<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1998
REGISTRATION NO. 333-44491
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CAVANAUGHS HOSPITALITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 7011 91-1032187
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
201 W. NORTH RIVER DRIVE,
SUITE 100
SPOKANE, WASHINGTON 99201
(509) 459-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DONALD K. BARBIERI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAVANAUGHS HOSPITALITY CORPORATION
201 W. NORTH RIVER DRIVE, SUITE 100
SPOKANE, WASHINGTON 99201
(509) 459-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BARRY LAWRENCE, ESQ. JAY L. BERNSTEIN, ESQ.
BRIAN HOYE, ESQ. ROGERS & WELLS LLP
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP 200 PARK AVENUE
1999 AVENUE OF THE STARS, SUITE 1600 NEW YORK, NEW YORK 10166
LOS ANGELES, CALIFORNIA 90067 (212) 878-8000
(310) 788-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]________.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]________.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 10, 1998
5,175,000 SHARES
[LOGO OF CAVANAUGHS HOSPITALITY CORPORATION]
COMMON STOCK
-----------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Cavanaughs
Hospitality Corporation (the "Company"). Prior to the Offering, there has been
no public market for the Common Stock of the Company. Upon completion of the
Offering, the Company's current shareholders as a group will own approximately
57.7% of the outstanding shares of Common Stock. As a result these shareholders
will be able to control all corporate matters of the Company that are subject
to shareholder approval, including the election of directors. The Company
anticipates that the initial public offering price per share will be between
$12.00 and $14.00. See "Underwriting" for a discussion of the factors that will
be considered in determining the initial public offering price. The Common
Stock has been approved for listing on the New York Stock Exchange (the "NYSE")
under the symbol "CVH," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN MATERIAL
RISKS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $ .
(3) The Company has granted an option to the Underwriters, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 776,250
additional shares of Common Stock for the purpose of covering over-
allotments, if any. If the Underwriters exercise such over-allotment option
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters when, as
and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of certificates representing the
shares of Common Stock will be made against payment on or about , 1998 at
the office of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial
Center, New York, New York 10281.
-----------
CIBC OPPENHEIMER NATIONSBANC MONTGOMERY SECURITIES LLC
The date of this Prospectus is , 1998
<PAGE>
[ON THE INSIDE FRONT COVER OF THE PROSPECTUS IS A MAP OF CERTAIN STATES IN
THE NORTHWESTERN UNITED STATES HIGHLIGHTING VARIOUS CITIES AND, BELOW, THE
LOCATIONS WHERE THE COMPANY HAS PROPERTIES AND PROVIDES ENTERTAINMENT,
MANAGEMENT AND SERVICES.]
[ON THE INSIDE BACK COVER OF THE PROSPECTUS IS A COLLAGE REPRESENTING
FEATURES OF THE ENTERTAINMENT, MANAGEMENT AND SERVICES DIVISION AND PHOTOS OF
SOME OF THE COMPANY'S HOTELS, OFFICE AND RETAIL BUILDINGS]
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE
ITS MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
----------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF A PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE ADVISED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS
TO, THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including the Combined Financial Statements and
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, all references in this Prospectus to the "Company" include
Cavanaughs Hospitality Corporation, a Washington corporation, its subsidiaries,
including Cavanaughs Hospitality Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), and its predecessors. Unless
otherwise indicated, all information in this Prospectus (i) assumes an initial
public offering price of $13.00 per share (which is the midpoint of the range
set forth on the cover page of this Prospectus), (ii) gives retroactive effect
to the merger of Goodale and Barbieri Companies, the Company's predecessor, and
Barbieri Investment Company which occurred in November 1997 (the "Merger"),
whereby the Company was recapitalized and 7,072,025 shares of common stock, par
value $.01 per share (the "Common Stock"), were issued to the existing
shareholders and (iii) assumes that the Underwriters' over-allotment option is
not exercised. As used herein, the term "Northwest" includes the states of
Washington, Oregon, Idaho, Montana, Utah and Alaska, northern California and
the Canadian provinces of Alberta and British Columbia.
THE COMPANY
Cavanaughs Hospitality Corporation is a hotel operating company that owns,
operates, acquires, develops, renovates and repositions full service hotels in
the Northwest under its proprietary brand name, "Cavanaughs(TM)". The Company's
hotel portfolio contains 11 full service hotels (the "Hotels"), with 2,369
guest rooms and approximately 120,000 square feet of meeting space, located in
Seattle, Spokane, Yakima and Kennewick, Washington; Idaho Falls and Post Falls,
Idaho; and Kalispell, Montana. The Company plans to pursue additional growth
opportunities by continuing to acquire and develop full service hotels in the
Northwest. The Company has entered into purchase agreements to acquire two
additional full service hotels, containing 343 guest rooms and approximately
14,500 square feet of meeting space, located in Kalispell, Montana and
Portland, Oregon for an aggregate purchase price of approximately $15.5
million. Substantially all of the Company's assets, including the Hotels, are
owned by the Operating Partnership, the day to day operations of which are
managed by the Company in its capacity as sole general partner. With more than
20 years of experience in the lodging industry, management believes the Company
enjoys an excellent reputation in, and its Cavanaughs brand name is well
recognized throughout, the Northwest. The Company also provides entertainment
services, including event ticketing and theatrical presentations and other
special events, and property management services for third parties and owns and
manages retail and office properties.
The Company is seeking to become the dominant full service hotel company in
the Northwest by providing customers with access to a Cavanaughs brand hotel in
multiple locations throughout the region. As a result of consolidation among
hotel chains, the Company believes there is an absence of a dominant Northwest
based, regionally focused hotel company. The Company's growth strategy focuses
on: (i) the acquisition and re-branding of full service hotels with the
Cavanaughs name, (ii) the acquisition, conversion and redevelopment of non-
hotel properties into Cavanaughs brand hotels, (iii) the construction of new
Cavanaughs hotels and (iv) the expansion of existing Cavanaughs Hotels.
The Company's operating strategy is designed to enhance its revenue and
operating margins by increasing revenue per available room ("REVPAR"), average
daily rates ("ADR"), occupancy and operating efficiencies at the Hotels. This
strategy includes: (i) building brand name recognition by maintaining its
strategic focus on the Northwest; (ii) promoting a coordinated marketing
program utilizing corporate level sales and marketing departments in
conjunction with local hotel-based sales and marketing personnel; (iii)
controlling operating expenses and achieving cost reductions through operating
efficiencies and economies of scale; (iv) enhancing guest satisfaction and
loyalty by providing high quality service; (v) utilizing the Company's yield
management
3
<PAGE>
and proprietary management information systems to enable the general managers
of each Hotel to optimize REVPAR, ADR, occupancy and net income; (vi)
maintaining a consistent level of quality at the Hotels through its maintenance
and capital expenditure programs; (vii) emphasizing the quality of the
Company's food and beverage services to attract convention, group and special
event business and to create local awareness of the Hotels; (viii) providing
valuable guest benefit programs that promote customer loyalty, such as frequent
flier mileage and repeat guest programs; and (ix) attracting and retaining
qualified employees by providing on going training and stock incentive programs
at all levels of employment to enhance productivity and align the efforts of
employees with the Company's objectives. For the fiscal year ended October 31,
1997, the Company's revenues were $52.0 million, operating income was $10.6
million, net income was $1.7 million, REVPAR was $45.72 and ADR was $73.43. On
a pro forma basis, giving effect to the three Hotels acquired since October 31,
1997, the two hotels under contract to be acquired and the Offering, for the
year ended October 31, 1997, the Company's revenues were $77.4 million,
operating income was $14.5 million, net income was $6.0 million, REVPAR was
$41.21 and ADR was $68.94.
The Company has received a commitment from U.S. Bank to provide, upon
consummation of the Offering, up to $80.0 million under a revolving credit
facility (the "Revolving Credit Facility") which will be used by the Company to
finance property acquisitions, development and capital improvements and for
general corporate purposes. As an alternative to debt financing, the Company
may issue shares of Common Stock or units of limited partner interest in the
Operating Partnership ("OP Units") as consideration in future hotel
acquisitions. The issuance of OP Units in exchange for hotels may allow the
current owners of such hotels to achieve certain tax advantages when selling
such hotels to the Company.
In addition to the Hotels, the Company operates two other divisions: (i)
entertainment, management and services and (ii) rental operations. The
entertainment, management and services division includes computerized event
ticketing through G&B Select-a-Seat, which was founded in 1987 and processed in
excess of 2.0 million tickets in 1997, and the presentation of shows and
special events through G&B Presents, which was also founded in 1987 and has
presented over 79 Broadway theatrical presentations and special events in the
last ten years. These services generate income from ticket sales and handling
fees as well as additional room occupancy at the Hotels. The entertainment,
management and services division is supported by the same Company-operated
toll-free call center (the "Toll-Free Call Center") used for hotel
reservations. The Company's rental operations division includes ownership of
three office properties and one retail property containing in excess of 590,000
square feet of leasable space, the majority of which are located near the
Hotels, and third-party management of more than 3.1 million square feet of
retail and office properties and approximately 2,200 residential units in the
Northwest.
The Company, which was formerly known as Goodale and Barbieri Companies, has
been a family-owned enterprise since it was founded in 1937. Between 1937 and
1976, the Company focused on third-party property management services and real
estate development in Spokane, Washington. The Company's history of owning and
operating hotels commenced in 1976 when it constructed the River Inn in
Spokane. In 1980, the Company established its proprietary Cavanaughs brand
name. After changing its name in October 1997 to Cavanaughs Hospitality
Corporation, the Company merged with Barbieri Investment Company, an affiliated
Washington corporation ("BIC"), effective November 3, 1997. In connection with
its merger with BIC, the Company contributed certain assets not related to its
core hospitality business, including, among other things, a long-term residence
inn and a milk processing and distribution business, to a wholly-owned
subsidiary and distributed the capital stock of such subsidiary, as well as the
capital stock of another wholly-owned subsidiary owning recreation real estate
in Priest Lake, Idaho and a retail sales operation, to the shareholders of the
Company. Shortly thereafter, the Company contributed substantially all of its
assets to the Operating Partnership in exchange for general and limited partner
interests therein. The Company is the sole general partner of the Operating
Partnership and owns a controlling 98.8% interest therein. All of the Hotels
and the other assets of the Company are held by or for the benefit of, and
substantially all of the Company's operations are conducted through, the
Operating Partnership.
4
<PAGE>
Since 1968 when Donald Barbieri, the Company's Chairman, President and Chief
Executive Officer, joined the Company, the Company has grown from five
employees to approximately 1,900 employees. The Company's principal executive
offices are located at 201 W. North River Drive, Suite 100, Spokane, Washington
99201 and its telephone number is (509) 459-6100. The Company's website address
is www.cavanaughs.com.
INDUSTRY OVERVIEW
The domestic lodging industry completed its third year of record
profitability in 1996, during which time it produced record income of $12.5
billion. Coopers & Lybrand L.L.P.'s Hospitality Directions (November 1997)
("Coopers & Lybrand Hospitality Directions") estimates that the industry is
expected to again achieve record profitability in 1997. Coopers & Lybrand
Hospitality Directions indicates that average U.S. hotel occupancy reached
65.1% in 1996, its highest level in 13 years. U.S. hotel occupancy is expected
to decline slightly in 1997 to 64.5% due to supply growth exceeding demand
growth. High occupancy during 1995 to 1997 has provided hotel operators with
the ability to support increases in ADR without affecting occupancy
percentages. Sustained ADR growth has contributed to total lodging industry
revenue growth which was 8.6% in 1996 and is expected to be 8.5% in 1997.
The following table reflects the percentage changes in REVPAR, ADR and
occupancy for the twelve months ended October 31, 1996 and 1997, compared to
the same periods in 1995 and 1996, respectively, for (i) the Hotels that were
open for each of the periods presented, (ii) U.S. full service hotels and
(iii) all U.S. hotels.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE VERSUS PRIOR PERIOD
-----------------------------------------------
REVPAR(1) ADR OCCUPANCY
-------------- -------------- ---------------
1996 1997 1996 1997 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cavanaughs Hotels(2).... 8.3% 8.8% 9.3% 9.1% (1.5)% (1.6)%
U.S. Full Service Ho-
tels(3)................ 8.4% 7.8% 7.4% 7.8% 0.8 % 0.1 %
U.S. Hotels(3)(4)....... 6.4% 5.4% 6.4% 6.4% (0.1)% (0.9)%
</TABLE>
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(1) Determined by dividing annual room revenue by annual available rooms.
(2) Occupancy as a percentage of available rooms declined slightly, primarily
because of the addition of new rooms associated with the opening of
Cavanaughs on Fifth Avenue, which management believes has not reached
stabilized occupancy.
(3) Source: Smith Travel Research.
(4) Includes both full service and limited service hotels.
Lodging room demand has historically tracked the national economy. In 1997,
the U.S. economy's ongoing expansion has been marked by low inflation and
unemployment and, in the northwest states of Idaho, Oregon and Washington,
employment and population growth has been above national averages. According to
U.S. Bank's Economic Update (October 1997), for the twelve months ended July
1997 the metropolitan areas of Seattle, Washington and Portland, Oregon were
the second and fourth fastest growing metropolitan economies in the nation,
respectively. In addition, according to the 1998 U.S. Bank Regional Economic
Review and Forecast, Utah, Washington and Oregon were the second, fifth and
eighth most rapidly growing states in the nation, respectively. The western
region of the United States is expected to continue to outpace the nation in
employment income and population growth through the year 2000, according to the
Oregon Economic Review and Forecast (December 1997).
5
<PAGE>
HOTEL PROPERTIES
The Company's hotel portfolio currently contains 11 full service Hotels, with
2,369 guest rooms and approximately 120,000 square feet of meeting space,
located in the Northwest. In addition, the Company has entered into purchase
agreements to acquire two additional full service hotels. The following table
sets forth certain information regarding the Company's hotel portfolio and
hotels under contract.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
MEETING ---------------------------------
YEAR BUILT/ YEAR GUEST SPACE AVERAGE
LOCATION ACQUIRED RENOVATED ROOMS (SQ. FT.) REVPAR ADR OCCUPANCY
--------------- ----------- --------- ----- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOTELS OWNED AS OF OCTO-
BER 31, 1997:
Cavanaughs on Fifth Ave-
nue.................... Seattle, WA 1996 1996 297 12,500 $ 73.55 $ 116.24 64.9%
Cavanaughs Inn at the
Park................... Spokane, WA 1983 1997 402 26,300 48.61 80.90 61.1
Cavanaughs River Inn.... Spokane, WA 1976 1997 245 3,700 40.17 53.01 74.2
Cavanaughs Fourth Ave-
nue.................... Spokane, WA 1991 1997 153 2,600 23.63 48.33 51.7
Cavanaughs at Yakima
Center................. Yakima, WA 1991 1997 155 11,000 37.13 55.98 63.3
Cavanaughs Gateway Ho-
tel.................... Yakima, WA 1997(1) 1997 172 8,000 34.16 58.96 57.9
Cavanaughs at Columbia
Center................. Kennewick, WA 1978 1997 162 9,700 31.15 55.86 58.9
Cavanaughs at Kalispell
Center................. Kalispell, MT 1986 1997 132 10,500 36.89 59.30 63.2
----- ------- --------- ---------- -------
Total/Weighted Average
for Owned Hotels
(2)(3)................ 1,718 84,300 $ 45.72 $ 73.43 63.5%
HOTELS ACQUIRED SINCE
OCTOBER 31, 1997:
Cavanaughs Ridpath Ho-
tel.................... Spokane, WA 1998(4) 1996 342 16,000 $ 33.49 $ 58.43 57.3%
Cavanaughs on the
Falls.................. Idaho Falls, ID 1998(5) 1994 142 8,800 34.49 57.38 60.1
Cavanaughs Templins Re-
sort................... Post Falls, ID 1998(6) 1996 167 11,000 36.45 62.65 58.2
HOTELS CURRENTLY UNDER
CONTRACT:
Cavanaughs Outlaw Ho-
tel.................... Kalispell, MT 1998(7) 1995 220 11,000 $ 29.88 $ 68.88 43.4%
Cavanaughs Hillsboro Ho-
tel.................... Portland, OR 1998(8) 1997 123 3,500 50.13 72.38 69.3
----- ------- --------- ---------- -------
Total/Weighted Average
for Hotels Acquired or
Under Contract Since
October 31, 1997...... 994 50,300 $ 35.40 $ 62.99 56.2%
Total/Weighted Average
for All Hotels
(2)(3)................ 2,712 134,600 $ 41.21 $ 68.94 59.8%
</TABLE>
- --------
(1) Leased by the Company effective October 15, 1997. See "Business and
Properties--Hotel Properties."
(2) Rooms which were under renovation were excluded from REVPAR and average
occupancy percentage. Due to the short duration of renovation, in the
opinion of management, excluding these rooms did not have a material impact
on REVPAR and average occupancy percentage.
(3) The total/weighted average for owned Hotels includes REVPAR, ADR and
average occupancy of Cavanaughs Gateway Hotel for the period from October
15, 1997 through October 31, 1997.
(4) Leased by the Company effective January 1, 1998. See "Business and
Properties--Hotel Properties."
(5) Acquired by the Company on January 7, 1998.
(6) Acquired by the Company on February 2, 1998.
(7) The Company has entered into a purchase agreement dated November 19, 1997
to acquire this hotel, subject to the satisfaction of normal closing
conditions, for a purchase price of $9.8 million within 60 days of the
closing of the Offering. This hotel, which is currently known as the Outlaw
Inn, will be re-branded as the "Cavanaughs Outlaw Hotel" upon acquisition.
(8) The Company has entered into a purchase agreement dated January 14, 1998
pursuant to which it intends to acquire this hotel, subject to the
satisfaction of normal closing conditions, for a purchase price of $5.7
million on April 1, 1998. This hotel, currently known as the Hallmark Inn,
will be re-branded as the "Cavanaughs Hillsboro Hotel" upon acquisition.
6
<PAGE>
STRUCTURE OF THE COMPANY
The Company is the sole general partner of the Operating Partnership and the
Company, North River Drive Company, the Barbieri Family Foundation, Donald
Barbieri, Thomas Barbieri and Richard Barbieri are currently the limited
partners of the Operating Partnership. The Company will conduct substantially
all of its business, and will hold substantially all of the Hotels and other
assets, through the Operating Partnership. As sole general partner of the
Operating Partnership, the Company has exclusive power to manage and conduct
the operations of the Operating Partnership. Subject to certain holding period
requirements, OP Units will be exchangeable, at the option of the holders
thereof, for cash in an amount equal to the market value of an equivalent
number of shares of Common Stock. The Company has the right, however, if OP
Units are presented for exchange, to deliver to the holder of such OP Units, in
lieu of cash, shares of Common Stock, on a one-for-one basis (subject to
adjustment in the event of stock splits, stock dividends, combinations and
reorganizations). As general partner of the Operating Partnership, whenever the
Company shall issue shares of capital stock, such as in the Offering, the
Company will contribute the net proceeds therefrom to the Operating Partnership
and the Operating Partnership will issue to the Company an equivalent number of
OP Units with rights corresponding to the shares of capital stock issued by the
Company. See "Partnership Agreement of the Operating Partnership." In addition
to the Operating Partnership, the Company holds a 50% general partner interest
in Cowley Street Limited Partnership, a Washington limited partnership which
owns Cavanaughs Fourth Avenue. Each of G&B Select-a-Seat, G&B Presents and G&B
Real Estate Services are fictitious business names of the Company and operate
within the Company's entertainment, management and services division which will
continue to be operated by the Company following the Offering for the benefit
of the Operating Partnership.
The following diagram depicts the ownership structure of the Company upon
completion of the Offering:
[CHART APPEARS HERE]
7
<PAGE>
THE OFFERING
Common Stock Offered by the
Company.................... 5,175,000 shares
Common Stock Outstanding
after the Offering......... 12,270,253 shares(1)
Use of Proceeds............. The Company expects to use the net proceeds of
the Offering to repay certain indebtedness,
including indebtedness incurred with respect to
certain acquisitions. See "Use of Proceeds."
Proposed NYSE symbol........ "CVH"
- --------
(1) Includes 7,084,253 restricted shares owned by David Barbieri, Donald
Barbieri, Kathryn Barbieri, Mark Barbieri, Richard Barbieri, Stephen
Barbieri, Thomas Barbieri, David Bell and certain family trusts
(collectively, the "Barbieri Family") and an aggregate of 11,000 restricted
shares to be issued to five of the Company's employees concurrently with
the Offering. See "Management--Restricted Stock and Certain Stock Option
Grants." Excludes 150,817 shares issuable upon exchange of currently
outstanding OP Units, which OP Units may not be exchanged by the holders
thereof for one year from the date of this Prospectus. See "Partnership
Agreement of the Operating Partnership." Excludes 1,489,000 shares reserved
for issuance with respect to options or stock awards to be granted under
the Company's 1998 Stock Incentive Plan (the "1998 Plan") and Employee
Stock Purchase Plan (the "Employee Stock Purchase Plan" and, together with
the 1998 Plan, the "Plans"). See "Management."
8
<PAGE>
SUMMARY COMBINED FINANCIAL AND OTHER DATA
The following table sets forth summary combined financial data of the Company
as of and for the five years ended October 31, 1997 and the two months ended
December 31, 1996 and 1997. The summary combined statement of operations data
for the fiscal years ended October 31, 1993 and 1994 and the two months ended
December 31, 1996 and the summary combined balance sheet data as of October 31,
1993, 1994 and 1995 and December 31, 1996 are derived from the Company's
unaudited financial statements and reflect all normal recurring adjustments,
which in the opinion of management, are necessary for a fair presentation. The
summary combined statement of operations data for the fiscal years ended
October 31, 1995, 1996 and 1997 and the two months ended December 31, 1997 and
the summary combined balance sheet data as of October 31, 1996 and 1997 and
December 31, 1997 are derived from the Company's audited financial statements
included elsewhere in this Prospectus. The pro forma combined statement of
operations data and balance sheet data as of and for the year ended October 31,
1997 are unaudited and are derived from the pro forma financial statements
included elsewhere in this Prospectus as adjusted for the Offering.
The summary combined financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Historical
Combined Financial Statements and related notes, Pro Forma Combined Financial
Statements and related notes, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWO MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31,(1) DECEMBER 31,
---------------------------------------------------------- ------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997(2) 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND HOTEL STATISTICS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Hotels and restau-
rants................. $ 28,417 $ 30,573 $ 31,244 $ 35,205 $ 41,662 $ 67,001 $ 5,683 $ 6,829
Entertainment, manage-
ment and services..... 4,468 3,205 3,092 3,168 3,842 3,842 483 840
Rental operations...... 4,572 4,987 6,027 6,790 6,539 6,539 1,191 1,169
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues........ 37,457 38,765 40,363 45,163 52,043 77,382 7,357 8,838
-------- -------- -------- -------- -------- -------- -------- --------
Operating income(3).... 8,528 8,165 7,978 8,914 10,635 14,478 924 1,343
Interest expense....... 5,301 5,649 6,866 7,319 8,817 6,050 1,317 1,422
Income (loss) before
taxes and extraordi-
nary item(3).......... 3,364 2,765 1,583 1,905 2,641 9,141 (274) --
Income taxes........... 1,254 574 542 730 932 3,153 (104) (6)
Extraordinary item..... 191 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)
(3)(4)................ $ 2,301 $ 2,191 $ 1,041 $ 1,175 $ 1,709 $ 5,988 $ (170) $ 6
Pro forma net income
per share(5).......... -- -- -- -- $ 0.24 $ 0.49 -- --
Shares used in the pro
forma per share
calculation(5)........ -- -- -- -- 7,072 12,270 -- --
Net income per share--
basic and diluted..... -- -- -- -- -- -- -- --
Weighted average shares
outstanding........... -- -- -- -- -- -- -- 7,072
BALANCE SHEET DATA:
Total assets........... $ 80,220 $ 86,924 $107,042 $120,087 $124,104 $157,914 $119,941 $125,117
Long-term debt and
capital leases
excluding current
maturities............ 57,100 66,755 77,636 88,799 96,026 70,852 88,769 96,558
Stockholders'
equity(6)............. 5,318 5,055 8,791 9,613 8,526 69,743 9,089 8,532
OTHER DATA:
EBITDA(3)(7)........... $ 11,469 $ 11,763 $ 11,845 $ 13,575 $ 16,174 $ 21,020 $ 1,788 $ 2,191
EBITDA as a percentage
of revenues........... 30.6% 30.3% 29.4% 30.1% 31.1% 27.1% 24.3% 24.8%
Net cash provided by
operating
activities(8)......... -- -- 3,586 5,200 6,610 6,610 287 1,094
Net cash used in
investing
activities(8)......... -- -- (24,428) (13,184) (6,268) (6,268) (1,523) (3,294)
Net cash provided by
(used in) financing
activities(8)......... -- -- 19,178 9,258 (1,102) (1,102) (261) 715
HOTEL STATISTICS:
Hotels open (at end of
period)............... 6 6 6 7 8 13 7 8
Available rooms (at end
of period)............ 1,242 1,242 1,242 1,539 1,718 2,712 1,539 1,718
REVPAR(9)(10).......... $ 38.69 $ 38.70 $ 38.83 $ 42.04 $ 45.72 $ 41.21 $ 31.93 $ 36.11
ADR(11)................ $ 56.40 $ 60.27 $ 61.54 $ 67.29 $ 73.43 $ 68.94 $ 64.88 $ 71.22
Average occupancy
percentage(10)(12).... 70.3% 65.2% 65.5% 64.5% 63.5% 59.8% 50.7% 51.8%
</TABLE>
9
<PAGE>
- --------
(1) The summary combined financial and other data has been presented as though
(i) the predecessor businesses of Cavanaughs Hospitality Corporation,
Barbieri Investment Company, G&B: Lincoln Building partnership and their
respective subsidiaries and partnerships which they controlled had been
combined as of October 31, 1993, 1994, 1995, 1996 and 1997 and (ii) the
spin-off of certain subsidiaries engaged in businesses not related to the
core hospitality business of the Company had occurred as of October 31,
1993, 1994, 1995, 1996 and 1997.
(2) Pro forma results reflect the historical financial and other data as of
October 31, 1997 after reflecting (i) the Merger which occurred in
November 1997, (ii) the acquisitions which occurred or are probable of
occurring as of March 10, 1998 as if they occurred on November 1, 1996 for
purposes of the statement of income and as of October 31, 1997 for
purposes of the balance sheet, and (iii) the Offering and the application
of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(3) Operating income, income (loss) before taxes and extraordinary item, net
income (loss) and EBITDA reflect a nonrecurring charge of $422,000 related
to final settlement of litigation in 1997.
(4) The Company expects to incur prepayment penalties of $139,000 and to
write-off $680,000 of deferred loan fees in connection with the repayment
of indebtedness out of the proceeds of the Offering. These non-recurring
charges, which total $541,000, net of income taxes, are expected to be
charged to operations upon repayment. Such costs have not been included in
the pro forma statement of operations data for the year ended October 31,
1997.
(5) Due to the Merger in November 1997, the historical earnings per share is
not relevant or meaningful. Therefore, pro forma earnings per share for
the year ended October 31, 1997 has been presented based upon the number
of shares of Common Stock of the Company which were outstanding after the
Merger. The pro forma net income per share for the pro forma year ended
October 31, 1997 excludes non-recurring charges of $541,000, net of income
taxes, related to the payment of prepayment penalties and the write-off of
deferred loan fees related to indebtedness which is being repaid out of
the proceeds of the Offering.
(6) Changes in stockholders' equity between fiscal years reflect (i) net
income (loss), (ii) cash dividends and (iii) distributions to or
contributions from shareholders for the activities related to the
subsidiaries, investments or divisions which have been excluded from the
combined financial statements. See Note 1 to the Historical Combined
Financial Statements.
(7) EBITDA represents income before income taxes and extraordinary item,
interest expense, depreciation, amortization and minority interests.
EBITDA is not intended to represent cash flow from operations as defined
by generally accepted accounting principles and such information should
not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. While not all companies calculate EBITDA
in the same fashion and therefore EBITDA as presented may not be
comparable to similarly titled measures of other companies, EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the Company's ability to service debt.
EBITDA is not necessarily available for management's discretionary use due
to restrictions to be included in the Revolving Credit Facility and other
considerations.
(8) Cash flows from operating, investing and financing activities have not
been provided for the years ended October 31, 1993 and 1994. Due to the
mergers of the companies and partnerships described in Note 1 to the
Historical Combined Financial Statements, in the opinion of management,
the cost of preparing this information outweighs the benefit of providing
the data.
(9) REVPAR represents the total revenues divided by total available rooms, net
of rooms out of service due to significant renovations.
(10) Rooms which were under renovation were excluded from REVPAR and average
occupancy percentage. Due to the short duration of renovation, in the
opinion of management, excluding these rooms did not have a material
impact on REVPAR and average occupancy percentage.
(11) ADR represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(12) Average occupancy percentage represents total rooms occupied divided by
total available rooms. Total available rooms represents the number of
rooms available multiplied by the number of days in the reported period.
10
<PAGE>
RISK FACTORS
An investment in the Common Stock of the Company involves various risks.
Prospective investors should carefully consider the following risk factors in
conjunction with other information contained in this Prospectus before making
a decision to purchase Common Stock in the Offering.
Operating Risks in the Lodging Industry. The Company's business is subject
to the operating risks inherent in the lodging industry. These risks include
adverse changes in national or local economic conditions, overbuilding in the
lodging industry or a reduction in demand for hotel rooms and related services
in the Northwest generally and, in particular, the markets where the Hotels
are concentrated, competition from other hotels, changes in travel patterns,
extreme weather conditions, cancellation of, or changes in, events scheduled
to occur in the Company's markets, changes in governmental regulations which
influence or determine wages, prices or construction costs, changes in
interest rates, the availability of financing for operating or capital needs
and changes in real estate tax rates and other operating expenses. Further,
the Hotels are located in the Northwest where a number of major industries,
including agriculture, tourism, technology, timber and aerospace, are
concentrated. These industries may be affected by changes in governmental
regulations and economic conditions, such as the relative strength of national
and local economies, the rate of national and local unemployment and the rate
of inflation, all of which could materially affect the local economies in
which these industries and the Company operate. There is no assurance that
downturns or prolonged adverse conditions in these industries or in national
or local economies will not have a material adverse impact on the Company's
results of operations.
Competition in the Lodging Industry. The lodging industry is highly
competitive. The Company competes with other national limited and full service
hotel companies, as well as with various regional and local hotels. Many of
the Company's competitors have a larger network of locations and greater
financial resources than the Company. Competition in the United States lodging
industry is based generally on brand name recognition, convenience of
location, price, range of services and guest amenities offered, quality of
customer service and overall product. Demographic or other changes in one or
more of the Company's markets could impact the convenience or desirability of
the sites of certain of the Hotels which would adversely affect the operations
of those Hotels. Further, there can be no assurance that new or existing
competitors will not offer significantly lower rates or greater convenience,
services or amenities or significantly expand or improve facilities in a
market in which the Hotels compete, thereby adversely affecting the Company's
operations.
Geographic Concentration. Because all of the Hotels currently are located in
the Northwest, the Company's results of operations and financial condition are
dependent on the economy of the Northwest. To the extent that general economic
or other relevant conditions in the Northwest decline and result in a decrease
in consumer demand in this region, the Company's performance and results of
operations will be adversely affected. In addition, the Company owns, or has
under contract, multiple hotels in the cities of Spokane and Yakima,
Washington and Kalispell, Montana. A downturn in general economic or other
relevant conditions in these specific markets or in any other market in which
the Company operates could adversely impact the Company's results of
operations and financial condition.
Constraints on Growth Opportunities. The Company intends to continue to
pursue an aggressive growth strategy for the foreseeable future. Since
December 1996, the Company has acquired four Hotels and has entered into
agreements to acquire two additional hotels. The Company's ability to
successfully pursue new growth opportunities will depend on a number of
factors, including, among others, the Company's ability to identify suitable
hotels for acquisition or development, to finance acquisitions and renovations
and to successfully integrate new hotels into its operations. There is no
assurance that suitable hotels for acquisition or development will be
available or, if available, will be on terms acceptable to the Company or that
capital will be available on terms acceptable to the Company. While the
Company believes that it will have sufficient capital following the Offering
to fund its growth strategy in the near term, this belief is based on adequate
cash being generated from operations and the availability of the Revolving
Credit Facility. There is no assurance that the Company will generate adequate
cash from operations or that the Company will ultimately be successful in
obtaining the Revolving Credit Facility. Even if the Company generates
anticipated cash from operations and obtains the
11
<PAGE>
Revolving Credit Facility, the Company may seek to obtain additional debt or
equity financing, depending upon the amount of capital required to pursue
future growth opportunities or address other liquidity needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Integration of New Hotels. There is no assurance that the Company will be
able to successfully integrate new hotels or new hotel products into its
operations, that new hotels or new hotel products will achieve revenue and
profitability levels comparable to the Hotels or that the combined business
will be profitable. Newly acquired, developed or converted hotels typically
begin with lower occupancy and room rates. Furthermore, the Company's
expansion within its existing markets could adversely affect the financial
performance of the Hotels in such markets or the Company's overall results of
operations. Expansion into new markets may present operating and marketing
challenges that are different from those currently encountered by the Company
in its existing markets. There is no assurance that the Company will be able
to anticipate all of the changing demands that expanding operations will
impose on its management and management information and reservation systems,
and the failure to adapt its systems and procedures could have a material
adverse effect on the Company's business.
Competition for Growth Opportunities. The Company intends to pursue a full
range of growth opportunities, including acquisitions and new construction.
The Company competes for growth opportunities with national and regional
hospitality companies, some of which have greater name recognition, marketing
support, reservation system capacity and financial resources than the Company.
The Company's ability to make acquisitions is dependent upon the Company's
relationships with owners of existing hotels and certain major hotel
investors. The Company's failure to compete successfully for acquisitions or
to attract or maintain relationships with hotel owners and major hotel
investors could adversely affect the Company's ability to expand its portfolio
of hotels. The Company's inability to implement its external growth strategy
would limit its ability to grow its revenue base.
Acquisition, Development and Redevelopment Risks. The Company intends to
acquire additional hotels in the future. Acquisitions entail the risk that
investments will fail to perform in accordance with the Company's
expectations. The Company also intends to continue the redevelopment and re-
branding of other acquired hotels into "Cavanaughs" hotels. In addition, the
Company expects to develop new hotels in the future, depending on market
conditions. Hotel redevelopment and new project development is subject to a
number of risks, including, without limitation, risks of construction delays
or cost overruns, risks that the hotels will not achieve anticipated
performance levels and new project commencement risks such as receipt of
zoning, occupancy and other required governmental permits and authorizations.
These and other risks could result in the incurrence of substantial costs for
a project that is never completed. There is no assurance that financing for
these projects will be available or, if available, will be on terms acceptable
to the Company. In addition, the renovation of the Hotels is subject to a
number of risks, including, without limitation, construction delays or cost
overruns due to various factors. Any unanticipated delays or expenses in
connection with the renovation of the Hotels could have an adverse effect on
the results of operations and financial condition of the Company.
Real Estate Ownership Risks. Upon closing of the Offering, the Company's
portfolio will contain 15 properties, including the 11 Hotels, three office
properties and one retail property. Accordingly, the Company is subject to
varying degrees of risk generally related to owning real estate. These risks,
many of which are beyond the control of the Company, include, among others,
changes in national, regional and local economic conditions, local real estate
market conditions, changes in interest rates, the availability, cost and terms
of financing, lease obligations, the potential for uninsured casualty and
other losses, the impact of present or future environmental legislation and
compliance with environmental laws, and adverse changes in zoning laws and
other regulations. In addition, real estate investments are relatively
illiquid; therefore the ability of the Company to vary its portfolio in
response to changes in economic and other conditions may be limited.
Control By Principal Shareholders. Upon completion of the Offering, members
of the Barbieri Family will beneficially own, in the aggregate, 57.7% of the
outstanding shares of Common Stock. Donald Barbieri,
12
<PAGE>
Chairman, President and Chief Executive Officer of the Company, will have sole
voting and investment power with respect to 21.5% of the outstanding shares of
Common Stock. So long as the Barbieri Family owns a substantial portion of the
outstanding Common Stock, it will have the ability to control the management
and affairs of the Company and will have the power to approve or block most
actions requiring the approval of the shareholders of the Company, including
the sale of all the assets of the Company. See "Ownership of Common Stock."
Environmental Matters. The Company's operating costs may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of compliance with future
legislation. Under current federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. In addition, the
presence of contamination from hazardous or toxic substances, or the failure
to remediate such contaminated property properly, may adversely affect the
ability of the owner of the property to borrow using such property as
collateral for a loan or to sell such property. Environmental laws also may
impose restrictions on the manner in which a property may be used or
transferred or in which businesses may be operated, and may impose remedial or
compliance costs. The costs of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect the Company's results of operations and
financial condition.
In connection with the Company's acquisition of a property, a Phase I
environmental assessment is conducted by a qualified independent environmental
engineer. Phase I environmental assessments have been performed on all of the
Company's properties and it is expected that all future hotel acquisitions
will be subject to a Phase I environmental assessment. A Phase I environmental
assessment involves researching historical usages of a property, databases
containing registered underground storage tanks and other matters, including
an on-site inspection, to determine whether an environmental issue exists with
respect to the property which needs to be addressed. If the results of a Phase
I environmental assessment reveal potential issues, a Phase II environmental
assessment, which may include soil testing, ground water monitoring or borings
to locate underground storage tanks, may, depending upon the circumstances, be
ordered for further evaluation.
A Phase I environmental assessment conducted with respect to the Kalispell
Center Mall has revealed a potential environmental concern. Specifically, the
report determined that underground storage tanks ("USTs") had been located on
the site prior to both the acquisition of the land in 1984 and the
construction of the mall in 1985 and due to lack of documentation regarding
their removal, there exists a possibility that USTs may still exist on the
site and that soils and/or groundwater below the site could have been
contaminated due to leakage. While the Phase I assessment recommended further
analysis, the Company has determined that such action is unwarranted at this
time. The Company determined that further investigation was not warranted
because the environmental survey revealed no evidence of any contamination,
the inaccessibility of the land under the mall and its adjacent parking lots
and the high probability that any existing USTs would have been located and
removed during the extensive site excavation work which was performed for
utilities and building foundations during the facility's construction in 1985.
Based on the information provided by the Phase I environmental assessments,
the Company is not aware of any environmental liability or compliance concern
at the properties that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations or liquidity.
It is possible that Phase I environmental assessments will not reveal all
environmental liabilities or compliance concerns or that there will be
material environmental liabilities or compliance concerns of which the Company
will not be aware. While the Company has not been notified by any governmental
authority and has no other knowledge of any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental
substances in connection with any of its properties, no assurances can be
given that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition
of the Company's existing and future properties will not be affected by the
condition of
13
<PAGE>
neighboring properties (such as the presence of leaking USTs) or by third
parties (whether neighbors such as dry cleaners or others) unrelated to the
Company.
Regulatory Risks. The lodging industry is subject to numerous federal, state
and local government regulations, including building and zoning requirements.
Also, the Company is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime, working conditions
and work permit requirements. An increase in the minimum wage rate, employee
benefit costs or other costs associated with employees, could adversely affect
the Company. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. Although the Company believes
it is in compliance with the ADA, there is no assurance that a material ADA
claim will not be asserted against the Company.
Seasonal Fluctuations in the Company's Operating Results. The lodging
industry is seasonal in nature, with the months from May through October
generally accounting for a greater portion of annual revenues than the months
from November through April. For example, for the year ended December 31,
1997, the Company's revenues in the first through fourth quarters were 19.7%,
25.7%, 29.1% and 25.5%, respectively, of its total revenue for such year and
the Company's net income (loss) for the first through fourth quarters was
(17.4)%, 43.5%, 81.7% and (7.8)%, respectively, of its total net income for
such year. Quarterly earnings also may be adversely affected by events beyond
the Company's control such as extreme weather conditions, economic factors and
other considerations affecting travel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
Dependence on Senior Management. The Company will place substantial reliance
on the lodging industry experience and the continued availability of its
senior management led by Donald Barbieri, Chairman, President and Chief
Executive Officer, Arthur Coffey, Executive Vice President and Chief Financial
Officer, Richard Barbieri, Senior Vice President and General Counsel, Thomas
Barbieri, Senior Vice President-Acquisitions and Commercial Operations, and
David Bell, Senior Vice President-Project Design, Development and
Construction. The Company believes that its future success and its ability to
manage future growth depend in large part upon the efforts of the senior
management and on the Company's ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and
retaining such personnel. The Company intends to enter into employment
agreements with Donald Barbieri, Arthur Coffey, Richard Barbieri, Thomas
Barbieri and David Bell for terms which expire on December 31, 1999. See
"Management--Employment Agreements." The Company does not carry key man
insurance on any of its senior management.
Rental Income Risks. The Company owns approximately 590,000 square feet of
office and retail space in Spokane, Washington and Kalispell, Montana. The
Company will be subject to the risk that upon expiration, leases may not be
renewed, the space may not be relet or the terms of renewal or reletting
(including the cost of required renovations) may be less favorable than
current lease terms. There is no assurance that the Company will be able to
locate tenants for rental spaces vacated in the future or receive satisfactory
rents from tenants. Delays or difficulties in attracting tenants and costs
incurred by the Company in preparing for tenants could reduce cash flow,
decrease the value of a property or jeopardize the Company's ability to pay
its expenses. Vacancies could subsequently result due to termination of a
tenant's tenancy, the tenant's financial failure or a breach of the tenant's
obligations.
Risks Associated with Termination of Management and Leasing Contracts. The
Company expects to continue to manage and lease properties owned by third
parties. For the year ended December 31, 1997, revenue from management and
third-party leasing was $1.4 million and $0.3 million, respectively. Risks
associated with these activities include the risk that the related contracts
(which are typically cancelable upon 30-days' notice or upon certain events,
including sale of the property) will be terminated by the property owner or
will be lost in connection with a sale of such property, that contracts may
not be renewed upon expiration or may not be renewed on terms consistent with
current terms and that the rental revenues upon which management and leasing
fees are based will decline as a result of general real estate market
conditions or specific market factors affecting properties managed or leased
by the Company, resulting in decreased management or leasing fee income.
14
<PAGE>
Risk Associated with Entertainment, Management and Services Division. The
Company's entertainment services include computerized event ticketing and the
presentation of touring Broadway shows. In addition, the Company attracts
additional hotel guests through cross-selling the products of its
entertainment, management and services division. This division is vulnerable
to risks associated with changes in general regional and economic conditions,
the potential for significant competition and a change in consumer trends,
among others. In addition, there is no assurance that Broadway shows will
continue to tour the Northwest or that such productions will use the Company
as a promoter.
Certain Types of Losses May Exceed Insurance Coverage. The Company carries
comprehensive liability, public area liability, fire, flood, boiler and
machinery, extended coverage and rental loss insurance covering its
properties. There are, however, certain types of losses that are not generally
insured because it is not economically feasible to insure against such losses.
Should an uninsured loss or a loss in excess of insured limits occur with
respect to any particular property, the Company could lose its capital
invested in the property, as well as the anticipated future revenue from the
property and, in the case of debt which is with recourse to the Company, would
remain obligated for any mortgage debt or other financial obligations related
to the property. Although the Company believes that its properties are
adequately insured, any such loss would adversely affect the Company. There is
no assurance that material losses in excess of insurance proceeds will not
occur in the future.
Risk of Debt Financing; No Limit on Indebtedness. As described under "Use of
Proceeds," the Company will use all of the net proceeds of the Offering to
repay a portion of its outstanding indebtedness. After giving effect to such
repayment and the acquisition of the five hotels acquired, or contracted for,
by the Company since December 31, 1997, the Company's outstanding indebtedness
will be approximately $73.1 million. Substantially all of the Company's
outstanding indebtedness is secured by individual properties, including the
Hotels. Borrowings under the Revolving Credit Facility, if obtained, will be
used by the Company to repay existing indebtedness, to fund the acquisition of
hotels, to fund renovations and capital improvements to hotels and for general
working capital needs. The Revolving Credit Facility will be secured by deeds
of trust on certain of the Company's properties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." There is no assurance that the Company will ultimately
enter into an agreement with U.S. Bank regarding the Revolving Credit
Agreement. Failure to enter into the Revolving Credit Facility or to obtain
other financing required to repay the Company's indebtedness could have a
material adverse effect on the Company. At December 31, 1997, the Company's
outstanding indebtedness had a weighted average annual interest rate of 8.6%
and weighted average remaining maturity of eight years and eight months. At
December 31, 1997, the Company's ratio of long-term debt (including capital
lease obligations) to equity was 11.8 to 1. After giving effect to the
acquisition of the five hotels acquired, or contracted for, by the Company and
the application of net proceeds from the Offering, the Company's ratio of
long-term debt (including capital lease obligations) to equity will be
approximately 1.1 to 1 and the amount of cash required to service the
Company's existing indebtedness during 1998 will be approximately $6.7
million.
Neither the Company's Amended and Restated Articles of Incorporation (the
"Articles") nor its Amended and Restated By-Laws (the "By-Laws") limit the
amount of indebtedness that the Company may incur. Subject to limitations in
its debt instruments, including those expected to be included in the Revolving
Credit Facility, the Company expects to incur additional debt in the future to
finance acquisitions and renovations and for general corporate purposes. The
Company's continuing indebtedness could increase its vulnerability to general
economic and lodging industry conditions (including increases in interest
rates) and could impair the Company's ability to obtain additional financing
in the future and to take advantage of significant business opportunities that
may arise. The Company's indebtedness is, and will likely continue to be,
secured by mortgages on the Hotels. There is no assurance that the Company
will be able to meet its debt service obligations and, to the extent that it
cannot, the Company risks the loss of some or all of its assets, including the
Hotels, to foreclosure. Adverse economic conditions could cause the terms on
which borrowings become available to be unfavorable. In such circumstances, if
the Company is in need of capital to repay indebtedness in accordance with its
terms or otherwise, it could be required to liquidate one or more investments
in Hotels at times which may not permit realization of the maximum return on
such investments.
15
<PAGE>
Upon completion of the Offering, most of the Company's outstanding
indebtedness, including the Revolving Credit Facility, if obtained, will bear
interest at a variable rate. Economic conditions could result in higher
interest rates, which would increase debt service requirements on variable
rate debt and could reduce the amount of cash available for various corporate
purposes. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Immediate and Substantial Dilution. As set forth more fully under
"Dilution," the pro forma net tangible book value per share of the Company
after the Offering will be substantially less than the initial public offering
price per share in the Offering. Accordingly, purchasers of the Common Stock
offered hereby will experience an immediate and substantial dilution of $7.43
per share (based on an assumed initial public offering price of $13 per share)
in the net tangible book value of the Common Stock. See "Dilution."
Absence of Public Market. Prior to the Offering, there has been no public
market for the Common Stock. There is no assurance that an active public
market will develop or continue after the Offering. The initial public
offering price of the Common Stock was determined through negotiations between
the Company and representatives of the Underwriters and there is no assurance
that the Common Stock will trade at or in excess of the initial public
offering price. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price.
Price Volatility. The market price of the Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, the securities markets have
experienced significant price and volume fluctuations from time to time in
recent years that have often been unrelated or disproportionate to the
operating performance of particular companies. These broad fluctuations may
adversely affect the market price of the Common Stock.
Shares Available for Future Sale. Upon completion of the Offering, the
Company will have 12,270,253 shares of Common Stock outstanding (13,046,503
shares if the Underwriters' over-allotment option is exercised in full). Of
the shares outstanding after the Offering, 7,095,253 of such shares will be
shares of "restricted" common stock as such term is defined under Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). In addition to shares of Common Stock sold by the Company in the
Offering, the Company will issue an aggregate of 55,000 shares of "restricted"
Common Stock over four years to certain members of management, of which 11,000
shares will be issued upon closing of the Offering. In addition, concurrently
with the Offering, options to purchase up to 900,000 shares of Common Stock
may be granted to certain officers, directors and employees of the Company at
an exercise price equal to the initial public offering price. Sales of a
substantial number of shares of Common Stock (including shares issued upon the
exercise of stock options), or the perception that such sales could occur,
could adversely affect prevailing market prices of the Common Stock. No
prediction can be made about the effect that future sales of Common Stock will
have on the market prices of shares.
No Dividends on Common Stock. The Company anticipates that for the
foreseeable future, all earnings, if any, will be retained for the operation
and expansion of its business and that it will not pay cash dividends on
Common Stock. See "Dividend Policy."
Anti-Takeover Matters. The Articles and By-Laws contain provisions that may
have the effect of delaying, deterring or preventing a takeover of the Company
that shareholders purchasing shares in the Offering may consider to be in
their best interest. The Articles and By-Laws provide for a classified board
of directors serving staggered terms of three years and the By-Laws provide
for advance notice requirements for director nominations. The Articles also
grant the Board of Directors (the "Board") the authority to issue up to
5,000,000 shares of preferred stock, having such rights, preferences and
privileges as designated by the Board without shareholder approval. In
addition, Washington law contains certain provisions that may have the effect
of delaying, deterring or preventing a takeover or change in control of the
Company. Chapter 23B.19 of the Washington Business Corporation Act (the
"Washington Act") prohibits the Company, with certain exceptions, from
engaging in certain significant business transactions with an "acquiring
person" (defined as a person who acquires 10% or more of the Company's voting
securities without the prior approval of the Board) for a period of five years
after such acquisition. See "Description of Capital Stock."
16
<PAGE>
THE COMPANY
The Company, which was formerly known as Goodale and Barbieri Companies, has
been a family-owned enterprise since it was founded in 1937 by Louis Barbieri
and Frank Goodale. Between 1937 and 1976, the Company focused on third-party
property management services and real estate development in Spokane,
Washington. The Company's history of owning and operating hotels commenced in
1976 when it constructed the River Inn in Spokane. In 1980, the Company
established its proprietary Cavanaughs brand name. After changing its name in
October 1997 to Cavanaughs Hospitality Corporation, the Company merged with
BIC effective November 3, 1997. In connection with its merger with BIC, the
Company contributed certain assets not related to its core hospitality
business, including, among other things, a long-term residence inn and a milk
processing and distribution business, to a wholly-owned subsidiary and
distributed the capital stock of such subsidiary, as well as the capital stock
of another wholly-owned subsidiary owning recreational real estate in Priest
Lake, Idaho and a retail sales operation, to the shareholders of the Company.
Shortly thereafter, the Company contributed substantially all of its assets to
the Operating Partnership in exchange for general and limited partner
interests therein. The Company is the sole general partner of the Operating
Partnership and owns a controlling 98.8% interest therein. All of the Hotels
and the other assets of the Company are held by or for the benefit of, and
substantially all of the Company's operations are conducted through, the
Operating Partnership. As sole general partner of the Operating Partnership,
the Company has exclusive power to manage and conduct the operations of the
Operating Partnership. See "Partnership Agreement of the Operating
Partnership." In addition to the Operating Partnership, the Company holds a
50% general partner interest in Cowley Street Limited Partnership, a
Washington limited partnership which owns Cavanaughs Fourth Avenue.
The Company's principal executive offices are located at 201 W. North River
Drive, Suite 100, Spokane, Washington 99201 and its telephone number is (509)
459-6100. The Company's website address is www.cavanaughs.com.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after giving effect to
underwriting discounts and estimated expenses, are expected to be
approximately $61.7 million (approximately $71.1 million if the Underwriters'
over-allotment option is exercised in full). The Company expects to use the
net proceeds from the Offering to repay approximately $61.7 million of
indebtedness outstanding, of which $850,000 was incurred on January 7, 1998 in
connection with the purchase of the Cavanaughs on the Falls hotel. Any
remaining proceeds will be used by the Company for future investments in, or
acquisitions of, hotel properties and for other general corporate purposes. Of
the indebtedness to be repaid with the net proceeds of the Offering, an
aggregate of approximately $1.5 million will be used by the Company to repay a
note payable to Inland Northwest Corporation, an entity owned by certain
members of the Barbieri Family, in the amount of $933,333 and an obligation
owed to the Barbieri Family Foundation, Inc. in the amount of $600,000.
Pending such uses, the Company intends to invest the net proceeds in short-
term investment grade, interest-bearing securities, certificates of deposit or
guaranteed obligations of the United States of America. At December 31, 1997
the indebtedness to be repaid bore interest at fixed and variable rates, with
a weighted average annual rate of 8.8% and a weighted average remaining
maturity of six years and six months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The Company intends to retain earnings to
provide funds for the continued growth and development of its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Any determination to pay cash
dividends in the future will be at the discretion of the Board and will depend
upon, among other things, the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board. In addition, it is anticipated that the Revolving Credit Facility will
include restrictions on the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on a combined historical basis and (ii) on a pro forma
basis, giving effect to (a) the Offering and the application of the net
proceeds therefrom and (b) the five hotels acquired, or contracted for, since
December 31, 1997. The information set forth in the following table should be
read in conjunction with the Historical Combined Financial Statements and
related notes, Pro Forma Combined Financial Statements and related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
HISTORICAL
COMBINED PRO FORMA
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Debt, including current portion:
Existing long-term debt............................ $ 98,009 $ 42,735
Existing capital lease obligations................. 2,641 2,641
Borrowings under Revolving Credit Facility(1)...... -- 27,696
----------- -----------
Total debt....................................... 100,650 73,072
----------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding...... -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized; 7,095,253 shares issued and
outstanding(2); 12,270,253 shares issued and
outstanding as adjusted(2)........................ 71 123
Partners' deficit.................................. (879) --
Additional paid-in capital......................... 3,935 64,670
Retained earnings.................................. 5,405 4,956
----------- -----------
Total stockholders' equity....................... 8,532 69,749
----------- -----------
Total capitalization............................. $ 109,182 $ 142,821
=========== ===========
</TABLE>
- --------
(1) The Company has obtained a commitment for the Revolving Credit Facility
for up to $80.0 million. The Revolving Credit Facility is contingent upon
the satisfaction of certain conditions, including the successful
completion of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) Includes 7,084,253 restricted shares owned by the Barbieri Family and an
aggregate of 11,000 restricted shares to be issued to five of the
Company's employees concurrently with the Offering. Excludes 150,817
shares issuable upon exchange of currently outstanding OP Units, which
OP Units may not be exchanged by the holders thereof for one year from the
date of this Prospectus. See "Partnership Agreement of the Operating
Partnership." Excludes 1,489,000 shares reserved for issuance with respect
to options or stock awards to be granted under the Plans. See
"Management."
18
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1997 was
approximately $6,581,000, or approximately $0.93 per share of Common Stock.
Net tangible book value per share is equal to the Company's total tangible
assets less its total liabilities divided by the number of outstanding shares
of Common Stock. After giving pro forma effect to the sale by the Company of
the 5,175,000 shares offered hereby (at an assumed initial public offering
price of $13 per share) and the application of the net proceeds from the
Offering, the pro forma net tangible book value of the Company at December 31,
1997 would have been approximately $68.3 million, or approximately $5.57 per
share of Common Stock. This amount represents an immediate increase in the pro
forma net tangible book value per share of $4.64 per share to the existing
shareholders and an immediate dilution in pro forma net tangible book value
per share to new investors of approximately $7.43 per share. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Net tangible book value per share before the Offering....... $0.93
Pro forma net tangible book value increase per share
attributable to the Offering............................... 4.64
-----
Pro forma net tangible book value per share after the
Offering..................................................... 5.57
------
Pro forma net tangible book value dilution per share to new
investors.................................................... $ 7.43
======
</TABLE>
The following table sets forth: (i) the number of shares of Common Stock
held by the existing shareholders and the number of shares of Common Stock
purchased by new investors in this Offering, (ii) the net book value on a pro
forma basis as of December 31, 1997 of the consideration received by the
Company from the existing shareholders and (iii) the net tangible book value
of the consideration received by the Company in this Offering (assuming the
sale of 5,175,000 shares of Common Stock by the Company at an initial public
offering price of $13.00 per share).
<TABLE>
<CAPTION>
TOTAL
SHARES ACQUIRED CONTRIBUTION BOOK VALUE OF
----------------- --------------- CONSIDERATION RECEIVED
NUMBER(1) PERCENT AMOUNT PERCENT BY COMPANY PER SHARE
--------- ------- ------- ------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Existing shareholders... 7,072 57.7% $ 8,532 11.3% $ 1.21
Common Stock purchased
by new investors in the
Offering............... 5,175 42.3 67,275 88.7 13.00
------ ----- ------- -----
Total................. 12,247 100.0% $75,807 100.0%
====== ===== ======= =====
</TABLE>
- --------
(1) Includes 7,072,025 restricted shares owned by the Barbieri Family.
Excludes 150,817 shares issuable upon exchange of currently outstanding OP
Units, which OP Units may not be exchanged by the holders thereof for one
year from the date of this Prospectus, and an aggregate of 11,000
restricted shares to be issued to five of the Company's employees
concurrently with the Offering. See "Partnership Agreement of the
Operating Partnership." Excludes 1,489,000 shares reserved for issuance
with respect to options or stock awards to be granted under the Plans. See
"Management."
19
<PAGE>
SELECTED COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected combined financial data of the
Company as of and for the five years ended October 31, 1997 and the two months
ended December 31, 1996 and 1997. The selected combined statement of
operations data for the fiscal years ended October 31, 1993 and 1994 and the
two months ended December 31, 1996 and the selected combined balance sheet
data as of October 31, 1993, 1994 and 1995 and December 31, 1996 are derived
from the Company's unaudited financial statements and reflect all normal
recurring adjustments, which in the opinion of management, are necessary for a
fair presentation. The selected combined statement of operations data for the
fiscal years ended October 31, 1995, 1996 and 1997 and the two months ended
December 31, 1997 and the selected combined balance sheet data as of October
31, 1996 and 1997 and December 31, 1997 are derived from the Company's audited
financial statements included elsewhere in this Prospectus. The pro forma
combined statement of operations data and balance sheet data as of and for the
year ended October 31, 1997 are unaudited and are derived from the pro forma
financial statements included elsewhere in this Prospectus as adjusted for the
Offering.
The selected combined financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Historical
Combined Financial Statements and related notes, Pro Forma Combined Financial
Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWO MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31,(1) DECEMBER 31,
------------------------------------------------------ -----------------
PRO FORMA
1993 1994 1995 1996 1997 1997(2) 1996 1997
-------- -------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND HOTEL STATISTICS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Hotels and restaurants:
Rooms................. $ 16,276 $ 17,531 $ 17,587 $ 20,972 $ 25,147 $ 39,809 $ 2,998 $ 3,626
Food and beverage..... 11,469 12,027 12,397 12,141 13,926 23,547 2,271 2,756
Other................. 672 1,015 1,260 2,092 2,589 3,645 414 447
-------- -------- -------- -------- -------- -------- -------- --------
Total hotels and
restaurants........ 28,417 30,573 31,244 35,205 41,662 67,001 5,683 6,829
Entertainment,
management and
services.............. 4,468 3,205 3,092 3,168 3,842 3,842 483 840
Rental operations...... 4,572 4,987 6,027 6,790 6,539 6,539 1,191 1,169
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues...... 37,457 38,765 40,363 45,163 52,043 77,382 7,357 8,838
-------- -------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Direct:
Hotels and restaurants:
Rooms................. 4,822 4,868 4,931 5,719 6,820 11,420 958 1,167
Food and beverage..... 9,193 9,657 10,034 10,181 11,483 19,312 1,822 2,208
Other................. 503 808 716 1,008 1,066 1,409 149 170
-------- -------- -------- -------- -------- -------- -------- --------
Total hotels and
restaurants........ 14,518 15,333 15,681 16,908 19,369 32,141 2,929 3,545
Entertainment,
management and
services.............. 2,310 1,519 1,802 2,204 2,052 2,052 397 602
Rental operations...... 364 783 1,026 1,464 1,506 1,506 243 303
-------- -------- -------- -------- -------- -------- -------- --------
Total direct
operating
expenses........... 17,192 17,635 18,509 20,576 22,927 35,699 3,569 4,450
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TWO MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31,(1) DECEMBER 31,
----------------------------------------------------------- ------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(2) 1996 1997
-------- -------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND HOTEL STATISTICS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Undistributed operating
expenses:
Selling, general and
administrative........ $ 4,909 $ 3,966 $ 5,426 $ 6,461 $ 8,188 $ 12,244 $ 1,161 $ 1,225
Property operating
costs(3).............. 4,023 5,554 5,022 4,997 5,518 9,183 944 1,022
Depreciation and
amortization.......... 2,805 3,419 3,428 4,215 4,775 5,778 759 798
-------- -------- -------- -------- -------- -------- -------- --------
Total undistributed
operating
expenses........... 11,737 12,939 13,876 15,673 18,481 27,205 2,864 3,045
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses...... 28,929 30,574 32,385 36,249 41,408 62,904 6,433 7,495
-------- -------- -------- -------- -------- -------- -------- --------
Operating income(3)..... 8,528 8,165 7,978 8,914 10,635 14,478 924 1,343
Interest expense........ 5,301 5,649 6,866 7,319 8,817 6,050 1,317 1,422
Other................... 137 249 471 310 823 713 119 79
Income (loss) before
income taxes and
extraordinary item(3).. 3,364 2,765 1,583 1,905 2,641 9,141 (274) --
Income taxes............ 1,254 574 542 730 932 3,153 (104) (6)
Extraordinary item...... 191 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)(3)(4)........... $ 2,301 $ 2,191 $ 1,041 $ 1,175 $ 1,709 $ 5,988 $ (170) $ 6
Pro forma net income per
share(5)............... -- -- -- -- $ 0.24 $ 0.49 -- --
Shares used in the pro
forma per share
calculation(5)......... -- -- -- -- 7,072 12,270 -- --
Dividends per share(6).. -- -- -- -- -- -- -- --
Net income per share-
basic and diluted...... -- -- -- -- -- -- -- --
Weighted average shares
outstanding............ -- -- -- -- -- -- -- 7,072
BALANCE SHEET DATA:
Total assets............ $ 80,220 $ 86,924 $107,042 $120,087 $124,104 $157,914 $119,941 $125,117
Current maturities of
long-term debt and
capital leases......... 2,652 2,458 10,306 10,509 4,784 1,305 10,753 4,092
Long-term debt and
capital leases
excluding current
maturities............. 57,100 66,755 77,636 88,799 96,026 70,852 88,769 96,558
Stockholders'
equity(7).............. 5,318 5,055 8,791 9,613 8,526 69,743 9,089 8,532
OTHER DATA:
EBITDA(3)(8)............ $ 11,469 $ 11,763 $ 11,845 $ 13,575 $ 16,174 $ 21,020 $ 1,788 $ 2,191
EBITDA as a percentage
of revenues............ 30.6% 30.3% 29.4% 30.1% 31.1% 27.1% 24.3% 24.8%
Net cash provided by
operating
activities(9).......... -- -- 3,586 5,200 6,610 6,610 287 1,094
Net cash used in
investing
activities(9).......... -- -- (24,428) (13,184) (6,268) (6,268) (1,523) (3,294)
Net cash provided by
(used in) financing
activities(9).......... -- -- 19,178 9,258 (1,102) (1,102) (261) 715
HOTEL STATISTICS:
Hotels open (at end of
period)................ 6 6 6 7 8 13 7 8
Available rooms (at end
of period)............. 1,242 1,242 1,242 1,539 1,718 2,712 1,539 1,718
REVPAR(10)(11).......... $ 38.69 $ 38.70 $ 38.83 $ 42.04 $ 45.72 $ 41.21 $ 31.93 $ 36.11
ADR(12)................. $ 56.40 $ 60.27 $ 61.54 $ 67.29 $ 73.43 $ 68.94 $ 64.88 $ 71.22
Average occupancy
percentage(11)(13)..... 70.3% 65.2% 65.5% 64.5% 63.5% 59.8% 50.7% 51.8%
</TABLE>
21
<PAGE>
- --------
(1) The summary combined financial and other data has been presented as
though (i) the predecessor businesses of Cavanaughs Hospitality
Corporation, Barbieri Investment Company, G&B: Lincoln Building
partnership and their respective subsidiaries and partnerships which they
controlled had been combined as of October 31, 1993, 1994, 1995, 1996 and
1997 and (ii) the spin-off of certain subsidiaries engaged in businesses
not related to the core hospitality business of the Company had occurred
as of October 31, 1993, 1994, 1995, 1996 and 1997.
(2) Pro forma results reflect the historical financial and other data as of
October 31, 1997 after reflecting (i) the Merger which occurred in
November 1997, (ii) the acquisitions which occurred or are probable of
occurring as of March 10, 1998 as if they occurred on November 1, 1996
for purposes of the statement of income and as of October 31, 1997 for
purposes of the balance sheet, and (iii) the Offering and the application
of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(3) Property operating costs, operating income, income (loss) before taxes
and extraordinary item, net income (loss) and EBITDA reflect a
nonrecurring charge of $422,000 related to final settlement of litigation
in 1997.
(4) The Company expects to incur prepayment penalties of $139,000 and to
write-off $680,000 of deferred loan fees in connection with the repayment
of indebtedness out of the proceeds of the Offering. These non-recurring
charges, which total $541,000, net of income taxes, are expected to be
charged to operations upon repayment. Such costs have not been included
in the pro forma statement of operations data for the year ended October
31, 1997.
(5) Due to the Merger, which was consummated in November 1997, the historical
earnings per share is not relevant or meaningful. Therefore, pro forma
earnings per share for the year ended October 31, 1997 has been presented
based upon the number of shares of Common Stock of the Company which were
outstanding after the Merger. The pro forma net income per share for the
pro forma year ended October 31, 1997 excludes non-recurring charges of
$541,000, net of income taxes, related to the payment of prepayment
penalties and the write-off of deferred loan fees related to indebtedness
which is being repaid out of the proceeds of the Offering.
(6) Due to the Merger in November 1997, historical dividends per share is not
relevant or meaningful and therefore is not presented. Dividends
historically have been paid to the stockholders of Cavanaughs Hospitality
Corporation and BIC. See Combined Statement of Changes in Stockholders'
Equity in the historical financial statements included elsewhere herein.
(7) Changes in stockholders' equity between fiscal years reflect (i) net
income (loss), (ii) cash dividends and (iii) distributions to or
contributions from shareholders for the activities related to the
subsidiaries, investments or divisions which have been excluded from the
combined financial statements. See Note 1 to the Historical Combined
Financial Statements.
(8) EBITDA represents income before income taxes and extraordinary item,
interest expense, depreciation, amortization and minority interests.
EBITDA is not intended to represent cash flow from operations as defined
by generally accepted accounting principles and such information should
not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. While not all companies calculate EBITDA
in the same fashion and therefore EBITDA as presented may not be
comparable to similarly titled measures of other companies, EBITDA is
included herein because management believes that certain investors find
it to be a useful tool for measuring the Company's ability to service
debt. EBITDA is not necessarily available for management's discretionary
use due to restrictions to be included in the Revolving Credit Facility
and other considerations.
(9) Cash flow from operating, investing and financing activities has not been
provided for the years ended October 31, 1993 and 1994. Due to the
mergers of the companies and partnerships described in Note 1 to the
Historical Combined Financial Statements, in the opinion of management,
the cost of preparing this information outweighs the benefit of providing
the data.
(10) REVPAR represents the total revenues divided by total available rooms,
net of rooms out of service due to significant renovations.
(11) Rooms which were under renovation were excluded from REVPAR and average
occupancy percentage. Due to the short duration of renovation, in the
opinion of management, excluding these rooms did not have a material
impact on REVPAR and average occupancy percentage.
(12) ADR represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(13) Average occupancy percentage represents total rooms occupied divided by
total available rooms. Total available rooms represents the number of
rooms available multiplied by the number of days in the reported period.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis addresses the results of operations
for the Company for the fiscal years ended October 31, 1995, 1996, and 1997
and the two months ended December 31, 1996 and 1997. The following should be
read in conjunction with the Historical Combined Financial Statements and the
notes thereto and "Selected Combined Financial and Other Data" included
elsewhere in this Prospectus. In addition to historical information, the
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly
from those anticipated in these forward-looking statements as a result of
certain factors, including those discussed in "Risk Factors" and elsewhere in
this Prospectus.
The financial statements of the Company, which have been audited by Coopers
& Lybrand L.L.P., have been presented as though the predecessor businesses of
Cavanaughs Hospitality Corporation (formerly known as Goodale and Barbieri
Companies), BIC and their respective subsidiaries and partnerships which they
controlled had been combined as of October 31, 1995, 1996 and 1997. These
companies were merged on November 3, 1997. The audited financial statements
also include G&B: Lincoln Building partnership, a partnership previously
controlled by the Barbieri Family. See Note 1 to the Combined Financial
Statements. Income or loss attributed to the minority interests of partners in
Cowley Street Limited Partnership is reported as minority interest in
partnerships. The Company has changed its fiscal year end from October 31 to
December 31, which change shall take effect with the fiscal year beginning on
January 1, 1998.
The Company's revenues are derived primarily from the Hotels and reflect
revenue from rooms, food and beverage and other sources, including telephone,
guest services, banquet room rentals, gift shops and other amenities. Hotel
revenues accounted for 80.0% of total revenue in 1997 and increased at a
compound annual rate of 15.5% from $31.2 million in 1995 to $41.7 million in
1997. This increase was primarily the result of the addition of Cavanaughs on
Fifth Avenue and an increase in REVPAR from $38.83 in 1995 to $45.72 in 1997.
The balance of the Company's revenues are derived from its entertainment,
management and services and rental operations divisions. These revenues are
generated from ticket distribution handling fees, real estate management fees,
sales commissions and rents. In 1997, entertainment, management and services
accounted for 7.4% of total revenues and rental operations accounted for 12.6%
of total revenues. These two divisions are expected to represent a smaller
percent of total revenues in the future as the Company continues to pursue its
hotel growth strategy.
As is typical in the hospitality industry, REVPAR, ADR and occupancy levels
are important performance measures. The Company's operating strategy is
focused on enhancing revenue and operating margins by increasing REVPAR, ADR,
occupancy and operating efficiencies of the Hotels. These performance measures
are impacted by a variety of factors, including national, regional and local
economic conditions, degree of competition with other hotels in their
respective market areas and, in the case of occupancy levels, changes in
travel patterns.
23
<PAGE>
The following table sets forth selected items from the combined statements
of income as a percent of total revenues and certain other selected data:
<TABLE>
<CAPTION>
TWO MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, DECEMBER 31,
------------------------------- -------------------
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotels and restau-
rants................. 77.4% 78.0% 80.0% 77.2% 77.3%
Entertainment, manage-
ment and services..... 7.7 7.0 7.4 6.6 9.5
Rental operations...... 14.9 15.0 12.6 16.2 13.2
--------- --------- --------- -------- --------
Total revenues....... 100.0% 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ======== ========
Direct operating ex-
penses.................. 45.9% 45.6% 44.0% 48.5% 50.4%
Undistributed operating
expenses:
Selling, general and
administrative........ 13.4 14.3 15.7 15.8 13.9
Property operating
costs................. 12.5 11.1 10.6 12.8 11.6
Depreciation and amor-
tization.............. 8.5 9.3 9.2 10.3 9.0
--------- --------- --------- -------- --------
Total undistributed
operating expenses: 34.4 34.7 35.5 38.9 34.5
Operating income......... 19.8 19.7 20.4 12.6 15.2
Interest expense (net)... 17.0 16.2 16.9 17.9 16.1
Income (loss) before in-
come taxes.............. 3.9 4.2 5.1 (3.7) --
Income tax provision
(benefit)............... 1.3 1.6 1.8 (1.4) (0.1)
--------- --------- --------- -------- --------
Net income (loss)...... 2.6% 2.6% 3.3% (2.3)% 0.1%
========= ========= ========= ======== ========
REVPAR................... $ 38.83 $ 42.04 $ 45.72 $ 31.93 $ 36.11
ADR...................... $ 61.54 $ 67.29 $ 73.43 $ 64.88 $ 71.22
Occupancy................ 65.5% 64.5% 63.5% 50.7% 51.8%
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF TWO MONTHS ENDED DECEMBER 31, 1997 TO TWO MONTHS ENDED DECEMBER
31, 1996
Total revenues increased $1.5 million, or 20.1%, from $7.4 million in the
last two months of 1996 to $8.8 million in the comparable period of 1997. This
increase is attributed primarily to revenue generated from increases in total
rooms occupied, ADR and REVPAR, and the addition of Cavanaughs Gateway Hotel
in Yakima, Washington.
Total hotel and restaurant revenues increased $1.1 million, or 20.2%, from
$5.7 million in the last two months of 1996 to $6.8 million in the comparable
period of 1997. ADR increased $6.34, or 9.8%, from $64.88 in the last two
months of 1996 to $71.22 in the comparable period of 1997. Available room
nights increased 7.0% in the last two months of 1997. REVPAR increased $4.18,
or 13.1% from $31.93 in the last two months of 1996 to $36.11 in the
comparable period of 1997. The Company's hotel and restaurant revenues
increased primarily due to an increase in its ADR and total rooms occupied. In
addition, Cavanaughs Gateway Hotel was acquired in October 1997. November and
December of 1997 were the first two full months of operation for this 172-room
property which also contributed to this increase in revenues.
Entertainment, management and services revenues increased $0.4 million, or
74.0%, from $0.5 million in the last two months of 1996 to $0.8 million in the
comparable period of 1997. Entertainment revenue increased due to the greater
number of Company-presented shows and attendance at such shows. Management and
services revenue increased from the addition of new third-party management
contracts.
Rental income remained relatively stable at $1.2 million in the last two
months of 1996 and the comparable period of 1997.
24
<PAGE>
Direct operating expenses increased $0.9 million, or 24.7%, from $3.6
million in the last two months of 1996 to $4.5 million in the comparable
period of 1997, primarily due to the increase in the number of hotel guests
served and the Broadway shows presented by the Company. This represents an
increase in direct operating expenses as a percentage of total revenues from
48.5% in the last two months of 1996 to 50.4% in the comparable period of 1997
which is primarily attributable to the higher variable costs associated with
the Broadway shows.
Total undistributed operating expenses increased $0.2 million, or 6.3%, from
$2.9 million in the last two months of 1996 to $3.0 million in the comparable
period of 1997. Total undistributed operating expenses include selling,
general and administrative expenses, which increased 5.5% from the last two
months of 1996 to the comparable period of 1997, and depreciation and
amortization, which increased 5.1%. Total undistributed operating expenses as
a percentage of total revenues decreased 4.4% from 38.9% in the last two
months of 1996 to 34.5% in the comparable period of 1997. The decrease in
undistributed operating expenses as a percentage of total revenues is
primarily attributed to the Company's ability to increase REVPAR of the Hotels
while effectively controlling its selling, general and administrative
expenses.
Operating income increased $0.4 million, or 45.3%, from $0.9 million in the
last two months of 1996 to $1.3 million in the comparable period of 1997. As a
percentage of total revenues, operating income increased from 12.6% in the
last two months of 1996 to 15.2% in the comparable period of 1997. This
increase is due primarily to an increase in REVPAR.
Interest expense increased $0.1 million, or 8.0%, from $1.3 million in the
last two months of 1996 to $1.4 million in the comparable period of 1997. This
increase is primarily related to the incurrence of additional debt used for
completion of the conversion of Cavanaughs on Fifth Avenue and other corporate
purposes.
The income tax benefit changed as a result of the change in the pre-tax
loss. The effective income tax rate for both periods was 34%.
The Company incurred a net loss of $170,000 in the last two months of 1996
compared to a net income of $6,000 in the comparable period of 1997.
COMPARISON OF YEAR ENDED OCTOBER 31, 1997 TO YEAR ENDED OCTOBER 31, 1996
Total revenues increased $6.9 million, or 15.2%, from $45.2 million in 1996
to $52.0 million in 1997. This increase is attributed primarily to revenue
generated from increases in total rooms occupied and REVPAR and the addition
of Cavanaughs on Fifth Avenue in Seattle, Washington.
Total hotel and restaurant revenues increased $6.5 million, or 18.3%, from
$35.2 million in 1996 to $41.7 million in 1997. ADR increased $6.14, or 9.1%,
from $67.29 in 1996 to $73.43 in 1997. Available room nights increased 10.3%
in 1997, REVPAR increased $3.68, or 8.8%, from $42.04 in 1996 to $45.72 in
1997. Cavanaughs on Fifth Avenue opened in May 1996; therefore, 1997 was the
first full fiscal year of operation for this 297-room property which
contributed, in part, to this increase in revenues.
Entertainment, management and services revenues increased $0.7 million, or
21.3%, from $3.2 million in 1996 to $3.8 million in 1997. Entertainment
revenue increased from the addition of new third-party management contracts.
Rental income decreased $0.3 million, or 3.7%, from $6.8 million in 1996 to
$6.5 million in 1997 primarily as a result of the Company's need to occupy
additional space in the CHC Building, its corporate headquarters, which had
previously been rented to third parties, and the receipt of a one-time
settlement for a lease termination which occurred in 1996.
Direct operating expenses increased $2.4 million, or 11.4%, from $20.6
million in 1996 to $22.9 million in 1997, primarily due to the increase in the
number of hotel guests served. This represents a decline in direct
25
<PAGE>
operating expenses as a percentage of total revenues from 45.6% in 1996 to
44.0% in 1997. The improvement in direct operating expense percentages is
attributed to the increase in REVPAR while the Company was able to effectively
control expenses and gain volume efficiencies.
Total undistributed operating expenses increased $2.8 million, or 17.9%,
from $15.7 million in 1996 to $18.5 million in 1997. Total undistributed
operating expenses include selling, general and administrative expenses, which
increased 26.7% from $6.5 million in 1996 to $8.2 million in 1997, and
depreciation and amortization, which increased 13.3% from $4.2 million in 1996
to $4.8 million in 1997. Total undistributed operating expenses as a
percentage of total revenues increased 0.8% from 34.7% in 1996 to 35.5% in
1997. The increase in undistributed operating expenses as a percentage of
total revenues is primarily attributed to the addition of Cavanaughs on Fifth
Avenue (which management believes had not attained stabilized occupancy) and
the additional administrative expenses related to preparing the Company for
future growth and the Offering.
Operating income increased $1.7 million, or 19.3%, from $8.9 million in 1996
to $10.6 million in 1997. As a percentage of total revenues, operating income
increased from 19.7% in 1996 to 20.4 % in 1997. This increase is due primarily
to an increase in REVPAR, the addition of Cavanaughs on Fifth Avenue and
improvements in the hotel departmental margins.
Interest expense increased $1.5 million, or 20.5%, from $7.3 million in 1996
to $8.8 million in 1997. This increase is primarily related to the incurrence
of additional debt used for funding the acquisition and conversion of
Cavanaughs on Fifth Avenue and other corporate purposes. Interest expense is
initially anticipated to decline as a result of the application of the net
proceeds of the Offering to repay certain indebtedness, but is expected to
increase in the future due to the funding of hotel acquisitions with
additional debt.
Income tax provision increased 27.7%, from $0.7 million in 1996 to $0.9
million in 1997, due to the increase in income before taxes. The effective
income tax rate for both years was 34%.
Net income increased $0.5 million, or 45.4%, from $1.2 million in 1996 to
$1.7 million in 1997.
COMPARISON OF YEAR ENDED OCTOBER 31, 1996 TO YEAR ENDED OCTOBER 31, 1995
Total revenues increased $4.8 million, or 11.9%, from $40.4 million in 1995
to $45.2 million in 1996. The increase is attributed primarily to the addition
of Cavanaughs on Fifth Avenue which opened in May 1996 and additional rental
income from increased occupancy in the rental properties.
Total hotel and restaurant revenues increased $4.0 million, or 12.7%, from
$31.2 million in 1995 to $35.2 million in 1996. ADR increased 9.3% from $61.54
in 1995 to $67.29 in 1996. Available room nights increased 10.1% in 1996. The
increase is primarily attributed to the addition of Cavanaughs on Fifth
Avenue.
Entertainment, management and services revenues increased 2.5% from $3.1
million in 1995 to $3.2 million in 1996.
Rental income increased $0.8 million, or 12.7%, from $6.0 million in 1995 to
$6.8 million in 1996. The increase is primarily attributed to increased
occupancy and lease payments for the Company's office buildings.
Direct operating expenses increased $2.1 million, or 11.2%, from $18.5
million in 1995 to $20.6 million in 1996. Direct operating expenses as a
percentage of total revenues decreased from 45.9% in 1995 to 45.6% in 1996.
This improvement is attributed primarily to the increase in REVPAR while
controlling expenses.
Total undistributed operating expenses increased $1.8 million, or 12.9%,
from $13.9 million in 1995 to $15.7 million in 1996. Total undistributed
operating expenses include selling, general and administrative expenses, which
increased 19.1% from $5.4 million in 1995 to $6.5 million in 1996, and
depreciation and amortization, which increased 23.0% from $3.4 million in 1995
to $4.2 million in 1996. Total undistributed operating expenses as a
percentage of total revenues increased from 34.4% in 1995 to 34.7% in 1996.
Increased
26
<PAGE>
expenses are attributed primarily to the addition of Cavanaughs on Fifth
Avenue which management believes has not attained stabilized occupancy.
Operating income increased $0.9 million, or 11.7%, from $8.0 million in 1995
to $8.9 million in 1996. This increase was primarily caused by an increase in
hotel guests served and an increase in REVPAR coupled with the Company
controlling operating expenses.
Interest expense increased $0.5 million, or 6.6%, from $6.9 million in 1995
to $7.3 million in 1996 primarily as a result of the additional indebtedness
incurred by the Company in connection with the acquisition and conversion of
Cavanaughs on Fifth Avenue.
Income tax provision increased 34.7%, from $0.5 million in 1995 to $0.7
million in 1996 due to the increase in income before taxes. The effective
income tax rate for both years was 34%.
Net income increased $0.1 million, or 12.9%, from $1.0 million in 1995 to
$1.2 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of liquidity have been cash on
hand, cash generated by operations and borrowings under a $3.0 million working
capital credit facility. Cash generated by operations in excess of operating
expenses is used for capital expenditures and to reduce amounts outstanding
under the working capital credit facility. Hotel acquisitions, development and
expansion have been and will be financed through a combination of internally
generated cash, borrowing under credit facilities, and the issuance of Common
Stock or OP Units.
The Company's short-term capital needs include food and beverage inventory,
payroll and the repayment of interest expense on outstanding mortgage
indebtedness. Historically, the Company has met these needs through internally
generated cash.
The Company's long-term capital needs include funds for property
acquisitions, scheduled debt maturities and renovations and other non-
recurring capital improvements. The Company anticipates meeting its future
long-term capital needs through the borrowing of additional debt financing
secured by the Hotels, by unsecured private or public debt offerings or by
additional equity offerings or the issuances of OP Units, along with cash
generated from internal operations. The Company intends to repay approximately
$61.7 million of its outstanding indebtedness with the estimated net proceeds
of the Offering. On a pro forma basis as of December 31, 1997, after giving
effect to the Offering, the application of the net proceeds thereof and the
acquisition of the five hotels acquired, or contracted for, since December 31,
1997, total outstanding indebtedness decreased from approximately $100.7
million to approximately $73.1 million. See "Use of Proceeds" and
"Capitalization."
At December 31, 1997, the Company had $5.0 million in cash and cash
equivalents. The Company has made extensive capital expenditures over the last
three years, investing $24.1 million, $13.5 million and $6.2 million in owned
and joint venture properties in 1995, 1996 and 1997, respectively. These
expenditures included guest room, lounge and restaurant renovations, public
area refurbishment, telephone and computer system upgrades, tenant
improvements, property acquisitions, construction, and corporate expenditures
and were funded from operating cash flow and debt. The Company establishes
reserves for capital replacement in the amount of 4.0% of the prior year's
actual gross hotel income to maintain the Hotels at acceptable levels.
Acquired hotel properties have a separate capital budget for purchase,
construction, renovation, and branding costs. Capital expenditures planned for
Hotels in 1998 are expected to be approximately $3.0 million. Management
believes the consistent renovation and upgrading of the Hotels and other
properties is imperative to its long-term reputation and customer
satisfaction.
To fund its acquisition program and meet its working capital needs, the
Company has received a commitment from U.S. Bank to provide the Revolving
Credit Facility. The commitment letter, which contains a number of conditions
to the initial funding by the lender, provides that the amount available
thereunder will be
27
<PAGE>
equal to the lesser of $80.0 million or the gross proceeds (including the
gross proceeds if the Underwriters' over-allotment option is exercised) of the
Offering. During the initial 12 months following the Offering, subject to the
satisfaction of certain conditions contained in the definitive credit
agreement, the Company will have approximately $50.0 million available to be
drawn under the Revolving Credit Facility at an interest rate of 185 basis
points over LIBOR and declining to 165 basis points after six months if the
Company maintains certain EBITDA to debt ratios. The Revolving Credit Facility
will have an initial term of five years and an annualized fee for the
unutilized portion of the facility. The Company will be able to select from
four different interest rates when it draws funds: the lender's prime rate or
one, three, or six month LIBOR plus the applicable margin of 165 to 210 basis
points, depending on the Company's ratio of EBITDA-to-total funded debt. It is
anticipated that the Revolving Credit Facility will allow for the Company to
draw funds based on the trailing 12 months performance on a pro forma basis
for both acquired and owned properties. Funds from the Revolving Credit
Facility may be used for acquisitions, renovations, construction and general
corporate purposes. The Company believes the funds available under the
Revolving Credit Facility will be sufficient to meet the Company's near term
growth plans. The Operating Partnership will be the borrower under the
Revolving Credit Facility. The obligations of the Operating Partnership under
the Revolving Credit Facility will be fully guaranteed by the Company. Under
the Revolving Credit Facility, the Company will be permitted to grant new
deeds of trust on any future acquired properties. Mandatory prepayments will
be required to be made in various circumstances including the disposition of
any property, or future acquired property, by the Operating Partnership.
The Revolving Credit Facility will contain various representations,
warranties, covenants and events of default deemed appropriate for financing
of a similar size and nature. Covenants and provisions in the definitive
credit agreement governing the Revolving Credit Facility will include, among
other things, limitations on: (i) substantive changes in the Company's and
Operating Partnership's current business activities, (ii) liquidation,
dissolution, mergers, consolidations, dispositions of material property or
assets involving the Company and its affiliates or their assets, as the case
may be, and acquisitions of property or assets of others, (iii) the creation
or existence of deeds of trust or other liens on property or assets, (iv) the
addition or existence of indebtedness, including guarantees and other
contingent obligations, (v) loans and advances to others and investments in
others, (vi) redemption of subordinated debt, (vii) amendment or modification
of certain material documents or of the Articles in a manner adverse to the
interests of the lenders under the Revolving Credit Facility, (viii) payment
of dividends or distributions on the Company's capital stock, and (ix)
maintenance of certain financial ratios. Each of the covenants described above
will provide for certain ordinary course of business and other exceptions. If
the Company breaches any of these covenants and does not obtain a waiver of
that breach, the breach will constitute an event of default under the
Revolving Credit Facility.
As of December 31, 1997, the Company had debt and capital leases outstanding
of $100.7 million consisting of primarily variable and fixed rate debt secured
by individual properties. The Company had a working capital credit facility of
$3.0 million with $1.1 million drawn as of December 31, 1997.
The Company believes that cash generated by operations will be sufficient to
fund the Company's operating strategy for the foreseeable future, and that any
remaining cash generated by operations, together with capital available under
the Revolving Credit Facility (subject to the terms and covenants to be
included therein) and the remaining proceeds from the Offering, will be
adequate to fund the Company's growth strategy in the near term. Thereafter,
the Company expects that future capital needs, including those for property
acquisitions, will be met through a combination of net cash provided by
operations, borrowings and additional issuances of Common Stock or OP Units.
28
<PAGE>
SEASONALITY
The lodging industry is affected by normally recurring seasonal patterns. At
most of the Hotels, demand is higher in the late spring through early fall
(May through October) than during the balance of the year. For example, for
the year ended December 31, 1997, the Company's revenues in the first through
fourth quarters were 19.7%, 25.7%, 29.1% and 25.5%, respectively, of its total
revenue for such year and the Company's net income (loss) for the first
through fourth quarters was (17.4)%, 43.5%, 81.7% and (7.8)%, respectively, of
its total net income for such year. Demand also changes on different days of
the week, with Sunday generally having the lowest occupancy. Accordingly, the
Company's revenue, operating profit and cash flow are lower during the first
and fourth calendar quarters and higher during the second and third calendar
quarters.
INFLATION
The effect of inflation, as measured by fluctuations in the Consumer Price
Index, has not had a material impact on the Company's revenues or net income
during the periods under review.
YEAR 2000
The Company does not believe that the costs of converting its computer
systems to address the advent of the year 2000 will be material.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," was issued. SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and simplifies the
existing standards. This standard replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires the dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods, and requires restatement of all prior-period EPS data
presented. The adoption of SFAS No. 128 did not have a material effect on the
presentation of the Company's EPS.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
This statement requires that comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement does not require a specific format for the
financial statement, but requires that an enterprise display net income as a
component of comprehensive income in the financial statement. Comprehensive
income is defined as the change in equity of a business enterprise arising
from non-owner sources. The classifications of comprehensive income under
current accounting standards include foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments
in debt and equity securities. This statement is effective for fiscal years
beginning after December 15, 1997. Management does not believe that the
implementation of SFAS No. 130 will have a material impact on the presentation
of its combined financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments for an Enterprise and Related Information." This
statement will change the way public companies report information about
segments of their business in their annual financial statements and requires
them to report segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, and its major customers. The statement is
effective for fiscal years beginning after December 15, 1997. Management of
the Company does not believe that the implementation of SFAS No. 131 will have
a material impact on the combined financial statements.
29
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Cavanaughs Hospitality Corporation is a hotel operating company that owns,
operates, acquires, develops, renovates and repositions full service hotels in
the Northwest under its proprietary brand name, "Cavanaughs(TM)". The
Company's hotel portfolio contains 11 full service Hotels, with 2,369 guest
rooms and approximately 120,000 square feet of meeting space, located in
Seattle, Spokane, Yakima and Kennewick, Washington; Idaho Falls and Post
Falls, Idaho; and Kalispell, Montana. The Company plans to pursue additional
growth opportunities by continuing to acquire and develop full service hotels
in the Northwest. The Company has entered into purchase agreements to acquire
two additional full service hotels, containing 343 guest rooms and
approximately 14,500 square feet of meeting space, located in Kalispell,
Montana and Portland, Oregon for an aggregate purchase price of approximately
$15.5 million. Substantially all of the Company's assets, including the
Hotels, are owned by the Operating Partnership, the day to day operations of
which are managed by the Company in its capacity as sole general partner. With
more than 20 years of experience in the lodging industry, management believes
the Company enjoys an excellent reputation in, and its Cavanaughs brand name
is well recognized throughout, the Northwest. The Company also provides
entertainment services, including event ticketing and theatrical presentations
and other special events, and property management services for third parties
and owns and manages retail and office properties.
The Company is seeking to become the dominant full service hotel company in
the Northwest by providing customers with access to a Cavanaughs brand hotel
in multiple locations throughout the region. As a result of consolidation
among hotel chains, the Company believes there is an absence of a dominant
Northwest based, regionally focused hotel company. The Company's growth
strategy focuses on: (i) the acquisition and re-branding of full service
hotels with the Cavanaughs name, (ii) the acquisition, conversion and
redevelopment of non-hotel properties into Cavanaughs brand hotels, (iii) the
construction of new Cavanaughs hotels and (iv) the expansion of existing
Cavanaughs Hotels.
The Company's operating strategy is designed to enhance its revenue and
operating margins by increasing REVPAR, ADR, occupancy and operating
efficiencies at the Hotels. This strategy includes: (i) building brand name
recognition by maintaining its strategic focus on the Northwest; (ii)
promoting a coordinated marketing program utilizing corporate level sales and
marketing departments in conjunction with local hotel-based sales and
marketing personnel; (iii) controlling operating expenses and achieving cost
reductions through operating efficiencies and economies of scale; (iv)
enhancing guest satisfaction and loyalty by providing high quality service;
(v) utilizing the Company's yield management and proprietary management
information systems to enable the general managers of each Hotel to optimize
REVPAR, ADR, occupancy and net income; (vi) maintaining a consistent level of
quality at the Hotels through its maintenance and capital expenditure
programs; (vii) emphasizing the quality of the Company's food and beverage
services to attract convention, group and special event business and to create
local awareness of the Hotels; (viii) providing valuable guest benefit
programs that promote customer loyalty, such as frequent flier mileage and
repeat guest programs; and (ix) attracting and retaining qualified employees
by providing on going training and stock incentive programs at all levels of
employment to enhance productivity and align the efforts of employees with the
Company's objectives. For the fiscal year ended October 31, 1997, the
Company's revenues were $52.0 million, operating income was $10.6 million, net
income was $1.7 million, REVPAR was $45.72 and ADR was $73.43. On a pro forma
basis, giving effect to the three Hotels acquired since October 31, 1997, the
two hotels under contract to be acquired and the Offering, for the year ended
October 31, 1997, the Company's revenues were $77.4 million, operating income
was $14.5 million, net income was $6.0 million, REVPAR was $41.21 and ADR was
$68.94.
In addition to the Hotels, the Company operates two other divisions: (i)
entertainment, management and services and (ii) rental operations. The
entertainment, management and services division includes computerized event
ticketing through G&B Select-a-Seat, which was founded in 1987 and processed
in excess of 2.0 million
30
<PAGE>
tickets in 1997, and the presentation of shows and special events through G&B
Presents, which was also founded in 1987 and has presented over 79 Broadway
theatrical presentations and special events in the last ten years. These
services generate income from ticket sales and handling fees as well as
additional room occupancy at the Hotels. The entertainment, management and
services division is supported by the same Toll-Free Call Center used for
hotel reservations. The Company's rental operations division includes
ownership of three office properties and one retail property containing in
excess of 590,000 square feet of leasable space, the majority of which are
located near the Hotels, and third-party management of more than 3.1 million
square feet of retail and office properties and approximately 2,200
residential units in the Northwest.
INDUSTRY OVERVIEW
The domestic lodging industry completed its third year of record
profitability in 1996, during which time it produced record income of $12.5
billion. Coopers & Lybrand Hospitality Directions estimates that the industry
is expected to again achieve record profitability in 1997. Coopers & Lybrand
Hospitality Directions indicates that average U.S. hotel occupancy reached
65.1% in 1996, its highest level in 13 years. U.S. hotel occupancy is expected
to decline slightly in 1997 to 64.5% due to supply growth exceeding demand
growth. High occupancy during 1995 to 1997 has provided hotel operators with
the ability to support increases in ADR without affecting occupancy
percentages. Sustained ADR growth has contributed to total lodging industry
revenue growth which was 8.6% in 1996 and is expected to be 8.5% in 1997.
The following table reflects the percentage changes in REVPAR, ADR and
occupancy for the twelve months ended October 31, 1996 and 1997, compared to
the same periods in 1995 and 1996, respectively, for (i) the Hotels that were
open for each of the periods presented, (ii) U.S. full service hotels and
(iii) all U.S. hotels.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE VERSUS PRIOR PERIOD
-----------------------------------------------
REVPAR(1) ADR OCCUPANCY
-------------- -------------- ---------------
1996 1997 1996 1997 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cavanaughs Hotels(2).... 8.3% 8.8% 9.3% 9.1% (1.5)% (1.6)%
U.S. Full Service Ho-
tels(3)................ 8.4% 7.8% 7.4% 7.8% 0.8 % 0.1 %
U.S. Hotels(3)(4)....... 6.4% 5.4% 6.4% 6.4% (0.1)% (0.9)%
</TABLE>
- --------
(1) Determined by dividing annual room revenue by annual available rooms.
(2) Occupancy as a percentage of available rooms declined slightly, primarily
because of the addition of new rooms associated with the opening of
Cavanaughs on Fifth Avenue, which management believes has not reached
stabilized occupancy.
(3) Source: Smith Travel Research.
(4)Includes both full service and limited service hotels.
Lodging room demand has historically tracked the national economy. In 1997,
the U.S. economy's ongoing expansion has been marked by low inflation and
unemployment and, in the northwest states of Idaho, Oregon and Washington,
employment and population growth has been above national averages. According
to U.S. Bank's Economic Update (October 1997), for the twelve months ended
July 1997 the metropolitan areas of Seattle, Washington and Portland, Oregon
were the second and fourth fastest growing metropolitan economies in the
nation, respectively. In addition, according to the 1998 US Bank Regional
Economic Review and Forecast, Utah, Washington and Oregon were the second,
fifth and eighth most rapidly growing states in the nation, respectively. The
western region of the United States is expected to continue to outpace the
nation in employment income and population growth through the year 2000,
according to the Oregon Economic Review and Forecast (December 1997).
GROWTH STRATEGY
The Company is presently seeking growth opportunities in markets located
throughout the Northwest. The Company will consider the following factors in
evaluating acquisitions, conversions and redevelopments, construction of new
hotels and expansion of existing hotels: (i) the location of the property,
(ii) the construction quality, condition and design of the property, (iii) the
current and projected REVPAR, ADR and occupancy of
31
<PAGE>
the property and the anticipated ability of the Company to increase REVPAR,
ADR and occupancy through management of the property by the Company and (iv)
the potential for economic growth in the communities in which the hotels are
located. The Company expects that future acquisitions will be based on these
factors or such other similar factors or criteria as are established from time
to time by the Board. The Company has successfully utilized each of these
strategies and, since December 1996, has increased its room count from 1,546
to 2,712.
Following the Offering, the Company expects to have improved access to
equity and debt financing sources with which to implement its growth strategy.
The Company has received a commitment from U.S. Bank which has agreed to
provide, upon consummation of the Offering, the Revolving Credit Facility in
an amount up to $80.0 million which will be used by the Company to finance
property acquisitions, development and capital improvements and for general
corporate purposes. As an alternative to debt financing, the Company may issue
shares of Common Stock or OP Units as consideration in future acquisitions.
The issuance of OP Units in exchange for hotels may allow the current owners
of such hotels to achieve certain tax advantages when selling such hotels to
the Company.
Summarized below are the key elements of the Company's growth strategy:
Acquisition. The Company is presently seeking to acquire full service hotels
in locations where the Company currently operates properties, as well as in
new markets where the Company believes the potential exists to acquire hotel
properties suitable for conversion to a Cavanaughs brand hotel. Acquisitions
are contemplated by the Company when the cost of acquiring an existing hotel
property is less than replacement cost or where construction and development
opportunities no longer exist in a target market. The Company generally
targets for acquisition hotels with certain physical characteristics that
guests associate with a Cavanaughs brand hotel, including full service hotels
with interior hallways, conference and banquet facilities, restaurants,
lounges, recreational amenities and on-site parking. The Company generally
focuses on acquiring hotels containing 150 to 400 rooms. The Company re-brands
an acquired hotel as soon as practicable after acquisition with the
installation of "Cavanaughs" signage and amenities. In addition, as part of
its repositioning process, a dedicated management team is made responsible for
integrating the acquired hotel into the Company's reservations, information,
accounting, budgeting and management systems and, if necessary, upgrading and
renovating the hotel.
The Company utilizes senior management's knowledge of the Northwest and
long-standing relationships with the other hotel owners and operators to
identify potential acquisitions. These relationships have enabled the Company
to acquire certain of the Hotels before they became generally available for
purchase on the open market. Since December 1996, the Company has acquired
four Hotels (Cavanaughs Gateway Hotel, Cavanaughs Ridpath Hotel, Cavanaughs on
the Falls and Cavanaughs Templin's Resort), containing 823 guest rooms and
approximately 43,800 square feet of meeting space. The total purchase and
option price of these Hotels was approximately $31.1 million (including a $6.3
million option purchase price payable with respect to Cavanaughs Gateway Hotel
which the Company is not required to pay until 2003). This total purchase and
option price is comprised of a combination of cash and assumed indebtedness
and, in the case of Cavanaughs Ridpath Hotel, a combination of cash and OP
Units. In addition, the Company has entered into purchase agreements to
acquire two hotels (Cavanaughs Outlaw Hotel and Cavanaughs Hillsboro Hotel)
containing 343 guest rooms and approximately 14,500 square feet of meeting
space. The total purchase price for these hotels is approximately $15.5
million.
Conversion. Based on management's experience in developing hotel, retail and
office properties, the Company believes that it has the ability to convert
non-hotel properties, such as office buildings, into full service hotels. In
completing the conversion process, the Company uses an in-house design and
development staff, combined with third-party architectural and construction
expertise. The Company believes that this in-house capability allows certain
conversion opportunities to be economically feasible for the Company and at a
cost advantage in comparison to its competitors. The Company intends to target
conversion opportunities in markets that do not have hotel properties suitable
for acquisition or where acquisition and conversion of a non-hotel property
offers significant cost saving advantages as compared to new construction.
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<PAGE>
The Company recently completed the conversion of a non-hotel property into
the Cavanaughs on Fifth Avenue, a full service hotel located in Seattle's
central business and retail district. Prior to its conversion to a Cavanaughs
brand hotel, the property was used by U.S. Bank of Washington as its regional
headquarters. The Company acquired the property in June 1995 for approximately
$18.3 million and in less than eleven months completed the design, zoning,
permitting and construction required to convert the building into a 297-room,
full service Cavanaughs brand hotel, containing two restaurants and 12,500
square feet of banquet and meeting space. The total conversion cost, including
acquisition costs, was approximately $36.8 million. The Hotel, which opened in
May 1996, achieved average REVPAR of $73.55, ADR of $116.24 and occupancy of
64.9% during the Company's fiscal year ended October 31, 1997. The Company
believes the Hotel has not yet reached stabilized operating performance.
Construction. The Company intends to construct new hotels when it believes
room demand and local ADR will support the cost of new construction, a well
positioned building site is available and no viable acquisition or conversion
opportunities exist.
Expansion. As part of its growth strategy, the Company seeks to acquire
hotel properties with sufficient excess land to allow for potential future
expansion. The Company's current hotel portfolio includes seven Hotels which
the Company believes can be expanded to include additional hotel rooms and
meeting space although there is no assurance that such expansion will be
accomplished. The Company's expansion criteria focus on the demand for
additional rooms in a given area, the costs related to such expansion and the
potential return on investment to the Company. Through the use of its in-house
development staff, in most cases, an expansion is completed within one year
from the beginning of construction, with little or no disruption of existing
hotel operations. Expansion of an existing hotel allows the Company to obtain
economies of scale in operating its hotels and increase operating margins
because it can leverage existing staff resources, common areas, restaurants
and meeting facilities and guest amenities, such as pools and fitness
facilities.
OPERATING STRATEGY
The Company's operating strategy focuses on increasing REVPAR, ADR and
occupancy and improving operating efficiencies at the Hotels. Summarized below
are the key elements of the Company's operating strategy:
Utilization of Proprietary Cavanaughs(TM) Brand. The Company is focused on
enhancing its Cavanaughs brand name, which is synonymous with quality and
value throughout the Northwest, thereby earning the loyalty and repeat
patronage of business and leisure travelers. By owning its own proprietary
brand, the Company both retains control over the Hotels and avoids certain
operating or marketing restrictions that a competitor might face being
affiliated with a third-party brand or franchise. The Company believes that
the Cavanaughs brand name provides it with a competitive advantage in its
operating profitability over competitors that do not own a hotel brand and are
required to pay third-party franchise fees which typically can range from 6%
to 10% of revenue. As a result of owning its own Cavanaughs brand name, the
Company has the flexibility to freely market as well as cross-sell hotel rooms
with any of its other marketing efforts or promotions, such as ticketing
events or promotional campaigns. These cross-marketing efforts also serve to
strengthen the Cavanaughs brand name. The Company will use the Cavanaughs
brand name on its newly acquired, converted and developed hotels in order to
maximize the long-term value of each of its hotels.
Sales and Marketing. The Company develops sales and marketing programs that
target key segments of the hotel user market, including convention, corporate,
government, tour and travel, team, education, promotion, leisure, transient
and contract. Members of the Company's centrally located sales and marketing
department are assigned to each market segment in which the Company operates
and are responsible for communicating with hotel personnel in those markets
regarding the specific hotel needs of such hotel's guests. In addition, each
Hotel has (or shares with an adjacent Cavanaughs Hotel) sales and banquet and
catering personnel responsible for promoting that property as well as
personnel responsible for the creation of promotional packages designed to
attract individual guests. As a result of the corporate level and hotel level
marketing efforts, the Company
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believes that it is able to more effectively meet customers' needs and enhance
loyalty. The Company also expects that its corporate level marketing program
will allow it to more easily direct those customers to other Cavanaughs brand
Hotels located throughout the Northwest as their hospitality needs require.
Operating Efficiencies. As a result of owning and operating a portfolio of
hotels, the Company is able to achieve operating efficiencies and economies of
scale. By operating more than one hotel in a specific market, the Company
believes that it can better manage its occupancy levels, match customer needs
with a greater variety of price-points, locations and amenities and achieve
economies of scale. For example, during periods when one of the Hotels is
fully booked, customers can be accommodated at one of the Company's other
Hotels, capturing what would otherwise be lost occupancy. Additionally, the
Company is able to reduce costs through the allocation of fixed costs over a
greater number of rooms. Regional management staff oversees the operations of
all Hotels and certain departments, such as accounting and sales, and operates
in these regions with reduced independent staffs through shared accounting and
sales personnel with the Company's corporate headquarters. The Company
utilizes centralized control for the purchase of property, casualty and
liability insurance policies, telephone and cable contracts as well as other
goods and services.
Control Over Hotel Operations. The Company believes that it is able to
effectively manage the relationship between occupancy and ADR of the Hotels
through the delegation of authority to the general manager of each Hotel. The
Company continuously invests in the development of its yield management and
proprietary information reporting systems that enable general managers to
analyze daily Hotel performance statistics and to use this information to
adjust pricing, staffing and customer mix in an effort to maximize their
Hotel's REVPAR. In addition, management believes that the use of centralized
systems and regional support services allow general managers to control costs,
allocate resources efficiently and maintain consistently high product quality
and services.
Policy of Reinvestment. It is the Company's policy to continuously reinvest
capital in the Hotels in order to maintain their quality. The Company
allocates 4.0% of each Hotel's prior year's gross revenues for reinvestment in
the Hotels. During 1997, the Company reinvested approximately $5.0 million for
renovation of rooms and related Hotel facilities. The Company's reinvestment
program is designed to maintain attractive accommodations, common areas,
update restaurants, lounges and meeting and banquet space and to modernize
equipment. The Company believes that its reinvestment program helps to enhance
the Company's competitive position and the value of the Hotels.
Emphasis on Food and Beverage Services. The Company emphasizes its food and
beverage operations (restaurant and lounge, room service, banquet facilities
and catering) in an effort to strengthen its group and convention business as
well as to establish a positive reputation among its local clientele. The
restaurant and catering business serves to establish each Hotel's reputation
and name recognition in their respective markets. In order to ensure
consistency of food and beverage service throughout the Hotels, a new menu and
customer marketing program, Northwest Signatures, has been introduced to all
of the Hotels.
Guest Benefit Programs. The Company has established several incentive
programs to encourage and reward repeat visits by guests at the Hotels. The
incentive programs include: (i) Cavanaughs Constant Traveler and Cavanaughs
Gold Club, a corporate rate and amenity program, (ii) Cavanaughs Cash, a
frequent use program, and (iii) participation in Alaska Airlines/Horizon Air
Mileage Plan, a frequent flyer program. The Company uses the information
gained through guest participation in its incentive programs to design direct
mailing and other promotional programs to attract repeat use of the Hotels.
Maintaining a Unique Corporate Culture. The Company has developed a team of
managers which has the expertise, authority and incentive to execute a plan
for each Hotel that is designed to increase operating profitability. Members
of the Company's senior management team have been with the Company on average
for more than 17 years. The Company's management encourages employee loyalty
and longevity through a number of employee programs that enhance productivity
and align employees' interests with those of the shareholders. Significant
programs include (i) employee stock option and stock purchase plans which are
available to all hourly
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and salaried employees through payroll deduction and 401(k) programs, (ii)
employee bonus plans that target, where possible, all management level
employees to earn a significant portion of their annual compensation from
profits generated through their departments thereby encouraging significant
business decision making among all levels of employees and (iii) continuing
education programs that encourage expanded learning with Company sponsored
tuition programs tied to length of service. In addition, the Company sponsors
a not-for-profit day-care program at the Company's headquarters.
SALES AND MARKETING
The Company's hotel sales and marketing approach includes the following
components:
Centralized Sales Management. In order to serve customers' lodging needs,
the Company's sales department is centrally organized according to expertise
and relationships in each of the following market segments: corporate,
convention, government, tour and travel, education, team, transient, contract,
and promotion/leisure. The sales department works with each Hotel to ensure
that sufficient hotel product is available to accommodate each group, guest or
event in the particular Hotel which best serves the lodging needs of such
group, guest or event. In addition, each Hotel has (or shares with adjacent
Cavanaughs Hotels) sales and banquet and catering personnel promoting that
Hotel to ensure that such Hotel's local individual and corporate customers are
served. The Company's sales and marketing department includes personnel
located at its headquarters as well as sales and marketing personnel located
at each of the Hotels. Sales and marketing personnel residing at the Company's
headquarters are in charge of major national and regional accounts and
promotional campaigns. The Company utilizes media in the Northwest including
television, radio, newspaper, in-flight magazines, business publications, and
billboards, to market the Hotels.
Attention to Customer Service. The Company places significant value on
meeting the changing needs of its customers by employing state-of-the-art
technology to track customer preferences and actively measuring guest
satisfaction through surveys which enables it to reinvest in those services
and amenities which are most appreciated.
In-House Advertising Services. The Company believes that its in-house
advertising and promotional departments allows it to take advantage of hotel
room sales opportunities by generating promotional campaigns more quickly than
its competitors. Through its internal advertising agency, the Company can
purchase media at lower all-inclusive costs than its competitors who must out-
source these functions.
Reservation Systems. The Company's Toll-Free Call Center is designed to
provide integrated hotel, entertainment information and reservation services.
The Toll-Free Call Center has the capacity to accommodate 48 simultaneous
calls and provides access to standardized reservation systems utilized by
travel agents worldwide to book hotel rooms. The Toll-Free Call Center is open
24 hours per day, seven days per week. The Toll-Free Call Center also
maintains a database of information on over 200,000 repeat customers. Both
hotel reservations and event ticketing requests can also be made through the
Company's website address: www.cavanaughs.com.
Promotional Programs. The Company utilizes its own and affiliated incentive
programs to attract additional customers. The Company's Cavanaughs Cash
program enables participants to enjoy guest room savings by accumulating
Cavanaughs Cash coupons. In addition, the Company participates in the Alaska
Airlines/Horizon Air Mileage Plan Program. Alaska Airlines/Horizon Air is a
dominant air service provider in the northwest United States, serving
approximately 77 airports in the United States and 13 additional airports in
Canada, Mexico and Russia. During 1996, Alaska Airlines/Horizon Air carried
11.8 million passengers. Guests of the Hotels who pay qualifying rates earn
mileage credits for each stay, redeemable for air travel and other airline
benefits. The Company and Alaska Airlines/Horizon Air have committed to
jointly market property-specific programs that benefit the customers of both
companies.
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HOTEL PROPERTIES
The Company's hotel portfolio currently contains 11 full service Hotels,
with 2,369 guest rooms and approximately 120,000 square feet of meeting space,
located in the Northwest. In addition, the Company has entered into purchase
agreements to acquire two additional full service hotels. The following table
sets forth certain information regarding the Company's hotel portfolio and
hotels under contract.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
MEETING ---------------------------------
YEAR BUILT/ YEAR GUEST SPACE AVERAGE
LOCATION ACQUIRED RENOVATED ROOMS (SQ. FT.) REVPAR ADR OCCUPANCY
--------------- ----------- --------- ----- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOTELS OWNED AS OF OCTO-
BER 31, 1997:
Cavanaughs on Fifth Ave-
nue.................... Seattle, WA 1996 1996 297 12,500 $ 73.55 $ 116.24 64.9%
Cavanaughs Inn at the
Park................... Spokane, WA 1983 1997 402 26,300 48.61 80.90 61.1
Cavanaughs River Inn.... Spokane, WA 1976 1997 245 3,700 40.17 53.01 74.2
Cavanaughs Fourth Ave-
nue.................... Spokane, WA 1991 1997 153 2,600 23.63 48.33 51.7
Cavanaughs at Yakima
Center................. Yakima, WA 1991 1997 155 11,000 37.13 55.98 63.3
Cavanaughs Gateway Ho-
tel.................... Yakima, WA 1997(1) 1997 172 8,000 34.16 58.96 57.9
Cavanaughs at Columbia
Center................. Kennewick, WA 1978 1997 162 9,700 31.15 55.86 58.9
Cavanaughs at Kalispell
Center................. Kalispell, MT 1986 1997 132 10,500 36.89 59.30 63.2
----- ------- --------- ---------- -------
Total/Weighted Average
for Owned Hotels
(2)(3)................ 1,718 84,300 $ 45.72 $ 73.43 63.5%
HOTELS ACQUIRED SINCE
OCTOBER 31, 1997:
Cavanaughs Ridpath Ho-
tel.................... Spokane, WA 1998(4) 1996 342 16,000 $ 33.49 $ 58.43 57.3%
Cavanaughs on the
Falls.................. Idaho Falls, ID 1998(5) 1994 142 8,800 34.49 57.38 60.1
Cavanaughs Templins Re-
sort................... Post Falls, ID 1998(6) 1996 167 11,000 36.45 62.65 58.2
HOTELS CURRENTLY UNDER
CONTRACT:
Cavanaughs Outlaw Ho-
tel.................... Kalispell, MT 1998(7) 1995 220 11,000 $ 29.88 $ 68.88 43.4%
Cavanaughs Hillsboro Ho-
tel.................... Portland, OR 1998(8) 1997 123 3,500 50.13 72.38 69.3
----- ------- --------- ---------- -------
Total/Weighted Average
for Hotels Acquired or
Under Contract Since
October 31, 1997...... 994 50,300 $ 35.40 $ 62.99 56.2%
Total/Weighted Average
for All Hotels
(2)(3)................ 2,712 134,600 $ 41.21 $ 68.94 59.8%
</TABLE>
- --------
(1) Leased by the Company effective October 15, 1997.
(2) Rooms which were under renovation were excluded from REVPAR and average
occupancy percentage. Due to the short duration of renovation, in the
opinion of management, excluding these rooms did not have a material
impact on REVPAR and average occupancy percentage.
(3) The total/weighted average for owned Hotels includes REVPAR, ADR and
average occupancy of Cavanaughs Gateway Hotel for the period from October
15, 1997 through October 31, 1997.
(4) Leased by the Company effective January 1, 1998.
(5) Acquired by the Company on January 7, 1998.
(6) Acquired by the Company on February 2, 1998.
(7) The Company has entered into a purchase agreement dated November 19, 1997
to acquire this hotel, subject to the satisfaction of normal closing
conditions, for a purchase price of $9.8 million within 60 days of the
closing of the Offering. This hotel, which is currently known as the
Outlaw Inn, will be re-branded as the "Cavanaughs Outlaw Hotel" upon
acquisition.
(8) The Company has entered into a purchase agreement dated January 14, 1998
pursuant to which it intends to acquire this hotel, subject to the
satisfaction of normal closing conditions, for a purchase price of $5.7
million on April 1, 1998. This hotel, currently known as the Hallmark Inn,
will be re-branded as the "Cavanaughs Hillsboro Hotel" upon acquisition.
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Cavanaughs on Fifth Avenue--Seattle, Washington. Formerly the regional
headquarters for U.S. Bank of Washington, the 20-story property was acquired
by the Company in June 1995 and, in eleven months, converted into a 297-room,
full service hotel which opened in May 1996. The Hotel is located in the
central business district of Seattle, and is two blocks from the Washington
State Convention Center. Amenities include two restaurants, a lounge, business
center, fitness center and 12,500 square feet of meeting and banquet space
which can be divided into six separate meeting rooms. The Hotel also includes
14,300 square feet of retail space and 25,000 square feet of office space. The
retail and office space is 100% leased.
Cavanaughs Inn at the Park--Spokane, Washington. Developed by the Company in
1983 and expanded in 1986 and 1993, the property is a 402-room, full service
hotel located along the banks of the Spokane River in Spokane, Washington, the
cultural, entertainment and sports center for the region. The Hotel is
adjacent to the 100-acre Riverfront Park, near the 80,000 square foot Spokane
Convention Center and 2,600-seat Opera House and is two blocks from the
central business district and one block from the 12,000-seat Spokane Arena.
The Hotel is comprised of three guest room wings: the five story Main Wing
containing 181 rooms, the seven story Executive Wing containing 85 rooms, and
the 12-story Tower Wing containing 136 rooms. Amenities include two
restaurants, two lounges, two outdoor pools, one indoor lap pool, fitness
center, sauna, two whirlpools, and gift shop. The Hotel, which is the largest
hotel conference facility in the region, offers approximately 26,300 square
feet of meeting and banquet space which can be divided into separate meeting
rooms. The property contains approximately 2.1 acres of excess land which
could be reallocated for parking and enable the Company to develop an
estimated 336 additional guest rooms on its primary site in the future, if
market conditions warrant.
Cavanaughs River Inn--Spokane, Washington. Developed by the Company in 1976,
the property is a two-story, 245-room, full-service hotel located on the banks
of the Spokane River along the 40 mile long Centennial Trail pedestrian walk.
Amenities include two outdoor pools, tennis court, sauna and whirlpool, gift
shop, and a 2,800 square foot ballroom divisible into two meeting rooms. The
Hotel also has two additional meeting rooms totaling 900 square feet. The
property contains approximately 0.5 acre of excess land upon which, if some of
the Hotel's parking requirements were allocated to a parking lot controlled by
Cavanaughs Inn at the Park, an estimated 168 additional guest rooms in a high-
rise tower may be built in the future, if market conditions warrant.
Cavanaughs Fourth Avenue--Spokane, Washington. Acquired by the Company in
1991 and re-branded as a Cavanaughs hotel, the property is a six story, 153-
room full service hotel located in the center of Spokane's medical community,
adjacent to four hospitals, numerous public and private clinics and
rehabilitation centers. Amenities include a restaurant and lounge, an outdoor
pool and 2,600 square feet of meeting and banquet space divisible into four
meeting rooms. This Hotel is owned by a limited partnership of which the
Company is a 50% owner and general partner and an unaffiliated person is the
sole limited partner.
Cavanaughs Ridpath Hotel--Spokane, Washington. Acquired by the Company in
January 1998 and re-branded as a Cavanaughs hotel, the property is a 13-story,
342-room, full service hotel located in the Spokane central business district
and is four blocks from the Spokane Convention Center and Opera House.
Amenities include two restaurants, two lounges, an outdoor pool, fitness
center and approximately 12,700 square feet of retail space which is leased to
seven tenants. As of January 1998, the retail space was 80% leased. The Hotel
offers approximately 16,000 square feet of meeting and banquet space divisible
into 14 meeting rooms. The Hotel is held by the Company pursuant to a lease
which expires in November 1999, and provides the Company with a purchase
option to acquire the Hotel from the lessor, and the lessor with a put option
to sell the Hotel to the Company, exercisable during the term, for an amount
ranging from $11.5 million to $12.5 million, depending on the date of closing
of the purchase and sale pursuant to the option.
Cavanaughs at Yakima Center--Yakima, Washington. Acquired by the Company in
1991 and re-branded as a Cavanaughs hotel, the property is a two-story, 155-
room, full service hotel located in the center of Yakima's central business
district and is attached to the Yakima Convention Center by a covered walkway.
Yakima is located in the center of the state of Washington and has a diverse
agricultural, industrial and manufacturing base. The Hotel is comprised of
four buildings: the two-story Corporate Building, the two-story Garden
Building, the two-story free standing Townhouse Building and the two-story,
free standing Main Building. Amenities include a restaurant, lounge, two
outdoor pools, and business center. The Hotel offers approximately 11,000
square feet
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<PAGE>
of meeting and banquet space which can be divided into nine separate meeting
rooms and is often used for convention center overflow. The property contains
approximately 0.3 acres of excess land that could be used to facilitate the
addition of an estimated 80 guest rooms, if market conditions warrant.
Cavanaughs Gateway Hotel--Yakima, Washington. Acquired by the Company in
October 1997 and re-branded as a Cavanaughs hotel, the property is a three-
story, 172-room full service hotel located adjacent to the Yakima Convention
Center and across the street from the Company's Cavanaughs at Yakima Center
Hotel. Amenities include a restaurant, lounge, outdoor pool and jacuzzi. The
property offers approximately 8,000 square feet of meeting space which is
divisible into ten meeting rooms and is often used for convention center
overflow. The Hotel is held by the Company pursuant to a lease which expires
in October 2012, subject to the Company's right to extend the term of the
lease for two additional five-year periods, and provides the Company with a
purchase option, exercisable in 2003, to acquire the Hotel from the lessor for
$6.3 million.
Cavanaughs at Columbia Center--Kennewick, Washington. Developed by the
Company in 1978, the property is a two-story, 162-room full service hotel
located across the street from the five anchor, 90-store Columbia Center Mall
and a 6,000 seat arena. Amenities include a restaurant, lounge, outdoor pool
and gift shop. The Hotel offers 9,700 square feet of meeting and banquet space
which is divisible into nine meeting rooms. The property contains
approximately 4.0 acres of excess land upon which an estimated 144 additional
guest rooms in a three-story structure, together with an estimated 50,000
square feet of retail facilities, may be built in the future, if market
conditions warrant.
Cavanaughs on the Falls--Idaho Falls, Idaho. Acquired by the Company in
January 1998 and re-branded as a Cavanaughs hotel, the property is an eight-
story, 142-room full service hotel located in downtown Idaho Falls overlooking
the falls on the Snake River. Amenities include a restaurant, lounge, an
outdoor pool, sauna, spa and fitness center. The Hotel offers 8,800 square
feet of meeting and banquet space which is divisible into eight meeting rooms.
The property underwent major renovations in 1993 and 1994. The property
includes a 13,300 square foot building which could be demolished and re-built
into an estimated 30 additional guest rooms in the future, if market
conditions warrant.
Cavanaughs Templins Resort--Post Falls, Idaho. Acquired by the Company in
February 1998 and re-branded as a Cavanaughs hotel, the property is a three-
story, 167-room full service hotel which was built in three phases between
1986 and 1996. The Hotel, which is located on the Spokane River, has a 76 slip
marina offering boating access to Lake Coeur d'Alene, a popular vacation
destination. The Hotel was previously operated as a Best Western hotel and, in
connection with the integration of the Hotel into the Company's portfolio, the
Company initially intends to continue to maintain such affiliation. Amenities
include two restaurants, lounge, indoor pool, sauna, spa, fitness center, two
tennis courts, and private beach and swim area. The Hotel offers 11,000 square
feet of meeting space which is divisible into 14 meeting rooms. The property
contains approximately 10.5 acres of excess land upon which an estimated 288
additional guest rooms in a series of low-rise buildings, together with an
estimated 10,000 square foot executive conference center and 20,000 square
foot retail facilities, may be built in the future, if market conditions
warrant.
Cavanaughs at Kalispell Center--Kalispell, Montana. Developed by the Company
in 1986 in conjunction with the Company's development of the Kalispell Center
Mall, the property is a three-story, 132-room full service hotel located near
Glacier National Park, Flathead Lake and Big Mountain Ski Resort. Amenities
include a restaurant, lounge, indoor pool, whirlpool, sauna and fitness
center. The Hotel offers 10,500 square feet of meeting and banquet space which
is divisible into nine meeting rooms. The Hotel is connected to the Company's
Kalispell Center Mall. The property contains approximately 3.5 acres of excess
land upon which an estimated 48 additional guest rooms and 100,000 square feet
of additional retail space may be built in the future, if market conditions
warrant.
Cavanaughs Outlaw Hotel--Kalispell, Montana. The property, which the Company
intends to acquire for a purchase price of $9.8 million within 60 days of the
closing of the Offering, is a two-story, 220-room full service hotel and is
the largest full service hotel in northwest Montana. Amenities include a
restaurant, lounge, two indoor pools, four whirlpools, sauna, tennis and
racquetball courts, and fitness center. The hotel offers approximately 11,000
square feet of meeting and banquet space divisible into 13 meeting rooms.
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<PAGE>
Cavanaughs Hillsboro Hotel--Portland, Oregon. The property, which the
Company intends to acquire in April 1998 for a purchase price of $5.7 million
and re-brand as a Cavanaughs hotel, is a two-story, 123-room full service
hotel located in the suburban Portland metropolitan area. The hotel is
adjacent to the Portland/Hillsboro Airport, Washington County Fairplex and in
the heart of the Silicon Forest, Oregon's premier high-tech business area.
This hotel is currently operated as a Best Western hotel and, in connection
with the integration of this hotel into the Company's portfolio, the Company
initially intends to maintain such affiliation. Amenities include a
restaurant, lounge, outdoor pool, indoor spa and fitness center. The hotel
offers 3,500 square feet of meeting and banquet space divisible into five
meeting rooms. The property contains excess land upon which an estimated
70 additional guest rooms may be built, if market conditions warrant.
ENTERTAINMENT SERVICES AND THIRD-PARTY PROPERTY MANAGEMENT
The entertainment, management and services division of the Company is
comprised of: (i) G&B Select-a-Seat, a full service theatrical and event
ticketing agency, (ii) G&B Presents, a promoter of touring Broadway shows and
other special events, and (iii) G&B Real Estate Services, a third-party
property management service. Reservations for entertainment events and hotel
information and reservations are made through the Toll-Free Call Center. The
combination of event ticketing, presentation of Broadway shows, hotel event
packages and a centralized reservations system enables the Company to offer
packages for hotel guests, generating additional room night occupancy and
income from ticket distribution service fees.
G&B Select-A-Seat. G&B Select-a-Seat, established in 1987, is a full service
ticketing agency offering box office ticket distribution through 20 regional
outlets and box offices in Washington, Idaho and Montana. G&B Select-a-Seat is
the exclusive contracted ticket services vendor for certain facilities in
these states, including the Spokane Arena, Spokane Opera House, Spokane
Symphony, Washington State University's stadium and coliseum, Eastern
Washington University and the University of Idaho. During its fiscal year
ended October 31, 1997, the Company processed in excess of 2.0 million
tickets. G&B Select-a-Seat uses state of the art software which enables the
agency to access the many entertainment events being presented throughout the
Northwest. Phone agents are able to coordinate the sales of entertainment and
event tickets with guests making hotel room reservations and vice versa. The
Company is actively seeking additional ticket distribution opportunities in
the Northwest.
G&B Presents. G&B Presents, established in 1987, is one of the largest
regional presenters of events in the Washington area. In addition to special
events, such as sporting events and musical acts, G&B Presents organizes the
presentation of touring Broadway shows in Spokane as part of its "Best of
Broadway" series. During 1997, the Company presented nine Broadway shows and
special events. Past events have included shows such as Cats, South Pacific
and Les Miserables. In its last ten years of operation the Company has
attracted over 500,000 patrons to its 79 Broadway and special event shows. The
Company cross-markets these productions by creating special event/Hotel
packages.
The Toll-Free Call Center. The Toll-Free Call Center is designed to provide
centralized hotel and entertainment information and reservation services. Each
agent is trained to cross-sell Hotel reservations, event tickets, and special
event/Hotel packages. Guests that are traveling to see entertainment events
are able to book their hotel room and confirm event tickets in one toll-free
call. The Toll-Free Call Center is open 24 hours per day, seven days a week
and has the capacity to accept as many as 48 simultaneous phone conversations
and provides access to reservations systems used by travel agents world-wide
to book hotel rooms. The Toll-Free Call Center also maintains a database which
gives reservation agents information on current room and event availability,
guest information, history and preferences. Event ticket requests and hotel
reservations can be made by calling the Toll-Free Call Center at 1-800-325-
4000 and via the Company's website address at www.cavanaughs.com.
G&B Real Estate Services. The Company is a leading property manager of
office, retail and residential space in regions of eastern Washington,
northern Idaho and western Montana, with over 3.1 million square feet of
commercial space under management. The Company's property management staff
includes leasing agents, property managers and building engineers providing
full-service commercial property management. The
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Company's residential property management department manages approximately
2,200 residential units in 39 properties. The Company is experienced in the
management of a full range of multi-family projects, including low income
housing, retirement communities, market rate apartment properties and
condominiums.
RENTAL OPERATIONS
The Company is the owner and manager of approximately 590,000 square feet of
leasable office and retail space located in Spokane, Washington and Kalispell,
Montana. The following is a description of each of the Company's office and
retail properties:
Crescent Court--Spokane, Washington. Acquired and substantially redeveloped
by the Company in 1994, the property is an eight-story, 234,000 square foot
mixed-use commercial building comprised of approximately 59,000 square feet of
leasable retail space, including a food court, 157,000 square feet of leasable
office space and an 8,000 square foot lower level exhibition hall, located in
Spokane's central business district. The property is located directly across
the street from River Park Square, a $100 million redevelopment project which,
when completed in 1999, is expected to include a 130,000 square foot
Nordstrom's department store, a number of speciality retailers, a 20 screen
AMC multiplex cinema and 300,000 square feet of additional retail and
restaurant space. As of December 1997, the retail portion of the property was
63.3% leased to 19 tenants and the office portion of the property was 77.4%
leased to four tenants including the Bonneville Power Administration, the U.S.
Postal Service regional headquarters, Sallie Mae and The Travelers Group which
has an option to lease an additional floor in the building effective December
1999. The Company has determined to retain 22,000 square feet of retail space
in the project for future development and leasing pending completion of the
River Park Square project.
Lincoln Building--Spokane, Washington. Acquired by the Company in 1984, the
property is a 114,000 square foot mixed-use commercial building comprised of
approximately 32,000 square feet of retail space, 82,000 square feet of office
space, and two floors of underground parking which can accommodate 200
automobiles. The building is located in Spokane's central business district,
one block west of the Company's Crescent Court property and one block south of
River Park Square. As of December 1997, the retail portion of the property was
66.8% leased to six tenants, including Pacific Northwest Life and Farmers and
Merchants Bank. The office tower was 88.4% leased to 25 tenants, including New
York Life Insurance and Equitable of Iowa. The Company has determined to
retain 26,000 square feet of retail space for future development and leasing
pending completion of the River Park Square project.
CHC Building--Spokane, Washington. Developed by the Company in 1986, the
property is a six-story, 100,000 square foot office building having an
attached three-story parking deck which can accommodate 250 automobiles. The
building is located on the north bank of the Spokane River, adjacent to
Cavanaughs Inn at the Park. As of December 1997, the property was 100% leased
to 23 tenants including the Company, Morgan Stanley Dean Witter Discover, and
Avista Energy.
Kalispell Center Mall--Kalispell, Montana. Developed by the Company in 1986
in conjunction with the Company's development of the Cavanaughs at Kalispell
Center hotel, the property is a single level enclosed regional mall shopping
center containing 163,000 square feet of gross leasable area. As of December
1997, the property was 98% leased to 46 tenants including J.C. Penney and
Herbergers. The property is connected to the Cavanaughs at Kalispell Center
hotel.
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MANAGEMENT AND EMPLOYEES
The Company employs approximately 1,900 persons. Employees at Cavanaughs
Ridpath Hotel currently are represented by labor unions. Management believes
its ongoing labor relations are good.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. The Company believes that the ultimate outcome of these lawsuits
will not have a material adverse effect on the Company.
TRADEMARKS
"Cavanaugh's(R)" is a registered trademark of the Company in the United
States. The Company has filed an application to register "Cavanaughs" as an
additional trademark in the United States and Canada.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of March 10, 1998
regarding the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald K. Barbieri.......... 52 Chairman, President and Chief Executive Officer
Arthur M. Coffey............ 42 Executive Vice President, Chief Financial
Officer and Director
Richard L. Barbieri......... 55 Senior Vice President, General Counsel and
Director
Thomas M. Barbieri.......... 40 Senior Vice President--Acquisitions and
Commercial Operations and Director
David M. Bell............... 47 Senior Vice President--Project Design,
Development and Construction
Lori L. Farnell............. 43 Vice President--Sales and Marketing
John M. Taffin.............. 34 Vice President--Hotel Operations
Peter F. Stanton............ 41 Proposed Director
Ronald R. Taylor............ 50 Proposed Director
Robert G. Templin........... 74 Proposed Director
</TABLE>
Donald K. Barbieri has been President and Chief Executive Officer and a
Director of the Company since 1978 and Chairman of the Board since 1996. Mr.
Barbieri joined the Company in 1969 and is responsible for the Company's
development activities in commercial, residential, hotels and entertainment
areas. Mr. Barbieri served as president of the Spokane Chapter of the Building
Owners and Managers Association from 1974 to 1975 and served as president of
the Spokane Regional Convention and Visitors Bureau from 1977 to 1979. He also
served on the Washington Tourism Development Council from 1983 to 1985 and the
Washington Economic Development Board while chairing the State of Washington's
Quality of Life Task Force from 1985 to 1989. Mr. Barbieri is the brother of
Richard and Thomas Barbieri and the brother-in-law of David Bell.
Arthur M. Coffey has been Chief Financial Officer and Executive Vice
President of the Company since June 1997 and a Director of the Company since
1990. Mr. Coffey served as Chief Operating Officer of the Company from 1990 to
June 1997. Mr. Coffey has been in the hotel business since 1971 and joined the
Company in 1981. Mr. Coffey is currently a trustee of the Spokane Area Chamber
of Commerce, served as a director of the Washington State Hotel Association
from 1996 to 1997, served as director of the Spokane Regional Convention and
Visitors Bureau from 1982 to 1985 and served as president of the Spokane Hotel
Association from 1989 to 1990.
Richard L. Barbieri has been a Senior Vice President of the Company since
September 1997, full-time General Counsel of the Company since 1995 and a
Director of the Company since 1978. From 1994 to 1997, Mr. Barbieri served as
a Vice President of the Company. From 1978 to 1995, Mr. Barbieri served as
outside counsel and Secretary of the Company, during which time he was engaged
in the practice of law at Edwards and Barbieri, a Seattle law firm, and then
at Riddell Williams Bullitt and Walkinsaw, a Seattle law firm, where he headed
the real estate practice group. Mr. Barbieri has also served as chairman of
various committees of the State and County Bar Association and as a member of
the governing board of the County Bar Association. He also served as vice
chairman of the Citizens' Advisory Committee to the Major League Baseball
Stadium Public Facilities District in Seattle in 1996 and 1997. Mr. Barbieri
is the brother of Donald and Thomas Barbieri and the brother-in-law of David
Bell.
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<PAGE>
Thomas M. Barbieri has been Senior Vice President--Acquisitions and
Commercial Operations of the Company since September 1997 and a Director of
the Company since 1985. From 1985 to 1997, Mr. Barbieri served as a Vice
President of the Company. Mr. Barbieri joined the Company in 1979 and from
1987 to the present has overseen the management, supervision, and development
of the Company's real estate portfolio. From 1982 to 1987, Mr. Barbieri was
Operations Manager of the Company's hospitality division. From 1979 to 1981,
Mr. Barbieri was the General Manager of Cavanaughs River Inn. He served on
Washington State Governor Lowery's Real Estate Advisory Council from 1993 to
1994, as a president of the Downtown Spokane Association from 1992 to 1994, as
a director of the Spokane Convention and Visitors Bureau from 1983 to 1987, as
a trustee of the Spokane Area Chamber of Commerce from 1987 to 1991 and as a
director of the Spokane Economic Development Council from 1991 to 1996. Mr.
Barbieri is the brother of Donald and Richard Barbieri and the brother-in-law
of David Bell.
David M. Bell has been Senior Vice President--Project Design, Development
and Construction of the Company since September 1997 and a Director of the
Company since 1985. From 1985 to 1997, Mr. Bell served as Vice President of
the Company. He is in charge of new project development, property renovations
and major building construction. Since joining the Company in 1984, Mr. Bell
has been responsible for numerous projects, including the development of the
CHC Building, the Cavanaughs at Kalispell Center hotel and the Kalispell
Center Mall, two major room tower additions to Cavanaughs Inn at the Park and
the conversion of the U.S. Bank of Washington office building in Seattle into
Cavanaughs on Fifth Avenue. Mr. Bell is a registered Professional Engineer.
Mr. Bell is the brother-in-law of Donald, Richard and Thomas Barbieri.
Lori L. Farnell has been the Vice President--Sales and Marketing since
October 1993. Ms. Farnell joined the Company in 1981 as Director of Sales for
the hospitality division. Ms. Farnell is responsible for directing the sales
and marketing activities of the Company and the in-house advertising and art
department. Prior to joining the Company, Ms. Farnell worked as Director of
Sales for the Spokane Davenport Hotel. She is a member of the Eastern
Washington University Foundation Board, the Sacred Heart Hospital Ambassadors
Board, a past President and Woman of the Year of Executive Women International
and an active member of the Washington Society of Association Executives and
the National Tour Association.
John M. Taffin has been Vice President--Hotel Operations since September
1997. Mr. Taffin is responsible for the Company's overall hotel operations and
directs the Company's yield management strategy. Mr. Taffin joined the
Company's hospitality division in November 1995 as a regional manager. Mr.
Taffin's prior lodging experience includes 13 years of service with Red Lion
Hotels, during which time he was a general manager of various full service
hotels throughout the Northwest. Prior to September 1997, Mr. Taffin was
responsible for all aspects of operations for the Hotels located in Spokane.
Peter F. Stanton has agreed to become a Director of the Company upon
consummation of the Offering. Mr. Stanton is the Chairman, Chief Executive
Officer and President of Washington Trust Bank. Mr. Stanton has been with
Washington Trust Bank since 1982 and has served as its President since 1990,
Chief Executive Officer since 1993 and Chairman since 1997. Mr. Stanton is
also Chief Executive Officer, President and a director of W.T.B. Financial
Corporation (a bank holding company) and a director of Northern State Bank and
Reardon and Rivard & Associates (a registered investment advisor). In addition
to serving on numerous civic boards, Mr. Stanton was president of the
Washington Bankers Association from 1995 to 1996 and serves as state chairman
of the American Bankers Association for 1997 and 1998.
Ronald R. Taylor has agreed to become a Director of the Company upon
consummation of the Offering. From 1996 to the present, Mr. Taylor has worked
as an independent business consultant. From 1987 to 1996, Mr. Taylor was
chairman, president and chief financial officer of Pyxis Corporation (a health
care services provider). He is currently a director of Watson Pharmaceuticals,
Inc. (a pharmaceutical manufacturer), Allelix Biopharmaceuticals (a
biotechnology company) and Cardio Dynamics (a medical device manufacturer).
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<PAGE>
Robert G. Templin has agreed to become a Director of the Company upon
consummation of the Offering. Mr. Templin has had 50 years of continuous
experience in ownership, acquisition and disposition, transaction counseling,
development, construction and management work in the lodging industry in the
Northwest. From 1962 to 1983, he was Chief Executive Officer of Western
Frontiers, a hotel operator. Since 1986, Mr. Templin has served as governor
for District II for Best Western, Inc. In 1986, he built Templin's Resort and
Conference Center. He served as president of the Idaho Inn Keepers Association
from 1975 to 1976 and president of the Coeur d'Alene Chamber of Commerce in
1963. Mr. Templin also served on the Government Affairs Committee of Holiday
Inn, Inc. from 1981 to 1982. In addition to his responsibilities as a Director
of the Company, Mr. Templin will be asked to represent the Company on the
board of the Idaho Travel Council.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Promptly following the closing of the Offering, the Board
will establish an audit committee consisting of Peter Stanton and Ronald
Taylor (the "Audit Committee"). The Audit Committee will be responsible for
making recommendations concerning the engagement of the Company's independent
public accountants, reviewing with the independent public accountants the
plans and results of the audit engagement, approving professional services
provided by the independent public accountants, reviewing the independence of
the independent public accountants, considering the range of audit and non-
audit fees and reviewing the adequacy of the Company's internal accounting
controls.
Compensation Committee. Promptly following the closing of the Offering, the
Board will establish a compensation committee consisting of Peter Stanton and
Ronald Taylor (the "Compensation Committee"). The Compensation Committee will
be responsible for determining compensation for the Company's executive
officers and administering the Plans.
OPERATIONS COMMITTEE
The Board has established an operations committee (the "Operations
Committee"). The Operations Committee is chaired by Donald Barbieri and
consists of Arthur Coffey, Thomas Barbieri, John Taffin, Lori Farnell, David
Barbieri, Stephen Barbieri, David Bell and Jack Lucas. The Operations
Committee, which is not a committee of the Board, is responsible for
implementing the policies established by the Board and shall be under the
direction of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company expects that the Compensation Committee will consist of Peter
Stanton and Ronald Taylor, neither of whom has ever served as an officer of
the Company.
COMPENSATION OF DIRECTORS
The Company intends to pay an annual fee of $6,000 to its non-employee
Directors which will be paid 50% in cash and 50% in shares of Common Stock. In
addition, each non-employee Director will be paid $500 for attendance at each
meeting of the Board and $250 for attendance at each meeting of a committee of
the Board of which such Director is a member. Directors who are employees of
the Company will not receive any fees for their service on the Board or any
committee thereof. In addition, the Company will reimburse Directors for their
out-of-pocket expenses incurred in connection with their service on the Board.
Upon consummation of the Offering, each non-employee Director will be granted
options to purchase 10,000 shares of Common Stock at the initial public
offering price. These options will vest in 20% increments over the five-year
period following the Offering subject to the accelerated vesting schedule
described in "--Restricted Stock and Certain Stock Option Grants." Any non-
employee Director who ceases to be a Director will forfeit the right to
receive any options not previously vested.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company with
respect to the fiscal year ended October 31, 1997 to the Chief Executive
Officer and the four most highly compensated executive officers whose total
annual compensation from the Company exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- ------- -------- ---------------
<S> <C> <C> <C> <C>
Donald K. Barbieri........................ 1997 $88,776 $256,037 $7,129
President and Chief Executive Officer
Arthur M. Coffey.......................... 1997 $76,680 $211,055 $8,799
Executive Vice President and Chief
Financial Officer
Richard L. Barbieri....................... 1997 $79,572 $ 50,891 $6,544
Senior Vice President and General Counsel
David M. Bell............................. 1997 $67,530 $ 36,136 $7,667
Senior Vice President--Project Design,
Development and Construction
Thomas M. Barbieri........................ 1997 $86,645 $ 46,926 $8,289
Senior Vice President--Acquisitions and
Commercial Operations
</TABLE>
- --------
(1) Includes contributions to the Company's 401(k) plan as well as premiums
paid with respect to such executive officer's health, disability and life
insurance policies.
EMPLOYMENT AGREEMENTS
The Company intends to enter into employment agreements with each of Donald
Barbieri, Arthur Coffey, Richard Barbieri, David Bell and Thomas Barbieri
which will provide for annual base salaries of $155,000 in the case of Donald
Barbieri, $130,000 in the case of Mr. Coffey, and $96,000 in the case of
Richard Barbieri, Mr. Bell and Thomas Barbieri, subject, in each case, to
periodic increases. Each executive officer will be eligible to receive annual
bonuses as determined by the Compensation Committee and will be entitled to
participate in all existing or future benefit plans of the Company, on the
same basis as other senior executive officers of the Company.
The employment agreements with these senior executive officers (as used
below, each an "Executive") will be substantially similar and provide as
follows. Each Executive shall serve in the position described above through
December 31, 1999, unless terminated earlier in accordance with the terms of
such agreement. Thereafter, each agreement will automatically be renewed for
additional one-year periods, unless terminated by either party upon 120 days'
notice prior to any renewal. Each agreement may be terminated by the Company
for Cause (as defined in such agreement) or by the Executive (i) for Good
Reason (as defined in such agreement) or (ii) within six months of a Change of
Control of the Company (as defined in such agreement). If the Executive
terminates the agreement for Good Reason (or the Company terminates the
agreement without Cause) or, after the initial term ends, unilaterally
determines to not renew such Executive's agreement, the Executive will receive
a severance payment equal to two times such Executive's total compensation in
the prior year, plus a continuation of all benefits for a two-year period, and
all outstanding options of such Executive shall become fully vested. If the
Executive terminates the agreement following a Change of Control, the
severance payment will be equal to three times such Executive's total
compensation for the prior year. The Executive is required to devote his full
business time and attention to the business and affairs of the Company, except
that he may devote
45
<PAGE>
such reasonable amount of time, as he determines, to (i) serving, with the
approval of the Board, as a director, trustee or member of any board or
committee of any organization, (ii) engaging in charitable and community
activities, (iii) managing his personal investments and affairs, and (iv)
acting as a director and officer of Inland Northwest Corporation, previously a
wholly-owned subsidiary of the Company; provided, however, that such
activities may not involve any material conflict of interest with the
interests of the Company or interfere materially with the performance of his
duties and responsibilities under such agreement.
Each Executive is eligible to receive a bonus under the Company's management
bonus plan or such other plan adopted from time to time. The award and amount
of such bonus shall be based upon the Compensation Committee's determination
of such Executive's actual performance as measured against established goals.
The Company has also agreed to reimburse the Executive for any federal, state
or local excise taxes ("Excise Tax"), and any additional taxes to which he may
be subject, on any payments to the Executive from the Company as a result of
accelerated vesting of his options, up to a maximum reimbursement equal to two
times the amount of such Excise Tax.
1998 STOCK INCENTIVE PLAN
In January 1998, the Board adopted the 1998 Plan to attract and retain
officers, key employees and consultants. Additional options may be granted
subject to Board approval. An aggregate of 1,200,000 shares of Common Stock,
subject to adjustment for stock splits, stock dividends and similar events,
has been authorized for issuance upon exercise of options, stock appreciation
rights ("SARs"), and other awards, including restricted or deferred stock
awards under the 1998 Plan. Following the Offering, the Compensation Committee
will administer the 1998 Plan and determine to whom options, SARs, restricted
stock purchase rights and other awards are to be granted and the terms and
conditions, including the number of shares and the period of exercisability,
thereof. Upon consummation of the Offering, non-employee Directors will be
granted options under the 1998 Plan to purchase 10,000 shares of Common Stock,
subject to one year restriction on sale and vesting equal percentages over
five years.
The 1998 Plan authorizes the grant or issuance of various options and other
awards. Nonqualified stock options ("NQSOs") may be granted for any term
specified by the Compensation Committee and will provide for the right to
purchase Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), may be less than
fair market value on the date of grant (but not less than par value), and may
become exercisable (at the discretion of the Compensation Committee) in one or
more installments after the date of grant. Incentive stock options may be
granted only to employees and if granted will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including having an exercise price equal to at least 100% of fair market
value of Common Stock on the grant date and ten year restriction on their
term, but may be subsequently modified to disqualify them from treatment as an
incentive stock option. The maximum fair market value (determined on the date
of grant) of shares which may be issued pursuant to incentive stock options
granted under the 1998 Plan to any individual in any calendar year may not
exceed $100,000. SARs granted by the Compensation Committee in connection with
stock options or other awards typically will provide for payments to the
holder based upon increases in the price of the Common Stock over the exercise
price of the related option or other awards, but alternatively may be based
upon other criteria such as book value. Participants may receive dividend
equivalents representing the value of the dividends per share paid by the
Company, calculated with reference to the number of shares covered by the
stock options, SARs or other awards held by the participant. Performance
awards may be granted by the Compensation Committee on an individual or group
basis and may include bonus or "phantom" stock awards that provide for
payments based upon increases in the price of the Common Stock over a
predetermined period. Restricted stock may be sold to participants at various
prices (but not below par value) and made subject to such restrictions as may
be determined by the Compensation Committee. Deferred stock awards may be
granted to participants, typically without payment of consideration, but
subject to vesting conditions based on continued employment or on performance
criteria established by the Compensation Committee. Whereas purchasers of
restricted stock will
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<PAGE>
have voting rights and will receive dividends prior to the time when the
restrictions lapse, recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
Payments for the shares purchased upon the exercise of options may be in
cash or, if the terms of an option so provide, with shares of Common Stock
owned by the optionee (or issuable upon exercise of the option) or with other
lawful consideration, including services rendered.
No option, SAR or other right to acquire Common Stock granted under the 1998
Plan may be assigned or transferred by the grantee, except by will or the laws
of succession, although the shares underlying such rights may be transferred
if all applicable restrictions have lapsed. During the lifetime of the holder
of any option or right, such option or right may be exercised only by the
holder.
The Compensation Committee will have the right to accelerate, in whole or in
part, from time to time, including upon a change in control of the Company,
conditionally or unconditionally, the right to exercise any option or other
award granted under the 1998 Plan.
Amendments of the 1998 Plan to increase the number of shares as to which
options, SARs, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and similar events) will require the
approval of the Company's shareholders. In all other respects, the 1998 Plan
may be amended, modified, suspended or terminated by the Compensation
Committee, unless such action would otherwise require shareholder approval as
a matter of applicable law, regulation or rule. Amendments of the 1998 Plan
will not, without the consent of the participant, affect such person's rights
under an award previously granted, unless the award itself otherwise expressly
so provides. The 1998 Plan will terminate ten years after the date the 1998
Plan was adopted by the Board and approved by the Company's shareholders.
EMPLOYEE STOCK PURCHASE PLAN
In January 1998, the Company adopted the Employee Stock Purchase Plan to
assist employees of the Company in acquiring a stock ownership interest in the
Company and to encourage them to remain in the employment of the Company. The
Employee Stock Purchase Plan is intended to qualify under Section 423 of the
Code. A maximum of 300,000 shares of Common Stock will be reserved for
issuance under the Employee Stock Purchase Plan. The Employee Stock Purchase
Plan permits eligible employees to purchase Common Stock at a discount through
payroll deductions during specified six-month offering periods. No employee
may purchase more than $25,000 worth of Common Stock in any calendar year. The
price of shares purchased under the Employee Stock Purchase Plan will be equal
to 85% of the fair market value of the Common Stock on the first or last day
of the offering period, whichever is lower. After the Offering, the Employee
Stock Purchase Plan will be administered by the Compensation Committee.
401(k) PLAN
The Company adopted a tax-qualified employee savings and retirement plan
(the "401(k) Plan") effective as of March 1, 1989 covering all employees who
have been employed by the Company for at least 90 days and who are at least 21
years of age. Pursuant to the 401(k) Plan, participants may elect to reduce
their current compensation by not less than 1.0% nor more than 15.0% of
eligible compensation. The amount of each participant's contributions to the
401(k) Plan is partially matched by the Company based on years of service and
amounts contributed, up to 3% of a participant's earnings. The trustee under
the 401(k) Plan invests the assets of the 401(k) Plan in designated investment
options. The Company intends to amend the 401(k) Plan after the Offering to
permit participants to designate the Company's Common Stock as an investment
option; provided, however, no more than 15% of a participant's total
investments in the 401(k) Plan may be allocated to the Common Stock. The
401(k) Plan is intended to qualify under Section 401 of the Code so that
(i) contributions to the 401(k) Plan, and the income earned on such
contributions, are not taxable to participants until withdrawn from the 401(k)
Plan and (ii) contributions by the Company are deductible by the Company when
made for income tax purposes.
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<PAGE>
RESTRICTED STOCK AND CERTAIN STOCK OPTION GRANTS
The Company has entered into an agreement to issue an aggregate of 55,000
restricted shares of Common Stock under the 1998 Plan to five members of
senior management: Arthur Coffey (15,000 shares), John Taffin (10,000 shares),
Lori Farnell (10,000 shares), David Peterson (10,000 shares) and Shannon Kapek
(10,000 shares). Twenty percent of each recipient's stock grant will be issued
on the date of grant and an additional twenty percent will be issued on each
anniversary of such date of grant, provided such person is an employee of the
Company at that time.
In connection with the Offering, options to purchase up to 900,000 shares of
Common Stock will be granted pursuant to the Plans, at an exercise price equal
to the initial public offering price, including options to be granted to
Donald Barbieri (90,000 shares), Arthur Coffey (55,000 shares), Richard
Barbieri (45,000 shares), Thomas Barbieri (45,000 shares) and David Bell
(45,000 shares). The options will have a term of ten years. Fifty percent of
each recipient's options will vest on the fourth anniversary of the date of
grant and the remaining 50% will vest on the fifth anniversary of the date of
grant. This vesting schedule will change if, beginning one year after the
option grant date, the stock price of the Common Stock reaches the following
target levels (measured as a percentage increase over the exercise price) for
20 consecutive trading days:
<TABLE>
<CAPTION>
PERCENT OF
SHARE PRICE INCREASE: OPTION SHARES VESTED:
--------------------- ---------------------
<S> <C>
25%................. 25%
50%................. 50%
75%................. 75%
100%................. 100%
</TABLE>
Such options shall be exercisable, subject to vesting, for ten years from
the date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Plan. Vesting of such options is also conditioned upon
the holder's employment with the Company on the scheduled vesting date.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to November 1, 1997, all of the assets of the Company were held by the
Company and BIC directly, or indirectly through various partnerships (the
"Partnerships") and corporations wholly-owned (with one exception) by the
Company and/or BIC, as the case may be, and all of the Hotels and other
properties owned by the Company, BIC and the Partnerships were managed by the
Company, as the general partner of the Partnerships, or through various
management agreements with BIC or the Partnerships. Effective November 3,
1997, BIC merged with and into the Company. The Merger was a stock-for-stock
merger, pursuant to which the holders of the common stock of BIC and the
holders of preferred and common stock of the Company received an aggregate of
7,072,025 shares of Common Stock of the Company pursuant to conversion ratios
jointly determined by the boards of directors of the Company and BIC and
unanimously approved by the shareholders of the Company and BIC. By effecting
a merger of the holders of the general and limited partner interests in the
Partnerships, the Merger resulted in the dissolution of, and a transfer to the
Company of all assets and property held by, the Partnerships, with the
exception of Cowley Street Limited Partnership.
Effective November 1, 1997, the Company (i) contributed certain assets not
related to its core hospitality business to Inland Northwest Corporation, a
wholly owned subsidiary of the Company ("INWC"), and (ii) distributed shares
of capital stock of INWC and Huckleberry Bay Company, another wholly-owned
subsidiary of the Company ("HBC"), on a pro rata basis, to the shareholders of
the Company (the "Spin-Off"). The Spin-Off was structured as a tax-free
transaction. If the Spin-Off is ultimately determined not to qualify as a tax-
free transaction (other than as a result of (i) actions taken by the Company
following the Offering that are approved by a majority of the Company's
independent directors or (ii) transfers of a limited number of shares of
Common Stock with the approval of the INWC Board of Directors by persons who
were shareholders of the Company at the time of the Spin-Off), INWC will
indemnify the Company for any tax liability the Company incurs. As a result of
the foregoing transactions, the following assets are no longer part of the
Company's operations: recreational real estate in Priest Lake, Idaho, a long-
term residence inn operation, an interest in a milk processing and
distribution business and a retail sales operation. The Company recorded
management fees and other income of approximately $35,000, $31,000 and $27,000
during the years ended October 31, 1997, 1996 and 1995, respectively, and
$17,000 for the two months ended December 31, 1997 for performing management
and administrative functions for INWC and HBC. In addition, the Company
received commissions from INWC and HBC for real estate sales on behalf of INWC
and HBC of $87,000, $7,000 and $51,000 for the years ended October 31, 1997,
1996 and 1995, respectively, and $1,000 for the two months ended December 31,
1997. In connection with the Spin-Off, the Company entered into an agreement
with INWC, pursuant to which it will provide management, development,
accounting and other administrative services to INWC in exchange for
commissions, leasing fees, management fees, service fees and development fees,
as applicable, based on certain percentages and costs incurred by the Company
in connection with providing such services. The agreement is automatically
renewed annually and is subject to termination at the option of either party
upon 60 days' notice before such renewal date.
The Company acquired a hotel property (Cavanaughs Templins Resort) from
Templin's Resort and Conference Center, Inc. in February 1998. Robert Templin,
the President of Templin's Resort and Conference Center, Inc., has agreed to
become a Director of the Company upon consummation of the Offering. The
purchase price paid by the Company for this Hotel was $9.5 million consisting
of cash, assumed indebtedness and a note to the seller. Mr. Templin and
members of his immediate family own 100% of equity interest in Templin's
Resort and Conference Center, Inc. and are entitled to receive all of the net
proceeds of the purchase price paid for this Hotel. The purchase price was
determined through arm's-length negotiations between the Company and Mr.
Templin.
In connection with the acquisition of certain real property, the Company
incurred a $600,000 obligation payable to the Barbieri Family Foundation, Inc.
("BFF"), a corporation controlled by the estate of Louis Barbieri, who was the
father of Donald, Richard and Thomas Barbieri. BFF is entitled to receive a
guaranteed interest payment of approximately $67,000 annually, which, pursuant
to the terms of the obligation, increases by
49
<PAGE>
3% annually. The Company has the right to repay its obligation in full at any
time after January 1997, and BFF has the right to require redemption in full at
any time after January 1999. Interest expense of $67,000, $66,000 and $64,000
was paid by the Company to BFF during the years ended October 31, 1997, 1996
and 1995, respectively, and $11,000 for the two months ended December 31, 1997.
The Company will repay this obligation upon closing of the Offering.
Effective January 1, 1998, the Company issued an aggregate of 150,817
OP Units to BFF, Donald Barbieri, Richard Barbieri and Thomas Barbieri and
12,228 shares of Common Stock to Kathryn Barbieri in exchange for such persons'
partnership interests in the G&B: Lincoln Building partnership.
The Company has a $933,333 note payable to INWC. The note will be paid in
full upon closing of the Offering.
The Company intends to enter into employment agreements with each of Donald
Barbieri, Arthur Coffey, Richard Barbieri, David Bell and Thomas Barbieri which
will provide for annual base salaries of $155,000, $130,000, $96,000, $96,000
and $96,000, respectively. Each executive officer will be eligible to receive
annual bonuses as determined by the Compensation Committee and will be entitled
to participate in all existing or future benefit plans of the Company, on the
same basis as other senior executive officers of the Company.
At October 31, 1997, the Company had loans totaling approximately $11.5
million with Washington Trust Bank, of which Peter Stanton, a Director nominee,
is the Chief Executive Officer and President.
With respect to future material transactions (or series of related
transactions) between the Company and related parties, the Company has
implemented a policy requiring any such transaction to be approved by a
majority of the non-employee Directors, if any, upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could be obtained from unrelated third parties.
50
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 10, 1998, and as adjusted to reflect the
sale of 5,175,000 shares of Common Stock by the Company in the Offering and
the issuance concurrent with the closing of the Offering of 11,000 restricted
shares of Common Stock, by (i) all persons known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each director, (iii) each
of the named executive officers and (iv) all directors and executive officers
as a group. Unless otherwise indicated, the business address of each
shareholder is 201 W. North River Drive, Suite 100, Spokane, Washington,
99201.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NAME AND ADDRESS NUMBER OF SHARES ------------------------------
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Donald K. Barbieri(2)...................... 3,597,403 50.8% 29.3%
DKB and HHB Unity Trust.................... 958,379 13.5 7.8
Heather H. Barbieri(3)..................... 958,379 13.5 7.8
Barbieri Family Trust...................... 587,070 8.3 4.8
Thomas M. Barbieri......................... 543,871 7.7 4.4
David M. Bell.............................. 543,871 7.7 4.4
Richard L. Barbieri(2)..................... 1,488,537 21.0 12.1
Arthur M. Coffey(4)........................ 3,000 -- *
Mark E. Barbieri........................... 423,275 6.0 3.5
Peter F. Stanton(5)........................ -- -- --
Ronald R. Taylor(5)........................ -- -- --
Robert G. Templin(5)....................... -- -- --
All directors and executive officers as a
group (5 persons)......................... 5,218,303 73.7% 42.5%
</TABLE>
- --------
* Represents less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of shares of Common Stock as of a given date which
such person has the right to acquire within 60 days after such date. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, any security which
such person or persons has the right to acquire within 60 days after such
date is deemed to be outstanding, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Includes 958,379 shares of Common Stock held by the DKB & HHB Unity Trust,
an irrevocable trust, of which Mr. Barbieri is a co-trustee. Mr. Barbieri
disclaims beneficial ownership of such shares.
(3) These shares are held by the DKB & HHB Unity Trust, an irrevocable trust,
of which Ms. Barbieri is a co-trustee. Ms. Barbieri disclaims beneficial
ownership of such shares.
(4) The Company has agreed to issue Mr. Coffey an aggregate of 15,000
restricted shares of Common Stock under the 1998 Plan over four years,
3,000 shares of which Mr. Coffey will receive upon closing of the
Offering.
(5) Messrs. Stanton, Taylor and Templin have agreed to become directors of the
Company upon closing of the Offering.
51
<PAGE>
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
The following summary of the material terms of the Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement") is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. See "Additional Information."
The Operating Partnership is organized as a Delaware limited partnership.
The Company is the sole general partner of the Operating Partnership, and the
Company, its wholly-owned subsidiary, North River Drive Company, and certain
members of the Barbieri Family are currently the sole limited partners of the
Operating Partnership. The Company intends to conduct substantially all of its
business through the Operating Partnership. Generally, pursuant to the
Partnership Agreement, the Company, as the sole general partner of the
Operating Partnership, will have full, exclusive and complete responsibility
and discretion in the management and control of the Operating Partnership,
including the ability to cause the Operating Partnership to enter into certain
major transactions including acquisitions, dispositions and refinancings and
to cause changes in the Operating Partnership's line of business and certain
distribution policies. The limited partners of the Operating Partnership have
no authority to transact business for, or participate in the management
activities or decisions of, the Operating Partnership, except as required by
applicable law.
INDEMNIFICATION
The Partnership Agreement provides for indemnification of the Company and
officers and directors of the Company and the Operating Partnership (each, an
"Indemnitee") from and against all losses, damages and expenses arising from
any claims that relate to the Operating Partnership in which such Indemnitee
may be involved, unless (i) the act or omission of the Indemnitee was material
to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
Indemnitee actually received an improper personal benefit in money, property
or services; or (iii) in the case of any criminal proceeding, the Indemnitee
had reasonable cause to believe that the act or omission was unlawful. This
indemnification is in addition to any other rights to which an Indemnitee may
be entitled.
TRANSFERABILITY OF INTERESTS
Except for a transaction described in the following two paragraphs, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer its general partner interest in
the Operating Partnership, without the consent of the holders of a majority of
the partner interests held by the limited partners (including the limited
partnership interests held by the Company, which will represent approximately
98.8% of the total partner interests upon consummation of the Offering).
Pursuant to the Partnership Agreement, the limited partners have agreed not to
transfer, assign, sell, encumber or otherwise dispose of, without the consent
of the general partner, their interest in the Operating Partnership, other
than (a) transfers to (i) the general partner, (ii) immediate family members
or (iii) charitable foundations or (b) pledges to unaffiliated lending
institutions.
The Company may not engage in any merger, consolidation or other combination
with or into another person, sale of all or substantially all of its assets or
any reclassification, recapitalization or change of the Common Stock (other
than a change in par value and subdivisions or combinations of the Common
Stock) (each a "Transaction") unless the Transaction has been approved by
holders of at least a majority of the OP Units (including OP Units held by the
Company, which will represent approximately 98.8% of all OP Units outstanding
upon consummation of the Offering) and in connection with which all limited
partners will receive for each OP Unit an amount of cash, securities or other
property equal to the product of the number of shares of Common Stock into
which each OP Unit is then exchangeable and the greatest amount of cash,
securities or other property paid to a holder of one share of Common Stock in
consideration of one share of Common Stock pursuant to such Transaction.
The Company may also merge with another entity if immediately after such
merger substantially all of the assets of the surviving entity, other than OP
Units held by the Company, are contributed to the Operating Partnership as a
capital contribution in exchange for OP Units with a fair market value, as
reasonably determined by the Company, equal to the value of the assets so
contributed.
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<PAGE>
ISSUANCE OF ADDITIONAL OP UNITS
As sole general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional OP Units,
including units of limited partnership interests having rights superior to
those attaching to outstanding OP Units; provided, however, that no such
additional OP Units shall be issued to the general partner unless either (a)
the additional OP Units are issued in connection with the grant, award, or
issuance of shares of Common Stock, which shares have rights (except for
voting rights) such that the economic interests attributable to such shares
are substantially similar to the rights of the additional OP Units issued to
the general partner, and (2) the general partner makes a capital contribution
to the Operating Partnership in an amount equal to the proceeds, if any,
raised in connection with the issuance of such shares of Common Stock, or (b)
the additional OP Units are issued pro rata to all partners.
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK
The Company may issue shares of Common Stock from time to time after the
Offering; provided, however, that the Company may not issue any additional
shares of Common Stock (other than shares issued pursuant to the
redemption/exchange provisions of the Partnership Agreement described below),
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase Common Stock (collectively
"New Securities"), other than to all holders of Common Stock, unless (i) the
Company causes the Operating Partnership to issue to the Company OP Units or
rights, options, warrants or convertible or exchangeable securities of the
Operating Partnership having designations, preferences and other rights, all
such that the economic interests are substantially the same as those of the
grant, award or issuance of such New Securities, and (ii) the Company
contributes the net proceeds from the grant, award or issuance of such New
Securities and from the exercise of rights contained in such New Securities to
the Operating Partnership.
CAPITAL CONTRIBUTIONS
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital
contributions, the Company may borrow such funds from a financial institution
or other lender or through public or private debt offerings and lend such
funds to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. As an alternative to
borrowing funds required by the Operating Partnership, the Company may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate
basis. Conversely, the partnership interests of the limited partners will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company.
AWARDS UNDER 1998 STOCK INCENTIVE PLAN
If options granted in connection with the 1998 Plan are exercised at any
time or from time to time, or restricted shares of Common Stock are issued
under the 1998 Plan, the Partnership Agreement requires the Company to
contribute to the Operating Partnership as an additional contribution the
consideration received by the Company in connection with the issuance of such
options or shares of Common Stock or the proceeds received by the Company upon
issuance of the shares relating to such options. Upon such contribution the
Company will be issued a number of OP Units in the Operating Partnership equal
to the number of shares of Common Stock so issued.
REDEMPTION/EXCHANGE RIGHTS
Limited partners have the right (the "Redemption Right") to require the
Operating Partnership to redeem part or all of their OP Units for cash, based
upon the fair market value (as defined) of the number of shares of Common
Stock for which each OP Unit is then exchangeable at the time of such
redemption. The Company may elect to exchange such OP Units for shares of
Common Stock (on a one-for-one basis, subject to adjustment in the event of
stock splits, stock dividends, issuance of certain rights, certain
extraordinary distributions and
53
<PAGE>
similar events). With each such redemption or exchange, the Company's
percentage ownership interest in the Operating Partnership will increase. This
redemption/exchange right may be exercised by limited partners from time to
time, in whole or in part, subject to the limitation that such right may not
be exercised prior to the expiration of one year following the date on which
such limited partner acquired his OP Units.
TAX MATTERS
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and will have authority to make tax
elections under the Code on behalf of the Operating Partnership. The net
income or net loss of the Operating Partnership will generally be allocated to
the Company and the limited partners in accordance with their respective
percentage interests in the Operating Partnership, subject to compliance with
the provisions of Sections 704(b) and 704(c) of the Code and the Treasury
Regulations promulgated thereunder.
OPERATIONS
The Partnership Agreement provides that the net income of the Operating
Partnership, as well as net sales and refinancing proceeds, will be
distributed from time to time as determined by the Company pro rata in
accordance with the partners' respective percentage interests. Pursuant to the
Partnership Agreement, the Operating Partnership will assume and pay when due,
or reimburse the Company for payment of, all expenses it incurs relating to
the ownership and operation of, or for the benefit of, the Operating
Partnership and all costs and expenses relating to the operations of the
Company.
OUTSIDE ACTIVITIES OF THE GENERAL PARTNER; LIMITATIONS ON INDEBTEDNESS;
BORROWINGS
The Company, as general partner, may not enter into or conduct any business
other than in connection with the ownership, acquisition and disposition of OP
Units, the management of the business of the Operating Partnership and such
activities as are incidental or related thereto. The Company may not incur any
debts other than (i) debt of the Operating Partnership for which it may be
liable in its capacity as general partner of the Operating Partnership, and
(ii) indebtedness for borrowed money the proceeds of which are loaned to the
Operating Partnership on the same terms and conditions as the borrowing by the
general partner. Notwithstanding the above, the Company is permitted to
conduct other businesses and incur other indebtedness (i) with respect to
assets management believes cannot or should not be transferred to or operated
by the Operating Partnership, in which case all benefits and burdens will
inure to the Operating Partnership and (ii) utilizing pro rata distributions
it receives from the Operating Partnership that are not otherwise distributed
to its shareholders, in which case all benefits and burdens will inure only to
the Company.
CONTRACTS WITH AFFILIATES
The Operating Partnership may lend or contribute funds or other assets to
its subsidiaries or other entities in which it has an equity investment, and
such persons may borrow funds from the Operating Partnership, on terms and
conditions established in the discretion of the general partner. The Operating
Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with the
Partnership Agreement and applicable law as the general partner, in its
discretion, believes are advisable. Except as expressly permitted by the
Partnership Agreement, neither the general partner nor any of its affiliates
may sell, transfer or convey any property to, or purchase any property from,
the Operating Partnership, except pursuant to transactions that are determined
by the general partner in good faith to be fair and reasonable and no less
favorable to the Operating Partnership than would be obtained from an
unaffiliated third party.
TERM
The term of the Operating Partnership commenced on October 21, 1997, the
date the certificate of limited partnership was filed in the office of the
Secretary of State of Delaware and will continue until October 31, 2097,
unless the Operating Partnership is dissolved (sooner) pursuant to the
provisions of the Partnership Agreement or as otherwise provided by law.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of the Articles and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
Under the Articles, the authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock").
Following the consummation of the Offering, 12,270,253 shares of Common Stock
will be issued and outstanding and no shares of Preferred Stock will be issued
and outstanding.
COMMON STOCK
Except as otherwise provided by law, each holder of Common Stock is entitled
to one vote for each share owned of record on all matters voted upon by
holders of Common Stock, and a majority vote is required for all action to be
taken by such shareholders. Each share of Common Stock has an equal and
ratable right to receive dividends when, as and if declared by the Board out
of funds legally available therefor and subject to the dividend obligations of
the Company to the holders of any Preferred Stock then outstanding. See
"Dividend Policy." In the event of a liquidation, dissolution or winding-up of
the Company, the holders of Common Stock will be entitled to share equally and
ratably in the assets of the Company, if any, remaining after the payment of
all debts and liabilities of the Company and the liquidation preference of any
holders of outstanding Preferred Stock. The Common Stock has neither
preemptive or cumulative voting rights nor redemption, sinking fund or
conversion provisions.
PREFERRED STOCK
The Board is authorized to issue, without shareholder approval, up to
5,000,000 shares of Preferred Stock in one or more series and to determine at
the time of creating such series the designations, and the powers, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereon including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. The
Board may issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in control of the
Company. As of the date of this Prospectus, the Board has not authorized any
series of Preferred Stock and there are no agreements for the issuance of any
shares of Preferred Stock.
CERTAIN PROVISIONS OF ARTICLES AND BY-LAWS AFFECTING SHAREHOLDERS
The By-Laws provide for shareholder action by written consent and the
Articles reserve to the directors the exclusive right to change the number of
directors or to fill vacancies on the Board. The Articles also provide for the
Board to be divided into three classes of directors serving staggered three
year terms. As a result, approximately one-third of the Board will be elected
each year. The purpose and intended effect of the above described provisions
in the Articles and By-Laws are to enhance the continuity and stability of the
Company's management by making it more difficult for shareholders to remove or
change the incumbent members of the Board. Such provisions, coupled with the
ownership by existing shareholders of approximately 60% of the Common Stock
following the Offering, could also render the Company more difficult to be
acquired pursuant to an unfriendly acquisition by an outsider by making it
more difficult for such person to obtain control of the Company and replace
current management without the approval of the Board.
The Company has included in the Articles and By-Laws provisions to (i)
eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
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Washington Business Corporations Act, as amended from time to time (the
"Washington Act"), and (ii) indemnify its directors and officers to the
fullest extent permitted by the Washington Act, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers. The Company's employment agreements with certain
executive officers and directors contain additional indemnification
provisions.
WASHINGTON ANTI-TAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a takeover or change in control of the
Company. Chapter 23B.19 of the Washington Act prohibits the Company, with
certain exceptions, from engaging in certain significant business transactions
with an "acquiring person" (defined as a person who acquires 10% or more of
the Company's voting securities without the prior approval of the Board) for a
period of five years after such acquisition. The prohibited transactions
include, among others, a merger with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person, or otherwise allowing
the acquiring person to receive any disproportionate benefit as a shareholder.
The Company may not exempt itself from coverage of this statute.
TRANSFER AGENT AND REGISTRAR
The Company has appointed American Stock Transfer & Trust Company as the
Company's transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering (assuming no exercise of the Underwriters'
over-allotment option), the Company will have 12,270,253 shares of Common
Stock outstanding on the date of the Offering. Of these shares, all of the
shares of Common Stock sold in this Offering will be freely tradeable by
persons other than "affiliates" of the Company without restriction or
limitation under the Securities Act. The remaining 7,084,253 shares are
"restricted securities" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares") and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption contained in Rule 144. The Company and its
executive officers and directors have agreed that, subject to certain limited
exceptions, for a period of one year from the date of this Prospectus they
will not, without the prior written consent of CIBC Oppenheimer Corp., offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or
any securities convertible into, or exercisable for, Common Stock. Donald
Barbieri, who will own 21.5% of the outstanding Common Stock after the
Offering, has agreed, subject to the same exceptions contained in the
foregoing lock-up agreements, not to sell, offer to sell, contract to sell,
pledge or otherwise dispose of or transfer, directly or indirectly, any shares
of Common Stock or other capital stock, or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire, shares
of Common Stock or other capital stock, for a period of three years commencing
on the date of this Prospectus, without the prior written consent of CIBC
Oppenheimer Corp.; provided, however, that one-third of Mr. Barbieri's shares
of Common Stock will be released from this lock-up agreement on each
anniversary of the date of this Prospectus without the consent of CIBC
Oppenheimer Corp. See "Underwriting."
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then-outstanding shares of the Company or the average
weekly trading volume of the Common Stock on all exchanges and/or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If two years
have elapsed since the date of acquisition of Restricted Shares from the
Company or from any "affiliate" of the Company, and the acquiror or subsequent
holder thereof is deemed
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<PAGE>
not to have been an affiliate of the Company at any time during the 90 days
preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144 without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
Prior to the Offering, there has been no public market for the Common Stock
and the effect, if any, that future sales of Restricted Shares, the
availability of such Restricted Shares for sale, the issuance of shares of
Common Stock upon the exercise of options or otherwise or the perception that
such sales could occur will have on the market price prevailing from time to
time cannot be predicted. Nevertheless, sales of substantial amounts of
Restricted Shares in the public market could have an adverse effect on the
market price for the Common Stock.
A total of 1,500,000 shares of Common Stock have been reserved for issuance
under the Plans. The Company intends to grant options to purchase an aggregate
of up to 900,000 shares of Common Stock at an exercise price equal to the
initial public offering price in connection with the closing of this Offering.
The Company intends to file a Registration Statement on Form S-8 under the
Securities Act registering the 1,500,000 shares of Common Stock reserved for
issuance under the Plans promptly after completion of the Offering. As a
result, shares of Common Stock issued upon exercise of stock options granted
under the Plans will be freely tradeable by persons other than "affiliates" of
the Company without restriction or limitation under the Securities Act.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Company and the underwriters named below (the "Underwriters"), for
whom CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC are
acting as representatives (the "Representatives"), each of the Underwriters
has severally agreed to purchase from the Company, and the Company has agreed
to sell to the Underwriters, the number of shares of Common Stock set forth
below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
CIBC Oppenheimer Corp. .........................................
NationsBanc Montgomery Securities LLC...........................
---------
Total....................................................... 5,175,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to approval of certain legal matters by counsel and
to various other conditions. The Underwriters are committed to purchase and
pay for all of the above shares of Common Stock if any are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share of Common Stock. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share of Common Stock on sales to certain other brokers or
dealers. After the Offering, the public offering price, concession and re-
allowance to dealers may be changed by the Underwriters.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price for the shares
of Common Stock included in the Offering was determined through negotiations
between the Company and the Representatives. The factors considered in
determining the initial public offering price included the history of, and the
prospects for, the Company's business and the industry in which it competes,
an assessment of the Company's management, the past and present operations of
the Company, the historical results of operations of the Company, the
prospects for future earnings of the Company, the general condition of the
securities markets at the time of the Offering and the recent market prices of
securities of publicly traded companies which are comparable to the Company.
The Company, its executive officers and directors and certain shareholders
of the Company have agreed not to sell, offer to sell, contract to sell,
pledge or otherwise dispose of or transfer, directly or indirectly, any shares
of Common Stock or other capital stock, or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire, shares
or Common Stock or other capital stock for a period of one year commencing on
the date of this Prospectus, without the prior written consent of CIBC
Oppenheimer Corp., other than the sale of the shares of Common Stock in the
Offering and the issuance or transfer of: (i) options to purchase shares of
Common Stock (and shares of Common Stock issuable upon the exercise of such
options) issued pursuant to the Plans; (ii) shares of Common Stock in
connection with estate planning; (iii) 55,000 restricted shares of Common
Stock to be awarded to certain employees of the Company; and (iv) securities
of the Company or the Operating Partnership issued in connection with the
acquisition by the Company of real property or interests in entities holding
real property, provided that the recipient or transferee of such securities
agrees in writing to be subject to the lock-up contained in this paragraph
(without giving effect to clauses (i), (ii) and (iii)) for a period ending on
the date that is one year after the date hereof. Donald Barbieri, who will own
21.5% of the Common Stock outstanding after the Offering, has agreed, subject
to the same exceptions
58
<PAGE>
contained in the foregoing lock-up agreements, not to sell, offer to sell,
contract to sell, pledge or otherwise dispose of or transfer, directly or
indirectly, any shares of Common Stock or other capital stock, or any
securities convertible into or exchangeable or exercisable for, or any rights
to purchase or acquire, shares of Common Stock or other capital stock, for a
period of three years commencing on the date of this Prospectus, without the
prior written consent of CIBC Oppenheimer Corp.; provided, however, one-third
of Mr. Barbieri's shares of Common Stock will be released from this lock-up
agreement on each anniversary of the date of this Prospectus without the
consent of CIBC Oppenheimer Corp.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to an aggregate of 776,250 additional shares of
Common Stock, exercisable at the public offering price less the underwriting
discount set forth on the cover page of this Prospectus. If the Underwriters
exercise such over-allotment option, then each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage thereof as the number of shares of Common Stock to be
purchased by it as shown on the above table bears to the total number of
shares of Common Stock offered hereby. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
Common Stock offered hereby.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
to bid for and purchase shares of Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize or otherwise affect the price of the Common Stock. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters also may elect to reduce any short position by exercising all or
part of the over-allotment option described herein. In addition, CIBC
Oppenheimer Corp., on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim
from an Underwriter (or selling group member participating in the Offering)
for the account of the other Underwriters, the selling concession with respect
to Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Representatives have informed the Company that the Underwriters do not
intend to confirm, without customer authorization, sales to their customer
accounts as to which they have discretionary trading power.
The shares of Common Stock have been approved for listing on the NYSE,
subject to official notice of issuance. In order to meet one of the
requirements for listing the shares of Common Stock on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders in the United States.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including, without limitation, liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to
make in respect thereof.
59
<PAGE>
EXPERTS
The combined balance sheets as of October 31, 1996 and 1997 and December 31,
1997 and the combined statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1997, and for the two months ended December 31, 1997, included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Kaye, Scholer,
Fierman, Hays & Handler, LLP, Los Angeles, California and for the Underwriters
by Rogers & Wells LLP, New York, New York. The validity of the Common Stock
offered hereby and certain other legal matters will be passed upon for the
Company by Dennis McLaughlin & Associates P.S., Spokane, Washington.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450 Fifth
Street N.W., Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act and the rules and regulations promulgated thereunder,
with respect to the Common Stock offered pursuant to this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and such exhibits,
copies of which may be examined without charge at, or obtained upon payment of
prescribed fees from the Public Reference Section of the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Securities and Exchange Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 or by way of the
Securities and Exchange Commission's website address, http://www.sec.gov. In
addition, the Common Stock will be listed on the NYSE and similar information
concerning the Company can be inspected and copied at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
Statements contained in this Prospectus as to the contents of any contract
or other document which is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended. The Company has changed its fiscal year end from October 31
to December 31, which change shall take effect with the fiscal year beginning
on January 1, 1998. In addition to applicable legal or NYSE requirements, if
any, holders of the Common Stock will receive annual reports containing
audited financial statements with a report thereon by the Company's
independent certified public accountants, and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year. Following consummation of the Offering, holders of the Common
Stock will receive such reports on a calendar year basis.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HISTORICAL COMBINED FINANCIAL STATEMENTS OF CAVANAUGHS HOSPITALITY CORPORATION,
BARBIERI INVESTMENT COMPANY AND LINCOLN BUILDING LIMITED PARTNERSHIP:
- -------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants....................................... F-2
Combined Balance Sheets at October 31, 1996 and 1997 and December 31,
1997................................................................... F-3
Combined Statements of Operations for the years ended October 31, 1995,
1996 and 1997 and the two months ended December 31, 1996 and 1997...... F-4
Combined Statements of Changes in Stockholders' and Partners' Equity for
the years ended October 31, 1995, 1996 and 1997 and the two months
ended December 31, 1997................................................ F-5
Combined Statements of Cash Flows for the years ended October 31, 1995,
1996 and 1997 and the two months ended December 31, 1996 and 1997...... F-6
Notes to Combined Financial Statements.................................. F-7
<CAPTION>
PRO FORMA COMBINED FINANCIAL STATEMENTS:
- --------------------------------------------------------------------------
Condensed Pro Forma Combined Financial Information...................... F-22
Condensed Pro Forma Combined Balance Sheet at October 31, 1997.......... F-23
Condensed Pro Forma Combined Statement of Income for the year ended Oc-
tober 31, 1997......................................................... F-24
Notes to Condensed Pro Forma Combined Balance Sheet and Statement of In-
come................................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Boards of Directors, Stockholders and Partners
Cavanaughs Hospitality Corporation
Barbieri Investment Company
Lincoln Building Limited Partnership
We have audited the accompanying combined balance sheets of Cavanaughs
Hospitality Corporation, Barbieri Investment Company and Lincoln Building
Limited Partnership, excluding certain of their subsidiaries or divisions as
described in Note 1 to the combined financial statements (collectively
referred to as "Cavanaughs Hospitality Corporation" or the "Company"), as of
October 31, 1996 and 1997 and December 31, 1997, and the related combined
statements of operations, changes in stockholders' and partners' equity and
cash flows for each of the three years in the period ended October 31, 1997
and the two months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
October 31, 1996 and 1997 and December 31, 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended October 31, 1997 and the two months ended December 31, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Spokane, Washington
February 16, 1998
F-2
<PAGE>
CAVANAUGHS HOSPITALITY CORPORATION
BARBIERI INVESTMENT COMPANY
LINCOLN BUILDING LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
October 31, 1996 and 1997 and December 31, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
OCTOBER 31,
------------------ DECEMBER 31,
1996 1997 1997
-------- -------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 7,200 $ 6,440 $ 4,955
Accounts receivable......................... 1,720 2,806 2,785
Inventories................................. 374 376 427
Prepaid expenses and deposits............... 395 1,128 1,100
-------- -------- --------
Total current assets...................... 9,689 10,750 9,267
Property and equipment, net................... 108,234 109,954 112,234
Other assets, net............................. 2,164 3,400 3,616
-------- -------- --------
Total assets.............................. $120,087 $124,104 $125,117
======== ======== ========
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY
Current liabilities:
Payable to affiliate........................ $ -- $ 1,333 $ 1,133
Note payable to bank........................ -- -- 1,075
Accounts payable............................ 1,780 2,263 3,234
Accrued payroll and related benefits........ 830 843 983
Accrued interest payable.................... 711 741 689
Other accrued expenses...................... 2,764 3,618 2,882
Long-term debt, due within one year......... 10,086 4,285 3,590
Capital lease obligations, due within one
year....................................... 423 499 502
-------- -------- --------
Total current liabilities................. 16,594 13,582 14,088
Long-term debt, due after one year............ 86,450 93,771 94,419
Capital lease obligations, due after one
year......................................... 2,349 2,255 2,139
Deferred income taxes......................... 4,469 5,417 5,415
Minority interest in partnerships............. 612 553 524
-------- -------- --------
Total liabilities......................... 110,474 115,578 116,585
-------- -------- --------
Commitments and contingencies (Notes 4, 10, 11
and 14)
Stockholders' and partners' equity:
Cavanaughs Hospitality Corporation:
Preferred stock--1,424, 1,424 and 5,000,000
shares authorized, $450, $450 and $0.01
par value; 1,100, 1,100 and -0- shares
issued and outstanding, liquidation value
$495,000 at October 31, 1996 and 1997..... 495 495 --
Common stock--2,848, 2,848 and 50,000,000
shares authorized, $10, $10 and $0.01 par
value; 1,858, 1,766 and 7,072,025 shares
issued and outstanding.................... 19 18 71
Discount on stock.......................... (318) (318) --
Barbieri Investment Company:
Common stock--1,000, 1,000 and -0- shares
authorized, no par value; 929, 929 and -0-
shares issued and outstanding 686 686 --
Partners' deficit........................... (796) (897) (879)
Additional paid-in capital.................. 3,787 3,125 3,935
Retained earnings........................... 5,740 5,417 5,405
-------- -------- --------
Total stockholders' and partners' equity.. 9,613 8,526 8,532
-------- -------- --------
Total liabilities and stockholders' and
partners' equity......................... $120,087 $124,104 $125,117
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
CAVANAUGHS HOSPITALITY CORPORATION
BARBIERI INVESTMENT COMPANY
LINCOLN BUILDING LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
for the years ended October 31, 1995, 1996 and 1997
and the two months ended December 31, 1996 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEARS ENDED OCTOBER 31, DECEMBER 31,
------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms........................ $17,587 $20,972 $25,147 $2,998 $3,626
Food and beverage............ 12,397 12,141 13,926 2,271 2,756
Other........................ 1,260 2,092 2,589 414 447
------- ------- ------- ------ ------
Total hotels and restau-
rants..................... 31,244 35,205 41,662 5,683 6,829
Entertainment, management and
services..................... 3,092 3,168 3,842 483 840
Rental operations............. 6,027 6,790 6,539 1,191 1,169
------- ------- ------- ------ ------
Total revenues............. 40,363 45,163 52,043 7,357 8,838
------- ------- ------- ------ ------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms....................... 4,931 5,719 6,820 958 1,167
Food and beverage........... 10,034 10,181 11,483 1,822 2,208
Other....................... 716 1,008 1,066 149 170
------- ------- ------- ------ ------
Total hotels and restau-
rants..................... 15,681 16,908 19,369 2,929 3,545
Entertainment, management and
services.................... 1,802 2,204 2,052 397 602
Rental operations............ 1,026 1,464 1,506 243 303
------- ------- ------- ------ ------
Total direct expenses...... 18,509 20,576 22,927 3,569 4,450
------- ------- ------- ------ ------
Undistributed operating ex-
penses:
Selling, general and adminis-
trative..................... 5,426 6,461 8,188 1,161 1,225
Property operating costs..... 5,022 4,997 5,518 944 1,022
Depreciation and amortiza-
tion........................ 3,428 4,215 4,775 759 798
------- ------- ------- ------ ------
Total undistributed operat-
ing expenses.............. 13,876 15,673 18,481 2,864 3,045
------- ------- ------- ------ ------
Total expenses............. 32,385 36,249 41,408 6,433 7,495
------- ------- ------- ------ ------
Operating income............... 7,978 8,914 10,635 924 1,343
Other income (expense):
Interest expense, net of
amounts capitalized.......... (6,866) (7,319) (8,817) (1,317) (1,422)
Interest income............... 439 296 416 92 54
Other income (expense)........ -- 150 348 13 (4)
Minority interest in partner-
ships........................ 32 (136) 59 14 29
------- ------- ------- ------ ------
Income (loss) before income
taxes......................... 1,583 1,905 2,641 (274) --
Income tax provision (bene-
fit).......................... 542 730 932 (104) (6)
------- ------- ------- ------ ------
Net income (loss).............. $ 1,041 $ 1,175 $ 1,709 $ (170) $ 6
======= ======= ======= ====== ======
Pro forma net income per
share--basic and diluted...... $ 0.24
=======
Number of shares used in the
pro forma computation......... 7,072
=======
Net income per share--basic and
diluted....................... $ --
======
Weighted-average shares out-
standing...................... 7,072
======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
CAVANAUGHS HOSPITALITY CORPORATION
BARBIERI INVESTMENT COMPANY
LINCOLN BUILDING LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' AND PARTNERS' EQUITY
for the years ended October 31, 1995, 1996 and 1997
and the two months ended December 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
BARBIERI
INVESTMENT
CAVANAUGHS HOSPITALITY CORPORATION COMPANY
----------------------------------------- -------------
PREFERRED
STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------- ----------------- DISCOUNT ------------- PARTNERS' PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT ON STOCK SHARES AMOUNT DEFICIT CAPITAL EARNINGS
------ ------ --------- ------ -------- ------ ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 31,
1994................... 1,100 $495 1,877 $19 $(318) 929 $686 $(428) $3,190 $1,411
Net income (loss)...... (166) 1,207
Contributions from
stockholders.......... 600 2,496
Dividends on Cavanaughs
Hospitality
Corporation common
stock ($85.00 per
share)................ (158)
Dividends on preferred
stock ($31.50 per
share)................ (35)
Dividends on Barbieri
Investment Company
common stock ($85.00
per share)............ (79)
Redemption of stock.... (19) (129)
------ ---- --------- --- ----- ---- ---- ----- ------ ------
BALANCES, OCTOBER 31,
1995................... 1,100 495 1,858 19 (318) 929 686 (594) 3,661 4,842
Net income (loss)...... (243) 1,418
Contributions from
(distributions to)
stockholders and part-
ners.................. 41 126 (248)
Dividends on Cavanaughs
Hospitality Corpora-
tion common stock
($85.00 per share).... (158)
Dividends on preferred
stock ($31.50 per
share)................ (35)
Dividends on Barbieri
Investment Company
common stock ($85.00
per share)............ (79)
------ ---- --------- --- ----- ---- ---- ----- ------ ------
BALANCES, OCTOBER 31,
1996................... 1,100 495 1,858 19 (318) 929 686 (796) 3,787 5,740
Net income (loss)...... (101) 1,810
Distributions to stock-
holders and partners.. (1,815)
Dividends on Cavanaughs
Hospitality Corporation
common stock ($102.00
per share)............ (188)
Dividends on preferred
stock ($31.50 per
share)................ (35)
Dividends on Barbieri
Investment Company
common stock ($102.00
per share)............ (95)
Redemption of stock.... (92) (1) (662)
------ ---- --------- --- ----- ---- ---- ----- ------ ------
BALANCES, OCTOBER 31,
1997................... 1,100 495 1,766 18 (318) 929 686 (897) 3,125 5,417
Net income (loss)...... 18 (12)
Effect of merger....... (1,100) (495) 7,070,259 53 318 (929) (686) 810
------ ---- --------- --- ----- ---- ---- ----- ------ ------
BALANCES, DECEMBER 31,
1997................... 0 $ 0 7,072,025 $71 $ 0 0 $ 0 $(879) $3,935 $5,405
====== ==== ========= === ===== ==== ==== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE>
CAVANAUGHS HOSPITALITY CORPORATION
BARBIERI INVESTMENT COMPANY
LINCOLN BUILDING LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
for the years ended October 31, 1995, 1996 and 1997
and the two months ended December 31, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEARS ENDED OCTOBER 31, DECEMBER 31,
--------------------------- ------------------
1995 1996 1997 1996 1997
-------- -------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............ $ 1,041 $ 1,175 $ 1,709 $ (170) $ 6
Adjustments to reconcile net
income (loss) to net cash
provided by operating activ-
ities:
Depreciation and amortiza-
tion........................ 3,428 4,215 4,775 759 798
Gain on disposition of prop-
erty and equipment.......... -- -- (322) -- --
Deferred income tax provi-
sion (benefit).............. (151) 89 948 -- (2)
Minority interest in part-
nerships.................... (32) 136 (59) (14) (29)
Change in:
Accounts receivable......... 2 (356) (1,086) (675) 21
Inventories................. 25 (50) (2) 15 (51)
Prepaid expenses and depos-
its........................ 305 (64) (733) 195 28
Accounts payable............ (153) (1,576) 483 (24) 971
Accrued payroll and related
benefits................... 38 189 13 (248) 140
Accrued interest payable.... 99 21 30 (27) (52)
Other accrued expenses...... (1,016) 1,421 854 476 (736)
-------- -------- ------- ------ ------
Net cash provided by oper-
ating activities.......... 3,586 5,200 6,610 287 1,094
-------- -------- ------- ------ ------
Investing activities:
Additions to property and
equipment................... (24,124) (13,457) (6,192) (1,589) (2,400)
Proceeds from disposition of
property and equipment...... 128 185 1,159 -- --
Payment for purchase option
agreement................... -- -- (500) -- --
Other, net................... (432) 88 (735) 66 (894)
-------- -------- ------- ------ ------
Net cash used in investing
activities................ (24,428) (13,184) (6,268) (1,523) (3,294)
-------- -------- ------- ------ ------
Financing activities:
Capital contributions from
stockholders and partners... 3,096 -- -- -- --
Distributions to stockholders
and partners................ -- (122) (1,815) (353) --
Dividends to stockholders.... (272) (272) (318) -- --
Proceeds from note payable to
bank........................ -- -- -- -- 1,075
Proceeds from long-term
debt........................ 21,853 34,735 10,559 7,595 2,982
Repayment of long-term debt.. (4,389) (24,844) (9,539) (7,435) (3,029)
Purchase and retirement of
common stock................ (129) -- (663) -- --
Principal payments on capital
lease obligations........... (981) (239) (659) (68) (113)
Advances from (payments to)
affiliate................... -- -- 1,333 -- (200)
-------- -------- ------- ------ ------
Net cash provided by (used
in) financing activities.. 19,178 9,258 (1,102) (261) 715
-------- -------- ------- ------ ------
Change in cash and cash equiv-
alents:
Net increase (decrease) in
cash and cash equivalents... (1,664) 1,274 (760) (1,497) (1,485)
Cash and cash equivalents at
beginning of period......... 7,590 5,926 7,200 7,200 6,440
-------- -------- ------- ------ ------
Cash and cash equivalents at
end of period............... $ 5,926 $ 7,200 $ 6,440 $5,703 $4,955
======== ======== ======= ====== ======
Supplemental disclosure of
cash flow information:
Cash paid during period for:
Interest (net of amount cap-
italized)................... $ 6,176 $ 7,298 $ 8,787 $1,344 $1,474
Income taxes................. 300 130 1,646 -- --
Noncash investing and financ-
ing activities:.............
Acquisition of capital
leases...................... $ 1,112 $ 1,714 $ 641 $ 122 $ --
Issuance of note payable for
purchase option............. -- -- 500 -- --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE>
CAVANAUGHS HOSPITALITY CORPORATION
BARBIERI INVESTMENT COMPANY
LINCOLN BUILDING LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for the two months ended December 31, 1996 is unaudited)
1. ORGANIZATION:
At October 31, 1997 and December 31, 1997, the Company controlled and
operated (through ownership or lease with purchase option agreements) eight
hotel properties in Seattle, Spokane, Yakima and Kennewick, Washington and
Kalispell, Montana under its Cavanaughs(TM) brand. Additionally, the Company
provides computerized ticketing for entertainment events and arranges Broadway
and other entertainment event productions. The Company also leases retail and
office space in buildings owned by the Company and manages residential and
commercial properties in Washington, Idaho and Montana. The Company's
operations are classified into three divisions: (1) hotels and restaurants,
(2) entertainment, management and services, and (3) rental operations.
The combined financial statements include the accounts (except as described
below) of the following entities which are under common control through
Barbieri family ownership.
. Cavanaughs Hospitality Corporation (CHC-Washington), a Washington
corporation (formerly known as Goodale and Barbieri Companies until
October 1997)
. Barbieri Investment Company (BIC)
. Lincoln Building Limited Partnership (Lincoln Building)
CHC-Washington and/or BIC have the following wholly owned subsidiary or
partnership investments which are included in the combined financial
statements.
. Cowley Street Limited Partnership (Cowley)
. Inn on Fifth Avenue Associates, L. P. (Inn on Fifth)
. West 201 North River Drive Limited Partnership (North River Drive
Partnership)
. Kalispell Center Limited Partnership (KCLP)
. North River Drive Company
CHC-Washington is the sole general partner of all of the above partnerships.
CHC-Washington and/or BIC hold all of the limited partnership units in all of
the partnerships except for Cowley (which has a 50% limited partner). The
Lincoln Building Limited Partnership is a partnership which was formed to
operate a commercial office building. The partnership is comprised of the
Barbieri Family Foundation (BFF) and four members of the Barbieri family. All
partners are general partners of the partnership.
Unless otherwise defined, "the Company" refers to all of the above companies
and partnerships collectively. All significant intercompany accounts and
transactions have been eliminated in the combined financial statements.
In October 1997, Cavanaughs Hospitality Limited Partnership (CHLP), a
Delaware partnership, was formed. CHLP was inactive at October 31, 1997.
F-7
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
1. ORGANIZATION, CONTINUED:
In November 1997, the Company distributed certain of its operations
(consisting of subsidiaries, partnership investments or divisions of the
Company) to the existing stockholders as they were dissimilar to the
predominant business of the Company. These operations consisted primarily of
real estate development, a wholesale dairy processor and a long-term residence
inn operation. These operations have historically been managed and financed
autonomously, will be operated autonomously in the future and do not have
material financial commitments, guarantees or contingent liabilities
associated with the Company. Accordingly, these operations have been excluded
from the combined financial statements for all periods presented. The effects
of excluding the subsidiaries, investments or divisions are recorded as a
contribution from or distribution to stockholders and partners.
In November 1997, BIC was merged into CHC-Washington, and the Company
contributed all of its assets to CHLP in exchange for the general partnership
interest (which holds a 1% interest in CHLP) and limited partnership
interests. Operating units (OP Units) of CHLP will be issued to certain of the
partners for their interest in the Lincoln Building. OP Units may also be used
for future acquisitions (see Note 14). OP Units will be convertible to common
stock of CHC-Washington on a one-for-one basis.
Effective December 31, 1997, the Company changed its fiscal year end from
October 31 to December 31; therefore, the combined financial statements
presented herein are audited as of and for the two months ended December 31,
1997 with comparative unaudited combined financial statements for the two
months ended December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
remaining maturities at time of purchase of three months or less. The Company
places its cash with high credit quality institutions. At times, cash balances
may be in excess of federal insurance limits.
The Company maintains several trust accounts for owners of real properties
which it manages. These cash accounts are not owned by the Company and
therefore, are not included in the combined financial statements. At December
31, 1997, these accounts totaled approximately $2.1 million.
INVENTORIES
Inventories consist primarily of food and beverage products held for sale at
the restaurants operated by the Company. Inventories are valued at the lower
of cost, determined on a first-in, first-out basis, or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over the lesser of the estimated useful lives of the
related assets or the lease term as follows:
<TABLE>
<S> <C>
Buildings........................................................ 25-40 years
Equipment........................................................ 5-20 years
Furniture and fixtures........................................... 15 years
Landscaping and land improvements................................ 15 years
</TABLE>
F-8
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Major additions and betterments are capitalized. Costs of maintenance and
repairs which do not improve or extend the lives of the respective assets are
expensed currently. When items are disposed of, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is
recognized in operations. Management of the Company periodically reviews the
net carrying value of all properties to determine whether there has been a
permanent impairment of value and assesses the need for any write-downs in
carrying value.
INTEREST CAPITALIZATION
The Company capitalizes interest costs during the construction period for
qualifying assets. During the years ended October 31, 1995, 1996 and 1997 and
the two months ended December 31, 1996 and 1997, the Company capitalized
approximately $459,000, $1,412,000, $6,000, $12,000 and $17,000 of interest
costs, respectively.
OTHER ASSETS
Other assets primarily include deferred loan fees, deferred stock offering
costs, purchase option payments and prepaid rental income. Deferred loan fees
are amortized using the interest method over the term of the related loan
agreement. Costs incurred in connection with the Company's planned common
stock offering (the Offering-- see Note 15) are deferred and will be offset
against the proceeds of the offering, if successful. If the offering is
unsuccessful, the costs will be charged to operations. At October 31, 1997 and
December 31, 1997, the Company has deferred purchase option payments made
pursuant to a purchase agreement for a hotel property which is currently being
leased and operated by the Company (see Note 10). If the option is exercised,
the option payments will offset a portion of the purchase price. If the option
is not exercised, the option payments will be charged to operations.
INCOME TAXES
Prior to their merger, CHC-Washington and BIC filed separate federal and
state income tax returns. The Lincoln Building and the other partnerships
which are owned by CHC-Washington and/or BIC are not tax paying entities.
However, the income tax attributes of these partnerships flow through to the
respective partners of the partnerships.
LEASE INCOME
The Company records rental income from operating leases which contain fixed
escalation clauses on the straight-line method. The difference between income
earned and lease payments received from the tenants is included in other
assets on the combined balance sheets. Rental income from retail lessees which
is contingent upon the lessees' revenues is recorded as income in the period
earned.
EARNINGS PER SHARE
Due to the combination of the companies and partnerships, historical
earnings per share information prior to the combination is not relevant or
meaningful. Therefore, pro forma earnings per share for the year ended October
31, 1997 has been presented based upon the number of common shares of CHC-
Washington which are outstanding after the merger of the companies and
partnerships (see Note 15).
In February 1997, Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," was issued. SFAS No. 128 establishes standards for
computing and presenting earnings per share (EPS) and simplifies the existing
standards. This standard replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires the dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. The Company did not
F-9
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
have any dilutive securities outstanding for any of the periods presented.
Therefore, there are no differences between basic and diluted earnings per
share. The adoption of SFAS No. 128 did not have a material effect on the
presentation of the Company's EPS for the two months ended December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued.
This Statement requires that comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement does not require a specific format for the
financial statement, but requires that an enterprise display net income as a
component of comprehensive income in the financial statement. Comprehensive
income is defined as the change in equity of a business enterprise arising
from non-owner sources. The classifications of comprehensive income under
current accounting standards include foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. This Statement is effective for fiscal years
beginning after December 15, 1997. Management does not believe that the
implementation of SFAS No. 130 will have a material impact on the presentation
of its combined financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments for an Enterprise and Related Information". This
Statement will change the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued
to shareholders. It also requires entity-wide disclosures about the products
and services an entity provides, and its major customers. The Statement is
effective for fiscal years beginning after December 15, 1997. Management of
the Company does not believe that the implementation of SFAS No. 131 will have
a material impact on the combined financial statements.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment at October 31, 1996 and 1997 and December 31, 1997 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------- DECEMBER 31,
1996 1997 1997
--------- -------- ------------
<S> <C> <C> <C>
Buildings and equipment.................. $ 105,039 $108,507 $110,812
Furniture and fixtures................... 11,150 14,163 14,258
Equipment acquired under capital leases.. 4,421 4,543 4,543
Landscaping and land improvements........ 863 863 863
--------- -------- --------
121,473 128,076 130,476
Less accumulated depreciation and amorti-
zation.................................. (30,049) (34,325) (34,445)
--------- -------- --------
91,424 93,751 96,031
Land..................................... 16,810 16,203 16,203
--------- -------- --------
$ 108,234 $109,954 $112,234
========= ======== ========
</TABLE>
F-10
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
4. LONG-TERM DEBT:
Long-term debt consists of mortgage notes payable and notes and contracts
payable, collateralized by real property, equipment and the assignment of
certain rental income. Long-term debt as of October 31, 1997 and December 31,
1997 is as follows (amounts outstanding in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1997
----------- ------------
<S> <C> <C>
Note payable in monthly installments of $146,494
including interest at a variable rate (9.0% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. $16,816 $16,776
Note payable in monthly installments of $117,487
including interest at a variable rate (9.0% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 13,884 13,857
Note payable in monthly installments of $79,828
including interest at 7.25%, collateralized by
real property.................................... 9,785 9,744
Note payable in monthly installments of $85,156
including interest at a variable rate (8.125% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 9,083 9,038
Note payable in monthly installments of $64,637
including interest at a variable rate (7.88% at
October 31, 1997 and December 31, 1997),
collateralized by assignment of certain rental
income........................................... 7,773 7,746
Industrial revenue bonds payable in monthly
installments of $73,668 including interest at a
variable rate (7.65% at October 31, 1997 and
December 31, 1997), collateralized by real
property......................................... 7,555 7,504
Note payable in monthly installments of $63,378 at
October 31, 1997 and $65,393 at December 31,
1997, including interest at a variable rate
(10.375% at October 31, 1997 and 9.5% at December
31, 1997), collateralized by real property....... 7,128 7,110
Note payable in monthly installments of $46,369
including interest at 8.875%, collateralized by
real property.................................... 5,046 5,029
Note payable in monthly installments of $56,875
including interest at a variable rate (9.0% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 4,794 4,775
Note payable in monthly installments of $23,804
including interest at 8.5% at December 31, 1997,
collateralized by real property, assignment of
certain rental income and certain furniture and
fixtures......................................... -- 2,660
Urban Development Action Grant loan payable in
monthly installments of $27,807 including
interest at 9.0%, collateralized by real
property (A)..................................... 2,603 --
Note payable in monthly installments of $25,777
including interest at 9.25%, collateralized by
real property.................................... 2,412 2,397
</TABLE>
F-11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
4. LONG-TERM DEBT, CONTINUED:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1997
----------- ------------
<S> <C> <C>
Note payable in monthly installments of $37,604
including interest at an index rate plus 2.375%
(8.66% at October 31, 1997 and December 31,
1997), collateralized by real property........... $ 2,292 $ 2,250
Note payable in monthly installments of $17,608 at
October 31, 1997 and $19,702 at December 31,
1997, including interest at a variable rate (8.5%
at October 31, 1997 and December 31, 1997),
collateralized by real property.................. 2,151 2,467
Note payable in monthly installments of $18,418 at
October 31, 1997 and $18,845 at December 31,
1997, including interest at an index rate plus
1.5%, subject to a minimum of 9.5% and a maximum
of 12.0% (9.75% at October 31, 1997 and 10.0% at
December 31, 1997), collateralized by real
property......................................... 1,696 1,687
Note payable in monthly installments of $22,702
including interest at a variable rate (9.5% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 1,190 1,164
Note payable in monthly installments of $41,674
including interest at a variable rate plus 0.5%
(9.0% at October 31, 1997 and December 31, 1997),
collateralized by real property.................. 1,091 1,072
Note payable in monthly installments of $9,076 at
October 31, 1997 and December 31, 1997, including
interest at a variable rate (9.5% at October 31,
1997 and December 31, 1997), collateralized by
certain equipment and furniture and fixtures..... 760 754
Amount payable at $67,000 interest only annually
(B).............................................. 600 600
Note payable of interest only at 8.0% until
maturity in October 2002, collateralized by
letter of credit................................. 500 500
Note payable in monthly installments of $9,000
including interest at an index rate (8.5% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 462 451
Note payable in monthly installments of $5,003
including interest at prime plus 1.0% (9.0% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 238 231
Note payable of interest only at 6.4% until
maturity in June 1998, collateralized by a
certificate of deposit........................... 100 100
Note payable in annual principal payments of
$37,000 plus interest at a variable rate (9.0% at
October 31, 1997 and December 31, 1997),
collateralized by real property.................. 74 74
Other............................................. 23 23
------- -------
98,056 98,009
Less current portion.............................. (4,285) (3,590)
------- -------
Total long-term debt.............................. $93,771 $94,419
======= =======
</TABLE>
F-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
4. LONG-TERM DEBT, CONTINUED:
- --------
(A) This loan agreement requires the City of Kalispell, Montana (the City) to
receive 15% of cumulative annual net cash flow (as defined in the
agreement) from the property until the loan is paid in full. The
cumulative net cash flow of the property resulted in participation by the
City of approximately $20,000, $45,000 and $22,000 for the years ended
October 31, 1995, 1996 and 1997, respectively. The Company repaid this
note in full in December 1997.
(B) The Company has a $600,000 obligation payable to BFF. BFF is entitled to a
guaranteed annual payment of approximately $67,000, which is increased by
3% annually. The Company has the right to pay off its obligation at any
time after January 1997, and BFF has the right to require redemption at
any time after January 1999.
Contractual maturities for long-term debt outstanding at December 31, 1997,
are summarized by year as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998............................................................... $ 3,590
1999............................................................... 3,908
2000............................................................... 3,252
2001............................................................... 3,331
2002............................................................... 4,089
Thereafter......................................................... 79,839
-------
$98,009
=======
</TABLE>
5. CAPITAL LEASE OBLIGATIONS:
The Company leases certain equipment under capital leases. The imputed
interest rates on the leases range from 7.6% to 8.6%. Cost and accumulated
amortization of this equipment as of October 31, 1996 are approximately
$4,421,000 and $1,831,000, respectively. Cost and accumulated amortization of
equipment under capital lease obligations as of October 31, 1997 are
approximately $4,543,000 and $2,074,000, respectively. Cost and accumulated
amortization of equipment under capital lease obligations as of December 31,
1997 are approximately $4,543,000 and $2,065,000, respectively.
Future minimum lease payments at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998............................................................... $ 706
1999............................................................... 696
2000............................................................... 661
2001............................................................... 513
2002............................................................... 400
Thereafter......................................................... 270
------
Total minimum lease payments....................................... 3,246
Less amount representing interest.................................. (605)
------
Total obligations under capital lease.............................. 2,641
Less current maturities............................................ (502)
------
$2,139
======
</TABLE>
F-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
6. LINES OF CREDIT:
At October 31, 1997, the Company had a $1.0 million line-of-credit agreement
with U.S. Bank of Washington. The outstanding balance on the unsecured credit
line bears interest at the bank's prime rate plus 0.25% (8.75% at December 31,
1997). At October 31, 1997, there were no amounts outstanding on the line of
credit. In November 1997, the borrowing limit under this agreement was
increased to $3.0 million and expires in March 1998. At December 31, 1997,
there was $1,075,000 outstanding on the line of credit. The agreement requires
that the Company maintain a defined current ratio and minimum levels of cash
flow.
Additionally, the Company has a non-revolving line-of-credit agreement. Any
outstanding amounts bear interest at the bank's index rate plus 2.75%. At
October 31, 1997, $9,083,000 was outstanding under this agreement (see Note 4)
and $670,000 was available to be drawn. At December 31, 1997, $9,038,000 was
outstanding under this agreement, and $670,000 was available to be drawn.
In December 1997, the Company obtained a commitment for a revolving secured
credit facility with a bank for borrowings up to $80.0 million. The credit
facility is contingent upon the successful completion of the Offering. The
agreement requires that the Company maintain certain financial ratios and
minimum levels of cash flows. Any outstanding borrowings will bear interest
based on prime rate or LIBOR. The credit facility matures five years after
closing.
7. STOCKHOLDERS' EQUITY:
Prior to the merger described in Note 1, the preferred stock of CHC-
Washington was the only voting stock of CHC-Washington. The preferred
stockholders were entitled to 7% annual, noncumulative dividends if and when
declared by the Board of Directors. In the event of liquidation or dissolution
of CHC-Washington, the preferred stockholders had a liquidation preference
equal to $450 plus any unpaid dividends per share. At October 31, 1997, all
declared dividends had been paid to the preferred stockholders. In connection
with the merger and changes in the capital structure of CHC-Washington (see
Note 15), the outstanding preferred stock of CHC-Washington was retired and
cancelled.
In January 1998, the Board of Directors adopted, subject to shareholder
approval, two Company stock benefit plans. A total of 1,500,000 shares of
common stock were reserved for issuance or grant under the plans of which up
to 900,000 shares are planned to be granted to certain employees at the
initial public offering price concurrent with the closing of the Offering.
8. INCOME TAXES:
Major components of the Company's income tax provision (benefit) for the
years ended October 31, 1995, 1996 and 1997 and the two months ended December
31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31,
---------------- --------------
1995 1996 1997 1996 1997
----- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Current.................................... $ 693 $641 $(16) $ (104) $ (4)
Deferred................................... (151) 89 948 (2)
----- ---- ---- ------ ------
$ 542 $730 $932 $ (104) $ (6)
===== ==== ==== ====== ======
</TABLE>
F-14
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
8. INCOME TAXES, CONTINUED:
The income tax provisions (benefits) shown in the statements of operations
for the years ended October 31, 1995, 1996 and 1997 and the two months ended
December 31, 1996 and 1997 differ from the amounts calculated using the
federal statutory rate applied to income (loss) before income taxes as follows
(amounts in thousands):
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEARS ENDED OCTOBER 31, DECEMBER 31,
-------------------------------------- ------------------------
1995 1996 1997 1996 1997
------------ ----------- ----------- ------------ ----------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ---- ------ ---- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Provision (benefit) at
federal statutory
rate................... $ 538 34.0% $648 34.0% $898 34.0% $ (93) 34.0% $ -- --
Effect of tax credits... (64) (4.0) -- -- (20) (0.7) -- -- -- --
Other................... 68 4.2 82 4.3 54 2.0 (11) 4.0 (6) --
----- ---- ---- ---- ---- ---- ----- ---- ---- ---
$ 542 34.2% $730 38.3% $932 35.3% $(104) 38.0% $ (6) --
===== ==== ==== ==== ==== ==== ===== ==== ==== ===
</TABLE>
Components of the net deferred tax assets and liabilities as of October 31,
1996 and 1997 and December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
-------------------------------------- ------------------
1996 1997 1997
------------------- ------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Depreciation on property
and equipment.......... $ -- $5,331 $ -- $5,295 $ -- $5,612
Rental income........... -- 192 -- 248 -- 285
Tax credits............. 577 -- 367 -- 367 --
Other................... 477 -- -- 241 115 --
------- ------ ---- ------ ---- ------
$ 1,054 $5,523 $367 $5,784 $482 $5,897
======= ====== ==== ====== ==== ======
</TABLE>
At October 31, 1997 and December 31, 1997, the Company has approximately
$352,000 of alternative minimum tax credits available to offset future regular
taxes payable to the extent they exceed alternative minimum taxes.
F-15
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
9. OPERATING LEASE INCOME:
KCLP leases shopping mall space to various tenants over terms ranging from
one to ten years. The leases generally provide for fixed minimum monthly rent
as well as tenants' payments for their pro rata share of taxes and insurance,
common area maintenance and expenses associated with the shopping mall. In
addition, the Company leases commercial office space over terms ranging from
one to eighteen years. At October 31, 1996, cost and accumulated depreciation
of retail and commercial properties which are subject to operating leases was
$31,008,000 and $7,191,000, respectively. The cost and accumulated
depreciation of these properties at October 31, 1997 was approximately
$31,875,000 and $8,281,000, respectively. The cost and accumulated
depreciation of these properties at December 31, 1997 was approximately
$32,924,000 and $8,323,000, respectively.
Future minimum lease income under existing noncancellable leases at December
31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998............................................................... $ 6,903
1999............................................................... 6,647
2000............................................................... 6,116
2001............................................................... 5,140
2002............................................................... 4,275
Thereafter......................................................... 15,601
-------
$44,682
=======
</TABLE>
Rental income for the years ended October 31, 1995, 1996 and 1997 and the
two months ended December 31, 1996 and 1997 was approximately $6,027,000,
$6,790,000, $6,539,000, $1,191,000 and $1,169,000, respectively, which
included contingent rents of approximately $309,000, $342,000, $217,000,
$58,000 and $93,000, respectively.
10. OPERATING LEASE COMMITMENTS:
The Company leases building space under an operating lease agreement which
requires monthly payments of $4,500 through March 2009. Commencing in 1999,
the monthly payments can be increased for inflation.
In October 1997, the Company began operating a hotel in Yakima, Washington
under an operating lease and purchase option agreement. The lease agreement is
for a period of 15 years with two five-year renewal options. The Company pays
all operating costs of the hotel plus monthly lease payments of $35,000
through September 2003. Commencing October 2003, the monthly lease requirement
will be $52,083 and monthly payments shall increase by $5,208 each year
thereafter. The Company agreed to a $1.0 million option payment which allows
the purchase of this hotel at a fixed price. One-half of this option payment
was paid in cash and the remaining $500,000 is payable in October 2002. The
option is exercisable by the Company between March and September 2003 for a
total purchase price of $6,250,000. If the Company exercises its purchase
option, the option payments made by the Company will be applied against the
total purchase price.
F-16
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
10. OPERATING LEASE COMMITMENTS, CONTINUED:
Assuming the Company exercises its purchase option for the hotel in March
2003, total payments due under these leases at December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998................................................................ $ 474
1999................................................................ 474
2000................................................................ 474
2001................................................................ 474
2002................................................................ 474
Thereafter.......................................................... 443
------
$2,813
======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Until January 1998, the Company guaranteed certain debt of entities
affiliated through common ownership, which are excluded from the combined
financial statements (see Note 1). At October 31, 1997 and December 31, 1997,
total debt outstanding which was guaranteed by the Company was approximately
$5,748,000 and $5,092,000, respectively. In January 1998, the Company's
guarantee of these affiliated companies' debt was eliminated.
In 1994, the Company was sued by the contractor who constructed one of the
Company's hotel properties asserting lack of payment of cost overruns. The
Company filed a counter claim for the recovery of various damages. The Company
obtained summary judgment for most of the claims. As of December 31, 1997, the
amount of claims against the Company which have not been dismissed or are
subject to appeal is $233,000, plus interest. The Company's counter claims
which have not been dismissed are $419,000. Management believes that the
ultimate resolution of this matter will not have a material effect on the
Company's results of operations, financial condition or cash flows.
12. RELATED-PARTY TRANSACTIONS:
In addition to related-party transactions described in Notes 4 and 11, the
Company had the following transactions with related parties during the years
ended October 31, 1995, 1996 and 1997 and the two months ended December 31,
1996 and 1997:
. Interest expense of approximately $64,000, $66,000, $67,000, $11,000 and
$11,000 was incurred related to the payable to BFF (see Note 4) for the
years ended October 31, 1995, 1996 and 1997 and the two months ended
December 31, 1996 and 1997, respectively.
. The Company recorded management fee and other income of approximately
$27,000, $31,000, $35,000, $8,000 and $17,000 during the years ended
October 31, 1995, 1996 and 1997 and the two months ended December 31,
1996 and 1997, respectively, for performing management and administrative
functions for entities which are owned by the stockholders of the
Company, but are excluded from the combined financial statements.
. The Company received commissions for real estate sales from entities
which are owned by the stockholders of the Company, but are excluded from
the combined financial statements of $51,000, $7,000, $87,000, $3,000 and
$1,000 for the years ended October 31, 1995, 1996 and 1997 and the two
months ended December 31, 1996 and 1997, respectively.
F-17
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
12. RELATED-PARTY TRANSACTIONS, CONTINUED:
. At October 31, 1997, the Company had a $1,333,000 payable to an
affiliated entity due to common control. Effective November 1, 1997, the
payable began bearing interest at the prime rate (8.5% at December 31,
1997). During the two months ended December 31, 1997, the Company
incurred $16,000 of interest expense associated with this note. At
December 31, 1997, there was $1,133,000 outstanding on this note. The
note is due in July 1998.
13. EMPLOYEE BENEFIT PLAN:
The Goodale and Barbieri Retirement Savings Plan, to which both the Company
and employees contribute, was established in March 1989. The defined
contribution plan was created for the benefit of substantially all employees
of the Company. The Company makes contributions of up to 3% of an employee's
compensation based on a vesting schedule and eligibility requirements set
forth in the plan document. Company contributions to the plan for the years
ended October 31, 1995, 1996 and 1997 and the two months ended December 31,
1996 and 1997 were approximately $78,000, $93,000, $97,000, $18,000 and
$20,000, respectively.
14. ACQUISITIONS:
In October 1997, the Company entered into a lease (which was effective in
January 1998) with purchase option for an operating hotel in Spokane,
Washington. The Company is obligated to pay debt service and all costs of
operating the hotel through the lease termination date of November 1, 1999.
The Company intends to exercise its option to purchase this hotel prior to
July 1998. The purchase price is $11,500,000. Approximately $2,000,000 of the
purchase price shall be paid by the transfer of OP Units to the owner.
In November 1997, CHLP entered into separate purchase agreements to acquire
certain assets of operating hotels in Post Falls, Idaho and in Idaho Falls,
Idaho for a total purchase price of $13,000,000. The Idaho Falls acquisition
was closed in January 1998 and the Post Falls acquisition closed in February
1998.
In December 1997, the Company entered into an agreement for the acquisition
of an operating hotel in Kalispell, Montana. The acquisition is contingent
upon the Company's successful completion of the Offering. The purchase price
is $9,800,000.
In January, 1998, the Company entered into an agreement to acquire an
operating hotel in Portland, Oregon for a total purchase price of $5,650,000.
The transaction is scheduled to close in March 1998.
15. CAPITALIZATION OF THE COMPANY AND PROPOSED INITIAL PUBLIC OFFERING:
After the mergers described in Note 1 were completed, the Articles of
Incorporation of CHC-Washington were amended to authorize 50.0 million common
shares and 5.0 million preferred shares. The preferred stock rights,
preferences and privileges will be determined by the Board of Directors. The
existing stockholders of CHC-Washington and BIC received a total of 7,072,025
newly issued shares in exchange for all of their outstanding shares. CHC-
Washington intends to enter into an underwriting agreement with CIBC
Oppenheimer Corp. for the sale of 5,175,000 shares of the Company's common
stock.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data and to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange.
F-18
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. Potential income tax ramifications related to the realization of
unrealized gains and losses that would be incurred in an actual sale or
settlement have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts receivable and
current liabilities are a reasonable estimate of their fair values. The fair
values of long-term debt and capital lease obligations are based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for debt or capital lease obligations with
similar remaining maturities.
The estimated fair values of financial instruments are as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------- DECEMBER 31
1996 1997 1997
--------------- --------------- ---------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNTS VALUES AMOUNTS VALUES AMOUNTS VALUES
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.... $7,200 $7,200 $6,440 $6,440 $4,955 $4,955
Accounts receivable.......... 1,720 1,720 2,806 2,806 2,785 2,785
Financial liabilities:
Current liabilities, exclud-
ing debt.................... 6,085 6,085 8,798 8,798 8,921 8,921
Note payable to bank......... -- -- -- -- 1,075 1,075
Long-term debt............... 96,536 97,764 98,056 99,615 98,009 99,776
Capital lease obligations.... 2,772 2,772 2,754 2,754 2,641 2,641
</TABLE>
17. BUSINESS SEGMENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
-------------------------- --------------
1995 1996 1997 1996 1997
-------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotels and restaurants........... $ 31,244 $35,205 $41,662 $5,683 $6,829
Entertainment, management and
services........................ 3,092 3,168 3,842 483 840
Rental operations................ 6,027 6,790 6,539 1,191 1,169
-------- ------- ------- ------ ------
$ 40,363 $45,163 $52,043 $7,357 $8,838
======== ======= ======= ====== ======
Operating income:
Hotels and restaurants........... $ 15,563 $18,297 $22,293 $2,754 $3,284
Entertainment, management and
services........................ 1,290 964 1,790 86 238
Rental operations................ 5,001 5,326 5,033 948 866
Undistributed operating ex-
penses.......................... (13,876) (15,673) (18,481) (2,864) (3,045)
-------- ------- ------- ------ ------
$ 7,978 $ 8,914 $10,635 $ 924 $1,343
======== ======= ======= ====== ======
</TABLE>
F-19
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
17. BUSINESS SEGMENTS (IN THOUSANDS), CONTINUED:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
--------------------------- -----------------
1995 1996 1997 1996 1997
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Capital expenditures:
Hotels and restaurants......... $ 20,439 $ 11,705 $ 4,960 $ 1,407 $ 1,322
Rental operations.............. 3,536 1,631 980 150 1,060
General corporate, including
entertainment, management and
services...................... 149 121 252 32 18
--------- -------- -------- -------- --------
$ 24,124 $ 13,457 $ 6,192 $ 1,589 $ 2,400
========= ======== ======== ======== ========
Depreciation and amortization:
Hotels and restaurants......... $ 2,274 $ 2,840 $ 3,457 $ 573 $ 581
Rental operations.............. 1,005 1,210 1,179 172 188
General corporate, including
entertainment, management and
services...................... 149 165 139 14 29
--------- -------- -------- -------- --------
$ 3,428 $ 4,215 $ 4,775 $ 759 $ 798
========= ======== ======== ======== ========
Identifiable assets:
Hotels and restaurants......... $ 77,310 $ 90,345 $ 91,431 $ 89,591 $ 92,415
Rental operations.............. 24,155 24,049 24,035 24,645 25,965
General corporate, including
entertainment, management and
services...................... 5,577 5,693 8,638 5,705 6,737
--------- -------- -------- -------- --------
$ 107,042 $120,087 $124,104 $119,941 $125,117
========= ======== ======== ======== ========
</TABLE>
Revenues and identifiable assets of each segment are those that are directly
identified with those operations. Capital expenditures and identifiable assets
for the entertainment, management and services segment are not separated from
corporate. General corporate assets consist primarily of cash and cash
equivalents, receivables and certain property and equipment. Operating income
for each segment represents revenues less direct operating expenses of each
segment. Undistributed operating expenses are not identified by segment.
18. EARNINGS PER SHARE:
In accordance with SFAS No. 128, the following table presents a
reconciliation of the numerators and denominators used in the basic and
diluted EPS computations (in thousands except per share amounts).
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1997:
Net income per share--ba-
sic and diluted:
Net income.............. $ 6
===
Weighted average shares
outstanding............ 7,072
=====
Per share............... $ --
====
</TABLE>
F-20
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(Information for the two months ended December 31, 1996 is unaudited)
18. EARNINGS PER SHARE, CONTINUED:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
OCTOBER 31, 1997:
Pro forma net income per share--basic
and diluted:
Net income............................ $1,709
======
Weighted average shares outstanding... 7,072
=====
Per share............................. $0.24
=====
</TABLE>
F-21
<PAGE>
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheet and condensed pro
forma combined statement of income, collectively, the "Pro Forma Financial
Statements" were prepared by Cavanaughs Hospitality Corporation to illustrate
the estimated effects of (i) the merger of the companies and partnerships
which occurred in November 1997, (ii) acquiring minority interests through the
issuance of common stock and OP Units, and (iii) business combinations to be
accounted for as purchases under generally accepted accounting principles. The
acquisitions include the property and equipment of the following hotel
properties:
. Templin's Resort (Templin's)
. Outlaw Inn (Outlaw)
. Inn on the Falls
. The Ridpath Hotel (Ridpath)
. Hallmark Inn (Hallmark)
Additionally, in October 1997, Cavanaughs Hospitality Corporation entered
into a lease with purchase option agreement for the Gateway Hotel (Gateway).
Therefore, the historical results of operations of Gateway are included in the
condensed pro forma combined financial information. Templin's, Outlaw, Inn on
the Falls, Ridpath, Gateway and Hallmark are collectively referred to as the
"Acquired Hotels." Accordingly, the financial information of Cavanaughs
Hospitality Corporation, Barbieri Investment Company and Lincoln Building
Limited Partnership (collectively, "CHC" or "the Company") and the Acquired
Hotels has been combined as if the acquisitions occurred on November 1, 1996
for purposes of the condensed pro forma combined statement of income, and as
of October 31, 1997, for purposes of the condensed pro forma combined balance
sheet. There are no differences between CHC's and the Acquired Hotel's
accounting policies, which are expected to have a material impact on the pro
forma combined financial statements. The Pro Forma Financial Statements do not
purport to represent what the combined financial position or results of
operations would have been if the acquisitions had occurred at the beginning
of the period or to project the combined financial position or results of
operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
historical combined financial statements, including the notes thereto, of CHC,
which are included in this document.
The Pro Forma Financial Statements are presented utilizing the purchase
method of accounting whereby the excess of the total purchase price over the
fair value of the assets acquired of the Acquired Hotels is recorded as
property and equipment. The combined pro forma results of operations presented
herein are not necessarily indicative of the future results of operations.
F-22
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS
at October 31, 1997
(in thousands, except for share data)
<TABLE>
<CAPTION>
ACQUIRED PRO
CHC HOTELS PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents.................. $ 6,440 $ -- $ (6,440)(a) $ --
Accounts receivable..... 2,806 -- -- 2,806
Inventories............. 376 -- -- 376
Prepaid expenses and de-
posits................. 1,128 -- -- 1,128
-------- ------- -------- --------
Total current assets.. 10,750 -- (6,440) 4,310
Property and equipment,
net...................... 109,954 20,478 19,772 (b) 150,204
Other assets, net......... 3,400 -- -- 3,400
-------- ------- -------- --------
Total assets.......... $124,104 $20,478 $ 13,332 $157,914
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQ-
UITY
Current liabilities:
Payable to affiliates... $ 1,333 $ -- $ -- $ 1,333
Accounts payable........ 2,263 -- -- 2,263
Accrued payroll and re-
lated benefits......... 843 -- -- 843
Accrued interest pay-
able................... 741 -- -- 741
Other accrued expenses.. 3,618 -- -- 3,618
Long-term debt, due
within one year........ 4,285 -- -- 4,285
Capital lease obliga-
tions, due within one
year................... 499 -- -- 499
-------- ------- -------- --------
Total current liabili-
ties................. 13,582 -- -- 13,582
Long-term debt, due after
one year................. 93,771 -- 31,810 (c) 125,581
Capital lease obligations,
due after one year....... 2,255 -- -- 2,255
Deferred income taxes..... 5,417 -- -- 5,417
Minority interest......... 553 -- 2,000 (d) 2,553
-------- ------- -------- --------
Total liabilities..... 115,578 -- 33,810 149,388
-------- ------- -------- --------
Stockholders' and part-
ners' equity:
Preferred stock, $.01
par value, 5,000,000
shares authorized;
no shares issued and
outstanding............ -- -- -- --
Common stock, $.01 par
value, 50,000,000
shares authorized;
7,072,025 and 7,084,253
shares issued and
outstanding............ 71 -- -- 71
Partners' deficit....... (897) -- 897 (e) --
Additional paid-in capi-
tal.................... 3,935 -- (897)(e) 3,038
Retained earnings....... 5,417 20,478 (20,478) 5,417
-------- ------- -------- --------
Total stockholders'
and partners' equi-
ty................... 8,526 20,478 (20,478) 8,526
-------- ------- -------- --------
Total liabilities and
stockholders' and
partners' equity..... $124,104 $20,478 $ 13,332 $157,914
======== ======= ======== ========
</TABLE>
See notes to condensed pro forma combined balance sheet and statement of
income.
F-23
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
for the year ended October 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
ACQUIRED PRO
CHC HOTELS PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms......................... $25,147 $14,662 $ -- $ 39,809
Food and beverage............. 13,926 9,621 -- 23,547
Other......................... 2,589 1,056 -- 3,645
------- ------- ------- --------
Total hotels and restau-
rants...................... 41,662 25,339 -- 67,001
Entertainment, management and
services...................... 3,842 -- -- 3,842
Rental operations.............. 6,539 -- -- 6,539
------- ------- ------- --------
Total revenues.............. 52,043 25,339 -- 77,382
------- ------- ------- --------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms........................ 6,820 4,600 -- 11,420
Food and beverage............ 11,483 7,829 -- 19,312
Other........................ 1,066 343 -- 1,409
------- ------- ------- --------
Total hotels and restau-
rants...................... 19,369 12,772 -- 32,141
Entertainment, management and
services..................... 2,052 -- -- 2,052
Rental operations............. 1,506 -- -- 1,506
------- ------- ------- --------
Total direct expenses....... 22,927 12,772 -- 35,699
------- ------- ------- --------
Undistributed operating ex-
penses:
Selling, general and adminis-
trative....................... 8,188 4,653 (743)(f)
Selling, general and
administrative................ -- -- 146 (g) 12,244
Property operating costs....... 5,518 3,353 312 (h) 9,183
Depreciation and amortization.. 4,775 2,501 (1,003)(i)
Depreciation and amortization.. -- -- (495)(j) 5,778
------- ------- ------- --------
Total undistributed operat-
ing expenses............... 18,481 10,507 (1,783) 27,205
------- ------- ------- --------
Total expenses.............. 41,408 23,279 (1,783) 62,904
------- ------- ------- --------
Operating income................ 10,635 2,060 1,783 14,478
Other income (expense):
Interest expense, net of
amounts capitalized........... (8,817) (2,555) 2,555 (k)
Interest expense, net of
amounts capitalized............ -- -- (2,359)(l) (11,176)
Interest income................ 416 -- -- 416
Other income................... 348 -- -- 348
Minority interest in partner-
ships......................... 59 -- (110)(m) (51)
------- ------- ------- --------
Income (loss) before income tax-
es............................. 2,641 (495) 1,869 4,015
Income tax provision............ 932 61 406 (n) 1,399
------- ------- ------- --------
Net income (loss)............... $ 1,709 $ (556) $ 1,463 $ 2,616
======= ======= ======= ========
Pro forma net income per share.. $ 0.24 $ 0.37
======= ========
Number of shares used in the pro
forma computation.............. 7,072 7,095
======= ========
</TABLE>
See notes to condensed pro forma combined balance sheet and statement of
income.
F-24
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF INCOME
1. BUSINESSES ACQUIRED:
Subsequent to October 31, 1997, the Company has entered into agreements to
purchase the real and personal property and equipment of the following hotel
properties:
. Templin's Resort
. Outlaw Inn
. Inn on the Falls
. The Ridpath Hotel
. Hallmark Inn
The agreement with the Ridpath Hotel is a lease with purchase option which
can be exercised at anytime. The Company intends to exercise the purchase
option prior to July 1998 and therefore has included the financial information
of the Ridpath in these pro forma financial statements assuming the purchase
option is exercised. Additionally, the Company has entered into a lease with
purchase option agreement with the owner of the Gateway Hotel. The purchase
option cannot be exercised by the Company until 2003 and therefore, the
acquisition of the property and equipment of the Gateway Hotel has not been
assumed in the pro forma balance sheet. However, the pro forma statement of
income reflects the lease expense associated with the Gateway Hotel along with
its historical operations. The acquisitions will be accounted for utilizing
the purchase method of accounting. The purchase price for all of the acquired
hotels will be paid in cash except for the Ridpath. The purchase price for the
Ridpath assumes that the purchase option is exercised prior to July 1998 and
that $2.0 million of the purchase price is satisfied by the issuance of OP
Units (see Note 14 to the historical financial statements of the Company).
The total purchase price and the amount in excess of the historical book
value of the property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
TOTAL EXCESS
PURCHASE PURCHASE
PRICE PRICE
-------- --------
<S> <C> <C>
Templin's Resort........................................... $ 9,500 $ 5,376
Outlaw Inn................................................. 9,800 5,477
Inn on the Falls........................................... 3,800 259
The Ridpath Hotel.......................................... 11,500 4,587
Hallmark Inn............................................... 5,650 4,073
------- -------
$40,250 $19,772
======= =======
</TABLE>
The purchase price has been allocated to the acquired land, building,
furniture and fixtures as follows based upon the estimated fair value of the
components (in thousands):
<TABLE>
<CAPTION>
DEPRECIABLE
AMOUNT LIFE
------- -----------
<S> <C> <C>
Land.................................................... $11,795
Building................................................ 25,824 35 years
Furniture and fixtures.................................. 2,631 10 years
-------
$40,250
=======
</TABLE>
F-25
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF INCOME,
CONTINUED
1. BUSINESSES ACQUIRED, CONTINUED:
The historical depreciation expense for the Acquired Hotels was calculated
using depreciable lives for certain assets that are commonly used for income
tax purposes. The pro forma adjustments include $495,000 to reduce the
historical depreciation expense to an estimated amount which would have been
reported if the useful lives of the assets were in accordance with industry
practice and generally accepted accounting principals (GAAP). Since the
acquisitions will be accounted for under the purchase method of accounting,
the excess purchase price over the historical net book value of the property
and equipment will be attributed to the property and equipment and depreciated
over the estimated remaining useful lives of the acquired assets.
2. PRO FORMA ADJUSTMENTS:
The following pro forma adjustments were made to the condensed pro forma
combined balance sheet and statement of income to reflect the acquisitions of
the Acquired Hotels and the issuance of common stock and OP Units for the
acquisition of minority interests in the Lincoln Building.
(a) Represents the cash to be used for the purchase of the Acquired Hotels.
(b) Represents the purchase price in excess of the historical value of the
property and equipment of the Acquired Hotels.
(c) Represents the amount of the purchase price of the Acquired Hotels which
will be financed by the Company's revolving line-of-credit agreement.
(d) Assumes the purchase price of the Ridpath will be $9.5 million cash plus
OP Units equivalent to $2.0 million.
(e) The historical financial statements of the Lincoln Building Limited
Partnership (Lincoln Building) are included in the combined CHC historical
financial statements as they are all entities under common control (see Note 1
to the historical combined financial statements). In January 1998, the Company
issued 12,228 shares of common stock and 150,817 OP Units to the Lincoln
Building partners in exchange for their partnership interests in the Lincoln
Building. The acquisition of the Lincoln Building has been accounted for as if
it were a pooling of interests due to common control of the entities. The
partners' deficit has been reclassified to additional paid-in capital as a pro
forma adjustment.
(f) The Gateway and Inn on the Falls were previously Holiday Inn franchises.
The franchises have been terminated by the Company. Therefore, the franchise
fees which were based on gross room revenues have been eliminated as a pro
forma adjustment.
(g) Represents the maximum potential increase in management compensation
expense as a result of the planned new employment agreements as described
herein as compared to historical compensation levels. The employment
agreements will provide for bonuses up to a maximum of 100% of the executive's
base salary.
(h) The historical financial statements of the Ridpath included an equipment
lease expense of $108,000 per year. However, this equipment is a capital lease
and the expense should not have been recorded as an operating lease.
Therefore, the pro forma adjustment eliminates this lease payment.
Additionally, the Company has leased the Gateway for $420,000 annually. This
facility lease expense is not recorded in the historical financial statements
of Gateway and therefore, has been included as a pro forma adjustment.
F-26
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF INCOME,
CONTINUED
2. PRO FORMA ADJUSTMENTS, CONTINUED:
(i) Represents the reduction in depreciation and amortization expense from
the adjusted historical amounts for the Acquired Hotels based on the
depreciation of the purchase prices over the estimated remaining lives of the
acquired assets (see Note 1).
(j) Represents a reduction in historical depreciation expense for the
Acquired Hotels to record depreciation in accordance with GAAP (see Note 1).
(k) Represents the elimination of interest expense incurred by the Acquired
Hotels as the Company acquired the property and equipment only of the Acquired
Hotels and did not assume the historical liabilities. Therefore, interest
expense historically incurred by the Acquired Hotels will not be incurred by
the Company.
(l) Represents the interest expense which would be incurred by the Company
based on the purchase price of the Acquired Hotels, which will be financed
under the Company's revolving line-of-credit agreement. The interest rate used
in the pro forma adjustment was 7.4% based upon the currently expected
borrowing rate under the Company's line-of-credit agreement commitment.
(m) Represents the minority interest share of the pro forma net income
associated with OP units for the year ended October 31, 1997.
(n) Represents estimated income taxes related to the Acquired Hotels
historical income before income taxes and the tax effects of pro forma
adjustments.
3. INTEREST EXPENSE:
Assuming the acquisitions were made as of November 1, 1996, the Company
would have incurred debt to finance part of the purchase price of the Acquired
Hotels. Pro forma interest expense associated with the Company's acquisitions
has been calculated assuming borrowings were made in amounts as presented in
the pro forma condensed combined balance sheet and at interest rates that
would be charged under the Company's revolving line-of-credit agreement. The
Company's revolving line-of-credit agreement bears interest at a variable
rate. The expected rate of 7.4% has been used to calculate the pro forma
interest expense. If the rate increased or decreased by 0.25%, the Company's
pro forma interest expense, net income and earnings per share for the year
ended October 31, 1997 would increase or decrease by approximately $80,000,
$53,000 and $0.01, respectively.
4. INSURANCE COSTS:
The Company has obtained insurance premium quotations for the Acquired
Hotels which indicate that insurance expense will be approximately $180,000
less than the historical insurance expense which was incurred by the Acquired
Hotels. This reduction in expense has not been reflected in the pro forma
financial statements.
5. PRO FORMA NET INCOME PER SHARE:
The pro forma net income per share has been calculated by dividing pro forma
net income by 7,084,253 common shares outstanding plus 11,000 shares to be
issued to certain Company officers in connection with the Offering.
F-27
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF INCOME,
CONTINUED
5. PRO FORMA NET INCOME PER SHARE, CONTINUED:
The Company intends to use the $61.7 million net proceeds of the Offering to
repay outstanding indebtedness. The use of the proceeds to repay debt will
reduce interest expense by $5.1 million ($3.4 million after tax). Pro forma
net income per share after reflecting this reduction of interest expense is
$0.49 per share based on 12,270,253 shares outstanding after the Offering.
Also, in connection with the repayment of debt, the Company expects to incur
prepayment penalties of $139,000 and write-off $680,000 of deferred loan fees
related to the long-term debt. These non-recurring charges of $541,000, net of
income taxes, are expected to be charged to operations upon repayment. Such
costs have not been included in the pro forma statement of income for the year
ended October 31, 1997.
F-28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
The Company.............................................................. 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Combined Financial and Other Data............................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business and Properties.................................................. 30
Management............................................................... 42
Certain Relationships and Related Transactions........................... 49
Ownership of Common Stock................................................ 51
Partnership Agreement of the Operating Partnership....................... 52
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Experts.................................................................. 60
Legal Matters............................................................ 60
Additional Information................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,175,000 SHARES
[LOGO OF CAVANAUGHS HOSPITALITY CORPORATION]
COMMON STOCK
----------------
PROSPECTUS
----------------
CIBC OPPENHEIMER
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, paid or payable in connection with the issuance and
distribution of the Common Stock being registered hereby (all amounts are
estimated except the Securities and Exchange Commission Registration Fee, the
NASD Filing Fee and the NYSE Listing Fee):
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 24,600
NASD Filing Fee................................................. 8,800
NYSE Listing Fee................................................ 84,600
Printing and Engraving Expenses................................. 50,000
Legal Fees and Expenses......................................... 350,000
Accounting Fees and Expenses.................................... 380,000
Transfer Agent and Registrar Fees............................... 2,000
--------
Total......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated By-Laws ("By-Laws") and Amended and
Restated Articles of Incorporation (the "Articles") provide that the Company
shall, to the full extent permitted by the Washington Business Corporation Act
(the "WBCA"), as amended from time to time, indemnify all directors and
officers of the Company. In addition, the Company's Articles contain a
provision eliminating the personal liability of directors to the Company or
its stockholders for monetary damage arising out of a breach of fiduciary
duty. Chapter 23B.08.510 and .570 of the WBCA authorizes a corporation to
indemnify its directors, officers, employees, or agents in terms sufficiently
broad to permit such indemnification under certain circumstances for
liabilities (including provisions permitting advances for reasonable expenses
incurred) arising under the 1933 Act.
Pursuant to Chapter 23B.08.580 of the WBCA, the Board of Directors (the
"Board") may authorize, by a vote of a majority of a quorum of the Board, the
Company to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Company would have the power to
indemnify him against such liability under Chapter 23B.08.510 or 23B.08.520 of
the WBCA. The Board intends to authorize the Company to purchase and maintain
appropriate policies of insurance on behalf of the Company's directors and
officers against liabilities asserted against any such person arising out of
his or her status as such. The Board may authorize the Company to enter into a
contract with any person who is or was a director, officer, partner, trustee,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another partnership,
joint venture, trust, employee benefit plan or other enterprise providing for
indemnification rights equivalent to or, if the Board so determines, greater
than those provided for in the By-Laws. The Board intends to authorize the
Company to enter into contracts providing for indemnification with any person
who is or was a director or officer of the Company.
Section 6 of the Underwriting Agreement (filed as an Exhibit hereto)
provides that the Underwriters will indemnify and hold harmless the Company
and each director, officer or controlling person of the Company from and
against any liability caused by any statement or omission in the Registration
Statement or Prospectus based on certain information furnished to the Company
by the Underwriters for use in the preparation thereof.
Each of the employment agreements described in "Management--Employment
Agreements" contains provisions entitling the executive to indemnification for
losses incurred in the course of service to the Company or its subsidiaries,
under certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective November 3, 1997, Barbieri Investment Company ("BIC"), a company
that was owned by the same group of shareholders which owned the Company prior
to such date, merged into the Company. In connection with this merger, the
Company issued an aggregate of 7,072,025 shares of Common Stock to the
shareholders of the Company and BIC. This issuance of Common Stock is exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act") pursuant to Section 4(2) promulgated thereunder.
Effective January 1, 1998, the Company issued an aggregate of 150,817 OP
Units to the Barbieri Family Foundation, Inc. ("BBF"), Donald Barbieri,
Richard Barbieri and Thomas Barbieri and 12,228 shares of Common Stock to
Kathryn Barbieri in exchange for such persons' partnership interests in the
G&B: Lincoln Building partnership. This issuance is exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
On January 15, 1998, the Board adopted the 1998 Plan which provides for,
subject to the closing of the Offering, the issuance of an aggregate of 55,000
shares of Common Stock to Arthur Coffey (15,000 shares), John Taffin (10,000
shares), Lori Farnell (10,000 shares), David Peterson (10,000 shares) and
Shannon Kapek (10,000 shares) over five years. Of these 55,000 shares, 11,000
will be issued upon closing of the Offering and an additional 11,000 shares
will be issued on each anniversary thereof until such anniversary date in 2002
provided such person is an employee of the Company at that time.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement
3.1* --Amended and Restated Articles of Incorporation of the Company
3.2* --Amended and Restated By-Laws of the Company
4.1* --Specimen Common Stock Certificate
5.1 --Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP,
regarding the legality of issuance of the Common Stock being
registered
5.2 --Opinion of Dennis McLaughlin & Associates P.S. regarding the
legality of the issuance of the Common Stock being registered.
10.1 --Employment Agreement between the Company and Donald Barbieri
10.2 --Employment Agreement between the Company and Arthur Coffey
10.3 --Employment Agreement between the Company and Richard Barbieri
10.4 --Employment Agreement between the Company and David Bell
10.5 --Employment Agreement between the Company and Thomas Barbieri
10.6 --Form of Revolving Credit Facility Agreement
10.7* --Amended and Restated Agreement of Limited Partnership of
Cavanaughs Hospitality Limited Partnership
10.8* --Employee Stock Purchase Plan of Cavanaughs Hospitality
Corporation
10.9* --1998 Stock Incentive Plan of Cavanaughs Hospitality
Corporation
10.11 --Form of Stock Option Award Agreement
10.12* --Form of Restricted Stock Award Agreement
10.13* --Gateway Property Lease Agreement
10.13(A)* --Gateway Property Option Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.14* --Ridpath Property Lease Agreement
11.0* --Computation of Earnings Per Share
21 --List of Subsidiaries of the Company
23.1 --Consent of Coopers & Lybrand L.L.P.
23.2 --Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP
(included in Exhibit 5.1)
23.2(A) --Consent of Dennis McLaughlin & Associates P.S. (included in
Exhibit 5.2)
23.3* --Consent of Peter F. Stanton
23.4* --Consent of Ronald R. Taylor
23.5* --Consent of Robert G. Templin
24.1* --Power of Attorney (see signature pages)
27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously filed.
b. Financial Statement Schedules
All schedules for which provisions is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable or the information is contained
in the Financial Statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
a. To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser;
b. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue;
c. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
d. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
SPOKANE AND STATE OF WASHINGTON, ON THE 10TH DAY OF MARCH, 1998.
Cavanaughs Hospitality Corporation
/s/ Richard L. Barbieri
By: _________________________________
RICHARD L. BARBIERISENIOR VICE
PRESIDENT AND GENERAL COUNSEL
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
* President, Chief
- ------------------------------------- Executive Officer March 10, 1998
DONALD K. BARBIERI and Chairman of the
Board
* Executive Vice
- ------------------------------------- President, Chief March 10, 1998
ARTHUR M. COFFEY Financial Officer
and Director
(principal
accounting officer)
/s/ Richard L. Barbieri Senior Vice
- ------------------------------------- President, General March 10, 1998
RICHARD L. BARBIERI Counsel and
Director
* Senior Vice
- ------------------------------------- President and March 10, 1998
THOMAS M. BARBIERI Director
*By: /s/ Richard L. Barbieri
-----------------------
RICHARD L. BARBIERI
(ATTORNEY-IN-FACT)
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement
3.1* --Amended and Restated Articles of Incorporation of the Company
3.2* --Amended and Restated By-Laws of the Company
4.1* --Specimen Common Stock Certificate
5.1 --Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP,
regarding the legality of issuance of the Common Stock being
registered
5.2 --Opinion of Dennis McLaughlin & Associates P.S. regarding the
legality of the issuance of the Common Stock being registered.
10.1 --Employment Agreement between the Company and Donald Barbieri
10.2 --Employment Agreement between the Company and Arthur Coffey
10.3 --Employment Agreement between the Company and Richard Barbieri
10.4 --Employment Agreement between the Company and David Bell
10.5 --Employment Agreement between the Company and Thomas Barbieri
10.6 --Form of Revolving Credit Facility Agreement
10.7* --Amended and Restated Agreement of Limited Partnership of
Cavanaughs Hospitality Limited Partnership
10.8* --Employee Stock Purchase Plan of Cavanaughs Hospitality
Corporation
10.9* --1998 Stock Incentive Plan of Cavanaughs Hospitality Corporation
10.11 --Form of Stock Option Award Agreement
10.12* --Form of Restricted Stock Award Agreement
10.13* --Gateway Property Lease Agreement
10.13(A)* --Gateway Property Option Agreement
10.14* --Ridpath Property Lease Agreement
11.0* --Computation of Earnings Per Share
21 --List of Subsidiaries of the Company
23.1 --Consent of Coopers & Lybrand L.L.P.
23.2 --Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included
in Exhibit 5.1)
23.2(A) --Consent of Dennis McLaughlin & Associates P.S. (included in
Exhibit 5.2)
23.3* --Consent of Peter F. Stanton
23.4* --Consent of Ronald R. Taylor
23.5* --Consent of Robert G. Templin
24.1* --Power of Attorney (see signature pages)
27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously filed
II-5
<PAGE>
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT: DRAFT]
5,750,000 Shares
CAVANAUGHS HOSPITALITY CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
March __, 1998
CIBC Oppenheimer Corp.
Nationsbanc Montgomery Securities, LLC
c/o CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Cavanaughs Hospitality Corporation, a Washington corporation (the
"Company"), proposes to sell to you (the "Underwriters") an aggregate of
5,000,000 shares (the "Firm Shares") of the Company's common stock, $0.01 par
value (the "Common Stock"). In addition, the Company proposes to grant to the
Underwriters an option to purchase up to an additional 750,000 shares (the
"Option Shares") of Common Stock for the purpose of covering over-allotments in
connection with the sale of the Firm Shares. The Firm Shares and the Option
Shares are together called the "Shares." In connection therewith, the Company
and Cavanaughs Hospitality Limited Partnership, a Delaware limited partnership
(the "Operating Partnership") agree with you as follows:
1. Sale and Purchase of the Shares. On the basis of the
-------------------------------
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $_________ per share (the "Initial Price"), the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule I to
----------
this Agreement.
(b) The Company grants to the Underwriters an option to purchase,
severally and not jointly, all or any part of the
<PAGE>
Option Shares at the Initial Price. Each Underwriter shall purchase a
percentage (adjusted to eliminate fractions) of the total number of Option
Shares equal to the percentage of the Firm Shares purchased by such
Underwriter. Such option may be exercised only to cover over-allotments in
the sales of the Firm Shares by the Underwriters and may be exercised in
whole or in part at any time on or before 12:00 noon, New York City time,
on the business day before the Firm Shares Closing Date (as defined below),
and from time to time thereafter within 30 days after the date of this
Agreement, in each case upon notice setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase which shall be not more than three business
days following the date of exercise of the option.
2. Delivery and Payment. Delivery by the Company of the Firm Shares
--------------------
to the Underwriters for their respective accounts, and payment of the purchase
price therefor by wire transfer of same day funds to the Company at the bank
account designated in writing by the Company at least one business day prior to
the Firm Shares Closing Date, shall take place at the offices of Rogers & Wells
LLP, 200 Park Avenue, New York, New York 10166, at 10:00 a.m., New York City
time, on the third business day following the date of this Agreement; provided,
--------
however, that if the Firm Shares sold hereunder are priced after 4:30 p.m., New
- -------
York City time, on any business day, payment and delivery in respect of the Firm
Shares shall take place on the fourth business day following the date of this
Agreement; and further, if it is determined that settlement within the foregoing
time frame is not feasible, then payment and delivery in respect of the Firm
Shares shall occur at such time on such other date, not later than ten business
days after the date of this Agreement, as shall be agreed upon by the Company
and the Underwriters (such time and date of delivery and payment are called the
"Firm Shares Closing Date").
In the event the option with respect to all or any part of the Option
Shares is exercised, delivery by the Company of the Option Shares to the
Underwriters for their respective accounts, and payment of the purchase price
therefor by wire transfer of same day funds to the Company at the bank account
designated in writing by the Company at least one business day prior to the
Option Shares Closing Date (as defined below), shall take place at the offices
of Rogers & Wells LLP specified above at the time and on the date (which may be
the same date as, but in no event shall be earlier than, the Firm Shares Closing
Date) specified in the notice referred to in Section 1(b) (such time and date of
delivery and payment with respect to each exercise of the option are called an
"Option Shares Closing Date"). The Firm Shares Closing Date and each Option
Shares Closing Date are called, individually, a "Closing Date" and,
collectively, the "Closing Dates."
Unless otherwise indicated, certificates evidencing the Shares shall
be registered in such names and shall be in such
2
<PAGE>
denominations as the Underwriters shall request at least two full business days
before the Firm Shares Closing Date or, in the case of Option Shares, on the day
of notice of exercise of the option as described in Section 1(b) and shall be
made available to the Underwriters for checking and packaging, at such place as
is designated by the Underwriters, at least one full business day before the
Firm Shares Closing Date (or the Option Shares Closing Date in the case of the
Option Shares).
3. Representations and Warranties of the Company. The Company and
---------------------------------------------
the Operating Partnership hereby represent and warrant to each Underwriter as
follows:
(a) A registration statement on Form S-1 (File No. 333-44491), with
respect to the Shares, including a preliminary prospectus, has been
carefully prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations (the "Securities Rules") of the Securities and
Exchange Commission (the "Commission") thereunder, filed with the
Commission and declared effective. Such registration statement may have
been amended or supplemented prior to the date of this Underwriting
Agreement; any such amendment of such registration statement or supplement
was so prepared and filed, and any such amendment filed after the effective
time of such registration statement (the "Effective Time") has been
declared effective. Such registration statement (as amended, if
applicable) and the prospectus constituting a part thereof including, in
each case, the information, if any, deemed to be a part thereof pursuant to
Rule 430A under the Securities Rules, is referred to herein as the
"Registration Statement." A prospectus will be prepared and will be filed
pursuant to Rule 424(b) of the Securities Rules on or before the second
business day after the date hereof (or such earlier time as may be required
by the Securities Rules). The term "Prospectus" shall refer to such final
prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Securities Rules. For purposes of this Underwriting
Agreement, all references to the Registration Statement, the Prospectus,
any preliminary prospectus or any amendment or supplement thereto shall be
deemed to include any copy filed with the Commission pursuant to its
Electronic Data Gathering Analysis and Retrieval System (EDGAR), and such
copy shall be identical to any Prospectus delivered to you for use in
connection with the offering of the Securities by the Company. No stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been instituted or
threatened by the Commission. Copies of the Registration Statement and
Prospectus, any such amendments or supplements that were filed with the
Commission on or prior to the date of this Underwriting Agreement have been
delivered or made available to you and your counsel.
3
<PAGE>
(b) Each part of the Registration Statement, when such part became or
becomes effective and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission and at the Firm
Shares Closing Date and, if later, at an Option Shares Closing Date,
conformed or will conform in all material respects with the requirements of
the Securities Act and the Securities Rules; each part of the Registration
Statement, when such part became or becomes effective, or when such part
was filed with the Commission, did not or will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; the Prospectus and any amendment or supplement thereto, on the
date of filing thereof with the Commission and at the Firm Shares Closing
Date and, if later, at an Option Shares Closing Date, did not or will not
include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing shall not apply to statements in, or omissions from, any such
document in reliance upon, and in conformity with, written information
concerning the Underwriters that was furnished to the Company by the
Underwriters specifically for use in the preparation thereof.
(c) Except as noted therein, the financial statements of the Company
together with the related schedules and notes thereto, set forth or
included in the Registration Statement and Prospectus fairly present the
financial condition of the Company, Barbieri Investment Company ("BIC"), a
Washington corporation, and their respective subsidiaries (including
partnerships), as of the dates indicated and the results of operations,
changes in financial position, stockholders' equity and cash flows for the
periods therein specified, in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein). The summary and selected financial and
statistical data included in the Registration Statement and the Prospectus
present fairly the information shown therein and, to the extent based upon
or derived from the financial statements, have been compiled on a basis
consistent with the financial statements presented therein. In addition,
the pro forma financial statements of the Company and the related notes
thereto, included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements have been properly compiled on the basis described therein, and
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein. Furthermore, all financial
statements required by Rule 3-14 of Regulation S-X ("Rule 3-14"), if any,
have been included in the Registration Statement
4
<PAGE>
and the Prospectus and any such financial statements are in conformity with
the requirements of Rule 3-14. No other financial statements are required
to be set forth in the Registration Statement or the Prospectus under the
Securities Act, the Securities Rules or Regulation S-X.
(d) Coopers & Lybrand, whose reports are included in the Registration
Statement, during the periods covered by their reports, were independent
public accountants as required by the Securities Act and the Securities
Rules.
(e) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Washington.
The Operating Partnership, North River Drive Company, Cavanaughs
Hospitality Corporation, a Delaware corporation ("Cavanaughs Delaware") and
Cowley Street Limited Partnership (which the Company holds a 50% general
partner interest in only) (hereafter, the "Subsidiaries") have been duly
organized or incorporated, as the case may be, and are validly existing and
in good standing in the jurisdictions of their incorporation or
organization. The Company and each of its Subsidiaries are duly qualified
and in good standing as foreign corporations in each jurisdiction in which
the character or location of the assets or properties (owned, leased or
licensed) or the nature of their business makes such qualification
necessary (including every jurisdiction in which they own or lease
property), except for such jurisdictions where the failure to so qualify
would not have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and its Subsidiaries, considered as one
enterprise ("Material Adverse Effect"). The Company and its Subsidiaries
do not own, lease or license any asset or property or conduct any business
outside the United States of America. The Company and its Subsidiaries
have all requisite corporate and partnership power and authority, and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies
or any other person or entity, to own, lease, license and operate their
assets and properties and conduct their business as now being conducted and
as described in the Registration Statement and the Prospectus; except for
such authorizations, approvals, consents, orders, licenses, certificates
and permits the absence of which would not have a Material Adverse Effect;
and no such authorization, approval, consent, order, license, certificate
or permit contains a materially burdensome restriction other than as
disclosed in the Registration Statement and the Prospectus.
(f) The Company and its Subsidiaries own or possess adequate and
enforceable rights to use all trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-
how and
5
<PAGE>
other similar rights (collectively, the "Intangibles") necessary for the
conduct of its business as now being conducted and as described in the
Registration Statement and the Prospectus. To the Company's knowledge,
neither the Company nor any of its Subsidiaries has infringed, is
infringing, and have not received any notice of infringement of, any
Intangible of any other person.
(g) The Company and each of its Subsidiaries, as the case may be, have
good title to each of the items of real and personal property which are
reflected in the financial statements referred to in Section 4(d) (except
as described below) or are referred to in the Registration Statement and
the Prospectus as being owned by the Company and its Subsidiaries and valid
and enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Registration Statement and
the Prospectus as being leased by the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances, claims, security interests
and defects, other than those described in the Registration Statement and
the Prospectus and those which do not and will not have a Material Adverse
Effect. The Company and its subsidiaries no longer own the companies or
the items of personal or real property transferred by the Company and by
BIC in connection with the "Asset Contribution" and the "Spin-off," as
described in the Registration Statement and Prospectus.
(h) Except for the real property transferred pursuant to the Asset
Contribution and Spin-off described in the Registration Statement under
"Certain Relationships and Related Transactions", the Company and its
Subsidiaries have good and marketable title to (i) all properties owned by
the Company, and by Barbieri Investment Company, a predecessor of the
Company ("BIC"), and their respective subsidiaries (including partnerships)
prior to the Pre-IPO Reorganization Transactions (as hereinafter defined),
and (ii) all properties described in the Registration Statement and the
Prospectus therein as being acquired after October 31, 1997 and owned by
the Company and its Subsidiaries (together with the properties in (i) above
the "Properties"); free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Registration Statement
and the Prospectus, or are not material in relation to the business of the
Company; no lessee under any of the leases pursuant to which the Company
and its Subsidiaries leases properties has an option or right of first
refusal to purchase the premises demised under such lease; the use and
occupancy of each of the Properties complies in all material respects with
all applicable codes and zoning laws and regulations; the Company and its
Subsidiaries have no knowledge of any pending or threatened condemnation or
zoning change that will in any material manner affect the size of, use of,
improvements on, construction on, or access to any of the Properties, which
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would have a material adverse effect upon the proposed use of such
Property; and the Company has no knowledge of any pending or threatened
proceeding or action that will in any material respect affect the size of,
use of, improvement of, construction on, or access to any of the
Properties.
(i) Title insurance in favor of the mortgagee and the Company and its
Subsidiaries is maintained with respect to each of the real properties
described in the Registration Statement (the "Real Properties") in an
amount at least equal to the greater of (i) the cost of acquisition of such
Real Property or (ii) the amount of any mortgage on the Real Property,
whichever is greater.
(j) The mortgages and deeds of trust encumbering the Properties and
assets described in the Registration Statement and the Prospectus are not
convertible into shares of Common Stock or other equity interest in the
Company and/or its Subsidiaries nor does the Company or any Subsidiary hold
a participating interest therein.
(k) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or, to the Company's knowledge, threatened (and the Company knows
of no basis therefor) against, or involving the assets, properties or
businesses of the Company and its Subsidiaries which might materially
adversely affect the value or the operation of any such assets or
properties or the business, results of operations, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, or which is
required to be disclosed in the Registration Statement and Prospectus.
(l) Except as disclosed in the Registration Statement or the
Prospectus, (i) there is not present on any of the Properties any hazardous
substance, hazardous material, toxic substance, asbestos or waste material
(other than those generated and present in the ordinary course of business
at the Properties in compliance with applicable law) (collectively,
"Hazardous Materials"), (ii) there has not occurred there is not presently
occurring from or at any of such Properties any unlawful spills, releases,
discharges or disposal of Hazardous Materials, and (iii) all such
Properties are in compliance with all applicable local, state and federal
environmental laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials, except for any
failure to comply which would not have a Material Adverse Effect. The
Company has caused Phase I Environmental Surveys to be completed with
respect to each of the Properties and has made available copies of all such
Environmental Surveys to the Underwriters.
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(m) Property and casualty insurance in favor of the Company and its
Subsidiaries is maintained with respect to each of the Properties, in an
amount and on such terms as are reasonable and customary for businesses of
this type.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the assets
or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, whether or
not arising from transactions in the ordinary course of business; (ii) the
Company and its Subsidiaries have not sustained any material loss or
interference with their assets, businesses or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree; and (iii) since
the date of the latest balance sheet included in the Registration Statement
and the Prospectus, except as reflected therein, the Company and its
Subsidiaries have not undertaken any liability or obligation, direct or
indirect, or contingent, except such liabilities or obligations undertaken
in the ordinary course of business, or as are disclosed in the Registration
Statement.
(o) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. The limited partnership agreement of the Operating Partnership
and each mortgage, commitment letter, line of credit agreement, loan
agreement, guarantee, employee leasing agreement, property management
agreement, franchise agreement, cost reimbursement agreement, employment
contract, stock option agreement, warrant agreement, registration rights
agreement, leasing agreement, construction contract, purchase agreement and
all other agreements of the Company and its Subsidiaries described in the
Registration Statement or the Prospectus or listed as exhibits to the
Registration Statement are in full force and effect and are valid and
enforceable by and against the Company and its Subsidiaries, to the extent
each is a party thereto, in accordance with their terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto. Neither the Company nor its Subsidiaries nor any other party, to
the best of the Company's knowledge, is in default in the observance or
performance of any term or obligation to be performed by it under any such
agreement, and no event has occurred which with notice or lapse of time or
both would constitute such a default, which default or event would have a
Material Adverse Effect. No default exists, and no event has occurred
which with notice or lapse of time or both would constitute a default, in
the due performance and observance of any term, covenant or condition,
8
<PAGE>
by the Company and its Subsidiaries, of any other agreement or instrument
to which the Company or any Subsidiary is a party or by which they or their
properties or businesses may be bound or affected, which default or event
would have a Material Adverse Effect.
(p) Neither the Company nor its Subsidiaries is in violation of any
term or provision of their respective charters or by-laws, certificates of
limited partnership, partnership agreements, or other organizational
documents, as the case may be, or of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation, where the
consequences of such violation or violations would have a Material Adverse
Effect.
(q) Neither the execution, delivery and performance of this Agreement
by the Company and the Operating Partnership, nor the consummation by them
of any of the transactions contemplated hereby (including, without
limitation, the issuance and sale by the Company of the Shares) will give
rise to a right to terminate or accelerate the due date of any payment due
under, or conflict with or result in the breach of any term or provision
of, or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or require any consent or waiver
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or its
Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company and its
Subsidiaries is a party or by which any of them is bound, or any other
properties or businesses are bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company and its Subsidiaries or violate any provision of the respective
charters, by-laws, certificates of limited partnership, partnership
agreements, or other organizational documents, as the case may be, of the
Company and its Subsidiaries, except for such consents or waivers which
have already been obtained and are in full force and effect.
(r) The Company has authorized, issued and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus. All of
the outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and none of them was
issued in violation of any preemptive or other similar right. The Shares,
when issued and sold pursuant to this Agreement, will be duly authorized
and validly issued, fully paid and nonassessable and none of them will be
issued in violation of any preemptive or other similar right. Except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and
there is no commitment, plan or arrangement to issue, any share of capital
stock of the Company or any
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<PAGE>
security convertible into or exercisable or exchangeable for, such capital
stock. The Common Stock and the Shares conform in all material respects to
all statements relating thereto contained in the Registration Statement and
the Prospectus.
(s) All the issued and outstanding units of the Operating Partnership
(the "Units") have been duly authorized and validly issued and are fully
paid and non-assessable and none of them was issued in violation of any
preemptive or other similar right. As of the date hereof there are _____
Units issued and outstanding, _____ of which are owned by the Company,
_____ of which are owned by North River Drive Company, the Company's
wholly-owned subsidiary and _____________ of which are owned by
____________. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right calling
for the issuance of, and there is no commitment, plan or arrangement to
issue, any Units or any security convertible into or exercisable or
exchangeable for, such Units. The Units conform in all material respects to
all statements relating thereto contained in the Registration Statement and
the Prospectus.
(t) All of the issued and outstanding capital stock of each corporate
Subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim. The partnership
agreement of each partnership Subsidiary is in full force and effect and,
all partnership interests in each such partnership Subsidiary held by the
Company are owned as described in the Registration Statement and
Prospectus, in each case, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim, except as described in the
Registration Statement. The Company owns all of the issued outstanding
capital stock of North River Drive Company and Cavanaughs Delaware, and
directly or indirectly all of the partnership interests a 50% general
partnership interest in Cowley Street Limited Partnership. The Company
does not own equity securities in any entity other than its Subsidiaries.
(u) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
or referred to therein, neither the Company nor any Subsidiary has (i)
issued any securities or incurred any liability or obligation, direct or
contingent, except such liabilities or obligations incurred in the ordinary
course of business including, without limitation, debt financing to
acquire properties (ii) entered into any transaction not in the ordinary
course of business or (iii) declared or paid any dividend or made any
distribution on any shares of its capital stock, or partnership interest,
as the case may be, or redeemed, purchased or otherwise acquired or agreed
to redeem, purchase or otherwise acquire
10
<PAGE>
any shares of its capital stock, or partnership interests, as the case may
be.
(v) Except as disclosed in the Registration Statement and Prospectus
no holder of any security of the Company or any Subsidiary has the right
which has not been waived to have any security owned by such holder
included in the Registration Statement [or any right to demand registration
of any security owned by such holder.] Each of the Company, the Operating
Partnership and each of Richard K. Barbieri, Thomas M. Barbieri,
__________, __________, and _________ have delivered to the Underwriters
their enforceable written agreement (the "Lock-up Agreements") that such
party will not sell, offer to sell, contract to sell, pledge or otherwise
dispose of or transfer, directly or indirectly, any shares of Common Stock
or other capital stock of the Company, or any securities convertible into
or exchangeable or exercisable for, or any rights to purchase or acquire,
shares or Common Stock or other capital stock for a period of one year
commencing on the date of this Agreement, without the prior written consent
of CIBC Oppenheimer Corp., other than the sale of the Shares in the
Offering and the issuance or transfer of: (i) options to purchase shares
of Common Stock (and shares of Common Stock issuable upon the exercise of
such options) issued pursuant to the Plans (as defined in the Registration
Statement); (ii) shares of Common Stock in connection with estate planning;
(iii) 55,000 restricted shares of Common Stock to be awarded to certain
employees of the Company; and, (iv) securities of the Company or the
Operating Partnership issued in connection with the acquisition by the
Company of real property or interests in entities holding real property,
provided that the recipient or transferee of such securities agrees in
writing to be subject to the lock-up contained in this paragraph (without
giving effect to clauses (i), (ii) and (iii)) for a period ending on the
date that is one year after the date hereof. Donald Barbieri has delivered
to the Underwriters a lock-up agreement whereby he was agreed, subject to
the same exceptions set forth above, not to sell, offer to sell, contract
to sell, pledge or otherwise dispose of or transfer, directly or
indirectly, any shares of Common Stock or other capital stock of the
Company, or any securities convertible into or exchangeable or exercisable
for, or any rights to purchase or acquire, shares of Common Stock or other
capital stock of the Company, for a period of three years commencing on the
date of this Agreement, without the prior written consent of CIBC
Oppenheimer Corp.; provided, however, he may sell or otherwise transfer
ownership of up to one-third of his shares of Common Stock on each
anniversary of the date of this Agreement without the consent of CIBC
Oppenheimer Corp.
(w) All necessary corporate or partnership action, as the case may be,
has been duly and validly taken by the Company and the Operating
Partnership to authorize the execution, delivery and performance of this
Agreement and the
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<PAGE>
issuance and sale of the Shares by the Company. This Agreement has been
duly and validly authorized, executed and delivered by the Company and the
Operating Partnership and constitutes and will constitute the legal, valid
and binding obligations of the Company and the Operating Partnership
enforceable against the Company and the Operating Partnership in accordance
with its terms. Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company and the Operating Partnership of this Agreement and the
issuance and sale of the Shares by the Company (except such as may be
required under the Securities Act or such additional steps as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the New York Exchange ("NYSE"), if any) has been obtained or
made and is in full force and effect. The Shares have been approved for
listing on the NYSE, subject only to official notice of issuance.
(x) Neither the Company nor any Subsidiary is involved in any labor
dispute nor, to the knowledge of the Company, is any such dispute
threatened or contemplated.
(y) The Company and its Subsidiaries are conducting their business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, the Americans with Disabilities Act of 1990 and all applicable
local, state and federal employment, truth-in-advertising, franchising and
immigration laws and regulations, except where the failure to be so in
compliance would not have a Material Adverse Effect.
(z) No transaction has occurred between or among the Company and its
Subsidiaries, or any of the Company's Pre-IPO Reorganization Transactions
affiliates, and any of their officers or directors or any affiliate or
affiliates of any such officer or director that is required to be described
in and is not described in the Registration Statement and the Prospectus.
(aa) The Company and its Subsidiaries have not taken, and will not
take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of any of the Shares.
(bb) The Company and its Subsidiaries and BIC have filed all federal,
state, local and foreign tax returns which are required to be filed through
the date hereof (and will file all such tax returns when and as required to
be filed after the date hereof, or have received extensions thereof, and
have
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<PAGE>
paid all taxes shown on such returns to be due on or prior to the date
hereof (and will pay all taxes shown on such returns to be due after the
date hereof) and all assessments received by it to the extent that the same
are material and have become due.
(cc) All shares of Common Stock of the Company issued in connection
with the Pre-IPO Reorganization Transactions (as defined below) (the
"Reorganization Shares") were duly authorized for issuance by the Company,
and are validly issued, fully-paid and non-assessable. The Reorganization
Shares were offered and sold in compliance with all applicable laws
(including, without limitation, federal and state securities laws). "Pre-
IPO Reorganization Transactions" as used in this Agreement shall mean the
reorganization transactions, share and OP Unit issuances, mergers, spin-
offs, property and asset contributions and transfers, and other
transactions contemplated by the joint resolutions of the shareholders and
boards of directors of the Company and BIC dated August __, 1997 and
October __, 1997, and any resolutions supplementing such resolutions (the
"Reorganization Resolutions").
(dd) The execution and delivery of all agreements and documents
executed in connection with or in contemplation of the Pre-IPO
Reorganization Transactions (the "Reorganization Transaction Documents")
and the performance of the obligations set forth therein and the
consummation of the transactions contemplated thereby and by the
Reorganization Resolution have been duly and validly authorized by all
necessary corporate, shareholder or partnership action, as the case may be,
by or on behalf of the parties thereto. Except as described in the
Prospectus, each of the Pre-IPO Reorganization Transactions and the
performance of the obligations contemplated thereby and by the
Reorganization Resolution have been completed on the date hereof. The
consummation of the Pre-IPO Reorganization Transactions did not give rise
to a right to terminate or accelerate the due date of any payment due
under, or conflict with or result in the breach of any term or provision
of, or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or require any consent or waiver
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company, BIC, or their
respective subsidiaries pursuant to the terms of, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company, BIC or
their subsidiaries is or was a party or by which any of them is bound, or
any other of their properties or businesses are bound, or any franchise,
license, permit, judgment, decree, order, statute, rule or regulation
applicable to the Company, BIC and their respective subsidiaries
(including, without limitation, any partnership holding title to any
Property prior to the Pre-IPO Reorganization Transactions) or violate any
provision of their
13
<PAGE>
respective charters, by-laws, certificates of limited partnership,
partnership agreements, or other organizational documents, as the case may
be, except for such violations as have been cured or consents or waivers
which have already been obtained and are in full force and effect as of the
date hereof, or where the failure to cure such violations or obtain, in the
aggregate, would not have a Material Adverse Effect.
(ee) The contribution by the Company and BIC of certain assets not
related to the Company's core hospitality business, pursuant to the
Reorganization Resolutions is a tax free transaction under Section
[361][357] of the Internal Revenue Code of 1986, as amended (the "Code")
and will not result in a loss or gain to the Company or BIC. The pro rata
distribution of all of the shares of capital stock of Inland Northwest
Corporation and Huckleberry Bay Corporation (the "Subsidiaries' Stock") by
the Company to the holders of the Common Stock of the Company, pursuant to
the Reorganization Resolutions qualifies as a distribution within the
meaning of Code Section 355(a) and accordingly, no gain or loss will be
recognized by (and no amount will be included in the income of) the
Company's stockholders upon the receipt of the such capital stock and,
under Code Section 355(c), no gain or loss will be recognized by the
Company on the distribution of the Subsidiaries' Stock to the Company's
stockholders.
(ff) The Operating Partnership possesses such certificates,
authorizations, licenses or permits issued by the appropriate local, state,
federal or foreign regulatory agencies or bodies necessary to own and
operate the Properties, and to conduct the business being conducted by it,
or proposed to be conducted by it as described in the Prospectus, except
for such certificates, authorizations, licenses and permits, the failure to
obtain, maintain or possess which would not have a Material Adverse Effect,
and the Company and its Subsidiaries have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority, license or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
(gg) (A) At the Closing Time, the Operating Partnership will have good
and marketable title or a valid leasehold estate, as the case may be, to
each of the Properties and other real property interests indicated in the
Prospectus to be owned or leased by the Operating Partnership, in each case
free and clear of all liens, encumbrances, claims, security interests and
defects, other than (i) those referred to in the Prospectus, and (ii)
mortgages on each of the Properties, and (iii) those which would not have a
Material Adverse Effect.
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(hh) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
4. Conditions of the Underwriters' Obligations. The obligations of
-------------------------------------------
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a) of this Agreement.
(b) No order preventing or suspending the use of the Prospectus shall
have been or shall be in effect and no order suspending the effectiveness
of the Registration Statement shall be in effect and no proceedings for
such purpose shall be pending before or threatened by the Commission, and
any requests for additional information on the part of the Commission (to
be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of you and your counsel.
(c) The representations and warranties of the Company and the
Operating Partnership contained in this Agreement shall be true and correct
when made and on and as of each Closing Date as if made on such date and
the Company and the Operating Partnership shall have performed all
covenants and agreements and satisfied all the conditions contained in this
Agreement required to be performed or satisfied by them at or before such
Closing Date.
(d) The Underwriters shall have received on each Closing Date a
certificate, addressed to the Underwriters and dated such Closing Date, of
the chief executive officer or the chief financial officer of the Company,
to the effect that such person has carefully examined the Registration
Statement, the Prospectus and this Agreement and that the representations
and warranties of the Company and the Operating Partnership in this
Agreement are true and correct on and as of such Closing Date with the same
effect as if made on such Closing Date and the Company and the Operating
Partnership have performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or
satisfied by them at or prior to such Closing Date.
(e) The Underwriters shall have received at the time this Agreement is
executed and on each Closing Date, a letter or letters signed by Coopers &
Lybrand, addressed to the Underwriters and dated, respectively, the date of
this Agreement and each such Closing Date, in form and substance
satisfactory to the Underwriters, as to their status as independent
accountants within the meaning of the Securities Act and the Securities
Rules and matters relating to the financial statements and other financial
and statistical
15
<PAGE>
information included in the Registration Statement and the Prospectus.
[RIDER 15-1 TO COME] [Comfort letter paragraph to come]
(f) The Underwriters shall have received on each Closing Date from
Kaye, Scholer, Fierman, Hays & Handler LLP, counsel for the Company, an
opinion, addressed to the Underwriters and dated such Closing Date, and
stating in effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Washington. Each of the Subsidiaries is duly incorporated, or
organized, as the case may be, and is validly existing and in good
standing in the respective jurisdiction of its organization or
incorporation, the Company and its Subsidiaries are duly qualified and
in good standing as foreign corporations in Idaho, Montana and Oregon.
To the best of such counsel's knowledge, except for the Operating
Partnership, North River Drive Company, Cavanaughs Delaware and Cowley
Street Limited Partnership, the Company has no other subsidiary and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization; and the Company and its Subsidiaries have all requisite
corporate and partnership power and authority to own, lease, license
and operate their assets and properties and conduct their business as
now being conducted and as described in the Registration Statement and
the Prospectus; except for such authorizations, approval, consents,
orders, licenses, certificates, and permits the absence of which would
not have a Material Adverse Effect.
(ii) The Company has authorized, issued and outstanding capital
stock as set forth under the caption "Description of Capital Stock" in
the Prospectus; the certificates evidencing the Shares are in due and
proper legal form and have been duly authorized for issuance by the
Company; all of the outstanding shares of Common Stock have been duly
authorized and validly issued; and all of the outstanding shares of
Common Stock are fully paid and nonassessable and none of them was
issued in violation of any preemptive or other similar right under
Washington law, or under any document, agreement or instrument known
to us. The Shares, when issued and sold pursuant to this Agreement,
will be duly and validly issued, fully paid and nonassessable and none
of them will have been issued in violation of any preemptive or other
similar right. Except as disclosed in the Registration Statement and
the Prospectus, to the knowledge of such counsel, there is no
outstanding option, warrant or other right calling for the issuance
of, and, there is no commitment, plan or arrangement to issue, any
share of capital stock, of the Company or any
16
<PAGE>
security convertible into or exercisable or exchangeable for, capital
stock of the Company. The Common Stock and the Shares conform in all
material respects to all statements relating thereto contained in the
Registration Statement and the Prospectus.
(iii) All necessary corporate and partnership action has been
duly and validly taken by the Company and the Operating Partnership to
authorize the execution, delivery and performance of this Agreement
and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly executed and delivered by the
Company and the Operating Partnership.
(iv) The information set forth under the caption "Description of
Capital Stock" in the Prospectus to the extent that it constitutes
matters of law, summaries of legal matters, documents, or legal
conclusions, has been reviewed by such counsel and is correct in all
material respects.
(v) The descriptions contained in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings,
contracts and other documents are accurate, and insofar as such
statements constitute a summary of documents referred to therein,
matters of law or legal conclusions are fair summaries of the material
provisions thereof and accurately present the information required
with respect to such documents and matters. To the best of our
knowledge, there are no statutes, [governmental proceedings],
agreements and other documents required to be described in the
Registration Statement which have not been so described. To the best
of our knowledge there are no agreements and other documents required
to be filed as exhibits to the Registration Statement which have not
been so filed.
(vi) All the issued and outstanding Units have been duly
authorized and validly issued; and all of the outstanding Units are
fully paid and non-assessable and none of them was issued in violation
of any preemptive or other similar right. Except as disclosed in the
Registration Statement and the Prospectus, to the knowledge of such
counsel, there is no outstanding option, warrant or other right
calling for the issuance of Units, and there is no commitment, plan or
arrangement to issue, any Unit, or any security convertible into or
exercisable or exchangeable for, Units. The Units conform in all
material respects to all statements relating thereto contained in the
Registration Statement and the Prospectus.
(vii) To the best of such counsel's knowledge, neither the
execution, delivery and performance of this
17
<PAGE>
Agreement by the Company or the Operating Partnership nor the
consummation of any of the transactions contemplated hereby
(including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate
the due date of any payment due under, or conflict with or result in
the breach of any term or provision of, or constitute a default (or
any event which with notice or lapse of time, or both, would
constitute a default) under, or require consent or waiver under, or
result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or any of its
Subsidiaries pursuant to the terms of, any indenture, mortgage, deed
of trust, note, franchise, license, permit or other agreement or
instrument known to such counsel and to which the Company or any of
its Subsidiaries is a party or by which any of them or any of their
properties or businesses are bound, or violate any judgment, decree,
order, statute, rule or regulation or any provision of the charters,
by-laws, certificates of limited partnership, partnership agreements
or other organizational documents, as the case may be, of the Company
or any of its Subsidiaries.
(viii) The Operating Partnership possesses such certificates,
authorizations, licenses or permits issued by the appropriate local,
state, federal or foreign regulatory agencies or bodies necessary to
own and operate the Properties, and to conduct the business being
conducted by it, or proposed to be conducted by it as described in the
Prospectus, except for such certificates, authorizations, licenses and
permits, the failure to obtain, maintain or possess which would not
have a Material Adverse Effect.
(ix) To the best of such counsel's knowledge, no default exists,
and no event has occurred which with notice or lapse of time, or both,
would constitute a default, in the due performance and observance by
the Company or any Subsidiary of any term, covenant or condition of
any material agreement, instrument or other document to which the
Company or any Subsidiary is a party or by which their assets or
properties or businesses are bound or affected except for those which
in the aggregate would not have a Material Adverse Effect.
(x) The Reorganization Shares were duly authorized for issuance
by the Company, and are validly issued, fully-paid and non-assessable.
To the best of our knowledge, the Reorganization Shares were offered
and sold materially in compliance with all applicable laws (including,
without limitation, federal and state securities laws).
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(xi) The best of such counsel's knowledge the execution and
delivery of the Reorganization Transaction Documents and the
performance of the obligations set forth therein and the consummation
of the transactions contemplated thereby [and by the Reorganization
Resolution] have been duly and validly authorized by all necessary
corporate, shareholder or partnership action, as the case may be, by
or on behalf of the parties thereto. Except as described in the
Prospectus, and except for those obligations and transactions that do
not and will not in the aggregate result in a Material Adverse Effect,
each of the Pre-IPO Reorganization Transactions and the performance of
the obligations and transactions contemplated thereby have been
completed as of the date hereof. [To the best of such counsel's
knowledge the consummation of the Pre-IPO Reorganization Transactions
did not give rise to a right to terminate or accelerate the due date
of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which
with notice or lapse of time or both would constitute a default)
under, or require any consent or waiver under, or result in the
execution or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company, BIC, or their respective
subsidiaries pursuant to the terms of, any indenture, mortgage, deed
of trust or other agreement or instrument to which the Company, BIC or
their subsidiaries is or was a party or by which any of them is bound,
or any other properties or businesses are bound, or any franchise,
license, permit, judgment, decree, order, statute, rule or regulation
applicable to the Company, BIC and their respective subsidiaries
(including, without limitation, any partnerships holding title to any
Property prior to the Pre-IPO Reorganization Transactions) or violate
any provision of their respective charters, by-laws, certificates of
limited partnership, partnership agreements, or other organizational
documents, as the case may be, except where, as of the date hereof,
such violations have been cured or consents or waivers have already
been obtained and are in full force and effect, or where the failure
to cure such violations or obtain such consents or waivers, in the
aggregate, would not have a Material Adverse Effect.]
(xii) The contribution by the Company and BIC of certain assets
not related to the Company's core hospitality business, pursuant to
the Reorganization Resolutions is a tax free transaction under Section
[361][357] of the Internal Revenue Code of 1986, as amended (the
"Code") and will not result in a loss or gain to the Company or BIC.
The pro rata distribution of all of the shares of capital stock of
Inland Northwest Corporation and Huckleberry Bay Corporation (the
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"Subsidiaries' Stock") by the Company to the holders of the Common
Stock of the Company, pursuant to the Reorganization Resolutions
qualifies as a distribution within the meaning of Code Section 355(a)
and accordingly, no gain or loss will be recognized by (and no amount
will be included in the income of) the Company's stockholders upon the
receipt of the such capital stock and, under Code Section 355(c), no
gain or loss will be recognized by the Company on the distribution of
the Subsidiaries' Stock to the Company's stockholders.
(xiii) To the best of such counsel's knowledge, neither the
Company nor any Subsidiary is in violation of any term or provision of
its charter, by-laws, certificate of limited partnership, partnership
agreement, or other organizational document, as the case may be, and
neither the Company nor any Subsidiary, is in violation of any term or
provision of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation.
(xiv) No consent, approval, authorization or order of any court
or governmental agency or body is required for the performance by the
Company and the Operating Partnership of this Agreement or the
consummation of the transactions contemplated hereby, except such as
have been obtained.
(xv) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation before
any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company and its Subsidiaries which is reasonably likely to
have a Material Adverse Effect, or which is required to be described
in the Registration Statement and Prospectus.
(xvi) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements
and notes and schedules and other financial, pro forma and statistical
information included therein, as to which such counsel expresses no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Securities Rules.
(xvii) The Registration Statement has become effective under the
Securities Act, and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are threatened or pending. The Shares have
20
<PAGE>
been approved for listing, subject to notice of issuance, on the NYSE.
(xviii) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Operating Partnership, representatives of the Underwriters
and their counsel and representatives of the independent certified public
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus
(except as specified in the foregoing opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the statements
of officers and other representatives of the Company) no facts have come to
the attention of such counsel which have caused such counsel to believe
that the Registration Statement at the time it became effective and at each
Closing Date contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus as of its
date and at each Closing Date contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need not
express any belief with respect to the financial statements and schedules
and other financial, pro forma and statistical information included in the
Registration Statement or the Prospectus).
(g) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be satisfactory
in form and substance to the Underwriters and their counsel, Rogers & Wells
LLP, and the Underwriters shall have received from Rogers & Wells LLP a
favorable opinion, addressed to the Underwriters and dated such Closing
Date, with respect to the Shares, the Registration Statement and the
Prospectus, and such other related matters, as the Underwriters may
request, and the Company shall have furnished to Rogers & Wells LLP such
documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
To the extent deemed advisable by Kaye, Scholer, Fierman, Hays &
Handler, LLP or Rogers & Wells LLP, they may rely as to matters of fact on
certificates of responsible officers of the Company and its Subsidiaries and
public officials and on the
21
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opinions of other counsel satisfactory to the Underwriters [(which shall include
Dennis McLaughlin & Associates P.S.)] as to matters which are governed by laws
other than the laws of the State of Delaware and the federal laws of the United
States; provided, however, that such counsel shall state that in their opinion
-------- -------
that they believe the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Underwriters and counsel for the Underwriters.
(h) The Underwriters shall have received on each Closing Date a
certificate, including exhibits thereto, addressed to the Underwriters and
dated such Closing Date, of the Secretary of the Company, signed in such
capacity, as to the (i) articles of incorporation and by-laws of the
Company; (ii) organizational documents of the Subsidiaries;
(iii) resolutions authorizing the execution and delivery of the
Registration Statement, this Agreement and the performance of the
transactions contemplated by this Agreement, the Registration Statement and
the Prospectus; and (iv) incumbency of the person or persons authorized to
execute and deliver the Registration Statement, this Agreement and any
other agreements, documents or other instruments contemplated by this
Agreement or the offering of the Shares. In addition, such certificate
shall state that: (x) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that purpose
has been instituted or is threatened by the Commission; and (y) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amendment or supplement to the Registration
Statement or Prospectus that has not been set forth.
(i) The Underwriters shall have received on each Closing Date
certificates of the Secretaries of State (or comparable officials) where
the Company and its Subsidiaries are incorporated, or formed, and/or doing
business as to the good standing of the Company and its Subsidiaries,
listing all charter documents on file, qualification of the Company or its
Subsidiaries to do business as foreign corporations, payment of taxes and
filing of annual reports.
(j) The Company and its Subsidiaries shall have furnished to you such
further certificates and documents as you or your counsel shall have
reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to the Underwriters and their counsel. The Company will furnish
the Underwriters with such conformed copies of such opinions, certificates,
letters and other documents as the Underwriters shall reasonably request.
22
<PAGE>
5. Covenants of the Company. The Company and the Operating
------------------------
Partnership covenant and agree as follows:
(a) The Company will cause the Prospectus to be filed as required by
Section 3(a) hereof (but only if the Underwriters or their counsel have not
reasonably objected thereto by notice to the Company after having been
furnished a copy a reasonable time prior to filing) and will notify you
promptly of such filing. During the period in which a prospectus relating
to the Shares is required to be delivered under the Securities Act or such
date which is 90 days after the Closing Date, whichever is later, the
Company will notify the Underwriters promptly of the time when any
subsequent amendment to the Registration Statement has become effective or
any subsequent supplement to the Prospectus has been filed, of any request
by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for additional information; the Company will
prepare and file with the Commission, promptly upon the request of the
Underwriters, any amendments or supplements to the Registration Statement
or Prospectus that, in their or their counsel's opinion, may be necessary
or advisable in connection with your distribution of the Shares; and the
Company will file no amendment or supple ment to the Registration Statement
or Prospectus to which the Underwriters or their counsel shall reasonably
object by notice to the Company after having been furnished a copy a
reasonable time prior to the filing.
(b) The Company will advise the Underwriters, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification or
registration of the Shares for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceeding for any such purpose; and
it will promptly use its best efforts to prevent the issuance of any stop
order or suspension of qualification or registration or to obtain its
withdrawal if such a stop order or suspension of qualification or
registration should be issued.
(c) The Company will comply with all requirements imposed upon it by
the Securities Act or the Securities Rules, as from time to time in force,
so far as necessary to permit the continuance of sales of, or dealings in,
the Shares as contemplated by the provisions hereof and the Prospectus. If
during such period where a prospectus relating to the Shares is required to
be delivered under the Securities Act any event occurs as a result of
which, in the opinion of your counsel, the Registration Statement contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omits to state a material
fact necessary to make the statements
23
<PAGE>
therein, in the light of the circumstances then existing under which they
were made, not misleading, or if during such period it is necessary to
amend or supplement the Registration Statement or Prospectus to comply with
the Securities Act, the Company will promptly notify you and will promptly
amend or supplement the Registration Statement or Prospectus (at the
expense of the Company) so as to correct such statement or omission or
effect such compliance.
(d) The Company shall make generally available to its security holders
and to the Underwriters as soon as practicable, but not later than 45 days
after the end of the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Time occurs (or 90 days
if such 12-month period coincides with the Company's fiscal year), an
earning statement (which need not be audited) of the Company, covering such
12-month period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Securities Rules.
(e) The Company shall furnish to the Underwriters and their counsel,
without charge, signed copies of the Registration Statement (including all
exhibits thereto and amendments thereof) and all amendments thereof and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Securities Rules, as many copies of
the Prospectus and any amendments thereof and supplements thereto as the
Underwriters may reasonably request.
(f) For a period of three years after the date of this Agreement, the
Company shall supply to the Underwriters, copies of such financial
statements and other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class of its
capital stock and furnish to the Underwriters a copy of each annual or
other report it shall be required to file with the Commission.
(g) Neither the Company nor the Operating Partnership shall sell,
offer to sell, contract to sell, pledge or otherwise dispose of or
transfer, directly or indirectly, any shares of Common Stock or other
capital stock of the Company, or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire,
shares or Common Stock or other capital stock of the Company for a period
of one year commencing on the date of this Agreement, without the prior
written consent of CIBC Oppenheimer Corp., other than the sale of the
Shares in the Offering and the issuance or transfer of: (i) options to
purchase shares of Common Stock (and shares of Common Stock issuable upon
the exercise of such options) issued pursuant to the Plans; (ii) shares of
Common Stock in connection with estate planning; (iii) 55,000 restricted
shares of Common Stock to be awarded
24
<PAGE>
to certain employees of the Company; and, (iv) securities of the Company or
the Operating Partnership issued in connection with the acquisition by the
Company of real property or interests in entities holding real property,
provided that the recipient or transferee of such securities agrees in
writing to be subject to the lock-up contained in this paragraph (without
giving effect to clauses (i), (ii) and (iii)) for a period ending on the
date that is one year after the date hereof. .
(h) On or before the Firm Shares Closing Date, the Company shall make
all filings required under applicable securities laws and by the NYSE
(including any required registration under the Exchange Act). On or before
the date of this Agreement, the Shares shall be listed on the NYSE.
(i) The Company and the Operating Partnership agree to pay, or
reimburse if paid by the Underwriters, whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, all
costs and expenses incident to the performance of the obligations of the
Company and the Operating Partnership under this Agreement including those
relating to: (i) the preparation, printing, filing and distribution of the
Registration Statement including all exhibits thereto, the Prospectus, all
amendments and supplements to the Registration Statement and the
Prospectus, and the printing, filing and distribution of this Agreement;
(ii) the preparation and delivery of certificates for the Shares to the
Underwriters; (iii) if applicable, the registration or qualification of the
Shares for offer and sale under the securities laws of the various
jurisdictions, including the reasonable fees and disbursements of counsel
for the Underwriters in connection with any such registration and
qualification; (iv) the furnishing (including cost of shipping and mailing)
to the Underwriters of copies of the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by
this Section to be so furnished, as may be reasonable requested for use in
connection with the offering and the sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold; (v) the filing fees of the NASD
in connection with its review of the terms of the transactions contemplated
hereby; (vi) the furnishing (including costs of shipping and mailing) to
the Underwriters of copies of all reports and information required by 5(f);
(vii) listing of the Shares on the NYSE; and (viii) all transfer taxes, if
any, with respect to the sale and delivery of the Shares by the Company to
the Underwriters. Subject to the provisions of Section 8, the Underwriters
agree to pay, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
incident to the performance of the obligations of the Underwriters under
this Agreement not payable by the Company and the Operating Partnership
pursuant to the preceding
25
<PAGE>
sentence, including, without limitation, the fees and disbursements of
counsel for the Underwriters.
6. Indemnification.
---------------
(a) The Company and the Operating Partnership agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims, damages
and liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act,
the Exchange Act or other federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out of
or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that such indemnity
-------- -------
shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in the Registration Statement or the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information concerning the Underwriters furnished in
writing to the Company by the Underwriters specifically for use therein.
This indemnity agreement will be in addition to any liability which the
Company and Operating Partnership may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company and the Operating Partnership, each person,
if any, who controls the Company and the Operating Partnership within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, each director of the Company and each officer of the Company and the
Operating Partnership who signs the Registration Statement, to the same
extent as the foregoing indemnity from the Company and the Operating
Partnership to each Underwriter, but only insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement
or omission or alleged untrue statement or omission which was made in the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, concerning the Underwriters furnished in writing to the
Company by the Underwriters specifically for use therein;
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<PAGE>
provided, however, that the obligation of each Underwriter to indemnify the
-------- -------
Company (including any controlling person, director or officer thereof)
shall be limited to the underwriting discounts and commissions received by
such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 6(a) or 6(b) shall be available to
any party who shall fail to give notice as provided in this Section 6(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to
give such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise
than under this Section. In case any such action, suit or proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval by
the indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of
counsel by such indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such
action (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume
the defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement
27
<PAGE>
of any action, suit, proceeding or claim effected without its written
consent.
7. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 6 is due in accordance with its terms but for any reason is held to be
unavailable from the Company and the Operating Partnership or the Underwriters,
the Company and the Operating Partnership and the Underwriters shall contribute
to the aggregate losses, claims, damages and liabilities (including any
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting any contribution received by the Company
and the Operating Partnership from persons other than the Underwriters, such as
persons who control the Company within the meaning of the Securities Act,
officers of the Company who signed the Registration Statement and directors of
the Company who may also be liable for contribution) to which the Company and
the Operating Partnership and one or more of the Underwriters may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Operating Partnership on the one hand and the Underwriters
on the other from the transactions contemplated hereby or, if such allocation is
not permitted by applicable law or indemnification is not available as a result
of the indemnifying party not having received notice as provided in Section 6
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Operating Partnership on the one hand and the Underwriter on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Operating Partnership and the Underwriters shall be deemed to be in the same
proportion as (i) the total proceeds from the offering of the Shares (net of
underwriting discounts but before deducting expenses) received by the Company
and the Operating Partnership, as set forth in the table on the cover page of
the Prospectus, bear to (ii) the underwriting discounts and commissions received
by the Underwriters, as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Operating Partnership or
the Underwriter shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to information
supplied by the Company and the Operating Partnership or the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Operating
Partnership and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 7, in no
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<PAGE>
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount and commission applicable to the Shares purchased by
such Underwriter hereunder; provided, however, that no person guilty of
-------- -------
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
immediately preceding sentence of this Section 7. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to their respective underwriting commitments and not joint.
8. Termination. This Agreement may be terminated with respect to
-----------
the Shares to be purchased on a Closing Date by the Underwriters by notifying
the Company at any time:
(a) in the absolute discretion of the Underwriters at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Underwriters will in the future materially disrupt, the
securities markets; (ii) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of which
on the financial markets of the United States is such as to make it, in the
judgment of the Underwriters, inadvisable to proceed with the transactions
contemplated hereby; (iii) if there shall be such a material adverse change
in general financial, political or economic conditions or the effect of
international conditions on the financial markets in the United States is
such as to make it, in the judgment of the Underwriters, inadvisable or
impracticable to market the Shares; (iv) if trading in the Shares has been
suspended by the Commission or trading generally on the NYSE has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for
29
<PAGE>
prices for securities have been required, by said exchanges or by order of
the Commission, the NASD, or any other governmental or regulatory
authority; or (v) if a banking moratorium has been declared by any state or
federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 4 shall not have been fulfilled when and as required
by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company and the Operating Partnership shall not be under any liability to any
Underwriter, and no Underwriter shall be under any liability to the Company and
the Operating Partnership, except that: (i) if this Agreement is terminated by
the Underwriters or the Underwriters because of any failure, refusal or
inability on the part of the Company and the Operating Partnership to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company and the Operating Partnership will reimburse the Underwriters for all
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder; and (ii) no Underwriter who shall have failed or refused
to purchase the Shares agreed to be purchased by it under this Agreement,
without some reason sufficient hereunder to justify cancellation or termination
of its obligations under this Agreement, shall be relieved of liability to the
Company or to the other Underwriters for damages occasioned by its failure or
refusal.
9. Substitution of Underwriters. If one or more of the Underwriters
----------------------------
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 8) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Underwriters may find one or more substitute underwriters to
purchase such Shares or make such other arrangements as the Underwriters may
deem advisable or the remaining Underwriter may agree to purchase all of the
Shares, in each case upon this Agreement. If no such arrangements have been
made by the close of business on the business day following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriter on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
the nondefaulting Underwriter shall be obligated to purchase such Shares on
the terms herein set forth in proportion to their respective obligations
hereunder; provided, however, that in no event shall the maximum number of
-------- -------
Shares that any Underwriter has agreed to purchase pursuant to Section 1 be
increased pursuant to this Section 9 by more than one-ninth of such number
of Shares without the written consent of such Underwriter, or
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<PAGE>
(b) if the number of Shares to be purchased by the defaulting Underwriter
on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Underwriters to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Underwriters or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or the
Prospectus) may be effected by the Underwriters and the Company. If the number
of Shares to be purchased on such Closing Date by such defaulting Underwriter
shall exceed 10% of the Shares that all the Underwriters are obligated to
purchase on such Closing Date, and the nondefaulting Underwriter or the Company
shall make arrangements pursuant to this Section within the period stated for
the purchase of the Shares that the defaulting Underwriter agreed to purchase,
this Agreement shall terminate with respect to the Shares to be purchased on
such Closing Date without liability on the part of the nondefaulting Underwriter
to the Company and without liability on the part of the Company, except in both
cases as provided in Sections 5(i), 6, 7, 8 and 9. The provisions of this
Section shall not in any way affect the liability of any defaulting Underwriter
to the Company or the nondefaulting Underwriter arising out of such default. A
substitute underwriter hereunder shall become an Underwriter for all purposes of
this Agreement.
10. Miscellaneous. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company and the Operating
Partnership or their officers and of the Underwriters set forth in or made
pursuant to this Agreement shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or the Company and the
Operating Partnership or any of the officers, directors or controlling persons
referred to in Sections 6 and 7 hereof, and shall survive delivery of and
payment for the Shares. The provisions of Sections 5(i), 6, 7, 8 and 9 shall
survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company and the Operating Partnership and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company or the Operating
Partnership, and directors and officers of the Company and the Operating
Partnership, and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not
31
<PAGE>
include any purchaser of Shares from any Underwriter merely because of such
purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or facsimile if subsequently confirmed in
writing, (a) if to the Underwriters, c/o CIBC Oppenheimer Corp., CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281, Attention:
Stephen R. Blank, with a copy to Jay Bernstein, Esq., Rogers & Wells LLP, 200
Park Avenue, New York, New York 10166 and (b) if to the Company, to its agent
for service as such agent's address appears on the cover page of the
Registration Statement, with a copy to Barry Lawrence, Esq., Kaye, Scholer,
Fierman, Hays & Handler, LLP, 1999 Avenue of the Stars, Suite 1600 Los Angeles,
CA 90067.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
32
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
CAVANAUGHS HOSPITALITY CORPORATION
By: ___________________________
Name: Donald Barbieri
Title: President and Chief
Executive Officer
CAVANAUGHS HOSPITALITY LIMITED
PARTNERSHIP
By: CAVANAUGHS HOSPITALITY
CORPORATION
By: _________________________
Name: Donald Barbieri
Title: President and Chief
Executive Officer
CONFIRMED AND ACCEPTED
as of the date first
above written
CIBC OPPENHEIMER CORP.
By:__________________________
Name:
Title:
NATIONSBANC MONTGOMERY
SECURITIES, LLC
By: CIBC Oppenheimer
Corp., its
Representative
By:__________________________
Name:
Title:
33
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to
Name Be Purchased
---- --------------
<S> <C>
1. CIBC Oppenheimer Corp. ______________
2. Nationsbanc Montgomery Securities, LLC ______________
3. ______________
4. ______________
TOTAL 5,000,000
</TABLE>
34
<PAGE>
Exhibit 5.1
[Letterhead of KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP]
March 6, 1998
Cavanaughs Hospitality Corporation
201 West North River Drive
Suite 100
Spokane, Washington 99201
Re: Shares of Common Stock of Cavanaughs Hospitality Corporation
Gentlemen:
We have acted as special counsel to Cavanaughs Hospitality Corporation, a
Washington corporation (the "Company"), in connection with its Registration
Statement on Form S-1, as amended (the Registration Statement"), filed pursuant
to the Securities Act of 1933, as amended (the"Act"), relating to the proposed
offering by the Company of an aggregate of up to 5,951,250 shares (the"Shares")
of the Company's Common Stock, par value $.01 per share (the "Common Stock").
In that connection, we have reviewed the Amended and Restated Articles of
Incorporation of the Company, its Amended and Restated By-Laws, resolutions of
its Board of Directors and such other documents and records as we have deemed
appropriate.
On the basis of such review and having regard to legal considerations that
we deemed relevant, it is our opinion that the Shares have been duly authorized,
and upon issuance, delivery and payment therefor in the manner contemplated by
the Registration Statement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus included therein. In giving this opinion, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Kaye, Scholer, Fierman, Hays & Handler, LLP
-----------------------------------------------
<PAGE>
EXHIBIT 5.2
[LETTERHEAD OF DENNIS MCLAUGHLIN & ASSOCIATES]
March 6, 1998
Cavanaughs Hospitality Corporation
201 W North River Drive
Suite 100
Spokane WA 99201
RE: Shares of Common Stock of Cavanaughs Hospitality Corporation
Gentlemen:
We have acted as special counsel to Cavanaughs Hospitality Corporation, a
Washington corporation (the "Company"), in connection with its Registration
Statement on Form S-1, as amended (the "Registration Statement"), filed pursuant
to the Securities Act of 1933, as amended (the "Act"), relating to the proposed
offering by the Company of an aggregate of up to 5,951,250 shares (the "Shares")
of the Company's Common Stock, par value $.01 per share (the "Common Stock").
In that connection, we have reviewed the Amended and Restated Articles of
Incorporation of the Company, its Amended and Restated By-Laws, resolutions of
its Board of Directors, and such other documents and records as we have deemed
appropriate.
On the basis of such review and having regard to the legal considerations that
we deemed relevant, it is our opinion that the Shares have been duly authorized,
and upon issuance, delivery and payment therefor in the manner contemplated by
the Registration Statement, will be validly issued, fully paid, and
nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included therein. In giving this opinion, we do not thereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission.
Very Truly Yours,
/s/ Dennis McLaughlin & Associates P.S.
DENNIS McLAUGHLIN & ASSOCIATES
Professional Service Corporation
DMM:gb
<PAGE>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed for reference date purposes on
March 1, 1998 by and between Cavanaughs Hospitality Corporation, a Washington
corporation (the "Company"), and Donald K. Barbieri (the "Executive").
The Company desires to employ the Executive in the capacities of President and
Chief Executive Officer, and the Executive desires to be so employed, on the
terms and subject to the conditions set forth in this agreement (the
"Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. EMPLOYMENT; TERM.
The Company employs the Executive, and the Executive agrees to be employed
by the Company, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of the initial public offering of the common
shares of the Company on the national stock exchange selected by the Company
(the "Commencement Date") and terminating on December 31, 1999 unless terminated
earlier in accordance with Section 5 of this Agreement; provided, that such term
shall automatically be extended from time to time for additional periods of one
calendar year from the date on which it would otherwise expire unless the
Executive, on one hand, or the Company, on the other, gives notice to the other
party or parties not less than 120 days prior to such date that it elects to
permit the term of this Agreement to expire without extension on such date. (The
initial term of this Agreement as the same may be extended in accordance with
the terms of this Agreement is hereinafter referred to as the "Term").
2. POSITIONS; CONDUCT.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, President and Chief Executive Officer of the Company.
The Executive shall report to the Board of Directors of the Company and shall
perform such specific duties and services (including service as an officer,
director or equivalent position of any direct or indirect subsidiary without
additional compensation) as they shall reasonably request consistent with the
Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time and
attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of
Directors of the Company, as an officer, director, trustee or member of any
organization, (ii) engaging in charitable and community activities and (iii)
managing his personal investments and affairs. In no event shall the Exempted
Activities involve any material conflict of interest with the interests of the
Company or, individually or collectively, interfere materially with the
performance by the Executive of his duties and responsibilities under this
Agreement. The Board of Directors of the Company have approved as an Exempted
Activity the Executive's employment as a director and officer of Inland
Northwest Corporation, previously a wholly-owned subsidiary of the Company.
<PAGE>
(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company which shall
be in the Spokane, Washington metropolitan area. Under no circumstances shall
the Executive be required to relocate from the Spokane, Washington metropolitan
area or provide services under this Agreement in any other location other than
in connection with reasonable and customary business travel. During the Term,
the Company shall provide the Executive with executive office space, and
administrative and secretarial assistance and other support services consistent
with his positions and with his duties and responsibilities hereunder.
3. BOARD OF DIRECTORS; COMMITTEES.
While it is understood that the right to elect directors of the
Company is by law vested in the stockholders and directors of the Company, it is
nevertheless mutually contemplated that, subject to such rights, during the Term
the Executive will serve as a member and as Chairman of the Company's Board of
Directors and as a member and act as Chairman of its Investment Committee.
4. SALARY; ADDITIONAL COMPENSATION; PERQUISITES AND BENEFITS.
(a) During the Term, the Company and the Subsidiary will pay the Executive
a base salary at an annual rate of not less than $155,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in period installments in accordance with
the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible
to receive a bonus. The award and amount of such bonus shall be based upon the
Compensation Committee's determination of actual performance as measured against
goals and shall give the Executive the opportunity to earn a bonus of up to 100%
of his base salary.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company for the management employees or the
general benefit of the their employees, such as bonuses, stock option or other
incentive compensation plans, life and health insurance plans, or other
insurance plans and benefits on the same basis and subject to the same
qualifications as other senior executive officers. To the extent permitted by
law, the Executive shall be given credit for his years of service to any
predecessor entity of the Company in determining all waiting periods and vesting
periods under such plans.
(d) The Executive shall be eligible for stock option grants from time to
time pursuant to the Company's 1998 Stock Incentive Plan in accordance with the
terms thereof. The Company shall recommend to the Committee designated in
accordance with such plan that the Company grant to the Executive, effective on
the initial public offering of Company shares, options to purchase 90,000 shares
of the common stock of the Company at an exercise price equal to the initial
public offering price of such stock (the "Option Price"). Subject to the terms
of Section 6(f) of this Agreement as to the acceleration of vesting of stock
options, such options shall vest on the earlier of the following calendar or
value-appreciation schedules:
i) Calendar Schedule:
Four Years after the grant date, options are fully vested as to 50% of the
applicable shares;
Five Years after the grant date, options are fully vested for the remaining
50% of the shares.
<PAGE>
ii) Value Appreciation Schedule: Beginning one year after the option
grant date, if the stock price reaches the below described target
levels (as a percentage increase over the Option Price) for 20
consecutive trading days, the options will vest as follows:
<TABLE>
<CAPTION>
Stock Price Increase: Percent of Option Shares Vested:
<S> <C>
25% 25%
50% 50%
75% 75%
100% 100%
</TABLE>
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Stock Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its
standard policies from time to time in effect, for all out-of-pocket business
expenses as may be incurred by the Executive in the performance of his duties
under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited and
taken in accordance with the Company's policy from time to time in effect for
senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(g) In the event that any accelerated vesting of the Executive's rights
with respect to stock options, restricted stock or any other benefit or
compensation results in the imposition of an excise tax payable by the Executive
under Section 4999 of the Internal Revenue Code, or any successor or other
provision with respect to "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code, the Company shall make a cash
payment to the Executive in the amount of such taxes and shall also make a cash
payment to the Executive in an amount equal to the total of federal, state and
local income and excise taxes (the "Excise Tax") for which the Executive may be
liable on account of the cash payments made under this section, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
(h) The Company shall indemnify the Executive to the fullest extent
permitted under the law of the State of Washington and shall each enter into a
separate agreement with respect thereto with the Executive to the extent
necessary to implement this indemnification obligation.
5. TERMINATION
(a) The Term will terminate upon the Executive's death or, upon notice by
the Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by a
physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
<PAGE>
(b) The Term may be terminated by the Company upon notice to the Executive upon
the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company (i)
within six months of the occurrence of any event constituting "Good Reason" as
defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. SEVERANCE.
(a) If the Term is terminated by the Company for Cause, the Company will pay to
the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $155,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his employment
hereunder within 6 months following such Change in Control; the Company shall
(i) pay the Executive the Standard Termination Payments, (ii) pay the Executive
a lump sum payment equal to three times the Executive's total cash compensation
for the previous fiscal year (but in no event less than three times $155,000)
and (iii) continue in effect the Executive's benefits with respect to life,
health and insurance plans or their equivalent for three years.
(e) If the initial term is not extended pursuant to the proviso to Section 1
as a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice $155,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extension, or if the
Executive terminates his employment hereunder pursuant to Section 5 (c.): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the
<PAGE>
Company, which notice shall state that such conduct shall, without cure,
constitute Cause and makes specific reference to this Section 6(g); (ii) any
willful and intentional act of the Executive involving fraud, theft,
embezzlement or dishonesty affecting the Company; or (iii) the Executive's
conviction of (or a plea of nolo contendere to) an offense which is a felony in
the jurisdiction involved.
(h) As used herein, the term "Good Reason" means: (i) assignment of the
Executive of duties materially inconsistent with the Executive's positions as
described in Section 2(a); (ii) the removal of the Executive from the
positions as described in Section 2(a); (iii) the change in the location of the
Company's principal executive offices to a location outside of Spokane,
Washington metropolitan area without the Executive's consent which may be
withheld at his sole discretion; (iv) any material breach of this Agreement by
the Company which is continuing; or (v) the failure of the Executive to be
elected as a member and Chairman of the Board of Directors of the Company or a
member of its Investment Committee or the removal of the Executive from either
such position.
(i) As used herein, the term "Change in Control" means the occurrence of any
one of the following events: (i) any "person", as such term is used in Sections
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial
owner", as such term is used in Rule 13d-3 promulgated under such Act, of 35% or
more of the Voting Stock of the Company (other than a person holding such
percentage ownership as of the Commencement Date) or the majority of the Board
of Directors of the Company consists of individuals other than Incumbent
Members, which shall mean the members of such Boards on the Commencement Date;
provided that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) the Company merges or combines with another company
and, immediately thereafter, the stockholders of the Company immediately prior
to such merger or combination hold, directly or indirectly, 50% or less of the
Voting Stock and other ownership interests of the surviving entity or entities;
(iv) the Company sells all or substantially all of its assets on a consolidated
basis in a single transaction or series of transactions; or (v) the Company
ceases to act as the general partner of Cavanaughs Hospitality Limited
Partnership. As used herein, an Affiliate of a person or other entity means a
person or other entity that directly or indirectly controls, is controlled by or
is under common control with the person or other entity specified (including
without limitation any investment entity managed by the person or other entity
specified or a person or entity that directly or indirectly controls, is
controlled by or under common control with the person or other entity
specified). As used herein, "Voting Stock" means capital stock of any class or
classes having general voting power under ordinary circumstances, in the
absence of contingencies, to elect the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services hereunder Confidential
Information will be disclosed to the Executive by the Company Affiliates. The
Executive hereby agrees that, during the Term (except as required to conduct the
business of the Company) and for a period of three years thereafter, he will
not use or disclose, furnish or make accessible to anyone, directly or
indirectly, any Confidential Information of the Company Affiliates.
<PAGE>
(b) As used herein, the term "Confidential Information" means any trade
secrets, confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its businesses the confidentiality of which such company
takes reasonable measures to protect, including, but not limited to, trade
secrets, techniques, know-how (including designs, plans, procedures, processes
and research records), software, computer programs, innovations, discoveries,
improvements, research, developments, test results, reports, specifications,
data, formats, marketing data and business plans and strategies, agreements and
other forms of documents, expansion plans, budgets, projections, and salary,
staffing and employment information. Notwithstanding the foregoing, Confidential
Information shall not in any event include information which (i) was generally
known or generally available to the public prior to its disclosure to the
Executive, (ii) becomes generally known or generally available to the public
subsequent to its disclosure to the Executive through no wrongful act of the
Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during his employment hereunder and for a
period of twelve months thereafter the Executive will not, directly or
indirectly, engage or participate or make any financial investments in (other
than ownership of up to 5% of the aggregate of any class of securities of any
corporation if such securities are listed on a national stock exchange or under
section 12(g) of the Securities Exchange Act of 1934) or become employed by, or
act as an agent or principal of, or render advisory or other management services
to or for, any Competing Business in the Territory. As used herein the term
"Competing Business" means the ownership or operation of any hotel property and
the term "Territory" means the states of California, Oregon, Washington, Alaska,
Idaho, Montana and Utah and the provinces of Alberta and British Columbia.
Notwithstanding the foregoing, nothing in this Agreement shall limit or prohibit
the executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a
period of twenty-four months thereafter he will not solicit, raid, entice or
induce any person that then is or at any time during the twelve-month period
prior to the end of the Term was an employee of the Company or a Company
affiliate (other than a person whose employment with such Company Affiliate has
been terminated by such Company Affiliate), to become employed by any person,
firm or corporation.
9. SPECIFIC PERFORMANCE.
(a) The Executive acknowledges that the services to be rendered by him hereunder
are of a special, unique, extraordinary and personal character and that the
Company Affiliates would sustain irreparable harm in the event of a violation by
the Executive of Section 7 or 8 hereof. Therefore, in addition to any other
remedies available, the Company shall be entitled to specific enforcement and/or
an injunction from any court of competent jurisdiction restraining the Executive
from committing or continuing any such violation of this Agreement without
proving actual damages or posting a bond or other security. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach, including the recovery of
damages.
(b) If any of the restrictions on activities of the Executive contained in
Sections 7 or 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope or
activity of subject, such restrictions shall be construed so as thereafter to be
limited or reduced to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear; it being
<PAGE>
understood that by the execution of this Agreement the parties hereto regard
such restrictions as reasonable and compatible with their respective rights.
(c) Notwithstanding anything in this Agreement to the contrary, in the event
that the Company fails to make any payment of any amounts or provide any of the
benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Sections 7 and 8 shall be immediately and permanently terminated.
10. WITHHOLDING.
The parties agree that all payments to be made to the Executive by the Company
pursuant to the Agreement shall be subject to all applicable withholding
obligations of such company.
11. NOTICES.
All notices required or permitted hereunder shall be in writing and shall be
deemed given and received when delivered personally, four days after being
mailed if sent by registered or certified mail, postage prepaid, or by one day
after delivery if sent by air courier (for next-day delivery) with evidence of
receipt thereof or by facsimile with receipt confirmed by the addressee. Such
notices shall be addressed respectively:
If to the Executive, to:
Mr. Donald K. Barbieri
639 North River Point Blvd. 1E
Spokane, Washington 99202
If to the Company, to:
Cavanaughs Hospitality Corporation
201 W. North River Drive
Spokane, WA 99201
Attn: Corporate Counsel
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. MISCELLANEOUS.
(a) This Agreement is a personal contract calling for the provision of
unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Washington.
(c) Any controversy arising out of or relating to this Agreement or any
breach hereof shall be settled by arbitration in Spokane, Wa. by a single
neutral arbitrator who shall be a retired federal or state court judge in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon any award rendered may be entered in any court
having jurisdiction thereof, except in the event of a controversy relating to
any alleged violation by the Executive of Section 7 or 8 hereof, the Company and
the Subsidiary shall be entitled to seek injunctive relief from a court of
competent jurisdiction without the requirement to seek arbitration. In addition
to all other relief, the substantially
<PAGE>
prevailing party in any arbitration or court action shall be entitled to their
reasonable attorney fees and costs incurred by reason of the controversy
(including any appellate review and bankruptcy or enforcement proceedings).
(d) The hearings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
(e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) Upon the Commencement Date, this Agreement supersedes any existing
employment agreements between the Employee and the Company and any of its
Affiliates all of which shall be terminated upon the Commencement Date of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
EXECUTIVE: COMPANY:
CAVANAUGHS HOSPITALITY CORPORATION
___________________________ by________________________________
Donald K. Barbieri Its President
<PAGE>
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed for reference date purposes on March
1, 1998 by and between Cavanaughs Hospitality Corporation, a Washington
corporation (the "Company"), and Arthur Coffey (the "Executive").
The Company desires to employ the Executive in the capacities of Executive Vice
President and Chief Financial Officer, and the Executive desires to be so
employed, on the terms and subject to the conditions set forth in this agreement
(the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. EMPLOYMENT; TERM.
The Company employs the Executive, and the Executive agrees to be employed
by the Company, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of the initial public offering of the common
shares of the Company on the national stock exchange selected by the Company
(the "Commencement Date") and terminating on December 31, 1999 unless terminated
earlier in accordance with Section 5 of this Agreement; provided, that such term
shall automatically be extended from time to time for additional periods of one
calendar year from the date on which it would otherwise expire unless the
Executive, on one hand, or the Company, on the other, gives notice to the other
party or parties not less than 120 days prior to such date that it elects to
permit the term of this Agreement to expire without extension on such date. (The
initial term of this Agreement as the same may be extended in accordance with
the terms of this Agreement is hereinafter referred to as the "Term").
2. POSITIONS; CONDUCT.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, Executive Vice President and Chief Financial Officer
of the Company. The Executive shall report to the President of the Company and
shall perform such specific duties and services (including service as an
officer, director or equivalent position of any direct or indirect subsidiary
without additional compensation) as the Board of Directors shall reasonably
request consistent with the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time and
attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of Directors
of the Company, as an officer, director, trustee or member of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs. In no event shall the Exempted Activities
involve any material conflict of interest with the interests of the Company, or
individually or collectively, interfere materially with the performance by the
Executive of his duties and responsibilities under this Agreement. The Board of
Directors of the Company have approved as an Exempted Activity the Executive's
employment as a director and officer of Inland Northwest Corporation, previously
a wholly-owned subsidiary of the Company.
<PAGE>
(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company which
shall be in the Spokane, Washington metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Spokane, Washington
metropolitan area or provide services under this Agreement in any other location
other than in connection with reasonable and customary business travel. During
the Term, the Company shall provide the Executive with executive office space,
and administrative and secretarial assistance and other support services
consistent with his positions and with his duties and responsibilities
hereunder.
3. BOARD OF DIRECTORS; COMMITTEES.
It is understood that the right to elect directors of the Company is by law
vested in the stockholders and directors of the Company, and it is mutually
contemplated that service on the Board of Directors or on any committee of the
Board of Directors is not a condition of this Agreement.
4. SALARY; ADDITIONAL COMPENSATION; PERQUISITES AND BENEFITS.
(a) During the Term, the Company and the Subsidiary will pay the Executive a
base salary at an annual rate of not less than $130,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible to
receive a bonus. The award and amount of such bonus shall be based upon the
Compensation Committee's determination of actual performance as measured
against goals and shall give the Executive the opportunity to earn a bonus of up
to 100% of his base salary.
(c) During the Term, the Executive will participate in all plans now existing
or hereafter adopted by the Company for the management employees or the general
benefit of the their employees, such as bonuses, stock option or other incentive
compensation plans, life and health insurance plans, or other insurance plans
and benefits on the same basis and subject to the same qualifications as other
senior executive officers. To the extent permitted by law, the Executive shall
be given credit for his years of service to any predecessor entity of the
Company in determining all waiting periods and vesting periods under such
plans.
(d) The Executive shall be eligible for stock option grants from time to time
pursuant to the Company's 1998 Stock Incentive Plan in accordance with the terms
thereof. The Company shall recommend to the Committee designated in accordance
with such plan that the Company grant to the Executive, effective on the initial
public offering of Company shares, options to purchase 55,000 shares of the
common stock of the Company at an exercise price equal to the initial public
offering price of such stock (the "Option Price"). Subject to the terms of
Section 6(f) of this Agreement as to the acceleration of vesting of stock
options, such options shall vest on the earlier of the following calendar or
value-appreciation schedules:
i) Calendar Schedule:
Four Years after the grant date, options are fully vested as to 50% of the
applicable shares;
Five Years after the grant date, options are fully vested for the remaining
50% of the shares.
ii) Value Appreciation Schedule: Beginning one year after the option grant
date, if the stock price reaches the below described target levels (as a
percentage increase over the Option Price) for 20 consecutive trading days,
the options will vest as follows:
<PAGE>
<TABLE>
<CAPTION>
Stock Price Increase: Percent of Option Shares Vested:
<S> <C>
25% 25%
50% 50%
75% 75%
100% 100%
</TABLE>
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Stock Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its
standard policies from time to time in effect, for all out-of-pocket business
expenses as may be incurred by the Executive in the performance of his duties
under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited and
taken in accordance with the Company's policy from time to time in effect for
senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(g) In the event that any accelerated vesting of the Executive's rights
with respect to stock options, restricted stock or any other benefit or
compensation results in the imposition of an excise tax payable by the Executive
under Section 4999 of the Internal Revenue Code, or any successor or other
provision with respect to "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code, the Company shall make a cash
payment to the Executive in the amount of such taxes and shall also make a cash
payment to the Executive in an amount equal to the total of federal, state, and
local income and excise taxes (the "Excise Tax") for which the Executive may be
liable on account of the cash payments made under this section, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
(h) The Company shall indemnify the Executive to the fullest extent
permitted under the law of the State of Washington and shall each enter into a
separate agreement with respect thereto with the Executive to the extent
necessary to implement this indemnification obligation.
5. TERMINATION
(a) The Term will terminate upon the Executive's death or, upon notice by
the Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by a
physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
<PAGE>
(b) The Term may be terminated by the Company upon notice to the Executive upon
the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company (i)
within six months of the occurrence of any event constituting "Good Reason" as
defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. SEVERANCE.
(a) If the Term is terminated by the Company for Cause, the Company will pay to
the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $130,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his employment
hereunder within 6 months following such Change in Control; the Company shall
(i) pay the Executive the Standard Termination Payments, (ii) pay the Executive
a lump sum payment equal to three times the Executive's total cash compensation
for the previous fiscal year (but in no event less than three times $130,000)
and (iii) continue in effect the Executive's benefits with respect to life,
health and insurance plans or their equivalent for three years.
(e) If the initial Term is not extended pursuant to the proviso to Section 1 as
a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice $130,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extension, or if the
Executive terminates his employment hereunder pursuant to Section 5 (c.): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the
<PAGE>
Company, which notice shall state that such conduct shall, without cure,
constitute Cause and makes specific reference to this Section 6(g); (ii) any
willful and intentional act of the Executive involving fraud, theft,
embezzlement or dishonesty affecting the Company; or (iii) the Executive's
conviction of (or a plea of nolo contendere to) an offense which is a felony in
the jurisdiction involved.
(h) As used herein, the term "Good Reason" means: (i.) assignment of the
Executive of duties materially inconsistent with the Executive's positions as
described in Section 2(a); (ii) the removal of the Executive from the positions
as described in Section 2(a); (iii) the change in the location of the Company's
principal executive offices to a location outside the Spokane, Washington
metropolitan area without the Executive's consent which may be withheld at his
sole discretion; or (iv) any material breach of this Agreement by the Company
which is continuing.
(i) As used herein, the term "Change in Control" means the occurrence of any
one of the following events: (i.) any "person", as such term is used in Sections
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial
owner", as such term is used in Rule 13d-3 promulgated under such Act, of 35% or
more of the Voting Stock of the Company (other than a person holding such
percentage ownership as of the Commencement Date) or the majority of the Board
of Directors of the Company consists of individuals other than Incumbent
Members, which shall mean the members of such Boards on the Commencement Date;
provided that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) the Company merges or combines with another company
and, immediately thereafter, the stockholders of the Company immediately prior
to such merger or combination hold, directly or indirectly, 50% or less of the
Voting Stock and other ownership interests of the surviving entity or entities;
(iv) the Company sells all or substantially all of its assets on a consolidated
basis in a single transaction or series of transactions; or (v) the Company
ceases to act as the general partner of Cavanaughs Hospitality Limited
Partnership. As used herein, an Affiliate of a person or other entity means a
person or other entity that directly or indirectly controls, is controlled by or
is under common control with the person or other entity specified (including
without limitation any investment entity managed by the person or other entity
specified or a person or entity that directly or indirectly controls, is
controlled by or under common control with the person or other entity
specified). As used herein, "Voting Stock" means capital stock any class or
classes having general voting power under ordinary circumstances, in the absence
of contingencies, to elect the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services hereunder Confidential
Information will be disclosed to the Executive by the Company Affiliates. The
Executive hereby agrees that, during the Term (except as required to conduct the
business of the Company) and for a period of three years thereafter, he will not
use or disclose, furnish or make accessible to anyone, directly or indirectly,
any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any trade
secrets, confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its businesses the confidentiality of which
<PAGE>
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during his employment hereunder and for a period
of twelve months thereafter the Executive will not, directly or indirectly,
engage or participate or make any financial investments in (other than ownership
of up to 5% of the aggregate of any class of securities of any corporation if
such securities are listed on a national stock exchange or under section 12(g)
of the Securities Exchange Act of 1934) or become employed by, or act as an
agent or principal of, or render advisory or other management services to of
for, any Competing Business in the Territory. As used herein the term "Competing
Business" means the ownership or operation of any hotel property and the term
"Territory" means the states of California, Oregon, Washington, Alaska, Idaho,
Montana and Utah and the provinces of Alberta and British Columbia.
Notwithstanding the foregoing, nothing in this Agreement shall limit or prohibit
the Executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a period
of twenty-four months thereafter he will not solicit, raid, entice or induce any
person that then is or at any time during the twelve-month period prior to the
end of the Term was an employee of the Company or a Company Affiliate (other
than a person whose employment with such Company Affiliate has been terminated
by such Company Affiliate), to become employed by any person, firm or
corporation.
9. SPECIFIC PERFORMANCE.
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 or 8 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive contained in
Sections 7 or 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope or
activity of subject, such restrictions shall be construed so as thereafter to be
limited or reduced to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear; it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
<PAGE>
(c) Notwithstanding anything in this Agreement to the contrary, in the event
that the Company fails to make any payment of any amounts or provide any of the
benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Sections 7 and 8 shall be immediately and permanently terminated.
10. WITHHOLDING.
The parties agree that all payments to be made to the Executive by the COmpany
pursuant to the Agreement shall be subject to all applicable withholding
obligations of such company.
11. NOTICES.
All notices required or permitted hereunder shall be in writing and shall be
deemed given and received when delivered personally, four days after being
mailed if sent by registered or certified mail, postage prepaid, or by one day
after delivery if sent by air courier (for next-day delivery) with evidence of
receipt thereof or by facsimile with receipt confirmed by the addressee. Such
notices shall be addressed respectively:
If to the Executive, to:
Mr. Arthur Coffey
13312 South Valley Chapel Road
Valleyford, WA 99036
If to the Company, to:
Cavanaughs Hospitality Corporation
201 W. North River Drive
Spokane, WA 99201
Attn: Corporate Counsel
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. MISCELLANEOUS.
(a) This Agreement is a personal contract calling for the provision of unique
services by the Executive, and the Executive's rights and obligations hereunder
may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Washington.
(c) Any controversy arising out of or relating to this Agreement or any breach
hereof shall be settled by arbitration in Spokane, Wa. by a single neutral
arbitrator who shall be a retired federal or state court judge in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and judgement upon any award rendered may be entered in any court having
jurisdiction thereof, except in the event of controversy relating to any alleged
violation by the Executive of Section 7 or 8 hereof, the Company and the
Subsidiary shall be entitled to seek injunctive relief from a court of competent
jurisdiction without the requirement to seek arbitration. In addition to all
other relief, the substantially prevailing party in any arbitration or court
action shall be entitled to their reasonable attorney fees and costs incurred by
reason of the controversy (including any appellate review and bankruptcy or
enforcement proceedings).
<PAGE>
(d) The headings of the various sections of this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
(e) The provisions of this Agreement which by their terms call for performance
subsequent to the expiration or termination of the Term shall survive such
expiration or termination.
(f) Upon the Commencement Date, this Agreement supersedes any existing
employment agreements between the Employee and the Company and any of its
Affiliates all of which shall be terminated upon the Commencement Date of this
Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
EXECUTIVE: COMPANY:
CAVANAUGHS HOSPITALITY CORPORATION
- -------------------------------- by ------------------------------------
Arthur Coffey Its President
<PAGE>
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed for reference date purposes on March
1, 1998 by and between Cavanaughs Hospitality Corporation, a Washington
corporation (the "Company"), and Richard L. Barbieri (the "Executive").
The Company desires to employ the Executive in the capacities of Senior Vice
President and General Counsel, and the Executive desires to be so employed, on
the terms and subject to the conditions set forth in this agreement (the
"Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. EMPLOYMENT; TERM.
The Company employs the Executive, and the Executive agrees to be employed
by the Company, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of the initial public offering of the common
shares of the Company on the national stock exchange selected by the Company
(the "Commencement Date") and terminating on December 31, 1999 unless terminated
earlier in accordance with Section 5 of this Agreement; provided, that such term
shall automatically be extended from time to time for additional periods of one
calendar year from the date on which it would otherwise expire unless the
Executive, on one hand, or the Company, on the other, gives notice to the other
party or parties not less than 120 days prior to such date that it elects to
permit the term of this Agreement to expire without extension on such date.
(The initial term of this Agreement as the same may be extended in accordance
with the terms of this Agreement is hereinafter referred to as the "Term").
2. POSITIONS; CONDUCT.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, Senior Vice President and General Counsel of the
Company. The Executive shall report to the Executive Vice President of the
Company and shall perform such specific duties and services (including service
as an officer, director or equivalent position of any direct or indirect
subsidiary without additional compensation) as the Board of Directors shall
reasonably request consistent with the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time and
attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of Directors
of the Company, as an officer, director, trustee or member of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs. In no event shall the Exempted Activities
involve any material conflict of interest with the interests of the Company or,
individually or collectively, interfere materially with the performance by the
Executive of his duties and responsibilities under this Agreement. The Board of
Directors of the Company have approved as an Exempted Activity the Executive's
employment as a director and officer of Inland Northwest Corporation, previously
a wholly-owned subsidiary of the Company.
- -------------------------------------------------------------------------------
Employment Agreement Page 1
<PAGE>
(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company which shall
be in the Spokane, Washington metropolitan area and in the branch office in the
Seattle, Washington metropolitan area, with time divided approximately equally
between the two locations. Under no circumstances shall the Executive be
required to relocate from the Spokane or Seattle, Washington metropolitan areas
or provide services under this Agreement in any other location other than in
connection with reasonable and customary business travel. During the Term, the
Company shall provide the Executive with executive office space, and
administrative and secretarial assistance and other support services consistent
with his positions and with his duties and responsibilities hereunder.
3. BOARD OF DIRECTORS; COMMITTEES.
It is understood that the right to elect directors of the Company is by
law vested in the stockholders and directors of the Company and it is mutually
contemplated that this Agreement is not conditioned on service on the Board of
Directors or any of its committees.
4. SALARY; ADDITIONAL COMPENSATION; PERQUISITES AND
BENEFITS.
(a) During the Term, the Company and the Subsidiary will pay the Executive a
base salary at an annual rate of not less than $96,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible to
receive a bonus. The award and amount of such bonus shall be based upon the
Compensation Committee's determination of actual performance as measured against
goals and shall give the Executive the opportunity to earn a bonus of up to 100%
of his base salary.
(c) During the Term, the Executive will participate in all plans now existing or
hereafter adopted by the Company for the management employees or the general
benefit of their employees, such as bonuses, stock option or other incentive
compensation plans, life and health insurance plans, or other insurance plans
and benefits on the same basis and subject to the same qualifications as other
senior executive officers. To the extent permitted by law, the Executive shall
be given credit for his years of service to any predecessor entity of the
Company in determining all waiting periods and vesting periods under such plans.
(d) The Executive shall be eligible for stock option grants from time to time
pursuant to the Company's 1998 Stock Incentive Plan in accordance with the terms
thereof. The Company shall recommend to the Committee designated in accordance
with such plan that the Company grant to the Executive, effective on the initial
public offering of Company shares, options to purchase 45,000 shares of the
common stock of the Company at an exercise price equal to the initial public
offering price of such stock (the "Option Price"). Subject to the terms of
Section 6(f) of this Agreement as to the acceleration of vesting of stock
options, such options shall vest on the earlier of the following calendar or
value-appreciation schedules:
i)Calendar Schedule:
Four Years after the grant date, options are fully vested as to 50% of
the applicable shares;
Five Years after the grant date, options are fully vested for the
remaining 50% of the shares.
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ii) Value Appreciation Schedule: Beginning one year after the option
grant date, if the stock price reaches the below described target
levels (as a percentage increase over the Option Price) for 20
consecutive trading days, the options will vest as follows:
Stock Price Increase: Percent of Option Shares Vested:
25% 25%
50% 50%
75% 75%
100% 100%
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Stock Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its
standard policies from time to time in effect, for all out-of-pocket business
expenses as may be incurred by the Executive in the performance of his duties
under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited and taken
in accordance with the Company's policy from time to time in effect for senior
executives, which in any event shall not be less than a total of four weeks per
calendar year.
(g) In the event that any accelerated vesting of the Executive's rights with
respect to stock options, restricted stock or any other benefit or compensation
results in the imposition of an excise tax payable by the Executive under
Section 4999 of the Internal Revenue Code, or any successor or other provision
with respect to "excess parachute payments" within the meaning of Section
280G(b) of the Internal Revenue Code, the Company shall make a cash payment to
the Executive in the amount of such taxes and shall also make a cash payment to
the Executive in an amount equal to the total of federal, state and local income
and excise taxes (the "Excise Tax") for which the Executive may be liable on
account of the cash payments made under this section, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
(h) The Company shall indemnify the Executive to the fullest extent permitted
under the law of the State of Washington and shall each enter into a separate
agreement with respect thereto with the Executive to the extent necessary to
implement this indemnification obligation.
5. TERMINATION
(a) The Term will terminate upon the Executive's death or, upon notice by the
Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by
a physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
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(b) The Term may be terminated by the Company upon notice to the Executive upon
the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company (i)
within six months of the occurrence of any event constituting "Good Reason" as
defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. SEVERANCE.
(a) If the Term is terminated by the Company for Cause, the Company will pay to
the Executive and aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $96,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his employment
hereunder within 6 months following such Change in Control; the Company shall
(i) pay the Executive the Standard Termination Payments, (ii) pay the Executive
a lump sum payment equal to three times the Executive's total cash compensation
for the previous fiscal year (but in no event less than three times $96,000) and
(iii) continue in effect the Executive's benefits with respect to life, health
and insurance plans or their equivalent for three years.
(e) If the initial Term is not extended pursuant to the proviso to Section 1 as
a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice $96,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extension, or if the
Executive terminates his employment hereunder pursuant to Section 5(c): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the
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Company, which notice shall state that such conduct shall, without cure,
constitute Cause and makes specific reference to this Section 6(g); (ii) any
willful and intentional act of the Executive involving fraud, theft,
embezzlement or dishonesty affecting the Company; or (iii) the Executive's
conviction of (or a plea of nolo contendere) an offense which is a felony in the
jurisdiction involved.
(h) As used herein, the term "Good Reason" means: (i) assignment of the
Executive of duties materially inconsistent with the Executive's position as
described in Section 2(a); (ii) the removal of the Executive from the positions
as described in Section 2(a); (iii) the change in the location of the Company's
principal executive offices to a location outside the Spokane, Washington
metropolitan area without the Executive's consent which may be withheld at his
sole discretion; or (iv) any material breach of this Agreement by the Company
which is continuing.
(i) As used herein, the term "Change in Control" means the occurrence of any
one of the following events: (i) any "person", as such term is used in Sections
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial
owner", as such term is used in Rule 13d-3 promulgated under such Act, of 35% or
more of the Voting Stock of the Company (other than a person holding such
percentage ownership as of the Commencement Date) or the majority of the Board
of Directors of the Company consists of individuals other than Incumbent
Members, which shall mean the members of such Boards on the Commencement Date;
provided that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) The Company merges or combines with another company
and, immediately thereafter, the stockholders of the Company immediately prior
to such merger or combination hold, directly or indirectly, 50% or less of the
Voting Stock and other ownership interests of the surviving entity or entities;
(iv) the Company sells all or substantially all of its assets on a consolidated
basis in a single transaction or series of transactions; or (v) the Company
ceases to act as the general partner of Cavanaughs Hospitality Limited
Partnership. As used herein, an Affiliate of a person or other entity means a
person or other entity that directly or indirectly controls, is controlled by or
is under common control with the person or other entity specified). As used
herein, "Voting Stock" means capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any way limit or
reduce the obligations of the Company and the Subsidiary under this Section 6.
7. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services hereunder Confidential
Information will be disclosed to the Executive by the Company Affiliates. The
Executive hereby agrees that, during the Term (except as required to conduct the
business of the Company) and for a period of three years thereafter, he will not
use or disclose, furnish or make accessible to anyone, directly or indirectly,
any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any trade
secrets, confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its business the confidentiality of which
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<PAGE>
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during his employment hereunder and for a period
of twelve months thereafter the Executive will not, directly or indirectly,
engage or participate or make any financial investments in (other than ownership
of up to 5% of the aggregate of any class of securities of any corporation if
such securities are listed on a national stock exchange or under section 12(g)
of the Securities Exchange Act of 1934) or become employed by, or act as an
agent or principal of, or render advisory or other management services to or
for, any Competing Business in the Territory. As used herein the term
"Competing Business" means the ownership or operation of any hotel property and
the term "Territory" means the states of California, Oregon, Washington, Alaska,
Idaho, Montana and Utah and the provinces of Alberta and British Columbia.
Notwithstanding the foregoing, nothing in this Agreement shall limit or prohibit
the Executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a period
of twenty-four months thereafter he will not solicit, raid, entice or induce any
person that then is or at any time during the twelve-month period prior to the
end of the Term was an employee of the Company or a Company Affiliate (other
than a person whose employment with such Company Affiliate has been terminated
by such Company Affiliate), to become employed by any person, firm or
corporation.
9. SPECIFIC PERFORMANCE.
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 or 8 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive contained in
Sections 7 or 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope or
activity of subject, such restrictions shall be construed so as thereafter to be
limited or reduced to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear; it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
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(c) Notwithstanding anything in this Agreement to the contrary, in the event
that the Company fails to make any payment of any amounts or provide any of the
benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Sections 7 and 8 shall be immediately and permanently terminated.
10. WITHHOLDING.
The parties agree that all payments to be made to the Executive by the Company
pursuant to the Agreement shall be subject to all applicable withholding
obligations of such company.
11. NOTICES.
All notices required or permitted hereunder shall be in writing and shall be
deemed given and received when delivered personally, four days after being
mailed if sent by registered or certified mail, postage pre-paid, or by one day
after delivery if sent by air courier (for next-day delivery) with evidence of
receipt thereof or by facsimile with receipt confirmed by the addressee. Such
notices shall be addressed respectively:
If to the Executive, to:
Richard L. Barbieri
639 North Riverpoint Blvd. #H201
Spokane WA 99202
If to the Company, to:
Cavanaughs Hospitality Corporation
201 W. North River Drive
Spokane, WA 99201
Attn. Corporate Counsel
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. MISCELLANEOUS.
(a) This Agreement is a personal contract calling for the provision of unique
services by the Executive, and the Executive's rights and obligations hereunder
may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Washington.
(c) Any controversy arising out of or relating to this Agreement or any breach
hereof shall be settled by arbitration in Spokane, Wa. by a single neutral
arbitrator who shall be a retired federal or state court judge in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and judgment upon any award rendered may be entered in any court having
jurisdiction thereof, except in the event of a controversy relating to any
alleged violation by the Executive of Section 7 or 8 hereof, the Company and the
Subsidiary shall be entitled to seek injunctive relief from a court of competent
jurisdiction without the requirement to seek arbitration. In addition to all
other relief, the substantially prevailing party in any arbitration or court
action shall be entitled to their reasonable attorney fees and costs incurred by
reason of the controversy (including any appellate review and bankruptcy or
enforcement proceedings).
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(d) The headings of the various sections of this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
(e) The provisions of this Agreement which by their terms call for performance
subsequent to the expiration or termination of the Term shall survive such
expiration or termination.
(f) Upon the Commencement Date, this Agreement supersedes any existing
employment agreements between the Employee and the Company and any of its
Affiliates all of which shall be terminated upon the Commencement Date of this
Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
EXECUTIVE: COMPANY:
CAVANAUGHS HOSPITALITY CORPORATION
by
- ----------------------- -------------------------------
Richard L. Barbieri Its President
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<PAGE>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed for reference date purposes on March
1, 1998 by and between Cavanaughs Hospitality Corporation, a Washington
corporation (the "Company"), and David M. Bell (the "Executive").
The Company desires to employ the Executive in the capacities of Senior Vice
President--Project Design, Development and Construction, and the Executive
desires to be so employed, on the terms and subject to the conditions set forth
in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. EMPLOYMENT; TERM.
The Company employs the Executive, and the Executive agrees to be employed
by the Company, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of the initial public offering of the common
shares of the Company on the national stock exchange selected by the Company
(the "Commencement Date") and terminating on December 31, 1999 unless terminated
earlier in accordance with Section 5 of this Agreement; provided, that such term
shall automatically be extended from time to time for additional periods of one
calendar year from the date on which it would otherwise expire unless the
Executive, on one hand, or the Company, on the other, gives notice to the other
party or parties not less than 120 days prior to such date that it elects to
permit the term of this Agreement to expire without extension on such date. (The
initial term of this Agreement as the same may be extended in accordance with
the terms of this Agreement is hereinafter referred to as the "Term").
2. POSITIONS; CONDUCT.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, Senior Vice President -- Project Design, Development
and Construction of the Company. The Executive shall report to the Executive
Vice President of the Company and shall perform such specific duties and
services (including service as an officer, director or equivalent position of
any direct or indirect subsidiary without additional compensation) as the Board
of Directors shall reasonably request consistent with the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time and
attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of Directors
of the Company, as an officer, director, trustee or member of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs. In no event shall the Exempted Activities
involve any material conflict of interest with the interests of the Company or,
individually or collectively, interfere materially with the performance by the
Executive of his duties and responsibilities under this Agreement. The Board of
Directors of the Company have approved as an Exempted Activity the Executive's
employment as a director and officer of Inland Northwest Corporation, previously
a wholly-owned subsidiary of the Company.
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(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company which shall
be in the Spokane, Washington metropolitan area. Under no circumstances shall
the Executive be required to relocate from the Spokane metropolitan area or
provide services under this Agreement in any other location other than in
connection with reasonable and customary business travel. During the Term, the
Company shall provide the Executive with executive office space, and
administrative and secretarial assistance and other support services consistent
with his positions and with his duties and responsibilities hereunder.
3. BOARD OF DIRECTORS; COMMITTEES.
It is understood that the right to elect directors of the Company is by
law vested in the stockholders and directors of the Company and it is mutually
contemplated that this Agreement is not conditioned on service on the Board of
Directors or any of its committees.
4. SALARY; ADDITIONAL COMPENSATION; PERQUISITES AND BENEFITS.
(a) During the Term, the Company and the Subsidiary will pay the Executive
a base salary at an annual rate of not less than $96,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible to
receive a bonus. The award and amount of such bonus shall be based upon the
Compensation Committee's determination of actual performance as measured against
goals and shall give the Executive the opportunity to earn a bonus of up to 100%
of his base salary.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company for the management employees or the
general benefit of the their employees, such as bonuses, stock option or other
incentive compensation plans, life and health insurance plans, or other
insurance plans and benefits on the same basis and subject to the same
qualifications as other senior executive officers. To the extent permitted by
law, the Executive shall be given credit for his years of service to any
predecessor entity of the Company in determining all waiting periods and vesting
periods under such plans.
(d) The Executive shall be eligible for stock option grants from time to
time pursuant to the Company's 1998 Stock Incentive Plan in accordance with the
terms thereof. The Company shall recommend to the Committee designated in
accordance with such plan that the Company grant to the Executive, effective on
the initial public offering of Company shares, options to purchase 45,000 shares
of the common stock of the Company at an exercise price equal to the initial
public offering price of such stock (the "Option Price"). Subject to the terms
of Section 6(f) of this Agreement as to the acceleration of vesting of stock
options, such options shall vest on the earlier of the following calendar or
value-appreciating schedules:
i) Calendar Schedule:
Four Years after the grant date, options are fully vested as to 50% of
the applicable shares;
Five Years after the grant date, options are fully vested for the
remaining 50% of the shares.
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(ii) Value Appreciation Schedule: Beginning one year after the option grant
date, if the stock price reaches the below described target levels (as a
percentage increase over the Option Price) for 20 consecutive trading days,
the options will vest as follows:
Stock Price Increase: Percent of Option Shares Vested:
25% 25%
50% 50%
75% 75%
100% 100%
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Stock Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its standard
policies from time to time in effect, for all out-of-pocket business expenses as
may be incurred by the Executive in the performance of his duties under this
Agreement.
(f) The Executive shall be entitled to vacation time to be credited and taken
in accordance with the Company's policy from time to time in effect for senior
executives, which in any event shall not be less than a total of four weeks per
calendar year.
(g) In the event that any accelerated vesting of the Executive's rights with
respect to stock options, restricted stock or any other benefit or compensation
results in the imposition of an excise tax payable by the Executive under
Section 4999 of the Internal Revenue Code, or any successor or other provision
with respect to "excess parachute payments" within the meaning of Section
280G(b) of the Internal Revenue Code, the Company shall make a cash payment to
the Executive in the amount of such taxes and shall also make a cash payment to
the Executive in an amount equal to the total of federal, state and local income
and excise taxes (the "Excise Tax") for which the Executive may be liable on
account of the cash payments made under this section, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
(h) The Company shall indemnify the Executive to the fullest extent permitted
under the law of the State of Washington and shall each enter into a separate
agreement with respect thereto with the Executive to the extent necessary to
implement this indemnification obligation.
5. TERMINATION
(a) The Term will terminate upon the Executive's death or, upon notice by the
Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by
a physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
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(b) The Term may be terminated by the Company upon notice to the Executive
upon the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company
(i) within six months of the occurrence of any event constituting "Good Reason"
as defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. SEVERANCE.
(a) If the Term is terminated by the Company for Cause, the Company will pay
to the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $96,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his
employment hereunder within 6 months following such Change in Control; the
Company shall (i) pay the Executive the Standard Termination Payments, (ii) pay
the Executive a lump sum payment equal to three times the Executive's total cash
compensation for the previous fiscal year (but in no event less than three times
$96,000) and (iii) continue in effect the Executive's benefits with respect to
life, health and insurance plans or their equivalent for three years.
(e) If the initial Term is not extended pursuant to the proviso to Section 1
as a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice ($96,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extension, or if the
Executive terminates his employment hereunder pursuant to Section 5(c.): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the
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Company, which notice shall state that such conduct shall, without cure,
constitute Cause and makes specific reference to this Section 6(g); (ii) any
willful and intentional act of the Executive involving fraud, theft,
embezzlement or dishonesty affecting the Company; or (iii) the Executive's
conviction of (or a plea of nolo contendere to) an offense which is a felony in
the jurisdiction involved.
(h) As used herein, the term "Good Reason" means: (i) assignment of the
Executive of duties materially inconsistent with the Executive's positions as
described in Section 2(a); (ii) the removal of the Executive from the positions
as described in Section 2(a); (iii) the change in the location of the Company's
principal executive offices to a location outside the Spokane, Washington
metropolitan area without the Executive's consent which may be withheld at his
sole discretion; or (iv) any material breach of this Agreement by the Company
which is continuing.
(i) As used herein, the term "Change in Control" means the occurrence of any
one of the following events: (i) any "person", as such term is used in Sections
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial
owner", as such term is used in Rule 13d-3 promulgated under such Act, of 35% or
more of the Voting Stock of the Company (other than a person holding such
percentage ownership as of the Commencement Date) or the majority of the Board
of Directors of the Company consists of individuals other than Incumbent
Members, which shall mean the members of such Boards on the Commencement Date;
provided that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) The Company merges or combines with another company
and, immediately thereafter, the stockholders of the Company immediately prior
to such merger or combination hold, directly or indirectly, 50% or less of the
Voting Stock and other ownership interests of the surviving entity or entities;
(iv) the Company sells all or substantially all of its assets on a consolidated
basis in a single transaction or series of transactions; or (v) the Company
ceases to act as the general partner of Cavanaughs Hospitality Limited
Partnership. As used herein, an Affiliate of a person or other entity means a
person or other entity that directly or indirectly controls, is controlled by or
is under common control with the person or other entity specified (including
without limitation any investment entity managed by the person or other entity
specified or a person or entity that directly or indirectly controls, is
controlled by or under common control with the person or other entity
specified). As used herein, "Voting Stock" means capital stock of any class or
classes having general voting power under ordinary circumstances, in the absence
of contingencies, to elect the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services hereunder Confidential
Information will be disclosed to the Executive by the Company Affiliates. The
Executive hereby agrees that, during the Term (except as required to conduct the
business of the Company) and for a period of three years thereafter, he will not
use or disclose, furnish or make accessible to anyone, directly or indirectly,
any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any trade
secrets, confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its businesses the confidentiality of which
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such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the
foregoing, Confidential Information shall not in any event include information
which (i) was generally known or generally available to the public prior to its
disclosure to the Executive, (ii) becomes generally known or generally available
to the public subsequent to its disclosure to the Executive through no wrongful
act of the Executive, (iii) is or becomes available to the Executive from
sources other than the Company Affiliates which sources are not known to the
Executive to be under any duty of confidentiality with respect thereto or (iv)
the Executive is required to disclose by applicable law or regulation or by
order of any court or federal, state or local regulatory or administrative body
(provided that the Executive provides the Company with prior notice of the
contemplated disclosure and reasonably cooperates with the Company, at the
Company's sole expense, in seeking a protective order or other appropriate
protection of such information).
8. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during his employment hereunder and for a period
of twelve months thereafter the Executive will not, directly or indirectly,
engage or participate or make any financial investments in (other than ownership
of up to 5% of the aggregate of any class of securities of any corporation if
such securities are listed on a national stock exchange or under section 12(g)
of the Securities Exchange Act of 1934) or become employed by, or act as an
agent or principal of, or render advisory or other management services to or
for, any Competing Business in the Territory. As used herein the term "Competing
Business" means the ownership or operation of any hotel property and the term
"Territory" means the states of California, Oregon, Washington, Alaska, Idaho,
Montana and Utah and the provinces of Alberta and British Columbia.
Notwithstanding the foregoing, nothing in this Agreement shall limit or prohibit
the Executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a period
of twenty-four months thereafter he will not solicit, raid, entice or induce any
person that then is or at any time during the twelve-month period prior to the
end of the Term was an employee of the Company or a Company Affiliate (other
than a person whose employment with such Company Affiliate has been terminated
by such Company Affiliate), to become employed by any person, firm or
corporation.
9. SPECIFIC PERFORMANCE.
(a) The Executive acknowledges that the services to be rendered by him hereunder
are of a special, unique, extraordinary and personal character and that the
Company Affiliates would sustain irreparable harm in the event of a violation by
the Executive of Section 7 or 8 hereof. Therefore, in addition to any other
remedies available, the Company shall be entitled to specific enforcement and/or
an injunction from any court of competent jurisdiction restraining the Executive
from committing or continuing any such violation of this Agreement without
proving actual damages or posting a bond or other security. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach, including the recovery of
damages.
(b) If any of the restrictions on activities of the Executive contained in
Sections 7 or 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope or
activity of subject, such restrictions shall be construed so as thereafter to be
limited or reduced to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear; it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
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(c) Notwithstanding anything in this Agreement to the contrary, in the event
that the Company fails to make any payment of any amounts or provide any of the
benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Sections 7 and 8 shall be immediately and permanently terminated.
10. Withholding.
The parties agree that all payments to be made to the Executive by the Company
pursuant to the Agreement shall be subject to all applicable withholding
obligations of such company.
11. Notices.
All notices required or permitted hereunder shall be in writing and shall be
deemed given and received when delivered personally, four days after being
mailed if sent by registered or certified mail, postage pre-paid, or by one day
after delivery if sent by air courier (for next-day delivery) with evidence of
receipt thereof or by facsimile with receipt confirmed by the addressee. Such
notices shall be addressed respectively:
If to the Executive, to:
David M. Bell
S. 2615 Pittsburg St.
Spokane, WA 99203
If to the Company, to:
Cavanaughs Hospitality Corporation
201 W. North River Drive
Spokane, WA 99201
Attn. Corporate Counsel
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. Miscellaneous.
(a) This Agreement is a personal contract calling for the provision of unique
services by the Executive, and the Executive's rights and obligations hereunder
may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Washington.
(c) Any controversy arising out of or relating to this Agreement or any breach
hereof shall be settled by arbitration in Spokane, Wa. by a single neutral
arbitrator who shall be a retired federal or state court judge in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and judgment upon any award rendered may be entered in any court having
jurisdiction thereof, except in the event of a controversy relating to any
alleged violation by the Executive of Section 7 or 8 hereof, the Company and
the Subsidiary shall be entitled to seek injunctive relief from a court of
competent jurisdiction without the requirement to seek arbitration. In addition
to all other relief, the substantially prevailing party in any arbitration or
court action shall be entitled to their reasonable attorney fees and costs
incurred by reason of the controversy (including any appellate review and
bankruptcy or enforcement proceedings).
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(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
(e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) Upon the Commencement Date, this Agreement supersedes any existing
employment agreements between the Employee and the Company and any of its
Affiliates all of which shall be terminated upon the Commencement Date of this
Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
EXECUTIVE: COMPANY:
CAVANAUGHS HOSPITALITY CORPORATION
by
- -------------------------- --------------------------------
David M. Bell Its President
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<PAGE>
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed for reference date purposes on March
1, 1998 by and between Cavanaughs Hospitality Corporation, a Washington
corporation (the "Company"), and Thomas M. Barbieri (the "Executive").
The Company desires to employ the Executive in the capacities of Senior Vice
President--Acquisitions and Commercial Operations, and the Executive desires to
be so employed, on the terms and subject to the conditions set forth in this
agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. EMPLOYMENT; TERM.
The Company employs the Executive, and the Executive agrees to be
employed by the Company, upon the terms and subject to the conditions set forth
herein, for a term commencing on the date of the initial public offering of the
common shares of the Company on the national stock exchange selected by the
Company (the "Commencement Date") and terminating on December 31, 1999 unless
terminated earlier in accordance with Section 5 of this Agreement; provided,
that such term shall automatically be extended from time to time for additional
periods of one calendar year from the date on which it would otherwise expire
unless the Executive, on one hand, or the Company, on the other, gives notice to
the other party or parties not less than 120 days prior to such date that it
elects to permit the term of this Agreement to expire without extension on such
date. (The initial term of this Agreement as the same may be extended in
accordance with the terms of this Agreement is hereinafter referred to as the
"Term").
2. POSITIONS; CONDUCT.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, Senior Vice President--Acquisitions and Commercial
Operations of the Company. The Executive shall report to the Executive Vice
President of the Company and shall perform such specific duties and services
(including service as an officer, director or equivalent position of any direct
or indirect subsidiary without additional compensation) as the Board of
Directors shall reasonably request consistent with the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time
and attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of
Directors of the Company, as an officer, director, trustee or member of any
organization, (ii) engaging in charitable and community activities and (iii)
managing his personal investments and affairs. In no event shall the Exempted
Activities involve any material conflict of interest with the interests of the
Company or, individually or collectively, interfere materially with the
performance by the Executive of his duties and responsibilities under this
Agreement. The Board of Directors of the Company have approved as an Exempted
Activity the Executive's employment as a director and officer of Inland
Northwest Corporation, previously a wholly-owned subsidiary of the Company.
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(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company which shall
be in the Spokane, Washington metropolitan area. Under no circumstances shall
the Executive be required to relocate from the Spokane metropolitan area or
provide services under this Agreement in any other location other than in
connection with reasonable and customary business travel. During the Term, the
Company shall provide the Executive with executive office space, and
administrative and secretarial assistance and other support services consistent
with his positions and with his duties and responsibilities hereunder.
3. BOARD OF DIRECTORS; COMMITTEES.
It is understood that the right to elect directors of the Company is by law
vested in the stockholders and directors of the Company and it is mutually
contemplated that this Agreement is not conditioned on service on the Board of
Directors or any of its committees.
4. SALARY; ADDITIONAL COMPENSATION; PERQUISITES AND BENEFITS.
(a) During the Term, the Company and the Subsidiary will pay the Executive a
base salary at an annual rate of not less than $96,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible to
receive a bonus. The award and amount of such bonus shall be based upon the
Compensation Committee's determination of actual performance as measured against
goals and shall give the Executive the opportunity to earn a bonus of up to 100%
of his base salary.
(c) During the Term, the Executive will participate in all plans now existing
or hereafter adopted by the Company for the management employees or the general
benefit of the their employees, such as bonuses, stock option or other incentive
compensation plans, life and health insurance plans, or other insurance plans
and benefits on the same basis and subject to the same qualifications as other
senior executive officers. To the extent permitted by law, the Executive shall
be given credit for his years of service to any predecessor entity of the
Company in determining all waiting periods and vesting periods under such plans.
(d) The Executive shall be eligible for stock option grants from time to time
pursuant to the Company's 1998 Stock Incentive Plan in accordance with the terms
thereof. The Company shall recommend to the Committee designated in accordance
with such plan that the Company grant to the Executive, effective on the initial
public offering of Company shares, options to purchase 45,000 shares of the
common stock of the Company at an exercise price equal to the initial public
offering price of such stock (the "Option Price"). Subject to the terms of
Section 6(f) of this Agreement as to the acceleration of vesting of stock
options, such options shall vest on the earlier of the following calendar or
value-appreciation schedules:
i) Calendar Schedule:
Four Years after the grant date, options are fully vested as to 50% of the
applicable shares;
Five Years after the grant date, options are fully vested for the remaining
50% of the shares.
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ii) Value Appreciation Schedule: Beginning one year after the option grant
date, if the stock price reaches the below described target levels (as a
percentage increase over the Option Price) for 20 consecutive trading
days, the options will vest as follows:
Stock Price Increase: Percent of Option Shares Vested:
25% 25%
50% 50%
75% 75%
100% 100%
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1998 Stock Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its standard
policies from time to time in effect, for all out-of-pocket business expenses as
may be incurred by the Executive in the performance of his duties under this
Agreement.
(f) The Executive shall be entitled to vacation time to be credited and taken
in accordance with the Company's policy from time to time in effect for senior
executives, which in any event shall not be less than a total of four weeks per
calendar year.
(g) In the event that any accelerated vesting of the Executive's rights with
respect to stock options, restricted stock or any other benefit or compensation
results in the imposition of an excise tax payable by the Executive under
Section 4999 of the Internal Revenue Code, or any successor or other provision
with respect to "excess parachute payments" within the meaning of Section
280G(b) of the Internal Revenue Code, the Company shall make a cash payment to
the Executive in the amount of such taxes and shall also make a cash payment to
the Executive in an amount equal to the total of federal, state and local income
and excise taxes (the "Excise Tax") for which the Executive may be liable on
account of the cash payments made under this section, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
(h) The Company shall indemnify the Executive to the fullest extent permitted
under the law of the State of Washington and shall each enter into a separate
agreement with respect thereto with the Executive to the extent necessary to
implement this indemnification obligation.
5. TERMINATION
(a) The Term will terminate upon the Executive's death or, upon notice by the
Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by a
physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
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(b) The Term may be terminated by the Company upon notice to the Executive upon
the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company (i)
within six months of the occurrence of any event constituting "Good Reason" as
defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. SEVERANCE.
(a) If the Term is terminated by the Company for Cause, the Company will pay to
the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $96,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his employment
hereunder within 6 months following such Change in Control; the Company shall
(i) pay the Executive the Standard Termination Payments, (ii) pay the Executive
a lump sum payment equal to three times the Executive's total cash compensation
for the previous fiscal year (but in no event less than three times $96,000) and
(iii) continue in effect the Executive's benefits with respect to life, health
and insurance plans or their equivalent for three years.
(e) If the initial Term is not extended pursuant to the proviso to Section 1 as
a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice $96,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extensions, or it the
Executive terminates his employment hereunder pursuant to Section 5(c): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the
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Company, which notice shall state that such conduct shall, without cure,
constitute Cause and makes specific reference to this Section 6(g); (ii) any
willful and intentional act of the Executive involving fraud, theft,
embezzlement or dishonesty affecting the Company; or (iii) the Executive's
conviction of (or a plea of nolo contendere to) an offense which is a felony in
the jurisdiction involved.
(h) As used herein, the term "Good Reason" means: (i) assignment of the
Executive of duties materially inconsistent with the Executive's positions as
described in Section 2(a); (ii) the removal of the Executive from the positions
as described in Section 2(a); (iii) the change in the location of the Company's
principal executive offices to a location outside the Spokane, Washington
metropolitan area without the Executive's consent which may be withheld at his
sole discretion; or (iv) any material breach of this Agreement by the Company
which is continuing.
(i) As used herein, the term "Change in Control" means the occurrence of any
one of the following events: (i) any "person", as such term is used in Sections
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial
owner", as such term is used in Rule 13d-3 promulgated under such Act, of 35% or
more of the Voting Stock of the Company (other than a person holding such
percentage ownership as of the Commencement Date) or the majority of the Board
of Directors of the Company consists of individuals other than Incumbent
Members, which shall mean the members of such Boards on the Commencement Date;
provided that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) The Company merges or combines with another company
and, immediately thereafter, the stockholders of the Company immediately prior
to such merger or combination hold, directly or indirectly, 50% or less of the
Voting Stock and other ownership interests of the surviving entity or entities;
(iv) the Company sells all or substantially all of its assets on a consolidated
basis in a single transaction or series of transactions; or (v) the Company
ceases to act as the general partner of Cavanaughs Hospitality Limited
Partnership. As used herein, an Affiliate of a person or other entity means a
person or other entity that directly or indirectly controls, is controlled by or
is under common control with the person or other entity specified (including
without limitation any investment entity managed by the person or other entity
specified or a person or entity that directly or indirectly controls, is
controlled by or under common control with the person or other entity
specified). As used herein, "Voting Stock" means capital stock of any class or
classes having general voting power under ordinary circumstances, in the absence
of contingencies, to elect the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services hereunder Confidential
Information will be disclosed to the Executive by the Company Affiliates. The
Executive hereby agrees that, during the Term (except as required to conduct the
business of the Company) and for a period of three years thereafter, he will not
use or disclose, furnish or make accessible to anyone, directly or indirectly,
any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any trade
secrets, confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its businesses the confidentiality of which
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<PAGE>
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during his employment hereunder and for a period
of twelve months thereafter the Executive will not, directly or indirectly,
engage or participate or make any financial investments in (other than ownership
of up to 5% of the aggregate of any class of securities of any corporation if
such securities are listed on a national stock exchange or under section 12(g)
of the Securities Exchange Act of 1934) or become employed by, or act as an
agent or principal of, or render advisory or other management services to or
for, any Competing Business in the Territory. As used herein the term
"Competing Business" means the ownership or operation of any hotel property and
the term "Territory" means the states of California, Oregon, Washington, Alaska,
Idaho, Montana and Utah and the provinces of Alberta and British Columbia.
Notwithstanding the foregoing, nothing in this Agreement shall limit or prohibit
the Executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a period
of twenty-four months thereafter he will not solicit, raid, entice or induce any
person that then is or at any time during the twelve-month period prior to the
end of the Term was an employee of the Company or a Company Affiliate (other
than a person whose employment with such Company Affiliate has been terminated
by such Company Affiliate), to become employed by any person, firm or
corporation.
9. SPECIFIC PERFORMANCE.
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 or 8 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injuction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive contained in
Sections 7 or 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope or
activity of subject, such restrictions shall be construed so as thereafter to be
limited or reduced to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear; it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
- -------------------------------------------------------------------------------
Employment Agreement Page 6
<PAGE>
(c) Notwithstanding anything in this Agreement to the contrary, in the event
that the Company fails to make any payment of any amounts or provide any of the
benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Sections 7 and 8 shall be immediately and permanently terminated.
10. WITHHOLDING.
The parties agree that all payments to be made to the Executive by the Company
pursuant to the Agreement shall be subject to all applicable withholding
obligations of such company.
11. NOTICES.
All notices required or permitted hereunder shall be in writing and shall be
deemed given and received when delivered personally, four days after being
mailed if sent by registered or certified mail, postage pre-paid, or by one day
after delivery if sent by air courier (for next-day delivery) with evidence of
receipt thereof or by facsimile with receipt confirmed by the addressee. Such
notices shall be addressed respectively:
If to the Executive, to:
Thomas M. Barbieri
E. 2210 34th
Spokane, WA 99203
If to the Company, to:
Cavanaughs Hospitality Corporation
201 W. North River Drive
Spokane, WA 99201
Attn. Corporate Counsel
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. MISCELLANEOUS.
(a) This Agreement is a personal contract calling for the provision of unique
services by the Executive, and the Executive's rights and obligations hereunder
may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Washington.
(c) Any controversy arising out of or relating to this Agreement or any breach
hereof shall be settled by arbitration in Spokane, Wa. by a single neutral
arbitrator who shall be a retired federal or state court judge in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and judgment upon any award rendered may be entered in any court having
jurisdiction thereof, except in the event of a controversy relating to any
alleged violation by the Executive of Section 7 or 8 hereof, the Company and the
Subsidiary shall be entitled to seek injunctive relief from a court of competent
jurisdiction without the requirement to seek arbitration. In addition to all
other relief, the substantially prevailing party in any arbitration or court
action shall be entitled to their reasonable attorney fees and costs incurred by
reason of the controversy (including any appellate review and bankruptcy or
enforcement proceedings).
- --------------------------------------------------------------------------------
Employment Agreement Page 7
<PAGE>
(d) The headings of the various sections of this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
(e) The provisions of this Agreement which by their terms call for performance
subsequent to the expiration or termination of the Term shall survive such
expiration or termination.
(f) Upon the Commencement Date, this Agreement supersedes any existing
employment agreements between the Employee and the Company and any of its
Affiliates all of which shall be terminated upon the Commencement Date of this
Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
EXECUTIVE: COMPANY:
CAVANAUGHS HOSPITALITY CORPORATION
by
- ---------------------- --------------------------------
Thomas M. Barbieri Its President
- --------------------------------------------------------------------------------
Employment Agreement Page 8
<PAGE>
EXHIBIT 10.6
FORM OF
CREDIT AGREEMENT
Dated as of ___________, 1998
among
CAVANAUGHS HOSPITALITY LIMITED PARTNERSHIP,
U. S. BANK NATIONAL ASSOCIATION
as Administrative Agent,
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS...................................... 1
1.1 Certain Defined Terms............................. 1
1.2 Other Interpretive Provisions..................... 20
1.3 Accounting Principles............................. 22
ARTICLE II. THE LOANS......................................... 22
2.1 Revolving Line of Credit.......................... 22
2.2 Manner of Borrowing............................... 23
2.3 Agent's Right to Fund............................. 24
2.4 Loan Accounts..................................... 24
2.5 Interest Rate Elections........................... 25
2.6 Mandatory Prepayments of Loans.................... 26
(a) Asset Dispositions.......................... 26
(b) Event of Loss............................... 26
(c) Debt Issuance............................... 27
(d) General..................................... 27
(e) Reduction in Commitment..................... 27
2.7 Repayment......................................... 28
2.8 Interest.......................................... 28
2.9 Agency and Underwriting Fees...................... 29
2.10 Commitment Fees................................... 29
2.11 Late Charge....................................... 29
2.12 Computation of Interest and Fees.................. 29
2.13 Payments by the Borrower.......................... 30
2.14 Sharing of Payments, Etc.......................... 30
2.15 Security.......................................... 31
2.16 Borrowing Base.................................... 31
2.17 No Prepayment Charges............................. 32
ARTICLE III. LETTERS OF CREDIT................................. 32
3.1 Letters of Credit................................. 32
3.2 Manner of Requesting Letters of Credit............ 32
3.3 Indemnification; Increased Costs.................. 33
3.4 Payment by the Borrower........................... 34
ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY............ 34
4.1 Taxes............................................. 34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4.2 Illegality........................................ 36
4.3 Increased Costs and Reduction of Return........... 36
4.4 Funding Losses.................................... 37
4.5 Inability to Determine Rates...................... 38
4.6 Certificates of Lenders........................... 38
4.7 Survival 38
ARTICLE V. CONDITIONS PRECEDENT.............................. 38
5.1 Conditions of Initial Loans....................... 38
(a) Credit Agreement and Notes.................. 39
(b) Resolutions; Incumbency..................... 39
(c) Organization Documents; Good Standing....... 39
(d) Legal Opinions.............................. 39
(e) Payment of Fees............................. 40
(f) Collateral Documents........................ 40
(g) Insurance Policies.......................... 41
(h) Certificate................................. 41
(i) Compliance Certificate...................... 41
(j) Initial Public Offering..................... 41
(k) Notice of Borrowing; Reimbursement Agreement 41
(l) Guaranty.................................... 41
(m) Other Documents............................. 42
(n) Payment of Indebtedness..................... 42
(o) Eligible Real Property...................... 42
5.2 Conditions to Subsequent Loans.................... 42
(a) Interest Rate Notice........................ 42
(b) Notice of Borrowing; Reimbursement Agreement 42
(c) Continuation of Representations and
Warranties................................ 43
(d) No Existing Default......................... 43
(e) Satisfaction of Previous Conditions......... 43
(f) Further Assurances.......................... 43
5.3 Conditions to Become Eligible Real Property....... 43
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.................... 46
6.1 Existence and Power............................... 46
6.2 Authorization; No Contravention................... 46
6.3 Governmental Authorization........................ 47
6.4 Binding Effect.................................... 47
6.5 Litigation........................................ 47
6.6 No Default........................................ 47
6.7 ERISA Compliance.................................. 48
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
6.8 Use of Proceeds; Margin Regulations.................................... 49
6.9 Title to Properties.................................................... 49
6.10 Taxes.................................................................. 49
6.11 Financial Condition.................................................... 49
6.12 Environmental Matters.................................................. 50
6.13 Collateral Documents................................................... 51
6.14 Regulated Entities..................................................... 51
6.15 No Burdensome Restrictions............................................. 51
6.16 Copyrights, Patents, Trademarks and Licenses, Etc...................... 51
6.17 Subsidiaries........................................................... 52
6.18 Insurance.............................................................. 52
6.19 Solvency............................................................... 52
6.20 Full Disclosure........................................................ 52
ARTICLE VII. AFFIRMATIVE COVENANTS.................................................. 53
7.1 Financial Statements................................................... 53
7.2 Certificates; Other Information........................................ 54
7.3 Notices................................................................ 54
7.4 Preservation of Existence, Etc......................................... 56
7.5 Maintenance of Property................................................ 56
7.6 Insurance.............................................................. 57
7.7 Payment of Obligations................................................. 57
7.8 Compliance With Laws................................................... 57
7.9 Compliance With ERISA.................................................. 58
7.10 Inspection of Property and Books and Records........................... 58
7.11 Environmental Laws..................................................... 58
7.12 Use of Proceeds........................................................ 59
7.13 Appraisals............................................................. 59
7.14 Further Assurances..................................................... 59
7.15 Minimum Parcels of..................................................... 61
ARTICLE VIII. NEGATIVE COVENANTS..................................................... 61
8.1 Limitation on Liens.................................................... 62
8.2 Disposition of Assets.................................................. 64
8.3 Consolidations and Mergers............................................. 65
8.4 Loans and Investments.................................................. 65
8.5 Limitation on Indebtedness............................................. 66
8.6 Transactions With Affiliates........................................... 67
8.7 Use of Proceeds........................................................ 67
8.8 Contingent Obligations................................................. 67
8.9 Lease Obligations...................................................... 68
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
8.10 Restricted Payments................................................................... 68
8.11 ERISA................................................................................. 69
8.12 Change in Business.................................................................... 69
8.13 Accounting Changes.................................................................... 69
8.14 Financial Covenants................................................................... 69
(a) Funded Debt Ratio............................................................. 69
(b) Interest Coverage Ratio....................................................... 69
(c) Fixed Charge Coverage Ratio................................................... 70
(d) Capitalization Ratio.......................................................... 70
(e) Total Assets.................................................................. 70
8.15 Subordinated Debt..................................................................... 70
ARTICLE IX. EVENTS OF DEFAULT..................................................................... 70
9.1 Event of Default...................................................................... 70
(a) Nonpayment.................................................................... 70
(b) Representation or Warranty.................................................... 70
(c) Specific Defaults............................................................. 71
(d) Other Defaults................................................................ 71
(e) Cross-Default................................................................. 71
(f) Insolvency; Voluntary Proceedings............................................. 71
(g) Involuntary Proceedings....................................................... 72
(h) ERISA......................................................................... 72
(i) Monetary Judgments............................................................ 72
(j) NonMonetary Judgments......................................................... 73
(k) Violation of Lockup Agreement................................................. 73
(l) Adverse Change................................................................ 73
(m) Invalidity of Subordination Provisions........................................ 73
(n) Collateral.................................................................... 73
9.2 Remedies.............................................................................. 73
9.3 Rights Not Exclusive.................................................................. 74
9.4 Certain Financial Covenant Defaults................................................... 74
ARTICLE X. THE AGENT............................................................................... 75
10.1 Appointment and Authorization......................................................... 75
10.2 Delegation of Duties.................................................................. 75
10.3 Liability of Agent.................................................................... 75
10.4 Reliance by Agent..................................................................... 76
10.5 Notice of Default..................................................................... 76
10.6 Credit Decision....................................................................... 77
10.7 Indemnification of Agent.............................................................. 77
10.8 Agent in Individual Capacity.......................................................... 78
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
10.9 Successor Agent................................................................ 78
10.10 Withholding Tax................................................................ 79
10.11 Collateral Matters............................................................. 80
ARTICLE XI. LETTER OF CREDIT RISK PARTICIPATIONS........................................... 81
11.1 Sale of Risk Participations.................................................... 81
11.2 Procedure for Purchases........................................................ 81
11.3 Payment Obligations............................................................ 81
(c) Reimbursements to Lenders.............................................. 82
ARTICLE XII. MISCELLANEOUS.................................................................. 82
12.1 Amendments and Waivers......................................................... 82
12.2 Notices........................................................................ 83
12.3 No Waiver; Cumulative Remedies................................................. 84
12.4 Costs and Expenses............................................................. 84
12.5 Borrower Indemnification....................................................... 85
12.6 Marshalling; Payments Set Aside................................................ 86
12.7 Successors and Assigns......................................................... 86
12.8 Assignments, Participations, Etc............................................... 86
12.9 Set-off........................................................................ 88
12.10 Automatic Debits of Fees....................................................... 89
12.11 Notification of Addresses, Lending Offices, Etc................................ 89
12.12 Counterparts................................................................... 89
12.13 Severability................................................................... 89
12.14 No Third Parties Benefited..................................................... 89
12.15 Conditions Not Fulfilled....................................................... 90
12.16 Governing Law and Jurisdiction................................................. 90
12.17 Waiver of Jury Trial........................................................... 91
12.18 Entire Agreement............................................................... 91
SCHEDULES
- ---------
Schedule 2.1 Commitments
Schedule 6.5 Litigation
Schedule 6.7 ERISA
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.17 Subsidiaries and Minority Interests
Schedule 6.18 Insurance Matters
Schedule 7.14 Filing Jurisdictions
</TABLE>
v
<PAGE>
Schedule 8.1 Permitted Liens
Schedule 8.5 Permitted Indebtedness
Schedule 8.8 Contingent Obligations
Schedule 12.2 Lending Offices, Addresses for Notices
EXHIBITS
- --------
Exhibit A Form of Compliance Certificate
Exhibit B Form of Deed of Trust
Exhibit C Form of Guaranty
Exhibit D Form of Indemnification Agreement
Exhibit E Form of Interest Rate Notice
Exhibit F Form of Note
Exhibit G Form of Security Agreements
Exhibit H Form of Legal Opinion of Borrower's Counsel
Exhibit I Form of Assignment and Acceptance
vi
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of ___________, 1998, among
CAVANAUGHS HOSPITALITY LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Borrower"), the several financial institutions from time to time party to this
Agreement (collectively, the "Lenders"; individually, a "Lender"), and U. S.
BANK NATIONAL ASSOCIATION, as administrative agent for the Lenders.
WHEREAS, the Lenders have agreed to make available to the Borrower a
secured revolving loan facility upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
1.1 CERTAIN DEFINED TERMS
The following Terms have the following meanings:
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Borrower or the Subsidiary is the
surviving entity.
"Adjusted Net Income" means, for any applicable period, the aggregate of
all amounts which, in accordance with GAAP, would be included as net income (or
net loss (including any extraordinary losses other than extraordinary noncash
losses)) on a consolidated statement of income of CHC and its Subsidiaries for
such period; provided, however, that "Adjusted Net Income" shall exclude (a) the
effect of any extraordinary or other nonrecurring gain outside the ordinary
course of business, (b) any write-up in the value of any asset (to the extent
such write-up exceeds any write-down taken in connection with the same
transaction or event which gave rise to such write-up), and (c) any adjustments
to net income for minority ownership interests in other Persons.
1
<PAGE>
"Adjusted Tangible Net Worth" means the sum of (a) the total net worth of
CHC and its Subsidiaries determined in accordance with GAAP, less (b) the amount
of all intangible assets, plus (c) the Adjustment to Book Value.
"Adjustment to Book Value" means an amount equal to (a) the appraised value
of all real property (including improvements thereon) owned by CHC and its
Subsidiaries as of the last day of the applicable period, less (b) the net book
value of such real property (including improvements thereon), less (c) an amount
equal to all federal, state and local income and gross receipts taxes that would
be payable in the event that such real property (including improvements thereon)
were sold during the applicable period, assuming for purposes of such
calculation that the amount of the gain is an amount equal to the amount of
clause (a) less the amount of clause (b). For purposes of determining the
appraised value of such real property, the most recent M.A.I. appraisals of such
real property that have been approved by the Agent in writing in its reasonable
discretion shall be used. The Agent reserves the right, in its discretion or at
the request of the Required Lenders, to require reappraisals of any real
property at the Borrower's sole cost, provided that once an appraisal of a
parcel of real property has been approved by the Agent in writing, the Agent may
not require a reappraisal of such real property for one year from the date of
the approved appraisal. In the event that there is no approved appraisal of any
parcel of real property, then there shall be no Adjustment to Book Value for
such parcel of real property.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agent" means U. S. Bank in its capacity as administrative agent for the
Lenders hereunder, and any successor administrative agent arising under Section
10.9.
"Agent-Related Persons" means U. S. Bank and any successor agent arising
under Section 10.9, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth on
Schedule 12.2 in relation to the Agent, or such other address as the Agent may
from time to time specify.
"Agreement" means this Credit Agreement.
2
<PAGE>
"Approved Appraised Value" means the most recent M.A.I. appraised value of
an Eligible Real Property that (a) was ordered by the Agent, (b) has been
approved by the Agent in writing in its reasonable discretion, and (c) is in
compliance with the Financial Institutions Reform, Recovery and Enforcement Act.
"Assignee" has the meaning specified in Section 12.8(a).
"Attorney Costs" means and includes all fees and disbursements of any law
firm or other external counsel.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. (S) 101, et seq.).
-------
"Borrowing" means a borrowing hereunder consisting of Loans of the same
Type made to the Borrower on the same day by the Lenders under Article II, and,
other than in the case of Reference Rate Loans, having the same Interest Period.
"Borrowing Base" means an amount equal to 60% of the Collateral Pool Value.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Seattle, Washington are authorized or required by law
to close and, if the applicable Business Day relates to any LIBOR Rate Loan,
means such a day on which dealings are carried on in the London interbank
market.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capitalization Ratio" means, as of the last day of the applicable period,
the ratio of (a) the Indebtedness of CHC and its Subsidiaries to (b) the sum of
(i) the Indebtedness of CHC and its Subsidiaries, plus (ii) Adjusted Tangible
Net Worth.
"Cash Equivalents" means (i) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (ii) certificates of deposit,
eurodollar time deposits, overnight bank deposits, bankers' acceptances and
repurchase agreements of any Lender or any other commercial bank whose unsecured
long-term debt obligations are rated at least A-1 by Standard & Poor's Ratings
Service Group, a division of the McGraw Hill Companies, Inc., and any successor
thereto ("S&P") or A-3 by Moody's Investors Service, Inc. having maturities of
one year or less from the date of acquisition, and (iii) commercial paper rated
at least A-1 by S&P or P-1 by
3
<PAGE>
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"CHC" means Cavanaughs Hospitality Corporation, a Washington corporation,
and its successors.
"Closing Date" means the date on which all conditions precedent set forth
in Section 5.1 are satisfied or waived by all Lenders (or, in the case of
Section 5.1(e), waived by the Person entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and regulations promulgated
thereunder.
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Borrower, CHC and its
Subsidiaries in or upon which a lien now or hereafter exists in favor of the
Lenders, or the Agent on behalf of the Lenders, whether under this Agreement or
under any other documents executed by any such Person and delivered to the Agent
or the Lenders.
"Collateral Documents" means, collectively, (i) the Security Agreements,
the Deeds of Trust, and all other security agreements, mortgages, deeds of
trust, patent and trademark assignments, lease assignments, guarantees and other
similar agreements between the Borrower, CHC or any Subsidiary and the Lenders
or the Agents for the benefit of the Lenders now or hereafter delivered to the
Lenders or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the Uniform Commercial Code or comparable
law) against the Borrower, CHC or any Subsidiary as debtor in favor of the
Lenders or the Agent for the benefit of the Lenders as secured party, and (ii)
any amendments, supplements, modifications, renewals, replacements,
consolidations, substitutions and extensions of any of the foregoing.
"Collateral Pool Value" means the sum of the Approved Appraised Values of
all Eligible Real Property from time to time.
"Commitment" means the sum of (a) an amount equal to the lesser of (i)
$80,000,000 or (ii) the sum of (A) the gross proceeds from the sale of shares of
CHC common stock in the initial public offering of such stock, (B) the gross
proceeds from
4
<PAGE>
the sale by CHC of shares of CHC common stock during the 30-day period following
the initial public offering of CHC common stock pursuant to the exercise of an
option by the underwriter in the initial public offering of such stock to
purchase shares of such stock to cover overallotments in the initial public
offering and (C) an amount equal to [NEED TO INCLUDE A DESCRIPTION OF THE
SPOKANE RIDPATH HOTEL TRANSACTION; THE CONCEPT HAS BEEN APPROVED BY U. S. BANK],
less (b) the amount of mandatory prepayments made in accordance with Section
2.6.
"Commitment Fee Percentage" means the percentage determined in accordance
with the following matrix and based upon the quarterly financial statements of
the Borrower provided to the Agent in accordance with the terms of this
Agreement for the preceding fiscal quarter; provided, however, that if the
Borrower has not delivered its financial statements for the previous fiscal
quarter as of the date that the commitment fee is payable pursuant to Section
2.10, then a Commitment Fee Percentage of .30% shall apply:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Level Level I Level II Level III Level IV
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded Debt **3.00 *3.00 **3.50 *3.50 **4.0 *4.0
Ratio
- --------------------------------------------------------------------------------------------
Commitment .25% .25% .25% .30%
Fee Percentage
- --------------------------------------------------------------------------------------------
</TABLE>
* means greater than or equal to
** means less than
"Commitment Letter" means that certain letter dated as of November 26,
1997, between the Agent and the Borrower, together with all amendments to the
Commitment Letter.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit A.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligation") of another Person (the "primary obligor"),
including any obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to advance or
provide funds for the payment or discharge of any such primary obligation, or to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance
5
<PAGE>
sheet item, level of income or financial condition of the primary obligor, (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation, or (iv) otherwise to assure
or hold harmless the holder of any such primary obligation against loss in
respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered, or (d) in respect of any Swap Contract. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof,
and in the case of other Contingent Obligation, shall be equal to the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Deed of Trust" means a deed of trust or mortgage executed by the Borrower
or a Subsidiary in favor the Agent as agent for the Lenders pursuant to Section
5.3, in a form approved by the Agent, as well as all amendments to the
foregoing. Any Deeds of Trust encumbering real property in the State of
Washington and executed concurrently with the execution of this Agreement shall
be substantially in the form of Exhibit B.
"Default" means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"Disposition" means (a) the sale, lease, conveyance or other disposition of
any property, other than sales or other dispositions expressly permitted under
Section 8.2(a)(i), (ii), (iii) or (iv), and (b) the sale or transfer by the
Borrower, CHC or any Subsidiary of the Borrower of any equity securities issued
by any Subsidiary of the Borrower and held by such transferor Person for cash or
cash equivalents.
6
<PAGE>
"Dollars," "dollars" and "$" each mean lawful money of the United States.
"EBITDA" means, with respect to the CHC and its Subsidiaries for any
applicable period, Adjusted Net Income for such period, plus, to the extent
deducted in determining Adjusted Net Income for such period, the aggregate
amount of (i) Interest Expense, (ii) federal, state, local and foreign income
taxes and (iii) depletion, depreciation and amortization of tangible and
intangible assets. In the event that the Borrower has consummated any
Acquisition during the applicable period, "EBITDA" shall include the EBITDA from
the Person acquired (or the portion thereof allocable to the portion of the
Person acquired) for such period, provided that the Borrower has delivered to
the Agent documentation deemed adequate by the Agent to verify such EBITDA, as
well as a Compliance Certificate on a pro forma basis and pro forma financial
statements on a consolidating basis approved by the Agent. Subject to approval
of the Required Lenders confirmed in writing by the Agent, any such pro forma
Compliance Certificate and pro forma financial statements may exclude expenses
of the acquired Person that will terminate upon completion of the Acquisition.
An example of such an expense that may be excluded is the franchise fee under a
franchise agreement that will be terminated upon completion of the Acquisition.
"Eligible Assignee" means (a) a commercial bank organized under the laws of
the United States, or any state thereof; (b) a commercial bank organized under
the laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
country in which it is organized or another country which is also a member of
the OECD; (c) a Person that is primarily engaged in the business of commercial
banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person
of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a
Subsidiary; or (d) a finance company, insurance company, other financial
institution or fund, reasonably acceptable to the Agent, which has a combined
capital and surplus in excess of $100,000,000, which is regularly engaged in
making, purchasing or investing in loans of the Type proposed to be assigned to
such assignee; provided, however, that no Eligible Assignee shall be an
Affiliate or competitor of the Borrower, or an Affiliate of such competitor.
"Eligible Real Property" means each parcel of real property and related
improvements (a) that has been approved by the Agent in writing in its sole
discretion, (b) the fee title interest of which is owned by the Borrower, (c)
that is fully developed and improved and with respect to which there has been
issued a certificate of
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<PAGE>
occupancy, (d) in which the Agent, for the benefit of the Lenders, holds a first
priority Deed of Trust to secure the Obligations, (e) with respect to which the
Agent has obtained the Collateral Documents described in Section 5.3, (f) with
respect to which the Approved Appraised Value has been established, and (g) that
is not encumbered by any Liens other than Permitted Liens.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or non-
sudden, accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in or from property owned
or in the possession or control of the Borrower, CHC or any Subsidiary.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters; including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972,
the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery
Act, the Toxic Substance Control Act, and the Emergency Planning and Community
Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with the Borrower within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Borrower, CHC or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial
8
<PAGE>
employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations which is treated as such a withdrawal under Section 4062(e) of ERISA;
(c) a complete or partial withdrawal by the Borrower, CHC or any ERISA Affiliate
from a Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower,
CHC or any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the definition
of "LIBOR Rate."
"Event of Default" means any of the events or circumstances specified in
Section 9.1.
"Event of Loss" means, with respect to any Eligible Real Property, any of
the following: (a) any loss, destruction or damage of such property; (b) any
pending or threatened institution of any proceedings for the condemnation or
seizure of such property or for the exercise of any right of eminent domain; or
(c) any actual condemnation, seizure or taking, by exercise of the power of
eminent domain or otherwise, of such property, or confiscation of such property
or the requisition of the use of such property.
"Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York on the preceding Business Day
opposite the caption "Federal Funds (Effective)"; or, if for any relevant day
such rate is not so published on any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
"Financial Covenants" means the financial covenants set forth in Section
8.14.
9
<PAGE>
"Financial Transaction Liability" means (a) any overdraft on any account
maintained by the Borrower with Agent, (b) liabilities owing by the Borrower to
the Agent with respect to bank card services and (c) liabilities incurred by the
Agent as a result of automated clearing house transactions for the account of
the Borrower.
"Fixed Charge Coverage Ratio" means the ratio of (a) for the applicable
period, the sum of (i) EBITDA less (ii) an amount equal to 4% of the aggregate
of all amounts which, in accordance with GAAP, would be included as gross
revenue on a consolidated statement of income of CHC and its Subsidiaries, to
(b) for the applicable period, the sum of (i) scheduled payments of principal on
Indebtedness of CHC and its Subsidiaries (including the portion of payments on
capitalized leases allocable to principal, but excluding (A) mandatory
prepayments of the Loans required under Section 2.6, and (B) balloon payments
made with the proceeds of Indebtedness permitted pursuant to Section 8.5),
whether or not made, (ii) Interest Expense, (iii) income and gross receipts
taxes paid in cash or cash equivalents, (iv) dividends and distributions paid in
cash or cash equivalents (excluding distributions of cash made by the Borrower
to CHC in an amount necessary to allow CHC to pay income and gross receipts
taxes on the taxable income of the Borrower that is recognized by CHC for tax
purposes), plus (v) payments made to redeem or otherwise acquire for value any
partnership units of the Borrower or shares of capital stock of CHC or any
warrants, rights or options to acquire such partnership units or shares.
"FRB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.
"Funded Debt Ratio" means the ratio of (a) the Indebtedness of CHC and its
Subsidiaries as of the last day of the applicable period, to (b) EBITDA for the
applicable period.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances at the applicable time.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other
10
<PAGE>
entity owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
"Guaranty" means a guaranty executed by CHC and in favor Agent as agent for
the Lenders pursuant to Section 5.1(l), in substantially the form of Exhibit C,
together with all amendments thereto.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Hazardous Materials" means all those substances that are regulated by, or
which may form the basis of liability under, any Environmental Law, including
all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum-
derived substance or waste.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all noncontingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligation with respect to capital leases; (g)
all net obligations with respect to Swap Contracts; (h) all reimbursement
obligations under outstanding Letters of Credit; (i) all indebtedness referred
to in clauses (a) through (g) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (j) all Guaranty Obligation in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (g) above.
"Indemnification Agreement" means an indemnification agreement executed by
the Borrower in favor Agent as agent for the Lenders pursuant to Section 5.3, in
substantially the form of Exhibit D, together with all amendments thereto.
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<PAGE>
"Indemnified Liabilities" has the meaning specified in Section 12.5.
"Indemnified Person" has the meaning specified in Section 12.5.
"Independent Auditor" has the meaning specified in Section 7.1(a).
"Insolvency Proceeding" means (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors; undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
"Interest Coverage Ratio" means the ratio of (a) EBITDA for the applicable
period, to (b) Interest Expense for the applicable period.
"Interest Expense" means, for any applicable period, the aggregate
consolidated interest expense (both cash and non-cash and determined without
regard to original issue discount) of CHC and its Subsidiaries for such period,
as determined in accordance with GAAP, including, to the extent allocable to
interest expense in accordance with GAAP, (a) all other fees paid or owed with
respect to the issuance or maintenance of Contingent Obligations (including
letters of credit of CHC and its Subsidiaries), (b) net costs or benefit under
Swap Contracts of CHC and its Subsidiaries and (c) the portion of any payments
made in respect of obligation in respect of capitalized leases of CHC and its
Subsidiaries allocable to interest expense.
"Interest Margin" means the number of basis points per annum determined in
accordance with the following matrix and based upon the quarterly financial
statements of the Borrower provided to the Agent in accordance with the terms of
this Agreement for the preceding fiscal quarter. Adjustments shall be made 45
days after the end of each fiscal quarter (when quarterly financial statements
are required to be delivered to the Agent); provided, however, that if the
Borrower has not delivered its financial statements for the previous fiscal
quarter within 45 days of the end of such fiscal quarter, then the Interest
Margin in effect for the previous fiscal quarter shall continue to apply unless
the Agent exercises its right to impose interest at the default rate as provided
for in this Agreement:
12
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Level Level I Level II Level III Level IV
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Funded Debt **3.00 *3.00 **3.50 *3.50 **4.0 *4.0
Ratio
- ----------------------------------------------------------------------------------------
Reference 0 0 25 37.5
Margin
- -----------------------------------------------------------------------------------------
LIBOR Margin 165 185 210 235
- -----------------------------------------------------------------------------------------
</TABLE>
*means greater than or equal to
**means less than
The margins set forth above shall apply unless there exists an Event of Default,
in which case the Agent may elect to impose the default rate as provided for in
this Agreement. Notwithstanding the foregoing, the Interest Margin for the
first six months following the date of the initial advance of a Loan to the
Borrower, shall be the higher of (a) the Interest Margin applicable in
accordance with the matrix set forth above or (b) the Interest Margin applicable
under Level II of the matrix set forth above.
"Interest Payment Date" means, as to any Loan other than a Reference Rate
Loan, the last day of each Interest Period applicable to such Loan and, as to
any Reference Rate Loan, the last Business Day of each calendar quarter and each
date such Loan is converted into another Type of Loan; provided, however, that
if any Interest Period for a LIBOR Rate Loan exceeds three months, the date that
falls three months after the beginning of such Interest Period and after each
Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any LIBOR Rate Loan, the period commencing
on the Interest Rate Election Date on which the Loan is made, converted into or
continued as a LIBOR Rate Loan, and ending on the date one, two, three or six
months thereafter as selected by the Borrower in its Interest Rate Notice;
provided that:
(a) if any Interest Period would otherwise end on a day that is not
a Business Day, that Interest Period shall be extended to the following
Business Day unless, in the case of a LIBOR Rate Loan, the result of such
extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the preceding
Business Day;
(b) any Interest Period pertaining to a LIBOR Rate Loan that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar
month at the end of such Interest Period; and
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<PAGE>
(c) no Interest Period shall extend beyond the Maturity Date.
"Interest Rate Election Date" means any date as of which, under Section
2.5, the Borrower (a) obtains Loans, (b) converts Loans of one Type to another
Type, or (c) continues as Loans of the same Type, but with a new Interest
Period, Loans having Interest Periods expiring on such date.
"Interest Rate Notice" means a notice in substantially the form of
Exhibit E.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Lender" has the meaning specified in the introductory clause hereto.
"Lending Office" means, as to any Lender, the office or offices of such
Lender specified as its "Lending Office" or "Domestic Lending Office" or "LIBOR
Lending Office," as the case may be, on Schedule 12.2, or such other office or
offices as the Lender may from time to time notify the Borrower and the Agent.
"Letter of Credit" means a stand-by letter of credit issued by the Agent
pursuant to Section 3.2 hereof for the account of the Borrower.
"Letter of Credit Usage" means as of any date of determination, the sum of
(a) the aggregate face amount of all outstanding unmatured Letters of Credit,
plus (b) the aggregate amount of all payments made by Agent under Letters of
Credit and not yet reimbursed by the Borrower pursuant to Section 3.4 hereof.
"LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate
Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Agent as follows:
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded
upward to the next 1/100th of 1%) in effect on such day (whether or not
applicable to any Lender) under regulations issued from time to time by the
FRB for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect
14
<PAGE>
to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"LIBOR" means the average offered rate for deposits in United States
Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%) for
delivery of such deposits on the first day of an Interest Period of a LIBOR
Rate Loan, for the number of days comprised therein, which appears on the
Reuters Screen LIBO Page as of 11:00 a.m., London time (or such other time
as of which such rate appears) on the day that is two Business Days
preceding the first day of the Interest Period or the rate for such
deposits determined by the Agent at such time based on such other published
service of general application as shall be selected by the Agent for such
purpose; provided, that in lieu of determining the rate in the foregoing
manner, the Agent may determine the rate based on rates offered to the
Agent for deposits in United States Dollars (rounded upwards, if necessary,
to the nearest 1/16 of 1%) in the interbank eurodollar market at such time
for delivery on the first day of the Interest Period for the number of days
comprised therein.
The LIBOR Rate shall be adjusted automatically as to all LIBOR Rate
Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"LIBOR Rate Loan" means a Loan that bears interest based on the LIBOR Rate.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not including
the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Lender to the Borrower under
Article II, and may be a Reference Rate Loan or a LIBOR Rate Loan (each, a
"Type" of Loan).
15
<PAGE>
"Loan Documents" means this Agreement, the Notes, the Collateral Documents,
the Guaranty, the Reimbursement Agreements, the Commitment Letter and all other
documents delivered to the Agent or any Lender in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in Regulation
G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower or the Borrower, CHC and
its Subsidiaries taken as a whole; (b) a material impairment of the ability of
the Borrower, CHC or any Subsidiary to perform under any Loan Document and to
avoid any Event of Default; or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Borrower, CHC
or any Subsidiary of any Loan Document, or (ii) the perfection or priority of
any lien granted under any of the Collateral Documents.
"Maturity Date" means the earlier of (i) _____________, 2003 and (ii) the
date the Obligations are accelerated pursuant to Section 9.2 hereof.
"Multiemployer Plan" means a "multiemployer plan," within the meaning of
Section 4001(a)(3) of ERISA, to which the Borrower, CHC or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Issuance Proceeds" means, as to any issuance of debt by any Person,
cash proceeds and non-cash proceeds received or receivable by such Person in
connection therewith, net of reasonable out-of-pocket costs and expenses paid or
incurred in connection therewith in favor of any Person not an Affiliate of such
Person.
"Net Proceeds" means, as to any Disposition by a Person, proceeds in cash,
checks or other cash equivalent financial instruments as and when received by
such Person, net of: (a) the direct costs relating to such Disposition
excluding amounts payable to such Person or any Affiliate of such Person, (b)
sale, use or other transaction taxes paid or payable by such Person as a direct
result thereof, and (c) amount a required to be applied to repay principal,
interest and prepayment premiums and penalties on Indebtedness secured by a lien
on the asset which is the subject of such Disposition to the extent such Lien is
permitted hereunder. "Net Proceeds" shall also include proceeds paid on account
of any Event of Loss, net of (x) all money actually applied to repair or
reconstruct the damaged property or property affected by the condemnation or
taking, (y) all of the costs and expenses reasonably incurred in connection with
the collection of such proceeds, award or other
16
<PAGE>
payments, and (z) any amounts retained by or paid to parties having superior
rights to such proceeds, awards or other payments. Notwithstanding the
foregoing, "Net Proceeds" of a Disposition described in Section 8.2(a)(v) shall
be an amount equal to the amount calculated in accordance with Section
8.2(a)(v)(A).
"Nonrecourse Indebtedness" means Indebtedness with respect to which there
is no recourse to any of the assets of the Borrower, CHC or any Subsidiary other
than the assets encumbered by a Permitted Lien, with customary exceptions to the
nonrecourse nature of such Indebtedness approved by the Agent in writing, which
approval shall not be unreasonably withheld.
"Note" means a promissory note executed by the Borrower in favor a Lender
pursuant to Section 2.4, in substantially the form of Exhibit F, together with
all renewals and amendments thereto.
"Notice of Borrowing" means a written or oral request for a Loan from the
Borrower delivered to the Agent in the manner, at the time, and containing the
information required by the terms of Section 2.2 hereof.
"Obligation" means all advances, debts, liabilities, obligation, covenants
and duties arising under any Loan, Letter of Credit or Loan Document owing by
the Borrower, CHC or any Subsidiary to any Lender, the Agent, or any Indemnified
Person, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising.
"Organization Documents" means (a) for any limited partnership, the limited
partnership agreement, the certificate of formation, and all applicable
resolutions of the board of directors (or any committee thereof) of such limited
partnership and (b) for any corporation, the certificate or articles of
incorporation, the bylaws, any certificate of determination or instrument
relating to the rights of preferred shareholders of such corporation, any
shareholder rights or similar agreement, and all applicable resolutions of the
board of directors (or any committee thereof) of such corporation.
"Other Taxes" means any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"Participant" has the meaning specified in Section 12.8(d).
17
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Borrower sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 8.1.
"Person" means an individual, partnership, corporation, limited liability
company, limited liability partnership, business trust, joint stock company,
trust, unincorporated association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Borrower sponsors or maintains or to which the Borrower makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Reference Rate" means, for any day, the rate of interest in effect for
such day as publicly announced from time to time by U. S. Bank, as its
"reference lending rate." The "reference lending rate" shall mean the rate
announced by U. S. Bank from time to time as its reference lending rate for
commercial loans within the United States (but is not intended to be the lowest
rate of interest charged by U. S. Bank in connection with extensions of credit
to debtors or any classification of debtors). Any change in the reference rate
announced by U. S. Bank shall take effect at the opening of business on the day
specified in the public announcement of such change.
"Reference Rate Loan" means a Loan that bears interest based on the
Reference Rate.
"Pro Rata Share" means, as to any Lender at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Lender's Commitment divided by the combined Commitments of all
Lenders.
"Reimbursement Agreement" has the meaning specified in Section 3.2(c).
"Reportable Event" means, any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, other than any such event for which the 30-
day notice requirement under ERISA has been waived in regulations issued by the
PBGC.
"Required Lenders" means at any time Lenders then holding in excess of 66
2/3% of the then aggregate unpaid principal amount of the Loans, or, if no such
18
<PAGE>
principal amount is then outstanding, Lenders then having Pro Rata Shares
greater than 66 2/3% of the Commitments.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the president of
the Borrower, or any other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial officer or the treasurer of the Borrower, or any other officer
having substantially the same authority and responsibility.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Security Agreements" means a security agreements executed by the Borrower
and CHC and in favor Agent as agent for the Lenders pursuant to Section 5.1(f),
in substantially the form of Exhibit G, together with all amendments thereto.
"Solvent" means, as to any Person at any time, that (a) the fair value of
the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
Washington Uniform Fraudulent Transfer Act; (b) the present fair saleable value
of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured; (c) such Person is able to realize upon its property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business; (d)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"Subordinated Debt" shall mean Indebtedness of the Borrower or CHC which is
subordinated to the Obligations of the Borrower, CHC and the Subsidiaries
hereunder in right of payment, exercise of remedies or both, on terms and
conditions agreed to in writing by the Agent and the Required Lenders.
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"Subsidiary" of a Person means any corporation association, partnership,
limited liability company, limited liability partnership, joint venture or other
business entity of which more than 50% of the voting stock membership interests
or other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, surety bonds and similar
instruments.
"Swap Contract" means any agreement (including any master agreement and any
agreement, whether or not in writing, relating to any single transaction) that
is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, currency option or any other, similar agreement (including any option
to enter into any of the foregoing).
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Agent, such taxes (including
income taxes or franchise taxes) as are imposed on or measured by each Lender's
net income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Lender or the Agent, as the case may be, is organized or
maintains a lending office.
"Title Insurance Policy" means an American Land Title Association extended
coverage mortgagee's policy of title insurance (1992 form) insuring the validity
and first priority (subject only to exceptions agreed to in writing by the
Agent) of the lien of the applicable Deed of Trust against the real property
described therein, in an amount equal to or greater than 60% of the Approved
Appraised Value, and with such endorsements as the Agent deems necessary in its
sole discretion, issued by a title insurance company reasonably acceptable to
the Agent, dated as of the date of the recording of such Deed of Trust, and in a
form acceptable to the Agent.
"Type" has the meaning specified in the definition of "Loan."
"UCC" means the Uniform Commercial Code as in effect in the State of
Washington.
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"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"United States" and "U.S." each means the United States of America.
"U. S. Bank" means U. S. Bank National Association, a national banking
association.
1.2 OTHER INTERPRETIVE PROVISIONS
(a) The meanings of defined terms are equally applicable to the singular
and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words refer to
this Agreement as a whole and not to any particular provision of this Agreement;
and subsection, Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding," and the word "through"
means "to and including."
(iv) The term "property" includes any kind of property or asset,
real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
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(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrower,
CHC and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Lenders or the Agent merely because of
the Agent's or Lenders' involvement in their preparation.
(h) Each reference hereunder to Subsidiaries is effective at such time and
to the extent that the Borrower has existing Subsidiaries (as defined herein).
1.3 ACCOUNTING PRINCIPLES
(a) Unless the context otherwise clearly requires, all accounting terms not
expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP,
consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Borrower or CHC (as the case may be).
(c) In the event that GAAP changes during the term of this Agreement such
that the Financial Covenants contained in Section 8.14 would then be calculated
in a different manner or with different components or with components that are
calculated differently, (i) the parties hereto agree to enter into negotiations
with respect to amendments to this Agreement to conform those covenants as
criteria for evaluating CHC's and its Subsidiaries' financial condition to
substantially the same criteria as were effective prior to such change in GAAP,
and (ii) the Borrower and CHC shall be deemed to be in compliance with the
affected Financial Covenants contained in Section 8.14 during the 60 days
following any change in GAAP if and to the extent that the Borrower would have
been in compliance therewith under GAAP as in effect immediately before such
change; provided, however, that this paragraph shall not be deemed to require
the Borrower, the Agent or the Lenders to agree to modify any provision of this
Agreement or any of the other Loan Documents to reflect any such change to GAAP
and, if, after such 60 days, the parties, in their sole discretion, fail to
reach agreement on such modifications, the terms of this Agreement will remain
unchanged and the compliance by the Borrower and CHC with the Financial
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Covenants contained in Section 8.14 will be calculated in accordance with GAAP
as in effect immediately before such change.
ARTICLE II. THE LOANS
2.1 REVOLVING LINE OF CREDIT
(a) Subject to the terms and conditions of this Agreement, each Lender
hereby severally agrees to make loans (each such loan, a "Loan") to the Borrower
from time to time on Business Days prior to the Maturity Date in amounts equal
to such Lender's Pro Rata Share of each requested loan, provided that, after
--------
giving effect to any requested loan the aggregate of all Loans from such Lender
will not exceed at any one time outstanding (a) such Lender's Pro Rata Share of
the Commitment less (b) its Pro Rata Share of the Letter of Credit Usage. The
Loans described in this Section 2.1 constitute a revolving credit and within the
amount and time specified, the Borrower may pay, prepay and reborrow. The amount
of each Lender's Pro Rata Share of the Commitment is set forth in Schedule 2.1.
(b) Within 30 days of the date of the funding of the initial public
offering of the common stock of CHC, the Borrower shall deliver to the Agent a
calculation the amount of the Commitment in accordance with the definition
thereof set forth in Section 1.1, together with such supporting evidence of the
calculation as requested by the Agent. The Agent shall promptly review the
calculation and deliver to the Borrower and each Lender written notice that
shall establish the amount of the Commitment in accordance with the definition
thereof. Notwithstanding the Definition of "Commitment" set forth in Section
1.1, until the Agent delivers such written notice to the Borrower and each
Lender, the amount of the Commitment shall be an amount equal to the sum of (i)
an amount equal to the lesser of (A) $80,000,000 or (B) the gross proceeds from
the sale of shares of CHC common stock in the initial public offering of such
stock, less (ii) the amount of mandatory prepayments made in accordance with
Section 2.6.
(c) Upon not fewer than ten days' prior written notice to the Agent, the
Borrower may elect to reduce the amount of the Commitment; provided, however
that any such reduction in the Commitment shall be permanent.
2.2 MANNER OF BORROWING
For each requested Loan, the Borrower shall give the Agent a Notice of
Borrowing specifying the date of a requested borrowing and the amount thereof.
Borrower may give a written or oral Notice of Borrowing on the same day it
wishes any Reference Rate Loan to be made if said Notice of Borrowing is
received by Agent
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no later than 10:00 a.m. (Seattle time) on the date of the requested borrowing.
If the Borrower shall elect to have interest accrue on a Loan at a rate indexed
to the LIBOR Rate by giving an Interest Rate Notice in respect of such
borrowing, the Notice of Borrowing shall be given prior to 10:00 a.m. (Seattle
time) on a Business Day at least three Business Days prior to the requested date
of borrowing. Requests for borrowing, or confirmations thereof, received after
the designated hour will be deemed received on the next succeeding Business Day.
Each such Notice of Borrowing shall be irrevocable and shall be deemed to
constitute a representation and warranty by Borrower that as of the date of such
notice the statements set forth in Article VI are true and correct in all
material respects and that no Default or Event of Default has occurred and is
continuing. On receipt of a Notice of Borrowing, the Agent shall promptly notify
each Lender by telephone, telex or facsimile of the date of the requested
borrowing and the amount thereof. Each Lender shall before 12:00 noon (Seattle
time) on the date of the requested borrowing, pay such Lender's Pro Rata Share
of the aggregate principal amount of the requested borrowing in immediately
available funds to the Agent at 1420 Fifth Avenue, Seattle, Washington 98101.
Upon fulfillment to the Agent's satisfaction of the applicable conditions set
forth in Article V, and after receipt by the Agent of such funds, the Agent will
either (a) promptly make such funds available to the Borrower at a general
checking account maintained by the Borrower at the Agent, or at such other place
as may be designated by the Borrower in a writing delivered to the Agent; (b) if
requested by the Borrower in writing to do so, will apply such funds against the
Borrower's obligations to make payments of interest accruing under this
Agreement, the Notes or any other Loan Document; or (c) at the Agent's election,
apply such proceeds to the satisfaction of Borrower's obligations arising under
Section 3.4.
2.3 AGENT'S RIGHT TO FUND
Unless the Agent shall have received notice from a Lender prior to 12:00
noon (Seattle time) on the date of any requested borrowing that such Lender will
not make available to the Agent its Pro Rata Share of the requested Borrowing,
the Agent may assume that such Lender has made such funds available to the Agent
on the date such Loan is to be made in accordance with Section 2.2 hereof and
the Agent may, in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent that such Lender
shall not have so made such portion available to the Agent, the Borrower and
such Lender, jointly and severally, agree to pay to the Agent forthwith on
demand such corresponding amount, together with interest thereon for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (a) in the case of the Borrower, the interest
rate applicable to such Loan and (b) in the case of such Lender, the Federal
Funds Rate. Any such repayment by the Borrower shall
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be without prejudice to any rights it may have against a Lender that has failed
to make available its funds for any requested borrowing. The failure of any
Lender to make available its Pro Rata Share of a requested Borrowing shall not
relieve any other Lender of any obligation hereunder to make available its Pro
Rata Share of a requested Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make available such Lender's Pro Rata Share of a
requested Borrowing.
2.4 LOAN ACCOUNTS
The Loan made by each Lender shall be evidenced by a Note and one or more
loan accounts or records maintained by such Lender in the ordinary course of
business. The loan accounts or records maintained by the Agent and each Lender
shall be conclusive absent manifest error of the amount of the Loans made by the
Lenders to the Borrower and the interest and payments thereon. Any failure so to
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Borrower hereunder to pay any amount owing with respect to
the Loans.
2.5 INTEREST RATE ELECTIONS
(a) The Borrower may, upon irrevocable written notice to the Agent in
accordance with Section 2.5(b):
(i) elect, as of any Business Day, in the case of new LIBOR Rate
Loans or any Reference Rate Loans, or as of the last day of the applicable
Interest Period, in the case of any existing LIBOR Rate Loans, to make or
convert any such Loans (or any part thereof (A) in the case of a conversion
to a LIBOR Rate Loan, in an amount not less than $1,000,000, or that is in
an integral multiple of $100,000 in excess thereof or (B) in the case of a
conversion to a Reference Rate Loan, in an amount not less than $250,000)
into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest Period, to
continue any Loans having Interest Periods expiring on such day (or any
part thereof in an amount not less than $1,000,000, or that is in an
integral multiple of $100,000 in excess thereof).
(b) The Borrower shall deliver an Interest Rate Notice to be received by
the Agent not later than 10:00 p.m. (Seattle time) at least (i) three Business
Days in advance of the Interest Rate Election Date, if the Loans are to be made,
converted into or continued as LIBOR Rate Loans; and (ii) one Business Day in
advance of the
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Interest Rate Election Date, if the Loans are to be converted into Reference
Rate Loans, specifying:
(A) the proposed Interest Rate Election Date;
(B) the aggregate amount of Loans to be made, converted or renewed;
(C) the Type of Loans resulting from the proposed making, conversion
or continuation; and
(D) other than in the case of Reference Rate Loans, the duration of
the requested Interest Period.
(c) If the Borrower does not specify an interest rate election in any
Notice of Borrowing, the Loans made pursuant to such Notice of Borrowing shall
constitute Reference Rate Loans.
(d) If upon the expiration of any Interest Period applicable to LIBOR Rate
Loans, the Borrower has failed to timely select a new Interest Period to be
applicable to such LIBOR Rate Loans, or if any Default or Event of Default then
exists, the Borrower shall be deemed to have elected to convert such LIBOR Rate
Loans into Reference Rate Loans effective as of the expiration date of such
Interest Period.
(e) the Agent will promptly notify each Lender of its receipt of an
Interest Rate Notice, or, if no timely notice is provided by the Borrower, the
Agent will promptly notify each Lender of the details of any automatic
conversion. All conversions and continuations shall be made ratably according
to the respective outstanding principal amounts of the Loans with respect to
which the notice was given held by each Lender.
(f) Unless the Required Lenders otherwise agree, during the existence of a
Default or Event of Default, the Borrower may not elect to have a Loan made,
converted into or continued as a LIBOR Rate Loan.
(g) There may not be more than six different Interest Periods in effect at
any time.
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2.6 MANDATORY PREPAYMENTS OF LOANS
(a) ASSET DISPOSITIONS
If the Borrower, CHC or any Subsidiary shall at any time or from time to
time make or agree to make a Disposition then (i) the Borrower shall promptly
notify the Agent of such proposed Disposition (including the amount of the
estimated Net Proceeds to be received by the Borrower, CHC or such Subsidiary in
respect thereof) and (ii) concurrently with receipt by the Borrower, CHC or the
Subsidiary of the Net Proceeds of such Disposition, the Borrower shall prepay
the Loans in an aggregate amount equal to the amount of such Net Proceeds;
provided, however, that no such prepayment shall be required to the extent, in
each case, such Net Proceeds are from the Disposition of personal property and
are to be used within 90 days of receipt thereof to purchase replacement assets;
provided further, that such prepayment shall be required only if (i) such Net
Proceeds exceed $500,000 or (ii) the aggregate of all Net Proceeds theretofore
received by the Borrower during the preceding 12 months and not reinvested or
used to make a prepayment hereunder exceeds $500,000.
(b) EVENT OF LOSS
If the Borrower, CHC or any Subsidiary shall at any time or from time to
time suffer an Event of Loss, then (i) the Borrower shall promptly notify the
Agent of such Event of Loss (including the amount of the estimated Net Proceeds
to be received by the Borrower, CHC or such Subsidiary in respect thereof) and
(ii) promptly upon, and in no event later than two (2) Business Days after,
receipt by the Borrower, CHC or the Subsidiary of the Net Proceeds of such Event
of Loss, the Borrower shall either (i) prepay the Loans in an aggregate amount
equal to the amount of such Net Proceeds or (ii) deposit an aggregate amount
equal to the amount of such Net Proceeds into an interest bearing blocked
account maintained with the Agent pending release for usage by the Borrower in a
manner, and during the time, specified in the proviso below; provided, however,
that no such prepayment shall be required to the extent, in each case, such Net
Proceeds are used within 90 days of receipt thereof to repair, replace or
restore the assets, if any, relating to such Event of Loss.
(c) DEBT ISSUANCE
If the Borrower or CHC shall incur additional Indebtedness after the date
of this Agreement (other than Indebtedness permitted under Section 8.5, the
Borrower shall promptly notify the Agent of the estimated Net Issuance Proceeds
of such issuance or incurrence to be received by the Borrower in respect
thereof. Promptly upon, and in no event later than three days after, receipt by
the Borrower of Net
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Issuance Proceeds of such issuance or incurrence, the Borrower shall prepay the
Loans in an aggregate amount equal to the amount of such Net Issuance Proceeds.
(d) GENERAL
Any prepayments pursuant to this Section 2.6 shall be applied first to any
Reference Rate Loans then outstanding and then to LIBOR Rate Loans with the
shortest Interest Periods remaining; provided, however, that if the amount of
Reference Rate Loans then outstanding is not sufficient to satisfy the entire
prepayment requirement, the Borrower may, at its option, place any amounts which
it would otherwise be required to use to prepay LIBOR Rate Loans on a day other
than the last day of the Interest Period therefor in an interest-bearing account
pledged to the Agent for the benefit of the Lenders until the end of such
Interest Period at which time such pledged amounts will be applied to prepay
such LIBOR Rate Loans. The Borrower shall pay, together with each prepayment
under this Section 2.6, accrued interest on the amount prepaid and any amounts
required pursuant to Section 4.4.
(e) REDUCTION IN COMMITMENT
Concurrently with the making of each mandatory prepayment pursuant to this
Section 2.6, the amount of the Commitment shall be automatically reduced by an
amount equal to the amount of the mandatory prepayment, and each Lender's
Commitment shall be reduced proportionately based upon each Lender's Pro Rata
Share.
2.7 REPAYMENT
(a) The Borrower shall repay to the Lenders from time to time such amounts
of principal as may be necessary to ensure that at all times the sum of the then
outstanding principal balance of all Loans and the Letter of Credit Usage is
equal to or less than the lesser of (i) the amount of the then applicable
Commitment or (ii) the Borrowing Base.
(b) The Borrower shall repay the Loans in full, together with all accrued
and unpaid interest thereon, on the Maturity Date.
2.8 INTEREST
(a) Each Loan shall bear interest on the outstanding principal amount
thereof from the Closing Date at a rate per annum equal to the LIBOR Rate or the
Reference Rate, as the case may be (and subject to the Borrower's right to
convert to other Types of Loans under Section 2.5), plus the Interest Margin.
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(b) Interest on each Loan shall be paid in arrears on each Interest Payment
Date. Interest shall also be paid on the date of any prepayment of Loans under
Section 2.6 for the portion of the Loans so prepaid and upon payment (including
prepayment) in full thereof and, during the existence of any Event of Default,
interest shall be paid on demand of the Agent at the request or with the consent
of the Required Lenders.
(c) Notwithstanding subsection (a) of this Section, while any Event of
Default exists or after acceleration, the Borrower shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Loans, at a rate per annum which is
determined by adding 2% per annum to the Interest Margin then in effect for such
Loans.
(d) Anything herein to the contrary notwithstanding, the obligations of the
Borrower to any Lender hereunder shall be subject to the limitation that
payments of interest and late charges shall not be required, for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Lender would be contrary
to the provisions of any law applicable to such Lender limiting the highest rate
of interest that may be lawfully contracted for, charged or received by such
Lender, and in such event the Borrower shall pay such Lender interest at the
highest rate permitted by applicable law.
2.9 AGENCY AND UNDERWRITING FEES
The Borrower shall pay agency fees and underwriting fees to the Agent as
required by the Commitment Letter.
2.10 COMMITMENT FEES
On the last day of each fiscal quarter during the term of the Loans, and on
the date that the Loans are repaid in full and the Commitments are terminated
upon the election of the Borrower pursuant to Section 2.1(c) or as otherwise
provided in this Agreement, Borrower shall pay to the Agent for the ratable
benefit of the Lenders commitment fees an the amount equal to Commitment Fee
Percentage per annum of the sum of (i) the average unused portion of the
Commitment during each period, to be calculated based upon the amount of the
Commitment during such period, less (ii) the sum of the then outstanding
principal balance of all Loans and the Letter of Credit Usage during such
period. The fee paid pursuant to this Section 2.10 shall be deemed fully earned
when due and non-refundable when paid without regard to any voluntary or
involuntary prepayment of the Loans (or any portion thereof), the failure to
satisfy the conditions of lending or the termination of any Commitment.
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2.11 LATE CHARGE
If any payment of principal or interest required under any of the Loans is
five days or more past due, the Borrower will be charged, for the ratable
benefit of the Lenders, a late charge of 5% of the delinquent payment or $5,
whichever is greater, for each such late payment. The five-day period provided
for herein shall not be construed as a waiver of any Default or Event of Default
resulting from any late payment under any of the Loans.
2.12 COMPUTATION OF INTEREST AND FEES
(a) All computations of interest and commitment fees shall be made on the
basis of a year of 360 days and actual days elapsed. Interest and commitment
fees shall accrue during each period during which interest or commitment fees
are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be conclusive
and binding on the Borrower and the Lenders in the absence of manifest error.
The Agent will, at the request of the Borrower or any Lender, deliver to the
Borrower or the Lender, as the case may be, a statement showing the quotations
used by the Agent in determining any interest rate and the resulting interest
rate.
2.13 PAYMENTS BY THE BORROWER
(a) All payments to be made by the Borrower shall be made without set-off,
recoupment or counterclaim. Except as otherwise expressly provided herein, all
payments by the Borrower shall be made to the Agent for the account of the
Lenders at the Agent's Payment Office, and shall be made in dollars and in
immediately available funds, no later than 10:00 p.m. (Seattle time) on the date
specified herein. The Agent will promptly distribute to each Lender its Pro
Rata Share (or other applicable share so expressly provided herein) of such
payment in like funds as received. Any payment received by the Agent later than
10:00 p.m. (Seattle time) shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
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(c) Unless the Agent receives notice from the Borrower prior to the date on
which any payment is due to the Lenders that the Borrower will not make such
payment in full as and when required, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower has not made
such payment in full to the Agent, each Lender shall repay to the Agent on
demand such amount distributed to such Lender, together with interest thereon at
this Federal Funds Rate for each day from the date such amount is distributed to
such Lender until the date repaid.
(d) Any payment made by the Borrower hereunder shall be applied
first, against any Financial Transaction Liability of the Borrower owing to the
- -----
Agent; second, against fees, expenses and indemnities due hereunder or under any
------
other Loan Document; third, against interest due on matured obligations in
-----
respect of any Letter of Credit, if any; fourth, against interest due on amounts
------
in default on any Loan, if any; fifth, against interest due on any Loan; sixth,
----- -----
against matured obligations in respect of any Letter of Credit, if any; seventh,
-------
against Loan principal amounts in default; and eighth, against Loan principal.
------
2.14 SHARING OF PAYMENTS, ETC.
If, other than as expressly provided elsewhere herein, any Lender shall
obtain on account of the Loans made by it any payment (whether voluntary,
involuntary, through this exercise of any right of set-off, or otherwise) in
excess of its Pro Rata Share, such Lender shall immediately (a) notify the Agent
of such fact, and (b) purchase from the other Lenders such participations in the
Loans made by them as shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and each
other Lender shall repay to the purchasing Lender the purchase price paid
therefor, together with an amount equal to such paying Lender's ratable share
(according to the proportion of (a) the amount of such paying Lender's required
repayment to (b) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off, but subject to Section 12.9) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation. The Agent will keep records (which shall be conclusive
and binding in the absence of manifest error)
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of participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments.
2.15 SECURITY
All Obligations of the Borrower, CHC and the Subsidiaries under this
Agreement, the Notes and all other Loan Documents shall be secured in accordance
with the Collateral Documents.
2.16 BORROWING BASE
(a) The sum of (i) the outstanding balance of principal of the Loans, plus
(ii) the Letter of Credit Usage shall at no time exceed an amount equal to the
Borrowing Base.
(b) The Borrower shall submit to U. S. Bank a calculation of the Borrowing
Base (i) within 45 days of the end of each fiscal quarter of the Borrower as of
the last day of such fiscal quarter and (ii) with each Notice of Borrowing for
Loans in excess of $4,000,000 in the aggregate or request for the issuance of a
Letter of Credit in a face amount in excess of $4,000,000.
(c) If at any time the sum of (i) the outstanding balance of principal of
the Loans, plus (ii) the Letter of Credit Usage shall exceed the Borrowing Base,
the Borrower shall repay such outstanding portion of the Loans in an amount
equal to such excess within one Business Day. The Borrower's failure to do so
shall constitute an Event of Default.
2.17 NO PREPAYMENT CHARGES
Except as provided in Section 4.4, the Borrower may pay or prepay any Loan
without charge.
ARTICLE III. LETTERS OF CREDIT
3.1 LETTERS OF CREDIT
Upon the Borrower's request prior to the Maturity Date, the Agent shall
issue one or more standby letters of credit for the Borrower's account in
accordance with the terms and conditions of this Section 3.
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3.2 MANNER OF REQUESTING LETTERS OF CREDIT
(a) From time to time prior to the Maturity Date, the Borrower may request
that the Agent issue standby letters of credit for the Borrower's account or
extend or renew any existing Letters of Credit. Each such request will be made
by delivering a written request for the issuance, extension or renewal of such a
letter of credit to the Agent not later than 12:00 noon (Seattle time) one
Business Day prior to the date a new letter of credit is to be issued or an
existing Letter of Credit is to be extended or renewed. Each such request shall
be deemed to constitute a representation and warranty by the Borrower that as of
the date of such request, the representations and warranties set forth in
Article V are true and correct and that no Default or Event of Default has
occurred and is continuing. Each such request shall specify the face amount of
the requested letter of credit, the proposed date of expiration for such letter
of credit, the name of the intended beneficiary thereof, and whether such letter
of credit is an extension or renewal of a Letter of Credit.
(b) Each letter of credit requested hereunder (i) shall be in a face amount
such that after issuance of such letter of credit, the Letter of Credit Usage
does not exceed $5,000,000; (ii) shall be in a face amount such that after
issuance of such letter of credit, the sum of the Letter of Credit Usage and the
then outstanding principal balance of the Loans does not exceed an amount equal
to the Commitment; and (iii) shall have an expiration date not later than the
Maturity Date.
(c) At the request of the Agent, the Borrower shall execute a letter of
credit application and reimbursement agreement ("Reimbursement Agreement"), in
the standard form then used by the Agent, in respect of each letter of credit
requested hereunder.
(d) Subject to the satisfaction of the conditions precedent set forth in
Section 4 and the Borrower's compliance with the terms of this Section 3.2, the
Agent shall issue and deliver the requested letter of credit to the Borrower or
to the Borrower's designated beneficiary at such address as the Borrower may
specify. New Letters of Credit and extensions or renewals of any existing
Letters of Credit shall contain terms and conditions customarily included in the
Agent's letters of credit and shall otherwise be in a form acceptable to the
Agent.
(e) For each Letter of Credit issued by the Agent hereunder, the Borrower
shall pay on the date such Letter of Credit is issued (i) to the Agent for the
ratable benefit of the Lenders, a letter of credit fee in a per annum amount
equal to the number of basis points of the face amount of the Letter of Credit
equal to the LIBOR Margin as of the date of the issuance of the Letter of Credit
and (ii) to the Agent for its
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own account an administrative fee equal to ten basis points of the face amount
of the Letter of Credit.
(f) In the event of any conflict between the terms of any Reimbursement
Agreement and the terms of this Agreement, the terms of this Agreement shall
control.
3.3 INDEMNIFICATION; INCREASED COSTS
(a) The Borrower agrees to indemnify the Agent on demand for any and all
costs, expenses, or damages incurred by the Agent, directly or indirectly,
arising out of the issuance of any Letter of Credit, including, without
limitation, any costs of maintaining reserves in respect thereof and any premium
rates imposed by the Federal Deposit Insurance Corporation in connection
therewith. A certificate as to such costs, expenses or damages submitted to the
Borrower by the Agent shall be final, conclusive and binding, absent manifest
error.
(b) If at any time after the date hereof the introduction of or any change
in applicable law, rule, or regulation or in the interpretation or the
administration thereof by any Government Authority charged with the
interpretation or administration thereof, or compliance by the Agent with any
requests directed by any such Government Authority (whether or not having the
force of law) shall, with respect to any Letter of Credit, subject the Agent to
any Tax or impose, modify or deem applicable any reserve, special deposit or
similar requirements against assets of, deposits with or for the account of,
credit extended by the Agent or shall impose on the Agent any other conditions
affecting the Letters of Credit and the result of any of the foregoing is to
increase the cost to the Agent of issuing a Letter of Credit or to reduce the
amount of any sum received or receivable by the Agent hereunder with respect to
the Letters of Credit, then, upon demand by the Agent, the Borrower shall pay to
the Agent such additional amount or amounts as will compensate the Agent for
such increased cost or reduction. A certificate submitted to the Borrower by the
Agent setting forth the basis for the determination of such additional amount or
amounts shall be final, conclusive and binding, absent manifest error.
(c) The Borrower agrees to indemnify and hold the Agent harmless from and
against any and all (i) Taxes and other fees payable in connection with Letters
of Credit or the provisions of this Agreement relating thereto, and (ii) any and
all actions, claims, damages, losses, liabilities, fines, penalties, costs and
expenses of every nature, including reasonable attorneys' fees, suffered or
incurred by the Agent otherwise arising out of or relating to this Article III,
or any Letter of Credit; provided, however, said indemnification shall not apply
to the extent that any such action, claim,
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damage, loss, liability, fine, penalty, cost or expense arises solely out of or
is based solely upon the Agent's willful misconduct or gross negligence.
3.4 PAYMENT BY THE BORROWER
The Borrower agrees to fully reimburse the Agent for all amounts paid under
any Letter of Credit together with interest thereon at the rate applicable to
Reference Rate Loans from the date such payment is made until the date the Agent
notifies the Borrower that such payment was made. Such reimbursement shall be
made in immediately available funds to Agent at 1420 Fifth Avenue, Seattle,
Washington 98101 not later than 12:00 noon (Seattle time) on the date the
Borrower is first notified by the Agent that payment has been made under the
Letter of Credit; provided, that, if the Agent so elects pursuant to the terms
--------
of Section 9.2, following the occurrence of an Event of Default, the face amount
of each Letter of Credit shall become immediately due and payable. If the
Borrower should default in its obligations to reimburse the Agent or to make any
other payment required hereunder, (i) interest shall accrue on the unpaid amount
thereof at the rate applicable to Reference Rate Loans during the existence of
an Event of Default from the date such amount becomes due and payable until
payment in full by the Borrower; and (ii) the Agent, in its sole discretion, may
deem such default to constitute a Notice of Borrowing for the amount of the
unreimbursed obligation together with accrued interest thereon, and, subject to
the terms and conditions hereof, may advance a Loan to the Borrower and
immediately apply the proceeds thereof in satisfaction of the Borrower's
obligations under this Section 3.4. Interest on unpaid amounts shall be
calculated on the basis of a year of 360 days and actual days elapsed.
ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 TAXES
(a) Any and all payments by the Borrower to each Lender or the Agent under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for any Taxes. In addition, the Borrower shall
pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each Lender and the
Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Lender or the Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification
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shall be made within 30 days after the date the Lender or the Agent makes
written demand therefor.
(c) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so that after
making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section) such
Lender or the Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions or withholdings been
made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Borrower shall also pay to each Lender or the Agent for the
account of such Lender, at the time interest is paid, all additional
amounts which the respective Lender specified as necessary to preserve the
after-tax yield the Lender would have received if such Taxes or Other Taxes
had not been imposed.
(d) Within 30 days after the date of any payment by the Borrower of Taxes
or Other Taxes, the Borrower shall furnish the Agent the original or a certified
copy of a receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Agent.
(e) If the Borrower is required to pay additional amounts to any Lender or
the Agent pursuant to subsection (c) of this Section, then such Lender shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrower which may thereafter accrue, if such change in the
judgment of such Lender is not otherwise disadvantageous to such Lender.
4.2 ILLEGALITY
(a) If any Lender determines that the introduction of any Requirement of
Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central
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bank or other Governmental Authority has asserted that it is unlawful, for any
Lender or its applicable Lending Office to make LIBOR Rate Loans, then, on
notice thereof by the Lender to the Borrower through the Agent, any obligation
of that Lender to make LIBOR Rate Loans shall be suspended until the Lender
notifies the Agent and the Borrower that the circumstances giving rive to such
determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any LIBOR Rate
Loan, the Borrower shall, upon its receipt of notice of such fact and demand
from such Lender (with a copy to the Agent), prepay in full such LIBOR Rate
Loans of that Lender then outstanding, together with interest accrued thereon
and amounts required under Section 4.4, either on the last day of the Interest
Period thereof, if the Lender may lawfully continue to maintain such LIBOR Rate
Loans to such day, or immediately, if the Lender may not lawfully continue to
maintain such LIBOR Rate Loan. If the Borrower is required to so prepay any
LIBOR Rate Loan, then concurrently with such prepayment, the Borrower shall
borrow from the affected Lender, in this amount of such repayment, a Reference
Rate Loan.
(c) If the obligation of any Lender to make or maintain LIBOR Rate Loans
has been so terminated or suspended, the Borrower may elect, by giving notice to
the Lender through the Agent that all Loans which would otherwise be made by the
Lender as LIBOR Rate Loans shall be instead Reference Rate Loans.
(d) Before giving any notice to the Agent under this Section, the affected
Lender shall designate a different Lending Office with respect to its LIBOR Rate
Loans if such designation will avoid the need for giving such notice or making
such demand and will not, in the judgment of the Lender, be illegal or otherwise
disadvantageous to the Lender.
4.3 INCREASED COSTS AND REDUCTION OF RETURN
(a) If any Lender determines that, due to either (i) the introduction of or
any change in or in the interpretation of any law or regulation or (ii) the
compliance by that Lender with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any LIBOR Rate Loans, then the Borrower shall be liable
for, and shall from time to time, upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such Lender, additional
amounts as are sufficient to compensate such Lender for such increased costs.
(b) If any Lender shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
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(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Lender (or
its Lending Office) or any corporation controlling the Lender with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Lender or any corporation controlling the
Lender and (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy and such Lender's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, upon demand of such Lender to the Borrower through the Agent,
the Borrower shall pay to the Lender, from time to time as specified by the
Lender, additional amounts sufficient to compensate the Lender for such
increase.
4.4 FUNDING LOSSES
The Borrower shall reimburse each Lender and hold each Lender harmless from
any loss or expense which the Lender may sustain or incur as a consequence of:
(a) the failure of the Borrower to make on a timely basis any payment of
principal of any LIBOR Rate Loan;
(b) the failure of the Borrower to borrow the Loans as requested in a
Borrowing Notice, or to continue or convert a Loan after the Borrower has given
(or is deemed to have given) an Interest Rate Notice;
(c) the prepayment (including pursuant to Section 2.6) or other payment
(including after acceleration thereof) of a LIBOR Rate Loan on a day that is not
the last day of the relevant Interest Period; or
(d) the automatic conversion under Section 2.5 of any LIBOR Rate Loan to a
Reference Rate Loan on a day that is not the last day of the relevant Interest
Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Borrower to the Lenders under this Section
and under Section 4.3(a), each LIBOR Rate Loan made by a Lender (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR used in determining the LIBOR Rate for
such LIBOR Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for
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a comparable period, whether or not such LIBOR Rate Loan is in fact so funded.
4.5 INABILITY TO DETERMINE RATES
If the Agent determines that for any reason adequate and reasonable means
do not exist for determining the LIBOR Rate for any requested Interest Period
with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate applicable
pursuant to Section 2.8(a) for any requested Interest Period with respect to a
proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to any
Lender of funding such Loan, the Agent will promptly so notify the Borrower and
each Lender. Thereafter, the obligation of the Lenders to make or maintain
LIBOR Rate Loans hereunder shall be suspended until the Agent revokes such
notice in writing. Upon receipt of such notice, the Borrower may revoke any
Interest Rate Notice then submitted by it. If the Borrower does not revoke such
Notice, the Lenders shall make, convert or continue the Loans, as proposed by
the Borrower, in the amount specified in the applicable notice submitted by the
Borrower, but such Loans shall be made, converted or continued as Reference Rate
Loans instead of LIBOR Rate Loans.
4.6 CERTIFICATES OF LENDERS
Any Lender claiming reimbursement or compensation under this Article IV
shall deliver to the Borrower (with a copy to the Agent) a certificate setting
forth in reasonable detail the amount payable to the Lender hereunder and such
certificate shall be conclusive and binding on the Borrower in the absence of
manifest error.
4.7 SURVIVAL
The agreements and obligations of the Borrower in this Article IV shall
survive this payment of all other Obligations.
ARTICLE V. CONDITIONS PRECEDENT
5.1 CONDITIONS OF INITIAL LOANS
This obligation of each Lender to make the initial advance to the Borrower
under the Loans hereunder or the obligation of the Agent to issue the first
Letter of Credit is subject to the condition that the Agent has received on or
before the Closing Date all of the following, in form and substance satisfactory
to the Agent and each Lender, and with sufficient copies for each Lender:
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(a) CREDIT AGREEMENT AND NOTES
This Agreement and the Notes duly executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY
(i) Copies of the resolutions of the board of directors or other
governing body of the Borrower, CHC and each Subsidiary that may become
party to a Loan Document authorizing the transactions contemplated hereby,
certified as of the Closing Date by the Secretary or an Assistant Secretary
of such Person; and
(ii) A certificate of the Secretary or Assistant Secretary of the
Borrower, CHC and each Subsidiary that may become party to a Loan Document
certifying the names and true signatures of the officers of the Borrower,
CHC or such Subsidiary authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be delivered by
it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING
Each of the following documents:
(i) the Organization Documents of the Borrower, CHC and each
Subsidiary party to any Loan Document as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of the Borrower, CHC or
such Subsidiary as of the Closing Date; and
(ii) a good standing certificate for the Borrower, CHC and each
Subsidiary party to any Loan Document from the Secretary of State (or
similar, applicable Governmental Authority) of its state of organization
and each state where the Borrower, CHC or such Subsidiary is qualified to
do business as a foreign entity as of a recent date;
(d) LEGAL OPINIONS
An opinion of counsel to the Borrower and CHC and each Subsidiary party to
any Loan Document as in effect on the Closing Date, addressed to the Agent and
the Lenders, substantially in the form of Exhibit H;
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(e) PAYMENT OF FEES
Evidence of payment by the Borrower of all accrued and unpaid fees, costs
and expenses to the extent then due and payable on the Closing Date, together
with Attorney Costs of U. S. Bank to the extent invoiced prior to or on the
Closing Date; including any such costs, fees and expenses arising under or
referenced in Sections 2.9 and 12.4;
(f) COLLATERAL DOCUMENTS
The Collateral Documents, executed by the Borrower, CHC and each
Subsidiary, in appropriate form for recording, where necessary, together with:
(i) acknowledgment copies of all UCC-1 financing statements filed,
registered or recorded to perfect the security interests of the Agent for
the benefit of the Lenders, or other evidence satisfactory to the Agent
that there has been filed, registered or recorded all financing statements
and other filings, registrations and recordings necessary and advisable to
perfect the Liens of the Agent for the benefit of the Lenders in accordance
with applicable law;
(ii) written advice relating to such lien and judgment searches as
the Agent shall have requested, and such termination statements or other
documents as may be necessary to confirm that the Collateral is subject to
no other Liens in favor of any Persons (other than Permitted Liens);
(iii) funds sufficient to pay any filing or recording tax or fee in
connection with any and all UCC-1 financing statements;
(iv) such consents, estoppels, subordination agreements and other
documents and instruments executed by landlords, tenants, franchisors,
licensors and other Persons party to material contracts relating to any
Collateral as to which the Agent shall be granted a Lien for the benefit of
the Lenders, as requested by the Agent or any Lender;
(v) evidence that all other actions necessary or, in the opinion
of the Agent or the Lenders, desirable, to perfect and protect the first
priority security interest created by the Collateral Documents and to
enhance the Agent's ability to preserve and protect its interests in and
access to the Collateral, have been taken;
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(g) INSURANCE POLICIES
Standard lenders' payable endorsements and insurance certificates with
respect to the insurance policies or other instruments or documents evidencing
insurance coverage on the properties of the Borrower in accordance with Section
7.6;
(h) CERTIFICATE
A certificate signed by a Responsible Officer, dated as of the Closing
Date, stating that:
(i) the representations and warranties contained in Article VI are
true and correct on and as of such date, as though made on and as of such
date;
(ii) no Default or Event of Default exists or would result from
making the requested Loans or the issuance of the requested Letter of
Credit; and
(iii) there has occurred since October 31, 1997, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect;
(i) COMPLIANCE CERTIFICATE
A Compliance Certificate signed by a Responsible Officer, dated as of the
Closing Date;
(j) INITIAL PUBLIC OFFERING
Evidence acceptable to the Agent that the CHC (i) has completed its initial
public offering of common stock and (ii) has received and transferred to the
Borrower the net proceeds from such initial public offering;
(k) NOTICE OF BORROWING; REIMBURSEMENT AGREEMENT
A Notice of Borrowing (in the case of requested Loans) or a request for a
Letter of Credit and a Reimbursement Agreement (in the case of a requested
Letter of Credit) executed by the Borrower, and in each such case calculating
the Borrowing Base;
(l) GUARANTY
The Guaranty duly executed by CHC;
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(m) OTHER DOCUMENTS
Such other approvals, opinions, documents or materials as the Agent or any
Lender may request;
(n) PAYMENT OF INDEBTEDNESS
(i) Except for (A) the Commitment of U. S. Bank set forth in this
Agreement and (B) any outstanding capital or operating leases from U. S.
Bank to the Borrower or CHC, payment in full of all Indebtedness of the
Borrower and CHC to U. S. Bank and cancellation of any outstanding
commitments to advance additional Indebtedness to the Borrower or CHC; and
(ii) Evidence that all other Indebtedness not permitted by Section
8.5 has been paid in full; and
(o) ELIGIBLE REAL PROPERTY
All Collateral Documents for not fewer than four parcels of Eligible Real
Property.
5.2 CONDITIONS TO SUBSEQUENT LOANS
The obligation of each Lender to make Loans to the Borrower, the Agent to
issue a Letter of Credit, or the Lenders to continue or convert any Loan under
Section 2.5 after the initial Loans have been advanced or the initial issuance
of a Letter of Credit hereunder is subject to the satisfaction of the following
conditions precedent on the applicable date:
(a) INTEREST RATE NOTICE
In the case of a conversion of a Loan into another Type of Loan or the
continuation of an interest rate election as of the end of an Interest Period,
the Agent shall have received an Interest Rate Notice executed by the Borrower;
(b) NOTICE OF BORROWING; REIMBURSEMENT AGREEMENT
The Agent shall have received, duly executed by the Borrower, a Notice of
Borrowing (in the case of requested Loans) or a request for a Letter of Credit
and a Reimbursement Agreement (in the case of a requested Letter of Credit), in
each such case calculating the Borrowing Base;
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(c) CONTINUATION OF REPRESENTATIONS AND WARRANTIES
The representation and warranties in Article VI shall be true and correct
on and as of each such Interest Rate Election Date, date of Notice of Borrowing
or request for a Letter of Credit with the same effect as if made on and as of
such date (except to the extent such representations and warranties solely and
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date);
(d) NO EXISTING DEFAULT
No Default or Event of Default shall exist or shall result from such
continuation, conversion, making of Loans or issuance of a Letter of Credit;
(e) SATISFACTION OF PREVIOUS CONDITIONS
The conditions set forth in Section 5.1 shall have been previously
satisfied or waived by the Agent in writing;
(f) FURTHER ASSURANCES
To the extent not previously delivered, all other documents, agreements and
instruments from or with respect to the Borrower or any other Person that may be
called for hereunder shall be duly executed and delivered to the Agent,
including but not limited to all documents, agreements and instruments deemed
necessary by the Agent to perfect a security interest for the benefit of the
Lenders in collateral acquired after the date of this Agreement that is intended
to be encumbered pursuant to the Collateral Documents. For the purposes of this
Agreement, the waiver of delivery of any document, agreement, or instrument from
or with respect to the Borrower or any other Person does not constitute a
continuing waiver with respect to the obligation tofulfill the conditions
precedent set forth in this Section 5.2 except as otherwise specifically
provided.
Each Interest Rate Notice, Notice of Borrowing or request for a Letter of Credit
(as the case may be) submitted by the Borrower hereunder shall constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice and as of each Interest Rate Election Date, as applicable, that the
conditions in this Section 5.2 are satisfied.
5.3 CONDITIONS TO BECOME ELIGIBLE REAL PROPERTY
The Borrower may elect that a parcel of real property owned by the Borrower
or a Subsidiary shall become Eligible Real Property subject to (a) making a
written request of the Agent therefor, (b) meeting the conditions set forth in
the definition of
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"Eligible Real Property," and (c) the condition that the Agent has received all
of the following with respect to such parcel of real property, in form and
substance satisfactory to the Agent and each Lender, and with sufficient copies
for each Lender:
(i) a Deed of Trust encumbering the parcel of real property, duly
executed by the Borrower or Subsidiary that owns the parcel of real
property;
(ii) acknowledgment copies of all UCC-1 financing statements filed,
registered or recorded to perfect the security interests of the Agent for
the benefit of the Lenders, or other evidence satisfactory to the Agent
that there has been filed, registered or recorded all financing statements
and other filings, registrations and recordings necessary and advisable to
perfect the Liens of the Agent for the benefit of the Lenders in accordance
with applicable law;
(iii) written advice relating to such lien and judgment searches as
the Agent shall have requested, and such termination statements or other
documents as may be necessary to confirm that the Collateral is subject to
no other Liens in favor of any Persons (other than Permitted Liens);
(iv) funds from the Borrower sufficient to pay or reimburse the
Agent for all out-of-pocket costs and expenses connected with the parcel of
real property becoming Eligible Real Property, including, without
limitation, appraisal fees, inspection fees, fees for environmental and
other third party inspections and reports, fees for the Title Insurance
Policy to issue with respect to such parcel of real property, escrow fees
(if any), any filing or recording tax or fee in connection with the Deed of
Trust and all UCC-1 financing statements;
(v) such consents, estoppels, subordination agreements and other
documents and instruments executed by landlords, tenants, franchisors,
licensors and other Persons party to material contracts relating to the
parcel of real property as to which the Agent shall be granted a Lien for
the benefit of the Lenders, as requested by the Agent or any Lender;
(vi) evidence that all other actions necessary or, in the opinion
of the Agent or the Lenders, desirable, to perfect and protect the first
priority security interest created by the Collateral Documents in the
parcel of real property and to enhance the Agent's ability to preserve and
protect its interests in and access to such Collateral, have been taken;
(vii) a Title Insurance Policy insuring the Deed of Trust;
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(viii) a flood hazard determination in a form approved by the Agent
for the parcel of real property encumbered by a Deed of Trust;
(ix) (A) an environmental checklist in a form designated by the
Agent and approved by the Agent in writing after completion by the Borrower
or Subsidiary (as the case may be), (B) an environmental site assessment
approved by the Agent in writing performed by an engineer approved by the
Agent, (C) an Indemnification Agreement duly executed by the Borrower and
Subsidiary (if the parcel of real property is owned by a Subsidiary), and
(D) if the parcel of real property is being acquired with the proceeds of
Loans, a designation agreement executed by the Borrower in a form approved
by the Agent;
(x) lenders' payable endorsements and insurance certificates
with respect to the insurance policies related to such parcel of real
property or other instruments or documents evidencing insurance coverage on
the properties of the Borrower in accordance with Section 7.6 and the Deed
of Trust;
(xi) to the extent not previously delivered, copies of the
resolutions of the board of directors of the Borrower or Subsidiary (as the
case may be) authorizing the execution and delivery to the Agent of the
Collateral Documents with respect to such parcel real property;
(xii) to the extent not previously delivered, a certificate of the
Secretary or Assistant Secretary of the Borrower or Subsidiary (as the case
may be) certifying the names and true signatures of the officers of the
Borrower or Subsidiary authorized to execute, deliver and perform, as
applicable, the Collateral Documents with respect to such real property;
(xiii) to the extent not previously delivered, the Organization
Documents of the Borrower or Subsidiary (as the case may be), certified by
the Secretary or Assistant Secretary of the Borrower or Subsidiary (as the
case may be);
(xiv) to the extent not previously delivered, a good standing
certificate of the Borrower or Subsidiary (as the case may be) from the
Secretary of State (or similar, applicable Governmental Authority) of its
state of organization and each state where the Borrower or Subsidiary (as
the case may be) is qualified to do business as a foreign entity as of a
recent date; and
(xv) to the extent not previously delivered with respect to the
Collateral Documents in question and such other matters as the Agent may
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reasonably request, an opinion of counsel to the Borrower or Subsidiary (as
the case may be) and addressed to the Agent and the Lenders, in a form
acceptable to the Agent.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Lender that:
6.1 EXISTENCE AND POWER
The Borrower, CHC and each of its Subsidiaries:
(a) is a limited partnership or corporation, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver and perform its obligation under the Loan Documents;
(c) is duly qualified as a foreign entity and is licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law; except, in each case
referred to in clause (c) or clause (d), to the extent that the failure to do so
could not reasonably be expected to have a Material Adverse Effect.
6.2 AUTHORIZATION; NO CONTRAVENTION
The execution, delivery and performance by the Borrower, CHC and its
Subsidiaries of this Agreement and each other Loan Document to which such Person
is party, have been duly authorized by all necessary action, and do not and will
not:
(a) contravene the terms of any of that Person's Organization Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which such Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is subject; or
(c) violate any Requirement of Law.
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6.3 GOVERNMENTAL AUTHORIZATION
No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority (except for recordings or
filings in connection with the Liens granted to the Agent under the Collateral
Documents) is necessary or required in connection with the execution, delivery
or performance by, or enforcement against, the Borrower, CHC or any of its
Subsidiaries of the Agreement or any other Loan Document.
6.4 BINDING EFFECT
This Agreement and each other Loan Document to which the Borrower, CHC or
any of their Subsidiaries is a party constitute the legal, valid and binding
obligations of the Borrower, CHC and any of their Subsidiaries to the extent it
is a party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
6.5 LITIGATION
Except as specifically disclosed in Schedule 6.5, there are no actions,
suits proceedings, claims or disputes pending, or to the best knowledge of the
Borrower, threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, against the Borrower, CHC or its Subsidiaries
or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Borrower, CHC or its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
6.6 NO DEFAULT
No Default or Event of Default exists or would result from the incurring of
any Obligation by the Borrower, CHC or any Subsidiary or from the grant or
perfection of
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the Liens of the Agent and the Lenders on the Collateral. As of the Closing
Date, neither the Borrower, CHC nor any Subsidiary is in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under Section 9.1(e).
6.7 ERISA COMPLIANCE
Except as specifically disclosed in Schedule 6.7:
(a) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law. Each Plan which
is intended to qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS and to the best knowledge of the Borrower,
nothing has occurred which would cause the loss of such qualification. The
Borrower, CHC and each ERISA Affiliate have made all required contributions to
any Plan subject to Section 412 of the Code, and no application for a funding
waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the
Borrower, CHC nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower, CHC nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and
(v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
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6.8 USE OF PROCEEDS; MARGIN REGULATIONS
The proceeds of the Loans are to be used solely for the purposes set forth
in and permitted by Section 7.12 and Section 8.7. Neither the Borrower, CHC nor
any Subsidiary is generally engaged in the business of purchasing or selling
Margin Stock or extending credit for the purpose of purchasing or carrying
Margin Stock.
6.9 TITLE TO PROPERTIES
The Borrower, CHC and each Subsidiary have good record and marketable title
in fee simple to, or valid leasehold interests in, all real property necessary
or used in the ordinary conduct of their respective businesses, except for such
defects in title as could not, individually or in the aggregate, have a Material
Adverse Effect. As of this Closing Date, the property of the Borrower, CHC and
its Subsidiaries is subject to no Liens, other than Permitted Liens.
6.10 TAXES
The Borrower, CHC and its Subsidiaries have filed all Federal and other
material tax returns and reports required to be filed, and have paid all Federal
and other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP. There is no proposed tax assessment against the Borrower, CHC or any
Subsidiary that would, if made, have a Material Adverse Effect.
6.11 FINANCIAL CONDITION
(a) The audited consolidated financial statements of CHC and its
Subsidiaries dated October 31, 1997, and the related consolidated statements of
income or operations, shareholders' equity and cash flows for the fiscal quarter
ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, subject to ordinary, good faith year end audit adjustments;
(ii) fairly present the financial condition of the CHC and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
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(iii) except as specifically disclosed in Schedule 6.11, show all
material indebtedness and other liabilities, direct or contingent, of the
Borrower, CHC and their consolidated Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since October 31, 1997, there has been no Material Adverse Effect.
6.12 ENVIRONMENTAL MATTERS
(a) Except as specifically disclosed in Schedule 6.12, the on-going
operations of the Borrower, CHC and each of its Subsidiaries comply in all
respects with all Environmental Laws, except such noncompliance which would not
(if enforced in accordance with applicable law) result in liability in excess of
$500,000 in the aggregate.
(b) Except as specifically disclosed in Schedule 6.12, the Borrower, CHC
and each of their Subsidiaries have obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for their respective ordinary course
operations, all such Environmental Permits are in good standing, and the
Borrower, CHC and each of their Subsidiaries are in compliance with all material
terms and conditions of such Environmental Permits.
(c) Except as specifically disclosed in Schedule 6.12, none of the
Borrower, CHC any of their Subsidiaries or any of their respective present
property or operations, is subject to any outstanding written order from or
agreement with any Governmental Authority, nor subject to any judicial or
docketed administrative proceeding, respecting any Environmental Law,
Environmental Claim or Hazardous Material.
(d) Except as specifically disclosed in Schedule 6.12, there are no
Hazardous Materials or other conditions or circumstances existing with respect
to any property of the Borrower, CHC or any Subsidiary, or arising from
operations prior to the Closing Date, of the Borrower, CHC or any of their
Subsidiaries that would reasonably be expected to give rive to Environmental
Claims with a potential liability of the Borrower, CHC and their Subsidiaries in
excess of $500,000 in the aggregate for any such condition, circumstance or
property. In addition, (i) neither the Borrower, CHC nor any Subsidiary has any
underground storage tanks (x) that are not properly registered or permitted
under applicable Environmental Laws, or (y) that are leaking or disposing of
Hazardous Materials off-site, and (ii) the Borrower, CHC and their Subsidiaries
have notified all of their employees of the existence, if any, of any
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health hazard arising from the conditions of their employment and have met all
notification requirements under Title III of CERCLA and all other Environmental
Laws.
6.13 COLLATERAL DOCUMENTS
(a) The provisions of each of the Collateral Documents are effective to
create in favor of the Agent for the benefit of the Lenders, a legal, valid and
enforceable security interest in all right, title and interest of the Borrower,
CHC and their Subsidiaries in the collateral described therein; and Deeds of
Trust have been delivered to the Agent for recording in the real estate records
of the county in which the real property to be encumbered thereby is located;
and financing statements have been delivered to the Agent for filing in the
offices in all of the jurisdictions listed in the schedule to the Security
Agreements and executed Patent Assignments, Trademarks Assignments and Copyright
Assignments have been delivered to the Agent for filing in the U.S. Patent and
Trademark Office and the U.S. Copyright Office and upon the filing of such
assignments and such financing statements in such offices, the Agent, for the
benefit of the Lenders, will have a perfected first priority security interest
in the Collateral.
(b) All representations and warranties of the Borrower, CHC and any of
their Subsidiaries party thereto contained in the Collateral Documents are true
and correct.
6.14 REGULATED ENTITIES
None of the Borrower, CHC, any Person controlling the Borrower or CHC, or
any Subsidiary, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. The Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
6.15 NO BURDENSOME RESTRICTIONS
Neither the Borrower, CHC nor any Subsidiary is a party to or bound by any
Contractual Obligation, or subject to any restriction in any Organization
Document, or any Requirement of Law, which could reasonably be expected to have
a Material Adverse Effect.
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6.16 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC.
The Borrower, CHC and their Subsidiaries own or are licensed or otherwise
have the right to use all of the patents, trademarks, service marks, trade
names, copyrights, contractual franchises, authorizations and other rights that
are reasonably necessary for the operation of their respective businesses,
without conflict with the rights of any other Person. To the best knowledge of
the Borrower, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Borrower, CHC or any Subsidiary infringes upon any rights held
by any other Person. Except as specifically disclosed in Schedule 6.5, no claim
or litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Borrower,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
6.17 SUBSIDIARIES
The Borrower and CHC have no Subsidiaries other than those specifically
disclosed in part (a) of Schedule 6.17 hereto and have no equity investments in
any other corporation or entity other than those specifically disclosed in part
(b) of Schedule 6.17.
6.18 INSURANCE
Except as specifically disclosed in Schedule 6.18, the properties of the
Borrower, CHC and their Subsidiaries are insured with financially sound and
reputable insurance companies not Affiliates of the Borrower, in such amounts,
with such deductibles and covering such risks as are customarily carried by
companies engaged in similar businesses, including business interruption
insurance for a period of not less than 12 months, and owning similar properties
in localities where the Borrower, CHC or such Subsidiary operates.
6.19 SOLVENCY
The Borrower, CHC and each of their Subsidiaries are Solvent.
6.20 FULL DISCLOSURE
None of the representations or warranties made by the Borrower, CHC or any
Subsidiary in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report,
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statement or certificate furnished by or on behalf of the Borrower, CHC or any
Subsidiary in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Borrower to the Lenders
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
ARTICLE VII. AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment to make Loans or issue
Letters of Credit hereunder, or any Loan, Letter of Credit or other Obligation
shall remain unpaid or unsatisfied, unless the Required Lenders waive compliance
in writing:
7.1 FINANCIAL STATEMENTS
The Borrower shall deliver to the Agent, in form and detail satisfactory to
the Agent and the Required Lenders, with sufficient copies for each Lender:
(a) as soon as available, but not later than 90 days after the end of each
fiscal year, a copy of the audited consolidated balance sheet of the Borrower,
CHC and their Subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of Coopers &
Lybrand L.L.P. or another nationally recognized independent public accounting
firm ("Independent Auditor") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by the Independent Auditor of any material portion of the
Borrower's, CHC's or any Subsidiary's records;
(b) as soon as available, but not later than 45 days after the end of each
of the first three fiscal quarters of each fiscal year a copy of the unaudited
consolidated balance sheet of the Borrower, CHC and their Subsidiaries as of the
end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a Responsible
Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good
faith year-end audit adjustments), the financial position and the results of
operations of the Borrower, CHC and the Subsidiaries;
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(c) as soon as available, but not later than 45 days after the end of each
of the first three fiscal quarters of each fiscal year, a copy of the unaudited
consolidating balance sheets of the Borrower, CHC and their Subsidiaries, and
the related consolidating statements of income, shareholders' equity and cash
flows for such quarter, all certified by a Responsible Officer as having been
developed and used in connection with the preparation of the financial statement
referred to in Section 7.1(b);
(d) as soon as available, but not later than 45 days after the end of each
fiscal quarter of each fiscal year, a copy of the unaudited operating statements
for each parcel of Eligible Real Property as of the end of such quarter for such
quarter and for the four quarters then ended, in such form and detail as
reasonably designated by the Agent, and certified by a Responsible Officer as
fairly presenting, in accordance with GAAP (subject to ordinary, good faith
year-end audit adjustments), the financial results of operations for each such
parcel of real property .
7.2 CERTIFICATES; OTHER INFORMATION
The Borrower shall furnish to the Agent, with sufficient copies for each
Lender:
(a) concurrently with the delivery of the financial statements referred to
in Section 7.1(a), a certificate of the Independent Auditor stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements referred to
in Sections 7.1(a) and (b), a Compliance Certificate executed by a Responsible
Officer;
(c) promptly, copies of all financial statements and reports that the
Borrower or CHC sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10-K, 10-
Q and 8-K) that the Borrower, CHC or any Subsidiary may make to, or file with,
the SEC; and
(d) promptly, such additional information regarding the business,
financial, partnership or corporate affairs of the Borrower, CHC or any
Subsidiary as the Agent, at the request of any Lender, may from time to time
reasonably request.
7.3 NOTICES
The Borrower shall promptly notify the Agent and each Lender:
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(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of (i) any breach or nonperformance of, or any default under, any
Contractual Obligation of the Borrower, CHC or any of their Subsidiaries which
could result in a Material Adverse Effect; and (ii) any dispute, litigation,
investigation, proceeding or suspension which may exist at any time between the
Borrower, CHC or any of their Subsidiaries and any Governmental Authority and
which, if adversely determined, could result in a Material Adverse Effect;
(c) of the commencement of, or any material development in, any litigation
or proceeding affecting the Borrower, CHC or any Subsidiary (i) in which the
amount of damages claimed is $2,000,000 (or its equivalent in another currency
or currencies) or more if any potential loss is not fully covered by insurance,
(ii) in which the amount of damages claimed is $10,000,000 (or its equivalent in
another currency or currencies) or more if any potential loss is fully covered
by insurance, (iii) in which injunctive or similar relief is sought and which,
if adversely determined, would reasonably be expected to have a Material Adverse
Effect, or (iv) in which the relief sought is an injunction or other stay of the
performance of this Agreement or any Loan Document;
(d) upon, but in no event later than ten days after, becoming aware of (i)
any and all enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against the Borrower, CHC or any
Subsidiary or any of their respective properties pursuant to any applicable
Environmental Laws, (ii) all other Environmental Claims, and (iii) any
environmental or similar condition on any real property adjoining or in the
vicinity of the property of the Borrower, CHC or any Subsidiary that could
reasonably be anticipated to cause such property or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability or use
of such property under any Environmental Laws;
(e) of any other litigation or proceeding affecting the Borrower, CHC or
any of their Subsidiaries which the Borrower would be required to report to the
SEC pursuant to the Exchange Act, within four days after reporting the same to
the SEC;
(f) of any of the following events affecting the Borrower or CHC, together
with a copy of any notice with respect to such event that may be required to be
filed with a Governmental Authority and any notice delivered by a Governmental
Authority to the Borrower with respect to such event:
(i) an ERISA Event;
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(ii) if any of the representations and warranties in Section 6.7
ceases to be true and correct;
(iii) the adoption of any new Pension Plan or other Plan subject to
Section 412 of the Code;
(iv) the adoption of any amendment to a Pension Plan or other Plan
subject to Section 412 of the Code, if such amendment results in a material
increase in contributions or Unfunded Pension Liability; or
(v) the commencement of contributions to any Pension Plan or
other Plan subject to Section 412 of the Code; and
(g) of any material change in accounting policies or financial reporting
practices by the Borrower, CHC or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written statement
by a Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action the Borrower, CHC or any affected Subsidiary
proposes to take with respect thereto and at what time. Each notice under
Section 7.3(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.4 PRESERVATION OF EXISTENCE, ETC.
The Borrower shall, and shall cause CHC and each of their Subsidiaries to:
(a) preserve and maintain in full force and effect its legal existence and
good standing under the laws of its state or jurisdiction of organization ;
(b) preserve and maintain in full force and effect all governmental rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business except in connection with
transactions permitted by Section 8.3 and sales of assets permitted by Section
8.2;
(c) use reasonable efforts, in the ordinary course of business, to preserve
its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks, trade
names and service marks, the nonpreservation of which could reasonably be
expected to have a Material Adverse Effect.
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7.5 MAINTENANCE OF PROPERTY
The Borrower shall maintain, and shall cause CHC and each of their
Subsidiaries to maintain, and preserve all their property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, except as permitted by Section 8.2.
7.6 INSURANCE
In addition to insurance requirements set forth in the Collateral
Documents, the Borrower shall maintain, and shall cause CHC and each of their
Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons including workers'
compensation insurance, public liability and property and casualty insurance
which amount shall not be reduced by the Borrower in the absence of 30 days'
prior notice to the Agent. All such insurance shall name the Agent as loss
payee/mortgagee and as additional insured, for the benefit of the Lenders, as
their interests may appear. Upon request of the Agent or any Lender, the
Borrower shall furnish the Agent, with sufficient copies for each Lender, at
reasonable intervals (but not more than once per calendar year) a certificate of
a Responsible Officer of the Borrower (and, if requested by the Agent, any
insurance broker of the Borrower) setting forth the nature and extent of all
insurance maintained by the Borrower, CHC and their Subsidiaries in accordance
with this Section or any Collateral Documents (and which, in the case of a
certificate of a broker, were placed through such broker).
7.7 PAYMENT OF OBLIGATIONS
The Borrower shall, and shall cause CHC and each of their Subsidiaries to,
pay and discharge as the same shall become due and payable, all their respective
obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Borrower, CHC or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien upon its
property; and
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(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
7.8 COMPLIANCE WITH LAWS
The Borrower shall comply, and shall cause CHC and each of their
Subsidiaries to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 COMPLIANCE WITH ERISA
The Borrower shall, and shall cause CHC and each of their ERISA Affiliates
to: (a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law; (b)
cause each Plan which is qualified under Section 401(a) of the Code to maintain
such qualification; and (c) make all required contributions to any Plan subject
to Section 412 of the Code.
7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS
The Borrower shall maintain and shall cause CHC and each of their
Subsidiaries to maintain proper books of record and account, in which full, true
and correct entries in conformity with GAAP consistently applied shall be made
of all financial transactions and matters involving the assets and business of
the Borrower, CHC and such Subsidiary. The Borrower shall permit, and shall
cause CHC and each Subsidiary to permit, representatives and independent
contractors of the Agent to visit and inspect any of their respective
properties, to examine their respective limited partnership or corporate,
financial and operating records, and make copies thereof or abstracts therefrom,
and to discuss their respective affairs, finances and accounts with their
respective directors, officers, and independent public accountants, all at the
expense of the Borrower and at such reasonable times during normal business
hours, upon reasonable advance notice to the Borrower; provided, however, when
an Event of Default exists the Agent or any Lender may do any of the foregoing
at the expense of the Borrower at any time during normal business hours and
without advance notice.
7.11 ENVIRONMENTAL LAWS
(a) The Borrower shall, and shall cause CHC and each of their Subsidiaries
to, conduct their operations and keep and maintain its property in compliance
with all Environmental Laws.
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(b) Upon the written request of the Agent or any Lender, the Borrower shall
submit and cause CHC and each of their Subsidiaries to submit, to the Agent with
sufficient copies for each Lender, at the Borrower's sole cost and expense, at
reasonable intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report required pursuant to Section 7.3(d), that could,
individually or in the aggregate, result in liability in excess of $500,000.
7.12 USE OF PROCEEDS
The Borrower shall use the proceeds of the Loans for working capital,
Acquisitions permitted hereunder, funding operations, and other general
partnership purposes not in contravention of any Requirement of Law or of any
Loan Document.
7.13 APPRAISALS
(a) Prior to a parcel of real property becoming Eligible Real Property,
there shall be established for such parcel of real property the Approved
Appraisal Value based upon an appraisal thereof performed at the Borrower's sole
cost.
(b) In the event that a parcel of real property has constituted Eligible
Real Property for in excess of 18 months, the Agent may, in its discretion or at
the request of the Required Lenders, have such parcel of real property
reappraised, and upon the Agent's written approval of such reappraisal, the
reappraised value shall constitute the Approved Appraised Value for such parcel
of real property. Except as provided in Section 7.13(c), the cost of any such
reappraisal shall be borne by the Lenders based upon each Lender's Pro Rata
Share.
(c) Upon the occurrence and during the continuation of any Event of
Default, the Agent may, in its discretion or at the request of the Required
Lenders, have any one or more parcels of Eligible Real Property reappraised, and
upon the Agent's written approval of any such reappraisal, the reappraised value
shall constitute the Approved Appraised Value for any such parcel of Eligible
Real Property. The Borrower shall reimburse the Agent for the cost of any such
reappraisal performed pursuant to this subsection upon demand.
(d) The Borrower shall cooperate with the Agent and its designated
appraisers in connection with all appraisals and reappraisals of real property
performed pursuant to this Agreement.
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7.14 FURTHER ASSURANCES
(a) The Borrower shall ensure that all written information, exhibits and
reports furnished to the Agent or the Lenders do not and will not contain any
untrue statement of a material fact and do not and will not omit to state any
material fact or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and will promptly
disclose to the Agent and the Lenders and correct any defect or error that may
be discovered therein or in any Loan Document or in the execution,
acknowledgment or recordation thereof.
(b) Promptly upon request by the Agent or the Required Lenders, the
Borrower shall (and shall cause CHC and any of their Subsidiaries to) do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Lenders, as the case may be, may reasonably require from time to time in order
(i) to carry out more effectively the purposes of this Agreement or any other
Loan Document, (ii) to subject to the Liens created by any of the Collateral
Documents any of the properties, rights or interests covered by any of the
Collateral Documents, (iii) to perfect and maintain the validity, effectiveness
and priority of any of the Collateral Documents and the Liens intended to be
created thereby, and (iv) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to the Agent and Lenders the rights granted or now
or hereafter intended to be granted to the Lenders under any Loan Document or
under any other document executed in connection therewith.
(c) Within 20 days of the Closing Date, the Borrower shall deliver to the
Agent, lien search results evidencing the filing of Financing Statements (as
defined in the Security Agreements) in the jurisdictions listed in Schedule 7.14
hereto, naming the Borrower and CHC as "debtor" and the Agent as "secured party"
and confirming that no other financing statements have been filed with respect
to the Collateral in such jurisdictions (other than Permitted Liens) .
(d) Promptly upon any Person becoming after the date hereof a Subsidiary of
the Borrower, the Borrower:
(i) shall cause such Subsidiary to execute and deliver to the Agent
a guaranty of all of the Obligations in form and substance reasonably
acceptable to the Required Lenders and the Agent;
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(ii) shall cause such Subsidiary to execute and deliver to the Agent
a security agreement granting a security interest in all of such
Subsidiary's assets in favor of the Agent for the benefit of the Lenders as
security for the Obligations (including the obligations of such Subsidiary
under the guaranty referred to in clause (i) above), in form and substance
reasonably acceptable to the Required Lenders and the Agent and shall cause
to be delivered to the Agent with respect to such Subsidiary the documents
referred to in Section 5.1, mutatis mutandis, together with such opinions
------- --------
in form and substance and from counsel reasonably satisfactory to the
Agent, as the Agent may require; and
(iii) shall cause such Person that is the Borrower or an Affiliate
of the Borrower that is the direct owner of any shares of capital stock (or
other evidence of beneficial ownership) of such Subsidiary to execute and
deliver to the Agent a pledge agreement pledging in favor of the Agent for
the benefit of the Lenders as security for the Obligations, all of such
capital stock, in form and substance reasonably acceptable to the Required
Lenders and the Agent, and shall cause to be delivered to the Agent
certificates evidencing all of the issued and outstanding shares of capital
stock (or other evidence of beneficial ownership) of such Subsidiary,
together with undated stock powers (or similar instruments of transfer)
owned by such Persons duly executed in blank and appropriately completed
Uniform Commercial Code financing statements, if applicable, with respect
thereto (or, if any such shares of capital stock (or other evidence of
beneficial ownership) are not represented by certificates, confirmation and
evidence satisfactory to the Agent that the security interest in such
shares (or other such evidence) has been transferred and/or registered in
accordance with the laws of the applicable jurisdictions so as to create a
valid first-priority perfected security interest therein for the benefit of
the Agent and the Lenders) and together with such opinions in form and
substance and from counsel reasonably satisfactory to the Agent, as the
Agent may reasonably require;
provided, that in the case of an Acquisition where the Borrower, CHC and their
Affiliates acquire less than 100% of the common shares or other common voting
equity interests of a Person, the Borrower shall be required to provide the
security agreement and guaranty provided for in clauses (i) and (ii) above only
if consented to by a majority of the holders (other than the Borrower, CHC and
their Affiliates) of the common shares or other common voting equity interests
of such Person; provided, further, that the Borrower shall be required to make a
diligent and good faith request for such consent from such holders; provided,
further, if all of the common shares or other common voting equity interests of
such Person are subsequently acquired by the
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Borrower, CHC and their Affiliates, such Person shall promptly comply with
clauses (i) and (ii) above.
7.15 MINIMUM PARCELS OF
At all times that there are any Loans outstanding or there exists any
outstanding Letter of Credit, there shall be not fewer than four parcels of
Eligible Real Property.
ARTICLE VIII. NEGATIVE COVENANTS
So long as any Lender shall have any Commitment to make Loans or issue
Letters of Credit hereunder, or any Loan, Letter of Credit or other Obligation
shall remain unpaid or unsatisfied, unless the Required Lenders waive compliance
in writing:
8.1 LIMITATION ON LIENS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to
exist any Lien upon or with respect to any part of its property (including,
without limitation, the partnership units of the Borrower owned by CHC), whether
now owned or hereafter acquired, other than the following ("Permitted Liens"):
(a) any Lien (other than a Lien on the Collateral) existing on property of
the Borrower, CHC or any Subsidiary on the Closing Date and set forth in
Schedule 8.1 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges which
are not delinquent or remain payable without penalty, or to the extent that
nonpayment thereof is permitted by Section 7.7, provided that no notice of lien
has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA and other than on the
Collateral) consisting of pledges or deposits required in the ordinary course
of
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business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(f) Liens (other than Liens on the Collateral) on the property of the
Borrower, CHC or their Subsidiary securing (i) the nondelinquent performance of
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) contingent obligations of a like nature; in each case,
incurred in the ordinary course of business, provided all such Liens in the
aggregate would not (even if enforced) cause a Material Adverse Effect;
(g) Liens (other than Liens on the Collateral) consisting of judgment or
judicial attachment liens, provided that the enforcement of such Liens is
effectively stayed and all such liens in the aggregate at any time outstanding
for the Borrower, CHC and their Subsidiaries do not exceed $1,000,000;
(h) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the businesses of the Borrower, CHC and their Subsidiaries; provided that any
such easements, rights-of-way, restrictions and other similar encumbrances
related to Eligible Real Property shall be subject to the Agent's prior written
approval;
(i) Liens on assets of Persons that become Subsidiaries after the date of
this Agreement, provided, however, that such Liens existed at the time the
respective Persons became Subsidiaries and were not created in anticipation
thereof;
(j) purchase money security interests in equipment acquired or held by the
Borrower, CHC or their Subsidiaries in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such equipment; provided that (i) any such Lien attaches
to such property concurrently with or within 20 days after the acquisition
thereof and (ii) such Lien attaches solely to the property so acquired in such
transaction;
(k) Liens securing obligations in respect of capital leases on assets
subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(l) Liens arising solely by virtue of any statutory or common law provision
relating to banker's liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution; provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Borrower in excess of those set forth by
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regulations promulgated by the FRB, and (ii) such deposit account is not
intended by the Borrower, CHC or any Subsidiary to provide collateral to the
depository institution; and
(m) Liens on real property used primarily in the hospitality business owned
by the Borrower, CHC or any Subsidiary that is not encumbered by any Deed of
Trust; provided that (i) any such Lien is approved by the Required Lenders, (ii)
any such Lien attaches to such real property concurrently with or within 20 days
after the acquisition thereof or such Lien is to secure Indebtedness the
proceeds of which are used to refinance acquisition Indebtedness with respect to
such real property, and (iii) such Lien attaches solely to such real property
and personal property located on such real property, as well as proceeds
thereof.
8.2 DISPOSITION OF ASSETS
(a) The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or
otherwise dispose of any property (including accounts and notes receivable, with
or without recourse) or enter into any agreement to do any of the foregoing,
except that so long as there exists no Default or Event of Default and so long
as the proposed disposition would not cause the occurrence of a Default or an
Event of Default there shall be permitted:
(i) dispositions of inventory or used, worn-out or surplus equipment
all in the ordinary course of business;
(ii) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied,
consistent with Section 2.6, to the purchase price of such replacement
equipment;
(iii) the sale of assets (whether in one or a series of related
transactions) for cash at a price equal to or greater than the fair market
value of such assets, provided that the aggregate purchase price does not
exceed $8,000,000;
(iv) the sale of assets (whether in one or a series of related
transactions) for cash at a price equal to or greater than the fair market
value of such assets and in excess of $8,000,000, provided that prior to
the completion of any such sale (A) the Borrower shall have delivered to
the Agent evidence deemed sufficient by the Required Lenders reflecting
that had such assets,
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together with all EBITDA generated by such assets and Indebtedness that is
to be repaid in connection with such sale, been excluded from the
financial statements of CHC for the four fiscal quarters immediately
preceding the scheduled closing date of the proposed sale, there would
have been compliance with each of the financial covenants set forth in
Section 8.14, and (B) the Required Lenders shall have reviewed and
approved such evidence and the Agent shall have so advised the Borrower in
writing;
(v) the sale of assets (whether in one or a series of related
transactions) for cash at a price equal to or greater than the fair market
value of such assets and in excess of $8,000,000 with respect to which the
requirements set forth in Section 8.2(a)(iv) are not satisfied, provided
that (A) prior to or concurrently with the completion of any such sale,
the Borrower shall repay the Loans and permanently reduce the Commitment
by an amount that would result in the pro forma compliance with each of
the financial covenants set forth in Section 8.14 as recalculated in
accordance with the provisions of Section 8.2(a)(iv) for the four fiscal
quarters immediately preceding the scheduled closing date of the proposed
sale, (B) prior to the completion of any such sale, the Borrower shall
have delivered to the Agent evidence deemed sufficient by the Required
Lenders reflecting such pro forma compliance, and (C) prior to the
completion of any such sale, the Required Lenders shall have reviewed and
approved such evidence and the Agent shall have so advised the Borrower in
writing; and
(vi) dispositions not otherwise permitted hereunder which are made
for fair market value; provided, that (A) the aggregate sales price from
such disposition shall be paid in cash, and (B) Net Proceeds thereof are
applied as set forth in Section 2.6 hereof.
(b) Notwithstanding the provisions of Section 8.2(a) to the contrary, the
Borrower shall not, and shall not suffer or permit CHC or any Subsidiary to,
directly or indirectly, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of related transactions) any property
(including accounts and notes receivable, with or without recourse) or enter
into any agreement to do any of the foregoing for an aggregate purchase price in
excess of $35,000,000 during any 12-month period.
8.3 CONSOLIDATIONS AND MERGERS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or
otherwise dispose of
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(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to or in favor of
any Person, except:
(a) any Subsidiary may merge with the Borrower, provided that the Borrower
shall be the continuing or surviving entity, or with any one or more
Subsidiaries, provided that if any transaction shall be between a Subsidiary and
a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing
or surviving entity; and
(b) any Subsidiary may sell all or substantially all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or another Wholly-Owned
Subsidiary.
8.4 LOANS AND INVESTMENTS
The Borrower shall not purchase or acquire, or suffer or permit CHC or any
Subsidiary to purchase or acquire, or make any commitment therefor, any capital
stock, equity interest, or any obligations or other securities of, or any
interest in, any Person, or make or commit to make any Acquisitions, or make or
commit to make any advance, loan, extension of credit or capital contribution to
or any other investment in, any Person including any Affiliate of the Borrower,
except for:
(a) investments in Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;
(c) extensions of credit by the Borrower to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries;
(d) investments made in connection with and constituting part of the
consideration paid for Acquisitions to the extent the same are not prohibited
under Section 8.7, provided that no Acquisition shall be consummated by the
Borrower, CHC or any Subsidiary unless the Borrower has demonstrated to the
reasonable satisfaction of the Required Lenders with pro forma financial
statements prepared to reflect such Acquisition that the Borrower will be in
compliance with the Financial Covenants.
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8.5 LIMITATION ON INDEBTEDNESS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or
remain directly or indirectly liable with respect to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted pursuant to
Section 8.8;
(c) Indebtedness existing on the Closing Date and set forth in Schedule 8.5
and any refinance of such Indebtedness in an amount not to exceed the
outstanding principal balance thereof as of the Closing Date; provided that if
any such Indebtedness is Nonrecourse Indebtedness that is secured by assets not
used primarily in the hospitality business, then any Indebtedness to refinance
such Indebtedness shall be Nonrecourse Indebtedness;
(d) Indebtedness consisting of Subordinated Debt incurred after the Closing
Date;
(e) Nonrecourse Indebtedness incurred after the Closing Date;
(f) Indebtedness secured by a Lien permitted under Section 8.1(j) or (m);
and
(g) Indebtedness incurred in connection with leases permitted pursuant to
Section 8.9(a).
8.6 TRANSACTIONS WITH AFFILIATES
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, enter into any transaction with any Affiliate of the Borrower,
except upon fair and reasonable terms no less favorable to the Borrower, CHC or
such Subsidiary than would obtain in a comparable arm's-length transaction with
a Person not an Affiliate of the Borrower, CHC or such Subsidiary.
8.7 USE OF PROCEEDS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (a)
to purchase or carry Margin Stock, (b) to purchase or redeem any stock,
partnership units or other equity interest of the Borrower or CHC, (c) to repay
or otherwise refinance indebtedness of
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the Borrower or others incurred to purchase or carry Margin Stock, (d) to
extend credit for the purchase of purchasing or carrying any Margin Stock, (e)
to acquire any security in any transaction that is subject to Section 13 or 14
of the Exchange Act, (f) to finance or refinance any Acquisition in an amount in
excess of $25,000,000, (g) to finance or refinance Acquisitions in an aggregate
amount in excess of $50,000,000 in any 12-month period except as otherwise
approved in writing by Lenders holding 51% or more of the then aggregate unpaid
principal amount of the Loans, or, if no such principal amount is then
outstanding, Lenders then having Pro Rata Shares equal to or greater than 51% of
the Commitments, or (h) to finance or refinance the acquisition of any interest
in real property that is not used primarily in the hospitality business or the
acquisition of any Person whose primary business is not the hospitality business
except as otherwise approved by the Required Lenders and confirmed in writing by
the Agent.
8.8 CONTINGENT OBLIGATIONS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, create, incur, assume or suffer to exist any Contingent
Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Swap Contracts entered into in the ordinary course of business as bona
fide hedging transactions; and
(c) Contingent Obligations of the Borrower, CHC and their Subsidiaries
existing as of the Closing Date and listed in Schedule 8.8.
8.9 LEASE OBLIGATIONS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, create or suffer to exist any obligations for the payment of rent
for any property under lease or agreement to lease, except for:
(a) capital leases of the Borrower, CHC and of the Subsidiaries to finance
the acquisition of equipment; and
(b) operating leases entered into by the Borrower, CHC or any Subsidiary in
the ordinary course of business.
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8.10 RESTRICTED PAYMENTS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock or partnership units (as the case may
be), or purchase, redeem or otherwise acquire for value any shares of its
capital stock or partnership units (as the case may be) or any warrants, rights
or options to acquire such shares or partnership units, now or hereafter
outstanding; except that (a) CHC or the Borrower may declare and make dividend
payments or other distributions payable solely in its common stock or
partnership units (as the case may be), (b) the Borrower may make distributions
to its partners in an amount necessary to allow CHC to pay income and gross
receipts taxes on the taxable income of the Borrower that is recognized by its
partners for tax purposes, provided that (i) at the time of making the
distribution there exists no Event of Default and (ii) after giving effect to
any proposed distribution, there would not exist any Event of Default, (c) CHC
and the Borrower may pay dividends and distributions to their shareholders or
partners (as the case may be) or purchase or redeem shares of capital stock or
partnership units (as the case may be), provided that (i) at the time of making
the dividend, distribution, purchase or redemption payment there exists no Event
of Default, (ii) after giving effect to the proposed payment, there would not
exist an Event of Default, (iii) as of the end of the fiscal quarter of CHC
immediately prior to the date of the proposed payment for the four fiscal
quarters then ended, the Funded Debt Ratio was less than 3.50:1.00, and (iv)
after giving effect to the proposed payment, the Capitalization Ratio would not
exceed 0.50:1.00, and (d) CHC may issue stock to partners of the Borrower in
exchange for partnership units of the Borrower.
8.11 ERISA
The Borrower shall not, and shall not suffer or permit any ERISA Affiliate
of the Borrower or CHC to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in liability of the Borrower
in an aggregate amount in excess of $500,000; or (b) engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
8.12 CHANGE IN BUSINESS
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, engage in any material line of business substantially different
from those lines of business carried on by the Borrower, CHC and their
Subsidiaries on the date hereof.
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8.13 ACCOUNTING CHANGES
The Borrower shall not, and shall not suffer or permit CHC or any
Subsidiary to, make any significant change in accounting treatment or reporting
practices, except as required by GAAP, or change the fiscal year of the
Borrower, CHC or of any Subsidiary.
8.14 FINANCIAL COVENANTS
(a) FUNDED DEBT RATIO
As of the end of each fiscal quarter for the four fiscal quarters then
ended, the Funded Debt Ratio shall not exceed (i) 4.50:1.00 for each fiscal
quarter ending after the date of this Agreement through March 31, 2000, (ii)
4.25:1.00 for each fiscal quarter ending on June 30, 2000 through March 31,
2001, and (iii) 4.00:1.00 for each fiscal quarter ending thereafter.
(b) INTEREST COVERAGE RATIO
As of the end of each fiscal quarter for the four fiscal quarters then
ended, the Interest Coverage Ratio shall not be less than (i) 2.00:1.00 for each
fiscal quarter ending after the date this Agreement through December 31, 1998,
and (ii) 2.25:1.00 for each fiscal quarter ending thereafter.
(c) FIXED CHARGE COVERAGE RATIO
As of the end of each fiscal quarter for the four fiscal quarters then
ended, the Fixed Charge Coverage Ratio shall not be less than 1.75:1.00.
(d) CAPITALIZATION RATIO
As of the end of each fiscal quarter, the Capitalization Ratio shall not
exceed 0.50:1.00.
(e) TOTAL ASSETS
As of the end of each fiscal quarter, the aggregate amount of gross assets
reflected on the CHC's balance sheet attributable to Persons other than the
Borrower shall not exceed 10% of the aggregate amount of gross assets reflected
on the CHC's balance sheet.
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8.15 SUBORDINATED DEBT
Not, and not permit CHC or any of their Subsidiaries to make any payment
(whether of principal, interest or otherwise) on any Subordinated Debt on any
day other than the stated, scheduled date for such payment set forth in the
documents and instruments evidencing such Subordinated Debt or in contravention
or violation of the subordination provisions thereof.
ARTICLE IX. EVENTS OF DEFAULT
9.1 EVENT OF DEFAULT
Any of the following shall constitute an "Event of Default":
(a) NONPAYMENT
The Borrower fails to pay, (i) when and as required to be paid herein, any
amount of principal of any Loan, or (ii) within five days after the same becomes
due, any interest, fee or any other amount payable hereunder or under any other
Loan Document; or
(b) REPRESENTATION OR WARRANTY
Any representation or warranty by the Borrower, CHC or any Subsidiary made
or deemed made herein, in any other Loan Document, or which is contained in any
certificate, document or financial or other statement by the Borrower, CHC or
any Subsidiary, or any Responsible Officer, furnished at any time under this
Agreement, or in or under any other Loan Document, is incorrect in any material
respect on or as of the date made or deemed made; or
(c) SPECIFIC DEFAULTS
The Borrower fails to perform or observe any term, covenant or agreement
contained in any of Section 7.3, 7.6 or 7.9 or in Article VIII other than
Sections 8.6 and 8.13, or the Borrower fails to perform or observe any term,
covenant or agreement contained in Section 7.1 or 7.2 within five days after
written notice is given to the Borrower by the Agent or any Lender; or
(d) OTHER DEFAULTS
The Borrower, CHC or any Subsidiary party thereto fails to perform or
observe any other term or covenant contained in this Agreement or any other Loan
Document,
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and such default shall continue unremedied for a period of 30 days
after the occurrence of such default; or
(e) CROSS-DEFAULT
The Borrower, CHC or any Subsidiary (i) fails to make any payment in
respect of any Indebtedness or Contingent Obligation having an aggregate
principal amount (including undrawn, committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $1,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure, if the effect of such failure, event or condition is
to cause, or to permit the holder or holders of such Indebtedness or beneficiary
or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS
The Borrower, CHC or any Subsidiary (i) ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) voluntarily ceases to conduct its business in the
ordinary course; (iii) commences any Insolvency Proceeding with respect to
itself; or (iv) takes any action to effectuate or authorize any of the
foregoing; or
(g) INVOLUNTARY PROCEEDINGS
(i) Any involuntary Insolvency Proceeding is commenced or filed against the
Borrower, CHC or any Subsidiary, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a substantial part of
the Borrower's, CHC's or any Subsidiary's properties, and any such proceeding or
petition shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within 60 days after commencement, filing or levy; (ii) the Borrower, CHC or any
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order
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for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Borrower, CHC or any Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or
(h) ERISA
(i) An ERISA Event shall occur with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of the Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000; or
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $500,000; or (iii) the Borrower, CHC or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under Section
4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$500,000; or
(i) MONETARY JUDGMENTS
One or more noninterlocutory judgments, noninterlocutory orders, decrees or
arbitration awards is entered against the Borrower, CHC or any Subsidiary
involving in the aggregate a liability (i) (to the extent not covered by
independent third-party insurance as to which the insurer does not dispute
coverage) as to any single or related series of transactions, incidents or
conditions, of $2,000,000 or more, or (ii) as to any single or related series of
transactions, incidents or conditions, of $10,000,000 or more (whether or not
covered by third-party insurance as to which the insurer does not dispute
coverage), and the same shall remain unpaid or unvacated and unstayed pending
appeal for a period of ten days after the entry thereof; or
(j) NONMONETARY JUDGMENTS
Any nonmonetary judgment, order or decree is entered against the Borrower,
CHC or any Subsidiary which does or would reasonably be expected to have a
Material Adverse Effect, and there shall be any period of ten consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(k) VIOLATION OF LOCKUP AGREEMENT
There occurs any breach of [describe the underwiter's lockup agreement] as
in effect on the date of the Closing Date; or
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(l) ADVERSE CHANGE
There occurs a Material Adverse Effect; or
(m) INVALIDITY OF SUBORDINATION PROVISIONS
The subordination provisions of any agreement or instrument governing any
Subordinated Debt is for any reason revoked or invalidated, or otherwise cease
to be in full force and effect, any Person contests in any manner the validity
or enforceability thereof or denies that it has any further liability or
obligation thereunder, or the Indebtedness hereunder is for any reason
subordinated or does not have the priority contemplated by this Agreement or
such subordination provisions; or
(n) COLLARTERAL
(i) Any provision of any Collateral Document shall for any reason
cease to be valid and binding on or enforceable against the Borrower, CHC
or any Subsidiary party thereto or the Borrower, CHC or any Subsidiary
shall so state in writing or bring an action to limit its obligations or
liabilities thereunder; or and
(ii) any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest in
the Collateral purported to be covered thereby or such security interest
shall for any reason cease to be a perfected and first priority security
interest subject only to Permitted Liens.
9.2 REMEDIES
If any Event of Default occurs, the Agent shall, at the request of, or may,
with the consent of, the Required Lenders,
(a) declare the commitment of each Lender to make Loans to be terminated,
whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without resentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower;
(c) if any Letter of Credit is outstanding, declare an amount equal to the
Letter of Credit Usage immediately due and payable whereupon the same shall
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become immediately due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower; and
(d) exercise on behalf of itself and the Lenders all rights and remedies
available to it and the Lenders under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 9.1 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each
Lender to make Loans and the obligation of the Agent and each Lender to issue
Letters of Credit shall automatically terminate and the unpaid principal amount
of all outstanding Loans and an amount equal to the Letter of Credit Usage,
together with all interest and other amounts as aforesaid shall automatically
become due and payable without further act of the Agent or any Lender. Amounts
paid or received hereunder in respect of issued and outstanding Letters of
Credit which exceed amounts paid by Agent under such Letters of Credit shall be
held (and applied) as cash collateral to secure the performance of all
obligations of the Borrower owing to the Agent in respect of Letters of Credits.
9.3 RIGHTS NOT EXCLUSIVE
The rights provided for in this Agreement and the other Loan Documents are
cumulative and are not exclusive of any other rights, powers, privileges or
remedies provided by law or in equity, or under any other instrument, document
or agreement now existing or hereafter arising.
9.4 CERTAIN FINANCIAL COVENANT DEFAULTS
In the event that, after taking into account any extraordinary charge to
earnings taken or to be taken as of the end of any fiscal period of CHC (a
"Charge"), and if solely by virtue of such Charge, there would exist an Event of
------
Default due to the breach of any provision of Section 8.14 as of such fiscal
period end date, such Event of Default shall be deemed to arise upon the earlier
of (a) the date after such fiscal period and date on which CHC announces
publicly that it will take, is taking or has taken such Charge (including an
announcement in the form of a statement in a report filed with the SEC) or, if
such announcement is made prior to such fiscal period end date, the date that is
such fiscal period end date, and (b) the date the Borrower or CHC delivers to
the Agent its audited annual or unaudited quarterly financial statements in
respect of such fiscal period reflecting such Charge as taken.
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ARTICLE X. THE AGENT
10.1 APPOINTMENT AND AUTHORIZATION
Each Lender hereby irrevocably (subject to Section 10.9) appoints,
designates and authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.
10.2 DELEGATION OF DUTIES
The Agent may execute any of its duties under this Agreement or any other
Loan Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any agent
or attorney-in-fact that it selects with reasonable care.
10.3 LIABILITY OF AGENT
None of the Agent-Related Persons shall (i) be liable for any action taken
or omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for
its own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Lenders for any recital, statement, representation or
warranty made by the Borrower, CHC or any Subsidiary or Affiliate of the
Borrower, or any officer thereof, contained in this Agreement or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in connection
with, this Agreement or any other Loan Document, or for the value of or title to
any Collateral, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
the Borrower or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other
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Loan Document, or to inspect the properties, books or records of the
Borrower, CHC or any of the Borrower's Subsidiaries or Affiliates.
10.4 RELIANCE BY AGENT
(a) The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Lenders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions specified in
Section 5.1, each Lender that has executed this Agreement shall be deemed to
have consented to, approved or accepted or to be satisfied with, each document
or other matter either sent by the Agent to such Lender for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Lender.
10.5 NOTICE OF DEFAULT
The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to the Agent for the
account of the Lenders, unless the Agent shall have received written notice from
a Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." The
Agent will notify the Lenders of its receipt of any such notice. The Agent shall
take such action with respect to such Default or Event of Default as may be
requested by the Required Lenders in accordance with Article IX; provided,
however, that unless and until the Agent has received any such request, the
Agent may (but shall not be obligated to) take such
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action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of the
Lenders.
10.6 CREDIT DECISION
Each Lender acknowledges that none of the Agent-Related Persons has made
any representation or warranty to it, and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, CHC and their
Subsidiaries, shall be deemed to constitute any representation or warranty by
any Agent-Related Person to any Lender. Each Lender represents to the Agent
that it has, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower,
CHC and their Subsidiaries, the value of and title to any Collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower hereunder. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower, CHC and their Subsidiaries. Except for
notices, reports and other documents expressly herein required to be furnished
to the Lenders by the Agent, the Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, prospects, operations, property, financial and other condition or
creditworthiness of the Borrower , CHC or their Subsidiaries which may come into
the possession of any of the Agent-Related Persons.
10.7 INDEMNIFICATION OF AGENT
Whether or not the transactions contemplated hereby are consummated, the
Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not
reimbursed by or on behalf of the Borrower and without limiting the obligation
of the Borrower to do so), in proportion to each Lender's Pro Rata Share, from
and against any and all Indemnified Liabilities; provided, however, that no
Lender shall be liable for the payment to the Agent-Related Persons of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including
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Attorney Costs) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein, to the
extent that the Agent is not reimbursed for such expenses by or on behalf of the
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.
10.8 AGENT IN INDIVIDUAL CAPACITY
U. S. Bank and its Affiliates may make loans to, issue letters of credit
for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Borrower, CHC and their Subsidiaries and Affiliates
as though U. S. Bank were not the Agent hereunder and without notice to or
consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, U. S. Bank or its Affiliates may receive information regarding the
Borrower or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Borrower, CHC or such Subsidiary)
and acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to its Loans, U. S. Bank shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Agent, and the terms "Lender" and "Lenders"
include U. S. Bank in its individual capacity.
10.9 SUCCESSOR AGENT
The Agent may, and at the request of the Required Lenders shall, resign as
Agent upon 30 days' notice to the Lenders. If the Agent resigns under this
Agreement, the Required Lenders shall appoint from among the Lenders a successor
agent for the Lenders which successor agent shall, if no Default or Event of
Default then exists, be approved by the Borrower. If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint, after consulting with the Lenders and the Borrower, a successor
agent from among the Lenders. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article X and Sections 12.4 and 12.5 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent
by the date
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which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall perform all of the duties of the Agent hereunder until
such time, if any, as the Required Lenders appoint a successor agent as provided
for above.
10.10 WITHHOLDING TAX
(a) If any Lender is a "foreign corporation, partnership or trust" within
the meaning of the Code and such Lender claims exemption from, or a reduction
of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Lender
agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two
properly completed and executed copies of IRS Form 4224 before the payment
of any interest is due in the first taxable year of such Lender and in each
succeeding taxable year of such Lender during which interest may be paid
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Borrower to such Lender, such Lender agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of the Borrower to such Lender. To the extent of such percentage
amount, the Agent will treat such Lender's IRS Form 1001 as no longer valid.
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(c) If any Lender claiming exemption from United States withholding tax by
filing IRS Form 4224 with the Agent sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Borrower to such a
Lender, such Lender agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable withholding
tax, the Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that the Agent did not properly withhold tax
from amounts paid to or for the account of any Lender (because the appropriate
form was not delivered, was not properly executed, or because such Lender failed
to notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses (including
Attorney Costs). The obligation of the Lenders under this subsection shall
survive the payment of all Obligations and the resignation or replacement to the
Agent.
10.11 COLLATERAL MATTERS
(a) The Agent is authorized on behalf of all the Lenders, without the
necessity of any notice to or further consent from the Lenders, from time to
time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Lenders irrevocably authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all
Loans and all other Obligations known to the Agent and payable under this
Agreement or any other Loan Document; (ii) constituting property sold or to be
sold or disposed of as part of or in connection with any disposition not
prohibited hereunder; (iii) constituting
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property in which the Borrower, CHC or any Subsidiary owned no interest at the
time the Lien was granted or at any time thereafter; (iv) constituting property
leased to the Borrower, CHC or any Subsidiary under a lease which has expired or
been terminated in a transaction not prohibited under this Agreement or is about
to expire and which has not been, and is not intended by the Borrower, CHC or
such Subsidiary to be, renewed or extended; (v) consisting of an instrument
evidencing Indebtedness or other debt instrument, if the indebtedness evidenced
thereby has been paid in full; or (vi) if approved, authorized or ratified in
writing by the Required Lenders or all the Lenders, as the case may be, as
provided in Section 12.1(f). Upon request by the Agent at any time, the Lenders
will confirm in writing the Agent's authority to release particular types or
items of Collateral pursuant to this Section 10.11(b).
ARTICLE XI. LETTER OF CREDIT RISK PARTICIPATIONS
11.1 SALE OF RISK PARTICIPATIONS
The Agent agrees to sell to the Lenders, and upon issuance of any Letter of
Credit hereunder each Lender shall be deemed to have unconditionally and
irrevocably purchased from the Agent, an undivided risk participation in such
Letter of Credit in proportion to such Lender's Pro Rata Share.
11.2 PROCEDURE FOR PURCHASES
Via telephone or facsimile, the Agent will promptly advise each Lender of
each Letter of Credit issued hereunder. The Agent shall not have any duty to
ascertain or to inquire as to the accuracy of the information furnished by the
Borrower, or accuracy of the representations and warranties made by the Borrower
in any request for the issuance of such Letter of Credit nor shall the Agent
have any duty to confirm that all conditions precedent to the issuance of such
Letter of Credit have been fully satisfied.
11.3 PAYMENT OBLIGATIONS
(a) In the event Borrower fails to pay any amount due under Section 3.4 by
12:00 noon (Seattle time) on the date the Agent shall make demand for payment
thereof, the Lenders shall each, upon receipt of notice from Agent of such
failure, pay to the Agent their Pro Rata Share of such amount; provided,
however, if the Borrower pays a portion but less than all of the amount due
under Section 3.4, the Lenders shall each pay Agent only their respective Pro
Rata Shares of the difference between the amount due under Section 3.4 and the
amount paid by Borrower on account thereof. Each and every payment to be made by
the Lenders to the Agent under this Section 11.3(a) shall be made by federal
wire transfer in immediately available funds. If any Lender receives notice from
Agent by 1:30 p.m. (Seattle time) on any Business
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Day of its obligation to make payments under this subsection, then such Lender
shall make such payment no later than 2:00 p.m. (Seattle time) on the day such
notice is received. If any Lender receives such notice after 1:30 p.m. (Seattle
time) on any Business Day, then such Lender shall make such payment by no later
than 1:00 p.m. (Seattle time) on the next succeeding Business Day. If any Lender
fails to make such payment by the date and time required, its obligation shall
bear interest from and including the date when such payment was due until paid
at the per annum rate equal to the Federal Funds Rate.
(b) The Agent shall promptly remit to the Lenders, via federal wire
transfer of funds, the Lenders' respective Pro Rata Share of any amounts (other
than fees and expense reimbursements) received from or for the account of the
Borrower in respect of any Letter of Credit; provided, however, the Agent shall
not remit to any Lender any amounts received from or for the account of the
Borrower in respect of a Letter of Credit unless, prior to Agent's receipt of
such funds, such Lender has paid its Pro Rata Share of such amounts pursuant to
Section 11.3(a). In the event Agent is required to refund any amount which is
paid to it or received by it from or for the account of the Borrower, then
Lenders, to the extent they shall have previously received their share of such
amount, agree to repay to Agent their respective Pro Rata Share of such amount.
(c) REIMBURSEMENTS TO LENDERS
Borrower agrees to reimburse any Lender for amounts paid by such Lender to
Agent pursuant to Section 11.3(a). Any amounts received from or for the account
of Borrower by any Lender in respect of the aforesaid reimbursement obligation
shall reduce Borrower's payment obligation to Agent under Section 3.4. Any
amounts received from or for the account of Borrower by Agent in satisfaction of
its obligations under Section 3.4 shall reduce pro tanto Borrower's
reimbursement obligation to Lenders under this Section 11.3(c).
ARTICLE XII. MISCELLANEOUS
12.1 AMENDMENTS AND WAIVERS
No amendment or waiver of any provision of this Agreement or any other Loan
Document, and no consent with respect to any departure by the Borrower, CHC or
any applicable Subsidiary therefrom, shall be effective unless the same shall be
in writing and signed by the Required Lenders (or by the Agent at the written
request of the Required Lenders) and the Borrower and acknowledged by the Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver,
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amendment, or consent shall, unless in writing and signed by all
the Lenders and the Borrower and acknowledged by the Agent, do any of the
following:
(a) increase or extend the Commitment of any Lender (or reinstate any
Commitment terminated pursuant to Section 9.2), unless such Lender has consented
thereto in writing;
(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment (including without limit mandatory prepayments) of
principal, interest, fees or other amounts due to the Lenders (or any of them)
hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein on
any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Lenders or any of them
to take any action hereunder; or
(e) amend the definition of "Required Lenders," this Section, or Section
2.14, or any provision herein providing for consent or other action by all
Lenders; or
(f) release any material portion of the Collateral except as otherwise may
be provided herein or in the Collateral Documents or except where the consent of
the Required Lenders only is specifically provided for;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Required Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Commitment Letter may be
amended, or rights or privileges thereunder waived, in a writing executed by the
parties thereto.
12.2 NOTICES
(a) All notices, requests and other communications shall be in writing
(including, unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by the Borrower by facsimile
(i) shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 12.2, and (ii) shall be followed promptly by
delivery of a hard copy original
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thereof) and mailed, faxed or delivered, to the address or facsimile number
specified for notices on Schedule 12.2; or, as directed to the Borrower or the
Agent, to such other address as shall be designated by such party in a written
notice to the other parties, and as directed to any other party, at such other
address as shall be designated by such party in a written notice to the Borrower
and the Agent.
(b) All such notices, requests and communications shall, when transmitted
by overnight delivery, or faxed, be effective when delivered by overnight (next-
day) delivery, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery; except that notices pursuant
to Article II or X shall not be effective until actually received by the Agent.
(c) Any agreement of the Agent and the Lenders herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Borrower. The Agent and the Lenders shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the Borrower
to give such notice and the Agent and the Lenders shall not have any liability
to the Borrower or other Person on account of any action taken or not taken by
the Agent or the Lenders in reliance upon such telephonic or facsimile notice.
The obligation of the Borrower to repay the Loans shall not be affected in any
way or to any extent by any failure by the Agent and the Lenders to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Agent and the Lenders of a confirmation which is at variance with the terms
understood by the Agent and the Lenders to be contained in the telephonic or
facsimile notice.
12.3 NO WAIVER; CUMULATIVE REMEDIES
No failure to exercise and no delay in exercising, on the part of the Agent
or any Lender, any right, remedy, power or privilege hereunder, shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege.
12.4 COSTS AND EXPENSES
The Borrower shall:
(a) whether or not the transactions contemplated hereby are consummated,
pay or reimburse U. S. Bank (including in its capacity as Agent) within five
Business days after demand (subject to Section 5.1(e)) for all costs and
expenses incurred by U. S. Bank (including in its capacity as Agent) in
connection with the development,
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preparation, delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, and the grant of Liens on any Collateral after
the date of this Agreement, including reasonable Attorneys Cost incurred by U.
S. Bank (including in its capacity as Agent) with respect to the foregoing;
provided that the Borrower shall not be required to reimburse U. S. Bank for
such costs and expenses (including Attorneys Costs, but excluding the costs and
expenses described in Section 12.4(b)) incurred through the date of this
Agreement in excess of $55,000; and
(b) whether or not the transactions contemplated hereby are consummated,
and whether incurred or demand for payment is made prior to, concurrently with
or after the date of this Agreement, pay or reimburse U. S. Bank (including in
its capacity as Agent) within five Business days after demand (subject to
Section 5.1(e)) for all costs and expenses incurred by U. S. Bank (including in
its capacity as Agent) in connection with any Collateral or proposed Collateral,
including, without limitation, appraisal fees (including the allocated cost of
internal appraisal services), inspection fees, fees for environmental and other
third party inspections and reports, fees for the Title Insurance Policies,
escrow fees, any filing or recording tax or fee, lien search fees, and
(c) pay or reimburse the Agent and each Lender within five Business Days
after demand (subject to Section 5.1(e)) for all costs and expenses (including
Attorney Costs) incurred by them in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies under this Agreement or
any other Loan Document during the existence of an Event of Default or after
acceleration of the Loans (including in connection with any "workout" or
restructuring regarding the Loans, and including in any Insolvency Proceeding or
appellate proceeding).
12.5 BORROWER INDEMNIFICATION
(a) Whether or not the transactions contemplated hereby are consummated,
the Borrower shall indemnify, defend and hold the Agent-Related Persons, and
each Lender and each of its respective officers, directors, employees, counsel,
agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
Attorney Costs) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans and the termination,
resignation or replacement of the Agent or replacement of any Lender) be imposed
on, incurred by or asserted against any such Person in any
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way relating to or arising out of this Agreement or any document contemplated by
or referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement or the Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the Borrower shall
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of such Indemnified Person. The agreements and obligations set forth
in this Section shall survive payment of all other Obligations.
(b) At the election of any Indemnified Person, the Borrower shall defend
such Indemnified Person using legal counsel satisfactory to such Indemnified
Person in such Person's sole discretion, at the sole cost and expense of the
Borrower. All amounts owing under this Section shall be paid within 30 days
after demand.
12.6 MARSHALLING; PAYMENTS SET ASIDE
Neither the Agent nor the Lenders shall be under any obligation to marshall
any assets in favor of the Borrower or any other Person or against or in payment
of any or all of the Obligations. To the extent that the Borrower makes a
payment to the Agent or the Lenders, or the Agent or the Lenders exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Lender in its discretion) to be repaid to a trustee, receiver or
any other party, in connection with any Insolvency Proceeding or otherwise, then
(a) to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Lender severally agrees to pay to the Agent upon demand its Pro Rata Share
of any amount so recovered from or repaid by the Agent.
12.7 SUCCESSORS AND ASSIGNS
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the Agent
and each Lender.
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12.8 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Any Lender may, with the written consent of the Agent and the Borrower
which shall not be unreasonably withheld, conditioned or delayed, at any time
assign and delegate to one or more Eligible Assignees (provided that no written
consent of the Agent shall be required in connection with any assignment and
delegation by a Lender to an Eligible Assignee that is an Affiliate of such
Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments and the other rights and obligations of such Lender hereunder, in a
minimum amount of the lesser of $5,000,000 or the entire amount of the
Commitment of such Lender; provided, however, that the Borrower and the Agent
may continue to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Borrower and the Agent by
such Lender and the Assignee; (ii) such Lender and its Assignee shall have
delivered to the Borrower and the Agent an Assignment and Acceptance in the form
of Exhibit I ("Assignment and Acceptance") together with any Note or Notes
subject to such assignment and (iii) the assignor Lender or Assignee has paid to
the Agent a processing fee in the amount of $3,500.
(b) Subject to the conditions set forth in Section 12.8(a), from and after
the date that the Agent notifies the assignor Lender that it has received (and
provided its consent with respect to) an executed Assignment and Acceptance, (i)
the Assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
(c) Subject to the conditions set forth in Section 12.8(a), within five
Business Days after its receipt of notice by the Agent that it has received an
executed Assignment and Acceptance, the Borrower shall execute and deliver to
the Agent, new Notes evidencing such Assignee's assigned Loans and Commitment
and, if the assignor Lender has retained a portion of its Loans and its
Commitment, replacement Notes in the principal amount of the Loans retained by
the assignor Lender (such Notes to be in exchange for, but not in payment of,
the Notes held by such Lender). Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this Agreement shall
be deemed to be amended to the extent, but only to the extent, necessary to
reflect the addition of the Assignee and the
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resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
- ---------
(d) Any Lender may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "Participant") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Borrower and the Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Lenders
as described in the first proviso to Section 12.1. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections 4.1,
4.3 and 12.5 as though it were also a Lender hereunder, and if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Lender may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement and the Note held by it in favor of
any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 C.F.R. (S) 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
(f) The Borrower agrees to actively assist and cooperate with U. S. Bank in
the initial syndication of the Loans, including assistance in the preparation
and review of information and participation in one or more meetings with
prospective lenders.
12.9 SET-OFF
In addition to any rights and remedies of the Lenders provided by law, if
an Event of Default exists or the Loans have been accelerated, each Lender is
authorized
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at any time and from time to time, without prior notice to the Borrower, any
such notice being waived by the Borrower to the fullest extent permitted by law,
to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Lender to or for the credit or the account of the Borrower
against any and all Obligations owing to such Lender, now or hereafter existing,
irrespective of whether or not the Agent or such Lender shall have made demand
under this Agreement or any Loan Document and although such Obligations may be
contingent or unmatured. Each Lender agrees promptly to notify the Borrower and
the Agent after any such set-off and application made by such Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
12.10 AUTOMATIC DEBITS OF FEES
With respect to any agency fee, underwriting fee or other fee, or any other
cost or expense (including Attorney Costs) due and payable to the Agent under
the Loan Documents, the Borrower hereby irrevocably authorizes U. S. Bank to
debit any deposit account of the Borrower with U. S. Bank in an amount such that
the aggregate amount debited from all such deposit accounts does not exceed such
fee or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount of the fee or other cost or expense then due, such
debits will be reversed (in whole or in part, in U. S. Bank's sole discretion)
and such amount not debited shall be deemed to be unpaid. No such debit under
this Section shall be deemed a set-off.
12.11 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC.
Each Lender shall notify the Agent in writing of any changes in the address
to which notices to the Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Agent shall
reasonably request.
12.12 COUNTERPARTS
This Agreement may be executed in any number of separate counterparts, each
of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument.
12.13 SEVERABILITY
The illegality or unenforceability of any provision of this Agreement or
any instrument or agreement required hereunder shall not in any way affect or
impair the
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legality or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
12.14 NO THIRD PARTIES BENEFITED
This Agreement is made and entered into for the sole protection and legal
benefit of the Borrower, the Lenders, the Agent and the Agent-Related Persons,
and their permitted successors and assigns, and no other Person shall be direct
or indirect legal beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any of the other Loan Documents.
12.15 CONDITIONS NOT FULFILLED
If any requested loan is not borrowed, or any requested letter of credit is
not issued owing to nonfulfillment of any condition precedent specified in
Article V or, in the case of letters of credit, any additional conditions
specified in Article III, no party hereto shall be responsible to any other
party for any damage or loss by reason thereof, except that the Borrower shall
in any event be liable to pay the fees, Taxes, and expenses for which it is
obligated hereunder. If for any other reason the Commitment of any Lender is
not borrowed or any requested letter of credit is not issued, neither the Agent
nor any Lender (other than the Lender failing to make its Loan as required
hereunder) shall be responsible to the Borrower for any damage or loss by reason
thereof, nor shall any other Lender or the Borrower be excused from their
performance hereunder.
12.16 GOVERNING LAW AND JURISDICTION
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF WASHINGTON; PROVIDED THAT THE AGENT AND
THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. DEEDS OF TRUST
SHALL BE GOVERNED BY THE LAW OF THE STATE IN WHICH THE REAL PROPERTY ENCUMBERED
THEREBY IS LOCATED.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF WASHINGTON OR
OF THE UNITED STATES FOR THE WESTERN DISTRICT OF WASHINGTON, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND THE LENDERS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE
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AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
----- --- ----------
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
BORROWER, THE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
WASHINGTON LAW.
12.17 WAIVER OF JURY TRIAL
THE BORROWER, THE LENDERS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-
RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE LENDERS AND THE AGENT EACH
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION
AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.18 ENTIRE AGREEMENT
This Agreement, together with the other Loan Documents, embodies the entire
agreement and understanding among the Borrower, the Lenders and the Agent, and
supersedes all prior to contemporaneous agreements and understandings of such
Persons, verbal or written, relating to the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in ______________________ by their proper and duly
authorized officers as of the day and year first above written.
CAVANAUGHS HOSPITALITY LIMITED PARTNERSHIP
By: Cavanaughs Hospitality Corporation,
General Partner
By
------------------------------
Title
---------------------------
U. S. BANK NATIONAL ASSOCIATION, as Agent
By
--------------------------------
Title
-----------------------------
U. S. BANK NATIONAL ASSOCIATION, as a Lender
By
--------------------------------
Title
-----------------------------
[OTHER BANKS]
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SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
BANK COMMITMENT PRO RATA SHARE
<S> <C> <C>
U. S. Bank $ __000,000 ___%
TOTAL $ __000,000 100%
</TABLE>
1
<PAGE>
SCHEDULE 12.2
LIBOR AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
The Borrower
Cavanaughs Hospitality Limited Partnership
201 W. North River Drive
Spokane, Washington 99201
Attention: Arthur M. Coffey
Telephone: (509) 459-6100
Facsimile: (509) 325-7324
The Agent
U. S. Bank National Association
1420 Fifth Avenue, Suite 1100
Seattle, Washington 98101
Attention: Cathryn S. Schalkle
Telephone: (206) 344-7845
Facsimile: (206) 344-2331
U. S. Bank, as a Bank
Domestic Lending Office and LIBOR Lending Office:
U. S. Bank National Association
1420 Fifth Avenue, Suite 1100
Seattle, Washington 98101
Attention: Cathryn S. Schalkle
Telephone: (206) 344-7845
Facsimile: (206) 344-2331
1
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EXHIBIT 10.11
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
FOR EMPLOYEES OF CAVANAUGHS HOSPITALITY CORPORATION
THIS AGREEMENT, dated ________, 1998, is made by and between Cavanaughs
Hospitality Corporation, Inc., a Washington corporation hereinafter referred to
as "Company," and __________, an employee of the Company, hereinafter referred
to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Non-Qualified Option provided for herein to the
Optionee as an inducement to enter into or remain in the service of the Company
and as an incentive for increased efforts during such service, the Board has
ratified such determination and the Committee has instructed the undersigned
officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Capitalized terms used herein without definition shall have the respective
meanings set forth therefor in The 1998 Stock Incentive Plan of Cavanaughs
Hospitality Corporation (the "Plan"). Whenever the following terms are used in
this Agreement, they shall have the meaning specified below unless the context
clearly indicates to the contrary. The masculine pronoun shall include the
feminine and neuter, and the singular the plural, where the context so
indicates.
"Cause" shall mean (i) the Optionee's failure or refusal to perform
specific and lawful directions with respect to the Optionee's employment with
the Company or any Subsidiary, (ii) the commission by the Optionee of a felony
or the perpetration by the Optionee of an act of fraud, dishonesty, or
misrepresentation against, or breach of fiduciary duty toward, the Company or
any Subsidiary, or (iii) any willful act or omission by the Optionee which is
injurious in any material respect to the financial condition or business
reputation of the Company or any Subsidiary.
<PAGE>
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
"Optionee" shall mean an Employee granted an Option under this Agreement
and the Plan.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 Grant of Option
---------------
For good and valuable consideration, including services performed by
Employee on behalf of the Company, effective as of the date hereof the Company
irrevocably grants to the Optionee the option to purchase any part or all of an
aggregate of ____ shares of its $.01 par value Common Stock upon the terms and
conditions set forth in this Agreement.
Section 2.2 Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall be
$____ per share without commission or other charge.
Section 2.3 Status as an Employee
---------------------
Nothing in the Plan or this Agreement shall confer upon any Optionee any
right to continue in the employ of the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge the Optionee at any time for any reason whatsoever, with or without
cause.
Section 2.4 Adjustments in Option
---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split up, stock dividend or combination of shares, the
Committee shall make an adjustment in the number and kind of shares as to which
the Option, or portions thereof then unexercised, shall be exercisable, in the
manner set forth in the Plan. Any such adjustment made by the Committee shall
be final and binding upon the Optionee, the Company and all other interested
persons.
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or
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converted into cash, securities or other property, the Company will have the
right to terminate the Plan as of the date of the exchange or conversion, in
which case all of the Optionee's rights under this Option shall become the right
to receive such cash, securities or other property, net of any option purchase
price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Committee may in its discretion
make an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 Commencement of Exercisability
------------------------------
(a) The Option shall become exercisable in two cumulative
installments as follows:
(i) The first installment shall consist of fifty percent (50%) of the
shares covered by the Option and shall become exercisable on the fourth
anniversary of the date of this Agreement.
(ii) The second installment shall consist of fifty percent (50%) of
the shares covered by the Option and shall become exercisable on the fifth
anniversary of the date of this Agreement.
(b) Notwithstanding Section 3.1(a), after the first anniversary of the
date of this Agreement, if the shares of Common Stock are then trading on an
exchange and the closing price of such shares on the principal exchange on which
shares of Common Stock are then trading equals or exceeds the following prices
for a period of twenty (20) consecutive trading days, then a portion of the
shares covered by the Option, to the extent not then already exercisable under
Section 3.1(a), shall become immediately exercisable as follows:
<TABLE>
<CAPTION>
Installment of Option
Stock Closing Price Immediately Exercisable
------------------- -----------------------
<S> <C>
$____ 25%
$____ 50%
$____ 75%
$____ 100%
</TABLE>
(c) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable, except as may be otherwise
provided by the Committee.
3
<PAGE>
Section 3.2 Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was granted;
or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from the Optionee's death, the Optionee's
retirement in accordance with the Company's retirement policies or after age
fifty five (55) if the Optionee has completed five (5) years of continuous
employment with the Company, the Optionee's total and permanent disability, or
the Optionee's being discharged by the Company other than for Cause; or
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment by reason of the Optionee's being discharged by the
Company other than for Cause, unless the Optionee dies within said three-month
period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment by reason of the Optionee's total and permanent
disability or the Optionee's retirement in accordance with the Company's
retirement policies or after age fifty five (55) if the Optionee has completed
five (5) years of employment with the Company; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the Company
with or into another corporation, the exchange of all or substantially all of
the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least twenty (20) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the
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<PAGE>
securities of another corporation, the acquisition by another corporation or
person of all or substantially all of the Company's assets or eighty percent
(80%) or more of the Company's then outstanding voting stock, or the liquidation
or dissolution of the Company, the Committee may, in its absolute discretion and
upon such terms and conditions as it deems appropriate, provide by resolution,
adopted prior to such event and incorporated in the notice referred to in
Section 3.3(f), that at some time prior to the effective date of such event this
Option shall be exercisable as to all the shares covered hereby, notwithstanding
that this Option may not yet have become fully exercisable under Section 3.1(a);
provided, however, that this acceleration of exercisability shall not take place
if :
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an assumption
of this Option or a substitution therefor of a new option by the successor
corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only the Optionee, or an alternate
payee under a QDRO, may exercise the Option or any portion thereof. After the
death of the Optionee, any exercisable portion of the Option may, prior to the
time when the Option becomes unexercisable under Section 3.3, be exercised by a
beneficiary designated by the Optionee, the Optionee's personal representative
or by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2 Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that each partial exercise
5
<PAGE>
shall be for not less than one hundred (100) shares (or the minimum installment
set forth in Section 3.1, if a smaller number of shares) and shall be for whole
shares only.
Section 4.3 Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or the Secretary's office of all of the following
prior to the time when the Option or such portion becomes unexercisable under
Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment may be delayed for up
to thirty (30) days from the date the Option, or portion thereof, is exercised;
or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the Company or
(B) shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option, with a Fair Market Value on the date of Option exercise equal to
the aggregate purchase price of the shares with respect to which such Option or
portion is exercised; or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable upon
such terms as may be prescribed by the Committee or the Board. The Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for the Optionee's own account, for investment and
without any present intention of distributing or reselling said shares or any of
them except as may be permitted under the Securities Act and then applicable
rules and
6
<PAGE>
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue stop-transfer
orders covering such shares. Share certificates evidencing stock issued on
exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, are required to be
withheld upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer, or (ii) shares of the Company's Common Stock issuable to the Optionee
upon exercise of the Option, having a Fair Market Value at the date of Option
exercise equal to the sums required to be withheld, may be used to make all or
part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission
7
<PAGE>
or of any other governmental regulatory body, which the Committee or Board
shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, are
required to be withheld upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.5 Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 Administration
--------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee or the
Board shall be personally liable for any action, determination or interpretation
made in good faith with respect to the Plan or the Option. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
Section 5.2 Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or the
Optionee's successors in interest or shall
8
<PAGE>
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 5.2 shall not prevent (i) transfers by
will or by the applicable laws of descent and distribution, (ii) the
designation by the Optionee of a beneficiary to exercise the Optionee's Option
or other rights under this Agreement after the Optionee's death, or (iii)
transfers pursuant to a QDRO.
Section 5.3 Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 Notices
-------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to the Optionee at the address given
beneath the Optionee's signature hereto. By a notice given pursuant to this
Section 5.4, either party may hereafter designate a different address for
notices to be given to that party. Any notice which is required to be given to
the Optionee shall, if the Optionee is then deceased, be given to the Optionee's
personal representative if such representative has previously informed the
Company of such representative's status and address by written notice under this
Section 5.4. Any notice shall be deemed duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the
United States Postal Service.
Section 5.5 Titles
------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 Shareholder Approval
--------------------
The Plan has been approved by the Company's shareholders.
Section 5.7 Construction
------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Washington.
9
<PAGE>
Section 5.8 Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
Section 5.9 Amendments. etc.
----------------
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Optionee or such other person as may be
permitted to exercise the Option pursuant to Section 4.1 and by a duly
authorized representative of the Company.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
CAVANAUGHS HOSPITALITY CORPORATION
By: _____________________________
President
By: _____________________________
Secretary
[Name]
- ------
Optionee
[ ]
- ----------
Address
Optionee's Taxpayer
Identification Number:
[ ]
- ----------
10
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
CAVANAUGHS HOSPITALITY CORPORATION
1. Cavanaughs Hospitality Corporation, a Delaware corporation
2. Cavanaughs Hospitality Limited Partnership, a Delaware limited partnership
3. North River Drive Company, a Washington corporation
4. Cowley Street Limited Partnership, a Washington limited partnership
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-44491) of our report dated February 16, 1998, on our audits of the
combined financial statements of Cavanaughs Hospitality Corporation, Barbieri
Investment Company and Lincoln Building Limited Partnership. We also consent to
the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
March 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 2-MOS
<FISCAL-YEAR-END> OCT-31-1997 DEC-31-1997
<PERIOD-END> OCT-31-1997 DEC-31-1997
<CASH> 6,440 4,995
<SECURITIES> 0 0
<RECEIVABLES> 2886 2,896
<ALLOWANCES> (80) (111)
<INVENTORY> 376 427
<CURRENT-ASSETS> 10,750 9,267
<PP&E> 144,279 146,679
<DEPRECIATION> (34,325) (34,445)
<TOTAL-ASSETS> 124,104 125,117
<CURRENT-LIABILITIES> 13,582 14,088
<BONDS> 93,771 94,419
0 0
495 0
<COMMON> 386 71
<OTHER-SE> 7,645 8,461
<TOTAL-LIABILITY-AND-EQUITY> 124,104 125,117
<SALES> 52,043 8,838
<TOTAL-REVENUES> 52,043 8,838
<CGS> 22,927 4,450
<TOTAL-COSTS> 41,408 7,495
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,817 1,422
<INCOME-PRETAX> 2,641 0
<INCOME-TAX> 932 (6)
<INCOME-CONTINUING> 1,709 6
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,709 6
<EPS-PRIMARY> 0.24 0
<EPS-DILUTED> 0.24 0
</TABLE>
