Company on Demand. . . . . . . 70
16.3 Formal Requirements of Certificates and Opinions Hereunder. . . . . . . . . . . . . . . . . . . . . 71
16.4 Evidence of Act of the Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
16.5 Parties to Include Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
16.6 In Event of Conflict with Trust Indenture Act of 1939, Provisions Therein to Control. . . . . . . . 72
16.7 Request, Notices, Etc. to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
16.8 Manner of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
16.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
16.10 Payments Due on Days When Banks Closed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
16.11 Backup Withholding Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
16.12 Titles of Articles of This Indenture Not Part Thereof. . . . . . . . . . . . . . . . . . . . . . . 74
16.13 Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
16.14 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>

TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS

vii
<PAGE> 11

This INDENTURE, dated as of ___________, 1996, between SHOLODGE, INC.,
a Tennessee corporation (herein called the "Company") and BANKERS TRUST
COMPANY, a New York banking corporation (herein, together with each successor
as such trustee hereunder, called the "Trustee").

WITNESSETH:

WHEREAS, the Company deems it necessary to authorize the issuance from
time to time of certain Senior Subordinated Notes (hereinafter sometimes called
the "Notes") in one or more series, in an aggregate principal amount up to
$125,000,000, to bear such rates of interest, to mature at such time or times
and to have such other provisions as shall be provided in this Indenture or in
one or more supplemental indentures in accordance herewith;

WHEREAS, this Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions;
and

WHEREAS, all acts and things necessary to make this Indenture a valid
agreement according to its terms, have been done and performed, and the
execution of this Indenture has in all respects been duly authorized;

NOW THEREFORE:

That the Company covenants and agrees with the Trustee for the equal
and proportionate benefit of the respective holders from time to time of the
Notes, as follows:

ARTICLE 1

DEFINITIONS

1.1 The terms defined in this Article 1 shall (except as herein
otherwise expressly provided) for all purposes of this Indenture, have the
respective meanings specified in this Article and include the plural as well as
the singular. Any term defined in the Trust Indenture Act of 1939, either
directly or by reference therein, and not defined in this Indenture, unless the
context otherwise specifies or requires, shall have the meaning assigned to
such term therein as in force on the date of this Indenture.

"1994 Debentures" shall mean the Company's 7 1/2 % Convertible
Subordinated Debentures due 2004, authenticated and delivered under that
certain indenture dated as of June 6, 1994 by and between ShoLodge, Inc. and
Third National Bank in Nashville, Trustee.

1
<PAGE> 12

"Accrued Bankruptcy Interest" shall mean interest accruing subsequent
to any bankruptcy, insolvency, dissolution, liquidation, reorganization,
winding up or other event or proceeding referred to in Section 3.02, in
accordance with and at the rate (including any rate applicable upon default)
specified in the instrument or agreement evidencing or governing the applicable
Senior Indebtedness, whether or not the claim for such interest is allowed as a
claim in connection with such bankruptcy, insolvency, dissolution, liquidation,
reorganization, winding up or other event or proceeding.

"Act" when used with respect to any Noteholder has the meaning
specified in Section 16.4.

"affected" has the meaning specified in Section 14.2.

"Affiliate" means any person which directly or indirectly controls, is
controlled by, or is under direct or indirect common control with, the Company.
A person shall be deemed to control a corporation, partnership or other entity,
for the purpose of this definition, if such person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, partnership or other entity, whether through the
ownership of voting securities, by contract, or otherwise.

"Annual Amount Limitations" has the meaning specified in Section 7.1.

"applicable supplemental indenture" means, with respect to any series
of Notes, the supplemental indenture which authorized the issuance of such
Notes, and any amendments thereto.

"Associate" has the meaning specified in Section 7.5.

"Authenticating Agent" means the agent of the Trustee which at the
time shall be appointed and acting pursuant to Section 11.13.

"Bankruptcy Act" means Title I of the Bankruptcy Reform Act of 1978,
as amended, and codified at Title 11 of the United States Code, including the
Federal Rules of Bankruptcy Procedure as in effect as of the date hereof or as
hereafter amended, or any similar federal, state or foreign law for the relief
of debtors.

"Board of Directors" or "Board" means the Board of Directors of the
Company or any committee of such Board of Directors, however designated,
authorized to exercise the powers of such Board of Directors in respect of the
matters in question.

"business day" means any day which is not a Saturday, Sunday or other
day on which banking institutions in the State in which the Trustee shall
maintain its main office are authorized or obligated by law or required by
executive order to close.

"capital stock" includes any and all shares, interests, participations
or other equivalents (however designated) of corporate stock of any
corporation.

2
<PAGE> 13

"Certified Resolution" means a copy of a resolution or resolutions
certified, by the Secretary or an Assistant Secretary of the corporation
referred to, as having been duly adopted by the Board of Directors of such
corporation or any committee of such Board of Directors, however designated,
authorized to exercise the powers of such Board of Directors in respect of the
matters in question and to be in full force and effect on the date of such
certification.

"Change in Control" has the meaning specified in Section 7.5.

"Commission" means the United States Securities and Exchange
Commission.

"common stock" means any capital stock of a corporation which is not
preferred as to the payment of dividends or the distribution of assets on any
voluntary or involuntary liquidation over shares of any other class of capital
stock of such corporation.

"Company" shall mean and include ShoLodge, Inc. until any successor
corporation shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such successor corporation.

"Company Order" and "Company Request" mean, respectively, a written
order or request signed in the name of the Company by its Chairman of the
Board, Vice-Chairman of the Board, President or any Vice President and its
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and delivered
to the Trustee.

"Consolidated Net Income" means, for any period, the Company's
consolidated net income for such period (if, after making the adjustments
described below, the Company's consolidated net income for such period would be
a positive number) as determined in accordance with generally accepted
accounting principles as consistently applied by the Company, adjusted, to the
extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary non-operating gains or losses and (ii) the
net income or loss of any person combined with the Company or one of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.

"Consolidated Net Loss" means, for any period, the Company's
consolidated net loss (if any) for such period (if, after making the
adjustments described below, the Company's consolidated net income for such
period would be a negative number) as determined in accordance with generally
accepted accounting principles as consistently applied by the Company,
adjusted, to the extent included in calculating such net loss, by excluding,
without duplication, (i) all extraordinary non-operating gains or losses and
(ii) the net income or loss of any person combined with the Company or any of
its Subsidiaries on a pooling of interests basis attributable to any period
prior to the date of combination.

"Consolidated Net Worth" means, with respect to the Company and its
Subsidiaries as of any date, the net worth of the Company and its Subsidiaries
as of such date as determined on a

3
<PAGE> 14

consolidated basis in accordance with generally accepted accounting principles
as consistently applied by the Company.

"corporation" shall mean and include corporations, associations,
companies and business trusts.

"covenant defeasance" shall have the meaning as set forth in Section
12.2.

"daily newspaper" shall mean The Wall Street Journal or another
newspaper in the English language of national circulation in New York, New York
and customarily published on each business day of the year, whether or not such
newspaper is published on Saturdays, Sundays and legal holidays.

"date of this Indenture" means the date set forth on the cover page of
this Indenture.

"day" means a calendar day.

"Default" means any act or occurrence of the character specified in
Section 8.1, but excluding any notice or lapse of time, or both, specified
therein.

"Defaulted Interest" has the meaning specified in Section 2.3.

"Equity Securities" means any and all shares of the Company's capital
stock (other than Redeemable Capital Stock), and any rights (other than
Indebtedness convertible into capital stock), warrants or options to acquire
the Company's capital stock (other than warrants or options to acquire
Redeemable Capital Stock).

"Event of Default" means any act or occurrence of the character
specified in Section 8.1.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Executive Officer" means, with respect to any corporation, the
Chairman of the Board, the Vice Chairman of the Board, the President, the
Executive Vice President, any other Vice President or the Treasurer of such
corporation.

"Fair Market Value" means, with respect to any asset, the price which
could be negotiated in an arm's length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction; provided, however, that,
except with respect to any asset or assets constituting less than $3,000,000,
the Fair Market Value shall be required to be determined by the Board of
Directors of the Company, acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.

4
<PAGE> 15

"Five Percent Limitation" has the meaning specified in Section 7.1.

"Indebtedness" means (a) indebtedness for money borrowed (other than
the Notes) for the payment of which the Company or any Subsidiary is
responsible or liable or the payment of which the Company or any Subsidiary has
guaranteed, whether such indebtedness is outstanding as of the date hereof or
thereafter created, incurred, assumed or guaranteed by the Company or any
Subsidiary, (b) capital lease obligations of the Company and any Subsidiary
determined in accordance with generally accepted accounting principles, (c) any
obligation of the Company or any Subsidiary to reimburse banks or others
pursuant to letters of credit or guaranties extended by such banks or others,
advances made by such banks and other credit arrangements entered into with
such banks in connection with tax-exempt obligations issued for the benefit of
the Company or any Subsidiary, (d) all liabilities for the deferred purchase
price of property or services, or under any conditional sale or title retention
agreement, excluding any trade payables and other accrued current liabilities
incurred in the ordinary course of business and not otherwise constituting
Indebtedness under any other clause of this definition, (e) all Redeemable
Capital Stock and (f) renewals, extensions, modifications and refundings of any
such indebtedness or obligations; provided, however, that the term
"Indebtedness" does not include any indebtedness that has been irrevocably
defeased in accordance with the applicable terms thereof and an amount in cash
or U.S. Government Obligations or any combination thereof sufficient to pay all
obligations under such indebtedness when and as due has been irrevocably
deposited with a trustee or similar third party in connection therewith.

"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.

"legal defeasance" shall have the meaning set forth in Section 12.2.

"Lien" means any mortgage, lien, pledge, charge or other security
interest or encumbrance of any kind.

"main office" with reference to the Trustee shall mean the principal
corporate trust office of the Trustee, which office is, on the date of this
Indenture, located at Bankers Trust Company, Four Albany Street, New York, NY
10006, Attention: Corporate Trust and Agency Group.

"maturity" or "mature," when used with respect to any Note, means the
date on which the principal of such Note becomes due and payable as therein or
herein provided, whether at Stated Maturity or by declaration of acceleration,
call for redemption at the option of the Company pursuant to Article 6 or
presentment for repayment as provided in Article 7 hereof, or otherwise.

5
<PAGE> 16

"Note" or "Notes" mean one or more of the notes comprising the
Company's issue of Notes issued, authenticated and delivered under this
Indenture or any indenture supplemental hereto creating one or more series of
additional notes.

"Note Register", "Note Co-Registrar" and "Note Registrar" have the
respective meanings specified in Section 2.6.

"Noteholder," "noteholder," "holder of the Notes," "Holder" or
"holder" or other similar terms mean any person in whose name, as of any
particular date, a Note is registered on the Note Register.

"Officers' Certificate" means a certificate signed by the Chairman of
the Board, President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee. Each such certificate, to the extent required, shall
comply with the provisions of Section 16.3 hereof.

"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company and who shall be
reasonably satisfactory to the Trustee. Each such Opinion of Counsel shall
include the statements provided for in Section 16.3 if and to the extent
required by the provisions of such Section.

"Original Issue Date" with respect to any Note (or portion thereof)
means the earlier of (A) the date of such Note or (B) the date of any Note (or
portion thereof) for which such Note was issued (directly or indirectly) on
registration of transfer, exchange or substitution.

"outstanding" means, as of the date of determination, all Notes which
theretofore shall have been authenticated and delivered by the Trustee under
this Indenture, except (A) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation, (B) Notes or portions thereof for
the payment or redemption of which money in the necessary amount shall have
been deposited with the Trustee or any paying agent in trust for the holders of
the Notes; provided, however, that in the case of redemption, any notice
required shall have been given or have been provided for to the satisfaction of
the Trustee, and (C) Notes in exchange or substitution for or in lieu of which
other Notes have been authenticated and delivered under any of the provisions
of this Indenture. Notwithstanding the foregoing provision of this paragraph,
Notes in exchange or substitution for or in lieu of which other Notes have been
authenticated and delivered under Section 2.10 hereof and which have not been
surrendered to the Trustee for cancellation or the payment of which shall not
have been duly provided for, shall be deemed to be outstanding. In determining
whether the Noteholders of the requisite principal amount of Notes outstanding
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the
Notes or any Affiliate of the Company, including any Subsidiary, or such other
obligor shall be disregarded and deemed not outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Notes which the Trustee knows to be so owned shall be disregarded.

6
<PAGE> 17

Notes so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is
not the Company or any other obligor upon the Notes or any Affiliate of the
Company or a Subsidiary or such other obligor.

"paying agent" means any person authorized by the Company to pay the
principal of, premium, if any, and interest on any Notes on behalf of the
Company.

"person" means any individual, partnership, corporation, trust,
unincorporated association, joint venture, government or any department or
agency thereof, or any other entity.

"place of payment" means such place as designated in Section 2.3
hereof.

"predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.10 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.

"Proceeding" means any suit in equity, action at law or other legal,
equitable, administrative or similar proceeding.

"Redeemable Capital Stock" means any class or series of capital stock
of the Company or any of its Subsidiaries (other than any Subsidiary's capital
stock owned by the Company) that either by its terms, by the terms of any
security into which it is convertible or exchangeable or by contract or
otherwise, is, or upon the happening of an event or passage of time would be,
required to be redeemed or is redeemable at the option of the holder thereof or
is convertible into or exchangeable for debt securities of the Company or any
of its Subsidiaries.

"Redemption Date" when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

"Regular Record Date" has the meaning specified in Section 2.3.

"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust and Agency Group of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.

"Restricted Payment" has the meaning set forth in Section 4.12.

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<PAGE> 18

"Senior Indebtedness" shall mean the following, whether outstanding as
of the date hereof or hereafter created, incurred, assumed or guaranteed by the
Company or any Subsidiary, (a) indebtedness (other than the Notes and the 1994
Debentures) for the payment of which the Company or any Subsidiary is
responsible or liable or the payment of which the Company or any Subsidiary has
guaranteed, (b) capital lease obligations of the Company or any Subsidiary
determined in accordance with generally accepted accounting principles, (c) any
obligation of the Company or any Subsidiary to reimburse banks or others
pursuant to letters of credit or guaranties extended by such banks or others,
advances made by such banks or others and other credit arrangements entered
into with such banks or others in connection with tax-exempt obligations issued
for the benefit of the Company or any Subsidiary, (d) any obligation of the
Company or any Subsidiary for the deferred purchase price of real or personal
property, including any purchase money indebtedness or conditional sales
obligations and obligations under title retention agreements, and (e) renewals,
extensions, modifications and refundings of any such indebtedness or
obligations, provided, however, that Senior Indebtedness shall not include
indebtedness which by its terms refers explicitly to the Notes issued hereunder
and states that such indebtedness shall be subordinate to the Notes issued
hereunder.

"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.3.

"Stated Maturity" when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.

"Subsidiary" means any corporation more than fifty percent (50%) of
whose shares of stock having general voting power under ordinary circumstances
to elect a majority of the board of directors of such corporation irrespective
of whether or not at the time stock of any other class or classes shall or
might have voting power by reason of the happening of any contingency, is owned
or controlled directly or indirectly by the Company.

"supplemental indenture" or "indenture supplemental hereto" means any
indenture hereafter duly authorized and entered into in accordance with the
provisions of this Indenture.

"Total Consolidated Capitalization" means, with respect to the Company
and its Subsidiaries as of any date, the sum of (i) the Consolidated Net Worth
of the Company and its Subsidiaries as of such date, plus (ii) the total
Indebtedness of the Company and its Subsidiaries as of such date.

"Trustee" means Bankers Trust Company, and, subject to the provisions
of the Indenture, shall also include any successor trustee.

"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as in force at the date as of which this instrument was executed.

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<PAGE> 19

"U.S. Government Obligations" has the meaning provided in Section
12.2(d)(i) hereof.

All accounting terms used in this Indenture shall have the meanings
assigned to them in accordance with generally accepted accounting principles
and practices employed at the time by the Company.

ARTICLE 2

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES

2.1 Designation, Amount and Issue of Notes. The Notes shall be
designated as set forth in one or more indentures supplemental hereto. Notes in
an aggregate principal amount up to $125,000,000, to bear such rates of
interest, to mature at such time or times and to have such other provisions as
may be provided in this Indenture and in the applicable supplemental indenture,
may be executed by the Company and delivered to the Trustee for authentication,
and the Trustee shall thereupon authenticate and deliver said Notes to or upon
the written order of the Company, signed by its Chairman of the Board, the
President or an Executive Vice President or any Vice President. Prior to such
authentication the Trustee shall be entitled to receive an executed
supplemental indenture, an Officers' Certificate and Opinion of Counsel
satisfactory to the Trustee.

2.2 Form of Notes. The Notes and the Trustee's certificate of
authentication to be borne by the Notes shall be substantially in the form set
forth in any supplemental indenture under which such Notes are issued. Any of
the Notes may have imprinted thereon such legends or endorsements as the
officer or officers executing the same may approve (execution thereof to be
conclusive evidence of such approval) and as are not inconsistent with the
provisions of this Indenture or any supplemental indenture under which the
Notes are issued, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Notes may be listed, or to conform to usage. With respect
to the Notes of any particular series, the Company may incorporate in, add to
or delete from the general title of such Notes any words, letters or figures
designed to distinguish that series, pursuant to the applicable supplemental
indenture or a Certified Resolution.

2.3 Denominations, Dates, Interest Payment and Record Dates. The
Notes shall be issuable as registered Notes without coupons in the
denominations of $1,000 and any integral multiple of $1,000, and shall be
numbered, lettered, or otherwise distinguished in such manner or in accordance
with such plan as the officers of the Company executing the same may determine
with the approval of the Trustee. The Notes shall be dated the date of
authentication thereof by the Trustee. Notes may be issued at a discount, and
shall bear interest, as set forth in the applicable supplemental indenture
establishing the form of such Note.

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<PAGE> 20

The term "Regular Record Date" as used with respect to an interest
payment date for any series of Notes shall mean such day or days as shall be
specified in any supplemental indenture pursuant to which the Notes are issued;
provided, however, that in the absence of any such provisions with respect to
any series of Notes, such term shall mean (1) the last day of the calendar
month preceding such interest payment date if such interest payment date is the
fifteenth day of a calendar month; or (2) the fifteenth day of the calendar
month preceding such interest payment date if such interest payment date is the
first day of a calendar month.

Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant Regular Record Date by virtue of having been such holder; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (a) or clause (b) below:

(a) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Notes (or their
respective predecessor Notes) are registered at the close of business
on a special record date (the "Special Record Date") for the payment
of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior
to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than twenty (20) nor less than ten
(10) days prior to the date of the proposed payment and not less than
thirty-five (35) days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company
of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first
class postage prepaid, to each Noteholder at his address as it appears
in the Note Register, not less than ten (10) days prior to such
Special Record Date. The Trustee may, in its discretion, in the name
and at the expense of the Company, cause a similar notice to be
published at least once in a Daily Newspaper in each place of payment,
but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the persons in whose names the Notes (or their
respective predecessor Notes) are registered on such Special Record
Date and shall no longer be payable pursuant to the following clause
(b).

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<PAGE> 21

(b) The Company may make payment of any Defaulted
Interest in any other lawful manner if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this
clause, such payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Note shall carry the rights to interest accrued and unpaid, and to
accrue which were carried by such other Note.

The principal of and the premium, if any, and the interest on the
Notes shall be paid at the office or agency of the Company which shall be
located at the main office of the Trustee (the "place of payment") in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts; provided, however,
that interest on any Notes may be payable, at the option of the Company, by
check mailed to the person entitled thereto as such person's address shall
appear on the Note Register.

2.4 Numbers and Legends on Notes. Notes may bear such numbers,
letters or other marks of identification or designation, may be endorsed with
or have incorporated in the text thereof such legends or recitals with respect
to transferability or in respect of the Note or Notes for which they are
exchangeable, and may contain such provisions, specifications and descriptive
words, not inconsistent with the provisions of this Indenture, as may be
determined by the Company or as may be required to comply with any law or with
any rule or regulation made pursuant thereto.

2.5 Execution of Notes. Each Note shall be signed in the name and
on behalf of the Company by one or more of its officers. The signature of an
officer of the Company may, if permitted by law, be in the form of a facsimile
signature and may be imprinted or otherwise reproduced on the Notes. In case
any officer of the Company who shall have signed, or whose facsimile signature
shall be borne by, any of the Notes shall cease to be such officer of the
Company before the Notes so executed shall be actually authenticated and
delivered by the Trustee, such Notes shall nevertheless bind the Company and
may be authenticated and delivered as though the person whose signature appears
on such Notes had not ceased to be such officer of the Company.

2.6 Registration of Transfer of Notes. The Company shall keep or
cause to be kept at the main office of the Trustee books for the registration
of transfer of Notes issued hereunder (herein sometimes referred to as the
"Note Register") and upon presentation for such purpose at such office the
Company will register or cause to be registered the transfer therein, under
such reasonable regulations as it may prescribe, of such Notes. The Trustee is
hereby appointed "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. The Company may appoint one or more
"Note Co-Registrars" for such purpose as the Board of Directors may determine
where Notes may be presented or surrendered for registration, registration of
transfer or exchange and such books, at all reasonable times, shall be open for
inspection by the Trustee.

2.7 Exchange and Registration of Transfer of Notes. Whenever any
Note shall be surrendered to the Company at an office or agency referred to in
Section 4.2 hereof, for registration

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<PAGE> 22

of transfer or exchange, duly endorsed or accompanied by a proper written
instrument or instruments of assignment and transfer thereof or for exchange in
form satisfactory to the Company and the Trustee, or any Note Registrar or Note
Co- Registrar, duly executed by the holder thereof or his attorney duly
authorized in writing, the Company shall execute, and the Trustee shall
authenticate and deliver, in exchange therefor, a Note or Notes in the name of
the designated transferee, as the case may require, for a like aggregate
principal amount and of such authorized denomination or denominations as may be
requested. All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.

The Company, at its option, may require the payment of a sum
sufficient to reimburse it for any stamp tax or other governmental charge or
expense that may be imposed in connection with any exchange or transfer of
Notes other than exchanges pursuant to Section 2.8 or 14.5 not involving any
transfer. No service charge will be made for any such transaction.

The Company shall not be required to issue or to make registrations of
transfer or exchanges of Notes for a period of fifteen (15) days immediately
preceding the date of any selection of Notes to be redeemed. The Company shall
not be required to issue or to make registrations of transfer or exchanges of
any Notes which have been selected for redemption in whole or in part, except
in the case of any Note to be redeemed in part, for which the Company shall
register transfers and make exchanges of the portion thereof not so to be
redeemed.

Upon delivery by any Note Co-Registrar of a Note in exchange for a
Note surrendered to it in accordance with the provisions of this Indenture, the
Note so delivered shall for all purposes of this Indenture be deemed to be duly
registered in the Note Register; provided, however, that in making any
determination as to the identity of persons who are holders, the Trustee shall,
subject to the provisions of Section 11.2, be fully protected in relying on the
Note Register kept at the main office of the Trustee.

2.8 Temporary Notes. Pending the preparation of definitive Notes
the Company may execute and, upon Company Order, the Trustee shall authenticate
and deliver temporary Notes which may be printed, lithographed, typewritten,
mimeographed or otherwise reproduced. Temporary Notes shall be issuable in any
authorized denomination, and substantially of the tenor of the definitive Notes
in lieu of which they are issued, but with such omissions, insertions and
variations as may be appropriate for temporary Notes, all as may be determined
by the officers of the Company executing such Notes as evidenced by their
execution of such Notes. Every such temporary Note shall be authenticated by
the Trustee upon the same conditions and in substantially the same manner, and
with the same effect, as the definitive Notes. If temporary Notes are issued,
without unreasonable delay, the Company will execute and deliver to the Trustee
definitive Notes and thereupon any and all temporary Notes may be surrendered
in exchange therefor, at the offices referred to in Section 4.2, and the
Trustee shall authenticate and deliver in exchange for such temporary Notes an
equal aggregate principal amount of definitive Notes of authorized

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<PAGE> 23

denominations. Such exchange shall be made by the Company at its own expense
and without any charge therefor. Until so exchanged, the temporary Notes shall
in all respects be entitled to the same benefits under this Indenture as
definitive Notes authenticated and delivered hereunder.

2.9 Recognition of Registered Holders of Definitive Notes and
Temporary Notes. The Company, the Trustee or any agent of the Company or the
Trustee may deem and treat (A) the registered holder of any temporary Note, and
(B) the registered holder of any definitive Note, as the absolute owner of such
Note in accordance with Section 9.1.

2.10 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note
shall become mutilated or be destroyed, lost or stolen, then upon the
satisfaction of the conditions hereinafter set forth in this Section 2.10 the
Company (A) shall, in the case of any mutilated Note, and (B) shall, in the
case of any destroyed, lost or stolen Note, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, execute, and upon the written request of the Company, the Trustee
shall authenticate and deliver, a new Note of like principal amount bearing a
number not contemporaneously outstanding, in exchange and substitution for and
upon surrender and cancellation of the mutilated Note or in lieu of and
substitution for the Note so destroyed, lost or stolen; provided, however, that
if any such mutilated, destroyed, lost or stolen Note shall have become or
shall be about to become due and payable, or shall have been selected or called
for redemption, the Company may instead of issuing a substituted Note, pay such
Note without requiring the surrender thereof, except that such mutilated Note
shall be surrendered. The applicant for such substituted Note shall furnish to
the Company and to the Trustee evidence satisfactory to them, in their
discretion, of the ownership of and the destruction, loss or theft of such Note
and shall furnish to the Company and to the Trustee and any Note Registrar such
security or indemnity as may be required by them to save each of them harmless,
and, if required, shall reimburse the Company for all expenses (including any
tax or other governmental charge and the fees and expenses of the Trustee) in
connection with the preparation, authentication and delivery of such
substituted Note, and shall comply with such other reasonable regulations as
the Company, the Trustee, or either of them, may prescribe.

Every new Note issued pursuant to this Section 2.10 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionally with any and
all other Notes duly issued hereunder.

The provisions of this Section 2.10 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.

2.11 Authentication of Notes. Subject to the qualifications
hereinbefore set forth, the Notes to be issued hereby shall be substantially of
the tenor and effect set forth in the supplemental indenture providing for
their issuance, and no Notes shall be entitled to the benefit hereof, or shall

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<PAGE> 24

be or become valid or obligatory for any purpose unless there shall be endorsed
thereon an authentication certificate executed by the Trustee; and such
certificate on any Note issued by the Company shall be conclusive evidence and
the only competent evidence that it has been duly authenticated and delivered
hereunder.

2.12 Surrender and Cancellation of Notes. All Notes surrendered for
payment, redemption, transfer or exchange shall, if surrendered to any person
other than the Trustee, be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time deliver
to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder, which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section 2.12, except as expressly permitted
by this Indenture. The Trustee shall destroy all canceled Notes held by it and
deliver a certificate of such destruction to the Company.

ARTICLE 3

SUBORDINATION OF NOTES

3.1 Agreement to Subordinate. The Company, for itself, its
successors and assigns, covenants and agrees, and each holder of Notes, by his
acceptance thereof, likewise covenants and agrees, that the payment of the
principal of and premium, if any, and interest on each and all of the Notes is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all Senior
Indebtedness (including Accrued Bankruptcy Interest). This Article 3
constitutes a continuing offer to all persons or entities who become holders
of, or continue to hold, Senior Indebtedness, each of whom is an obligee
hereunder and is entitled to enforce such holder's rights hereunder, subject to
the provisions hereof, without any act or notice of acceptance hereof or
reliance hereon.

For purposes of this Article 3, (a) no Senior Indebtedness shall be
deemed to have been paid in full unless and until all commitments or other
obligations of the lenders thereunder to make advances or otherwise extend
credit shall have terminated and the holders thereof shall have received
payment in full in cash or other consideration accepted by the holders of the
Senior Indebtedness, and (b) the term "Representative" shall mean the indenture
trustee or other trustee, agent or representative for any Senior Indebtedness.

3.2 Distribution on Dissolution, Liquidation, Bankruptcy or
Reorganization. Upon any distribution of assets of the Company upon any total
or partial dissolution, winding up, liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company or otherwise,

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<PAGE> 25

(a) the holders of all Senior Indebtedness shall be
entitled to receive payment in full of the amounts due on or in
respect of such Senior Indebtedness before the holders of the Notes
are entitled to receive any direct or indirect payment or distribution
on or in respect of the Notes; and

(b) any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to
which the holders of the Notes or the Trustee (except those sums to
which the Trustee is entitled under Section 11.7) would be entitled
except for the provisions of this Section 3.2 shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise (collectively, a "trustee in
bankruptcy"), directly to the holders of Senior Indebtedness or their
respective Representatives, ratably according to the aggregate amounts
remaining unpaid on account of such Senior Indebtedness held or
represented by each, for application to or to be held as collateral
for the payment or prepayment of such Senior Indebtedness until all
such Senior Indebtedness shall have been paid in full after giving
effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness.

The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the sale or conveyance of its property or assets as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article 10 shall not be deemed a dissolution, winding
up, liquidation or reorganization of the Company for the purposes of this
Article 3 if such other corporation shall, as a part of such consolidation,
merger, sale or conveyance, comply with the conditions stated in Article 10.

If the Trustee or any holder of Notes does not file a proper claim or
proof of debt in the form required in any proceeding referred to above prior to
30 days before the expiration of the time to file such claim in such
proceeding, then the holder of any Senior Indebtedness (or its Representative)
is hereby authorized, and has the right, to file an appropriate claim or claims
for or on behalf of such holder of Notes.

3.3 Default on Senior Indebtedness. No direct or indirect payment
or distribution (other than payments or distributions of amounts previously
deposited in accordance with the defeasance provisions of the Indenture) shall
be made by or on behalf of the Company on account or in respect of principal of
or premium, if any, or interest on the Notes or on account or in respect of the
purchase, redemption or other acquisition or deposits in trust in respect of
defeasance of Notes (including without limitation any purchase of a Note
required as a result of a Change in Control), if there shall have occurred and
be continuing any default in the payment when due (at maturity, upon
acceleration of maturity, upon mandatory prepayment, or otherwise) in respect
of any Senior Indebtedness continuing beyond the period of grace, if any,
specified in the instrument or agreement creating or evidencing such Senior
Indebtedness (a "Payment Default"), unless such default shall have been
effectively waived in writing by the holders of such Senior Indebtedness in
default or

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<PAGE> 26

unless the holders of such Senior Indebtedness in default shall have delivered
to the Trustee a written notice of waiver of the benefits of this sentence. In
addition, if any event of default with respect to any Senior Indebtedness,
other than a Payment Default occurs and is continuing and as a result thereof
the maturity of such Senior Indebtedness may be accelerated (such an event of
default being referred to herein as a "Covenant Default"), and the Company and
the Trustee receive written notice (such notice being herein referred to as a
"Deferral Notice") thereof from the holders of at least 10% in principal amount
of Senior Indebtedness, then no direct or indirect payment or distribution
(other than payments or distributions of amounts previously deposited in
accordance with the defeasance provisions of the Indenture) shall be made by or
on behalf of the Company on account or in respect of principal of or premium,
if any, or interest on the Notes or on account of the purchase, redemption or
other acquisition or deposits in trust in respect of defeasance of Notes
(including without limitation any purchase of a Note required as a result of a
Change in Control) until the earlier to occur of (x) the date such Covenant
Default is cured, effectively waived in writing by the holders of such Senior
Indebtedness or otherwise ceases to exist in accordance with the terms of the
instruments or agreements creating or evidencing such Senior Indebtedness, (y)
the date the holders of such Senior Indebtedness or their respective
Representatives shall have delivered to the Trustee a written notice of waiver
of the benefits of this sentence, or (z) the 179th day after receipt by the
Company or the Trustee of such Deferral Notice, if in any such case this
Article 3 otherwise permits such payment at such time; provided, however, that
any number of Deferral Notices may be given, but during any 365 consecutive day
period only one such period during which such payments on the Notes may not be
made may commence and the duration of such period may not exceed 179 days, and
provided, further, that no subsequent Deferral Notice relating to the same or
any other Covenant Default existing or continuing on the date of receipt of any
prior Deferral Notice, whether or not such subsequent Deferral Notice is
received by the Company or Trustee within 365 days shall further prohibit such
payments on the Notes unless all events of default in respect of such Senior
Indebtedness shall have been cured or waived after the date of receipt of such
prior Deferral Notice for a period of not less than 180 consecutive days.

The provisions of this Section shall not apply to any payment with
respect to which Section 3.2 would be applicable.

3.4 When Distribution must Be Paid over. In the event that any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be made to the Trustee or any
holder of the Notes that because of this Article 3 should not have been made to
it, the Trustee or such holder who receives such payment or distribution shall
hold it in trust for, and shall immediately pay it over to, the trustee in
bankruptcy or the holders of Senior Indebtedness for application to or to be
held as collateral for the payment of all Senior Indebtedness remaining unpaid
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness. Upon any payment or distribution of assets of the Company
referred to in this Article 3, the Trustee, subject to the provisions of
Section 11.2, and the holders of the Notes shall be entitled to conclusively
rely upon any order or decree made by a court of competent jurisdiction or upon
any certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or the holders of

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<PAGE> 27

the Notes for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distribution thereon and all other facts pertinent thereto or to this
Article 3.

3.5 Subrogation. After all Senior Indebtedness is paid in full and
until the Notes are paid in full, the holders of the Notes shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company made on behalf of such Senior
Indebtedness until the Notes are paid in full. A distribution made under this
Article 3 to holders of Senior Indebtedness which otherwise would have been
made to holders of the Notes, and a payment over to the holders of Senior
Indebtedness by holders of the Notes, is not, as between the Company and the
holders of the Notes and the other creditors of the Company, a payment by the
Company on the Senior Indebtedness.

3.6 Relative Rights. It is understood that the provisions of this
Article 3 are and are intended solely for the purpose of defining the relative
rights of the holders of the Notes, on the one hand, and the holders of Senior
Indebtedness, on the other hand. Nothing contained in this Article 3 or
elsewhere in this Indenture, any supplemental indenture or in the Notes is
intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with
their terms, or to affect the relative rights of the holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein, in any supplemental indenture or in the Notes prevent
the Trustee or the holder of any Note from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 3 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.

3.7 Payments on Notes Permitted. Nothing contained in this
Indenture, any supplemental indenture or in any of the Notes shall (a) affect
the obligation of the Company to make, or prevent the Company from making, at
any time, except as provided in Sections 3.2 and 3.3, payments of principal of
or premium, if any, or interest on the Notes, or (b) prevent the application by
the Trustee of any moneys deposited with it hereunder to the payment of or on
account of the principal of or premium, if any, or interest on the Notes,
unless a Responsible Officer of the Trustee shall have received at its main
office written notice of the existence of any event prohibiting the making of
such payment more than one business day prior to the date of such payment.

3.8 Authorization of Noteholders to Trustee to Effect
Subordination. Each holder of Notes by the acceptance thereof authorizes and
directs the Trustee on behalf of such holder to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 3 and appoints the Trustee the attorney-in-fact of such holder for any
and all such purposes.

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3.9 Notice to Trustee. Notwithstanding the provisions of this
Article 3 or any other provisions of this Indenture, neither the Trustee not
any paying agent (other than the Company) shall be charged with knowledge of
the existence of any Senior Indebtedness or of any event which would prohibit
the making of any payment of moneys to or by the Trustee or such paying agent,
unless and until the Trustee or such paying agent shall have received (in the
case of the Trustee, at its main office) written notice thereof from the
Company or from the holder of any Senior Indebtedness, together with proof
reasonably satisfactory to the Trustee of such holding of Senior Indebtedness;
provided, however, that if at least one business day prior to the date upon
which by the terms hereof any such moneys may become payable for any purpose
(including without limitation, the payment of either the principal of or
premium, if any, or interest on any Note) the Trustee shall not have received
with respect to such moneys the notice provided for in this Section 3.9, then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such moneys and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such one
business day prior to such date. The Trustee shall be entitled to conclusively
rely on the delivery to it of a written notice by a person representing himself
to be a holder of Senior Indebtedness to establish that such a notice has been
given by a holder of Senior Indebtedness. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
authority or right of any person as a holder of Senior Indebtedness to deliver
notice or participate in any payment or distribution pursuant to this Article
3, then the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the authority of such person, the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the authority or rights of such person under this Article 3
and, if such evidence is not furnished, the Trustee may defer any payment to
such person pending judicial determination as to the authority or right of such
person to deliver notice or receive such payment. Upon request of the Trustee,
the Company will provide it with an Officers' Certificate setting forth the
identity of any holder of Senior Indebtedness and the amount of such Senior
Indebtedness and the Trustee shall be fully protected in relying upon such
Officers' Certificate.

The Company shall promptly deliver an Officer's Certificate notifying
the Trustee and each other paying agent of any facts known to the Company that
would cause any payment or distribution with respect to the Notes to violate
this Article 3, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Indebtedness provided in this Article
3.

3.10 Trustee as Holder of Senior Indebtedness. Subject to the
applicable provisions of the TIA, the Trustee shall be entitled to all the
rights set forth in this Article 3 in respect of any Senior Indebtedness at
anytime held by it to the same extent as any other holder of Senior
Indebtedness.

3.11 Modification of Terms of Senior Indebtedness. Any renewal or
extension of the time of payment of any Senior Indebtedness or the exercise by
the holders of Senior Indebtedness of any of their rights under any instrument
creating or evidencing Senior Indebtedness, including without

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limitation the waiver of default thereunder, may be made or done all without
notice to or assent from the holders of the Notes or the Trustee.

No compromise, alteration, amendment, supplement, modification,
restructuring, extension, renewal or other change of, and no waiver, consent,
release or other disposition of collateral or other security, or other action
or inaction in respect of, any liability or obligation under or in respect of
any Senior Indebtedness, or of any of the terms, covenants or conditions of any
indenture or other instrument or agreement under which any Senior Indebtedness
is outstanding, whether or not such action or inaction is in accordance with
the provisions of any applicable document, shall in any way alter or affect any
of the provisions of this Article 3 or of the Notes relating to the
subordination thereof.

The provisions of this Article 3 shall be effective or be
automatically reinstated, as the case may be, if at any time any payment of any
Senior Indebtedness is rescinded or must otherwise be returned by any holders
of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment had not been made.

3.12 Trustee Not Fiduciary for Senior Indebtedness. With respect to
the holders of Senior Indebtedness, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set
forth in this Article 3, and no implicit covenants or obligations with respect
to the holders of Senior Indebtedness shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holder if it
shall pay over or distribute in good faith to or on behalf of holders of Notes
or the Company moneys or assets to which any holder of Senior Indebtedness
shall be entitled by virtue of this Article 3 or otherwise, except if such
payment or distribution is made as a result of the gross negligence or willful
misconduct of the Trustee.

3.13 Subordination May Not Be Impaired by Company. No right of any
holder of Senior Indebtedness to enforce the subordination of the indebtedness
evidenced by the Notes shall be impaired by any act or failure to act of the
Company or by its failure to comply with this Indenture.

ARTICLE 4

PARTICULAR COVENANTS OF THE COMPANY

The Company covenants as follows:

4.1 Payment of Principal of and Premium, If Any, and Interest on
Notes. The Company will duly and punctually pay or cause to be paid the
principal of and premium, if any, and interest on each of the Notes at the time
and place and in the manner provided in the Notes and this Indenture.

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4.2 Maintenance of Office or Agency for Registration of Transfer,
Exchange and Payment of Notes. So long as any of the Notes shall remain
outstanding, the Company will maintain an office or agency, where the Notes may
be surrendered for exchange or registration of transfer as in this Indenture
provided, and where notices and demands to or upon the Company in respect to
the Notes may be served, and where the Notes may be presented or surrendered
for payment. The Company may also from time to time designate one or more
other offices or agencies where Notes may be presented or surrendered for any
and all such purposes and may from time to time rescind such designations. The
Company will give to the Trustee notice of the location of any such office or
agency and of any change of location thereof. In case the Company shall fail to
maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof, such surrenders,
presentations and demands may be made and notices may be served at the main
office of the Trustee, and the Company hereby appoints the Trustee its agent to
receive at the aforesaid office all such surrenders, presentations, notices and
demands. The Trustee will give the Company prompt notice of any change in
location of the Trustee's main office.

4.3 Appointment to Fill a Vacancy in the Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 11.9, a Trustee, so
that there shall at all times be a Trustee hereunder.

4.4 Provision as to Paying Agent.

(a) If the Company appoints a paying agent other than the Trustee,
it will cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall undertake, subject to the provisions of
this Section 4.4,

(1) that it will hold all sums held by it as such agent
for the payment of the principal of or premium, if any, or interest on
the Notes whether such sums have been paid to it by the Company (or by
any other obligor on the Notes) in trust for the benefit of the
holders of the Notes and will notify the Trustee of the receipt of
sums to be so held,

(2) that it will give the Trustee notice of any failure
by the Company (or by any other obligor on the Notes) to make any
payment of the principal of or premium, if any, or interest on the
Notes when the same shall be due and payable, and

(3) that it will at any time during the continuance of
any Event of Default specified in Section 8.1, upon the written
request of the Trustee, deliver to the Trustee all sums so held in
trust by it.

(b) If the Company does not act as its own paying agent, it will,
prior to each due date of the principal of or premium, if any, or interest on
any Notes, deposit with such paying agent a sum sufficient to pay the principal
or premium, if any, or interest so becoming due, such sum to be held in trust
for the benefit of the holders of Notes entitled to such principal of or
premium, if any, or

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<PAGE> 31

interest, and (unless such paying agent is the Trustee) the Company will
promptly notify the Trustee of its failure so to act.

(c) If the Company acts as its own paying agent, it will, on or
before each due date of the principal of or premium, if any, or interest on the
Notes, set aside, segregate and hold in trust for the benefit of the persons
entitled thereto, a sum sufficient to pay such principal or premium or interest
so becoming due and will notify the Trustee of any failure to take such action.

(d) Anything in this Section 4.4 to the contrary notwithstanding,
the Company may, for the purpose of obtaining a satisfaction and discharge of
this Indenture in accordance with Article 12 hereof but only if and to the
extent permitted thereby, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it, or any paying agent hereunder, as
required by this Section 4.4, such sums to be held by the Trustee upon the
trusts herein contained.

4.5 Maintenance of Corporate Existence. So long as any of the
Notes shall remain outstanding, the Company will at all times (except as
otherwise provided or permitted in this Section 4.5 or elsewhere in this
Indenture) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and franchises and the corporate
existence and franchises of each Subsidiary; provided that nothing herein shall
require the Company to continue the corporate existence or franchises of any
Subsidiary if in the judgment of the Company it shall be necessary, advisable
or in the interest of the Company to discontinue the same.

4.6 Further Assurance. From time to time whenever reasonably
demanded by the Trustee the Company will make, execute and deliver or cause to
be made, executed and delivered any and all such further and other instruments
and assurances as may be reasonably necessary or proper to carry out the
intention of or to facilitate the performance of the terms of this Indenture or
to secure the rights and remedies hereunder of the holders of the Notes.

4.7 Officers' Certificate as to Default and Statement as to
Compliance. The Company will, so long as any of the Notes are outstanding,

(a) deliver to the Trustee within 105 days after the end of each
fiscal year of the Company, beginning with the fiscal year ending in December,
1996, a brief certificate as to compliance signed by the principal executive
officer, principal financial officer or principal accounting officer of the
Company, stating that:

(1) a review of the activities of the Company during such
year and of the Company's performance under this Indenture and any and
all supplemental indentures has been made under his or her
supervision; and

(2) to the best of such officer's knowledge, based on
such review, the Company has complied with all conditions and
covenants under this Indenture throughout such year,

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or, if there has been a default in the fulfillment of any such
condition or covenant, specifying each such default known to such
officer and the nature and status thereof (determined without regard
to any grace period or requirement of notice); and

(b) deliver to the Trustee within five days after the occurrence
thereof written notice of any event which, with the giving of notice and the
lapse of time, would be an Event of Default within the meaning of Section 8.1.

4.8 Will Pay Indebtedness. The Company will pay or cause to be
paid all Indebtedness of the Company and of each Subsidiary, as and when same
shall become due and payable, and will observe, perform and discharge or cause
to be observed, performed or discharged in accordance with their terms all of
the covenants, conditions and obligations which are imposed on it by any and
all mortgages, indentures and other agreements evidencing or securing
Indebtedness of the Company or any Subsidiary or pursuant to which such
Indebtedness is issued, so as to prevent the occurrence of any act or omission
which is a default thereunder, and which remains uncured or is not waived for a
period of thirty (30) days beyond any applicable notice and/or cure period. The
Company will notify the Trustee of any breach of the covenants contained in
this Section 3.3 within ten (10) days after the Company has knowledge of such
breach.

4.9 Will Keep, and Permit Examination of, Records and Books of
Account and Will Permit Visitation of Property. The Company will (A) keep
proper records and books of account in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and each Subsidiary, and (B) permit or cause to
permit the Trustee, personally or by its agents, accountants and attorneys, to
visit or inspect any of the properties, examine the records and books of
account and discuss the affairs, finances and accounts, of the Company and each
Subsidiary, with the officers of the Company and Subsidiaries at such
reasonable times as may be requested by the Trustee. The Trustee shall be under
no duty to make any such visit, inspection or examination.

The Company covenants that books of record and account will be kept in
which full, true and correct entries will be made of all dealings or
transactions of, or in relation to, the properties, business and affairs of the
Company.

4.10 Maintenance of Properties. The Company will cause all
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in the connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company or any Subsidiary from discontinuing the
operation and maintenance of any such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Company or of the
Subsidiary concerned,

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desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the holders of the Notes.

4.11 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Company or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and the Company shall have set aside on its books adequate reserves
with respect thereto (segregated to the extent required by generally accepted
accounting principles).

4.12 Limitations on Dividends and Other Payments. The Company
will not, and will cause its Subsidiaries not to, directly or indirectly, do
any of the following (each, a "Restricted Payment"): (i) declare or pay any
dividend or other distribution of property or assets in respect of the capital
stock of the Company other than a dividend payable solely in shares of capital
stock of the Company; (ii) repurchase any shares of the Company's capital
stock; (iii) repay or defease any Indebtedness subordinate in right of payment
of interest or principal to the Notes (except so long as the Notes are not in
default, required payments of principal and interest may be made in accordance
with the terms of such subordinated Indebtedness); or (iv) exchange any shares
of capital stock of the Company for newly-issued Indebtedness of the Company or
any of its Subsidiaries. Notwithstanding the foregoing, the Company (and any of
its Subsidiaries) may declare or make a Restricted Payment, if such Restricted
Payment when aggregated with all other Restricted Payments made by the Company
and its Subsidiaries after ______, 1996 is less than the sum of: (A)
$8,500,000, plus (B) fifty percent (50%) of the Company's aggregate
Consolidated Net Income earned in each fiscal quarter during the period
commencing on October 7, 1996 and ending on the last day of the fiscal quarter
immediately preceding such Restricted Payment, (or minus 100% of the Company's
aggregate Consolidated Net Loss (if any) incurred in each fiscal quarter during
the period commencing on October 7, 1996 and ending on the last day of the
fiscal quarter immediately preceding such Restricted Payment), plus (C) the
aggregate net proceeds (including the Fair Market Value of non-cash proceeds)
received by the Company from public or private offerings of Equity Securities
after the date of this Indenture (including the issuance of Equity Securities
upon the conversion of convertible Indebtedness or upon the exercise of
options, warrants or rights to acquire Equity Securities) to any person other
than a Subsidiary; provided that, notwithstanding the foregoing, the Company
will not, and will cause its Subsidiaries not to, make any Restricted Payment
if the making of the Restricted Payment would cause the Company or any of its
Subsidiaries not to be in compliance with the terms, conditions and provisions
of the Indenture or any indenture or loan agreement to which the Company or any
of its Subsidiaries is a party.

4.13 Limitation on Other Senior Subordinated Indebtedness. The
Company will not, and will cause its Subsidiaries not to, incur, create,
assume, guarantee or in any other manner become

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directly or indirectly liable with respect to or responsible for, any
Indebtedness, other than the Notes, that (i) is expressly by its terms
subordinate or junior in right of payment to any Senior Indebtedness and (ii)
does not expressly provide by its terms that it is subordinate or junior in
right of payment to the Notes.

4.14 Restrictions on Additional Indebtedness. The Company will not,
and will cause its Subsidiaries not to, incur, create, assume, guarantee or in
any other manner become directly or indirectly liable with respect to or
responsible for, any Indebtedness if, at the time of such incurrence, and after
giving pro forma effect thereto, the total Indebtedness of the Company and its
Subsidiaries, including the Notes, would exceed seventy percent (70%) of the
Company's Total Consolidated Capitalization.

4.15 Minimum Consolidated Net Worth. The Company will not permit
its Consolidated Net Worth on the last day of any fiscal quarter to be less
than the sum of (i) $75,000,000, plus (ii) fifty percent (50%) of the Company's
cumulative Consolidated Net Income since October 6, 1996.

ARTICLE 5

NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE

5.1 Noteholder Lists, Etc.

(a) The Company will furnish or cause to be furnished to the
Trustee, monthly, not more than fifteen (15) days after each Regular Record
Date for any series a list, in such form as the Trustee may reasonably require,
of the names and addresses of the holders of Notes of such series as of such
Regular Record Date, and at such other times, as the Trustee may request in
writing, within thirty (30) days after receipt by the Company of any such
request, a list of similar form and content as of a date not more than fifteen
(15) days prior to the time such list is furnished; provided, however, that so
long as the Trustee is the sole Note Registrar, no such list shall be required
to be furnished.

(b) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the holders of Notes
received by the Trustee in its capacity as Note Registrar contained in the most
recent list furnished to it as provided in subsection (a) of this Section 5.1.
The Trustee may destroy any list furnished to it as provided in subsection (a)
of this Section 5.1, upon receipt of a new list so furnished.

(c) In case three (3) or more holders of Notes of any series
(hereinafter called "Applicants") apply in writing to the Trustee, and furnish
to the Trustee reasonable proof that each such Applicant has owned a Note for a
period of at least six (6) months preceding the date of such application, and
such application states that the Applicants desire to communicate with other
holders of Notes of such series with respect to their rights under this
Indenture, any supplemental indenture or under the Notes, and is accompanied by
a copy of the form of proxy or other communication

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<PAGE> 35

which such Applicants propose to transmit, then the Trustee shall, within five
(5) business days after the receipt of such application, at its election,
either

(1) afford to such Applicants access to the information
preserved at the time by the Trustee in accordance with the provisions
of subsection (b) of this Section 5.1; or

(2) inform such Applicants as to the approximate number
of holders of Notes whose names and addresses appear in the
information preserved at the time by the Trustee, in accordance with
the provisions of subsection (b) of this Section 5.1, and as to the
approximate cost of mailing to such Noteholders the form of proxy or
other communication, if any, specified in such application.

If the Trustee shall elect not to afford to such Applicants access to
such information, the Trustee shall, upon the written request of such
Applicants, mail to each Noteholder whose name and address appears in
the information preserved at the time by the Trustee in accordance
with the provisions of subsection (b) of this Section 5.1, a copy of
the form of proxy or other communication which is specified in such
request, with reasonable promptness after a tender to the Trustee of
the material to be mailed and of payment or provision for the payment
of the reasonable expenses of mailing, unless within five (5) days
after such tender the Trustee shall mail to such Applicants and file
with the Commission together with a copy of the material to be mailed,
a written statement to the effect that, in the opinion of the Trustee,
such mailing would be contrary to the best interests of the holders of
Notes, or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion. If the Commission,
after opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to sustain
any of such objections or if, after the entry of an order sustaining
one (1) or more of such objections, the Commission shall find, after
notice and opportunity for a hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the
Trustee shall mail copies of such material to all such Noteholders
with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such Applicants respecting their application.

(d) Every holder of the Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee, nor any paying agent shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the holders
of Notes in accordance with the provisions of subsection (c) of this Section
5.1, regardless of the source from which such information was derived, and that
the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under said subsection (c).

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5.2 Reports by Company. The Company covenants and agrees:

(a) To file with the Trustee within fifteen (15) days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Company is not required to file information, documents, or reports
pursuant to either of such Sections, then the Company will file with the
Trustee and the Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents, and reports which may be required pursuant to Section
13 of the Exchange Act in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to time in such
rules and regulations;

(b) To file with the Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants provided for in this Indenture
as may be required from time to time by such rules and regulations;

(c) To transmit to the holders of the Notes, in the manner and to
the extent provided in subsection (c) Section 313 of the TIA, such summaries of
any information, documents, and reports required to be filed by the Company
pursuant to subsection (a) or subsection (b) as may be required by the rules
and regulations promulgated by the Commission; and

(d) To furnish to the Trustee with or as a part of each annual
report and each other document or report filed with the Trustee pursuant to
subsection (a), (b) or (c) of this Section 5.2, an Officers' Certificate
stating that in the opinion of each of the signers such annual report or other
document or report complies with the requirements of such subsection (a), (b)
or (c).

Each certificate furnished to the Trustee pursuant to the provisions
of this Section 5.2 shall conform to the requirements of Section 16.3 hereof.

5.3 Reports by Trustee. The Trustee shall as provided in TIA
Section 313(c), if required thereunder, transmit within sixty (60) days after
January 1, 1997 and each January 1 thereafter, a brief report if required
pursuant to TIA Section 313(a) to the Noteholders of any series of Notes then
outstanding. A copy of each such report shall, at the time of such transmission
to the Noteholders, be filed by the Trustee with each stock exchange upon which
the Notes are listed and also with the Commission. The Company will notify the
Trustee if any Notes are listed.

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ARTICLE 6

REDEMPTION OF NOTES AT COMPANY'S OPTION

6.1 Election by Company to Redeem Notes. The Notes of any series
shall be redeemable at any time prior to the Stated Maturity thereof, upon
notice as provided in this Article 6, as a whole at any time, or in part from
time to time (but only in principal amounts of $1,000 or any integral multiple
thereof), at the option of the Company, commencing on the date or dates set
forth in the applicable supplemental indenture for each series of Notes, on not
less than 30 nor more than 60 days' notice given as provided in the Indenture
or any applicable supplemental indenture upon payment of the then applicable
redemption price (expressed in percentages of the principal amount) set forth
in the applicable supplemental indenture, together in each case with accrued
and unpaid interest to the date fixed for redemption, all subject to the
conditions more fully set forth in the applicable supplemental indenture.

The election of the Company to redeem any Notes shall be evidenced by
an Officer's Certificate. Whenever any of the Notes outstanding are to be
redeemed pursuant to this Section 6.1, the Company shall give the Trustee at
least sixty (60) days' written notice (or such shorter period of time as is
acceptable to the Trustee) prior to the Redemption Date of such Redemption Date
and of the principal amount of Notes to be redeemed.

6.2 Redemption of Part of Notes. In case of the redemption of less
than all of the outstanding Notes of any series, the Notes to be redeemed shall
be selected by the Trustee by lot or any other method deemed reasonable by the
Trustee, not more than sixty (60) days prior to the Redemption Date, from the
outstanding Notes not previously called for redemption, which method may
provide for the selection for redemption of portions (equal to $1,000 or any
integral multiple thereof) of the principal amount of such series of Notes of a
principal amount larger than $1,000.

In the case of any partial redemption, the Trustee shall promptly
notify the Company in writing of the serial numbers (and, in the case of any
Note which is to be redeemed in part only, the portion of the principal amount
thereof to be redeemed) of the Notes selected for redemption.

For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part, to the portion of
the principal of such Note which has been or is to be redeemed.

6.3 Notice of Redemption. Notice of redemption shall be given by
first-class mail, postage prepaid, mailed not less than thirty (30) nor more
than sixty (60) days prior to the Redemption Date, to each holder of Notes to
be redeemed, at his last address appearing in the Note Register.

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All notices of redemption shall state:

(a) The Redemption Date;

(b) The redemption price plus accrued interest, if any;

(c) If less than all outstanding Notes of any series are
to be redeemed, the serial numbers (and, in the case of any Note which
is to be redeemed in part only, the portion of the principal amount
thereof to be redeemed) of the Notes to be redeemed;

(d) That on the Redemption Date the redemption price of
each of the Notes to be redeemed will become due and payable, and that
interest thereon shall cease to accrue from and after said date; and

(e) The place where such Notes are to be surrendered for
payment of the redemption price, which shall be the office or agency
of the Company in the place of payment.

Notice of redemption of Notes to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.

Failure to give notice of redemption, or any defect therein, to any
holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.

6.4 Deposit of Redemption Price. On or before 10:00 a.m. on any
Redemption Date, the Company shall deposit with the Trustee or with a paying
agent (or, if the Company is acting as its own paying agent, segregate and hold
in trust as provided in Section 4.4(c) hereof) an amount of money sufficient to
pay the redemption price of all principal of, and (unless such Redemption Date
is an Interest Payment Date) accrued interest on, the Notes which are to be
redeemed on that date.

6.5 Date on Which Notes Cease to Bear Interest, Etc. Notice of
redemption having been given as aforesaid, the Notes so to be redeemed shall,
on the Redemption Date, become due and payable at the redemption price therein
specified and from and after such date (unless the Company shall default in the
payment of the redemption price) such Notes shall cease to bear interest. Upon
surrender of any such Note for redemption in accordance with said notice, such
Note shall be paid by the Company at the redemption price together with accrued
interest thereon to the Redemption Date; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Redemption Date shall
be payable to the holders of such Notes, or one or more predecessor Notes,
registered as such on the relevant Regular Record Dates according to the terms
and provisions of Section 2.3 hereof.

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If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal, and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate borne by the Note.

Any Note which is to be redeemed only in part shall be surrendered at
the office or agency designated pursuant to Section 4.2 hereof (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the holder thereof or his attorney duly authorized in writing) and the
Company shall execute and the Trustee shall authenticate and deliver to the
holder of such Note, without service charge, a new Note or Notes of such series
of any authorized denomination or denominations as requested by such holder in
an aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered.

6.6 All Notes Delivered. All Notes redeemed pursuant to Section
6.1 hereof shall be canceled and destroyed by the Trustee in accordance with
its standard procedures, and the Trustee shall deliver its certificate of
destruction thereof to the Company.

ARTICLE 7

REDEMPTION OF NOTES AT HOLDER'S OPTION

7.1 Redemption Right at Holder's Option.

(a) Unless pursuant to the terms of Section 8.1 the Notes have
been declared due and payable prior to their maturity by reason of an Event of
Default and such Event of Default has not been waived and such declaration has
not been rescinded or annulled, a holder has the right to present Notes for
payment prior to their maturity, and the Company will redeem the same (or any
portion of the principal amount thereof which is $1,000 or an integral multiple
thereof, as the holder may specify) subject to the following limitations: (1)
the Company will have no obligation to redeem any Notes prior to December 1,
1999, except on the death of a holder as described in Section 7.1(b) below and
(2) the Company will have no obligation to redeem Notes (on the death of a
holder or otherwise pursuant to this Section 7.1) in excess of the following
annual maximum amounts (collectively, the "Annual Amount Limitations") of (A)
$50,000 per holder and (B) an aggregate amount for all Notes submitted for
redemption equal to five percent (5%) of the aggregate original principal
amount of the Notes of all series theretofore issued under the Indenture (the
"Five Percent Limitation"). Notes submitted for redemption pursuant to this
Section 7.1, except for Notes submitted for redemption following the death of a
holder, must be submitted by November 1 of any year, commencing on November 1,
1999, for redemption on the following December 1. If the $50,000 per holder
limitation has been reached and the Five Percent Limitation has not been
reached, if Notes have been properly presented for payment, each in an
aggregate principal amount exceeding $50,000, the Company will redeem such
Notes in order of their receipt (except Notes presented for

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<PAGE> 40

payment in the event of death of a holder, which will be given priority in
order of their receipt), up to the aggregate limitation of five percent (5%) of
the aggregate principal amount of the Notes of all series issued under this
Indenture, notwithstanding the $50,000 limitation.

(b) Subject to the Annual Amount Limitations (and unless the Notes
have been declared due and payable prior to their maturity by reason of an
Event of Default and such Event of Default has not been waived and such
declaration has not been rescinded or annulled), Notes submitted for redemption
upon the death of any holder (or any portion of the principal amount of such
Notes which is $1,000 or an integral multiple thereof, as the holder may
specify), will be redeemed within sixty (60) days following receipt by the
Trustee of a written request therefor from such holder's personal
representative, or surviving joint tenant(s), tenant by the entirety or
tenant(s) in common.

7.2 Redemption Procedure. Notes presented for redemption pursuant
to Section 7.1(a) or (b) will be redeemed in order of their receipt by the
Trustee, except that Notes presented for payment in the event of death of a
holder pursuant to Section 7.1(b), will be given priority in order of their
receipt, over other Notes. Notes not redeemed in any such period because they
have not been presented prior to November 1 of that period or because of the
Annual Amount Limitations will be held in order of their receipt for redemption
during the following twelve (12) month period(s) until redeemed, unless sooner
withdrawn by the holder. Holders of Notes presented for redemption shall be
entitled to and shall receive scheduled monthly payments of interest thereon on
scheduled Interest Payment Dates until their Notes are redeemed. In the event
that a holder or his or her duly authorized representative notifies the Trustee
of such person's desire to redeem all or any portion of the Notes pursuant to
Section 7.1 of the Indenture, the Trustee shall furnish such person with the
form set forth in Exhibit A hereto (for redemptions pursuant to Section 7.1(a)
of the Indenture) or Exhibit B hereto (for redemptions pursuant to Section
7.1(b) of the Indenture).

Notes may be presented for redemption by delivering to the Trustee by
registered mail at its main office: (A) a written request for redemption, in
the form provided by the Trustee upon written request, signed by the registered
holder(s) or his or her duly authorized representative, (B) the Note to be
redeemed, free and clear of any liens or encumbrances of any kind, and (C) in
the case of a request made pursuant to Section 7.1(b), appropriate evidence of
such death and, if made by a representative of a deceased holder, appropriate
evidence of authority to make such request. The price to be paid by the Company
for all Notes or portions thereof presented to it pursuant to the provisions
described in this Section 7.1 is 100% of the principal amount thereof to be
redeemed, plus accrued but unpaid interest on such principal amount to the date
of payment. Any acquisition of Notes by the Company other than by redemption at
the option of any holder pursuant to Section 7.1 shall not be included in the
computation of Annual Amount Limitations for any period.

For purposes of Section 7.1(a) and (b) and this Section 7.2, (i) a Note
held in tenancy by the entirety, joint tenancy or tenancy in common will be
deemed to be held by a single holder, (ii) the death of a tenant by the
entirety, joint tenant or tenant in common will be deemed the death of a
holder, (iii) a person who is entitled to substantially all of the beneficial
interests of ownership of a Note will be deemed to be the holder and (iv) the
death of such person will be deemed to be the death of the holder, regardless
of the registered holder. For

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<PAGE> 41

purposes of a holder's request for redemption and a request for redemption on
behalf of a deceased holder, such beneficial interest shall be deemed to exist
if the holder certifies street name or nominee ownership, ownership under the
Uniform Gifts to Minors Act, community property or other joint ownership
arrangements between a husband and wife (including individual retirement
accounts or Keogh [H.R. 10] plans maintained solely by or for the holder or
decedent, or by or for the holder or decedent and his or her spouse), and
trusts and certain other arrangements where a person has substantially all of
the power to sell, transfer or otherwise dispose of a Note and the right to
receive the proceeds therefrom, as well as interest and principal payable with
respect thereto. The Trustee or the Company may request such information as
either of them deems reasonably necessary to determine whether any given
request for redemption satisfies the conditions of the Indenture and any
applicable supplemental indenture. However, the Trustee shall be entitled to
rely upon a written request for redemption in proper form executed by a holder
and an Officers' Certificate authorizing the requested redemption.

In the case of Notes registered in the names of banks, trust companies
or broker-dealers who are members of a national securities exchange or the
National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the $50,000 limitation shall apply to each beneficial owner of Notes held by a
Qualified Institution and the death of such beneficial owner shall entitle a
Qualified Institution to seek redemption of such Notes as if the deceased
beneficial owner were the record holder. Such Qualified Institution, in its
request for redemption on behalf of such beneficial owners, must certify that
the aggregate amount of requests for redemption tendered by such Qualified
Institution on behalf of each beneficial owner in the initial period or in any
subsequent twelve (12) month period does not exceed $50,000.

Whenever any of the Notes outstanding are to be redeemed pursuant to
Section 7.1, the Company's approval of a holder's redemption notice shall be
evidenced by an Officer's Certificate and the Company shall give the Trustee at
least three (3) business days' written notice (or such shorter period of time
as is acceptable to the Trustee) prior to the Redemption Date of such
Redemption Date and of the principal amount of Notes to be redeemed.

Nothing herein shall prohibit the Company from redeeming, in
acceptance of tenders made pursuant hereto, Notes in excess of the principal
amount that the Company is obligated to redeem, nor from purchasing any Notes
in the open market. However, the Company may not use any Notes purchased in the
open market as a credit against its redemption obligations hereunder.

7.3 Withdrawal. Any Notes presented for redemption at the option
of the holder may be withdrawn by the person(s) presenting the same upon
delivery of a written request for such

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withdrawal to the Trustee at least three (3) business days prior to the
issuance of a check in payment thereof.

7.4 Redemption Register. The Trustee shall maintain at its main
office a register (the "Redemption Register") in which it shall record, in
order of receipt, all requests for redemption received by the Trustee under
Section 7.2. Unless withdrawn, all such requests shall remain in effect during
the period in which they are received and thereafter from period to period,
until the Notes which are the subject of such request have been redeemed.

7.5 Deposit of Redemption Price. On or before 10:00 a.m. on any
Redemption Date, the Company shall deposit with the Trustee or with a paying
agent (or, if the Company is acting as its own paying agent, segregate and hold
in trust as provided in Section 4.4(c) hereof) an amount of money sufficient to
pay the redemption price of all principal of, and (unless such Redemption Date
is an Interest Payment Date) accrued interest on, the Notes which are to be
redeemed on that date.

7.6 Purchase of Notes at Option of the Holder Upon Change in
Control.
(a) If on or prior to maturity, there shall have occurred a Change
in Control, each holder shall have the right to cause the Company to purchase
all or a portion of the Notes of such holder on the date that is 35 business
days after the occurrence of the Change of Control (the "Change in Control
Purchase Date"), for a purchase price equal to the outstanding principal amount
thereof plus accrued interest thereon to the Change in Control Purchase Date
(the "Change in Control Purchase Price") subject to Article 3 and satisfaction
by or on behalf of the holder of the requirements set forth in Section 7.6(c)
below.

A "Change in Control" shall be deemed to have occurred at such time as
either of the following events shall occur:

(i) The Company consolidates with or merges into another
corporation, or conveys, transfers or leases all or substantially all
of its assets to any person, or any other corporation merges into the
Company, other than, in any case, a transaction in which the
shareholders of the Company immediately prior to such transaction
owned, directly or indirectly, immediately following such transaction,
at least 50% of the combined voting power of the outstanding Voting
Stock of the corporation resulting from such transaction in
substantially the same proportion as their ownership of the Voting
Stock of the Company immediately prior to such transaction; or

(ii) There is a report filed by any person, including its
Affiliates and Associates (as defined herein), other than the Company
or its Subsidiaries or employee stock ownership plans or employee
benefit plans of the Company or its Subsidiaries, on Schedule 13D or
14D-1 (or any successor schedule, form or report) pursuant to the
Exchange Act, disclosing that such person (for the purposes of this
Section 7.6 only, the term "person" shall include a "person" within
the meaning of Sections 13(d)(3) and 13(d)(5) or Section 14(d)(2) of
the

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Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 under the Exchange Act) of more
than 50% of the voting power of the Company's Voting Stock then
outstanding; provided, however, that a person shall not be deemed the
beneficial owner of, or to own beneficially, (A) any securities
tendered pursuant to a tender or exchange offer made by or on behalf
of such person or any of such person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1)
arises solely as a result of a revocable proxy delivered in response
to a proxy or consent solicitation made pursuant to, and in accordance
with, the applicable rules and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule 13D (or any successor
schedule, form or report) under the Exchange Act.

"Voting Stock" means, with respect to any person, the capital stock of
such person having general voting power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of such
person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).

"Associate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect on
the date hereof.

(b) Within 15 business days after the occurrence of a Change in
Control, the Company shall mail a written notice of Change in Control by
first-class mail to the Trustee and to each holder (and to beneficial owners as
required by applicable law) and shall cause a copy of such notice to be
published once in The Wall Street Journal or another daily newspaper of
national circulation. The notice shall be accompanied by a form of Change in
Control Purchase Notice to be completed by the holder and shall state:

(1) the events causing a Change in Control and the date
of such Change in Control;

(2) the date by which the Change in Control Purchase
Notice pursuant to this Section 7.6 must be given;

(3) the Change in Control Purchase Date;

(4) the Change in Control Purchase Price;

(5) the name and address of the Trustee and the office or
agency referred to in Section 4.2;

(6) that the Notes must be surrendered to the Trustee or
the office or agency referred to in Section 4.2 to collect payment;

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<PAGE> 44

(7) that the Change in Control Purchase Price for any
Note as to which a Change in Control Purchase Notice has been duly
given and not withdrawn will be paid promptly following the later of
the Change in Control Purchase Date and the time of surrender of such
Note described as in (6);

(8) the procedures the holder must follow to exercise
rights under this Section 7.6 and a brief description of those rights;
and

(9) the procedures for withdrawing a Change in Control
Purchase Notice.

(c) A holder may exercise its rights specified in Section 7.6 upon
delivery of a written notice of purchase (a "Change in Control Purchase
Notice") to the Trustee or to the office or agency referred to in Section 4.2
at any time prior to the close of business on the business day immediately
prior to the Change in Control Purchase Date, stating:

(1) the certificate number of the Note which the holder
will deliver to be purchased;

(2) the portion of the principal amount of the Note which
the holder will deliver to be purchased, which portion must be $1,000
or an integral multiple thereof; and

(3) that such Note will be submitted for purchase on the
Change in Control Purchase Date pursuant to the terms and conditions
specified in the Notes or in any applicable supplemental indenture.

The delivery of the Note, by hand or by registered mail prior to, on
or after the Change in Control Purchase Date (together with all necessary
endorsements), to the Trustee or to the office or agency referred to in Section
4.2 shall be a condition to the receipt by the holder of the Change in Control
Purchase Price therefor; provided, however, that such Change in Control
Purchase Price shall be so paid pursuant to this Section 7.6 only if the Note
so delivered to the Trustee or such office or agency shall conform in all
respects to the description thereof set forth in the related Change in Control
Purchase Notice.

The Company shall purchase from the holder thereof, pursuant to this
Section 7.6, a portion of a Note if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Note also apply to the purchase of such
portion of such Note.

Any purchase by the Company contemplated pursuant to the provisions of
this Section 7.6 shall be consummated by the delivery of the consideration to
be received by the holder promptly following the later of the Change in Control
Purchase Date and the time of delivery of the Note.

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<PAGE> 45

(d) Effect of Change in Control Purchase Notice. Upon
receipt by the Company of the Change in Control Purchase Notice
specified in Section 7.6(c), the holder of the Note in respect to
which such Change in Control Purchase Notice was given shall (unless
such Change in Control Purchase Notice is withdrawn as specified in
the following paragraph) thereafter be entitled to receive solely the
Change in Control Purchase Price with respect to such Note. Such
Change in Control Purchase Price shall be due and payable as of the
Change in Control Purchase Date and shall be paid to such holder
promptly following the later of (x) the Change in Control Purchase
Date (provided the conditions of Section 7.6(c), as applicable, have
been satisfied) and (y) the time of delivery of such Note to the
Trustee or to the office or agency referred to in Section 4.2 by the
holder thereof in the manner required by Section 7.6(c).

A Change in Control Purchase Notice may be withdrawn by means of a
written notice of withdrawal delivered to the main office of the Trustee or to
the office or agency referred to in Section 4.2 at any time before the close of
business on the business day immediately preceding the Change in Control
Purchase Date, specifying:

(1) the certificate number of the Note or Notes in
respect of which such notice of withdrawal is being submitted;

(2) the principal amount of the Note or Notes with
respect to which such notice of withdrawal is being submitted; and

(3) the principal amount, if any, of such Note or Notes
which remains subject to the original Change in Control Purchase
Notice, and which has been or will be delivered for purchase by the
Company.

There shall be no purchase of any Notes pursuant to Section 7.6 if
there has occurred (prior to, on or after, as the case may be, the giving, by
the holders of such Notes, of the required Change in Control Purchase Notice)
and is continuing an Event of Default (other than a default in the payment of
the Change in Control Purchase Price with respect to such Notes).

(e) Deposit of Change in Control Purchase Price. On or prior to
10:00 a.m. on the Change in Control Purchase Date, the Company shall deposit
with the Trustee (or, if the Company or a Subsidiary or an Affiliate of either
of them is acting as paying agent, segregate and hold in trust as provided in
Section 4.4(c)) an amount of cash in immediately available funds, if expressly
permitted hereunder, sufficient to pay the aggregate Change in Control Purchase
Price, of all the Notes or portions thereof which are to be purchased.

(f) Covenant to comply with securities laws upon purchase of
Notes. In connection with any purchase of Notes under this Section 7.6 hereof,
the Company shall make all filings required under and comply with all Federal
and State securities laws regulating the purchase of the Notes so as to permit
the rights and obligations under this Section 7.6 to be exercised in the time
and in the manner specified in this Section 7.6.

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<PAGE> 46

(g) Repayment to the Company. Subject to Section 16.2, the Trustee
shall return to the Company any cash, together with interest or dividends, if
any, thereon (subject to the provisions of Section 11.6) held by it for the
payment of the Change in Control Purchase Price of the Notes, which remains
unclaimed; provided, however, that to the extent that the aggregate amount of
cash deposited by the Company pursuant to Section 7.5(e) exceeds the aggregate
Change in Control Purchase Price of the Notes or portions thereof to be
purchased, then promptly after the Change in Control Purchase Date the Trustee
shall return any such excess to the Company together with interest or
dividends, if any, thereon (subject to the provisions of Section 11.6).

7.7 Redemption of Notes Subject to Article 6. In the case of any
Notes or portion thereof which are presented for redemption pursuant to this
Article 7 and which have not been redeemed at the time the Company gives notice
of its election to redeem Notes pursuant to Article 6, such Notes or portion
thereof shall first be subject to redemption pursuant to Article 6 and if any
such Notes or portion thereof are not redeemed pursuant to Article 6 they shall
remain subject to redemption pursuant to Article 7.

ARTICLE 8

REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT

8.1 Events of Default Defined. In case one or more of the
following Events of Default shall have occurred and be continuing:

(a) default in the payment, whether or not prohibited by
the provisions of Article 3, of any installment of interest upon any
of the Notes as and when the same shall become due and payable and
continuance of such default for a period of 30 days; or

(b) default in the payment, whether or not prohibited by
the provisions of Article 3, of the principal of and premium, if any,
on any of the Notes as and when the same shall become due and payable
either at maturity, upon redemption or purchase by the Company by
declaration or otherwise; or

(c) failure on the part of the Company duly to observe or
perform in any material respect any other of the covenants or
agreements on the part of the Company in the Notes or in this
Indenture contained for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given (i) to the Company by the Trustee by registered
or certified mail, which the Trustee shall do upon receipt of requests
to do so by the holders of at least 25% in principal amount of the
Notes at the time outstanding, or (ii) to the Company and the Trustee
by the holders of at least 25% in principal amount of the Notes at the
time outstanding; or

(d) an event or events of default as defined in any
mortgage, bond, indenture, loan agreement or other evidence of
Indebtedness under which there may be issued or by which

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<PAGE> 47

there may be secured or evidenced any outstanding Indebtedness of the
Company or any Subsidiary in excess of $1,000,000 in the aggregate,
which default or defaults extend beyond any period of grace provided
with respect thereto and which default or defaults relate to (i) the
obligation to pay the principal of or interest on any such
Indebtedness, in either case, at the final maturity date set forth in
the agreement under which such Indebtedness is issued or (ii) any
other obligation which shall have resulted in the holders of such
Indebtedness causing such Indebtedness to become or to be declared due
and payable prior to the date on which it would otherwise become due
and payable; or

(e) the entry of a final non-appealable judgment for the
payment of money against the Company or any of its Subsidiaries by a
court having competent jurisdiction which results in a liability
(after provision for the proceeds of any policy of insurance with
respect to such liability) in excess of $5,000,000, which remains
unpaid for a period of 60 days; or

(f) a court having jurisdiction in the premises shall
have entered a decree or order for relief in respect of the Company in
an involuntary case under any applicable bankruptcy, insolvency or
other law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or for all or any substantial part of its
property, or ordering the winding-up or liquidation of its affairs,
and such decree or order shall have remained unstayed and in effect
for a period of 90 consecutive days; or

(g) the Company shall have commenced a voluntary case
under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or shall have consented to the entry of an
order for relief in an involuntary case under any such law, or shall
have consented to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
similar official) of the Company or for all or any substantial part of
its property, or shall have made an assignment for the benefit of
creditors, or shall have failed generally to pay its debts as they
become due or shall have taken any corporate action in furtherance of
any of the foregoing;

then and in each and every such case, unless the principal of all the Notes
shall have already become due and payable, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Notes then outstanding
hereunder, by notice in writing to the Company (and to the Trustee if given by
Noteholders), may, and the Trustee shall if requested to do so by the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding hereunder, declare to be due and payable immediately the entire
amount of principal of and premium, if any, and interest owing and unpaid in
respect of the Notes. Upon any such declaration the same shall become and shall
be immediately due and payable, anything contained in this Indenture, any
supplemental indenture or in the Notes to the contrary notwithstanding. This
provision, however, is subject to the condition that if, at any time after such
principal amount of the Notes shall have been so declared due and payable, and
before any judgment or decree for the payment of the moneys due shall have been

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<PAGE> 48

obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all the Notes and the principal of and premium, if any, on any
and all Notes which shall have become due otherwise than by declaration (with
interest on overdue installments of interest to the extent permitted by law,
and on such principal and premium, if any, at the rate of interest borne by the
Notes to the date of such payment or deposit) and the expenses of the Trustee,
and any and all defaults under the Indenture, other than the nonpayment of
principal of and premium, if any, and accrued interest on Notes which shall
have become due by declaration, shall have been remedied, then and in every
such case the holders of a majority in aggregate principal amount of the Notes
then outstanding by written notice to the Company and to the Trustee as
provided in Section 16.4, may waive all defaults and rescind and annul such
declaration and its consequences; but no such waiver or rescission and
annulment shall extend to or shall affect any subsequent default or shall
impair any right consequent thereon.

In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Notes shall be restored
respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company and the Trustee shall continue as though no
such proceedings had been taken.

8.2 Payment of Notes on Default; Suit Therefor. The Company
covenants that (1) in case default shall be made in the payment of any
installment of interest on any of the Notes as and when the same shall become
due and payable and such default shall have continued for a period of 30 days,
or (2) in case default shall be made in the payment of the principal of and
premium, if any, on any of the Notes when the same shall have become due and
payable, whether upon maturity of the Notes or upon redemption or purchase by
the Company pursuant to Article 6 or upon declaration or otherwise, then, upon
demand of the Trustee, the Company will pay to the Trustee for the benefit of
the holders of the Notes the whole amount that then shall have become due and
payable, on all such Notes for principal of and premium, if any, or interest,
or any or all of them, as the case may be, with interest upon the overdue
principal and installments of interest (to the extent permitted by law) at the
rate of interest borne by the Notes; and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including a reasonable compensation to the Trustee, its agents, attorneys and
counsel, and any expense or liabilities incurred by the Trustee hereunder other
than through its negligence or bad faith.

In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor upon the
Notes, and collect in the manner provided by law out of the property of the
Company or any other obligor upon the Notes wherever situated the moneys
adjudged or decreed to be payable.

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In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor upon the Notes under any
applicable bankruptcy, insolvency or similar law or in case a receiver or
trustee shall have been appointed for the property of the Company or such other
obligor, or in case of any other similar judicial proceedings relative to the
Company or any other obligor upon the Notes, or to creditors or property of the
Company or such other obligor, the Trustee, irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section 8.2, shall be
entitled and empowered by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal of and
premium, if any, and any interest owing and unpaid in respect of the Notes, and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee and of the noteholders allowed in any
judicial proceeding relating to the Company or any other obligor upon the
Notes, its creditors, or its property, and to collect and receive any moneys or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of its charges and expenses; and any receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized by
each of the noteholders to make such payments to the Trustee, and, in the event
that the Trustee shall consent to the making of such payments directly to the
noteholders, to pay to the Trustee any amount due it for compensation and
expenses, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, liabilities and counsel fees out of the estate in any such
proceedings shall be denied for any reason, payment of the same shall be
secured by a lien on, and shall be paid out of, any and all distributions,
dividends, moneys, securities and other property which the holders of the Notes
may be entitled to receive in such proceedings, whether in liquidation or under
any plan of reorganization or arrangement or otherwise.

All rights of action and of asserting claims under this Indenture, any
supplemental indenture or under any of the Notes, may be enforced by the
Trustee without the possession of any of the Notes, or the production thereof
on any trial or other proceeding relative thereto, and any such suit or
proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the reasonable expenses, disbursements and compensation of the
Trustee, its agents and attorneys, shall be for the ratable benefit of the
holders of the Notes.

8.3 Application of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to Section 8.2 shall be applied in the
following order, at the date or dates fixed by the Trustee for the distribution
of such moneys, upon presentation of the several Notes, and stamping thereon
the payment, if only partially paid, and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee pursuant
to Section 11.7;

SECOND: In case no principal of the outstanding Notes shall
have become due and be unpaid, to the payment of interest on the
Notes, in the order of the maturity of the installments of such
interest, with interest upon the overdue installments of interest (so
far

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as permitted by law and to the extent that such interest has been
collected by the Trustee) at the rate of interest borne by the Notes,
such payments to be made ratably to the persons entitled thereto,
without discrimination or preference; in case any principal and
premium, if any, of the outstanding Notes shall have become due, by
declaration or otherwise, to the payment of the whole amount then
owing and unpaid upon the Notes for principal and interest, with
interest on the overdue principal and premium, if any, and
installments of interest (so far as permitted by law and to the extent
that such interest has been collected by the Trustee) at the rate of
interest borne by the Notes; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon
the Notes, then to the payment of such principal and premium, if any,
and interest, without preference or priority of principal and premium,
if any, over interest, or of interest over principal and premium, if
any, or of any installment of interest over any other installments of
interest, ratably to the persons entitled thereto, based on the
aggregate of such principal, premium, if any, and accrued and unpaid
interest; and

THIRD: To the payment of the remainder, if any, to the
Company, its successors or assigns or to whosoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction
may direct.

8.4 Limitation on Suits by Holders of Notes. No holder of any Note
shall have any right by virtue or by availing of any provision of this
Indenture or any supplemental indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as hereinabove
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name
as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 8.6; it being understood and intended, and being expressly covenanted
by the taker and holder of every Note with every other taker and holder and the
Trustee, that no one or more holders of Notes shall have any right in any
manner whatever by virtue or by availing of any provision of this Indenture or
any supplemental indenture to affect, disturb or prejudice the rights of the
holders of any other of such Notes, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes. For the protection and enforcement of
the provisions of this Section 8.4, each and every noteholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.

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8.5 Proceedings by Trustee; Remedies Cumulative and Continuing;
Delay or Omission Not Waiver of Default. In case of a default hereunder the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture
or any supplemental indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture, any supplemental indenture or by law.
All powers and remedies given by this Article 8 to the Trustee or to the
Noteholders shall, to the extent permitted by law, be deemed cumulative and not
exclusive of any thereof or of any other powers and remedies available to the
Trustee or the holders of the Notes, by judicial proceedings or otherwise, to
enforce the performance or observance of the covenants and agreements contained
in this Indenture, and no delay or omission of the Trustee or of any holder of
any of the Notes to exercise any right or power accruing upon any default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 8.4, every power and remedy
given by this Article 8 or by law to the Trustee or to the Noteholders may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or by the Noteholders.

8.6 Rights of Holders of Majority in Principal Amount of Notes to
Direct Trustee and to Waive Defaults. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding shall have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee; provided, however, that subject to the provisions of Section 11.2 the
Trustee shall have the right to decline to follow any such direction if the
Trustee being advised by counsel shall determine that the action so directed
may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or officers of the Trustee, determine that the proceedings
so directed would be illegal or involve it in personal liability or be unjustly
prejudicial to the Noteholders. Prior to the declaration of the maturity of the
Notes as provided in Section 8.1, the holders of a majority in aggregate
principal amount of the Notes at the time outstanding may on behalf of the
holders of all of the Notes waive any past default hereunder and its
consequences, except a default in the payment of interest or premium on, or the
principal of, any of the Notes or default in respect of a covenant or provision
hereof which under Section 14.2 cannot be modified or amended without consent
of the holder of each outstanding Note. In the case of any such waiver, the
Company, the Trustee and the holders of the Notes shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.

8.7 Trustee to Give Notice of Defaults Known to It, but May
Withhold in Certain Circumstances. The Trustee shall, within 90 days after the
occurrence of a default hereunder of which a Responsible Officer of the Trustee
has actual notice, give to the Noteholders, in the manner and to the extent
provided in Section 5.3 with respect to reports pursuant to Section 5.3, notice
of such defaults known to the Trustee unless such defaults shall have been
cured or waived before the giving of such notice (the terms "defaults" for the
purposes of this Section 8.7 being hereby defined

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to be the events specified in clauses (a), (b), (c), (d), (e) and (f) of
Section 8.1, not including any notice or periods of grace provided for in
clauses (a), (c), (d) and (e), respectively, and irrespective of the giving of
notice specified in clauses (c) and (d); provided that, except in the case of
default in the payment of the principal of or premium, if any, or interest on
any of the Notes, the Trustee shall be protected in withholding such notice if
and so long as a Responsible Officer of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Noteholders.

8.8 Requirement of an Undertaking to Pay Costs in Certain Suits
under the Indenture or Against the Trustee. All parties to this Indenture
agree, and each holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made
by such party litigant; but the provisions of this Section 8.8 shall not apply
to any suit instituted by the Trustee, to any suit instituted by any Noteholder
or group of Noteholders, holding in the aggregate more than ten percent in
aggregate principal amount of the Notes outstanding, or to any suit instituted
by any Noteholder for the enforcement of the payment of the principal of or
premium, if any, or interest on any Note, on or after the due date expressed in
such Note.

8.9 Waiver of Stay or Extension Laws. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefits or advantages of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.

ARTICLE 9

EVIDENCE OF RIGHTS OF NOTEHOLDERS
AND OWNERSHIP OF NOTES

9.1 Evidence of Ownership of Definitive Notes and Temporary Notes
Issued Hereunder in Registered Form. Prior to due presentment for registration
of transfer of any Note, the Company, the Trustee, any Note Registrar, or any
agent of the Company or the Trustee may deem and treat the person in whose name
any Note shall be registered at any given time upon the Note Register as the
absolute owner of such Note for the purpose of receiving any payment of, or on
account of, the principal, premium, if any, and interest on such Note and for
all other purposes whether or not such

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Note be overdue; and neither the Company nor the Trustee, nor any agent of the
Company or the Trustee shall be bound by any notice to the contrary. All such
payments made in accordance with the provisions of this Section 9.1 shall be
valid, and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for moneys payable upon any such Note.

ARTICLE 10

CONSOLIDATION, MERGER AND SALE

10.1 Company May Merge, Consolidate, Etc., Upon Certain Terms. The
Company covenants that it will not merge or consolidate with any other
corporation or sell or convey all or substantially all of its assets to any
person, firm or corporation, unless (i) either the Company shall be the
continuing corporation, or the successor corporation (if other than the
Company) shall be a corporation organized under the laws of the United States
of America or any State thereof and shall expressly assume the due and punctual
payment of the principal of and premium, if any, and interest on all the Notes,
according to their tenor, and the due and punctual performance and observance
of all of the covenants and conditions of this Indenture and any applicable
supplemental indenture to be performed by the Company, by supplemental
indenture satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, and (ii) the Company or such successor corporation, as the
case may be, shall not, immediately after such merger or consolidation, or such
sale or conveyance, be in default in the performance of any such covenant or
condition. If at any time there shall be any consolidation or merger or sale
or conveyance of property to which the covenant of this Section 10.01 is
applicable, then in any such event the successor corporation will promptly
deliver to the Trustee in connection with the closing thereon:

(1) an Officers' Certificate stating that as of the time
immediately after the effective date of any such transaction the
covenants of the Company contained in this Section 10.01 have been
complied with and the successor corporation is not in default under
the provisions of the Indenture; and

(2) an Opinion of Counsel stating that in his opinion
such covenants have been complied with and that any instrument or
instruments executed in the performance of such covenants comply with
the requirements thereof.

10.2 Successor Corporation to be Substituted. In case of any such
consolidation, merger, sale or conveyance, and upon any such assumption by the
successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein as the Company, and the Company shall thereupon be released from all
obligations hereunder and under the Notes and the Company as the predecessor
corporation may thereupon or at any time thereafter be dissolved, wound up or
liquidated. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of ShoLodge,

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Inc. any or all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee; and, upon the
order of such successor corporation instead of the Company and subject to all
the terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver any Notes which previously shall have been
signed and delivered by the officer or officers of the Company to the Trustee
for authentication, and any Notes which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose.

In case of any such consolidation, merger, sale or conveyance such
changes in phraseology and form (but not in substance) may be made in the Notes
thereafter to be issued as may be appropriate.

10.3 Article 10 Subject to Change in Control. The transactions
contemplated by Section 10.1 will be subject to the redemption provisions of
Section 7.5, if a Change in Control has occurred, notwithstanding compliance
with Section 10.1.

ARTICLE 11

CONCERNING THE TRUSTEE

11.1 Requirement of Corporate Trustee, Eligibility. There shall at
all times be a Trustee hereunder which shall be a banking corporation organized
and doing business under the laws of the United States of America or of any
State, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $60,000,000 subject to supervision or
examination by Federal or State authority, or any affiliate of such a banking
corporation, which also is a corporation organized and doing business under the
laws of the United States of America or of any State, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $10,000,000 subject to supervision or examination by Federal or
State authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section 11.1 the combined
capital and surplus of the Trustee shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 11.1, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article 11.

11.2 Acceptance of Trust. The Trustee accepts the trusts hereby
created upon the terms and conditions in this Indenture specified, to all of
which the Company and the holders of Outstanding Notes by their acceptance
thereof agree:

(a) Except during the continuance of an Event of Default,

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(1) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee, and;

(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to it, and
conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture.

(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.

(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that

(1) this subdivision shall not be construed to
limit the effect of subsection (a) of this Section;

(2) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless
it shall be proved that the Trustee was negligent in
ascertaining pertinent facts;

(3) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the holders of not less
than a majority in principal amount of the Notes at the time
Outstanding relating to the time, method, and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture;

(4) none of the provisions contained in this
Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if there is reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured to it; and

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(5) the permissive right of the Trustee to do
things enumerated in this Indenture shall not be construed as
a duty, and the Trustee shall not be answerable for other than
its negligence or willful default.

(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject
to the provisions of this Section.

(e) The Trustee shall not be required to take notice or
be deemed to have notice of any Event of Default hereunder except
failure by the Company to cause to be made any of the payments to the
Trustee required to be made to the Trustee by any provision hereof or
failure by the Company to file with the Trustee any document required
by this Indenture to be so filed subsequent to the issuance of the
Notes, unless the Trustee shall be specifically notified in writing of
such Event of Default by the Company or by the holders of at least
twenty-five percent (25%) in aggregate principal amount of outstanding
Notes, and all notices or other instruments required by this Indenture
to be delivered to the Trustee must, in order to be effective, be
delivered at the main office of the Trustee, and in the absence of
such notice so delivered the Trustee may conclusively assume there is
no Event of Default except as aforesaid.

11.3 Disclaimer. The recitals contained herein, in the Notes and in
any supplemental indenture (except as contained in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same. The Trustee
makes no representations as to the validity or sufficiency of this Indenture,
any supplemental indenture or of the Notes issued hereunder. The Trustee shall
be under no responsibility or duty with respect to the disposition of any Notes
authenticated and delivered hereunder or the application or use of the proceeds
thereof or the application or use of any moneys paid to the Company under any
of the provisions hereof.

11.4 Trustee May Own Notes. The Trustee, the paying agent, the Note
Registrar or any Note Co-Registrar or other agent of the Company or of the
Trustee may become the owner or pledgee of Notes and, subject to Sections 11.9
and 11.10, if operative, may otherwise deal with the Company with the same
rights it would have if it were not a Trustee, paying agent, Note Registrar,
Note Co-Registrar or other agent of the Company or of the Trustee.

11.5 Trustee May Rely on Certificates, Etc. To the extent permitted
by Section 11.2 hereof:

(a) The Trustee may rely and shall be protected in acting
upon any resolution, certificate, opinion, notice, request, consent,
order, appraisal, report, note or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties;

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(b) The Trustee may consult with counsel, who may be of
counsel to the Company, and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered by it hereunder
in good faith and in reliance thereon;

(c) Any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Certified Resolution;

(d) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith, rely upon an Officers' Certificate;

(e) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the holders pursuant to this Indenture,
unless such holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred, as the case may be, in compliance with such
request or direction;

(f) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any such document
set forth in Section 11.5(a), but the Trustee, in its exercise of
discretion, may make such further inquiry or investigation into such
facts or matters as may seem necessary, and, if the Trustee shall
determine to make such further inquiry or investigation, the Trustee
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;

(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care hereunder; and

(h) The Trustee shall not be required to give any bond or
surety in respect of the execution of the said trusts and powers or
otherwise in respect of the premises.

11.6 Money Held in Trust Not Required to be Segregated. Subject to
the provisions of Section 16.2 hereof, all moneys received by the Trustee
hereunder or in respect of the Notes shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by law.
The Trustee shall not be liable for interest on moneys received by it except as
the Trustee may separately agree in writing with the Company.

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11.7 Compensation, Reimbursement, Indemnity, Security. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to receive, reasonable compensation as separately agreed in
writing for all services rendered by it in the execution of the trusts hereby
created and in the exercise and performance of all services rendered hereunder,
which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust, and except as otherwise
expressly provided herein, the Company will upon request of the Trustee
reimburse the Trustee for all reasonable advances made or incurred by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel, except any such expense or disbursement as may be attributable to
negligence or bad faith). The Company also covenants to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on the part of the Trustee arising out of or in
connection with the acceptance or administration of this trust, including the
costs and expenses of defending against any claim or liability in connection
with the exercise or performance of any of the powers or duties hereunder.

To secure the Company's obligations under this Section 11.7, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. If, and to the extent that the Trustee and its
counsel and other agents do not receive compensation for services rendered,
reimbursements of its advances, expenses and disbursements, or indemnity, as
herein provided, as the result of allowances made in any reorganization,
bankruptcy, receivership, liquidation or other proceeding or by any plan of
reorganization or readjustment of obligations of the Company, the Trustee shall
be entitled, in priority to the holders of the Notes, to receive any
distributions of any securities, dividends or other disbursements which would
otherwise be made to the holders of Notes in any such proceeding or proceedings
and the Trustee is hereby constituted and appointed, irrevocably, the attorney
in fact for the holders of the Notes and each of them to collect and receive,
in their name, place and stead, such distributions, dividends or other
disbursements, to deduct therefrom the amounts due to the Trustee its counsel
and other agents on account of services rendered, advances, expenses, and
disbursements made or incurred, or indemnity, and to pay and distribute the
balance, pro rata, to the holders of the Notes.

The obligations of the Company under this Section 11.7 shall survive
defeasance and satisfaction and discharge of the Indenture and resignation of
the Trustee.

11.8 Conflict of Interest.

(a) If the Trustee has or shall acquire any conflicting
interest, as defined in this Section 11.8, the Trustee shall within
ninety (90) days after ascertaining that there is such conflicting
interest, either eliminate such conflicting interest or resign in the
manner and with the effect hereinafter specified in this Article 11.

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(b) In the event that the Trustee shall fail to comply
with the provisions of the preceding subsection (a) of this Section
11.8, the Trustee shall within ten (10) days after the expiration of
such ninety (90) day period transmit notice of such failure to the
Noteholders, in the manner and to the extent provided in Section 5.3.

(c) For the purposes of this Section, the Trustee shall
be deemed to have a conflicting interest if there is an Event of
Default (as defined in Section 8.1 but exclusive of any grace period
or notice requirement) and:

(1) the Trustee is trustee under another
indenture under which any other securities, or certificates of
interest or participation in any other securities, of the
Company, are outstanding unless such other indenture is a
collateral trust indenture under which the only collateral
consists of Notes issued under this Indenture; provided,
however, that there shall be excluded from the operation of
this clause (1) any indenture under which other securities, or
certificates of interest or participation in other securities,
of the Company are outstanding, if the Company shall have
sustained the burden of proving, on application to the
Commission and after opportunity for hearing thereon, that
trusteeship under this Indenture and such other indenture is
not so likely to involve a material conflict of interest as to
make it necessary in the public interest or for the protection
of investors to disqualify the Trustee from acting as such
under this Indenture or such other indenture or indentures;

(2) the Trustee or any of the directors or
executive officers of the Trustee is an obligor upon the Notes
or an underwriter for the Company;

(3) the Trustee directly or indirectly controls
or is directly or indirectly controlled by or is under direct
or indirect common control with the Company or an underwriter
for the Company;

(4) the Trustee or any of the directors or
executive officers of the Trustee is a director, officer,
employee, appointee or representative of the Company, or of an
underwriter (other than the Trustee) for the Company who is
currently engaged in the business of underwriting, except that
(a) one (1) individual may be a director or an executive
officer, or both, of the Trustee and a director or an
executive officer, or both, of the Company, but may not be at
the same time an executive officer of the Trustee and the
Company; (b) if and so long as the number of directors of any
Trustee in office is more than nine (9), one (1) additional
individual may be a director or an executive officer, or both,
of such Trustee and a director of the Company; and (c) the
Trustee may be designated by the Company or by an underwriter
for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent
or depositary or in any other similar capacity or, subject

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to the provisions of paragraph (1) of this subsection (c), to
act as trustee, whether under an indenture or otherwise;

(5) ten percent (10%) or more of the voting
securities of the Trustee is beneficially owned either by the
Company or by any director, or executive officer thereof, or
twenty percent (20%) or more of such voting securities is
beneficially owned, collectively, by any two (2) or more of
such persons; or ten percent (10%) or more of the voting
securities of the Trustee is beneficially owned either by an
underwriter for the Company or by any director or executive
officer thereof, or is beneficially owned, collectively, by
any two (2) or more such persons;

(6) the Trustee is the beneficial owner of or
holds as collateral security for an obligation which is in
default (as hereinafter in this subsection (c) of this Section
10.8 defined), (a) five percent (5%) or more of the voting
securities or ten percent (10%) or more of any other class of
security of the Company, not including the Notes issued under
this Indenture and securities issued under any other indenture
under which the Trustee is also trustee, or (b) ten percent
(10%) or more of any class of securities of an underwriter for
the Company;

(7) the Trustee is the beneficial owner of, or
holds as collateral security for an obligation which is in
default (as hereinafter in this subsection (c) of this Section
10.8 defined), five percent (5%) or more of the voting
securities of any person who, to the knowledge of the Trustee
owns ten percent (10%) or more of the voting securities of, or
controls directly or indirectly or is under direct or indirect
common control with, the Company;

(8) the Trustee is the beneficial owner of or
holds as collateral security for an obligation which is in
default (as hereinafter in this subsection (c) of this Section
11.8 defined), ten percent (10%) or more of any class of
securities of any person who, to the knowledge of the Trustee
owns fifty percent (50%) or more of the voting securities of
the Company;

(9) the Trustee owns on the date of any Default
on the Notes, or any anniversary of such Default so long as
such Default remains uncured in the capacity of executor,
administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an
aggregate of twenty-five percent (25%) or more of the voting
securities or of any class of security, of any person, the
beneficial ownership of a specified percentage of which would
have constituted a conflicting interest under clause (6), (7)
or (8) of this subsection (c). As to any such securities of
which the Trustee acquired ownership through becoming
executor, administrator or testamentary trustee of an estate
which included them, the provisions of the preceding sentence
shall not apply for a period of two (2) years from the date of
such acquisition, to the extent that such securities included
in such estate do not

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exceed twenty-five percent (25%) of such voting securities or
twenty-five percent (25%) of any such class of security.
Promptly after the dates of any Default on the Notes and
annually in each succeeding year that the Notes remain in
Default, the Trustee shall make a check of its or his holdings
of such securities in any of the above-mentioned capacities as
of January 1. If the Company fails to make payment in full of
principal or interest upon the Notes when and as the same
becomes due and payable, and such failure continues for thirty
(30) days thereafter, the Trustee shall make a prompt check of
its holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such thirty-day
period and after such date, notwithstanding the foregoing
provisions of this clause (9), all such securities so held by
the Trustee with sole or joint control over such securities
vested in it or him, shall, but only so long as such failure
shall continue, be considered as though beneficially owned by
the Trustee for the purposes of clauses (6), (7) and (8) of
this subsection (c); or

(10) the Trustee shall be or become a creditor of
the Company (except under the circumstances described under paragraphs
(1), (3), (4), (5) or (6) of Section 311(b) of the TIA.

The specifications of percentages in clauses (5) to (9), inclusive, of
this subsection (c) shall not be construed as indicating that the ownership of
such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of clause
(3) or (7) of this subsection (c).

For the purposes of clauses (6), (7), (8) and (9) of this subsection
(c) only, (a) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not
include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms or any certificate of interest or participation in
any such note or evidence of indebtedness, (b) an obligation shall be deemed to
be in default when a default in payment of principal shall have continued for
thirty (30) days or more and shall not have been cured; and (c) the Trustee
shall not be deemed to be the owner or holder of (i) any security which it
holds as collateral security (as trustee or otherwise) for an obligation which
is not in default as above defined, or (ii) any security which it holds as
collateral security under this Indenture, irrespective of any Default
hereunder, or (iii) any security which it holds as agent for collection, or as
custodian, escrow agent or depositary, or in any similar representative
capacity.

(d) The percentages of voting securities and other
securities specified in this Section 11.8 shall be calculated in
accordance with the following provisions:

(1) A specified percentage of the voting
securities of the Trustee, the Company or any other person
referred to in this Section 11.8 (each of whom is referred to
as a "person" in this subsection (d)) means such amount of the
outstanding

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voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the
aggregate votes which the holders of all the outstanding
voting securities of such person are entitled to cast in the
direction or management of the affairs of such person.

(2) A specified percentage of a class of
securities of a person means such percentage of the aggregate
amount of securities of the class outstanding.

(3) The term "amount," when used in regard to
securities, means the principal amount if relating to
evidences of indebtedness, the number of shares if relating to
capital shares, and the number of units if relating to any
other kind of security.

(4) The term "outstanding" means issued and not
held by or for the account of the issuer. The following
securities shall not be deemed outstanding within the meaning
of this definition:

(i) securities of an issuer held in a
sinking fund relating to securities of the issuer of
the same class;

(ii) securities of an issuer held in a
sinking fund relating to another class of securities
of the issuer, if the obligation evidenced by such
other class of securities is not in default as to
principal or interest or otherwise;

(iii) securities pledged by the issuer
thereof as security for an obligation of the issuer
not in default as to principal or interest or
otherwise; or

(iv) securities held in escrow if placed
in escrow by the issuer thereof;

provided, however, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.

(5) A security shall be deemed to be of the same
class as another security if both securities confer upon the
holder or holders thereof substantially the same rights and
privileges; provided, however, that, in the case of secured
evidences of indebtedness, all of which are issued under a
single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be deemed
sufficient to constitute such series different classes; and
provided, further, that, in the case of unsecured evidences of
indebtedness, differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to constitute
them securities of different classes, whether or not they are
issued under a single indenture.

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(e) For the purposes of this Section 11.8, unless
otherwise provided:

(1) The term "underwriter" when used with
reference to the Company means every person, who, within one
(1) year prior to the time as of which the determination is
made, has purchased from the Company with a view to, or has
offered or has sold for the Company in connection with, the
distribution of any security of the Company outstanding at
such time, or has participated or has had a direct or indirect
participation in any such undertaking, or has participated or
has had a participation in the direct or indirect underwriting
of any such undertaking, but such term shall not include a
person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.

(2) The term "director" means any director of a
corporation, or any individual performing similar functions
with respect to any organization whether incorporated or
unincorporated.

(3) The term "person" means an individual, a
corporation, a partnership, an association, a joint-stock
company, a trust, an unincorporated organization, or a
government or political subdivision thereof. As used in this
clause, the term "trust" shall include only a trust where the
interest or interests of the beneficiary or beneficiaries are
evidenced by a security.

(4) The term "voting security" means any security
presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or any
security issued under or pursuant to any trust, agreement or
arrangement whereby a trustee or trustees or agent or agents
for the owner or holder of such security are presently
entitled to vote in the direction or management of the affairs
of a person.

(5) The term "Company" means any obligor upon the
Notes.

(6) The term "executive officer" means the
president, every vice president, every trust officer, the
cashier, the secretary, and the treasurer of a corporation,
and any individual customarily performing similar functions
with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the
board of directors.

11.9 Resignation, Removal, Appointment of Successor Trustee.

(a) No resignation or removal of the Trustee, and no
appointment of a successor Trustee pursuant to this Article 11 shall
become effective until the acceptance of appointment by the successor
Trustee under this Section 11.9 and Section 11.10.

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(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within
thirty (30) days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for
the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the
holders of a majority in principal amount of the outstanding Notes,
delivered to the Trustee and to the Company.

(d) If at any time:

(1) the Trustee shall fail to comply with Section
11.8 after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note for at
least six (6) months, or

(2) the Trustee shall cease to be eligible under
Section 11.1 and shall fail to resign after written request
therefor by the Company or by any such Noteholder, or

(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,

then, in any such case, (a) the Company by a Certified Resolution may remove
the Trustee or (b) subject to Section 8.8, any Noteholder who has been a bona
fide holder of a Note for at least six (6) months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the
Trustee for any cause, the Company, by a Certified Resolution, shall
promptly appoint a successor Trustee. If, within one (1) year after
such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the holders
of a majority in principal amount of the outstanding Notes delivered
to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Noteholders and accepted appointment
in the manner hereinafter provided, any Noteholder who has been a bona
fide holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.

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(f) The Company shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee
by mailing written notice of such event by first-class mail, postage
prepaid, to the holders of Notes in the manner and to the extent
provided in of Section 5.3. Each notice shall include the name of the
successor Trustee and address of the main office of the successor
Trustee.

11.10 Acceptance by Successor Trustee. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to the Company and
to the retiring Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; but, on request of the Company or the respective successor Trustee,
the respective retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such respective successor Trustee all the
rights, powers and trusts of the retiring respective Trustee, and shall duly
assign, transfer and deliver to such respective successor Trustee all property
and money held by such respective retiring Trustee hereunder. Upon request of
any such respective successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.

No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article 11 to the extent operative.

11.11 Cash, Securities, Etc. to be Held by Trustee. Whenever any
moneys, debentures, shares of stock or other obligations are, under any
provisions of this Indenture, paid or delivered to or deposited with the
Trustee, the same shall be deemed for all purposes hereunder to be part of the
security for the Notes issued hereunder, but nothing contained in this Section
11.11 shall be deemed to affect or impair any power or right conferred by any
provision of this Indenture upon the Trustee to apply, disburse or otherwise
act or deal with respect to any moneys, debentures, shares of stock or other
obligations received or held by it as aforesaid.

11.12 Merger or Consolidation of Trustee. Any corporation into which
the Trustee may be merged or with which it may be consolidated or any
corporation resulting from any merger, conversion, or consolidation to which
the Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Trustee shall be the
successor of the Trustee hereunder provided such corporation shall be otherwise
qualified and eligible under this Article 11, to the extent operative, without
the execution or filing of any paper or the performance of any further act on
the part of any other parties hereto, anything herein to the contrary
notwithstanding. In case any of the Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any such successor to the Trustee
by merger, conversion or consolidation may adopt such authentication and
deliver the said Notes so authenticated with the same effect as if such
successor Trustee had itself authenticated such Notes.

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11.13 Authenticating Agent. As long as any of the Notes remain
outstanding, upon a Company Order there shall be an authenticating agent
appointed by the Trustee for such period as the Company shall elect, to act on
behalf of the Trustee and subject to its direction in connection with the
authentication of the Notes as set forth in this Indenture. Such authenticating
agent shall at all times be a banking corporation organized and doing business
under the laws of the United States or any State, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $60,000,000 subject to supervision or examination by Federal or State
authority, or an affiliate of such banking corporation, which is also a
corporation organized and doing business under the laws of the United States or
of any State, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $10,000,000 subject to
supervision or examination by Federal or State authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 11.13 the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.

Whenever reference is made in this Indenture to the authentication and
delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an authenticating agent and a certificate
of authentication executed on behalf of the Trustee by an authenticating agent.

Any corporation in which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate agency
business of any authenticating agent, shall continue to be the authenticating
agent without the execution or filing of any paper or any further act on the
part of the Trustee or the authenticating agent.

Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible in accordance with the
provisions of this Section 11.13, the Trustee promptly shall appoint a
successor authenticating agent, shall give written notice of such appointment
to the Company and shall mail notice of such appointment to all holders of
Notes as the names and addresses of such holders appear on the Note Register.
Any successor authenticating agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers, duties and responsibilities of
its predecessor hereunder. No successor authenticating agent shall be appointed
unless eligible under the provisions of this Section 11.13.

The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services, and the Trustee shall be
entitled to be reimbursed for such payments

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from the Company subject to the provisions of Section 11.7. The provisions of
Section 9.1, 11.3 and 11.4 shall be applicable to any authenticating agent.

ARTICLE 12

DEFEASANCE; DISCHARGE OF INDENTURE

12.1 Termination of the Company's Obligations. Unless otherwise
specified in a supplemental indenture as contemplated by Section 2.1 with
respect to any series of Notes, the Company may terminate its obligations under
this Indenture with respect to any series of Notes, except those obligations
referred to in the penultimate paragraph of this Section 12.1, if all Notes of
such series previously authenticated and delivered (other than destroyed, lost
or stolen Notes which have been replaced or paid or Notes for whose payment
money has theretofore been deposited with the Trustee or the paying agent in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company, as provided in Section 12.4) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable by it hereunder, or
if:

(a) either (i) pursuant to Article Six, the Company shall
have given notice to the Trustee and mailed a notice of redemption to
each Noteholder of such series of the redemption of all of the Notes
of such series under arrangements satisfactory to the Trustee for the
giving of such notice, or (ii) all Notes of such series have otherwise
become due and payable hereunder;

(b) the Company shall have irrevocably deposited or
caused to be deposited with the Trustee or a trustee satisfactory to
the Trustee, under the terms of an irrevocable trust agreement in form
and substance satisfactory to the Trustee, as trust funds in trust
solely for the benefit of the holders of such series of notes for that
purpose, money in such amount as is sufficient without consideration
of reinvestment of such interest, to pay principal of, premium, if
any, and interest on the outstanding Notes of such series to maturity
or redemption; provided that the Trustee shall have been irrevocably
instructed to apply such money to the payment of said principal,
premium, if any, and interest with respect to such Notes and,
provided, further, that from and after the time of deposit, the money
deposited shall not be subject to the rights of holders of any other
Senior Indebtedness pursuant to any subordination provision;

(c) no Default or Event of Default with respect to this
Indenture applicable to such series or the Notes of such series shall
have occurred and be continuing on the date of such deposit or shall
occur as a result of such deposit and such deposit will not result in
a breach or violation of, or constitute a default under, any other
instrument to which the Company is a party or by which it is bound;

(d) the Company shall have paid all other sums payable by
it hereunder; and

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(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent providing for the termination of the Company's
obligation under such Notes and this Indenture applicable to such
Notes have been complied with. Such Opinion of Counsel shall also
state that such satisfaction and discharge does not result in a
default under any agreement or instrument then known to such counsel
that binds or affects the Company.

Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.7, 2.10, 4.1, 4.2, 5.1, 11.7 and 12.1 shall survive until the Notes
of such series are no longer outstanding pursuant to Section 12.6. After the
Notes are no longer outstanding, the Company's obligations in Section 11.7
shall survive.

After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Notes of such series and this Indenture applicable to such Notes except for
those surviving obligations specified above.

12.2 Legal Defeasance and Covenant Defeasance.

(a) Unless otherwise specified in a supplemental
indenture as contemplated by Section 2.1 with respect to any series of
Notes, (a) the Company may, at its option by Certified Resolution, at
any time, with respect to the Notes of any series, elect to have either
paragraph (b) or paragraph (c) below be applied to the
outstanding Notes of such series upon compliance with the conditions
set forth in paragraph (d).

(b) Upon the Company's exercise under paragraph (a) of
the option applicable to this paragraph (b), the Company shall be
deemed to have been released and discharged from its obligations with
respect to the outstanding Notes of such series on the date the
conditions set forth below are satisfied (hereinafter, "legal
defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes of such series,
which shall thereafter be deemed to be "outstanding" only for the
purposes of paragraph (e) below and the other Sections of and matters
under this Indenture applicable to such Notes referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such
Notes and this Indenture applicable to such Notes insofar as such
Notes are concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), and holders
of such Notes and any amounts deposited under paragraph (d) below
shall cease to be subject to any obligations to, or the rights of, any
holder of Senior Indebtedness or under any applicable subordination
provisions or otherwise, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of
holders of outstanding Notes of such series to receive solely from the
trust fund described in paragraph (d) below and as more folly set
forth in such paragraph, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are
due, (ii) the

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Company's obligations with respect to such Notes under Sections 2.7,
2.10 and 4.2, and, with respect to the Trustee, under Section 11.7,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (iv) this Section 12.2 and Section 12.5. Subject to
compliance with this Section 12.2, the Company may exercise its option
under this paragraph (b) notwithstanding the prior exercise of its
option under paragraph (c) below with respect to Notes of any series.

(c) Upon the Company's exercise under paragraph (a) of
the option applicable to this paragraph (c), the Company shall be
released and discharged from its obligations under any covenant
contained in Article Ten, any applicable subordination provisions, any
covenants contained in Sections 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15 and 5.2 and any covenants contained in certain other
sections with respect to the outstanding Notes of such series
identified in any supplemental indenture pursuant to Section 2.1 on
and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and such Notes shall thereafter
be deemed to be not "outstanding" for the purpose of any direction,
waiver, consent or declaration or act of holders (and the consequences
of any thereof) in connection with such covenants, but shall continue
to be deemed "outstanding" for all other purposes hereunder and
holders of such Notes and any amounts deposited under paragraph (d)
below shall cease to be subject to any obligations to, or the rights
of, any holder of Senior Indebtedness under any subordination
provisions or otherwise. For this purpose, such covenant defeasance
means that, with respect to such outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of
Default under Section 8.1(c) with respect to such series of Notes,
but, except as specified above, the remainder of this Indenture
applicable to such Notes and such Notes shall be unaffected thereby.

(d) The following shall be the conditions to application
of either paragraph (b) or paragraph (c) above to the outstanding
Notes of such series:

(i) the Company shall irrevocably have deposited
or caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 11.1 who shall agree to
comply with the provisions of this Section 12.2 applicable to
it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of Notes of
such series, (x) money in an amount or (y) direct non-callable
obligations of, or noncallable obligations guaranteed by, the
United States of America for the payment of which guarantee or
obligation the full faith and credit of the United States is
pledged ("U.S. Government Obligations") maturing as to
principal, premium, if any, and interest in such amounts of
money and at such times as are sufficient without
consideration of any reinvestment of such interest, to pay
principal of and

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interest on the outstanding Notes of such series not later
than one day before the due date of any payment, or (z) a
combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay and discharge and which shall be applied by
the Trustee (or other qualifying trustee) to pay and discharge
principal of, premium, if any, and interest on the outstanding
Notes of such series on the Stated Maturity or redemption date
otherwise in accordance with the terms of this Indenture and
of the Notes of such series; provided, however, that the
Trustee (or other qualifying trustee) shall have received an
irrevocable written order from the Company instructing the
Trustee (or other qualifying trustee) to apply such money or
the proceeds of such U.S. Government Obligations to said
payments with respect to the Notes of such series;

(ii) no Default or Event of Default with respect
to such series of Notes or event which with notice or lapse of
time or both would become a Default or an Event of Default
with respect to the Notes of such series shall have occurred
and be continuing on the date of such deposit or, insofar as
Section 8.l(a) is concerned, at any time during the period
ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed
satisfied until the expiration of such period);

(iii) such legal defeasance or covenant defeasance
shall not cause the Trustee to have a conflicting interest
with respect to any Notes of the Company;

(iv) such legal defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a
Default or Event of Default under, this Indenture applicable
to such Notes or any other agreement or instrument to which
the Company is a party or by which it is bound;

(v) in the case of an election under paragraph
(b) above, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (x) the Company has received
from, or there has been published by, the Internal Revenue
Service a ruling or (y) since the date of this Indenture,
there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such
opinion shall confirm that, the holders of the outstanding
Notes of such series will not recognize income, gain or loss
for Federal income tax purposes as a result of such legal
defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance had not
occurred;

(vi) in the case of an election under paragraph
(c) above, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders of the
outstanding Notes of such series will not recognize income,
gain or

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loss for Federal income tax purposes as a result of such
covenant defeasance and will be subject to Federal income tax
on the same amounts, in the same manner and at the same times
as would have been the case if such covenant defeasance had
not occurred;

(vii) in the case of an election under either
paragraph (b) or (c) above, an Opinion of Counsel to the
effect that, (x) the trust funds will not be subject to any
rights of any other holders of indebtedness of the Company or
any of its Subsidiaries, and (y) after the 91st day following
the deposit, the trust funds will not be subject to the effect
of any applicable Bankruptcy Act; provided, however, that if a
court were to rule under any such law in any case or
proceeding that the trust funds remained property of the
Company, no Opinion of Counsel needs to be given as to the
effect of such laws on the trust funds except the following:
(A) assuming such trust funds remained in the Trustee's
possession prior to such court ruling to the extent not paid
to holders of Notes of such series, the Trustee will hold, for
the benefit of the holders of Notes of such series, a valid
and enforceable security interest in such trust funds that is
not avoidable in bankruptcy or otherwise, subject only to
principles of equitable subordination, (B) the holders of
Notes of such series will be entitled to receive adequate
protection of their interests in such trust funds if such
trust funds are used, and (C) no property, rights in property
or other interests granted to the Trustee or the holders of
Notes of such series in exchange for or with respect to any of
such funds will be subject to any prior rights of any other
person, subject only to prior Liens granted under Section 364
of Title 11 of the U.S. Bankruptcy Code (or any section of
any other Bankruptcy Act having the same effect), but still
subject to the foregoing clause (B);

(viii) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the
holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;

(ix) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that (x) all conditions precedent provided for
relating to either the legal defeasance under paragraph (b)
above or the covenant defeasance under paragraph (c) above, as
the case may be, have been complied with and (y) if any other
indebtedness of the Company shall then be outstanding or
committed, such legal defeasance or covenant defeasance will
not violate the provisions of the agreements or instruments
evidencing such indebtedness; and

(x) the Company shall have delivered to the
Trustee an amount sufficient to cover its fees and expenses as
Trustee under the Indenture through the term of the

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series of Notes to be defeased, or made adequate provision
therefor to the satisfaction of the Trustee.

(e) All money and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Paragraph (e), the
"Trustee") pursuant to paragraph (d) above in respect of the
outstanding Notes of such series shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Notes and this
Indenture applicable to such Notes, to the payment, either directly or
through any paying agent (other then the Company or any Affiliate of
the Company) as the Trustee may determine, to the holders of such
Notes of all sums due and to become due thereon in respect of
principal, premium and interest, but such money need not be segregated
from other funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal, premium, if any,
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the holders of the outstanding Notes
of such series.

Anything in this Section 12.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.

12.3 Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to Sections
12.1 and 12.2, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of, premium, if any, and interest on the Notes of such series.

12.4 Repayment to Company. Subject to Sections 11.7, 12.1 and 12.2,
the Trustee shall promptly pay to the Company, upon receipt by the Trustee of
an Officers' Certificate, any excess money, determined in accordance with
Section 12.2, held by it at any time. The Trustee and the paying agent shall
pay to the Company, upon receipt by the Trustee or the paying agent, as the
case may be, of an Officers' Certificate, any money held by it for the payment
of principal, premium, if any, or interest that remains unclaimed for two years
after payment to the Noteholders of such series is required; provided, however,
that the Trustee and the paying agent before being required to make any payment
may, but need not, at the expense of the Company cause to be published once in
a daily newspaper, as defined herein, or mail to each Noteholder of Notes of
such series entitled to such money notice that such money remains unclaimed and
that after a date specified therein, which shall be at least 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company,
Noteholders

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entitled to money must look solely to the Company for payment as general
creditors unless an applicable abandoned properly law designates another
person, and all liability of the Trustee or paying agent with respect to such
money shall thereupon cease.

12.5 Reinstatement. If the Trustee or paying agent is unable to
apply any money or U.S. Government Obligations to any payment in respect of
Notes of any series in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
then and only then the Company's obligations under this Indenture and the Notes
of such series shall be revived and reinstated as though no deposit had been
made pursuant to this Indenture until such time as the Trustee is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Indenture; provided, however, that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes of such series because
of the reinstatement of its obligations, the Company shall be, subrogated to
the rights of the holders of Notes of such series to receive such payment from
the money or U.S. Government Obligations held by the Trustee or paying agent.

ARTICLE 13

MEETING OF NOTEHOLDERS

13.1 Purposes for Which Meetings May be Called. A meeting of the
Noteholders may be called at any time and from time to time pursuant to the
provisions of this Article 13 for any of the following purposes:

(a) To give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the waiving
of any Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by the Noteholders pursuant to any
of the provisions of Article 8;

(b) To remove the Trustee and appoint a successor trustee
pursuant to any of the provisions of Article 11;

(c) To consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Article
14; or

(d) To take any other action authorized to be taken by or
on behalf of Noteholders of any specified aggregate principal amount
of the Notes under any other provisions of this Indenture, or
authorized or permitted by law.

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13.2 Call of Meetings by Trustee; Generally. Meetings of
Noteholders may be held at such place or places and at such time or times in
any place as the Trustee or, in case of its failure to act, the Company or the
Noteholders calling the meeting, shall from time to time determine.

13.3 Call of Meetings by Trustee; Notice. The Trustee may at any
time call a meeting of the Noteholders to take any action specified in Section
13.1, to be held at such time and at such place designated in Section 13.2 as
the Trustee shall determine. Notice of every meeting of the Noteholders,
setting forth the time and place of such meeting and in general terms the
action proposed to be taken at such meeting, and specifying each series of
Notes which would be affected by the proposed action, shall be mailed by the
Trustee at the expense of the Company, first class postage prepaid, to the
Noteholders at their last addresses as they shall appear upon the Note
Register, not less than twenty (20) nor more than one hundred twenty (120) days
prior to the date fixed for the meeting. Any defect in said notice shall not,
however, in any way impair or affect the validity of any such meeting.

The Trustee may in its discretion determine, subject to the meaning of
the term "affected" as set forth in Section 14.2(c), whether or not Notes of
any particular series would be affected by action proposed to be taken at a
meeting and any such determination shall be conclusive upon the holders of
Notes of such series and all other series. Subject to the provisions of
Section 11.2, the Trustee shall not be liable for any such determination made
in good faith.

Any meeting of the Noteholders shall be valid without notice if
Noteholders, holding all Notes then outstanding, which would be affected by the
action proposed to be undertaken, are present in person or by proxy or have
waived notice before or after the meeting by Noteholders, and if the Company
and the Trustee are either present by duly authorized representatives or have,
before or after the meeting, waived notice.

In case at any time the Company, pursuant to a Certified Resolution,
or Noteholders holding at least ten percent (10%) in aggregate principal amount
of the Notes then outstanding, which would be affected by the action proposed
to be undertaken, shall have requested the Trustee to call a meeting of the
Noteholders to take any action authorized by Section 12.1, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed the notice of such meeting
within twenty (20) days after receipt of such request, then the Company or
Noteholders holding the amount above specified may determine the time and the
place for such meeting and may call such meeting for such purpose by giving
notice thereof in the manner provided in this Section 13.3.

13.4 Meetings, Notice and Entitlement to be Present. Only
Noteholders holding Notes, which would be affected by the action proposed to be
undertaken, and persons appointed by an instrument in writing as proxy for such
a Noteholder by such a Noteholder are entitled to notice of and to vote at any
meeting of the Noteholders. The only persons who shall be entitled to be
present or to speak at any meeting of the Noteholders shall be the persons
entitled to vote at such meeting

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and their counsel, any representatives of the Trustee and its counsel, and any
representatives of the Company and its counsel.

13.5 Regulations May be Made by Trustee. Notwithstanding any other
provisions of this Indenture, the Trustee may make such reasonable regulations
as it may deem advisable for any meeting of the Noteholders, in regard to proof
of the holding of Notes and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall deem
appropriate.

Such regulations (a) may provide for the closing of the Note Register
for such period as the Trustee may deem necessary or (b) may fix a record and
time for determining the record Noteholders of the Notes entitled to vote at
such meeting. All Noteholders seeking to attend or vote at a meeting in person
or by proxy must, if required by any authorized representative of the Trustee
or the Company or by any other Noteholder, produce the Notes claimed to be
owned or represented at such meeting, and every one seeking to attend or vote
shall, if required as aforesaid, produce such further proof of Note ownership
or personal identity as shall be satisfactory to the authorized representative
of the Trustee, or if none be present then to the inspectors of votes
hereinafter provided for.

The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by the Noteholders as provided in Section 13.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting may be elected by vote of Noteholders holding a
majority in principal amount of the Notes represented at the meeting and
entitled to vote.

At any meeting each Noteholder or proxy shall be entitled to one vote
for each $1,000 principal amount of Notes then outstanding owned by such
Noteholder or represented by such proxy; provided, however, that no vote shall
be cast or counted at any meeting in respect of any Notes challenged as not
outstanding and ruled by the temporary or permanent chairman of the meeting to
be not outstanding. The temporary or permanent chairman of the meeting shall
have no right to vote other than by virtue of Notes held by him or instruments
in writing as aforesaid duly designating him as the person to vote on behalf of
other Noteholders.

At any meeting of Noteholders, the presence of persons holding or
representing Notes in an aggregate principal amount sufficient under the
appropriate provision of this Indenture to take action upon the business for
the transaction of which such meeting was called shall constitute a quorum. Any
meeting of holders duly called pursuant to Section 13.3 may be adjourned from
time to time by vote of the holders (or proxies for the holders) of a majority
in aggregate principal amount of the Notes represented at the meeting and
entitled to vote, whether or not a quorum shall be present; and the meeting may
be held as so adjourned without further notice.

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13.6 Manner of Voting at Meetings and Record to be Kept. The vote
upon any resolution submitted to any meeting of the Noteholders shall be by
written ballots on which shall be subscribed the signatures of the Noteholders
or of their representatives by proxy and the principal amount of the Notes
voted by the ballot. The temporary or permanent chairman of the meeting shall
appoint two (2) inspectors of votes, who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record at least in duplicate of the proceedings of
each meeting of the Noteholders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
(1) or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 13.3. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one copy thereof shall be
delivered to the Company and another to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

13.7 Evidence of Action by Holders of Specified Percentage of
Notes. Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Notes of any series
may take any action (including the making of any demand or request, the giving
of any notice, consent, or waiver or the taking of any other action) the fact
that at the time of taking any such action the holders of such specified
percentage have joined therein may be evidenced (A) by any instrument or any
number of instruments of similar tenor executed by holders in person or by
agent or proxy appointed in writing, or (B) by the record of the holders of
Notes voting in favor thereof at any meeting of holders duly called and held in
accordance with the provisions of this Article 13, or (C) by a combination of
such instrument or instruments and any such record of such a meeting of
holders.

13.8 Exercise of Right of Trustee or Noteholders May Not be
Hindered or Delayed by Call of Meeting of Noteholders. Nothing in this Article
13 contained shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of the Noteholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise
of any right or rights conferred upon or reserved to the Trustee or to the
Noteholders under any of the provisions of this Indenture or of the Notes.

ARTICLE 14

SUPPLEMENTAL INDENTURES

14.1 Purposes for Which Supplemental Indentures May be Executed by
Company and Trustee. Without the consent of the holders of any Notes, the
Company and the Trustee may at any time and from time to time, enter into an
indenture or indentures supplemental hereto, in form satisfactory to the
Trustee, for one or more of the following purposes:

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(a) To evidence the succession of another corporation to
the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Company pursuant to Article 10 hereof;

(b) To add to the covenants of the Company such further
covenants for the protection of the Noteholders, to insure the
enforcement of the remedies of the Trustee and Noteholders upon an
Event of Default by the Company, or to surrender any right or power
herein conferred upon the Company as the Company, as set forth in a
Company Request shall consider to be necessary for the protection of
the Noteholders, and to make the occurrence and continuance of a
default under any of such additional covenants a Default permitting
the enforcement of all or any of the several remedies provided in this
Indenture; provided, however, that in respect of any such additional
covenant, such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other Defaults) or may provide for an
immediate enforcement of said remedy or remedies upon such default or
may limit the remedies available to the Trustee upon such default or
may authorize the holders of not less than a majority in aggregate
principal amount of the outstanding Notes to waive such default and
prescribe limitations on such rights of waiver;

(c) To cure any ambiguity or to correct or supplement any
provision contained in this Indenture which may be inconsistent with
any other provision contained herein or in any supplemental indenture,
or to make such other provisions in regard to matters or questions
arising under this Indenture as shall not be inconsistent with the
provisions and purposes of this Indenture, provided any such action
shall not adversely affect the interest of the Noteholders; or

(d) to provide for the creation of any series of Notes.

Nothing contained in this Article 14 shall affect or limit the right
or obligation of the Company to execute and deliver to the Trustee any
instrument of further assurance or other instrument which elsewhere in this
Indenture it is provided shall be delivered to the Trustee.

The Trustee is hereby authorized and directed to join with the Company
in the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be herein contained and to
accept the conveyance, transfer and assignment of any property thereunder, but
the Trustee shall not be obligated to enter into any such supplemental
indenture which, in its opinion, does not afford adequate protection to the
Trustee or adversely affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise or adversely affects the interests of the
Noteholders.

14.2 Modification of Indenture by Written Consent of Noteholders.

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(a) With the consent (evidenced as provided in Article 13) of the
holders of not less than fifty-one percent (51%) in aggregate principal amount
of the Notes then outstanding, by Act of said holders delivered to the Company
and the Trustee, the Company and the Trustee at any time and from time to time,
by entering into an indenture or indentures supplemental hereto, may modify,
alter, add to or eliminate in any manner (with the approval of any governmental
agency if required by law) any provisions of this Indenture, any applicable
supplemental indenture or the rights of the Noteholders or the rights and
obligations of the Company; provided, however, that no such supplemental
indenture shall, without the consent of the holder of each outstanding Note
affected thereby:

(1) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon redemption thereof, or the coin or currency in which, any Note or
the interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or impair the right to require redemption as set
forth in Section 7.5, or

(2) reduce the percentage(s) of the aggregate principal
amount of outstanding Notes, the consent of the holders of which is
required for any such supplemental indenture, or the consent of whose
holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain Defaults hereunder and their
consequences) provided for in this Indenture, or

(3) modify any of the provisions of this Section 14.2,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the holder of each Note affected thereby.

(b) With respect to changes affecting one or more, but less than
all, series of Notes then outstanding, with the consent (evidenced as provided
in Article 13) of the holders of not less than fifty-one percent (51%) in
aggregate principal amount of the Notes of such affected series then
outstanding, by Act of said holders delivered to the Company and the Trustee,
the Company and the Trustee at any time and from time to time, by entering into
an indenture or indentures supplemental hereto, may modify, alter, add to or
eliminate in any manner (with the approval of any governmental agency if
required by law) any provisions of this Indenture, any applicable supplemental
indenture or the rights of such Noteholders or the rights and obligations of
the Company; provided, however, that no such supplemental indenture shall,
without the consent of the holder of each outstanding Note of such series
affected thereby:

(1) change the Stated Maturity of the principal of, or
any installment of interest on, any Note of such series, or reduce the
principal amount thereof or the rate of interest thereon or any
premium payable upon redemption thereof, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the
right to institute suit for the

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enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption
Date), or impair the right to require redemption as set forth in
Section 7.5, or

(2) reduce the percentage(s) of the aggregate principal
amount of outstanding Notes of such series, the consent of the holders
of which is required for any such supplemental indenture, or the
consent of whose holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain Defaults
hereunder and their consequences) provided for in this Indenture, or

(c) Notes shall be deemed to be "affected" by a supplemental
indenture, if such supplemental indenture adversely affects or diminishes the
rights of holders thereof against the Company or against the property of the
Company. The Trustee may in the exercise of its discretion, subject to Section
11.2, determine whether or not any Notes would be affected by any supplemental
indenture and any such determination shall be conclusive upon the holders of
all Notes, whether theretofore or thereafter authenticated and delivered
hereunder. It shall not be necessary for any Act of Noteholders under this
Section 14.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof. Any supplemental indenture authorized by the provisions of this
Section 14.2 shall be executed by the Company and the Trustee in accordance
with the terms of Section 14.3. Promptly after the execution by the Company
and the Trustee of any supplemental indenture pursuant to the provisions of
Section 14.3, the Company shall mail to the holders of the Notes at their last
addresses as they shall appear on the Note Register of the Company a notice
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Company to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture.

14.3 Requirements for Execution; Duties and Immunities of Trustee.
Prior to the execution of any supplemental indenture, the Trustee shall receive
a Company Request, accompanied by a Certified Resolution authorizing the
execution of any supplemental indenture pursuant to Section 14.1 or Section
14.2, and, if pursuant to Section 14.2, evidence filed with the Trustee of the
Act of Noteholders as aforesaid.

In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and subject to Section 11.2 shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture and stating such other matters as
the Trustee may reasonably request. The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture which affects the Trustee's
rights, duties or immunities under this Indenture or otherwise.

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14.4 Supplemental Indentures Part of Indenture. Upon the execution
of any supplemental indenture pursuant to the provisions of this Article 14,
this Indenture shall be, and shall be deemed to be, modified and amended in
accordance therewith and the respective rights, limitations, duties and
obligations under this Indenture of the Company, the Trustee and the
Noteholders, and each of them, shall thereafter be determined, exercised and
enforced hereunder, subject in all respects to such modifications and
amendments, and all the terms and conditions of any such supplemental indenture
shall be, and shall be deemed to be, part of the terms and conditions of this
Indenture for any and all purposes, as if originally contained herein.

14.5 Notes Executed After Supplemental Indenture to be Approved by
Trustee. Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article 14 may, and
shall if required by the Trustee, bear a notation in form approved by the
Trustee, as to any matter provided for in such supplemental indenture. If the
Company and the Trustee shall so determine, new Notes modified so as to
conform, in the opinion of the Trustee and the Company, to any modification of
this Indenture contained in any such supplemental indenture, may be prepared by
the Company, authenticated by the Trustee and delivered without expense to the
holders of the outstanding Notes, upon surrender of such Notes, the new Notes
so issued to be in an aggregate principal amount equal to the aggregate
principal amount of those so surrendered.

14.6 Supplemental Indentures Required to Comply with Trust
Indenture Act of 1939. No supplemental indenture shall be entered into pursuant
to any authorization contained in this Indenture which shall not comply with
the provisions of the Trust Indenture Act of 1939 as then in effect.

ARTICLE 15

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS

15.1 Immunity of Certain Persons. No recourse for the payment of
the principal of or premium, if any, or interest on any Note, or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of the Company, contained in this
Indenture or in any supplemental indenture, or in any Note, or because of the
creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or any successor corporation, either directly or through
the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.

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ARTICLE 16

MISCELLANEOUS

16.1 Benefits Restricted to Parties and to Holders of Notes. Except
as provided herein, nothing in this Indenture, expressed or implied, is
intended, or shall be construed, to confer upon, or to give to, any person
other than the parties hereto and the holders of the Notes outstanding
hereunder any right, remedy, or claim under or by reason of this Indenture or
any covenant, condition, stipulation, promise or agreement hereof, and all the
covenants, conditions, stipulations, promises and agreements contained in this
Indenture by and on behalf of the Company shall be for the sole and exclusive
benefit of the parties hereto, and of the holders of the Notes outstanding
hereunder.

16.2 Deposits for Notes Not Claimed for Specified Period to be
Returned to Company on Demand. Any moneys deposited with the Trustee or any
paying agent, or then held by the Company, in trust for the payment of the
principal of, and premium, if any, or interest on any Note and remaining
unclaimed for three (3) years after the date upon which the principal of and
premium, if any, or interest on such Notes shall have become due and payable,
shall be paid to the Company upon Company Request, or, if then held by the
Company, shall be discharged from such trust; and the holder shall thereafter,
as an unsecured general creditor, be entitled to look only to the Company for
payment thereof, and all liability of the Trustee or any paying agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that, before being required
to make any such payment to the Company, the Trustee, or any paying agent, may,
at the expense of the Company, cause to be published once in a daily newspaper
in such areas as the Trustee, or any paying agent, as the case may be, may deem
necessary a notice that such moneys remain unclaimed and that, after a date
named in said notice, the balance of such moneys then unclaimed will be
returned to the Company.

16.3 Formal Requirements of Certificates and Opinions Hereunder.

(a) Each certificate or opinion which is specifically
required by the provisions of this Indenture to be delivered to the
Trustee with respect to compliance with a condition or covenant herein
contained shall include (1) a statement that each person signing such
certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinions are based; (3) a statement that, in the
opinion of each such person, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not in the opinion
of each such person such condition or covenant has been complied with.

(b) Every request or application by the Company for
action by the Trustee shall be accompanied by an Officers' Certificate
stating that all conditions precedent, if any, to

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such action, provided for in this Indenture (including any covenants
compliance with which constitutes a condition precedent) have been
complied with and an Opinion of Counsel stating that in the opinion of
such counsel all conditions precedent, if any, to such action,
provided for in this Indenture (including any covenants compliance
with which constitutes a condition precedent) have been complied with,
except that in the case of any such request or application as to which
the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular request or
application, no additional certificate or opinion need be furnished.

(c) In any case where several matters are required to be
certified by, or covered by an opinion of, any specified person, it is
not necessary that all such matters be certified by, or covered by the
opinion of, only one such person, or that they be so certified or
covered by only one document, but one such person may certify or give
an opinion with respect to some matters and one or more other such
persons as to other matters, and any such person may certify or give
an opinion as to such matters in one or several documents.

16.4 Evidence of Act of the Noteholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent, shall be sufficient for any purpose of this
Indenture and (subject to Section 11.2) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.

The fact and date of the execution by any person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by an officer of a corporation or a member of
a partnership, on behalf of such corporation or partnership, or by a fiduciary,
such certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.

Any request, demand, authorization, direction, notice, consent, waiver
or other action by the holder of any Note shall bind every future holder to the
same Note and the holder of every Note issued upon the transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done or suffered
to be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.

72
<PAGE> 83

16.5 Parties to Include Successors and Assigns. Subject to the
provisions of Articles 9 and 10 hereof, whenever in this Indenture any of the
parties hereto is named or referred to, such name or reference shall be deemed
to include the successors or assigns of such party, and all the covenants and
agreements in this Indenture contained by or on behalf of the Company or by or
on behalf of the Trustee shall bind and inure to the benefit of the respective
successors and assigns of such parties whether so expressed or not.

16.6 In Event of Conflict with Trust Indenture Act of 1939,
Provisions Therein to Control. If any provision of this Indenture limits,
qualifies, or conflicts with another provision of this Indenture required to be
included herein by any of the provisions of the Trust Indenture Act of 1939
such required provision shall control. Provisions required by said Trust
Indenture Act to be included herein which are not included herein are hereby
incorporated herein by reference to said Trust Indenture Act.

16.7 Request, Notices, Etc. to Trustee. Any request, demand,
authorization, direction, notice, consent, waiver or Act of the Noteholders or
other document provided or permitted by this Indenture to be made upon, given
or furnished to, or filed with:

(a) the Trustee by any Noteholder or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing, first class, postage prepaid, to or with the Trustee
at its main office, or

(b) the Company by the Trustee or by any Noteholders
shall be sufficient for every purpose hereunder (except as herein
otherwise provided) if in writing and mailed, first-class, postage
prepaid, to the Company addressed to it at 217 West Main Street,
Gallatin, Tennessee 37066, or at any other address furnished in
writing to the Trustee by the Company.

16.8 Manner of Notice. Where this Indenture provides for notice to
Noteholders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class,
postage prepaid, to each Noteholder affected by such event, at his address as
it appears on the Note Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Noteholders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Noteholder shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice which is mailed in the manner herein provided shall
be conclusively presumed to have been duly given.

Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee, but
such filing shall not be condition precedent to the validity of any action
taken in reliance upon such waiver.

73
<PAGE> 84

In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.

16.9 Severability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

16.10 Payments Due on Days When Banks Closed. In any case where the
date of any Interest Payment Date or Redemption Date, or the Stated Maturity of
any Note, or any date on which any Defaulted Interest is proposed to be paid or
any date on which any other payment is to be made or any action is to be taken
shall not be a business day, then (notwithstanding any other provision of the
Notes or this Indenture) payment of the principal of, and premium, if any, or
interest on, any Notes or other payment or action need not be made or taken on
such date, but may be made or taken on the next succeeding business day with
the same force and effect as if made on the nominal date of any such Interest
Payment Date or Redemption Date or Stated Maturity or date for the payment of
Defaulted Interest or date for any other payment or action, as the case may be,
and no interest shall accrue for the period from and after any such nominal
date.

16.11 Backup Withholding Forms. The Company shall provide the
Trustee with Backup Withholding Forms prescribed by the Internal Revenue
Service and shall indemnify the Trustee for any penalties, expenses, costs and
liabilities assessed against the Trustee for using improper forms.

16.12 Titles of Articles of This Indenture Not Part Thereof. The
titles of the several Articles of this Indenture and the table of contents
shall not be deemed to be any part hereof.

16.13 Execution in Counterparts. This Indenture is being executed in
several counterparts, each of which shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.

16.14 Governing Law. This Indenture and each Note issued hereunder
shall be governed by the laws of the State of Tennessee as to all matters
affecting the duties, liabilities, privileges, rights and obligations of the
Noteholders, the Company and any agents of the foregoing, including but not
limited to, matters of validity, construction, effect and performance; however,
the duties and responsibilities of the Trustee shall be governed by the laws of
the State of New York.

IN WITNESS WHEREOF, SHOLODGE, INC. has caused its name to be hereunto
affixed, and this instrument to be signed by its Chairman of the Board,
President or any Vice President and its corporate seal to be affixed hereto,
and the same to be attested by its Secretary; and Bankers Trust Company, in
token of its acceptance of the trust hereby created, has caused its corporate
name to be

74
<PAGE> 85

hereunto affixed, and this instrument to be signed and sealed by one of its
corporate trust officers and its corporate seal to be attested, as of the day
and year first written above.

SHOLODGE, INC.

ATTEST: By:
----------------------------------
Chairman of the Board, President
or Vice President

- ----------------------------
Attesting Officer

[Seal]

BANKERS TRUST COMPANY

ATTEST: By:
----------------------------------
Name:
Title:

- ---------------------------
Name:
Title:

[Seal]

75
<PAGE> 86

Exhibit A to Indenture

OPTION TO ELECT REDEMPTION
(pursuant to Section 7.1(a) of the Indenture)

via hand delivery or registered mail, return receipt requested

Bankers Trust Company, Corporate Trust and Agency Group
Four Albany St.
New York, NY 10006

The undersigned hereby elects to have the Company redeem the enclosed
Note pursuant to Section 7.1(a) of the Indenture (REDEMPTIONS NOT INVOLVING THE
DEATH OF A HOLDER).(1)

If you are effecting this redemption on behalf of a registered holder or
beneficial owner of a Note, identify such registered holder or beneficial owner
____________________________.(2) If you wish to redeem less than all of the
principal amount of the Note, state the amount that you wish to redeem (which
may be $1000 or any integral multiple thereof): _____________________. State
the amount of the requested redemption, if any that exceeds the $50,000 per
holder Annual Amount Limitation(3) for this annual redemption period
____________.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

(1) The undersigned hereby elects to redeem the enclosed Note in the principal
amount set forth above pursuant to Section 7.1(a) of the Indenture;

(2) The Note is free and clear of any liens or encumbrances of any kind; and

(3) The undersigned hereby certifies that it has the actual authority to effect
this redemption and that such redemption does not exceed the $50,000 Annual
Amount Limitations for the current annual redemption period except as and to
the extent set forth above.

SO CERTIFIED, this the _____ day of ___________, ________.

By:_________________________________

Title:_________________________

____________________

(1) The undersigned understands and agrees that the Company or
the Trustee may request additional information or documentation if
necessary to determine the appropriate resolution of this request for
redemption.

(2) For purposes of a holder s request for redemption and a
request for redemption on behalf of a deceased holder, such
beneficial interest shall be deemed to exist in cases of street name
or nominee ownership, ownership under the Uniform Gift to Minors Act,
community property or other joint ownership arrangements between a
husband and wife (including individual retirement accounts or Keogh
[H.R.10] plans maintained solely by or for the holder or decedent or
by or for the holder or decedent and his spouse), and trusts and
certain other arrangements where a person has substantially all of
the power to sell, transfer or otherwise dispose of a Note and the
right to receive the proceeds therefrom, as well as interest and
principal payable with respect thereto.

(3) Redemptions in any annual period are subject to a $50,000
per holder limitation, among other limitations and restrictions.

76
<PAGE> 87

Exhibit B to Indenture
OPTION TO ELECT REDEMPTION
(pursuant to Section 7.1(b) of the Indenture)

via hand delivery or registered mail, return receipt requested

Bankers Trust Company, Corporate Trust and Agency Group
Four Albany St.
New York, NY 10006

The undersigned hereby elects to redeem the enclosed Note pursuant to
Section 7.1(b) of the Indenture (REDEMPTIONS INVOLVING THE DEATH OF A
HOLDER).(1) The name of the deceased holder or beneficial owner is
________________________.

THE UNDERSIGNED HEREBY CERTIFIES THAT: (1) The undersigned hereby elects to
redeem the enclosed Note in the principal amount set forth above pursuant to
Section 7.1(b) of the Indenture; (2) The person identified above is a deceased
registered holder or beneficial owner of the enclosed Note within the meaning
set forth in the Indenture; (3) If executed on behalf of a registered holder or
beneficial owner of the Note other than the undersigned, the undersigned hereby
certifies that it has the actual authority to effect this redemption and that
such redemption does not exceed the $50,000 Annual Amount Limitation for the
current annual redemption period except as and to the extent set forth above;
(4)The enclosed Note is free and clear of any liens or encumbrances of any
kind; (5) Enclosed is a certified true and accurate certificate of death
pertaining to such deceased registered holder or beneficial owner; (6) If the
undersigned is not a registered holder of the Note, the undersigned has
enclosed appropriate evidence of authority to effect this redemption; and (7)
The undersigned is the authorized representative of such deceased registered
holder or beneficial owner, or a surviving tenant by the entirety, joint tenant
or tenant in common of such deceased registered holder.

SO CERTIFIED, this the _____ day of ___________, ________.

By:_________________________________

Title:_________________________

_______________________

(3) Redemptions in any annual period are subject to a $50,000
per holder limitation, among other limitations and restrictions.

<PAGE> 1
EXHIBIT 4.3

SHOLODGE, INC.

AND

BANKERS TRUST COMPANY,
TRUSTEE

_________________________

FIRST SUPPLEMENTAL INDENTURE

Dated as of ______ ___, 1996

__% Senior Subordinated Notes due 2006, Series A

Supplemental to Indenture dated as of _______, ___, 1996

<PAGE> 2

FIRST SUPPLEMENTAL INDENTURE, dated as of [ ], 1996 (the "First
Supplemental Indenture"), to the Indenture, dated as of [ ], 1996 (the
"Indenture"), between ShoLodge, Inc., a corporation duly organized under the
laws of the State of Tennessee (the "Company"), having its principal office at
217 West Main Street, Gallatin, Tennessee 37066, and Bankers Trust Company, a
New York banking corporation (the "Trustee"), having a corporate trust office
at Four Albany Street, New York, NY 10006.

RECITALS OF THE COMPANY

WHEREAS, the Company has duly authorized the execution and delivery of
the Indenture to provide for the issuance from time to time of one or more
series of its senior subordinated notes (the "Notes") to be issued in one or
more series as in the Indenture provided;

WHEREAS, the Company desires and has requested the Trustee to join it
in the execution and delivery of this First Supplemental Indenture in order to
establish and provide for the issuance by the Company of a series of Notes
designated as its _____% Senior Subordinated Notes due 2006, Series A in the
aggregate principal amount of up to $40,250,000, substantially in the form
attached hereto as Exhibit "A" (the "Series A Notes"), on the terms set forth
herein;

WHEREAS, Section 14.1 of the Indenture provides that a supplemental
Indenture may be entered into by the Company and the Trustee without the
consent of any holder of any Notes for such purpose provided certain conditions
are met;

WHEREAS, the conditions set forth in the Indenture for the execution
and delivery of this First Supplemental Indenture have been complied with; and

WHEREAS, all things necessary to make this First Supplemental
Indenture a valid agreement of the Company and the Trustee, in accordance with
its terms, and a valid amendment of, and supplement to, the Indenture have been
done;

NOW THEREFORE:

In consideration of the premises and the purchase and acceptance of
the Series A Notes by the holders thereof the Company mutually covenants and
agrees with the Trustee, for the equal and proportionate benefit of all holders
of the Series A Notes, that the Indenture is supplemented and amended, to the
extent and for the purposes expressed herein, as follows:

1. Establishment of Series A Notes under the Indenture. The
Company hereby establishes the Series A Notes in the form of Exhibit A hereto
in an aggregate principal amount up to $40,250,000 and on the terms set forth
therein as a series of Notes under the Indenture pursuant to this First
Supplemental Indenture.

2. Optional Redemption by the Company. In accordance with Section
6.1 of the Indenture, the Series A Notes will be subject to optional redemption
by the Company as provided in the form of Series A Note attached as Exhibit A
hereto.
<PAGE> 3

3. Redemption at Option of Holder. In the event that a holder or
his or her duly authorized representative notifies the Trustee of such person's
desire to redeem all or any portion of a Series A Note pursuant to Section
7.1(a) or (b) of the Indenture, the Trustee shall furnish such holder with the
form set forth in Exhibit A to the Indenture (for redemptions pursuant to
Section 7.1(a) of the Indenture) or Exhibit B to the Indenture (for redemptions
pursuant to Section 7.1(b) of the Indenture).

4. Trustee Disclaimer. The Trustee makes no representations as to
the validity or sufficiency of this First Supplemental Indenture or the Series
A Notes, and assumes no responsibility for the recitals contained herein or
therein which shall be taken as the statements of the Company.

5. Governing Law. This First Supplemental Indenture and the
Series A Notes shall be governed by the laws of the State of Tennessee as to
all matters affecting the duties, liabilities, privileges, rights and
obligations of the Noteholders, the Company and any agents of the foregoing,
including but not limited to, matters of validity, construction, effect and
performance; however, the duties and responsibilities of the Trustee shall be
governed by the laws of the State of New York.

IN WITNESS WHEREOF, SHOLODGE, INC. has caused this First Supplemental
Indenture to be signed and acknowledged by its Chairman of the Board, President
or one of its Vice Presidents, and its corporate seal to be affixed hereunto,
and the same to be attested by its Secretary; and Bankers Trust Company has
caused this First Supplemental Indenture to be signed and acknowledged, and its
corporate seal to be affixed hereunto, and the same to be attested; all as of
the day and year first above written.

SHOLODGE, INC.
Attest:

By:
-------------------- ------------------------
Secretary Its:
-----------------------

[Corporate Seal]
BANKERS TRUST COMPANY
Attest:

By:
-------------------- ------------------------
Title: Its:
-----------------------

[Corporate Seal]
<PAGE> 4

Exhibit A to First Supplemental Indenture

[FORM OF FACE OF NOTES]

No. ShoLodge, Inc. $

[ ]% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A

ShoLodge, Inc., a corporation organized and existing under the laws of
the State of Tennessee (hereinafter called the "Company," which term shall
include any successor corporation as defined in the Indenture referred to on
the reverse side hereof), for value received, hereby promises to pay to[
], or registered assigns, the sum of [ ] Dollars on or before[
], 2006, in such coin or currency of the United States of America as at
the time of payment is legal tender for public and private debts, and to pay
interest (calculated on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal amount hereof in like coin or currency from the
Interest Payment Date to which interest hereon has been paid immediately
preceding the date hereof (unless the date hereof is an Interest Payment Date
to which interest has been paid, in which case from the date hereof) or, if no
interest has been paid on this Note since the Original Issue Date hereof, as
defined in the Indenture referred to on the reverse side hereof, from such
Original Issue Date, at the rate of [ ]% per annum, payable quarterly on
February 1, May 1, August 1 and November 1, commencing February 1, 1997, until
the principal hereof shall have been paid or duly provided for. The interest so
payable on any Interest Payment Date will be paid to the person in whose name
this Note is registered at the close of business on the fifteenth day of the
month immediately preceding such Interest Payment Date (whether or not such
fifteenth day shall be a regular business day), unless the Company shall
default in the payment of interest due on such Interest Payment Date, in which
case such defaulted interest shall be paid to the person in whose name this
Note is registered at the close of business on a Special Record Date for the
payment of such defaulted interest established by notice to the registered
holders of Notes given by mail to said holders as their names and addresses
appear in the Note Register (as defined in the Indenture referred to on the
reverse side hereof) not less than 10 days preceding such Special Record Date.
The principal hereof and the interest hereon shall be payable at an office or
agency of the Company maintained for that purpose in New York, New York or such
other office or agency maintained for that purpose; provided, however, that the
interest on this Note may be payable, at the option of the Company, by check
mailed to the person entitled thereto as such person's address shall appear on
the Note Register (including the records of any Note Co-Registrar).

Reference is hereby made to the further provisions of this Note set
forth on the reverse side hereof, and such further provisions shall for all
purposes have the same effect as though fully set forth at this place.

This Note shall not be entitled to any benefit under the Indenture
referred to on the reverse side hereof, or be or become valid or obligatory for
any purpose, until the authentication certificate endorsed hereon shall have
been signed by Bankers Trust Company, Trustee under such Indenture, or a
successor trustee thereto under such Indenture.

IN WITNESS WHEREOF, SHOLODGE, INC. has caused this Note to be signed
in its name by its Chairman of the Board, President or one of its Vice
Presidents by his signature or a facsimile
<PAGE> 5

thereof, and its corporate seal to be affixed or printed or engraved hereon, or
a facsimile thereof, and attested by its Secretary by his signature or a
facsimile thereof.

Dated: SHOLODGE, INC.

By:
-------------------

Title:
----------------
[CORPORATE SEAL]

Attest:

- ------------------------

Title: Secretary

[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]

TRUSTEE'S AUTHENTICATION CERTIFICATE

This is one of the Notes described in the within-mentioned Indenture.

Bankers Trust Company
as Trustee

By:
----------------------
Authorized Signatory

[FORM OF REVERSE OF NOTE]

ShoLodge, Inc.

__% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A

This Note is one of a duly authorized issue of Notes of the Company
designated as its __% Senior Subordinated Notes due 2006, Series A (herein
called the "Notes"), limited in aggregate principal amount of up to $40,250,000
(except for Notes authenticated and delivered upon transfer of, or in exchange
for or in lieu of other Notes), all issued and to be issued only in fully
registered form without coupons under an Indenture and First Supplemental
Indenture (such Indenture and First Supplemental Indenture, together with any
indenture supplemental thereto, called the "Indenture"), each dated as of
_________, 1996 and duly executed and delivered by ShoLodge, Inc. to Bankers
Trust Company, New York, New York, Trustee (the Trustee, together with its
successors being herein called the "Trustee"), to which Indenture (which is
hereby made a part hereof and to all of which the holder by acceptance hereof
assents) reference is hereby made for a description of the

<PAGE> 6

respective rights of and restrictions upon the Company and the holders of the
Notes, and the rights, limitations of rights, duties and immunities of the
Trustee in respect thereof.

The Notes are redeemable at the option of the Company as a whole at
any time, or in part from time to time, prior to maturity, commencing [ ],
1999, on not less than 30 nor more than 60 days' notice given as provided in
the Indenture, upon payment of the then applicable redemption price (expressed
in percentages of the principal amount) set forth below under the heading
"General Redemption Prices," together in each case with accrued and unpaid
interest to the date fixed for redemption, all subject to the conditions more
fully set forth in the Indenture. The General Redemption Prices (expressed in
percentages of the principal amount) applicable during the 12-month period
beginning [ ] in the years indicated below are as follows:

General Redemption Prices

If redeemed during the 12 month period beginning [ ],
1999 ......................... 104%

2000 ......................... 103%

2001.......................... 102%

2002.......................... 101%

2003 and thereafter .......... 100%

Unless the Notes have been declared due and payable prior to their
maturity by reason of an Event of Default and such Event of Default has not
been waived and such declaration has not been rescinded or annulled, a holder
has the right under Section 7.1 of the Indenture to present Notes for payment
prior to their maturity, and the Company will redeem the same (or any portion
of the principal amount thereof which is $1,000 or an integral multiple
thereof, as the holder may specify), subject to the following limitations: (a)
the Company will have no obligation to redeem any Notes prior to December 1,
1999, except on the death of a holder as described below, and (b) the Company
will have no obligation to redeem Notes (on the death of a holder or otherwise)
in excess of the following annual maximum amounts (collectively, the "Annual
Amount Limitations") of (i) $50,000 per holder and (ii) an aggregate amount for
all Notes submitted for redemption equal to five percent (5%) of the aggregate
original principal amount of the notes of all series theretofore issued under
the Indenture (the "Five Percent Limitation"). Notes submitted for redemption,
except for Notes submitted for redemption following the death of a holder, must
be submitted by November 1 of any year, commencing on November 1, 1999, for
redemption on the following December 1. If the $50,000 per holder limitation
has been reached and the Five Percent Limitation has not been reached, if Notes
have been properly presented for payment each in an aggregate principal amount
exceeding $50,000, the Company will redeem such Notes in order of their receipt
(except Notes presented for payment in the event of death of a holder, which
will be given priority in order of their receipt), up to the aggregate
limitation of five percent (5%) of the aggregate principal amount of the Notes
of all series issued under this Indenture, notwithstanding the $50,000
limitation.

<PAGE> 7

Subject to the Annual Amount Limitations (and unless the Notes have
been declared due and payable prior to their maturity by reason of an Event of
Default and such Event of Default has not been waived and such declaration has
not been rescinded or annulled), Notes submitted for redemption upon the death
of any holder (or any portion of the principal amount of such Notes which is
$1,000 or an integral multiple thereof, as the holder may specify), will be
redeemed within sixty (60) days following receipt by the Trustee of a written
request therefor from such holder's personal representative, or surviving joint
tenant(s), tenant by the entirety or tenant(s) in common.

In the case of Notes registered in the name of banks, trust companies
or broker-dealers who are members of a national securities exchange or the
National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the $50,000 per holder limitation applies to each beneficial owner of Notes
held by any Qualified Institution as if such beneficial owner were a separate
holder. A Note held in tenancy by the entirety, joint tenancy or tenancy in
common will be deemed to be held by a single holder, and the death of a tenant
by the entirety, joint tenant or tenant in common will be deemed the death of a
holder. The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial ownership interest of a Note, will be
deemed the death of the holder, regardless of the registered holder. For
purposes of a holder's request for redemption and a request for redemption on
behalf of a deceased holder, such beneficial interest shall be deemed to exist
if the holder certifies street name or nominee ownership, ownership by a
custodian for the benefit of a minor under the Uniform Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and
wife (including individual retirement accounts or Keogh plans maintained solely
by or for the holder or decedent, or by or for the holder or decedent and his
or her spouse) and trusts and certain other arrangements whereby a person has
substantially all of the beneficial ownership interests in the Note during his
or her lifetime. Beneficial interests shall include the power to sell, transfer
or otherwise dispose of a Note and the right to receive the proceeds therefrom,
as well as interest and principal payable with respect thereto.

Notes may be presented for redemption by delivering to the Trustee at
its main office as defined in the Indenture: (a) a written request for
redemption, in the form attached to the Indenture and provided by the Trustee
upon written request, signed by the registered holder or his or her duly
authorized representative, (b) the Note to be redeemed, (c) in the case of a
surviving tenant or personal representative of a deceased holder or beneficial
owner, appropriate evidence of death and such other additional documents as the
Trustee shall require, including, but not limited to, inheritance or estate tax
waivers and evidence of authority of the personal representative and (d)
certification that the aggregate requests for prepayment tendered on behalf of
a registered holder or beneficial owner do not exceed (or a description of the
amount by which such aggregate requests exceed) the $50,000 per holder
limitation for the applicable annual redemption period. In addition, any
request for prepayment must be delivered to the Trustee by hand or registered
mail, return receipt requested.

<PAGE> 8

Any Notes tendered or any request for prepayment may be withdrawn by
written request received by the Trustee three (3) business days prior to the
issuance of a check in payment thereof.

Notes presented for redemption as set forth above will be redeemed in
order of their receipt by the Trustee, except that Notes presented for payment
in the event of death of a holder will be given priority in order of their
receipt over other Notes. Notes not redeemed in any such period because they
have not been presented prior to November 1 of that period or because of the
Annual Amount Limitations will be held in order of their receipt for redemption
during the following twelve (12) month period(s) until redeemed, unless sooner
withdrawn by the holder. Holders of Notes presented for redemption shall be
entitled to and shall receive scheduled monthly payments of interest thereon on
scheduled Interest Payment Dates until their Notes are redeemed.

In the case of any Notes which are presented for redemption in part
only, upon such redemption the Company shall execute and the Trustee shall
authenticate and deliver to or on the order of the holder of such Notes,
without service charge, a new Note or Notes, of any authorized denomination or
denominations as requested by such holder, in aggregate principal amount equal
to the unredeemed portion of the principal of the Notes so presented. The
Company may redeem, in acceptance of tenders made pursuant hereto, Notes in
excess of the principal amount that the Company is obligated to redeem, and may
purchase Notes in the open market. However, the Company may not use any Notes
purchased in the open market as a credit against its redemption obligations
hereunder.

In the event that there shall occur a Change in Control (as defined in
the Indenture), the holder of this Note shall have the right, subject to
certain conditions stated in the Indenture, to present it for payment prior to
maturity, and the Company will redeem the same (or any portion of the principal
amount thereof which is $1,000 or an integral multiple thereof, as the holder
shall specify). The $50,000 per holder limitation and the Five Percent
Limitation shall not apply to any such redemption.

To the extent permitted by, and as provided in, the Indenture, the
Company may, by entering into an indenture or indentures supplemental to the
Indenture, modify, alter, add to or eliminate in any manner any provisions of
the Indenture, or the rights of the holders or the rights and obligations of
the Company, upon the consent, as in the Indenture provided, of the holders of
not less than fifty-one percent (51%) in principal amount of the Notes then
outstanding. Notwithstanding the foregoing, no supplemental indenture shall,
without the consent of the holder of each outstanding Note affected thereby,
change the Stated Maturity of the principal of, or any installment of interest
on any Note, or reduce the principal amount thereof or the rate of interest
thereon, reduce the percentage of the aggregate principal amount of outstanding
Notes the consent of the holders of which is required for any supplemental
indenture or for any waiver of compliance with certain provisions of the
Indenture, or modify any of the provisions of the Indenture relating to the
foregoing, all except as provided in the Indenture.

If an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and all interest accrued on all
the Notes at any such time outstanding under the Indenture may be declared, and
upon such declaration shall become, immediately due and payable, in the manner,
with the effect and subject to the conditions provided in the Indenture. The
Indenture
<PAGE> 9

provides that such declaration and its consequence may be waived by the holders
of a majority in principal amount of the Notes then outstanding.

The Notes are issuable as registered Notes without coupons in
denominations of integral multiples of $1,000. Subject to the provisions of
the Indenture, the transfer of this Note is registrable by the registered
holder hereof, in person or by his attorney duly authorized in writing, at the
office or agency of the Company in New York, New York or at any other office or
agency the Company maintains for that purpose on books of the Company to be
kept for that purpose at said office, upon surrender and cancellation of this
Note duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Trustee, and thereupon a new fully
registered Note of the same series, of the same aggregate principal amount and
in authorized denominations, will be issued to the transferee or transferees in
exchange therefor; and this Note, with or without others of the same series,
may in like manner be exchanged for one or more new fully registered Notes of
the same series of other authorized denominations but of the same aggregate
principal amount; all as provided in the Indenture. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge or expense that may be
imposed in relation thereto.

Prior to due presentment for registration of transfer, the Company,
the Trustee or any agent of the Company or the Trustee may deem and treat the
person in whose name this Note shall be registered at any given time upon the
Note Register as the absolute owner of this Note for the purpose of receiving
any payment of, or on account of, the principal and interest on this Note and
for all other purposes whether or not this Note be overdue; and neither the
Company nor the Trustee, nor any agent of the Company or the Trustee shall be
bound by any notice to the contrary.

No recourse under any obligation, covenant or agreement contained in
the Indenture or in any Note, or because of the creation of the indebtedness
represented hereby, shall be had against any incorporator, any past, present or
future stockholder, or any officer or director of the Company or any successor
corporation, as such under any rule of law, statute or constitution.

In any case where the date fixed for the payment of principal or
interest on any of the Notes or the date fixed for redemption thereof shall not
be a business day, then payment of such principal or interest need not be made
on such date, but may be made on the next succeeding business day with the same
force and effect as if made on the date fixed for such payment or redemption,
and no interest shall accrue for the period from or after such date.

All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

<PAGE> 10

ASSIGNMENT FORM
Via Hand Delivery or Registered Mail, Return Receipt Requested
Bankers Trust Company, Corporate Trust and Agency Group
Four Albany Street
New York, NY 10006

To assign this Note, fill in the form below:

I or we assign and transfer this Note to

(Insert assignee's Soc. Sec. or tax I.D. No.)

_______________________
_______________________
_______________________
_______________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________ agent to transfer this Note on the books of the Company. The
agent may substitute another to act for him.
____________________________________________________________________________

Date________________________ Your signature:_______________________________

________________________________________________

Signature(s) must be guaranteed by an eligible guarantor institution which is
a member of a recognized signature program, i.e., Securities Transfer Agents
Medallion Program ("STAMP"), Stock Exchange Medallion Program ("SEMP") or New
York Stock Exchange Medallion Signature Program ("MSP"). Sign exactly as your
name appears on the Note. If the Assignment Form is executed by a person other
than a registered holder, enclose appropriate evidence of your authority to
effect the assignment.
______________________________________________________________________________

TO REDEEM A NOTE PURSUANT TO SECTION 7.1 OF THE INDENTURE, REQUEST A
REDEMPTION FORM AND PROVIDE YOUR NAME AND MAILING ADDRESS, VIA HAND DELIVERY
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED TO:

BANKERS TRUST COMPANY
CORPORATE TRUST AND AGENCY GROUP
FOUR ALBANY STREET
NEW YORK, NY 10006

<PAGE> 1
Exhibit 5

[BOULT, CUMMINGS, CONNERS & BERRY PLC LETTERHEAD]

November 7, 1996

ShoLodge, Inc.
217 West Main Street
Gallatin, Tennessee 37066

Ladies and Gentlemen:

We have acted as counsel for ShoLodge, Inc. (the "Company") in
connection with the registration statement on Form S-3 (File No. 333-14463)
(the "Registration Statement") filed by the Company, covering up to $125,000,000
of the Company's Senior Subordinated Notes (the "Notes").

Each series of Notes is proposed to be issued pursuant to the terms of
an indenture and a supplemental indenture to be entered into between the
Company and Bankers Trust Company, as trustee (the "Indenture" and
"Supplemental Indentures").

In rendering this opinion, we have examined such certificates of
officers of the Company and such other writings, and have made such examination
of law, as we have deemed necessary.

We are of the opinion that when the Indenture and each Supplemental
Indenture have been duly authorized, executed and delivered by each party
thereto, and the issuance, execution and delivery of a specific series of Notes
have been duly authorized and executed, delivered and authenticated in
accordance with the terms of the Indenture and a specific Supplemental
Indenture related thereto and sold pursuant to an underwriting agreement in
substantially the form filed as an exhibit to the Registration Statement, such
Notes will be legally issued and constitute binding obligations of the Company,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).

In rendering our opinion, we have assumed that, at the time of the
execution and delivery of the Indenture and the applicable Supplemental
Indenture and the execution, delivery and authentication of the related series
of Notes, (i) there will not have occurrred any change in the law affecting the
authorization, issuance, validity or enforceability of the Indenture,
Supplemental Indenture or the Notes, (ii) the Registration Statement will have
been declared effective by the Commission and will continue to be effective,
and the issuance of such securities will be in compliance with all applicable
state securities laws; (iii) the Notes will be issued and

<PAGE> 2
ShoLodge, Inc.
November 7, 1996
Page 2

sold as described in the applicable Prospectus Supplement; (iv) none of the
particular terms of a series of Notes will violate any applicable law, and (v)
neither the issuance and sale of the Notes nor the compliance by the Company
with the terms thereof will result in a violation of any agreement or
instrument then binding upon the Company or any order of any court or
governmental body having jurisdiction over the Company.

Further, we have assumed the accuracy and completeness of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Company acting within the scope of
their official capacities and have not verified the accuracy or truthfulness
thereof. We have also assumed the genuineness of the signatures appearing upon
such public records, certifications, documents and proceedings. In addition,
we have assumed that the Indenture and each Supplemental Indenture and the
related Notes will be executed and delivered in substantially the form filed as
exhibits to the Registration Statement (including such exhibits incorporated
therein which were previously filed with the Commission), and that such Notes
will be sold as described in the Prospectus Supplements described in the
Registration Statement.

We express no opinion as to the laws of any jurisdiction, other than
the federal laws of the United States of America and the laws of the State of
Tennessee.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement,
without implying or admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Securities and Exchange Commission
issued thereunder, with respect to any part of the Registration Statement,
including this exhibit.

Very truly yours,

/s/ BOULT, CUMMINGS, CONNERS & BERRY, PLC