EXHIBIT (d)(3)
--------------
HEADS OF AGREEMENT
------------------
This Heads of Agreement (this "HOA") is entered into as of the 20th
day of September, 2000 (the "Effective Date") by and between Choice Hotels
International, Inc. ("Choice") and Sunburst Hospitality Corporation ("Sunburst")
(collectively, the "Parties"), with respect to the following:
WHEREAS, Sunburst is engaged in the buying, developing and operating
of hotel properties;
WHEREAS, Choice is engaged in franchising and managing hotels and in
providing various services for its franchises to strengthen particular hotel
brands, including the operation of a national reservation system for Choice's
brands and the conducting of advertising and marketing activities on behalf of
franchises of Choice's brands;
WHEREAS, prior to October 15, 1997, Sunburst was the common parent of
a consolidated group that included as one of its subsidiaries Choice;
WHEREAS, effective October 15, 1997, Sunburst distributed all of the
outstanding common stock of Choice pro rata to Sunburst's shareholders (the
--- ----
"Distribution");
WHEREAS, in connection with such Distribution, Sunburst and Choice
entered into a Strategic Alliance Agreement in part to establish a relationship
whereby Sunburst would develop and acquire certain hotels to be franchised by
Choice and the Parties would cooperate with respect to matters of mutual
interest;
WHEREAS, on October 15, 1997, Sunburst issued to Choice a Subordinated
Note due October 15, 2002 in the principal amount of $115,000,000 and containing
the terms set forth therein (the "Term Note");
WHEREAS, Choice and Sunburst entered into an Omnibus Agreement (the
"First Omnibus Amendment Agreement") dated December 28, 1998, to, among other
things, amend the terms of the Strategic Alliance Agreement and the Term Note,
and entered into a Second Omnibus Amendment Agreement (the "Second Omnibus
Amendment Agreement") dated February 29, 2000, to, among other things, further
amend the Strategic Alliance Agreement and the Term Note as amended by the First
Omnibus Amendment Agreement;
WHEREAS, under the terms of the Term Note (as amended) a "Change of
Control" (as defined therein) of Sunburst constitutes an Event of Default and
Sunburst currently desires to enter into a merger with an entity controlled by
certain Sunburst affiliates and members of Sunburst management (the "MBO") the
consummation of which would constitute a Change of Control of Sunburst under the
Term Note; and
WHEREAS, in order to permit Sunburst to consummate the MBO, and in
contemplation of the MBO occurring, the Parties desire to enter into the
transaction set forth herein;
NOW, THEREFORE, Choice and Sunburst agree as follows:
ARTICLE ONE
AMENDED AND RESTATED AGREEMENTS
1.1 Strategic Alliance Agreement. On the Closing Date, subject to
----------------------------
the conditions set forth herein, the Parties shall enter into the Amended and
Restated Strategic Alliance Agreement, substantially in the form attached hereto
as Exhibit A.
---------
1.2 Omnibus Amendment to Franchising Agreements. On the Closing
-------------------------------------------
Date, subject to the conditions set forth herein, the Parties shall enter into
the Amended and Restated Omnibus Amendment to Franchising Agreements,
substantially in the form attached hereto as Exhibit B.
---------
1.3 Indenture. On the Closing Date, subject to the conditions set
---------
forth herein, Sunburst shall enter into an indenture (the "Indenture") as
contemplated by the "Description of Senior Subordinated Discount Notes" attached
hereto as Exhibit C, if Notes are issued pursuant to Section 2.1.
---------
ARTICLE TWO
TERM NOTE
2.1 Exchange. Choice hereby agrees, subject to the satisfaction of
--------
the conditions set forth herein, on the Closing Date, to surrender to Sunburst
for cancellation the Term Note upon receipt of and in exchange for (i) the
issuance by Sunburst to Choice under the Indenture of Senior Subordinated
Discount Notes due 2007 (the "Notes") with an aggregate principal amount at
maturity of seventy million eight hundred and thirty-one thousand dollars
($70,831,000) and representing an aggregate accreted value on the date of
issuance of sixty million dollars ($60,000,000); provided, however, that, (a) in
lieu of issuing the Notes, Sunburst may elect to pay to Choice on the Closing
Date by wire transfer of immediately available funds an additional amount of
cash in the amount of $50,000,000 or (b) Sunburst may elect to issue less than
sixty million dollars ($60,000,000) accreted value of Notes and correspondingly
pay an amount in cash equal to the product of (I) sixty million dollars
($60,000,000) less the accreted value of the Notes to be issued and (II) 0.8333,
(ii) the payment by Sunburst to Choice by wire transfer of immediately available
funds of an amount equal to $ million ($ ) and (iii) the
payment by Sunburst to Choice by wire transfer of immediately available funds of
an amount of accrued but unpaid interest on the principal balance of the Term
Note from and including June 30, 2000 and through but excluding the Closing
Date.
2.2 Registration Rights. The Parties acknowledge that Choice
-------------------
reserves the right to sell the Notes in whole or in part at any time prior to
the maturity date for the Notes. Accordingly, if Notes are issued pursuant to
Section 2.1. Sunburst agrees to enter into a registration rights agreement on
the Closing Date with terms consistent with the registration rights provisions
set forth in the "Description of Senior Subordinated Notes" attached hereto as
Exhibit C. Sunburst agrees to, and agrees use all commercially reasonable
---------
efforts to cause its affiliates and advisors to, take any and all actions
necessary in the reasonable judgment of Choice and its advisors, in order to
enable Choice to sell the Notes in one or more sales under a shelf registration
under
-2-
the Securities Act of 1933 or one private placement exempt from the registration
requirements thereof (which may take the form of a 144A private placement with a
subsequent registered exchange offer) not inconsistent with the terms of the
Registration Rights Agreement but which shall include all actions of an issuer
of securities in an offering under Rule 144A under the Securities Act.
2.3 Rating of the Notes. Sunburst shall use all commercially
-------------------
reasonable best efforts to cause the Notes to be rated by Standard & Poor's and
Xxxxx'x (or, if one of such rating agencies shall not rate the Notes, by Fitch
as an alternate rating agency) prior to the Closing Date, if Notes are issued
pursuant to Section 2.1. Notwithstanding the foregoing, if the Notes shall not
have been rated by such two rating agencies on or prior to the Closing Date,
Sunburst shall pay to Choice, as liquidated damages, the sum of nine hundred
thousand dollars ($900,000) promptly.
2.4 Sunburst's agreement to market the Notes, including obtaining a
rating and any due diligence that may be required by prospective investors, is
subject to reimbursement of Sunburst's time and expenses by Choice.
ARTICLE THREE
OTHER AGREEMENTS
3.1 Hotel Site. On or prior to the Closing Date, Sunburst shall
----------
convey to Choice all title in fee simple to the parcel of land in Mount Laurel,
New Jersey described on Schedule 3.1 hereto (the "Parcel"). The Parcel shall be
------------
conveyed to Choice free and clear of all encumbrances, except for the
encumbrances set forth on Schedule 3.1 hereto ("Permitted Encumbrances").
3.2 Representations and Warranties. As an inducement to enter into
------------------------------
this HOA, Sunburst represents and warrants to Choice as follows:
(a) As of the Closing, Sunburst or its subsidiary will have the
right, power and authority to sell and convey the Parcel to Choice and,
other than this HOA, Sunburst has not entered into any agreement granting
to any person any option, right of first refusal or similar right with
respect to the right, title and interests in the Parcel;
(b) (i) There is no litigation or governmental, administrative or
arbitration proceedings or investigations pending or, to Sunburst's
knowledge, threatened against Sunburst or its subsidiaries (solely as such
affects the Parcel) or the Parcel, (ii) there are no unsatisfied judgments,
arbitration awards or judicial orders against Sunburst or its subsidiaries
(solely as such affects the Parcel) or the Parcel and (iii) there are no
pending or, to Sunburst's knowledge, threatened complaints, charges,
petitions or claims against Sunburst or its subsidiaries (solely as such
affects the Parcel) or the Parcel;
(c) Sunburst has not received any written notice from any
governmental authority with respect to any actual or threatened taking of
the Parcel or any portion thereof by the exercise of the right of
condemnation or eminent domain;
-3-
(d) Sunburst, to the best of its knowledge, is in material compliance
with each, and is not in material violation of any, law, ordinance or
governmental rule or regulation (including, without limitation, any and all
applicable Environmental Laws (as hereinafter defined), and building and
zoning ordinances) to which Sunburst's business (solely as it affects the
Parcel) or the Parcel is subject; Sunburst has not failed to obtain any
license, permit, certificate or other governmental authorization or
inspection necessary to the ownership or use of the Parcel or the conduct
of Sunburst's business (solely as it affects the Parcel); and Sunburst has
not received any written communication that alleges that Sunburst is not in
compliance with any Environmental Laws or other law, ordinance or
governmental rule or regulation, it being understood that for the purposes
of this Agreement, the term "Environmental Law" shall mean all applicable
laws and regulations of any governmental authority applicable to the Parcel
and relating to (i) pollution, (ii) the protection of employee health or
(iii) the environment (including ambient air, surface water, groundwater,
land surface, or subsurface strata), including laws and regulations
relating to emissions, discharges, releases or threatened releases of any
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum and petroleum products;
(e) Attached hereto as Exhibit D is the most recently prepared
---------
environmental survey (Phase I or otherwise) of the Parcel (including all
amendments and supplements thereto) (the "Environmental Survey"). To the
best of Sunburst's knowledge, the Environmental Survey is true and accurate
in all material respects as of the date hereof; and
(f) Attached hereto as Exhibit E is the most recently prepared survey
---------
of the Parcel (including all amendments and supplement thereto) (the "Land
Survey"). To the best of Sunburst's knowledge, the Land Survey is true and
accurate in all material respects as of the date hereof.
(g) The information attached hereto as Exhibit F is accurate in all
----------
material respects and fairly reflects the transactions contemplated in the
Recapitalization Agreement provided to Choice on September 20, 2000.
(h) The description of the transactions contemplated as part of the
recapitalization of Sunburst pursuant to the merger between Sunburst and
Nova Finance Company LLC and the related transactions thereto provided to
Choice and its advisors prior to the date hereof do not vary, in any
material respect, from the description of the transactions set forth in the
Recapitalization Agreement provided to Choice on September 20, 2000.
3.3 Survival and Indemnity. (a) The truth, accuracy and
----------------------
completeness of each of the representations and warranties of Sunburst herein
set forth shall constitute a condition precedent to the obligations of Sunburst
and Choice, respectively, hereunder. Such representations, warranties and
covenants herein set forth shall survive the Closing for the period of the
applicable statute of limitations. Sunburst agrees to indemnify, defend and
hold harmless Choice and any of its affiliates from any claim, damage, demand,
liability, loss or cost (including costs of investigation and defense and
reasonable attorneys' fees and costs) or diminution of value, whether or not
involving a third party claim (collectively, "Damages"), which results from (i)
any material breach of or inaccuracy in the respective representations,
warranties and covenants of
-4-
Sunburst set forth above; or (ii) from any injuries to person or property that
occur or arise out of the Parcel prior to Closing.
(b) Choice agrees to indemnify, defend and hold harmless Sunburst and
any of its affiliates from any Damages relating to the Parcel resulting solely
from facts or circumstances occurring from and after the Closing.
ARTICLE FOUR
CONDITIONS TO CLOSING
4.1 Conditions to Obligations of the Parties. The Parties'
----------------------------------------
obligations to execute the Amended and Restated Strategic Alliance Agreement and
the Amended and Restated Omnibus Amendment to Franchising Agreements and to
enter into the transactions contemplated hereby (the "New Documents") are
subject to the fulfillment to the Parties' reasonable satisfaction, prior to or
at the Closing, of the following conditions:
(a) No Government or Other Proceedings or Litigation. There shall
------------------------------------------------
be no injunction or court order restraining consummation of the
transactions contemplated hereunder and there shall be no pending or
threatened action or proceeding by or before a court or governmental body
seeking to restrain or invalidate all or any portion of the transactions
contemplated hereunder, and there shall not have been adopted any law or
regulation making all or any portion of the transactions contemplated
hereunder illegal.
(b) Governmental Approvals. Any governmental approval required under
----------------------
any law or regulation applicable to the transactions contemplated hereunder
shall have been obtained.
(c) MBO. All conditions to the closing of the Merger contained in
---
the Recapitalization Agreement of even date herewith (other than the
satisfaction of the other conditions to Closing hereunder) between Sunburst
and Nova Finance Company LLC shall have been satisfied.
4.2 Choice's obligation to execute the New Documents and to enter
into the other transaction contemplated hereby is subject to the fulfillment to
Choice's reasonable satisfaction, prior to or at the Closing, of the following
additional conditions:
(a) Sunburst has delivered to Choice free and clear title to the
Parcel, subject only to Permitted Encumbrances.
(b) The covenants and representations and warranties of Sunburst in
this HOA shall be correct when made and on the Closing Date.
(c) The transactions contemplated in the copy of the Recapitalization
Agreement provided to Choice on September 20, 2000 shall be consummated
substantially as set forth therein without material modification, waiver or
amendments to the terms thereof.
-5-
ARTICLE FIVE
CLOSING
5.1 The execution of the New Documents and the consummation of the
other transaction contemplated hereby (the "Closing") will take place at Xxxxxx
Xxxxxx & Xxxxxxx, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00 a.m. on a
date mutually agreed upon following the satisfaction of all conditions herein
(the "Closing Date").
At the Closing the deliveries set forth in Sections 5.2 and 5.3 will
be deemed to occur substantially contemporaneously.
5.2 Sunburst shall, at the Closing, deliver to Choice:
(a) the cash payments contemplated by Sections 2.1(ii) and (iii) and,
if applicable, Section 2.1(i) by wire transfer of immediately available
funds to an account specified in writing by Choice;
(b) if Notes are to be issued pursuant to Section 2.1, the Notes as
contemplated by Section 2.1(i);
(c) if Notes are to be issued pursuant to Section 2.1, an executed
copy of the Indenture;
(d) if Notes are to be issued pursuant to Section 2.1, an executed
copy of the Registration Rights Agreement;
(e) executed copies of the Amended and Restated Strategic Alliance
Agreement and the Amended and Restated Omnibus Amendment to Franchising
Agreements; and
(f) the following documents with respect to the conveyance of the
Parcel:
(1) A Special Warranty Deed executed by Sunburst conveying such
Parcel to Choice, subject only to Permitted Encumbrances and title
exceptions, along with transfer tax forms or affidavits as may be required
for recordation of such Deed in the appropriate jurisdiction;
(2) An assignment agreement executed by Sunburst assigning to
Choice all of Sunburst's rights and obligations under any contracts or
other intangibles relating to the Parcel, together with copies of
documentation relating thereto;
(3) A Title Policy in such form as is reasonably acceptable to
Choice, the cost of which will be shared equally by Sunburst and Choice;
(4) Such affidavits and other documents as may be reasonably
requested by the title insurer to issue the Title Policy in accordance with
the terms of the title commitment, as marked by Choice;
-6-
(5) An affidavit executed by Sunburst confirming that Sunburst is
not a foreign person within the purview of 26 U.S.C. (S) 1445 and the
regulations issued thereunder;
(6) Such resolutions, certificates of good standing and incumbency
certificates and other evidence of authority with respect to Sunburst as
may be reasonably requested by Choice or the title insurer; and
(7) A certificate of the chief executive officer or chief financial
officer of Sunburst confirming the continued accuracy as of the Closing of
the representations and warranties of Sunburst set forth in Section 3.2
above.
5.3 Choice shall, at the Closing, deliver to Sunburst:
(a) the Term Note marked "cancelled"; and
(b) executed copies of the Amended and Restated Strategic Alliance
Agreement and the Amended and Restated Omnibus Amendment to Franchising
Agreements.
5.4 In addition, the Parties shall deliver and execute all other
documents the Parties may reasonably require.
ARTICLE SIX
TERMINATION PROVISIONS
6.1 This HOA will terminate upon the earliest of the following:
(a) Written agreement by the Parties to terminate this HOA; or
(b) In the event of a breach of this HOA by either Party and upon
written notice to the offending Party of said breach; provided, however, that
-------- -------
the notifying Party may not terminate this HOA if the offending Party has cured
the breach within thirty (30) days; or
(c) On February 28, 2001, if the Closing, as contemplated herein, has
not occurred by that date.
ARTICLE SEVEN
MISCELLANEOUS
7.1 Modification. This HOA may only be amended, modified or
------------
supplemented in a written agreement signed by both Parties.
7.2 Waiver. No term or condition of this HOA shall be deemed to have
------
been waived, nor shall there be any estoppel against the enforcement of any
provision hereof, except by written instrument of the Party charged with such
waiver or estoppel.
-7-
7.3 Governing Law. This HOA shall be construed in accordance with
-------------
the laws of the State of Maryland without giving effect to the principles of
conflict of laws.
7.4 Headings. The headings of the sections of this HOA are for
--------
convenience only and shall not affect the construction of this HOA.
7.5 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be delivered by hand or mailed by registered or certified
mail (return receipt requested) to the Parties at the following addresses (or at
such other addresses for a Party as shall be specified by like notice) and shall
be deemed given on the date on which such notice is received:
To Sunburst:
Sunburst Hospitality Corporation
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
To Choice:
Choice Hotels International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
7.6 Assignment. Neither Party shall sell, assign, pledge or
----------
otherwise transfer its interest in this HOA or any part thereof without the
prior written consent of the other Party, except to an entity succeeding to
substantially all of the business and operations of such Party. The
transferring Party shall remain liable for liabilities and obligations existing
at the time of such transfer. Subject to the foregoing, this HOA shall bind and
inure to the benefit of the Parties' respective successors and permitted
assigns.
7.7 Counterparts. This HOA may be executed in two counterparts, each
------------
of which shall be deemed an original, but which together shall constitute one
and the same instrument.
7.8 No Joint Venture or Agency. This HOA is not intended to create a
--------------------------
joint venture, partnership or any other similar arrangement between the Parties,
and neither Party shall be authorized to act as an agent of the other Party,
except as expressly provided herein. Notwithstanding the foregoing, each Party
shall be free to designate the other as its agent for appropriate purposes.
7.9 Severability. If any provision of this HOA shall to any extent
------------
be invalid or unenforceable, the remainder of this HOA shall not be affected
thereby, and each provision shall be valid and enforceable to the fullest extent
permitted by law.
-8-
7.10 Entire Agreement. This HOA contains the entire agreement
----------------
between the Parties hereto. There are no representations, inducements,
promises, arrangements, agreements or undertakings, oral or written, between the
Parties other than those set forth herein respecting the matters addressed in
this HOA. In entering into this HOA, each of the Parties agrees that it did
not rely on any promises, representations or agreements not expressly contained
herein.
7.11 Consent to Jurisdiction. The Parties irrevocably submit to the
-----------------------
exclusive jurisdiction of (a) the Courts of the State of Maryland in Xxxxxxxxxx
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this HOA.
Each party hereto hereby irrevocably designates, appoints and empowers
Corporation Services Company, 0000 Xxxxxx Xxxx, Xxxxxxxxxx, XX 00000 as its true
and lawful agent and attorney-in-fact in its name, place and stead to receive on
its behalf service of process in any action, suit or proceeding with respect to
any matters as to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence.
-9-
IN WITNESS THEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
CHOICE HOTELS INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
SUNBURST HOSPITALITY CORPORATION
By:
---------------------------------
Name:
Title:
-10-
Exhibit A
---------
Exhibit B
---------
Exhibit C
---------
Exhibit D
---------
Exhibit E
---------
Exhibit F
---------
Schedule 3.1
------------
EXHIBIT A
---------
AMENDED AND RESTATED STRATEGIC ALLIANCE AGREEMENT
-------------------------------------------------
This Amended and Restated Strategic Alliance Agreement (this
"Agreement") is entered into as of the _____ day of ______, 2000 (the "Effective
Date") by and between Choice Hotels International, Inc., a Delaware Corporation
formerly known as "Choice Hotels Franchising, Inc." ("Franchising"), and
Sunburst Hospitality Corporation, a Delaware Corporation formerly known as
"Choice Hotels International, Inc." ("Realco") (collectively, the "Parties"),
and amends and restates the original Strategic Alliance Agreement (as amended by
the First Omnibus Amendment Agreement and the Second Omnibus Amendment Agreement
(each as defined below)).
WHEREAS, Realco is engaged in the buying, developing and operating of
hotel properties;
WHEREAS, Franchising is engaged in franchising and managing hotels and
in providing various services for its franchisees to strengthen particular hotel
brands, including the operation of a national reservations system for
Franchising's brands and the conducting of advertising and marketing activities
on behalf of franchisees of Franchising's brands;
WHEREAS, prior to October 15, 1997, Realco was the common parent of a
consolidated group that included as one of its subsidiaries Franchising;
WHEREAS, effective October 15, 1997, the Parties entered into a
Distribution Agreement, pursuant to which Realco distributed all of the
outstanding common stock of Franchising pro rata to Realco's shareholders (the
"Distribution");
WHEREAS, at the time of the Distribution, the Parties determined that
it was mutually beneficial to Realco and Franchising to establish a relationship
whereby Realco would develop or acquire certain hotels to be franchised by
Franchising and the Parties would cooperate with respect to matters of mutual
interest;
WHEREAS, to implement the foregoing and other arrangements between the
Parties, Realco and Franchising entered into that certain Strategic Alliance
Agreement dated as of October 15, 1997 (the "Original Agreement");
WHEREAS, Realco and Franchising entered into an Omnibus Amendment
Agreement (the "First Omnibus Amendment Agreement") dated December 28, 1998, to,
among other things, amend the terms of the Original Agreement, and entered into
a Second Omnibus Amendment Agreement (the "Second Omnibus Amendment Agreement")
dated February 29, 2000, to, among other things, further amend the Original
Agreement as amended by the Omnibus Amendment Agreement (the Original Agreement
as so amended and further amended, the "Amended Strategic Alliance Agreement");
and
WHEREAS, Franchising and Realco desire to further amend the Amended
Strategic Alliance Agreement and to restate the Amended Strategic Alliance
Agreement (as so amended) in a single agreement;
NOW, THEREFORE, Franchising and Realco agree as follows:
1. Definitions
-----------
1.1 Terms defined in the Distribution Agreement shall have the same
meanings when used in this Agreement.
2. Term
----
2.1 This Agreement shall go into effect on the date of the Distribution
(the "Effective Date") and shall continue in force until October 15, 2002 (the
"Expiration Date"), except for Section 4.2, which shall survive until October
15, 2003, and Section 7.1 of this Agreement, which shall survive so long as any
franchising agreements between Realco and Franchising are in effect. This
Agreement may be renewed upon the mutual consent of the Parties.
3. Franchising of Realco Hotels; PIP Matters
-----------------------------------------
3.1 Until the Expiration Date, Realco shall give Franchising written
notice at least fourteen days prior to executing a franchise application with a
third party with respect to the franchising of a hotel or lodging property.
Such written notice shall include a summary term sheet of the proposed
arrangement with the third party. Franchising shall have the opportunity to
present Realco with a plan to brand the hotel or lodging property with one of
its brands, provided that Realco shall have no obligation to enter into an
--------
agreement with Franchising to use any of its brands on the hotel or lodging
property.
3.2 In the event any Franchising-branded Realco hotel is sold during the
term of the Agreement, the property improvement plan ("PIP") for any such hotel
imposed by Franchising as a condition for relicensing will be essentially
limited to items necessary to pass Franchising's Quality Assurance Review
("QAR"). Accordingly, passing hotels will be subject to a minimal or no PIP,
and failing hotels will be subject to correcting only those items that caused
the QAR failure.
4. Development
-----------
4.1 Realco and Franchising have completed a program under which Realco has
developed the twenty-one MainStay Suite Hotels listed on Appendix I attached
----------
hereto and which are franchised by Franchising (the "MainStay Quota"). For
purposes of this Section 4.1, the following shall be included in the MainStay
Quota, notwithstanding Realco's transfer of such hotels prior to the Expiration
Date:
(a) The three MainStay Suites properties transferred pursuant to the
Put Call Agreement between Realco and Franchising;
-2-
(b) The two MainStay Suites properties identified in Appendix II
-----------
attached hereto; and
(c) Any MainStay Suite property sold, transferred or conveyed by
Realco if such property is relicensed by the new owner or transferee as a
MainStay Suites property under market terms acceptable to Franchising.
4.2 Realco asserts that if it completes the construction of any new hotel
properties on or prior to October 15, 2003, the first four (or such lesser
number as are constructed) of such newly constructed hotel properties will be
branded with a Franchising brand.
5. New Product/Concept Testing
---------------------------
5.1 Realco and Franchising desire to continue their relationship under
which certain new products/concepts are tested for Franchising at hotels owned
by Realco. The Parties agree to negotiate in good faith on a case by case basis
with respect to the terms of such participation by Realco in new product/concept
testing. In the event Franchising desires to test or research any new
product/concept in Realco hotels, Franchising shall deliver to Realco a written
description of the new product/concept and plans for its testing or research.
The Parties shall then evaluate appropriate compensation for Realco to receive,
which compensation shall include all direct and indirect costs associated with
the project and an opportunity cost factor, such that the capital invested by
Realco will receive a return on investment equivalent to Realco's incremental
cost of capital.
5.2 In the event Franchising franchises a new brand or concept,
Franchising agrees that no other franchisee shall receive more favorable terms
or conditions than those offered to Realco.
6. Realco Preferred Vendor Programs
--------------------------------
6.1 Except as set forth in this Section 6, Realco intends to make direct
purchases from third parties for products and services respecting its hotels.
Notwithstanding the foregoing, Realco agrees that Franchising may negotiate with
third party vendors of hotel services and products with respect to the provision
of such services and products to Realco. Once an opportunity to make a purchase
on behalf of Realco is identified by Franchising, Franchising will promptly
consult with Realco to ensure that the economic terms and services to be
provided are equal to or better than those available to Realco, and that
entering into such an agreement would not be inconsistent with any then existing
agreements to which Realco is a party. Realco shall then promptly advise
Franchising in writing whether it grants Franchising the authority to negotiate
the relevant purchase for execution by Realco.
6.2 No agreement negotiated by Franchising on behalf of Realco shall
contain a price commitment for a period greater than one year. In addition,
Realco will be entitled to receive the benefits of any other provisions
negotiated by Franchising on behalf of its other franchisees with such vendors.
-3-
7. Dispute and Main Stay Brand Issues Resolution
---------------------------------------------
7.1 Arbitration. Notwithstanding anything contained in this Agreement to
-----------
the contrary, any claim arising out of or related to this Agreement which has
not been resolved by mutual agreement of the Parties after a written notice of
the claim by the complaining Party to the other Party and a forty-five (45) day
negotiation period in which the Parties try to resolve the claim, shall be
finally settled by arbitration. Such arbitration shall be conducted in
Bethesda, Maryland in accordance with the Commercial Rules of the American
Arbitration Association then in effect, as modified or supplemented herein, or
as the Parties mutually agree otherwise. Notwithstanding the rules of the
arbitral body, the Parties hereto agree (a) that any arbitration shall be
presided over by a single arbitrator, who shall have been admitted to the
practice of law, and be in good standing or on retirement status in any of the
fifty United States or the District of Columbia and have experience in hotel
franchise matters, (b) that the arbitrator shall base his decision on the facts
as presented into evidence, and (c) that the arbitrator shall prepare a written
memorandum of decision setting forth the findings of fact and conclusions of
law. The arbitrator shall be selected by the Parties. If they cannot agree on
such selection within a thirty (30) day period, they shall ask the American
Arbitration Association to appoint an arbitrator. The decision of the
arbitrator shall be final, and judgment may be entered upon it in accordance
with the applicable law in any court having jurisdiction. Any claim for relief
made pursuant to this Agreement shall be made within one (1) year from the date
upon which the claim arose. All costs of the arbitration shall be borne by the
Party determined to be the losing Party by the arbitrator. For purposes of
determining the prevailing and losing Party, the arbitrator may consider offers
of settlement by either Party, or both of them. The Circuit Court of Xxxxxxxxxx
County, Maryland shall have exclusive jurisdiction to enforce this arbitration
provision, for injunctive relief in and of arbitration and for enforcement of
any arbitration award.
8. Modification
------------
8.1 This Agreement may only be amended, modified or supplemented in a
written agreement signed by both Parties.
9. Waiver
------
9.1 No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
hereof, except by written instrument of the Party charged with such waiver or
estoppel.
10. Governing Law
-------------
10.1 This Agreement shall be construed in accordance with the laws of the
State of Maryland without giving effect to the principles of conflict of laws.
-4-
11. Headings
--------
11.1 The headings of the sections of this Agreement are for convenience
only and shall not affect the construction of this Agreement.
12. Notices
-------
12.1 All notices and other communications hereunder shall be in writing
and shall be delivered by hand or mailed by registered or certified mail (return
receipt requested) to the Parties at the following addresses (or at such other
addresses for a Party as shall be specified by like notice) and shall be deemed
given on the date on which such notice is received:
To Realco:
Sunburst Hospitality Corporation
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
To Franchising:
Choice Hotels International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: General Counsel
13. Assignment
----------
13.1 Neither Party shall sell, assign, pledge or otherwise transfer its
interest in this Agreement or any part thereof without the prior written consent
of the other Party, except to an entity succeeding to substantially all of the
business and operations of such Party. The transferring Party shall remain
liable for liabilities and obligations existing at the time of such transfer.
Subject to the foregoing, this Agreement shall bind and inure to the benefit of
the Parties' respective successors and permitted assigns.
14. Counterparts
------------
14.1 This Agreement may be executed in two counterparts, each of which
shall be deemed an original, but which together shall constitute one and the
same instrument.
15. No Joint Venture or Agency
--------------------------
15.1 This Agreement is not intended to create a joint venture, partnership
or any other similar arrangement between the Parties, and neither Party shall be
authorized to act as an agent of the other Party, except as expressly provided
herein. Notwithstanding the foregoing, each Party shall be free to designate
the other as its agent for appropriate purposes.
-5-
16. Severability
------------
16.1 If any provision of this Agreement shall to any extent be invalid or
unenforceable, the remainder of this Agreement shall not be affected thereby,
and each provision shall be valid and enforceable to the fullest extent
permitted by law.
17. Entire Agreement
----------------
17.1 This Agreement contains the entire Agreement between the Parties
hereto with respect to the subject matter hereof. There are no representations,
inducements, promises, arrangements, agreements or undertakings, oral or
written, between the Parties other than those set forth herein respecting the
matters addressed in this Agreement. In entering this Agreement, each of the
Parties agrees that it did not rely on any promises, representations or
agreements not expressly contained herein. The Parties hereto acknowledge and
agree that this Agreement supersedes and replaces the Amended Strategic Alliance
Agreement in its entirety; provided, however, that the provisions of Section 3.1
-------- -------
of the First Omnibus Agreement and Section 3.1 of the Second Omnibus Agreement
shall not be affected hereby.
18. Consent to Jurisdiction
-----------------------
18.1 Subject to Section 7.1 hereof, the parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Xxxxxxxxxx
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement. Each Party hereby irrevocably designates, appoints and empowers
Corporation Services Company, 0000 Xxxxxx Xxxx, Xxxxxxxxxx, XX 00000 as its true
and lawful agent and attorney-in-fact in its name, place, and stead to receive
on its behalf service of process in any action, suit, or proceeding with respect
to any matters as to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence.
-6-
IN WITNESS THEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
CHOICE HOTELS INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
SUNBURST HOSPITALITY CORPORATION
By:
------------------------------------
Name:
Title:
-7-
APPENDIX I
Prop. # Location Opening Date
1 000 Xxxxx, XX 10/21/96
2 000 Xxxxxxx, XX 9/17/97
3 000 Xxxx Xxx, XX 11/24/97
4 000 Xxxxxxxxxx, XX 1/19/98
5 861 Indianapolis, IN 1/19/98
6 000 Xxxxxxxxxx, XX 1/23/98
7 000 Xxxxxx Xxxx, XX 1/30/98
8 000 Xxxxxxxxx, XX 3/19/98
9 000 Xxxx Xxxx, XX 3/25/98
10 000 Xxxxxx Xxxx, XX 4/20/98
11 000 Xxxxxxxxxxxx, XX 5/25/98
12 000 Xxxxxxxxxx, XX 7/27/98
13 000 Xxxxxxxx, XX 8/5/98
14 000 Xxxxx Xxxxxxx, XX 12/28/98
15 000 Xxxxx, XX 2/22/99
16 000 Xxxxxxx, XX 4/26/99
17 000 Xxxxxxxxx, XX 6/24/99
18 000 Xxxxx Xxxxxxxxxx, XX 9/3/99
19 000 Xxxxxxx, XX 10/7/99
20 000 Xxxxxxx, XX 10/22/99
21 000 Xxxxxxxx, XX 3/3/00
APPENDIX II
-----------
HOTELS PERMITTED TO BE RE-FLAGGED
(LIMIT TWO)
Blue Ash, Ohio
Louisville, Kentucky
Indianapolis, Indiana
Kansas City, Missouri
Jacksonville, Florida
North Charleston, South Carolina
Raleigh, North Carolina
Lake Mary, Florida
Denver Tech, Colorado
EXHIBIT B
---------
AMENDED AND RESTATED OMNIBUS AMENDMENT TO FRANCHISING AGREEMENTS
----------------------------------------------------------------
This Amended and Restated Omnibus Amendment to Franchising Agreements
between Choice Hotels International, Inc. ("Choice" or, as sometimes used
herein, "Franchising") and Sunburst Hospitality Corporation ("Sunburst" or, as
sometimes used herein, "Realco") (this "Agreement") is made this 20th day of
September, 2000 by and between Choice and Sunburst (the "Parties").
WHEREAS, through the date hereof, Choice and Sunburst have entered
into the hotel or lodging property franchise agreements listed on Schedule A
----------
attached hereto (each, an "Existing Franchise Agreement" and together the
"Existing Franchise Agreements");
WHEREAS, Choice and Sunburst have amended the Existing Franchise
Agreements pursuant to amendments added to that certain Strategic Alliance
Agreement dated October 15, 1997 between the Parties (the "Strategic Alliance
Agreement") pursuant to certain provisions of that certain Omnibus Amendment
Agreement between the Parties dated as of December 28, 1998 (the "First Omnibus
Amendment Agreement") and amendments added to the Strategic Alliance Agreement
and to the Existing Franchise Agreements in each case pursuant to that certain
Second Omnibus Amendment Agreement between the Parties dated February 28, 2000
(the "Second Omnibus Amendment Agreement");
WHEREAS, pursuant to that certain Heads of Agreement dated as of
[ ] 2000, Sunburst shall substantially contemporaneously with the
execution of this Agreement on the date hereof, subject to the satisfaction of
certain conditions contained in the Heads of Agreement, issue to Choice a Senior
Subordinated Note due 2007, in the principal amount at maturity of $70,831,000
and with an accreted value on such date of $60,000,000; and
WHEREAS, Choice and Sunburst desire to restate the amendments to the
Existing Franchising Agreements previously contained in the Strategic Alliance
Agreement (pursuant to the First Omnibus Amendment Agreement and the Second
Omnibus Amendment Agreement) to further amend the Existing Franchise Agreements;
NOW, THEREFORE, Choice and Sunburst agree as follows:
1. Definitions.
-----------
1.1 Any capitalized term used within this Agreement and not defined within
this Agreement will have the meaning ascribed to such term in the Strategic
Alliance Agreement.
2. Liquidated Damages Provision and Other Amendments.
-------------------------------------------------
2.1 Liquidated Damages Provision.
----------------------------
(a) Any and all franchising agreements entered into prior to, on or
after December 28, 1998, by and between Franchising and Realco (or any of their
respective predecessors or affiliates), except any franchising agreements
related to (i) Mainstay Suites and Sleep Inns or (ii) any other hotels owned by
Realco that carried a Franchising brand which is not sold by Realco within three
years from the date such hotel was reflagged with a different non-Franchising
brand (the "Reflagged Hotels"), are hereby amended such that any references to
liquidated damages are deleted and Franchising agrees that it waives any claim
it may have against Realco for lost future profits arising from such franchising
agreements.
(b) Provided that Realco is not in default under the $115,000,000
Subordinated Note dated October 15, 1997 (or any replacement or restructuring of
such Note) and provided, further, that, at the time of any such default, Choice
remains the holder of such Note, Section 10.d.2 of the respective franchising
agreements entered into prior to, on or after December 28, 1998 by and between
Franchising and Realco related to MainStay Suite Hotels and Sleep Inns or any
Reflagged Hotel is hereby amended by include the following:
"Any liquidated damages to be paid pursuant to this section
will not exceed a maximum of $100,000."
(c) Notwithstanding the terms of any and all franchising agreements
entered into prior to, on or after December 28, 1998 by and between Franchising
and Realco (or any of their respective predecessors or affiliates) related to
the twenty-one MainStay Suite Hotels subject to the MainStay Quota, Realco
agrees that it shall not reflag any such MainStay Suite Hotel, through a sale or
otherwise, or seek termination of any such franchising agreement or fail to
enter into a franchising agreement for any such hotels or allow any other brand
to be flagged to any such hotel prior to October 15, 2003; provided, however,
-------- -------
Realco may prior to October 15, 2003: (i) reflag, or permit the reflagging of,
up to two of the properties so identified on Appendix I attached hereto; and
----------
(ii) sell, transfer or convey any such MainStay Suites hotel if such property is
relicensed by the new owner or transferee as a MainStay Suites under market
terms acceptable to Franchising. Upon an event specified in clause (i) or (ii)
of the preceding sentence, Franchising shall terminate the respective franchise
agreements and waive any claim for damages against Realco caused by such
reflagging, sale, transfer or termination including the obligation to pay
liquidated damages. After October 15, 2003, Realco may reflag, or permit the
reflagging of, any MainStay Suite Hotels and terminate any such franchising
agreement and Franchising shall waive any claim against Realco for damages
caused by such reflagging or termination, including liquidated damages, if (x)
Realco gives thirty days prior written notice to Franchising and (y) Realco pays
Franchising $100,000 as a termination
-2-
fee for each MainStay Suites Hotel, other than the two properties referred to in
clause (i) above, that is to be reflagged or for which the franchising agreement
is to be terminated. Franchising and Realco agree that irreparable damage would
occur in the event any of the provisions of this Section 2.1(c) were not
performed in accordance with the terms hereof and that Franchising's remedy at
law for any breach of Realco's obligations hereunder would be inadequate. Realco
agrees and consents that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce any provision hereof
without the necessity of proof of actual damage.
(d) Franchising and Realco acknowledge that the reference in Sections
2.1(a) and (b) above to the liquidated damages provision applicable to Sleep Inn
franchise agreements is intended as a termination fee such that Realco has the
right at any time to terminate any such Sleep Inn franchise agreements upon
payment to Franchising of $100,000 per agreement and Franchising shall waive any
claim against Realco for damages caused by such termination, including
liquidated damages.
(e) Franchising and Realco acknowledge that pursuant to Sections
2.1(a) and (b) above, if Realco reflags a hotel or lodging property that is
neither a Sleep Inn nor MainStay Suite Hotel and that hotel or lodging property
is not sold by Realco within three years from the date it was flagged with a
non-Franchising brand, then on such third anniversary Realco shall pay
Franchising $100,000 in liquidated damages for each such reflagged hotel or
lodging property and Franchising shall waive any claim against Realco for
damages caused by such reflagging, including liquidated damages.
2.2 Other Amendments to Franchising Agreements. Notwithstanding any
------------------------------------------
other terms in any franchising agreements entered into prior to, on or after
December 28, 1998, by and between Franchising and Realco (or any of their
respective predecessors or affiliates), the following terms shall apply from and
after such date to the relevant franchising agreements:
(a) Realco shall pay to Franchising in cash an application fee of
$20,000 upon execution of a franchise agreement from and after December 28,
1998.
(b) No royalty, marketing or reservation fees shall be payable for a
period of two years with respect to the first ten such agreements entered
into by Realco after December 28, 1998 and at the end of such period, the
initial fee schedule will commence; and such ten agreements shall contain a
provision permitting termination by either party only on the tenth or
fifteenth anniversary of the date of the contract.
(c) Franchising agrees that if Realco sells any property that is the
subject of an existing franchising agreement, (i) if that property is not
past due on any fees or failing
-3-
a quality assurance review then Franchising will enter into a new franchise
agreement on customary market terms with the buyer (without addendum or
property improvement plan) and (ii) if that property is not past due on any
fees but is failing a quality assurance review, Franchising will enter into
a franchising agreement on customary market terms with a property
improvement plan containing only those items necessary to pass such quality
assurance review.
3. Franchise Fee Credits. Section 4 of each Existing Franchising
---------------------
Agreement listed on Appendix II attached hereto [MainStay Suites] is amended
-----------
effective as of the date later to occur of (a) its effective date and (b)
February 29, 2000, to add new subsections as follows:
(h) As of February 29, 2000, Franchising shall establish an account to
serve as a mechanism for administering the Shortfall Balance, as defined in
and pursuant to this Section 4. The initial amount credited to the
Shortfall Balance on February 29, 2000, shall be $2,142,887 (the "Shortfall
Amount"), which represents the amount by which an agreed upon target
Cumulative EBITDA for the MainStay Suites hotels subject to the MainStay
Quota (excluding the Put Call Properties) for the period from October 1,
1996 through December 31, 1999 exceeds the actual Cumulative EBITDA for
such period.
(i) For each year beginning January 1, 2001 until the Shortfall Freeze
Date (as defined below), the Shortfall Balance shall be adjusted (an
"Adjustment") by 50% of the amount, if any, by which the Target Cumulative
EBITDA (as set forth on Appendix III attached to the Amended and Restated
------------
Omnibus Amendment to Franchising Agreements dated [ ], 2000) for the
preceding year exceeds the actual Cumulative EBITDA for the MainStay Suites
Hotels subject to the MainStay Quota (exclusive of the Put Call Properties)
for such year as finally determined pursuant to clause (j) below. Each
year, on or prior to February 15 of such year, Realco shall determine the
actual Cumulative EBITDA for the preceding year in a manner consistent with
the calculation of the Target Cumulative EBITDA and whether an Adjustment
is warranted and shall deliver written notice thereof to Franchising
together with the monthly operating statements for each applicable hotel.
From and after the earlier of October 15, 2003 and the first year in which
no Adjustment is required pursuant to this clause (i) (the "Shortfall
Freeze Date"), no further Adjustments shall be determined pursuant to this
paragraph and the Shortfall Balance shall thereafter be zero.
(j) The Shortfall Balance, if any, shall be applied by Realco as a
credit against royalty, reservation and marketing fees ("Fees") payable to
Franchising as follows:
-4-
(1) First, to Fees payable pursuant to the franchise agreements
related to the MainStay Suites Hotels subject to the MainStay Quota
for each month prior to the tenth anniversary of the date of each such
franchise agreement. The Fee credit shall be applied no later than the
fifteenth day of each month against Fees payable as of the last day of
the preceding month; and
(2) Second, to Fees payable pursuant to franchise agreements for
MainStay Suite Hotels other than those referred to in (i)(1) above or
for any brand developed by Franchising after the date hereof. The Fee
credit shall be applied no later than the fifteenth day of each month
against Fees payable as of the last day of the preceding month.
Prior to the Shortfall Freeze Date, any remainder of the Shortfall Balance
shall carry forward until used. From and after the Shortfall Freeze Date,
the Shortfall Balance shall be zero.
(k) Franchising or its representatives shall have the right to review
and audit the books and records of Realco for the purposes of determining
the Shortfall Amount and the Fees payable in any particular month. If
Franchising agrees with the Shortfall Amount determined by Realco, then
that amount shall be deemed finally determined. In the event Franchising
disagrees with the Shortfall Amount or the Fees payable as determined by
Realco, then Franchising shall so notify Realco in writing within 10 days
of receipt of notice from Realco of the Shortfall Amount. If Franchising
and Realco are unable to agree in good faith by the tenth day of any month,
then Franchising shall, within 10 days from its delivery of the notice to
Realco, retain a firm of independent accountants to determine the Shortfall
Amount and/or the Fees payable. The accountant shall deliver its
determination no later than the last day of such month. The cost of such
accountants shall be borne by Franchising unless the accountant's
determination of the Shortfall Amount and/or Fees payable deviates by 5% or
more from the amount determined by Realco, in which case Realco shall bear
the cost. If Franchising and Realco agree with the accountants
determination of the Shortfall Amount and/or the Fees payable, then that
amount shall be deemed finally determined. If Franchising or Realco
disagree with the accountants determination, then the parties shall settle
the disagreement and the Shortfall Amount and/or the Fees payable shall be
finally determined in accordance with the dispute resolution mechanism set
forth in the Strategic Alliance Agreement, as amended. Realco agrees that
it shall cooperate with Franchising and the accountant and provide them
reasonable access to its books records and employees in connection with
their review of the Shortfall Amount and/or the Fees payable.
-5-
4. Elimination of Right to First Refusal. Notwithstanding anything
-------------------------------------
contained in any Existing Franchising Agreement entered into by and between
Choice and Sunburst (or any of their respective predecessors or affiliates), the
provision regarding the right of first refusal contained in Section ____ of each
such Existing Franchising Agreement is deleted in its entirety effective the
date later to occur of (a) its effective date and (b) February 29, 2000.
5. New Franchising Agreements. If at any time after the date hereof,
--------------------------
Sunburst or any of its affiliates enter into a new franchising agreement with
Choice or any of its affiliates with respect to any of its hotel or lodging
properties, including, without limitation, as a result of reflagging, the
parties shall enter in a franchise agreement substantially in the form of
Appendix IV attached hereto with respect to such property, providing for payment
-----------
of fees as set forth in Schedule 1 thereto.
6. Dispute and MainStay Brand Issues Resolution.
--------------------------------------------
6.1 Arbitration. Notwithstanding anything contained in this Agreement to
-----------
the contrary, any claim arising out of or related to this Agreement or any
franchise agreement between the Parties or their affiliates which has not been
resolved by mutual agreement of the Parties after a written notice of the claim
by the complaining Party to the other Party and a forty-five (45) day
negotiation period in which the Parties try to resolve the claim, shall be
finally settled by arbitration. Such arbitration shall be conducted in
Bethesda, Maryland in accordance with the Commercial Rules of the American
Arbitration Association then in effect, as modified or supplemented herein, or
as the Parties mutually agree otherwise. Notwithstanding the rules of the
arbitral body, the Parties hereto agree (a) that any arbitration shall be
presided over by a single arbitrator, who shall have been admitted to the
practice of law, and be in good standing or on retirement status in any of the
fifty United States or the District of Columbia and have experience in hotel
franchise matters, (b) that the arbitrator shall base his decision on the facts
as presented into evidence, and (c) that the arbitrator shall prepare a written
memorandum of decision setting forth the findings of fact and conclusions of
law. The arbitrator shall be selected by the Parties. If they cannot agree on
such selection within a thirty (30) day period, they shall ask the American
Arbitration Association to appoint an arbitrator. The decision of the
arbitrator shall be final, and judgment may be entered upon it in accordance
with the applicable law in any court having jurisdiction. Any claim for relief
made pursuant to this Agreement shall be made within one (1) year from the date
upon which the claim arose. All costs of the arbitration shall be borne by the
Party determined to be the losing Party by the arbitrator. For purposes of
determining the prevailing and losing Party, the arbitrator may consider offers
of settlement by either Party, or both of them. The Circuit Court of Xxxxxxxxxx
County, Maryland shall have exclusive jurisdiction to enforce this arbitration
provision, for injunctive relief in and of arbitration and for enforcement of
any arbitration award.
-6-
7. Miscellaneous Provisions.
------------------------
7.1 Agreements Remain in Effect. Any franchising agreement entered into
---------------------------
by and between Choice and Sunburst referred to in this Agreement shall remain
fully effective and is changed only as specifically provided herein and shall
bind the Parties to each in all respects as originally contemplated.
7.2 Conflicts. In the event of a conflict between the terms of this
---------
Agreement and any franchising agreements entered into by and between Choice and
Sunburst referred to in this Agreement, the terms and provisions of this
Agreement shall control.
7.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one instrument.
7.4 Board Approval. This Agreement has been approved by the Board of
--------------
Directors of both Choice and Sunburst.
-7-
IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties
hereto have executed this Agreement as of the day and year first written above.
CHOICE HOTELS INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
SUNBURST HOSPITALITY CORPORATION
By:
-----------------------------------
Name:
Title:
-8-
Schedule A
----------
------------------------------------------------------------------------------------------
Clarion Hotel Clarion Hotel
0000 Xxxxxxx Xxxx. 000 Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000 Xxxxxxxxx, XX 00000
334/476-6400 410/727-7101
------------------------------------------------------------------------------------------
MainStay Suites Clarion Inn Comfort Inn N.W.
0000 X. 00xx Xxxxxx 5301 N.W. 36th 00 Xxxxxx Xxx
Xxxxx, XX 00000 Xxxxx Xxxxxxx, XX 00000 Xxxxxxxxxx, XX 00000
602/557-8880 305/000-0000 000/484-7700
------------------------------------------------------------------------------------------
Clarion on the Lake Comfort Inn & Suites Quality Suites Shady Grove
0000 Xxxxxxx Xxxxxx 0000 X.X. 36th 3 Research Court
(SR 7 So.) Xxxxx Xxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
Xxx Xxxxxxx, XX 00000 305/000-0000 000/840-0200
501/525-1391
------------------------------------------------------------------------------------------
Quality Hotel - Maingate Sleep Inn Miami Airport Sleep Inn
000 Xxxxxxxxxx Xxx 000 Xxxxxxx Xxxxx 0 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000 Xxxxx Xxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
714/750-3131 305/000-0000 000/948-8000
------------------------------------------------------------------------------------------
Quality Hotel Airport MainStay Suites Comfort Inn
0000 X. Xxxxxxx Xxxx. 000 Xxxxxxx Xxxxx 00 Xxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000 Xxxxx Xxxxxxx, XX 00000 Xxxxxxxx, XX 00000
310/645-2200 305/000-0000 000/775-0409
------------------------------------------------------------------------------------------
Comfort Inn by the Bay Comfort Inn Quality Inn
0000 Xxx Xxxx Xxxxxx 830 Xxx Road 00000 Xxx Xxxxx Xxxx
Xxx Xxxxxxxxx, XX 00000 Xxxxxxx, XX 00000 Xxxxxxxx, XX 00000
415/928-5000 407/000-0000 000/455-8100
------------------------------------------------------------------------------------------
Sleep-Denver Int'l Airport Comfort Inn MainStay Suites
00000 X. 00xx Xxx./Xxxxxxx Pk 0000 Xxxx Xxxxx Xxxx Xxxx. 0000 Xxxxx Xxxxxxx Xxxxx
Xxxxxx, XX 00000 Xxxx Xxxx Xxxxx, XX 00000 Xxxxxx Xxxx, XX 00000
303/373-1616 561/000-0000 000/891-0111
------------------------------------------------------------------------------------------
MainStay Suites Quality Inn & Suites Sleep Inn
0000 X. Xxxxxxx Xxxxxx 9090 Wesleyan Road 0000 XX 00xx Xxxxxxx
Xxxxxxxxx Xxxxxxx, XX 00000 Xxxxxxxxxxxx, XX 00000 Xxxxxx Xxxx, XX 00000
303/858-1669 317/000-0000 000/891-0111
------------------------------------------------------------------------------------------
Sleep - Denver Tech MainStay Suites Clarion Hotel
0000 X. Xxxxxxxx Xxxxxx 0000 Xxxxxxxxx Xxxx. 0000 Xxxxx Xxxxxxxxx Xxx.
Xxxxxxxxx Xxxxxxx, XX 00000 Xxxxxxxxxxxx, XX 00000 Xxxxxxxxxxx, XX 00000
303/662-9950 317/000-0000 000/883-6550
------------------------------------------------------------------------------------------
Quality Suites Comfort Inn Westport
0000 X. Xxxxxxx Xxxxxx Dr. 00000 Xxxxxxxx Xxxx
Xxxxxxxxx Xxxxx, XX 00000 Xx. Xxxxx, XX 00000
954/570-8888 314/878-1400
------------------------------------------------------------------------------------------
Comfort Suites MainStay Suites Comfort Inn
0000 X. Xxxxxxx Xxxxxx Dr. 0000 Xxxxxxx Xxxxx 0000 Xxxxxxxx Xxxxx
Xxxxxxxxx Xxxxx, XX 00000 Xxxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
954/570-8887 502/000-0000 000/525-2626
------------------------------------------------------------------------------------------
Comfort Inn Deerfield Beach East Comfort Inn University Clarion Hotel
00 X.X. 00xx Xxxxxx 2445 S. Acadian 000 Xxxx Xxxxxxxx Xxxx
Xxxxxxxxx Xxxxx, XX 00000 Xxxxx Xxxxx, XX 00000 Xxxxxxxxx, XX 00000
954/428-0650 225/927-5790 000-000-0000
------------------------------------------------------------------------------------------
Sleep Inn Sleep Inn
00000 Xxxxx Xxxxxxxxx Xx. 0000 Xxxxx Xxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000 Xxxxxxxxx, XX 00000
225/000-0000 000/549-4544
------------------------------------------------------------------------------------------
MainStay Suites Comfort Inn
0000 Xxxxxxxxx Xxxx 00 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000 Xxxxxxx, XX 00000
904/296-0661 508/777-1700
------------------------------------------------------------------------------------------
Quality Inn Southpoint Comfort Suites
0000 Xxxxxxxxx Xxxx 000 Xxxx Xxxx
Xxxxxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
904/281-0900 508/374-7755
------------------------------------------------------------------------------------------
MainStay Suites MainStay Suites MainStay Suites
0000 Xxxxxxxxx Xxxx. 000 Xxxxxxx Xxxxx 0000 Xxxxxxxxx Xxxxx
Xxxx Xxxx, XX 00000 Xxxxxxx, XX 00000 Xxxxxxx, XX 00000
407/829-2332 978/000-0000 000/807-9970
------------------------------------------------------------------------------------------
Comfort Inn MainStay Suites Quality Suites
0000 Xxxxxxx Xxxxxx 120 Admiral Cochrane Drive 0000 Xxxxxxx Xxxx.
Xxxxx Xxxxx, XX 00000 Xxxxxxxxx, XX 00000 Xxxxxxx, XX 00000
305/868-1200 410/000-0000 000/876-2211
-------------------------------------------------------------------------------------------
Sleep Inn
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
919/755-6005
---------------------------------------------------
Comfort Inn Sleep Inn
0000 Xxxx Xxxx. XX 000 Xxx Xxxxx Xxxxx
Xxxxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
505/000-0000 000/649-1010
----------------------------------------------------
Comfort Inn Sleep Inn
0000 0xx Xxxxxx 00000 XXX Xxxx.
Xxxxxxxx, XX 00000 Xxxxxxx, XX 00000
718/000-0000 000/442-7770
----------------------------------------------------
XxxxXxxx Xxxxxx XxxxXxxx Xxxxxx
00 Xxxxxxx Xxxx. 0000 Xxxx Xxxxx Xxxx.
Xxxxxxxx, XX 00000 Xxxxx, XX 00000
914/000-0000 000/596-9966
----------------------------------------------------
MainStay Suites Sleep Inn
0000 Xxxxx Xxxx 0000 X. Xxxxx Xxxx.
Xxxx Xxx, XX 00000 Xxxxx, XX 00000
513/000-0000 000/867-1111
---------------------------------------------------
Comfort Inn Clarion Hotel
0000 Xxxxxxxxx XX 0000 X. Xxxxxxx Xxxxx.
Xxxxxx, XX 00000 Xxxxxxxxxx, XX 00000
330/000-0000 000/644-4000
---------------------------------------------------
Comfort Inn Sleep Inn
00000 Xxxxxxxx Xxxxx 0000 X-00X Xxxxxxxx Xx.
Xxxxxxxxxx Xxx, XX 00000 Xxxxx Xxxx, XX 00000
216/000-0000 000/310-1111
---------------------------------------------------
Clarion Hotel Sleep Inn
0000 X. Xxxx Xxxxxx 0000 XX 00 X.
Xxxxxxxxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
614/000-0000 000/344-5400
---------------------------------------------------
Comfort Inn Quality Inn Midvalley
0000 Xxx Xxxxxx 0000 X. Xxxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000 Xxxx Xxxx, XX 00000
717/000-0000 000/268-2533
---------------------------------------------------
MainStay Suites Quality Hotel
0 Xxxx Xxxxxxxxxx Xxxx 0000 X. Xxxxxxxxxx Xxxx
Xxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
610/000-0000 000/524-4000
---------------------------------------------------
Quality Inn & Suites
0000 Xxxx Xxxxxxx Xxxx.
Xxxxxxx, XX 00000
757/838-5011
---------------------------------------------------
MainStay Suites Quality Inn
000 Xxxxx Xxxxxx Xxxx. 0000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxxxxxxx, XX 00000
401/000-0000 000/346-0000
---------------------------------------------------
Clarion Hotel
0000 Xxxxxxxx Xxxxx, XX
Xxxxxxx, XX 00000
540/362-4500
---------------------------------------------------
MainStay Suites Comfort Inn Tysons
0000 X. Xxxx Xxxx 0000 Xxxxxxxxxx Xxxx
X. Xxxxxxxxxx, XX 00000 Xxxxxx, XX 00000
843/000-0000 000/448-8020
---------------------------------------------------
Clarion Hotel
0000 Xxxxxx Xxxx
Xxxxxxxx Xxxxx, XX 00000
757/473-1700
---------------------------------------------------
Comfort Inn
0 Xxxxxxxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
803/842-6662
---------------------------------------------------
MainStay Suites
Xxx Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
201/553-9700
---------------------------------------------------
APPENDIX I
----------
HOTELS PERMITTED TO BE RE-FLAGGED
(LIMIT TWO)
Blue Ash, Ohio
Louisville, Kentucky
Indianapolis, Indiana
Kansas City, Missouri
Jacksonville, Florida
North Charleston, South Carolina
Raleigh, North Carolina
Lake Mary, Florida
Denver Tech, Colorado
APPENDIX II
-----------
Prop. # Location Opening Date
------- ------------------- -------------
1 000 Xxxxx, XX 10/21/96
2 000 Xxxxxxx, XX 9/17/97
3 000 Xxxx Xxx, XX 11/24/97
4 000 Xxxxxxxxxx, XX 1/19/98
5 861 Indianapolis, IN 1/19/98
6 000 Xxxxxxxxxx, XX 1/23/98
7 000 Xxxxxx Xxxx, XX 1/30/98
8 000 Xxxxxxxxx, XX 3/19/98
9 000 Xxxx Xxxx, XX 3/25/98
10 000 Xxxxxx Xxxx, XX 4/20/98
11 000 Xxxxxxxxxxxx, XX 5/25/98
12 000 Xxxxxxxxxx, XX 7/27/98
13 000 Xxxxxxxx, XX 8/5/98
14 000 Xxxxx Xxxxxxx, XX 12/28/98
15 000 Xxxxx, XX 2/22/99
16 000 Xxxxxxx, XX 4/26/99
17 000 Xxxxxxxxx, XX 6/24/99
18 000 Xxxxx Xxxxxxxxxx, XX 9/3/99
19 000 Xxxxxxx, XX 10/7/99
20 000 Xxxxxxx, XX 10/22/99
21 000 Xxxxxxxx, XX 3/3/00
EXHIBIT C
---------
DESCRIPTION OF SENIOR SUBORDINATED DISCOUNT NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Sunburst" refers only to Sunburst Corporation and not to any of its
subsidiaries.
Sunburst will issue the notes under an indenture among itself, the
Guarantors and ____________, as trustee, in a private transaction that is not
subject to the registration requirements of the Securities Act. The terms of
the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions
expected to be set forth in the indenture and the registration rights agreement.
It does not restate those agreements in their entirety. Certain defined terms
used in this description but not defined below under "--Certain Definitions"
have the meanings assigned to them in the indenture.
The registered Holder of a note will be treated as the owner of it for
all purposes. Only registered Holders will have rights under the indenture.
Brief Description of the Notes and the Guarantees
The Notes
The notes:
. are general obligations of Sunburst;
. are subordinated in right of payment to all existing and future
Senior Debt of Sunburst;
. are pari passu in right of payment with any future senior
subordinated Indebtedness of Sunburst; and
. are unconditionally guaranteed by the Guarantors.
The Guarantees
The notes are guaranteed by all of Sunburst's Domestic Subsidiaries, other
than the Finance Restricted Subsidiaries..
Each guarantee of the notes:
. is a general obligation of the Guarantor;
. is subordinated in right of payment to all existing and future
Senior Debt of that Guarantor; and
1
. is pari passu in right of payment with any future senior
subordinated Indebtedness of that Guarantor.
As of the date of the indenture, all of our Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "--Certain Covenants--Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture. Our
Unrestricted Subsidiaries will not guarantee the notes.
Principal, Maturity and Interest
Sunburst will issue notes with a maximum aggregate principal amount of
$70,831,000 million at maturity. Sunburst will issue notes in denominations of
$1,000 principal amount at maturity and integral multiples of $1,000 principal
amount at maturity. The notes will mature on ____________ [7th anniversary of
issuance].
The notes are being offered at a substantial discount from their
principal amount at maturity. Original issue discount on the notes will accrete
at a rate of 11.375%, compounded semi-annually to an aggregate principal amount
of $70,831,000 million at [18 months from issuance]. Although for U.S. Federal
income tax purposes a significant amount of original issue discount, taxable as
ordinary income, will be recognized by a Holder as such discount accrues from
the date of issuance, cash interest will not accrue on the notes prior to [18
months from issuance].
Commencing [18 months from issuance], cash interest on the notes will
accrue at the rate of 11.375% per annum and will be payable semi-annually in
arrears on __________ and __________. Sunburst will make each interest payment
to the Holders of record on the immediately preceding __________ and __________.
Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from [18 months from
issuance]. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to Sunburst, Sunburst
will pay all principal, interest and premium and Liquidated Damages, if any, on
that Holder's notes in accordance with those instructions. All other payments
on notes will be made at the office or agency of the paying agent and registrar
within the City and State of New York unless Sunburst elects to make interest
payments by check mailed to the Holders at their address set forth in the
register of Holders.
2
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
Sunburst may change the paying agent or registrar without prior notice to the
Holders of the notes, and Sunburst or any of its Subsidiaries may act as paying
agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the
indenture. The registrar and the trustee may require a Holder to furnish
appropriate endorsements and transfer documents in connection with a transfer of
notes. Holders will be required to pay all taxes due on transfer. Sunburst is
not required to transfer or exchange any note selected for redemption. Also,
Sunburst is not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
Subsidiary Guarantees
The notes will be guaranteed by each of Sunburst's current and future
Domestic Subsidiaries, other than Finance Restricted Subsidiaries. These
Subsidiary Guarantees will be joint and several obligations of the Guarantors.
Each Subsidiary Guarantee will be subordinated to the prior payment in full of
all Senior Debt of that Guarantor. The obligations of each Guarantor under its
Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law.
A Guarantor may not sell or otherwise dispose of all or substantially
all of its assets to, or consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another Person, other than Sunburst or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event of
Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the indenture, its
Subsidiary Guarantee and the registration rights agreement pursuant to
a supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not
3
(either before or after giving effect to such transaction) a Subsidiary of
Sunburst, if the sale or other disposition complies with the "Asset Sale"
provisions of the indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor to a
Person that is not (either before or after giving effect to such
transaction) a Subsidiary of Sunburst, if the sale complies with the "Asset
Sale" provisions of the indenture; or
(3) if Sunburst designates any Restricted Subsidiary that is a Guarantor as an
Unrestricted Subsidiary in accordance with the applicable provisions of the
indenture.
Subordination
The payment of principal, interest and premium and Liquidated Damages,
if any, on the notes will be subordinated to the prior payment in full of all
Senior Debt of Sunburst, including Senior Debt incurred after the date of the
indenture.
The holders of Senior Debt will be entitled to receive payment in full
of all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of notes will be entitled to receive
any payment with respect to the notes (except that Holders of notes may receive
and retain Permitted Junior Securities and payments made from the trust
described under "--Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to creditors of Sunburst:
(1) in a liquidation or dissolution of Sunburst;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Sunburst or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Sunburst's assets and liabilities.
Sunburst also may not make any payment in respect of the notes (except
in Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing beyond
any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the trustee receives a notice of such
default (a "Payment Blockage Notice") from Sunburst or the holders of any
Designated Senior Debt.
4
Payments on the notes may and will be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in the case of a nonpayment default, upon the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360
days have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee will be, or be made, the
basis for a subsequent Payment Blockage Notice.
If the trustee or any Holder of the notes receives a payment in
respect of the notes (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") when the payment
is prohibited by these subordination provisions the trustee or the Holder, as
the case may be, will hold the payment in trust for the benefit of the holders
of Senior Debt. Upon the proper written request of the holders of Senior Debt,
the trustee or the Holder, as the case may be, will deliver the amounts in trust
to the holders of Senior Debt or their proper representative.
Sunburst must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
Optional Redemption
Except as set forth below, the notes will not be redeemable at
Sunburst's option.
At any time prior to ________________, 2004, Sunburst may redeem all,
but not less than all, of the notes upon not less than 30 nor more than 60 days
prior notice mailed by first-class mail to each Holder's registered address, at
a redemption price equal to 100% of the Accreted Value of notes redeemed plus
the Applicable Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption (if prior to ______, 2002) or 100% of
the principal amount of notes redeemed plus the Applicable Premium as of, and
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption (if after _______, 2002). The date of redemption shall be referred
to herein as the "Redemption Date."
After _________, 2004, Sunburst may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on __________ of the years indicated below:
5
Year Percentage
2004................................................. 105.6875%
2005................................................. 102.84375%
2006 and thereafter.................................. 100.00%
Mandatory Redemption
Sunburst is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of notes will have the
right to require Sunburst to repurchase all or any part (equal to $1,000
principal amount at maturity or an integral multiple of $1,000 principal amount
at maturity) of that Holder's notes pursuant to a Change of Control Offer on the
terms set forth in the indenture. In the Change of Control Offer, Sunburst will
offer a Change of Control Payment in cash equal to 101% of the Accreted Value of
notes repurchased plus Liquidated Damages, if any, on the notes repurchased, to
the date of purchase (if prior to _______, 2002) or 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest and
Liquidated Damages, if any, on the notes repurchased, to the date of purchase
(if after ______, 2002). Within ten days following any Change of Control,
Sunburst will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Payment Date specified in the notice, which date
will be no earlier than 30 days and no later than 60 days from the date such
notice is mailed, pursuant to the procedures required by the indenture and
described in such notice. Sunburst will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in connection
with the repurchase of the notes as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, Sunburst will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions of the indenture
by virtue of such conflict.
On the Change of Control Payment Date, Sunburst will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly accepted
together with an officers' certificate stating the aggregate principal
amount of notes or portions of notes being purchased by Sunburst.
6
The paying agent will promptly mail to each Holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount at maturity to any unpurchased
portion of the notes surrendered, if any; provided that each new note will be in
a principal amount at maturity of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of
Control" covenant, but in any event within 90 days following a Change of
Control, Sunburst will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of notes required by this covenant. Sunburst will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require Sunburst to make a Change
of Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the Holders of the notes to require that Sunburst repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
Sunburst will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Sunburst and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer.
Asset Sales
Sunburst will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Sunburst (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(2) the fair market value is determined by Sunburst's Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by Sunburst or
such Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on Sunburst's or such Restricted
Subsidiary's most recent balance sheet, of Sunburst or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or any Subsidiary Guarantee)
that are assumed
7
by the transferee of any such assets pursuant to a customary novation
agreement that releases Sunburst or such Restricted Subsidiary from
further liability; and
(b) any securities, notes or other obligations received by Sunburst or any
such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods, converted
by Sunburst or such Restricted Subsidiary into cash, to the extent of
the cash received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, Sunburst may apply those Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of the
Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any Net Proceeds, Sunburst may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Sunburst will make an
Asset Sale Offer to all Holders of notes and offers to purchase or redeem to all
holders of other Indebtedness that is pari passu with the notes or a Guarantor's
Guarantee containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum amount of Accreted Value of notes (if prior to _______,
2002) or the maximum principal amount of notes (if after _______, 2002) and such
other pari passu Indebtedness that may be purchased out of the Excess Proceeds.
The offer price in any Asset Sale Offer will be equal to 100% of Accreted Value
plus Liquidated Damages, if any, to the date of purchase (if prior to ________,
2002) or 100% of principal amount plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase (if after ________, 2002),
and will be payable in cash. If any Excess Proceeds remain after consummation
of an Asset Sale Offer, Sunburst may use those Excess Proceeds for any purpose
not otherwise prohibited by the indenture. If the Accreted Value or aggregate
principal amount, as applicable, of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds will be reset at zero.
8
Sunburst will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, Sunburst will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under the Asset Sale provisions of the indenture by virtue of such conflict.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the
trustee will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in compliance
with the requirements of the principal national securities exchange on
which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on a pro
rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed more than 60
days prior to a redemption date if the notice is issued in connection with a
defeasance of the notes or a satisfaction and discharge of the indenture.
Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption
that relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the Holder
of notes upon cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Sunburst will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of Sunburst's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving Sunburst or any of its Restricted
Subsidiaries) or to the direct or indirect holders of Sunburst's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
9
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of Sunburst or to Sunburst or a Restricted
Subsidiary of Sunburst);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Sunburst) any Equity Interests of Sunburst or any direct or
indirect parent of Sunburst;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari passu
with or subordinated to the notes or the Subsidiary Guarantees, except a
payment of interest or principal at the Stated Maturity thereof;
(4) make any payment of interest in cash on any Indebtedness ranking pari passu
with or subordinate or junior in right of payment to the notes or any
Guarantee during the period commencing on the date of the indenture to
______, 2002; or
(5) make any Restricted Investment (all such payments and other actions set
forth in these clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence of such Restricted Payment; and
(2) Sunburst would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Sunburst and its Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (2), (3), (5) and (6) of the next succeeding paragraph) is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Sunburst for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter in which the issue date occurs to the end of Sunburst's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds received by Sunburst since the
date of the indenture as a contribution to its common equity capital
or from the issue or sale of Equity Interests of Sunburst (other than
Disqualified Stock) or from the issue or sale of convertible or
10
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Sunburst that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of Sunburst), plus
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (ii) the initial amount of such Restricted Investment,
plus
(d) 50% of any dividends received by Sunburst or a Wholly Owned Restricted
Subsidiary that is a Guarantor after the date of the indenture from an
Unrestricted Subsidiary of Sunburst, to the extent that such dividends
were not otherwise included in Consolidated Net Income of Sunburst for
such period, plus
(e) to the extent that any Unrestricted Subsidiary of Sunburst is
redesignated as a Restricted Subsidiary after the date of the
indenture, the lesser of (i) the fair market value of Sunburst's
Investment in such Subsidiary as of the date of such redesignation or
(ii) such fair market value as of the date on which such Subsidiary
was originally designated as an Unrestricted Subsidiary, plus
(f) $7.0 million.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration of
the dividend, if at the date of declaration the dividend payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition of
any subordinated Indebtedness of Sunburst or any Guarantor or of any Equity
Interests of Sunburst in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary of
Sunburst) of, Equity Interests of Sunburst (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clause (3) (b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness of Sunburst or any Guarantor with the net cash proceeds from
an incurrence of Permitted Financing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Sunburst to the
holders of its Equity Interests on a pro rata basis;
11
(5) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of Sunburst or any Restricted Subsidiary of Sunburst
held by any member of Sunburst's (or any of its Subsidiaries') management
pursuant to any management equity subscription agreement (including any
restricted stock agreement), stock option agreement or similar agreement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests may not exceed $1,000,000 in any
twelve-month period; and
(6) the payment of Permitted Quarterly Tax Distributions;
so long as, in the case of clauses (1) through (5) above, no Default has
occurred and is continuing or would be caused thereby.
In the event that Sunburst shall become, and for so long as Sunburst
is, an S Corporation for Federal income tax purposes, Sunburst may make cash
distributions to its shareholders, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following Sunburst's filing of Internal Revenue Service
Form 1120S for the immediately preceding taxable year, the Tax Amounts CPA shall
file with the Trustee a written statement indicating in reasonable detail the
calculation of the True-up Amount. In the case of a True-up Amount due to the
shareholders, the Permitted Quarterly Tax Distribution payable during the
immediately following Quarterly Payment Period out of available cash after
payment of any accrued and unpaid interest on the Notes shall be increased by
such True-up Amount. If the available cash is not sufficient to pay the
Permitted Quarterly Tax Distribution payable during a Quarterly Payment Period,
the amount unpaid shall be carried over and increase the Permitted Quarterly Tax
Distribution payable during the following Quarterly Payment Period. In the case
of a True-up Amount due to Sunburst, the Permitted Quarterly Tax Distribution
payable during the immediately following Quarterly Payment Period shall be
reduced by such True-up Amount and the excess, if any, of the True-up Amount
over such Permitted Quarterly Tax Distribution shall be applied to reduce the
immediately following Permitted Quarterly Tax Distribution until such True-up
Amount is entirely offset.
The amount of all Restricted Payments (other than cash) will be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Sunburst or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $1.0 million. Not later than the date of making any
Restricted Payment, Sunburst will deliver to the trustee an officers'
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations
12
required by this "Restricted Payments" covenant were computed, together with a
copy of any fairness opinion or appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Sunburst will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and Sunburst
will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that
Sunburst may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock, the Guarantors may incur Indebtedness or issue preferred stock and the
Finance Restricted Subsidiaries may incur Mortgage Debt if (a) the Fixed Charge
Coverage Ratio for Sunburst's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.0 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period; and (b) solely in the case of the incurrence of Mortgage
Debt by Finance Restricted Subsidiaries, the Debt to Cash Flow Ratio of each of
(a) Sunburst and (b) all of the Finance Restricted Subsidiaries, on a combined
basis, at the time of incurrence of such Mortgage Debt would have been, in each
case, no greater than 3.5 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the Mortgage Debt had
been incurred at the beginning of the most recently ended four full fiscal
quarter period of Sunburst for which internal financial statements are
available.
The first paragraph of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Sunburst and any Guarantor of additional Indebtedness and
letters of credit under Credit Facilities in an aggregate principal amount
at any one time outstanding under this clause (1)(with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of Sunburst and its Subsidiaries thereunder) not to exceed $[ ]
million [the original amount of the bank debt plus undrawn revolver
capacity available to be drawn on the issue date] less the aggregate amount
of all repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility (other than repayments that are
concurrently reborrowed) that have been made by Sunburst or any Guarantor
since the date of the indenture and less the aggregate amount of all
commitment reductions with respect to any revolving credit borrowings under
a Credit Facility that have been made by Sunburst or any Guarantor since
the date of the indenture;
(2) the incurrence by Sunburst and its Restricted Subsidiaries of the Existing
Indebtedness;
13
(3) the incurrence by Sunburst and the Guarantors of Indebtedness represented
by the notes and the related Subsidiary Guarantees to be issued on the date
of the indenture and the Exchange notes and the related Subsidiary
Guarantees to be issued pursuant to the registration rights agreement;
(4) the incurrence by Sunburst or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of
Sunburst or such Restricted Subsidiary, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (4),
not to exceed $5.0 million at any time outstanding;
(5) the incurrence by Sunburst or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4), (5) or (11) of this paragraph;
(6) the incurrence by Sunburst or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Sunburst and any of its Wholly
Owned Restricted Subsidiaries; provided, however, that:
(a) if Sunburst or any Guarantor is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes, in the case
of Sunburst, or the Subsidiary Guarantee, in the case of a Guarantor;
and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Sunburst or a Subsidiary of Sunburst and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either
Sunburst or a Wholly Owned Restricted Subsidiary of Sunburst; will be
deemed, in each case, to constitute an incurrence of such Indebtedness
by Sunburst or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
(7) the incurrence by Sunburst's Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be Non-
Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of
Sunburst that was not permitted by this clause (7);
14
(8) the incurrence by Sunburst of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of the indenture
to be outstanding;
(9) the guarantee by Sunburst or any of the Guarantors of Indebtedness of
Sunburst or a Subsidiary of Sunburst that was permitted to be incurred by
another provision of this covenant;
(10) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of Sunburst as accrued;
(11) the incurrence by Sunburst or any of the Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (11), not to exceed $10.0 million; and
(12) the guarantee by a Restricted Subsidiary that is not a Guarantor of the
debt of a Restricted Subsidiary that is not a Guarantor.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (12) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Sunburst will be permitted to classify such item of Indebtedness on the date of
its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the date on which notes are first issued and
authenticated under the indenture will be deemed to have been incurred on such
date in reliance on the exception provided by clause (1) of the definition of
Permitted Debt.
Liens
Sunburst will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind securing Indebtedness, now owned or hereafter acquired (except Permitted
Liens) unless all payments due under the indenture and the notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Sunburst will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
15
(1) pay dividends or make any other distributions on its Capital Stock to
Sunburst or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Sunburst or any of its Restricted Subsidiaries;
(2) make loans or advances to Sunburst or any of its Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to Sunburst or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of those agreements, provided that the amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to dividend and other payment restrictions than those contained in
those agreements on the date of the indenture, taken as a whole;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law, rule or regulation;
(4) any instrument governing Indebtedness or Capital Stock of a Person acquired
by Sunburst or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness or Capital Stock was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the indenture
to be incurred;
(5) customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions on that property of the nature described
in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted Subsidiary
or all or substantially all of the assets of a Restricted Subsidiary that
restricts that Restricted Subsidiary pending such sale or other
disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
16
(9) Liens securing Indebtedness otherwise permitted to be incurred under the
provisions of the covenant described above under the caption "--Liens" that
limit the right of the debtor to dispose of the assets subject to such
Liens;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business;
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; and
(12) agreements governing Mortgage Debt otherwise permitted to be incurred under
the provisions of the covenant described above under the caption "--Liens."
Merger, Consolidation or Sale of Assets
Sunburst may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not Sunburst is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of Sunburst and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) either: (a) Sunburst is the surviving corporation; or (b) the Person formed
by or surviving any such consolidation or merger (if other than Sunburst)
or to which such sale, assignment, transfer, conveyance or other
disposition has been made is a corporation organized or existing under the
laws of the United States, any state of the United States or the District
of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Sunburst) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of Sunburst under the notes, the indenture, the registration
rights agreement and the pledge agreements pursuant to agreements
reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default exists;
and
(4) Sunburst or the Person formed by or surviving any such consolidation or
merger (if other than Sunburst), or to which such sale, assignment,
transfer, conveyance or other disposition has been made will, on the date
of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, Sunburst may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger,
17
Consolidation or Sale of Assets" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among Sunburst
and any of the Guarantors.
Transactions with Affiliates
Sunburst will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
Sunburst or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Sunburst or such Restricted
Subsidiary with an unrelated Person; and
(2) Sunburst delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Sunburst or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the
past practice of Sunburst or such Subsidiary;
(2) transactions between or among Sunburst and/or its Restricted Subsidiaries;
(3) transactions with a Person that is an Affiliate of Sunburst solely because
Sunburst owns an Equity Interest in such Person;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of Sunburst;
(5) sales of Equity Interests (other than Disqualified Stock) to Affiliates of
Sunburst; and
18
(6) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments;"
(7) transactions between or among Sunburst and/or its Restricted Subsidiaries
and Choice Hotels International, Inc. in the ordinary course of business
and consistent with the past practice of Sunburst or such Restricted
Subsidiary; and
(8) any agreements in existence on the date of the issuance of the notes.
Additional Subsidiary Guarantees
If Sunburst or any of its Subsidiaries acquires or creates another
Domestic Subsidiary after the date of the indenture (except for all Subsidiaries
that have properly been designated as Unrestricted Subsidiaries or Finance
Restricted Subsidiaries in accordance with the Indenture for so long as they
continue to constitute Unrestricted Subsidiaries or Finance Restricted
Subsidiaries, as applicable), then that newly acquired or created Domestic
Subsidiary will become a Guarantor and execute a supplemental indenture and
deliver an opinion of counsel satisfactory to the trustee within 10 Business
Days of the date on which it was acquired or created.
Designation of Restricted and Unrestricted Subsidiaries
The board of directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by Sunburst and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" or Permitted
Investments, as determined by Sunburst. That designation will only be permitted
if the Investment would be permitted at that time and if the Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
board of directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
Sunburst will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of Sunburst to any
Person (other than Sunburst or a Wholly Owned Restricted Subsidiary of
Sunburst), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all the
Equity Interests in such Wholly Owned Restricted Subsidiary; and
19
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above
under the caption "--Repurchase at the Option of Holders--Asset Sales."
In addition, Sunburst will not permit any Wholly Owned Restricted
Subsidiary of Sunburst to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to Sunburst or a Wholly Owned Restricted
Subsidiary of Sunburst.
Payments for Consent
Sunburst will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all Holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
No Senior Subordinated Debt
Sunburst will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of Sunburst and senior in any respect in right of
payment to the notes. No Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Debt of such Guarantor and senior in any respect
in right of payment to such Guarantor's Subsidiary Guarantee.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Sunburst will furnish to the Holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if
Sunburst were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Sunburst's certified independent accountants, and
(2) all current reports that would be required to be filed with the Commission
on Form 8-K if Sunburst were required to file such reports.
If Sunburst has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, which
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and
20
Results of Operations, of the financial condition and results of operations of
the Unrestricted Subsidiaries of Sunburst.
In addition, following the consummation of the exchange offer
contemplated by the registration rights agreement, whether or not required by
the Commission, Sunburst will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, Sunburst and the Subsidiary Guarantors have agreed that,
for so long as any notes remain outstanding, they will furnish to the Holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Liquidated
Damages with respect to, the notes whether or not prohibited by the
subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if any, on the
notes, whether or not prohibited by the subordination provisions of the
indenture;
(3) failure by Sunburst or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--Asset
Sales," "--Certain Covenants--Restricted Payments," "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock" or "--Certain
Covenants--Merger, Consolidation or Sale of Assets;"
(4) failure by Sunburst or any of its Subsidiaries for 60 days after notice to
comply with any of the other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by Sunburst or any of its Subsidiaries (or the payment
of which is guaranteed by Sunburst or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if
any, on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
21
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more;
(6) failure by Sunburst or any of its Subsidiaries to pay final judgments
aggregating in excess of $10 million, which judgments are not paid, bonded,
discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency described in the indenture with
respect to Sunburst or any of its Restricted Subsidiaries that are
Significant Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Sunburst, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, the aggregate Accreted Value and Liquidated
Damages, if any (if prior to _______, 2000), or the aggregate principal amount
and accrued interest and Liquidated Damages, if any (if after _______, 2002), on
all outstanding notes will become due and payable immediately without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee or the Holders of at least 25% in principal amount at maturity of the
then outstanding notes may declare all the notes to be due and payable
immediately.
Holders of the notes may not enforce the indenture or the notes except
as provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount at maturity of the then outstanding notes may
direct the trustee in its exercise of any trust or power. The trustee may
withhold from Holders of the notes notice of any continuing Default or Event of
Default if it determines that withholding notes is in their interest, except a
Default or Event of Default relating to the payment of principal or interest or
Liquidated Damages.
The Holders of a majority in aggregate principal amount at maturity of
the notes then outstanding by notice to the trustee may on behalf of the Holders
of all of the notes waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest or Liquidated Damages on, or the principal of, the
notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Sunburst with the
intention of avoiding payment of the premium that Sunburst would have had to pay
if Sunburst then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to ________,
2005, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Sunburst with the intention
22
of avoiding the prohibition on redemption of the notes prior to ________, 2005,
then the premium specified in the indenture will also become immediately due and
payable to the extent permitted by law upon the acceleration of the notes.
Sunburst is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Sunburst is required to deliver to the trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of
Sunburst or any Guarantor, as such, will have any liability for any obligations
of Sunburst or the Guarantors under the notes, the indenture, the Subsidiary
Guarantees, the pledge agreement[s] or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. The waiver may
not be effective to waive liabilities under the Federal securities laws.
Legal Defeasance and Covenant Defeasance
Sunburst may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in respect
of the principal of, or interest or premium and Liquidated Damages, if any,
on such notes when such payments are due from the trust referred to below;
(2) Sunburst's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Sunburst's and the Guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Sunburst may, at its option and at any time, elect to
have the obligations of Sunburst and the Guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
23
(1) Sunburst must irrevocably deposit with the trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and non-
callable Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, or interest and premium and Liquidated Damages, if
any, on the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Sunburst must specify whether the
notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Sunburst has delivered to the trustee an
opinion of counsel reasonably acceptable to the trustee confirming that (a)
Sunburst has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the 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 of counsel will confirm
that, the Holders of the outstanding notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Sunburst has delivered to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming that
the Holders of the outstanding notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such Covenant
Defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on the date
of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Sunburst or any of its
Subsidiaries is a party or by which Sunburst or any of its Subsidiaries is
bound;
(6) Sunburst must deliver to the trustee an officers' certificate stating that
the deposit was not made by Sunburst with the intent of preferring the
Holders of notes over the other creditors of Sunburst with the intent of
defeating, hindering, delaying or defrauding creditors of Sunburst or
others; and
(7) Sunburst must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
24
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the
indenture or the notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, notes), and any existing
default or compliance with any provision of the indenture or the notes may be
waived with the consent of the Holders of a majority in principal amount at
maturity of the then outstanding notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, notes).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the Accreted Value or principal of or change the fixed maturity of
any note or alter the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the notes (except a
rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount at maturity of the notes and a
waiver of the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers of
past Defaults or the rights of Holders of notes to receive payments of
principal of, or interest or premium or Liquidated Damages, if any, on the
notes;
(7) waive a redemption payment with respect to any note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture relating to subordination or the pledge agreement[s] that adversely
affects the rights of the
25
Holders of the notes will require the consent of the Holders of at least a
majority in aggregate principal amount at maturity of notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of
notes, Sunburst, the Guarantors and the trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Sunburst's obligations to Holders of notes
in the case of a merger or consolidation or sale of all or substantially
all of Sunburst's assets;
(4) to make any change that would provide any additional rights or benefits to
the Holders of notes or that does not adversely affect the legal rights
under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to
Sunburst, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for cancellation
have become due and payable by reason of the mailing of a notice of
redemption or otherwise or will become due and payable within one year
and Sunburst or any Guarantor has irrevocably deposited or caused to
be deposited with the trustee as trust funds in trust solely for the
benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge
the entire indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and Liquidated Damages, if any,
and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date
of the deposit or will occur as a result of the deposit and the deposit
will not result in a breach or
26
violation of, or constitute a default under, any other instrument to which
Sunburst or any Guarantor is a party or by which Sunburst or any Guarantor
is bound;
(3) Sunburst or any Guarantor has paid or caused to be paid all sums payable by
it under the indenture; and
(4) Sunburst has delivered irrevocable instructions to the trustee under the
indenture to apply the deposited money toward the payment of the notes at
maturity or the redemption date, as the case may be.
In addition, Sunburst must deliver an officers' certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of Sunburst or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
subject to certain exceptions. The indenture provides that in case an Event of
Default occurs and is continuing, the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any Holder of notes, unless such Holder has offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
Choice shall have the option to have the notes initially issued in the
form of Global Notes in accordance with the following procedures (if issuance in
such form is permitted under the rules and regulations of DTC (as defined
below)) or to have the notes initially issued in the form of Certificated Notes
in form and substance reasonably satisfactory to Choice issued directly to
Choice. If Choice chooses to have Certificated Notes issued on the date of the
closing of this offering, Choice may, at any time (but not more than once), upon
written request to Sunburst and the trustee, exchange any or all of the
Certificated Notes for one or more Global Notes to be issued in accordance with
the following procedures.
If requested by Choice in accordance with the preceding paragraph, the
notes will be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited on the date of the closing of this
offering, or on such later date as requested by Choice, with, or on behalf of,
The Depository Trust Company ("DTC") and registered in the
27
name of Cede & Co., as nominee of DTC (such nominee being referred to herein as
the "Global Note Holder").
Notes that are issued directly to Choice as described in the first
paragraph or as described below under "--Certificated Notes" will be issued in
the form of registered definitive certificates (the "Certificated Notes"). Upon
the transfer of Certificated Notes, Certificated Notes may, unless all Global
Notes have previously been exchanged for Certificated Notes, be exchanged for an
interest in the Global Note representing the principal amount at maturity of
notes being transferred, subject to the transfer restrictions set forth in the
indenture.
DTC has advised Sunburst that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers of the notes
from Choice), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised Sunburst that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchaser[s] of the notes from
Choice with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and the
transfer of ownership of these interests will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Prospective purchasers are advised that the laws of some states
require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to such extent. For
certain other restrictions on the transferability of the notes, see "Notice to
Investors."
So long as the Global Note Holder is the registered owner of any
notes, the Global Note Holder will be considered the sole Holder under the
indenture of any notes evidenced by the Global Notes. Beneficial owners of
notes evidenced by the Global Notes will not be considered the owners or Holders
of the notes under the indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the trustee thereunder.
Neither Sunburst nor the trustee will have any responsibility or liability for
any aspect of the records of DTC or for maintaining, supervising or reviewing
any records of DTC relating to the notes.
28
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of the
Global Note Holder on the applicable record date will be payable by the trustee
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the indenture. Under the terms of the indenture,
Sunburst and the trustee will treat the Persons in whose names the notes,
including the Global Notes, are registered as the owners of the notes for the
purpose of receiving payments and for all other purposes. Consequently, neither
Sunburst, the trustee nor any agent of Sunburst or the trustee has or will have
any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interest in the Global Notes or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised Sunburst that its current practice, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or Sunburst. Neither Sunburst nor the
trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the notes, and Sunburst and the trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Certificated Notes
Subject to certain conditions, any Person having a beneficial interest
in a Global Note may, upon prior written request to the trustee, exchange such
beneficial interest for notes in the form of Certificated Notes. Upon any such
issuance, the trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such Person or Persons (or their
nominee). All Certificated Notes would be subject to the legend requirements
described under "Notice to Investors." In addition, if:
(1) DTC (a) notifies Sunburst that it is unwilling or unable to continue as
depositary for the Global Notes and Sunburst fails to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
(2) Sunburst, at its option, notifies the trustee in writing that it elects to
cause the issuance of the Certificated Notes; or
29
(3) there has occurred and is continuing a Default or Event of Default with
respect to the notes;
then, upon surrender by the Global Note Holder of its Global Note, notes in such
form will be issued to each person that the Global Note Holder and DTC identify
as being the beneficial owner of the related notes.
Neither Sunburst nor the trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of notes and
Sunburst and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
Same Day Settlement and Payment
Sunburst will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. Sunburst will make all payments of
principal, interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of Certificated Notes or, if no such account
is specified, by mailing a check to each such Holder's registered address. The
notes represented by the Global Notes are expected to be eligible to trade in
the PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such notes will, therefore,
be required by DTC to be settled in immediately available funds. Sunburst
expects that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
Registration Rights; Liquidated Damages
The following description is a summary of the material provisions of
the registration rights agreement. It does not restate that agreement in its
entirety.
Sunburst, the Guarantors and Choice, on behalf of the Holders of
Transfer Restricted Securities, will enter into the registration rights
agreement on or prior to the closing of this offering. Pursuant to the
registration rights agreement, Sunburst and the Guarantors will agree to file
with the Commission, upon the request of Choice, the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes or a Shelf Registration Statement to cover resales of the notes
by Choice (the "Choice Shelf Registration Statement"); provided that Choice
satisfies certain conditions relating to the provision of information in
connection with the Choice Shelf Registration Statement. Upon the effectiveness
of the Exchange Offer Registration Statement, if such Exchange Offer
Registration Offer is requested, Sunburst and the Guarantors will offer to the
Holders of Transfer Restricted Securities pursuant to the Exchange Offer who are
able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes.
30
If Choice requests an Exchange Offer Registration Statement and:
(1) Sunburst and the Guarantors are not
(a) required to file the Exchange Offer Registration Statement; or
(b) permitted to consummate the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy; or
(2) any Holder of Transfer Restricted Securities notifies Sunburst prior to the
20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating in the
Exchange Offer; or
(b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly from
Sunburst or an affiliate of Sunburst,
Sunburst and the Guarantors will file with the Commission a Shelf Registration
Statement to cover resales of the notes by the Holders of the notes (the "Holder
Shelf Registration Statement") who satisfy certain conditions relating to the
provision of information in connection with the Holder Shelf Registration
Statement.
Sunburst and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
For purposes of the preceding, "Transfer Restricted Securities" means
each note until:
(1) the date on which such note has been exchanged by a Person other than a
broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of a note
for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the Choice Shelf
Registration Statement or the Holder Shelf Registration Statement; or
31
(4) the date on which such note is distributed to the public pursuant to Rule
144 under the Securities Act.
The registration rights agreement will provide that:
(1) Sunburst and the Guarantors will file an Exchange Offer Registration
Statement or a Choice Shelf Registration Statement, as applicable, with the
Commission within 45 days after Sunburst receives a written request from
Choice requesting such filing (the "Choice Request");
(2) Sunburst and the Guarantors will use their best efforts to have the
Exchange Offer Registration Statement or the Choice Shelf Registration
Statement, as applicable, declared effective by the Commission on or prior
to 150 days after receipt of the Choice Request;
(3) unless the Exchange Offer, if requested, would not be permitted by
applicable law or Commission policy, Sunburst and the Guarantors will
(a) commence the Exchange Offer; and
(b) use their best efforts to issue on or prior to 30 business days, or
longer, if required by the Federal securities laws, after the date on
which the Exchange Offer Registration Statement was declared effective
by the Commission, Exchange Notes in exchange for all notes tendered
prior thereto in the Exchange Offer; and
(4) if obligated to file the Holder Shelf Registration Statement, Sunburst and
the Guarantors will use their best efforts to file the Holder Shelf
Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Holder Shelf Registration to
be declared effective by the Commission on or prior to 90 days after such
obligation arises.
If:
(1) Sunburst and the Guarantors fail to file any of the registration statements
required by the registration rights agreement on or before the date
specified for such filing; or
(2) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(3) Sunburst and the Guarantors fail to consummate the Exchange Offer, if
requested, within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement; or
(4) the Choice Shelf Registration Statement, the Holder Shelf Registration
Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the
32
periods specified in the registration rights agreement (each such event
referred to in clauses (1) through (4) above, a "Registration Default"),
then Sunburst and the Guarantors will pay Liquidated Damages to each Holder of
notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per week
per $1,000 of Accreted Value (if prior to _______, 2002) or principal amount (if
after _________, 2002) of notes held by such Holder.
The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 of Accreted Value (if prior to _______, 2002) or
principal amount (if after _________, 2002) of notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 of Accreted Value (if prior to _______, 2002) or principal
amount (if after _________, 2002) of notes.
All accrued Liquidated Damages will be paid by Sunburst and the
Guarantors on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by Federal funds check and to Holders
of Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of notes will be required to make certain representations to
Sunburst (as described in the registration rights agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Choice Shelf Registration
Statement or the Holder Shelf Registration Statement and to provide comments on
the Choice Shelf Registration Statement or the Holder Shelf Registration
Statement within the time periods set forth in the registration rights agreement
in order to have their notes included in the Choice Shelf Registration Statement
or the Holder Shelf Registration Statement, as applicable, and benefit from the
provisions regarding Liquidated Damages set forth above. By acquiring Transfer
Restricted Securities, a Holder will be deemed to have agreed to indemnify
Sunburst and the Guarantors against certain losses arising out of information
furnished by such Holder in writing for inclusion in the Choice Shelf
Registration Statement or any Holder Shelf Registration Statement. Holders of
notes will also be required to suspend their use of the prospectus included in
the Choice Shelf Registration Statement or Holder Shelf Registration Statement
under certain circumstances upon receipt of written notice to that effect from
Sunburst.
Certain Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
33
"Accreted Value" means for each $1,000 principal amount at maturity of
notes, as of any date of determination prior to ____________, 2002, the sum of:
(1) $847.10, and
(2) that portion of the excess of the principal amount at maturity of such note
over $847.10 which shall have been accreted on the note through such date
of determination, which amount is to be accreted on a daily basis and
compounded semi-annually on each _________ and _____________ at the rate of
11.375% per annum from the date of issuance of the notes through such date
of determination.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"Applicable Premium" means, with respect to any note on any Redemption
Date, the greater of:
(1) 1.0% of the Accreted Value of the note (if prior to _______, 2002) or 1.0%
of the principal amount of the note (if after _______, 2002); or
(2) the excess of:
(a) the present value at such Redemption Date of (1) the redemption price
of the note at __________________, 2004 (such redemption price being
set forth in the table appearing above under the caption "--Optional
Redemption") plus (ii) all required interest payments due on the note
through ________, 2004 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate as of such
Redemption Date plus 50 basis points; over
(b) the Accreted Value of the note (if prior to ______, 2002) or the
principal amount of the note (if after _______, 2002), in each case,
if greater.
34
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights,
other than sales of inventory in the ordinary course of business consistent
with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Sunburst and its
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of Sunburst's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed
to be Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among Sunburst and its Wholly Owned
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Subsidiary to Sunburst or to another
Wholly Owned Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents; and
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable
35
or is exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation;
(2) with respect to a partnership, the board of directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality of the United States
government (provided that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not more than
six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each
case, with any lender party to the Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of $500.0 million and
a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
36
(5) commercial paper having the highest rating obtainable from Xxxxx'x
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of Sunburst and its Restricted Subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act)
other than a person a majority of whose Voting Stock is Beneficially Owned
by the Principals or Related Parties;
(2) the adoption of a plan relating to the liquidation or dissolution of
Sunburst;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of a majority of the
Voting Stock of Sunburst, measured by voting power rather than number of
shares; or
(4) the first day on which a majority of the members of the Board of Directors
of Sunburst are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; plus
(3) an amount equal to any Net Income of a Finance Restricted Subsidiary, to
the extent such Net Income was excluded in computing Consolidated Net
Income; provided that the Debt to Cash Flow Ratio of each of (a) Sunburst
and (b) all of the Finance Restricted Subsidiaries, on a combined basis, on
such date of determination is, in each case, no greater than 3.5 to 1; plus
(4) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash
37
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; plus
(5) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
expenses of, a Subsidiary of Sunburst will be added to Consolidated Net Income
to compute Consolidated Cash Flow of Sunburst only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to Sunburst by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders (except that the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
expenses of, a Finance Restricted Subsidiary will be added to Consolidated Net
Income to compute Consolidated Cash Flow, without limitation, so long as the
Debt to Cash Flow Ratio of each of (a) Sunburst and (b) all of the Finance
Restricted Subsidiaries, on a combined basis, on such date of determination is,
in each case, no greater than 3.5 to 1.
"Consolidated Indebtedness" means, with respect to any Person as of
any date of determination, the sum, without duplication, of
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been Guaranteed by the referent Person or one or more
of its Subsidiaries, plus
38
(3) the aggregate liquidation value of all Disqualified Stock of such Person
and all preferred stock of Restricted Subsidiaries of such Person, in each
case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting will
be included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Wholly Owned Restricted
Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the extent
that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition will be excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) the Net Income of any Unrestricted Subsidiary will be excluded, whether or
not distributed to the specified Person or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any specified Person
as of any date, the sum of:
(1) the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of such
date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
such dividends may be declared and paid only out of net earnings in respect
of the year of such declaration and payment, but only to the extent of any
cash received by such Person upon issuance of such preferred stock.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Sunburst who:
(1) was a member of such Board of Directors on the date of the indenture; or
39
(2) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of
_______, by and among [Sunburst] and ___________________, providing for up to
$________ of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including,
without limitation, the Credit Agreement) or commercial paper facilities, in
each case with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Debt to Cash Flow Ratio" means, with respect to any specified Person
as of any date of determination, the ratio of (a) the Consolidated Indebtedness
of such Person as of such date to (b) the Consolidated Cash Flow of such Person
for the four most recent full fiscal quarters ending immediately prior to such
date for which internal financial statements are available, determined on a pro
forma basis after giving effect to all acquisitions or dispositions of assets
made by the specified Person and its Restricted Subsidiaries from the beginning
of such four-quarter period through and including such date of determination
(including any related financing transactions) as if such acquisitions and
dispositions had occurred at the beginning of such four-quarter period.
In addition, for purposes of calculating the Debt to Cash Flow Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the date on which the event for which the calculation of the debt to Cash
Flow Ratio (the "Calculation Date") shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated without giving effect to
clause (3) of the proviso set forth in the definition of Consolidated Net
Income; and
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
40
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the indenture the principal amount of
which is $5.0 million or more and that has been designated by Sunburst as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require
Sunburst to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the terms of
such Capital Stock provide that Sunburst may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of Sunburst that
was formed under the laws of the United States or any state of the United States
or the District of Columbia or that guarantees or otherwise provides direct
credit support for any Indebtedness of Sunburst.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Estimation Period" means the period for which a stockholder who is an
individual is required to estimate for Federal income tax purposes his
allocation of taxable income from a calendar year in connection with determining
his estimated Federal income tax liability for such period.
"Existing Indebtedness" means up to $___.0 million in aggregate
principal amount of Indebtedness of Sunburst and its Subsidiaries (other than
Indebtedness under the Credit Agreement) in existence on the date of the
indenture, until such amounts are repaid.
"Finance Restricted Subsidiary" means any Wholly Owned Restricted
Subsidiary of Sunburst that is designated by the board of directors on the date
that such Wholly Owned Restricted Subsidiary is formed as a Finance Restricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Wholly Owned Restricted Subsidiary:
(1) has no Indebtedness other than Mortgage Debt;
(2) has no assets other than lodging property assets and related assets; and
41
(3) at the time of the creation of such Finance Restricted Subsidiary, the Debt
to Cash Flow Ratio of (a) Sunburst and (b) all of the Finance Restricted
Subsidiaries, taken as a whole, is, in each case, no greater than 3.5 to 1.
Any designation of a Wholly Owned Restricted Subsidiary of Sunburst as
a Finance Restricted Subsidiary will be evidenced to the trustee by filing with
the trustee a certified copy of the Board Resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the preceding conditions. If, at any time, any Finance Restricted
Subsidiary would fail to meet the preceding requirements as a Finance Restricted
Subsidiary, it will thereafter cease to be a Finance Restricted Subsidiary for
purposes of the indenture and such Restricted Subsidiary will become a Guarantor
and execute a supplemental indenture and deliver an opinion of counsel
satisfactory to the trustee within 10 Business Days of the date on which it
ceased to be a Finance Restricted Subsidiary. The board of directors of
Sunburst may at any time designate any Finance Restricted Subsidiary to no
longer be a Finance Restricted Subsidiary; provided that no Default or Event of
Default would be in existence following such designation and such Restricted
Subsidiary will become a Guarantor and execute a supplemental indenture and
deliver an opinion of counsel satisfactory to the trustee within 10 Business
Days of the date on which it was designated.
"Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net of the effect of all payments made or received pursuant to Hedging
Obligations; plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien
on assets of such Person or one of its Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividends on Equity Interests payable
solely in Equity Interests of Sunburst (other than Disqualified Stock) or
to Sunburst or a Restricted Subsidiary of Sunburst, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current combined Federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
42
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person for such period. In the event that the specified Person or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or
redeems any Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date will be given pro forma effect as if they had occurred
on the first day of the four-quarter reference period and Consolidated Cash
Flow for such reference period will be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act, but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, will be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of
the specified Person or any of its Subsidiaries following the Calculation
Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
43
"Guarantors" means each of:
(1) ____________; and
(2) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness
issued with original issue discount; and
44
(2) the principal amount of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all direct or
indirect investments by such Person in other Persons (including Affiliates) in
the forms of loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Sunburst or
any Subsidiary of Sunburst sells or otherwise disposes of any Equity Interests
of any direct or indirect Subsidiary of Sunburst such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of
Sunburst, Sunburst will be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity Interests
of such Subsidiary not sold or disposed of in an amount determined as provided
in the final paragraph of the covenant described above under the caption "--
Certain Covenants--Restricted Payments." The acquisition by Sunburst or any
Subsidiary of Sunburst of a Person that holds an Investment in a third Person
will be deemed to be an Investment by Sunburst or such Subsidiary in such third
Person in an amount equal to the fair market value of the Investment held by the
acquired Person in such third Person in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Mortgage Debt" means Indebtedness of a Finance Restricted Subsidiary
secured solely by lodging property assets of a Finance Restricted Subsidiary
owning such lodging property assets; provided that the aggregate amount of
Mortgage Debt of all Finance Restricted Subsidiaries will at no time exceed $100
million.
"Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes on
such gain (but not loss), realized in connection with: (a) any Asset Sale;
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
45
"Net Proceeds" means the aggregate cash proceeds received by Sunburst
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and amounts required to be applied
to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on
the asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Sunburst nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the holders of
the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness of Sunburst or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment of the Indebtedness to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of Sunburst or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business conducted by Sunburst and its
Restricted Subsidiaries as of the Closing Date and any and all businesses that
in the good faith judgment of the Board of Sunburst are materially related to
such businesses.
"Permitted Investments" means:
(1) any Investment in Sunburst or in a Restricted Subsidiary of Sunburst;
(2) any Investment in Cash Equivalents;
(3) any Investment by Sunburst or any Subsidiary of Sunburst in a Person, if as
a result of such Investment:
46
(a) such Person becomes a Wholly Owned Restricted Subsidiary of Sunburst;
or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Sunburst or a Wholly Owned Restricted Subsidiary of
Sunburst;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Sunburst;
(6) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that were
incurred in the ordinary course of business, including pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or insolvency
of any trade creditor or customer;
(7) Hedging Obligations; and
(8) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (8) that are at the time
outstanding not to exceed $5 million.
"Permitted Junior Securities" means:
(1) Equity Interests in Sunburst or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to substantially the same
extent as, or to a greater extent than, the notes and the Subsidiary
Guarantees are subordinated to Senior Debt under the indenture.
"Permitted Liens" means:
(1) Liens of Sunburst and any Guarantor securing Senior Debt;
(2) Liens in favor of Sunburst or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Sunburst or any Subsidiary of Sunburst;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with Sunburst or the
Subsidiary;
47
(4) Liens on property existing at the time of acquisition of the property by
Sunburst or any Subsidiary of Sunburst, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled "-
-Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as is required in conformity with
GAAP has been made therefor;
(9) Liens incurred in the ordinary course of business of Sunburst or any
Subsidiary of Sunburst with respect to obligations that do not exceed $10
million at any one time outstanding;
(10) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries; and
(11) Liens on lodging property assets of Finance Restricted Subsidiaries that
secure Mortgage Debt not to exceed $100 million at any one time
outstanding.
"Permitted Quarterly Tax Distributions" means quarterly distributions
of Tax Amounts determined on the basis of the estimated taxable income of
Sunburst, for the related Estimation Period, as determined by the Tax Amounts
CPA in a statement filed with the Trustee; provided, however, that (A) prior to
any distribution of Tax Amounts, Sunburst shall deliver an Officers' Certificate
stating that Sunburst qualifies as an S Corporation for Federal income tax
purposes and (B) at the time of such distributions, the most recent audited
financial statements of Sunburst reflect that Sunburst was treated as an S
Corporation for Federal income tax purposes for the period covered by such
financial statements.
"Permitted Refinancing Indebtedness" means any Indebtedness of
Sunburst or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Sunburst or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness extended, refinanced, renewed,
replaced, defeased or refunded (plus all
48
accrued interest on the Indebtedness and the amount of all expenses and
premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the earlier of (x) the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded or (y) the 91st day after the stated
maturity of the notes; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company or government or other entity.
"Principals" means Xxxxxxx Xxxxxx, Xx.
"Quarterly Payment Period" means the period commencing on the tenth
day and ending on and including the twentieth day of each month in which Federal
individual estimated tax payments are due (provided that payments in respect of
estimated state income taxes due in January may instead, at the option of
Sunburst, be paid during the last five days of the immediately preceding
December).
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate
family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding controlling
interest of which consist of any one or more Principals and/or such other
Persons referred to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of Sunburst or any Guarantor outstanding under Credit
Facilities and all Hedging Obligations with respect thereto;
49
(2) any other Indebtedness of Sunburst or any Guarantor permitted to be
incurred under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes or any
Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding clauses
(1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt
will not include:
(1) any liability for Federal, state, local or other taxes owed or owing by
Sunburst;
(2) any Indebtedness of Sunburst to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees of the corporation, association or other
business entity is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person (or
a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).
"Tax Amounts" with respect to any taxable period shall not exceed an
amount equal to (A) the product of (x) the taxable income of Sunburst for such
period as determined by the Tax Amounts CPA and (y) the Tax Percentage reduced
by (B) to the extent not previously taken into account, any income tax benefit
attributable to Sunburst which could be realized (without regard to the actual
realization) by its shareholders in the current or any prior taxable year, or
portion thereof, commencing on or after the Issue Date (including any tax losses
or tax
50
credits), computed at the applicable Tax Percentage for the year that such
benefit is taken into account for purposes of this computation.
"Tax Amounts CPA" means a nationally recognized certified public
accounting firm.
"Tax Percentage" means for a particular taxable year, the effective
marginal combined rate of Federal and state income tax that would have been
imposed on Sunburst had Sunburst been a C Corporation for Federal income tax
purposes during such taxable year.
"Treasury Rate" means, as of any Redemption Date, the yield to
maturity as of such Redemption Date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to ___________, 2004;
provided, however, that if the period from the Redemption Date to _____________,
2004 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year will be
used.
"True-Up Amount" means, in respect of a particular taxable year, an
amount determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year and (ii) the aggregate Tax Amounts in respect of such year
as determined by reference to Sunburst's Internal Revenue Service Form 1120S
filed for such year, provided however, that if there is a filing of an amended
Internal Revenue Service Form 1120S for Sunburst for a particular taxable year
or any adjustment by the Internal Revenue Service with respect to Sunburst's
Internal Revenue Service Form 1120S for a particular taxable year that is
subsequently finalized by a final settlement between Sunburst and the Internal
Revenue Service or a judgment by a court having jurisdiction over the relevant
matters ("Adjustment Event"), clause (i) will mean the aggregate Permitted
Quarterly Tax Distributions as adjusted by the aggregate True-Up Amounts
actually distributed in respect of such taxable year and clause (ii) will mean
the aggregate Tax Amounts in respect of such year as determined by reference to
Sunburst's Internal Revenue Service Form 1120S for such taxable year, as
adjusted to take into account the results of the Adjustment Event. For purposes
of this Agreement, the amount equal to the excess, if any, of the amount
described in clause (i) above over the amount described in clause (ii) above
shall be referred to as the "True-up Amount due to Sunburst" and the excess, if
any, of the amount described in clause (ii) over the amount described in clause
(i) shall be referred to as the True-up Amount due to the shareholders."
"Unrestricted Subsidiary" means any Subsidiary of Sunburst (other than
or any successor to any of them) that is designated by the board of directors as
an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
51
(2) is not party to any agreement, contract, arrangement or understanding with
Sunburst or any Restricted Subsidiary of Sunburst unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to Sunburst or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Sunburst ;
(3) is a Person with respect to which neither Sunburst nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Sunburst or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a director
or executive officer of Sunburst or any of its Restricted Subsidiaries and
has at least one executive officer that is not a director or executive
officer of Sunburst or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of Sunburst as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Restricted Subsidiary of Sunburst as of such
date and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock," Sunburst will be in default of
such covenant. The board of directors of Sunburst may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Sunburst of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the [four-quarter] reference period; and (2) no Default or Event of
Default would be in existence following such designation. Such newly designated
Restricted Subsidiary will become a Guarantor and execute a supplemental
indenture and deliver as opinion of counsel satisfactory to the trustee within
10 Business Days of the date on which it was designated.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
52
(1) the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect of
the Indebtedness, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
will at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
53
