U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|X| ANNUAL report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
OR
|_| Transition report PURSUANT TO Section 13 or 15(d) of the SECURITIES Exchange
Act OF 1934
For the transition period from _______ to _______
Commission File Number 001-13957
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WESTCOAST HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON 91-1032187
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
201 W. NORTH RIVER DRIVE, SUITE 100
SPOKANE WASHINGTON 99201-2293
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (509) 459-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Registrant's voting common stock held by
non-affiliates was $ 53,977,995 as of February 29, 2000. There were 12,937,726
shares of the Registrant's common stock outstanding as of February 29, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE.
Documents incorporated by reference herein: Proxy statement which will be
filed with the Commission pursuant to Regulation 14A within 120 days of the end
of the Registrant's 1999 fiscal year is incorporated by reference herein in Part
III.
TABLE OF CONTENTS
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Part Item No. Description Page No.
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I 1 Business...................................................................... 3
I 2 Properties.................................................................... 15
I 3 Legal ........................................................................ 17
I 4 Submission Of Matters To A Vote Of The Security Holders ...................... 17
II 5 Market For Registrant's Common Equity and .................................... 18
II 6 Selected Financial
II 7 Management's Discussion and Analysis Of Financial Condition and Results ...... 18
of Operations ................................................................ 20
II 7A Quantitative and Qualitative Disclosures About Market Risk.................... 20
II 8 Financial Statements and Supplementary Data .................................. 29
II 9 Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure ......................................................... 57
III 10 Directors and Executive Officers Of The Registrant ........................... 57
III 11 Executive Compensation ....................................................... 57
III 12 Security Ownership Of Certain Beneficial
Owners and Management ........................................................ 57
III 13 Certain Relationships and Related Transactions ............................... 57
IV 14 Exhibits, Financial Statement Schedules,
and Reports On Form 8-K ...................................................... 58
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PART I
ITEM 1. BUSINESS
THE COMPANY
WestCoast Hospitality Corporation ("WestCoast") is a hotel operating
company that owns, operates, franchises, acquires, develops, renovates and
repositions full service hotels in the Western United States under its
proprietary brand names, "Cavanaughs(R)" and "WestCoast(R)". Substantially all
of WestCoast's assets, including the hotels, are owned by or for the benefit of
WestCoast Hospitality Limited Partnership, a Delaware limited partnership, ("the
Operating Partnership"). WestCoast Hospitality Corporation and WestCoast
Hospitality Limited Partnership were formerly known as Cavanaughs Hospitality
Corporation and Cavanaughs Hospitality Limited Partnership, respectively, until
February 2000 (see "Recent Events"). WestCoast manages the day to day operations
of the partnership in its capacity as sole general partner. The Company
currently has ownership interests and operates 24 hotel properties, manages an
additional 9 properties and franchises an additional 13 properties, totaling 46
hotels in 9 states, including Alaska, Arizona, California, Hawaii, Idaho,
Montana, Oregon, Utah and Washington. The Company intends to re-brand 18 of its
19 Cavanaughs hotels to the WestCoast brand during 2000 (see "Recent Events").
Additionally, the Company provides computerized ticketing for entertainment
events and arranges Broadway and other entertainment event productions. Further,
during the second quarter 1999, the Company announced the launch of
www.TicketsWest.com(TM), an Internet ticketing service offering consumers
up-to-the-minute information on live entertainment and the ability to make
real-time ticket purchases of the best available seats to events through the
website. The Company owns and manages ticketing operations in Washington,
Oregon, Idaho, Montana and Colorado. 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. We are seeking to become the
dominant full service Hotel Company in the Western United States and Canada by
providing customers with access to a WestCoast brand hotel in multiple locations
throughout the region. Our growth strategy focuses on:
o the acquisition and re-branding of full service hotels with the
WestCoast name;
o the acquisition, conversion and redevelopment of non-hotel
properties into WestCoast brand hotels;
o the construction of new WestCoast hotels;
o the expansion of existing WestCoast hotels;
o the management of third party owned hotels; and
o franchising of the WestCoast brand to third party hotel owners
and operators.
Our operating strategy is designed to enhance our revenue and operating
margins by increasing revenue per available room, "REVPAR", average daily rate,
"ADR", occupancy and operating efficiencies at our hotels. This strategy
includes:
o building brand name recognition by maintaining our strategic
focus on the Western United States and Canada;
o promoting a coordinated marketing program utilizing corporate
level sales and marketing departments in conjunction with
local hotel-based sales and marketing personnel;
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o controlling operating expenses and achieving cost reductions
through operating efficiencies and economies of scale;
o enhancing guest satisfaction and loyalty by providing high quality
service;
o utilizing our yield management and proprietary management
information systems to enable the general managers of each hotel
to optimize revenue per available room, average daily rates,
occupancy and net income;
o maintaining a consistent level of quality at the hotels through
our maintenance and capital expenditure programs;
o emphasizing the quality of our food and beverage services to
attract convention, group and special event business and to create
local awareness of the hotels;
o providing valuable guest benefit programs that promote customer
loyalty, such as frequent flier mileage and repeat guest programs;
and
o attracting and retaining qualified employees by providing ongoing
training and incentive programs at all levels of employment to
enhance productivity and align the efforts of employees with our
objectives.
For the calendar year ended December 31, 1999, the Company's revenues
were $110.1 million, operating income was $21.0 million, net income was $8.0
million, REVPAR for Comparable Hotels (Hotels owned for greater than one year)
was $44.86 and ADR was $80.80. Effective December 31, 1999 the Company acquired
WestCoast Hotels, Inc., pro forma operating results as though the acquisition
had taken place on January 1, 1999 are: revenues $125.3 million, operating
income $24.2 million, and net income $7.8 million.
The Company has a $120 million Revolving Credit facility provided by
U.S. Bank N.A., as agent, which is 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 limited partnership interests 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 and Restaurant division, the Company operates
three other divisions: (i) Franchise and Central Services (ii) Ticketswest.com
and (iii) Real Estate Division. The Franchise and Central Services division is
newly created with the acquisition of WestCoast Hotels, Inc., and focuses on
franchising the WestCoast brand to third party hotel owners and providing
centralized purchasing and support services to these properties. The
TicketsWest.com division includes computerized event ticketing through G&B
Select A Seat, Fastixx, Colorado Neighborhood Box Office (CNBO), and the
www.TicketsWest.com website. The TicketsWest.com division was founded in 1987
with the G&B Select A Seat operation in Eastern Washington. The division
acquired the operations of Fastixx, CNBO, and certain software license rights in
1999 (see "Recent Events") and pro forma, as though the acquisitions took place
on January 1, 1999, ticket sales for the combined distribution in 1999 was 3.9
million tickets. The division also is the presenter of shows and special events
through WestCoast Entertainment, formerly G&B Presents, which was also founded
in 1987 and has presented over 110 Broadway theatrical presentations and special
events in the last twelve years. These services generate
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income from ticket sales and handling fees as well as additional room occupancy
at the Hotels. The TicketsWest.com division includes the Company-operated
toll-free call center (the "Toll-Free Call Center") which services the hotel
reservations. The Company's Real Estate Division includes ownership of four
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 and/or leasing agent of more than 3.4 million square feet
of retail and office properties and approximately 2,096 residential units in the
Northwest.
STRUCTURE OF THE COMPANY
The Company is the sole general partner of the Operating Partnership.
The Company conducts substantially all of its business and holds substantially
all of the Hotels, 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, 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. 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 the Budget Inn,
formerly Cavanaughs Fourth Avenue.
RECENT EVENTS
On March 29, 1999, WestCoast acquired certain exclusive and
non-exclusive software license and development rights for the Select A Seat
ticketing system from Lasergate Systems, Inc.
On October 26, 1999, WestCoast acquired substantially all of the assets
of The Show Terminal, LLC (d.b.a. Colorado Neighborhood Box Office),
headquartered in Colorado Springs, Colorado. The acquisition was the first
expansion of WestCoast operations into the state of Colorado. Colorado
Neighborhood Box Office sells tickets to entertainment events throughout the
Colorado Springs area. Since the acquisition, TicketsWest.com(TM) has announced
an agreement to sell ski lift tickets for Colorado area resorts through the King
Soopers grocery chain, located in and around the cities of Fort Collins, Denver,
Boulder, and Colorado Springs, Colorado.
On November 1, 1999, WestCoast acquired Oregon Ticket Company, Inc.
(d.b.a. Fastixx), headquartered in Portland, Oregon. The acquisition increased
the number of TicketsWest.com(TM) outlets from 23 to 116 and expanded the
TicketsWest.com division's geographic presence into Oregon and Western
Washington. The Company merged Oregon Ticket Company into a newly formed wholly
owned subsidiary of TicketsWest.com.
Effective December 31, 1999, WestCoast acquired WestCoast Hotels, Inc.,
headquartered in Seattle, Washington. Effective February 3, 2000, we changed our
name to WestCoast Hospitality Corporation. We intend to re-brand 18 of our 19
Cavanaughs hotels to the WestCoast brand in 2000. The acquisition grows the
chain to 46 hotels with 8,789 rooms and increases the Company's lodging presence
from five states to nine. Of the 46 hotels, we:
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o have ownership interest in and manage 24 hotels with 4,647 rooms;
o manage and market an additional 9 hotels with 1,693 rooms; and
o market under the WestCoast brand an additional 13 hotels with
2,449 rooms.
The acquisition opens up a new revenue stream for us in the form of
fee-based management and franchise revenues from its WestCoast brand, something
not previously offered by the Company under the Cavanaughs brand. Key management
of WestCoast Hotels, Inc., including Rodney D. Olson and Michael Bashaw, remain
with the combined company. Rodney D. Olson has been nominated to our Board of
Directors, to be voted on at our upcoming annual stockholders meeting. Donald
Barbieri continues as Chairman, President and Chief Executive Officer of
WestCoast Hospitality Corporation.
WestCoast Hotels was established in 1910 as Vance Hotels. In 1987, with
three properties, Vance Hotels changed its name to become WestCoast Hotels.
Hotel ownership has been a component of the WestCoast Hotel business, but they
have primarily focused on the franchise and management of hotels. They were
recently named in "Top 20 Management Companies in the U.S." by Hotel and Motel
Management and Hotels Magazines.
We believe that combining WestCoast with Cavanaughs will result in
synergies that include revenue enhancements as well as expense reductions.
Revenue enhancement opportunities include cross selling among hotels and
overflowing to Company hotels in cities that have multiple properties, such as
Seattle, Washington, where previously we had only one hotel. In addition, the
ongoing development of a new frequent-guest reward program, called
WestAwards(TM), may increase occupancy by offering more variety in ways to spend
points earned from the program, such as stays at resort locations or
entertainment from TicketsWest.com(TM), the Company's entertainment division.
Expense reductions should be realized in combining marketing, spreading overhead
costs, eliminating duplicate corporate expenses and purchasing economies of
scale.
On January 24, 2000, the Company announced a strategic alliance with
Canada based Coast Hotels & Resorts. Coast Hotels & Resorts is western Canada's
largest regional hotel chain, with 20 hotels and 2,816 rooms in British Columbia
and Alberta. Its principal office is located in Vancouver, British Columbia. The
relationship between the two full-service lodging companies includes a marketing
affiliation as well as cross selling among the hotels. Other components of the
alliance include an integrated website designed to allow one-stop shopping for
the combined 66 hotels and 11,605 rooms throughout the western United States and
Canada, as well as a joint central purchasing program that takes advantage of
volume purchasing and rebates. Finally, integration of toll-free call centers
between the two companies will result in the ability for either call center to
sell inventory from both hotel chains. The marketing affiliation will include
publishing joint hotel and resort directories as well as producing combined
marketing presentations that will focus on cross selling groups among the
hotels. The tour and travel segment is expected to generate the largest portion
of the cross selling between the two brands. The integration of the websites
will aggregate content from both hotel chains as well as TicketsWest.com(TM). In
1999, WestCoast Entertainment presented the Broadway musical Cats in Edmonton
and Calgary, Alberta, both cities in which Coast Hotels & Resorts has hotels.
TicketsWest.com(TM) expects to participate in other ticketing opportunities in
western Canada, which would provide the opportunity to package entertainment
with hotel rooms from Coast Hotels & Resorts.
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 4,100 employees as of December 31, 1999, including
the acquisition of WestCoast Hotels, Inc. WestCoast's
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principal executive offices are located at 201 W. North River Drive, Suite 100,
Spokane, Washington 99201 and its telephone number is (509) 459-6100. Our
website addresses are www.WestCoastHotels.com and www.TicketsWest.com.
INDUSTRY OVERVIEW
The domestic lodging industry completed its fifth year of record
profitability in 1998, during which time it produced a record profit of $20.9
billion. Smith Travel Research Lodging Outlook (February, 2000) indicated that
it is expected that the average U.S. hotel occupancy ended in 1999 slightly down
from 1998, due to supply growth exceeding demand growth. ADR growth ended 1999
with 4.0% growth over 1998, while REVPAR grew by 3.1%. With the net addition of
142,000 rooms to the existing inventory, the industry maintained its overall
revenue growth of 7.4% in 1999, even with the slower REVPAR growth.
The following table reflects the percentage changes in REVPAR, ADR and
occupancy for the years ended December 31, 1998 and 1999 compared to the
respective prior fiscal year, for (i) the Hotels that were open and operated for
each of the periods presented, does not include hotels owned, operated, managed
or franchised by WestCoast Hotels, Inc., (ii) U.S. full service hotels and (iii)
all U.S. hotels.
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PERCENTAGE CHANGE VERSUS PRIOR PERIOD
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REVPAR (1) ADR OCCUPANCY
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1998 1999 1998 1999 1998 1999
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WestCoast Hotels (2) 7.9% 0.5% 10.1% 3.2% (1.3)% (1.5)%
U.S. Full Service Hotels (3) 4.8% 3.4% 6.5% 4.1% (1.6)% (0.7)%
U.S. Hotels (3)(4) 3.5% 3.1% 4.6% 4.0% (0.7)% (0.5)%
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(1) Determined by dividing annual room revenue by annual available rooms.
(2) Includes comparable Hotels; Hotels owned greater than one year.
(3) Source: Smith Travel Research.
(4) Included both full service and limited service hotels
COMPETITION IN 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. We believe
our brand recognition is good in the markets we serve and should be enhanced by
reflagging our Cavanaughs brand hotels to the WestCoast brand. We have an
advantage of having good locations, service and value. 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
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amenities or significantly expand or improve facilities in a market in which the
Hotels compete, thereby adversely affecting the Company's operations.
RISK FACTORS
This document and the documents we incorporate by reference contain
forward-looking statements that involve risks and uncertainties. The statements
in this prospectus that are not purely historical are forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. But the absence of these words does not mean the
statement is not forward-looking. We cannot guarantee the accuracy of these
statements, which are subject to risks, uncertainties and assumptions that are
difficult to predict. Our actual results may differ materially for those we
forecast in forward-looking statements due to a variety of factors, including
those set forth in the following risk factors, elsewhere in this document and in
the documents we have incorporated by reference. Before investing in the common
stock, you should consider carefully the following factors, as well as the
information contained in the rest of this document and in the documents we
incorporate by reference.
We Are Subject to Conditions Affecting the Lodging Industry.
Our revenues and our operating results are subject to conditions
affecting the lodging industry. These include:
o changes in the national, regional and local economic climate;
o local conditions such as an oversupply of, or a reduction in
demand for, hotel rooms;
o the attractiveness of our hotels to consumers and competition from
comparable hotels;
o the quality philosophy and performance of the managers of our
hotels;
o changes in room rates and increases in operating costs due to
inflation and other factors;
o changes in travel patterns, extreme weather conditions,
cancellation of or changes in, events scheduled to occur in our
markets; and
o the need periodically to repair and renovate our hotels.
Adverse changes in these conditions could adversely affect our financial
performance.
Due to the Geographic Concentration of Our Hotels, Our Results of Operations Are
Subject to Fluctuations in Regional Economic Conditions.
Many of our hotels are currently located in the Pacific Northwest 35 of
46 hotels are located in Oregon, Washington, Idaho and Montana. As a result, our
results of operations and financial condition are significantly dependent on the
economy of the Pacific Northwest. The Pacific Northwest economy is dependent in
large part on a number of major industries, including agriculture, tourism,
technology, timber and aerospace. These industries may be affected by:
o changes in governmental regulations and economic conditions;
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o the relative strength of national and local economy; and
o the rate of national and local unemployment.
Any of these factors could materially affect the local economies in which these
industries operate.
To the extent that general economic or other conditions in the Pacific
Northwest decline and result in a decrease in customer demand in this region,
our performance and results of operations will be adversely affected. In
addition, we operate or market multiple hotels within several cities, including
Seattle, Portland, Spokane and Yakima, Washington. A downturn in general
economic or other relevant conditions in these specific markets or in any other
market in which we operate could adversely impact our results of operations and
financial condition.
Our Expenses May Remain Constant Even if Our Revenues Drop.
The expenses of owning property are not necessarily reduced when
circumstances such are market factors and competition cause a reduction in
income from a hotel. Our financial condition and ability to service debt could
be adversely affected by:
o interest rate levels;
o the availability of financing;
o the cost of compliance with government regulations, including
zoning and tax laws; and
o changes in government regulations, including those governing
usage, zoning and taxes.
We May Be Unable to Sell Hotel Properties When Appropriate.
Real estate investments generally cannot be sold quickly. We may not be
able to vary our portfolio promptly in response to economic or other conditions.
This inability to respond promptly to changes in the performance of our
investments could adversely affect our financial condition and ability to
service debt. In addition, sales of appreciated real property could generate
material adverse tax consequences, which may make it disadvantageous for us to
sell hotels.
Our Growth is Dependent on Our Ability to Increase the Number of Our Hotels.
We intend to continue to pursue an aggressive growth strategy for the
foreseeable future. Our ability to successfully pursue new growth opportunities
will depend on a number of factors. These include our ability to:
o identify suitable hotels for acquisition, development, management
or franchise;
o finance acquisitions and renovations; and
o successfully integrate new hotels into our operations.
There is no assurance that suitable hotels for acquisition,
development, management or franchise will be available or, if available, will be
on acceptable terms or that capital will be available on acceptable terms. While
we believe that we have sufficient capital to fund our growth strategy in the
near term, this
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belief is based on adequate cash being generated from operations and the
availability of a revolving credit facility. There is no assurance that we will
generate adequate cash from operations. Even if we generate anticipated cash
from operations, we 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.
We May Not Be Able to Effectively Integrate New Hotels Into Our Operations.
We cannot assure you that:
o we will be able to successfully integrate new hotels or new hotel
products into our operations;
o new hotels or new hotel products will achieve revenue and
profitability levels comparable to our existing hotels; or
o the combined business will be profitable. Newly acquired,
developed or converted hotels typically begin with lower occupancy
and room rates.
Furthermore, our expansion within our existing markets could adversely
affect the financial performance of our existing hotels in those markets or our
overall results of operations. Expansion into new markets may present operating
and marketing challenges that are different from those we currently encounter in
our existing markets. There is no assurance that we will be able to anticipate
all of the changing demands that expanding operations will impose on our
management and management information and reservation systems. The failure to
adapt our systems and procedures could have a material adverse effect on our
business.
We May Not Be Able to Implement Our Growth Strategy.
We intend to pursue a full range of growth opportunities, including
acquisitions, new construction, management for third party owners and franchise
agreements. We compete 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 we do. Our
ability to make acquisitions is dependent upon our relationships with owners of
existing hotels and certain major hotel investors. Our failure to compete
successfully for acquisitions or to attract or maintain relationships with hotel
owners and major hotel investors could adversely affect our ability to expand
our portfolio of hotels. Our inability to implement our external growth strategy
would limit our ability to grow our revenue base.
Our Growth Is Dependent on Our Ability to Expand Our Operations.
We intend to acquire additional hotels, ticket, and entertainment
operations in the future. Acquisitions entail the risk that investments will
fail to perform in accordance with our expectations. We also intend to continue
the redevelopment and re-branding of other acquired hotels into "WestCoast'
hotels. In addition, we expect 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:
o construction delays or cost overruns;
o risks that the hotels will not achieve anticipated performance
levels; and
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o new project commencement risks such as receipt of zoning,
occupancy and other required governmental permits and
authorizations.
As a result, we could incur 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 acceptable terms. In addition, the
renovation of our 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 our hotels
could have an adverse effect on our results of operations and financial
condition.
We Are Subject to Real Estate Ownership Risks.
Our ownership portfolio contains 29 properties, including 24 hotels, 2
office properties, 1 retail property and 2 mixed-use office and retail
properties. Accordingly, we are subject to varying degrees of risk generally
related to owning real estate. These risks, many of which are beyond our
control, include:
o changes in national, regional and local economic conditions; local
real estate market conditions;
o changes in interest rates, and the availability, cost and terms of
financing and lease obligations;
o the impact of present or future environmental legislation and
adverse changes in zoning laws and other regulations; and
o compliance with environmental laws.
Management's Control of the Company May Limit Your Ability to Change the
Composition of the Board of Directors, and May Deter a Change in Control.
Members of the Barbieri family beneficially own, in the aggregate,
54.5% of our outstanding shares of common stock. Donald Barbieri, our Chairman,
President and Chief Executive Officer, has sole voting and investment power with
respect to 27.74% 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 our management and affairs and will have the
power to approve or block most actions requiring the approval of our
shareholders, including a merger, or a sale of all the assets of the company.
Compliance With Governmental Regulations Could Affect Our Results of Operations.
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, all public accommodations are
required to meet certain federal requirements related to access and use by
disabled persons. Although we believe we are in compliance with the ADA, there
is no assurance that a material ADA claim will not be asserted against us.
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We Could Experience Seasonal Fluctuations in Our Results of Operations.
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 31,1999, our revenues in the first through fourth quarters were 20.1%,
25.4%, 30.7% and 23.8%, respectively, of our total revenue for such year and our
net income for the first through fourth quarters was 4.4%, 37.5%, 48.9% and
9.2%, respectively, of our total net income for that year. Quarterly earnings
also may be adversely affected by events beyond our control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
We Are Dependent on Our Senior Management.
We place substantial reliance on the lodging industry experience and
the continued availability of our senior management led by Donald K. Barbieri,
Chairman, President and Chief Executive Officer, Arthur M. Coffey, Executive
Vice President and Chief Financial Officer, Richard L. Barbieri, Senior Vice
President and General Counsel, Thomas M. Barbieri, Executive Vice President of
Hotel Operations, and David M. Bell, Executive Vice President Development. We
believe that our future success and our ability to manage future growth depend
in large part upon the efforts of the senior management and on our ability to
attract and retain other highly qualified personnel. Competition for such
personnel is intense, and there can be no assurance that we will be successful
in attracting and retaining such personnel. The Company does not carry key man
insurance on any of its senior management.
We May Be Unable to Locate Lessees for Our Rental Property.
We own approximately 590,000 square feet of office and retail space in
Spokane, Washington and Kalispell, Montana. We are 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 we 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 in preparing for tenants could reduce cash flow, decrease the
value of a property or jeopardize our ability to pay our 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.
We Are Subject to Risks Associated With Managing and Leasing Properties Owned by
Third Parties.
We plan to continue to manage and lease properties owned by third
parties. 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 WestCoast, resulting in decreased management or leasing fee income.
The Performance of Our Entertainment, Management and Services Division Is
Particularly Subject to Fluctuations in Economic Conditions.
Our entertainment services include computerized event ticketing and the
presentation of touring Broadway shows. In addition, we attract additional hotel
guests through cross-selling the products of our
12
<PAGE>
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.
We carry comprehensive liability, public area liability, fire, flood,
boiler and machinery, extended coverage and rental loss insurance covering our
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, we could lose our 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 WestCoast, would remain obligated for
any mortgage debt or other financial obligations related to the property.
Although we believe that our properties are adequately insured, any such loss
would adversely affect us. There is no assurance that material losses in excess
of insurance proceeds will not occur in the future.
We Are Subject to Environmental Risks Which Could Be Costly.
Our 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 our results of operations
and financial condition.
In connection with our 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 our
properties and we expect that all of our future hotel acquisitions will be
subject to a Phase I environmental assessment. A Phase I environmental
assessment involves researching historical usage's 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.
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 WestCoast
will not be aware. While we have not been notified by any governmental authority
and we have 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 our properties, no assurances can be given that future
laws, ordinances or regulations will not impose any material
13
<PAGE>
environmental liability or the current environmental condition of our existing
and future properties will not be affected by the condition of neighboring
properties (such as the presence of leaking underground storage tanks) or by
third parties (whether neighbors such as dry cleaners or others) unrelated to
WestCoast.
We Have Incurred Debt Financing and May Incur Increased Indebtedness in
Connection With Acquisitions.
Our outstanding indebtedness as of December 31,1999 was approximately
$168.0 million. Substantially all of our outstanding indebtedness is secured by
individual properties, including our hotels. Borrowings under the Revolving
Credit Facility are used by us 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 is secured
by deeds of trust on certain of our properties. At December 31,1999, our
outstanding indebtedness had a weighted average annual interest rate of 8.55%.
At December 31,1999, our ratio of long-term debt (including capital lease
obligations) to equity was 1.53 to 1.
Neither our Articles of Incorporation nor our Bylaws limit the amount
of indebtedness that we may incur. Subject to limitations in our debt
instruments, we expect to incur additional debt in the future to finance
acquisitions and renovations and for general corporate purposes. Our continuing
indebtedness could increase our vulnerability to general economic and lodging
industry conditions (including increases in interest rates) and could impair our
ability to obtain additional financing in the future and to take advantage of
significant business opportunities that may arise. Our indebtedness is, and will
likely continue to be, secured by mortgages on our hotels. There is no assurance
that we will be able to meet our debt service obligations and, to the extent
that we cannot, we risk the loss of some or all of our assets, including our
hotels, to foreclosure. Adverse economic conditions could cause the terms on
which borrowings become available to be unfavorable. In such circumstances, if
we are in need of capital to repay indebtedness in accordance with its terms or
otherwise, we could be required to liquidate one or more investments in our
hotels at times which may not permit realization of the maximum return on such
investments.
Most of our outstanding indebtedness bears 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.
FORWARD LOOKING STATEMENTS
Statements that are not based on historical facts are forward-looking
statements subject to uncertainties and risks, including, but not limited to,
(i) the acquisition and re-branding of full service hotels with the WestCoast
name, (ii) the acquisition, conversion and redevelopment of non-hotel properties
into WestCoast brand hotels, (iii) the construction of new WestCoast hotels (iv)
the expansion of existing WestCoast hotels and (v) the expansion of
TicketsWest.com. The Company's actual results may differ significantly from
those anticipated in these forward-looking statements as a result of these and
other risks and factors detailed in the Company's filings with the Securities
and Exchange Commission.
14
<PAGE>
TRADEMARKS
"WestCoast Hotels(R)" is a registered trademark of the Company in the
United States and reserved in Canada. "Cavanaughs(R)" is a registered trademark
of the Company in the United States and reserved in Canada. "TicketsWest.com(R)"
is a registered trademark of the Company in the United States and reserved in
Canada.
SEGMENT REVENUES
The information required by this item is contained in, and incorporated
by reference from the Financial Statements and supplementary data, Note 15,
contained herein.
ITEM 2. PROPERTIES
HOTEL PROPERTIES
The Company's hotel portfolio currently contains 46 full service
Hotels, with 8,789 guestrooms and approximately 436,000 square feet of meeting
space, located in the Western United States. The following table sets forth
certain information regarding the Company's hotel portfolio at December 31,
1999, including the acquisition of WestCoast Hotels, Inc., which had an
effective date of December 31, 1999.
<TABLE>
<CAPTION>
Meeting
Year Built/ Year Guest Space
Location Acquired Renovated Rooms (sq. ft.)
<S> <C> <C> <C> <C> <C>
Owned
- -----
Cavanaughs on Fifth Avenue Seattle, WA 1996 1996 297 12,500
Cavanaughs Inn at the Park Spokane, WA 1983 1997 402 26,300
Cavanaughs River Inn Spokane, WA 1976 1997 245 2,800
Budget Inn Spokane, WA 1991 1997 153 2,600
Cavanaughs Ridpath Hotel Spokane, WA 1998 1996 342 16,000
Cavanaughs at Yakima Center Yakima, WA 1991 1997 154 11,000
Cavanaughs Gateway Hotel Yakima, WA 1997 1997 172 8,000
Cavanaughs at Columbia Center Kennewick, WA 1978 1997 162 9,700
Cavanaughs at Capitol Lake Olympia, WA 1998 1998 185 16,500
Cavanaughs on the Falls Idaho Falls, ID 1998 1994 142 8,800
Cavanaughs Templins Resort Post Falls, ID 1998 1996 167 11,000
Cavanaughs Park Center Suites Boise, ID 1998 1996 238 2,200
Cavanaughs Canyon Springs Hotel Twin Falls, ID 1998 1990 112 5,085
Cavanaughs Pocatello Hotel Pocatello, ID 1998 1993 152 13,000
Cavanaughs Colonial Inn Helena, MT 1998 1985 149 15,000
Cavanaughs at Kalispell Center Kalispell, MT 1986 1997 132 10,500
Cavanaughs Outlaw Hotel Kalispell, MT 1998 1995 220 11,000
Cavanaughs Olympus Hotel Salt Lake City, UT 1998 1997 393 12,000
Cavanaughs Hillsboro Hotel Portland, OR 1998 1997 123 3,500
Hotel La Jolla, at the Shores/a WestCoast Hotel La Jolla, CA 1999 1997 108 1,800
Executive Park Hotel Phoenix, AZ 1999 1993 107 3,000
Bellevue Inn Bellevue, WA 1999 1998 181 5,750
WestCoast Vance Hotel Seattle, WA 1999 1990 165 n/a
WestCoast Sea-Tac Hotel Seattle, WA 1999 1997 146 4,500
----- -------
Total Owned: 4,647 212,535
----- -------
Managed:
- --------
WestCoast International Inn Anchorage, AK 1999 1992 141 5,700
WestCoast Long Beach Hotel & Resort Long Beach, CA 1999 1997 195 7,400
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Meeting
Year Built/ Year Guest Space
Location Acquired Renovated Rooms (sq. ft.)
<S> <C> <C> <C> <C> <C>
Managed (continued):
Cathedral Hill Hotel San Francisco, CA 1999 2000 400 30,000
The Grove Hotel/a WestCoast Grand Hotel Boise, ID 1999 1997 250 36,000
Ashland Springs Hotel Ashland, OR Opening Opening 70 3,000
Valley River Inn/a WestCoast Hotel Eugene, OR 1999 2000 257 15,000
The River Place Hotel/a WestCoast Grand Hotel Portland, OR 1999 1998 84 2,800
Camlin Hotel Seattle, WA 1999 1991 146 500
WestCoast Silverdale Hotel Silverdale, WA 1999 1999 150 5,234
----- -------
Total Managed: 1,693 105,634
----- -------
Franchised:
- -----------
WestCoast Anaheim Hotel Anaheim, CA 1999 2000 498 30,000
WestCoast Anabelle Hotel Burbank, CA 1999 1998 47 500
WestCoast Santa Cruz Hotel Santa Cruz, CA 1999 1999 163 4,548
The Park Shore Hotel/a WestCoast Hotel Honolulu, HI 1999 1970 227 400
Maui Coast Hotel/a WestCoast Hotel Maui, HI 1999 1999 260 900
The Benson Hotel//a WestCoast Grand Hotel Portland, OR 1999 1991 287 16,000
The Paramount Hotel, Portland/a WestCoast Hotel Portland, OR 1999 1999 154 1,500
Hotel Lusso/a WestCoast Grand Hotel Spokane, WA 1999 1998 48 2,200
WestCoast Bellevue Hotel Bellevue, WA 1999 1999 176 6,400
The Roosevelt Hotel/a WestCoast Hotel Seattle, WA 1999 1993 151 2,400
The Paramount Hotel, Seattle/a WestCoast Hotel Seattle, WA 1999 1996 146 1,300
WestCoast Gateway Hotel Seattle, WA 1999 1999 145 625
WestCoast Wenatchee Center Hotel Wenatchee, WA 1999 1994 147 51,000
Total Franchised: 2,449 117,773
----- -------
TOTAL: 8,789 435,942
===== =======
</TABLE>
TICKETSWEST.COM
The TicketsWest.com division of the Company is comprised of: (i) G&B
Select A Seat, Fastixx, CNBO theatrical and event ticketing agencies, (ii)
WestCoast Entertainment, formerly G&B Presents, a promoter of touring Broadway
shows and other special events, (iii) the 800 Reservations Center for
entertainment events and hotel information, and (iv) www.ticketswest.com, the
Company's internet portal that provides international leisure, entertainment,
and ticketing services. 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.
During 1999, the TicketsWest.com division's acquisitions increased its
geographic coverage into markets including Portland, Oregon; Seattle,
Washington, Colorado Springs and Denver, Colorado. These acquisitions increased
the content available for sale via the Company's website, which allows ticket
purchases to be transacted in real-time, a functionality that was developed and
launched by the Company in 1999. The Company believes the value of the
TicketsWest.com division is currently not being recognized as compared to other
publicly traded companies in similar businesses, and has begun the process of
consolidating the assets of TicketsWest.com into a separate entity in order to
obtain more flexibility in maximizing shareholder value.
16
<PAGE>
The selected financial data set forth below reflects operating results
for the Company's TicketsWest.com division for fiscal year ended October 31,
1997 and calendar years ended December 31,1998 and December 31, 1999. Revenues
and direct operating expenses in this chart do not eliminate inter-company
revenues and charges, primarily related to reservation services provided to the
Hotels. Please see Note 15 - Business Segments in the consolidated financial
statements, included herein, for further detail of eliminations of inter-company
charges.
Fiscal Years
Fiscal Year Ended Ended
October 31, December 31,
----------------- ---------------------
1997 1998 1999
Income Statement:
Revenue $ 2,190 $ 2,280 $ 7,959
Direct operating expenses 1,729 1,755 7,461
Depreciation and amortization 62 46 110
--------- -------- --------
Total direct expenses 1,791 1,801 7,571
--------- -------- --------
Operating Income 399 479 388
======== ======== ========
REAL ESTATE DIVISION
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, and third-party management and/or leasing agent of more than
3.4 million square feet of retail and office properties and approximately 2,096
residential units in the Northwest. The Company's corporate headquarters is
located in the Spokane WHC Building and occupies 25,061 square feet of this
100,350 square foot building.
ITEM 3. LEGAL PROCEEDINGS
At any given time, the Company is subject to claims and actions
incident to the operation of its business. While the outcome of these
proceedings cannot be predicted, it is the opinion of management that none of
such proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's business, financial condition, cash flow or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WEH". From April 3, 1998 to February 25, 2000 the
Company was traded under the symbol CVH on the NYSE. The following table sets
forth for the periods indicated the high and low closing sale prices for the
Common Stock on the NYSE.
High Low
---- ---
2000:
First Quarter (through March 15, 2000)................. $ 8 5/16 $ 6 3/4
1999:
Fourth Quarter (ended December 31, 1999)................ 8 1/2 6 1/2
Third Quarter (ended September 30, 1999)................ 8 5/8 6 15/16
Second Quarter (ended June 30, 1999).................... 10 5/8 7
First Quarter (ended March 31, 1999).................... 12 7 5/8
1998:
Fourth Quarter (ended December 31, 1998)................ 12 15/16 6 7/8
Third Quarter (ended September 30, 1998)................ 14 3/4 7 15/16
Second Quarter (ended June 30, 1998)..................... 17 3/8 10 7/8
The last reported sale price of the Common Stock on the NYSE on March
15, 2000 was $6 3/4. As of March 15, 2000, there were approximately 103 holders
of record of the Common Stock.
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 of Directors 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, the Revolving Credit Facility includes restrictions
on the payment of dividends. As of December 31, 1999, the Company was restricted
from paying dividends under the terms and conditions of the Revolving Credit
Facility.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected combined financial data of the
Company as of and for the year ended December 31, 1998 and 1999, the two months
ended December 31, 1996 and 1997, and each of the three years in the period
ended October 31, 1997. The selected combined statement of operations data for
the two months ended December 31, 1996 and the selected combined balance sheet
data as of October 31, 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, 1997, the two months ended December 31, 1997, and years
ended December 31, 1998 and 1999, and the selected combined balance sheet data
as of October 31, 1996 and 1997, and December 31, 1997, 1998 and 1999 are
derived from the Company's audited financial statements. The audited
consolidated financial statements for certain of these periods are included
elsewhere in this Report.
18
<PAGE>
The selected combined financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
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 Report.
<TABLE>
<CAPTION>
Fiscal Year Ended Two Months Ended Fiscal Year Ended
October 31, (1) December 31, December 31,
---------------------------- ------------------ ---------------------
1995 1996 1997 1996 1997 1998 1999
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Total revenues $ 40,363 $ 45,163 $ 52,043 $ 7,357 $ 8,838 $ 86,333 $110,055
Operating income (2) 7,978 8,914 10,635 924 1,343 20,310 21,035
Net income (loss) (2)(3) $ 1,041 $ 1,175 $ 1,709 $ (170) $ 6 $ 7,508 $ 8,029
Dividends per share (4) -- -- -- -- -- -- --
Net income per share-basic
and diluted (4) -- -- -- -- -- 0.66 0.63
Pro forma net income per
share -- -- 0.24 -- -- -- --
Balance Sheet Data:
Total assets $107,018 $120,087 $124,104 $119,941 $125,117 $244,903 $309,132
Long-term debt and capital
leases 87,942 99,308 100,810 99,522 100,650 130,550 167,950
Other Data:
EBITDA (2)(6) $11,406 $ 13,129 $ 15,410 $ 1,683 $ 2,141 $ 26,425 $ 28,967
Net cash provided by
operating activities 3,586 5,200 6,610 287 1,094 14,271 19,067
</TABLE>
(1) The summary combined financial and other data has been presented as though
(i) the predecessor businesses of WestCoast 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, 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, 1995,
1996 and 1997.
(2) Operating income, net income (loss), and EBITDA reflect a nonrecurring
charge of $422,000 related to final settlement of litigation in 1997.
(3) The Company incurred $546,378 in 1998 and $10,000 in 1999 extraordinary
expense net of income taxes for the write-off of prepayment penalties and
deferred loan fees in connection with the repayment of indebtedness out of
the proceeds of the April 1998 initial public offering.
(4) 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 WestCoast Hospitality
Corporation and BIC. See Combined Statement of Changes in Stockholders'
Equity in the historical financial statements included elsewhere herein.
(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.
(6) EBITDA represents income before income taxes, extraordinary item,
cumulative effect of accounting changes, interest expense (net of interest
income), depreciation, amortization, minority interests, and other income.
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 included in the Revolving Credit Facility and other
considerations.
19
<PAGE>
ITEM 7. 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 two months ended December 31, 1996 and 1997,
and the years ended December 31, 1997, 1998 and 1999. The following should be
read in conjunction with the Consolidated Financial Statements and the notes
thereto and "Selected Financial Data" included elsewhere in this report. 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 the Form S-1 Prospectus filed by
the Company on March 27, 1998, and in the Form S-3 filed by the Company on
February 14, 2000.
The financial statements of the Company, which have been audited by
PricewaterhouseCoopers LLP, have been presented as though the predecessor
businesses of WestCoast Hospitality Corporation (formerly known as Cavanaughs
Hospitality Corporation and Goodale and Barbieri Companies), BIC and their
respective subsidiaries and partnerships which they controlled had been combined
as of October 31, 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 Consolidated Financial Statements. Income or loss attributed to
the minority interests of partners in Cowley Street Limited Partnership and
WestCoast Hospitality Limited Partnership (formerly Cavanaughs Hospitality
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 took 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, third party management contracts,
and other sources, including telephone, guest services, banquet room rentals,
gift shops and other amenities. Hotel revenues accounted for 84.3% of total
revenue in 1999 and increased at a compound annual rate of 49.0% from $41.7
million in 1997 to $92.8 million in 1999. This increase was primarily the result
of the addition of twelve hotels during the period. The balance of the Company's
revenues is derived from its Franchise and Central Services, TicketsWest.com,
Real Estate, and Corporate Services divisions. These revenues are generated from
franchise fees, ticket distribution handling fees, real estate management fees,
sales commissions and rents. In 1999 Franchise and Central Services was not an
operating segment of the Company; however pro forma for the acquisition of
WestCoast Hotels, Inc., it would have produced 2.0% of the revenue,
TicketsWest.com accounted for 6.5% of total revenues and rental operations
accounted for 8.8% of total revenues.
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.
20
<PAGE>
For the year ended December 31, 1999, the Company redefined its
operating segments as (1) Hotels and Restaurants; (2) TicketsWest.com
(entertainment); (3) Real Estate Division, and (4) Franchise and
Central Services. The Franchise and Central Services segment
represents the franchise and marketing division of the Company, which was
acquired with the WestCoast Hotels, Inc. purchase. Due to the timing of the
WestCoast Hotels, Inc. acquisition, this segment had identifiable assets and
capital expenditures at December 31, 1999, but no operations will be reported
until 2000. During 1999, the Company also identified most selling, general and
administrative costs, property operating costs and depreciation and amortization
expenses that were previously undistributed to the segments as costs of the
respective segments. Accordingly, the presentations of the consolidated
statements of operations for all periods presented have been reclassified to
reflect the 1999 classifications.
The following table sets forth selected items from the consolidated
statements of operations as a percent of total revenues and certain other
selected data:
<TABLE>
<CAPTION>
Two Months Ended Year Ended
December 31, December 31,
---------------------- -------------------------------------
1996 1997 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues
Hotels & Restaurants 77.2% 77.3% 80.0% 87.1% 84.3%
TicketsWest.com 2.8 3.7 3.5 2.0 6.5
Real Estate Division 20.0 18.8 16.4 10.6 8.8
Corporate Services & Other 0.0 0.2 0.1 0.3 0.4
------ ------ ------ ------- ------
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------- ------
Direct Operating Expenses 85.8% 82.7% 76.9% 75.1% 79.4%
Undistributed Corporate
Operating Expense 1.7 2.1 2.4 1.4 1.5
Operating Income 12.6 15.2 20.7 23.5 19.1
Interest Expense 17.9 16.1 16.7 9.4 8.5
Income Tax Provision (1.4) (0.1) 1.9 5.0 3.4
Net Income (loss) (2.3)% 0.1% 3.5% 8.7% 7.3%
Hotel Statistics (1)
Hotels open at end of period 7 8 8 19 46
Available Rooms 1,539 1,718 1,718 3,933 8,789
REVPAR (2)(3) $31.93 $36.11 $46.62 $50.30 $44.86
ADR (4) $64.88 $71.22 $74.54 $82.07 $80.80
Occupancy (5) 50.7% 51.8% 62.5% 61.3% 55.5%
</TABLE>
(1) Hotel statistics for the fiscal year ended December 31, 1998 and 1999, are
presented for only Comparable Hotels. Comparable Hotels means Hotels owned
by the Company for greater than one year.
(2) REVPAR represents the total room revenues divided by total available rooms,
net of rooms out of service due to significant renovations.
(3) 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.
(4) ADR represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(5) 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.
21
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998
Total revenues increased $23.8 million, or 27.5%, from $86.3 million in
1998 to $110.1 million in 1999. This increase is attributed primarily to revenue
generated from the full year's effect of the addition of eleven Hotels in 1998,
increases in total rooms occupied and REVPAR increases at the Comparable Hotels
(Hotels owned by the Company for greater than one year). REVPAR increased due to
the increase of average daily rate.
Total hotel and restaurant revenues increased $17.6 million, or 23.5%,
from $75.2 million in 1998 to $92.8 million in 1999. Comparable Hotel ADR
increased $2.53, or 3.2%, from $78.26 in 1998 to $80.80 in 1999. Comparable
Hotel REVPAR increased $0.21, or 0.5%, from $44.65 in 1998 to $44.86 in 1999.
The Company acquired eleven Hotels in 1998, which added 559,808 available rooms,
in 1998 and in 1999 added 300,329 rooms over 1998. The Company completed the
acquisition of WestCoast Hotels, Inc., effective December 31, 1999 which adds
258,055 roomnights under ownership, and 1,511,830 roomnights which the Company
has management or franchise contracts. Due to the timing of the WestCoast
Hotels, Inc. acquisition, it did not affect 1999 operating results.
TicketsWest.com revenues increased $5.5 million, or 324.9%, from $1.7
million in 1998 to $7.2 million in 1999. TicketsWest.com revenue increased
primarily from increased shows presented by the Company, increased attendance at
entertainment events and the addition of revenue from the expansion of the
Company through the acquisition of Fastixx, Colorado Neighborhood Box Office,
and the expansion of Internet services and fees.
Real Estate Division revenue increased $0.5 million, or 5.1%, from $9.2
million in 1998 to $9.6 million in 1999 primarily from lease escalations and new
lease contracts in the Company's office and retail buildings.
Direct operating expenses increased $22.6 million, or 34.9%, from $64.8
million in 1998 to $87.4 million in 1999, primarily due to the increase in the
number of hotel guests served, the full year's cost effects, of the addition of
eleven hotels during 1998, and the increased costs of entertainment presented by
the TicketsWest.com division. This represents an increase in direct operating
expenses as a percentage of total revenues from 75.1% in 1998 to 79.4% in 1999.
The increase in direct operating expense percentages is primarily attributed to
the increase in entertainment costs for events presented by the Company, and
increased hotel operating expenses and depreciation for operating the eleven
acquired hotels for the full year including the seasonally lower profit portions
of the year in 1999.
Total undistributed corporate operating expenses increased $0.4
million, or 33.2%, from $1.2 million in 1998 to $1.6 million in 1999. Total
undistributed corporate operating expenses as a percentage of total revenues
increased 0.1% from 1.4% in 1998 to 1.5% in 1999.
Operating income increased $0.7 million, or 3.6%, from $20.3 million in
1998 to $21.0 million in 1999. As a percentage of total revenues, operating
income decreased from 23.5% in 1998 to 19.1% in 1999. This decrease is due
primarily due to the increase in direct operating expenses of TicketsWest.com
and seasonality of operating income margins for the eleven hotels acquired in
the higher profit period of 1998.
Interest expense increased $1.3 million, or 15.5%, from $8.1 million in
1998 to $9.4 million in 1999. This increase is primarily related to borrowings
associated with the acquisition of the eleven hotels
22
<PAGE>
during 1998 and an increase in the weighted average interest rate charged the
Company for its variable interest debt.
Income tax provision declined 13.3%, from $4.3 million in 1998 to $3.7
million in 1999, due to the Company qualifying for a historical restoration tax
credit and the decrease in income before taxes. The effective income tax
provision rate was 34.9% and 31.4% for 1998 and 1999 respectively.
The Company recorded a charge related to a change in accounting
principle for unamortized startup costs required by Statement of Position 98-5
of $133,000, net of income taxes.
Net income increased $0.5 million, or 6.9%, from $7.5 million in 1998
to $8.0 million in 1999.
Earnings per share before extraordinary item and cumulative effect of
accounting change, decreased 9.9% from $0.71 in 1998 to $0.64 in 1999.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO THE UNAUDITED YEAR ENDED DECEMBER
31, 1997
Total revenues increased $32.8 million, or 61.3%, from $53.5 million in
1997 to $86.3 million in 1998. This increase is attributed primarily to revenue
generated from the addition of eleven Hotels in the period, increases in total
rooms occupied and REVPAR increases at the Comparable Hotels (Hotels owned by
the Company for greater than one year).
Total hotel and restaurant revenues increased $32.4 million, or 75.6%,
from $42.8 million in 1997 to $75.2 million in 1998. Comparable Hotel ADR
increased $7.53, or 10.1%, from $74.54 in 1997 to $82.07 in 1998. Comparable
Hotel REVPAR increased $3.68, or 7.9%, from $46.62 in 1997 to $50.30 in 1998.
The Company acquired eleven Hotels in 1998 which added 559,808 available rooms,
an increase of 102%.
TicketsWest.com revenues decreased $0.2 million, or 10.5%, from $1.9
million in 1997 to $1.7 million in 1998. TicketsWest.com revenue decreased
primarily from lower attendance at entertainment events.
Real Estate Division revenue increased $0.4 million, or 4.8%, from $8.8
million in 1997 to $9.2 million in 1998 primarily from lease escalations and new
lease contracts in the Company's office and retail buildings.
Direct operating expenses increased $23.6 million, or 57.4%, from $41.2
million in 1997 to $64.8 million in 1998, primarily due to the increase in the
number of hotel guests served. This represents a decline in direct operating
expenses as a percentage of total revenues from 76.9% in 1997 to 75.1% in 1998.
The improvement in direct operating expense percentages is attributed to the
increase in room revenue while the Company was able to effectively control
expenses and gain volume efficiencies.
Total undistributed corporate operating expenses decreased $0.1
million, or 7.0%, from $1.3 million in 1997 to $1.2 million in 1998. Total
undistributed corporate operating expenses as a percentage of total revenues
decreased 1.0% from 2.4% in 1997 to 1.4% in 1998. The decrease in undistributed
corporate operating expenses as a percentage of total revenues is primarily
attributed to the increase in Comparable Hotel REVPAR and the addition of eleven
Hotels which the Company believes has lead to greater efficiencies.
Operating income increased $9.2 million, or 83.4%, from $11.1 million
in 1997 to $20.3 million in 1998. As a percentage of total revenues, operating
income increased from 20.7% in 1997 to 23.5% in
23
<PAGE>
1998. This increase is due primarily to an increase in REVPAR, the addition of
eleven hotels and improvements in the hotel departmental margins.
Interest expense decreased $0.8 million, or 9.2%, from $8.9 million in
1997 to $8.1 million in 1998. This decrease is primarily related to the
repayment of debt with the proceeds from the initial public offering and the
reduction of the weighted average interest rate charged the Company for its
remaining debt. Interest expense initially declined as a result of the
application of the net proceeds of the offering, but is expected to increase in
the future due to the funding of hotel acquisitions with additional debt.
Income tax provision increased 338.4%, from $1.0 million in 1997 to
$4.3 million in 1998, due to the increase in income before taxes. The effective
income tax provision rate was 34.1% and 34.9% for 1997 and 1998 respectively.
The Company recorded an extraordinary item related to prepayment
penalties and the write-off of deferred loan fees of $546,000 net of $282,000 of
income taxes due to the repayment of debt with proceeds from the initial public
offering.
Net income increased $5.6 million, or 295.3%, from $1.9 million in 1997
to $7.5 million in 1998.
Earnings per share before extraordinary item increased 165% from $0.27
in 1997 to $0.71 in 1998.
COMPARISON OF TWO MONTHS ENDED DECEMBER 31, 1997 TO TWO MONTHS ENDED DECEMBER
31, 1996
The Company is including this stub period financial information due to
the change in fiscal year end from October 31, to December 31, as of the fiscal
year beginning January 1, 1998.
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.
TicketsWest.com revenues increased $0.1 million, or 61.8%, from $0.2
million in the last two months of 1996 to $0.3 million in the comparable period
of 1997. TicketsWest.com revenue increased due to the greater number of
Company-presented shows and attendance at such shows.
Real Estate Division revenue increased $0.2 million, or 13.1%, from
$1.5 million in the last two months of 1996 to $1.7 million in the comparable
period of 1997. The increase is primarily attributed to the increase in third
party management contracts.
24
<PAGE>
Direct operating expenses increased $1.0 million, or 15.8%, from $6.3
million in the last two months of 1996 to $7.3 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 a decrease in
direct operating expenses as a percentage of total revenues from 85.8% in the
last two months of 1996 to 82.7% in the comparable period of 1997 which is
primarily attributable to the higher variable costs associated with the Broadway
shows, offset with lower depreciation expenses as a ratio to total revenue.
Total undistributed corporate operating expenses increased $0.1
million, or 51.2%, from $0.1 million in the last two months of 1996 to $0.2
million in the comparable period of 1997. Total undistributed corporate
operating expenses as a percentage of total revenues increased 0.4% from 1.7% in
the last two months of 1996 to 2.1% in the comparable period of 1997.
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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of liquidity have been
cash on hand, cash generated by operations and borrowings under an $100.0
million revolving credit facility. Cash generated by operations in excess of
operating expenses is used for capital expenditures and to reduce amounts
outstanding under the Revolving Credit Facility. The Company has increased the
Revolving Credit Facility to $120 million effective January 3, 2000. 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 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.
At December 31, 1999, the Company had $4.4 million in cash and cash
equivalents. The Company has made extensive capital expenditures over the last
three years, $6.2 million, $123.6 million, and $63.3 in owned and joint venture
properties in 1997, 1998, and 1999, respectively. These expenditures included
guest room, lounge and restaurant renovations, public area refurbishment,
telephone
25
<PAGE>
and computer system upgrades, tenant improvements, property acquisitions,
construction, and corporate expenditures and were funded from the initial public
offering, issuance of operating partnership units, 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 2000 are expected to be approximately $8.4 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 a Revolving Credit Facility. The Revolving Credit Facility has a
term ending May 2003 and an annualized fee for the unutilized portion of the
facility. The Company selects 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 180 to 325 basis points, depending on the Company's ratio
of EBITDA-to-total funded debt. The Revolving Credit Facility allows 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 and additional debt instruments will be sufficient to meet the
Company's near term growth plans. The Operating Partnership is the borrower
under the Revolving Credit Facility. The obligations of the Operating
Partnership under the Revolving Credit Facility are fully guaranteed by the
Company. Under the Revolving Credit Facility, the Company is permitted to grant
new deeds of trust on any future acquired properties. Mandatory prepayments are
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 contains various representations,
warranties, covenants and events of default deemed appropriate for a Credit
Facility of similar size and nature. Covenants and provisions in the definitive
credit agreement governing the Revolving Credit Facility 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 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. At December
31, 1999, the Company had $101.3 million outstanding under the Revolving Credit
Facility and was in compliance with all required covenants. The Revolving Credit
Facility restricted the Company from paying any dividends as of December 31,
1999.
In addition to the Revolving Credit Facility, as of December 31, 1999,
the Company had debt and capital leases outstanding of approximately $66.7
million consisting of primarily variable and fixed rate debt secured by
individual properties.
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 additional debt financing, 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
26
<PAGE>
acquisitions, will be met through a combination of net cash provided by
operations, borrowings and additional issuances of Common Stock or OP Units.
SEASONALITY
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, 1999, our revenues in the first through fourth quarters were 20.1%,
25.4%, 30.7% and 23.8%, respectively, of our total revenue for such year and our
net income for the first through fourth quarters was 4.4%, 37.5%, 48.9% and
9.2%, respectively, of our total net income for that year. Quarterly earnings
also may be adversely affected by events beyond our control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
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 ASSESSMENT
The "Year 2000 problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results.
The Company completed its assessment, modification or replacement of
systems, which it determined would not be compliant prior to December 31, 1999.
We have not experienced any significant system failures from the Year 2000
problem and do not anticipate any significant problems will arise in the future.
The costs to complete the evaluation, modifications, and replacement of systems
not compliant with the Year 2000 were not significant. The main system that was
replaced was the Company's payroll system, which had been scheduled to be
replaced for reasons other than the Year 2000 problem.
Due to the complexity of the various computer systems, problems may
still arise related to the Year 2000 problem that have not been exposed or
anticipated. The risks associated with these potential system failures are
difficult to measure. The Company cannot guarantee that its efforts will prevent
all consequences and also relies on third party vendors to correct any problems
in their systems, which could affect the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-up Activities" was issued. The SOP requires that all costs of
start-up activities and organization costs be expensed as incurred. The Company
adopted the provisions of SOP 98-5 on January 1, 1999 and reported the change as
a cumulative effect of an accounting change in the consolidated statement of
operations. The adoption of SOP 98-5, resulted in a charge to operations of
$133,000, which is net of $68,000 of income taxes.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables summarize the financial instruments held by the
Company at December 31, 1999 and 1998, which are sensitive to changes in
interest rates. At December 31, 1999, approximately 79% of the Company's debt
and capital lease obligations are subject to changes in market interest rates
and are sensitive to those changes. The Company has purchased a rate cap
agreement to offset the risk of interest rate changes which limits the interest
charges on $36.0 million of the Revolving Credit Facility when the 30 day LIBOR
exceeds 9.0% plus the applicable margin. In the future, the Company may choose
to use additional derivative instruments, such as interest rate swaps to manage
the risk associated with interest rate changes.
The following table presents principal cash flows for debt and capital
leases outstanding at December 31, 1999, by maturity date and the related
average interest rate.
<TABLE>
<CAPTION>
Outstanding Debt and Capital Lease Obligations (in thousands)
------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
-------- ------- -------- --------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Note payable to bank (a) $ - $ - $ - $ 101,263 $ - $ $ 101,263 $ 101,263
Long-term debt:
Fixed rate 1,359 1,477 2,630 3,198 1,954 21,234 31,852 31,852
Weighted-average
interest rate 7.56% 7.31% 7.31% 7.24% 7.13% 6.64% -% -%
Variable rate 1,387 965 1,042 1,121 1,400 20,243 26,158 26,158
Weighted-average
interest rate 7.74% 7.54% 7.60% 7.59% 7.62% 7.19% -% -%
Capital lease
obligations 623 485 359 259 - - 1,726 1,726
Weighted-average
interest rate 7.99% 8.21% 8.64% 8.64% -% -% -% -%
</TABLE>
- ------------------
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 180 - 325 basis points. At December 31, 1999, the interest margin
was 250 basis points.
The following table presents principal cash flows for debt and capital
leases outstanding at December 31, 1998, by maturity date and the related
average interest rate.
<TABLE>
<CAPTION>
Outstanding Debt and Capital Lease Obligations (in thousands)
------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
-------- ------- -------- --------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Note payable to bank (a) $ - $ - $ - $ - $ 82,480 $ - $ 82,480 $ 82,480
Long-term debt:
Fixed rate 320 344 370 897 427 8,996 11,354 13,128
Weighted-average
interest rate 7.28% 7.28% 7.28% 7.25% 7.25% 7.25% -% -%
Variable rate 1,218 1,368 1,458 1,562 1,680 27,048 34,334 34,334
Weighted-average
interest rate 7.56% 7.58% 7.59% 7.61% 7.64% 7.67% -% -%
Capital lease obligations 634 631 496 351 270 - 2,382 2,382
Weighted-average
interest rate 8.00% 8.03% 8.20% 8.64% 8.64% -% -% -%
</TABLE>
- ------------------
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 180 - 250 basis points. At December 31, 1998, the interest margin
was 210 basis points.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Report for information with respect to the
financial statements filed as a part hereof, including financial statements
filed pursuant to the requirements of this Item 8.
Selected Quarterly Data
<TABLE>
<CAPTION>
Unaudited - dollars in thousands except per share amounts
- ---------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 22,148 $ 27,978 $ 33,758 $ 26,171
Operating income 2,920 6,760 8,191 3,164
Income before extraordinary item and
Cumulative effect of change in accounting principle 495 3,013 3,924 740
Extraordinary item, net of income tax benefit (10) - - -
Cumulative effect of change in accounting principle, net
of income tax benefit (133) - - -
Net income 352 3,013 3,924 740
Income per share before extraordinary item and
Cumulative effect of change in accounting principle 0.04 0.24 0.31 0.06
1998
Revenues 14,635 21,062 27,588 23,048
Operating income 2,437 5,337 8,423 4,113
Income (loss) before extraordinary item and
Cumulative effect of change in accounting principle (87) 2,652 4,137 1,352
Extraordinary item, net of income tax benefit - (530) (16) -
Net income (loss) (87) 2,122 4,121 1,352
Income (loss) per share before extraordinary item and
Cumulative effect of change in accounting principle (0.01) 0.21 0.32 0.11
</TABLE>
29
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
WestCoast Hospitality Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' and
partners' equity and of cash flows present fairly, in all material respects, the
financial position of WestCoast Hospitality Corporation (formerly Cavanaughs
Hospitality Corporation) and its subsidiaries at December 31, 1998 and 1999, and
the results of their operations and their cash flows for the year ended October
31, 1997, the two months ended December 31, 1997 and the years ended December
31, 1998 and 1999, in conformity with accounting principles generally accepted
in the United States. 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 of these
financial statements in accordance with auditing standards generally accepted in
the United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for start-up activities in 1999 as
required by a Statement of Position issued by the American Institute of
Certified Public Accountants.
PricewaterhouseCoopers LLP
Spokane, Washington
March 17, 2000
30
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Balance Sheets at December 31, 1998 and 1999
(in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1999
Assets:
Current assets:
Cash and cash equivalents $ 4,267 $ 4,357
Accounts receivable 5,427 7,548
Income taxes refundable 957 --
Inventories 858 1,110
Prepaid expenses and deposits 400 883
------------ -------------
Total current assets 11,909 13,898
Property and equipment, net 227,423 243,237
Intangible assets, net 581 29,613
Other assets, net 4,990 22,384
------------ -------------
Total assets $ 244,903 $ 309,132
============ =============
Liabilities:
Current liabilities:
Accounts payable $ 2,831 $ 4,739
Accrued payroll and related benefits 1,477 3,024
Accrued interest payable 1,518 721
Income taxes payable -- 457
Other accrued expenses 3,883 8,994
Long-term debt, due within one year 1,538 7,445
Capital lease obligations, due within one year 634 623
------------ -------------
Total current liabilities 11,881 26,003
Long-term debt, due after one year 44,150 57,516
Notes payable to bank 82,480 101,263
Capital lease obligations, due after one year 1,748 1,103
Deferred income taxes 6,349 15,617
Minority interest in partnerships 4,364 2,798
------------ -------------
Total liabilities 150,972 204,300
------------ -------------
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value;
no shares issued and outstanding -- --
Common stock - 50,000,000 shares authorized; $0.01 par value;
12,660,847 and 12,925,276 shares issued and outstanding 126 129
Additional paid-in capital 80,892 83,761
Retained earnings 12,913 20,942
------------ -------------
Total stockholders' equity 93,931 104,832
------------ -------------
Total liabilities and stockholders' equity $ 244,903 $ 309,132
============ =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
Two Months Ended Years Ended
Year Ended December 31, December 31,
October 31, ------------------------- ---------------------------
1997 1996 1997 1998 1999
--------------- ------------ ----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Hotels and Restaurants $ 41,662 $ 5,683 $ 6,829 75,172 $ 92,808
TicketsWest.com 1,762 204 330 1,690 7,181
Real Estate Division 8,570 1,467 1,659 9,183 9,649
Corporate Services 49 3 20 288 417
------------ ------------ ----------- ----------- -------------
Total revenues 52,043 7,357 8,838 86,333 110,055
------------ ------------ ----------- ----------- -------------
Operating expenses:
Direct:
Hotels and Restaurants 29,828 4,654 5,513 53,843 68,150
TicketsWest.com 1,301 202 297 1,165 6,683
Real Estate Division 4,263 694 700 3,687 4,469
Corporate Services 5 1 1 8 181
Depreciation and amortization:
Hotels and Restaurants 3,170 487 532 4,481 5,951
TicketsWest.com 62 8 9 46 110
Real Estate Division 1,473 258 237 1,305 1,328
Corporate Services 70 6 20 283 543
------------ ------------ ----------- ----------- -------------
Total direct expenses 40,172 6,310 7,309 64,818 87,415
Undistributed corporate expenses 1,236 123 186 1,205 1,605
------------ ------------ ----------- ----------- -------------
Total expenses 41,408 6,433 7,495 66,023 89,020
------------ ------------ ----------- ----------- -------------
Operating income 10,635 924 1,343 20,310 21,035
Other income (expense):
Interest expense, net of
amounts capitalized (8,817) (1,317) (1,422) (8,127) (9,384)
Interest income 416 92 54 346 367
Other income (expense) 348 13 (4) 90 21
Minority interest in partnerships 59 14 29 (255) (130)
------------ ------------ ----------- ----------- -------------
Income (loss) before income taxes 2,641 (274) -- 12,364 11,909
Income tax provision (benefit) 932 (104) (6) 4,310 3,737
------------ ------------ ----------- ----------- -------------
Income (loss) before extraordinary
item and cumulative effect of change
in accounting principle 1,709 (170) 6 8,054 8,172
Extraordinary item, net of tax benefit -- -- -- (546) (10)
Cumulative effect of change in
accounting principle,
net of tax benefit -- -- -- -- (133)
------------ ------------ ----------- ----------- -------------
Net income (loss) $ 1,709 $ (170) $ 6 7,508 $ 8,029
============ ============ =========== =========== =============
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Statements of Operations Continued
(in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
Two Months Ended Years Ended
Year Ended December 31, December 31,
October 31, ------------------------- -------------------------
1997 1996 1997 1998 1999
------------- ---------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income per share:
Income per share before extraordinary
item and cumulative effect of
change in accounting principle $ -- $ 0.71 $ 0.64
Extraordinary item -- (0.05) --
Cumulative effect of change
in accounting principle -- -- (0.01)
----------- ----------- -----------
Net income per share -
basic and diluted $ -- $ 0.66 $ 0.63
=========== =========== ===========
Weighted-average shares
outstanding - basic 7,072 11,347 12,755
=========== =========== ===========
Weighted-average shares
outstanding - diluted 7,072 11,666 13,096
=========== =========== ===========
Pro forma net income per share -
basic and diluted $ 0.24
===========
Number of shares used
in the pro forma computation 7,072
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Statements of Changes in Stockholders' and Partners' Equity
for the year ended October 31, 1997, the two months ended December 31, 1997 and
the years ended December 31, 1998 and 1999
(in thousands, except share and per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Barbieri
WestCoast Hospitality Corporation Investment Company
--------------------------------------------------------------- -----------------------
Preferred Stock Common Stock Common Stock
----------------------------------------------------- Discount -----------------------
Shares Amount Shares Amount on Stock Shares Amount
---------- ----------- ------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1996 1,100 495 1,858 $ 19 (318) 929 686
Net income (loss)
Distributions to stockholders
and partners
Dividends on WestCoast
Hospitality Corporation
common stock ($102.00
per share)
Dividends on preferred stock
($31.50 per share)
Dividends on Barbieri Invest-
ment Company common
stock ($102.00 per share)
Redemption of stock (92) (1)
--------- ----------- ------------- ------------ ----------- ---------- -----------
Balances, October 31, 1997 1,100 495 1,766 18 (318) 929 686
Net income (loss)
Effect of merger (1,100) (495) 7,070,259 53 318 (929) (686)
--------- ----------- ------------- ------------ ----------- ---------- -----------
Balances, December 31, 1997 0 0 7,072,025 71 0 0 0
Net income
Stock issued for acquisition of
partnership interest 12,228
Stock issued for cash, net of
issuance costs 5,951,250 59
Stock issued under employee stock
purchase plan 18,752
Stock issued to directors and
certain senior management 11,692
Income tax effect of stock grants
Purchase and retirement of stock (405,100) (4)
--------- ----------- ------------- ------------ ----------- ---------- -----------
Balances, December 31, 1998 0 0 12,660,847 126 0 0 0
Net income
Stock issued under employee stock
purchase plan 14,245
Stock issued for acquisition
of subsidiaries 138,884 2
Stock issued to directors and
certain senior management 11,300
Income tax effect of stock grants
Stock isssued for redemption of
operating partnership units 100,000 1
--------- ----------- ------------- ------------ ----------- ---------- -----------
Balances, December 31, 1999 0 0 12,925,276 $ 129 0 0 0
========= =========== ============= ============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional
Partners' Paid-In Retained
Deficit Capital Earnings
----------- ------------ -----------
<S> <C> <C> <C>
Balances, October 31, 1996 (796) $ 3,787 5,740
Net income (loss) (101) 1,810
Distributions to stockholders
and partners (1,815)
Dividends on WestCoast
Hospitality Corporation
common stock ($102.00
per share) (188)
Dividends on preferred stock
($31.50 per share) (35)
Dividends on Barbieri Invest-
ment Company common
stock ($102.00 per share) (95)
Redemption of stock (662)
----------- ------------ -----------
Balances, October 31, 1997 (897) 3,125 5,417
Net income (loss) 18 (12)
Effect of merger 810
----------- ------------ -----------
Balances, December 31, 1997 (879) 3,935 5,405
Net income 7,508
Stock issued for acquisition of
partnership interest 879 (879)
Stock issued for cash, net of
issuance costs 81,269
Stock issued under employee stock
stock purchase plan 184
Stock issued to directors and
certain senior management 174
Income tax effect of stock grants (25)
Purchase and retirement of stock (3,766)
----------- ------------ -----------
Balances, December 31, 1998 0 80,892 12,913
Net income 8,029
Stock issued under employee stock
purchase plan 101
Stock issued for acquisition
of subsidiaries 1,050
Stock issued to directors and
certain senior management 167
Income tax effect of stock grants (26)
Stock isssued for redemption of
operating partnership units 1,577
----------- ------------ -----------
Balances, December 31, 1999 0 $ 83,761 20,942
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Two Months Ended Years Ended
Year Ended December 31, December 31,
October 31, ------------------------- --------------------------
1997 1996 1997 1998 1999
-------------- ----------- ----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,709 $ (170) 6 $ 7,508 8,029
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,775 759 798 6,115 7,932
Gain on disposition of property and equipment (322) -- -- (80) --
Deferred income tax provision (benefit) 948 -- (2) 934 2,392
Minority interest in partnerships (59) (14) (29) 255 130
Extraordinary item, write-off of deferred loan fees -- -- -- 546 10
Cumulative effect of change in accounting principle -- -- -- -- 133
Compensation expense related to stock issuance -- -- -- 174 167
Change in assets and liabilities, net of effects
of purchase of subsidiaries:
Accounts receivable (1,086) (675) 21 (2,642) (524)
Inventories (2) 15 (51) (431) (158)
Prepaid expenses, deposits and income
taxes refundable (733) 195 28 (2) (1,559)
Accounts payable and income
taxes payable 483 (24) 971 (430) 875
Accrued payroll and related benefits 13 (248) 140 494 (51)
Accrued interest payable 30 (27) (52) 829 (896)
Other accrued expenses 854 476 (736) 1,001 2,587
----------- ---------- --------- ----------- ----------
Net cash provided by operating activities 6,610 287 1,094 14,271 19,067
----------- ---------- --------- ----------- ----------
Investing activities:
Additions to property and equipment (6,192) (1,589) (2,400) (7,772) (10,829)
Proceeds from disposition of property and equipment 1,159 -- -- 172 --
Cash paid for acquisition of property and
equipment or subsidairies, net of cash received -- -- -- (99,356) (1,079)
Payment for purchase option agreement (500) -- -- -- --
Issuance of note receivable -- -- -- (17,112) (358)
Payment received on note receivable -- -- -- 17,112 --
Other, net (735) 66 (894) (1,789) (1,306)
----------- ---------- --------- ----------- ----------
Net cash used in investing activities (6,268) (1,523) (3,294) (108,745) (13,572)
----------- ---------- --------- ----------- ----------
Financing activities:
Distributions to stockholders and partners (1,815) (353) -- (93) (118)
Dividends to stockholders (318) -- -- -- --
Proceeds from note payable to bank -- -- 1,075 84,405 8,680
Repayment of note payable to bank -- -- -- (3,135) (11,260)
Proceeds from long-term debt 10,559 7,595 2,982 8,433 --
Repayment of long-term debt (9,539) (7,435) (3,029) (70,655) (1,633)
Proceeds from sale of stock, net of issuance costs -- -- -- 81,328 --
Purchase and retirement of common stock (663) -- -- (3,770) --
Proceeds from issuance of common stock under
employee stock purchase plan -- -- -- 184 101
Principal payments on capital lease obligations (659) (68) (113) (537) (656)
Advances from (payments to) affiliate 1,333 -- (200) (1,133) --
Additions to deferred financing costs -- -- -- (1,241) (519)
----------- ---------- --------- ----------- ----------
Net cash provided by (used in) financing
activities (1,102) (261) 715 93,786 (5,405)
----------- ---------- --------- ----------- ----------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents (760) (1,497) (1,485) (688) 90
Cash and cash equivalents at beginning of period 7,200 7,200 6,440 4,955 4,267
----------- ---------- --------- ----------- ----------
Cash and cash equivalents at end of period $ 6,440 $ 5,703 4,955 $ 4,267 $ 4,357
=========== ========== ========== =========== ==========
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows, Continued
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
Two Months Ended Years Ended
Year Ended December 31, December 31,
October 31, ------------------------- --------------------------
1997 1996 1997 1998 1999
------------ ----------- ----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized) $ 8,787 $ 1,344 1,474 $ 7,297 10,280
Income taxes 1,646 -- -- 3,554 2,043
Noncash investing and financing activities:
Assumption of capital leases $ 641 $ 122 -- $ 278 --
Issuance of note payable for purchase option 500 -- -- -- --
Issuance of operating partnership units for
property acquisitions -- -- -- 3,677 --
Acquisitions of property through debt,
liabilities or reduction of note receivable -- -- -- 10,066 43,896
Stock issued for partial acquisition of partner-
ship interest -- -- -- 879 --
Issuance of stock for acquisition of subsidairies -- -- -- -- 1,052
Issuance of stock for operating partnership units -- -- -- -- 1,578
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
36
<PAGE>
WestCoast Hospitality Corporation
Notes to Consolidated Financial Statements
(Information for the two months ended December 31, 1996 is unaudited)
- --------------------------------------------------------------------------------
1. Organization:
Effective December 31, 1999, Cavanaughs Hospitality Corporation
acquired all of the outstanding stock of WestCoast Hotels, Inc. In
February 2000, the Company changed its name to WestCoast Hospitality
Corporation. All references herein to WestCoast Hospitality Corporation
or WestCoast refer to the consolidated entity including Cavanaughs
Hospitality Corporation as the predecessor entity. WestCoast Hospitality
Corporation is a hotel operating company that owns, operates,
franchises, acquires, develops, renovates and repositions full service
hotels in the Western United States under its proprietary brand names,
"Cavanaughs (R)" and "WestCoast (R)". Substantially all of WestCoast's
assets, including the hotels, are owned by or for the benefit of
WestCoast Hospitality Limited Partnership (WHLP) (formerly Cavanaughs
Hospitality Limited Partnership), a Delaware limited partnership.
WestCoast Hospitality Corporation manages the day to day operations of
the partnership in its capacity as sole general partner.
At December 31, 1997, the Company controlled and operated eight hotel
properties. At December 31, 1998, the Company controlled and operated 19
hotel properties. As of December 31, 1999, the Company has ownership
interests and operated 24 hotel properties, managed an additional 9
properties and franchised an additional 13 properties, totaling 46
hotels in 9 states, including Alaska, Arizona, California, Hawaii,
Idaho, Montana, Oregon, Utah and Washington. Additionally, the Company
provides computerized ticketing for entertainment events and arranges
Broadway and other entertainment event productions. Also, during the
second quarter of 1999, the Company launched TicketsWest.com, an
Internet ticketing service offering consumers up-to-the-minute
information on live entertainment and the ability to make real-time
ticket purchases to events through the website. The Company owns and
manages ticketing operations in Colorado, Idaho, Montana, Oregon and
Washington. The Company also leases retail and office space in buildings
owned by the Company and manages residential and commercial properties
for others in Idaho, Montana and Washington.
The consolidated financial statements as of and for the year ended
December 31, 1999 include the accounts of WestCoast Hospitality
Corporation, its wholly owned subsidiaries, its general and limited
partnership interest in WHLP, a 50% interest in a limited partnership
and its equity basis investment in three limited partnerships. All of
these entities are collectively referred to as "the Company" or
"WestCoast"." All significant intercompany transactions and amounts have
been eliminated in the consolidated financial statements.
Prior Restructuring
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, are being operated autonomously
and do not have material financial commitments, guarantees or contingent
liabilities associated with the Company. Accordingly, these operations
have been excluded from the consolidated 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.
37
<PAGE>
1. Organization, Continued:
Prior Restructuring, Continued
In November 1997, the Company contributed all of its assets to WHLP
in exchange for the general partnership interest (which holds a 1%
interest in WHLP) and limited partnership interests. Operating Units (OP
Units) of WHLP were issued as limited partnership interests. OP Units
are convertible to common stock of WestCoast Hospitality Corporation on
a one-for-one basis.
Prior to January 1, 1998, the combined financial statements included
the operations of WestCoast Hospitality Corporation (including its
merged and predecessor entities which included Barbieri Investment
Company (BIC)) and G & B: Lincoln Building Limited Partnership (Lincoln
Building) as these entities were under common control. On January 1,
1998, the Company issued common stock and OP Units in WHLP to the
partners of Lincoln Building in exchange for the assets and liabilities
of Lincoln Building.
Effective December 31, 1997, the Company changed its fiscal year end
from October 31 to December 31; therefore, the consolidated financial
statements presented herein are audited as of and for the two months
ended December 31, 1997 with comparative unaudited consolidated
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 consolidated
financial statements. At December 31, 1999, these accounts totaled
approximately $1,824,000.
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:
Buildings 25-40 years
Equipment 5-20 years
Furniture and fixtures 15 years
Landscaping and land improvements 15 years
38
<PAGE>
2. Summary of Significant Accounting Policies, Continued:
Property and Equipment, 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 year ended October 31,
1997, the two months ended December 31, 1996 and 1997 and the years
ended December 31, 1998 and 1999, the Company capitalized
approximately $6,000, $12,000, $17,000, $363,000 and $550,000 of
interest costs, respectively.
Intangible Assets
Intangible assets consist of brand name and goodwill
attributable to the purchase price of acquisitions which were in
excess of the estimated fair values of net tangible and identifiable
intangible assets acquired. These assets are being amortized over
20-40 years. Accumulated amortization at December 31, 1998 and 1999
was approximately $302,000 and $365,000, respectively. Intangible
assets are reviewed for impairment whenever events or changes in
business circumstances indicate the carrying value of the assets may
not be recoverable. Impairment losses are recognized if expected
future cash flows of the assets are less than their carrying values.
Other Assets
Other assets primarily include amounts expended for management
and marketing contracts, deferred loan fees, purchase option
payments, straight-line rental income, a minority interest in a
limited liability company and investments in partnerships. The cost
of management and marketing contracts are amortized over the
weighted-average remaining term of the contracts. Deferred loan fees
are amortized using the interest method over the term of the related
loan agreement. The Company has deferred purchase option payments
made pursuant to purchase agreements for hotel properties which are
currently being leased and operated by the Company. If the option is
exercised, the option payments will be amortized as part of the
purchase price of the hotels. If the option is not exercised, the
option payments will be charged to operations.
The Company's investment in the limited liability company is
accounted for under the cost method. Investment in a partnership
over which the Company can exercise significant influence is
accounted for by the equity method, under which the Company
recognizes its proportionate share of partnership earnings and
treats distributions as a reduction in its investment.
Income Taxes
Prior to their merger, WestCoast Hospitality Corporation and BIC
filed separate federal and state income tax returns. WHLP and the
other partnerships which are partially or wholly owned by WestCoast
Hospitality Corporation 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 consolidated balance
sheets. Rental
39
<PAGE>
2. Summary of Significant Accounting Policies, Continued:
Lease Income, Continued
income from retail lessees which is contingent upon the lessees'
revenues is recorded as income in the period earned.
Earnings Per Share
Net income per share - basic is computed by dividing net income
by the weighted-average number of common shares outstanding during
the period. Net income per share - diluted is computed by adjusting
net income by the effect of the minority interest related to OP
Units and increasing the weighted-average number of common shares
outstanding by the effect of the OP Units and the additional common
shares that would have been outstanding if the dilutive potential
common shares (stock options) had been issued, to the extent that
such issuance would be dilutive. There is no difference between
basic and diluted earnings per share because the stock options are
antidilutive in 1998 and 1999.
Due to the combination of the companies and partnerships,
historical earnings per share information prior to the combination
described in Note 1 is not relevant or meaningful. Therefore, only
pro forma earnings per share for the year ended October 31, 1997 has
been presented based upon the number of common shares of WestCoast
Hospitality Corporation which were outstanding after the merger of
the companies and partnerships.
Accounting for Stock Options
As permitted by Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation", the
Company has chosen to measure compensation cost for stock-based
employee compensation plans using the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and to provide the
disclosure only requirements of SFAS 123.
New Accounting Pronouncement
In April 1998, Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-up Activities" was issued. The SOP requires that
all costs of start-up activities and organization costs be expensed
as incurred. The Company adopted the provisions of SOP 98-5 on
January 1, 1999 and reported the change as a cumulative effect of an
accounting change in the consolidated statement of operations. The
adoption of SOP 98-5 resulted in a charge to operations of $133,000,
which is net of $68,000 of income taxes.
Reclassifications
For the year ended December 31, 1999, the Company redefined its
operating segments as (1) Hotels and Restaurants; (2)
TicketsWest.com (entertainment); and (3) Real Estate Division. With
the acquisition of WestCoast Hotels, Inc. on December 31, 1999, a
fourth segment, Franchise and Central Services, was created.
However, this segment will not have any operations until 2000.
During 1999, the Company also identified most selling, general and
administrative costs, property operating costs and depreciation and
amortization expenses that were previously undistributed to the
segments as costs of the respective segments. Accordingly, the
presentation of the consolidated statements of operations for all
periods presented have been reclassified to reflect the 1999
classifications. These reclassifications and others to conform the
prior financial statements to the 1999 presentation had no effect on
net income (loss) or retained earnings as previously reported.
40
<PAGE>
2. Summary of Significant Accounting Policies, Continued:
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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 December 31, 1998 and 1999 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Buildings and equipment $ 191,680 $ 207,595
Furniture and fixtures 14,926 15,953
Equipment acquired under capital leases 4,633 4,197
Landscaping and land improvements 1,260 1,477
------------- ------------
212,499 229,222
Less accumulated depreciation and amortization (40,302) (47,612)
------------- ------------
172,197 181,610
Land 54,056 54,056
Construction in progress 1,170 7,571
------------- ------------
$ 227,423 $ 243,237
============= ============
</TABLE>
Depreciation expense for the year ended October 31, 1997, the two
months ended December 31, 1996 and 1997 and the years ended December 31,
1998 and 1999 was approximately $4,776,000, $736,000, $766,000,
$5,691,000 and $7,336,000, respectively.
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 December 31,
1998 and 1999 is as follows (amounts outstanding in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Note payable in monthly installments of $79,828 including interest at
7.25%, through June 2006, collateralized by real property $ 10,855 $ 10,535
Note payable in monthly installments of $64,637 including interest at a
variable rate (7.36% at December 31, 1998 and 1999), through
September 2007, collateralized by assignment of certain rental income 7,602 7,488
Note payable in monthly installments of principal and interest at 7%,
through January 2010 convertible into common stock of the Company
at $15 per share -- 7,000
Industrial revenue bonds payable in monthly installments of $73,668
including interest at a variable rate (7.65% at December 31, 1998 and
5.9% at December 31, 1999), through May 2009, collateralized by real
property 7,182 6,818
</TABLE>
41
<PAGE>
4. Long-Term Debt, Continued:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Note payable in monthly installments of $65,393, including interest at a
variable rate (7.79% at December 31, 1998 and 7.25% at December 31,
1999), through June 2018, collateralized by real property $ 6,985 $ 6,819
Note payable in monthly installments of $53,517, including interest at 8%,
through July 2005, collateralized by real property -- 5,310
Note payable in monthly installments of $56,875 including interest at a
variable rate (9.0% at December 31, 1998 and 1999), through April
2004, collateralized by real property 4,654 4,523
Note payable in monthly installments of interest only at a variable rate
(8.5%, at December 31, 1999), paid in full January 2000 -- 4,500
Note payable in monthly installments of $23,006 including interest at a
variable rate (8.25% at December 31, 1998 and 7.50% at December 31,
1999), through January 2008, collateralized by real property 2,649 2,569
Commercial loan payable in monthly installments of interest only at a variable
rate of LIBOR plus 2.5% (7.75% at December 31, 1999) plus annual
principal installments of $200,000, through October 2002, paid in full
January 2000 -- 2,450
Industrial revenue bonds payable in monthly installments of $19,167 in-
cluding interest at a variable rate (4.2% at December 31,
1998 and 4.4% at December 31, 1999), through January 2007,
collateralized by real property 2,271 2,041
Note payable in monthly installments of $18,845 including interest at an
index rate plus 1.5%, subject to a minimum of 9.5% and a maximum of
12.0% (10.0% at December 31, 1998 and 1999), through December 2011,
collateralized by real property 1,630 1,564
Note payable in monthly installments of $10,430, including interest at 7.42%,
through December 2003 -- 1,396
Note payable in monthly installments of $9,076, including interest at a
variable rate (7.7% at December 31, 1998 and 7.15% at December 31,
1999), through November 2009, collateralized by certain equipment and
furniture and fixtures 711 669
Note payable in monthly installments of $7,024 including interest at a variable
rate (9.25% at December 31, 1998 and 8.75% at December 31, 1999),
paid in full in March 2000 523 485
Note payable of interest only at 8.0% until maturity in October 2002, collater-
alized by letter of credit 500 500
Other 126 294
--- ------
45,688 64,961
Less current portion (1,538) (7,445)
--------- --------
Non current portion $ 44,150 $ 57,516
========= =========
</TABLE>
42
<PAGE>
4. Long-Term Debt, Continued:
The Company used the net proceeds of its initial public offering of
common stock to repay approximately $68.6 million of debt during the
year ended December 31, 1998. Additionally, certain debt was also repaid
during the year ended December 31, 1999. In connection with the debt
repayment, approximately $546,000 of deferred loan fees and prepayment
penalties, net of $282,000 income taxes, were charged to operations
during the year ended December 31, 1998. During the year ended December
31, 1999, $10,000 of deferred loan fees, net of $5,000 income taxes were
charged to operations. These charges are presented as an extraordinary
item on the consolidated statements of operations.
Contractual maturities for long-term debt outstanding at December 31,
1999 are summarized by year as follows (in thousands):
Years Ending
December 31,
---------------
2000 $ 7,445
2001 2,643
2002 5,723
2003 4,319
2004 3,354
Thereafter 41,477
------------
$ 64,961
============
5. Capital Lease Obligations:
The Company leases certain equipment under capital leases. The
imputed interest rates on the leases range from 8.0% to 8.6%. Cost and
accumulated amortization of the equipment as of December 31, 1998 are
approximately $4,633,000 and $1,799,000, respectively. Cost and
accumulated amortization of this equipment as of December 31, 1999 are
approximately $4,197,000 and $1,812,000, respectively.
Future minimum lease payments due under capital leases at December
31, 1999 are as follows (in thousands):
Years Ending
December 31,
-----------------
2000 $ 725
2001 561
2002 400
2003 270
------------
Total minimum lease payments 1,956
Less amount representing interest (230)
------------
Total obligations under capital lease 1,726
Less current portion (623)
------------
$ 1,103
============
43
<PAGE>
6. Notes Payable to Bank:
In May 1998, the Company obtained an $80 million revolving credit
facility with a consortium of banks. In December 1998, the Company
received a commitment to amend the credit facility to increase the total
amount available under the facility to $100 million. In December 1999,
in connection with the WestCoast Hotels, Inc. acquisition (see Note 13),
the credit facility was amended to increase the total amount available
under the facility to $120 million. The credit facility is
collateralized by certain property and requires that the Company
maintain certain financial ratios, minimum levels of cash flows and
restricts the payment of dividends. Any outstanding borrowings bear
interest based on the prime rate or LIBOR. At December 31, 1999, the
interest rate on outstanding borrowings ranged from 8.44% to 8.75%. The
weighted-average interest rate on outstanding borrowings was 7.27% and
8.47% at December 31, 1998 and 1999, respectively. Interest only
payments are due monthly. The credit facility matures in 2003. The
credit facility requires the initial payment of a 1% fee plus an annual
standby fee ranging from 0.25% to 0.50% (0.35% at December 31, 1999).
Additionally, in connection with the December 1999 amendment, a $950,000
fee was paid. The Company was in compliance with all required covenants
at December 31, 1998 and 1999. The debt agreement allows the Company to
pay dividends as long as certain minimum financial ratios are
maintained. At December 31, 1998 and 1999, the Company was restricted
from paying any dividends.
In January 2000, the Company obtained a rate cap protection
contract for $36 million of its credit facility. For a period of 3
years, the Company is protected from LIBOR exceeding 9%. The rate
protection contract is transferable.
At December 31, 1998, in addition to the $76,300,000 outstanding
under the credit facility, the Company also had a $6,180,000 note
payable to the lead bank under the credit facility. Interest only at a
variable rate (7.79% at December 31, 1998) was payable monthly. This
note was paid in full in January 1999.
7. Stockholders' Equity and Initial Public Offering:
After the mergers described in Note 1 were completed, the Articles of
Incorporation of the Company 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 stockholders of the former companies which were merged
received a total of 7,072,025 newly issued shares in exchange for all of
their outstanding shares.
In April 1998, the Company completed an initial public offering of
5,951,250 shares of common stock at $15 per share. The net proceeds,
after deducting the underwriting discount and offering expenses, of
approximately $81,328,000 were primarily used to repay certain debt and
acquire hotel properties.
8. Income Taxes:
Major components of the Company's income tax provision (benefit) for
the year ended October 31, 1997, the two months ended December 31, 1996
and 1997 and the years ended December 31, 1998 and 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended Two Months Ended Years Ended
October 31, December 31, December 31,
---------------------------- ----------------------------
1997 1996 1997 1998 1999
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ (16) $ (104) $ (4) $ 3,249 1,175
State -- -- -- 127 170
Deferred 948 -- (2) 934 2,392
------------ ------------- ------------ ------------ ------------
$ 932 $ (104) $ (6) $ 4,310 3,737
============ ============= ============ ============ ============
</TABLE>
44
<PAGE>
8. Income Taxes, Continued:
The income tax provisions (benefits) shown in the consolidated
statements of operations differ from the amounts calculated using the
federal statutory rate applied to income (loss) before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Two Months Ended December 31, Years Ended December 31,
October 31, ---------------------------------- --------------------------------------
1997 1996 1997 1998 1999
------------------ ------------------ --------------- ------------------- ------------------
Amount % Amount % Amount % Amount % Amount %
-------- --------- ------- ---------- ------- ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Provision (benefit) at
federal statutory rate 898 34.0 % $ (93) (34.0)% $ -- -- % 4,204 34.0 % $ 4,049 34.0 %
Effect of tax credits (20) (0.7) -- -- -- -- (59) (0.4) (671) (5.6)
State taxes, net of
federal benefit -- -- -- -- -- -- 84 0.7 113 0.9
Other 54 2.0 (11) 4.0 (6) -- 81 0.6 246 2.1
------- ----- ------ ------ ------ ---- -------- ----- -------- -----
$ 932 35.3 % $ (104) (38.0)% $ (6) -- % 4,310 34.9 % $ 3,737 31.4 %
======= ===== ======= ====== ====== ===== ======== ===== ======== =====
</TABLE>
Components of the net deferred tax assets and liabilities at December
31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
--------------------------- ---------------------------
Assets Liabilities Assets Liabilities
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Depreciation on property and equipment $ -- $ 6,222 $ -- 15,459
Rental income -- 437 -- 578
Tax credits 266 -- -- --
Other 44 -- 420 --
------------ ------------- ------------ ------------
$ 310 $ 6,659 $ 420 16,037
============ ============= ============ ============
</TABLE>
9. Operating Lease Income:
The Company 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.
The cost and accumulated depreciation of the commercial office
properties at December 31, 1998 was approximately $34,106,000 and
$9,421,000, respectively. The cost and accumulated depreciation of these
properties at December 31, 1999 was approximately $34,350,000 and
$10,352,000, respectively.
45
<PAGE>
9. Operating Lease Income, Continued:
Future minimum lease income under existing noncancellable leases at
December 31, 1999 is as follows (in thousands):
Years Ending
December 31,
--------------
2000 $ 7,427
2001 6,677
2002 5,711
2003 5,270
2004 4,611
Thereafter 14,849
---------------
$ 44,545
===============
Rental income for the year ended October 31, 1997, the two months
ended December 31, 1996 and 1997 and the years ended December 31, 1998
and 1999 was approximately $6,539,000, $1,191,000, $1,169,000,
$7,155,000 and $7,594,000, respectively, which included contingent rents
of approximately $217,000, $58,000, $93,000, $147,000 and $149,000,
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. The
monthly payments can be increased yearly for inflation.
In 1998, the Company began leasing land at one of its hotel
properties which requires monthly payments based on either gross
receipts from the hotel or a monthly minimum, whichever is greater,
through July 2014, with two 10-year renewal options. At December 31,
1999, monthly minimum lease payments were $5,631. The monthly minimum
payments can be adjusted every three years based on the average monthly
payments. In 1998, the Company began leasing land at one of its hotel
properties, which requires monthly payments of $5,454 through May 2062.
The monthly payments are subject to adjustment annually.
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.
Through the WestCoast Hotels, Inc. acquisition, the Company began
operating a hotel in Bellevue, Washington in January 2000 with an
operating lease and purchase option agreement. The
46
<PAGE>
10. Operating Lease Commitments, Continued:
lease agreement expires on December 31, 2003. The Company pays monthly
lease payments of $27,951 plus "additional rent" as defined in the
agreement. Additional rent includes hotel operating and other costs. The
purchase option is exercisable from January 1, 2000 through July 1, 2002
at the lessor's option and the Company's mutual consent and from July
2002 through December 2003 solely at the Company's option. The total
purchase price of the option is $12 million less amounts representing
the principal portion of the underlying property debt which are included
in "additional rent".
Assuming the Company exercises its purchase options for the Bellevue
hotel in July 2002 and the Yakima hotel in March 2003, total payments
due under all of the Company's leases at December 31, 1999 are as
follows (in thousands):
Years Ending
December 31,
----------------
2000 $ 1,826
2001 1,726
2002 1,533
2003 1,017
2004 292
Thereafter 6,786
--------------
$ 13,180
===============
Total rent expense under the leases (excluding the Bellevue lease)
for the year ended October 31, 1997, the two months ended December 31,
1996 and 1997 and the years ended December 31, 1998 and 1999 was
$54,000, $9,000, $79,000, $573,000 and $675,000, respectively.
11. Related-Party Transactions:
The Company had the following transactions with related parties:
o The Company recorded management fee and other income of
approximately $35,000, $8,000, $17,000, $177,000 and $109,000
during the year ended October 31, 1997, the two months ended
December 31, 1996 and 1997 and the years ended December 31, 1998
and 1999, respectively, for performing management and
administrative functions for entities which are owned by key
stockholders and management of the Company, but are excluded from
the consolidated financial statements.
o The Company received commissions for real estate sales from
entities which are owned or partially owned by key stockholders
and management of the Company, but are excluded from the
consolidated financial statements of $87,000, $3,000, $1,000,
$42,000 and $114,000 for the year ended October 31, 1997, the two
months ended December 31, 1996 and 1997 and the years ended
December 31, 1998 and 1999, respectively.
o During 1998 and 1999, the Company held certain cash and investment
accounts in a bank and had notes payable to the same bank. The
bank's chairman, chief executive officer and president became a
director of the Company in April 1998. At December 31, 1998 and
1999, total cash and investments of approximately $1,306,000 and
$1,811,000, respectively and a note payable totaling approximately
$1,436,000 and $6,818,000 respectively, were outstanding with
this bank. Total interest income of $74,000 and $75,000,
respectively and interest expense of $128,000 and $206,000,
respectively, was recorded related to this bank during the years
ended December 31, 1998 and 1999.
47
<PAGE>
11. Related-Party Transactions, Continued:
o At December 31, 1999, the Company guaranteed $235,000 of a note
which is payable by a limited liability company, in which the
Company holds a minority interest.
o At December 31, 1997, the Company had a $1,133,000 payable to an
affiliated entity due to common control. The payable bore
interest at the prime rate and was paid in full during 1998.
During the two months ended December 31, 1997 and the year ended
December 31, 1998, the Company incurred $16,000 and $26,000 of
interest expense associated with this note.
o Interest expense of approximately $67,000, $11,000, $11,000 and
$0 was incurred related to a $600,000 payable to an affiliated
entity due to common control for the year ended October 31, 1997,
the two months ended December 31, 1996 and 1997 and the year
ended December 31, 1998, respectively. The principal balance was
paid in full during 1998.
12. Employee Benefit and Stock Plans:
1998 Stock Incentive Plan
The 1998 Stock Incentive Plan (the Plan) was adopted by the Board
of Directors in 1998. The Plan authorizes the grant or issuance of
various option or other awards. The maximum number of shares which
may be awarded under the Plan is 1,200,000 shares, subject to
adjustment for stock splits, stock dividends and similar events. The
Compensation Committee of the Board of Directors administers the
Plan and establishes to whom, the type and the terms and conditions,
including the exercise period, the awards are granted.
Nonqualified stock options may be granted for any term specified
by the Compensation Committee and may be granted at less than fair
market value, but not less than par value on the date of grant.
Incentive stock options may be granted only to employees and must be
granted at an exercise price at least equal to fair market value on
the date of grant and have a ten year exercise period. The maximum
fair market value of shares which may be issued pursuant to
incentive stock options granted under the Plan to any individual in
any calendar year may not exceed $100,000. Stock Appreciation Rights
(SARs) may also be granted in connection with stock options or other
awards. SARs 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 award, but alternatively may be based
upon other criteria such as book value. Other awards such as
restricted stock awards, dividend equivalent awards, performance
awards or deferred stock awards may also be granted under the Plan
by the Compensation Committee.
During 1998 and 1999, the Compensation Committee granted 889,919
and 263,915 options, respectively. All options were designated as
nonqualified options, with an exercise price equal to or in excess
of fair market value on the date of grant and for a term of ten
years. Fifty percent of each recipients' 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. The 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 60 consecutive trading days:
Stock Price Percent of Option
Increase Shares Vested
-------- -------------
25% 25%
50% 50%
75% 75%
100% 100%
48
<PAGE>
12. Employee Benefit and Stock Plans, Continued:
1998 Stock Incentive Plan, Continued
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Number Weighted-Average Price Expiration
of Shares Exercise Price Per Share Date
------------ -------------------- ------------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 -- -- $ -- --
Options granted 889,919 15.00 15.00 2008
Options forfeited (54,050) 15.00 15.00
-----------
Balance, December 31, 1998 835,869 15.00 15.00 2008
Options granted 263,915 12.02 7.50-15.00 2009
Options forfeited (122,035) 14.16 10.94-15.00
-----------
Balance, December 31, 1999 977,749 14.30 $ 7.50-15.00 2008-2009
=========== ========= ============
</TABLE>
Remaining options available for grant at December 31, 1998 and
1999 were 364,131 and 222,251, respectively. None of the options
outstanding at December 31, 1999 are exercisable.
The Company uses the intrinsic value method versus the fair
value method of recording compensation expense associated with its
stock options. Accordingly, since all options were granted at
exercise prices equal to or greater than the fair market value of
the common stock on the grant date, no compensation expense has been
recognized in the consolidated statement of operations. Had
compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date consistent with
the provisions of SFAS 123, the Company's net income and income per
share for the years ended December 31, 1998 and 1999 would have been
decreased to the pro forma amounts indicated below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998 1999
------------------------ -------------------------
As Pro As Pro
Reported Forma Reported Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary item and cumulative
effect of change in accounting principle $ 8,054 $ 7,392 $ 8,172 $ 7,232
Extraordinary item (546) (546) (10) (10)
Cumulative effect of change in accounting principle -- -- (133) (133)
----------- ----------- ----------- -----------
Net income $ 7,508 $ 6,846 $ 8,029 $ 7,089
========== =========== ========== ==========
Income per share:
Before extraordinary item and cumulative effect
of change in accounting principle $ 0.71 $ 0.65 $ 0.64 $ 0.57
Extraordinary item (0.05) (0.05) -- --
Cumulative effect of change in accounting principle -- -- (0.01) (0.01)
---------- ---------- ---------- ----------
Net income per share - basic and diluted $ 0.66 $ 0.60 $ 0.63 $ 0.56
========== ========== ========== ==========
</TABLE>
49
<PAGE>
12. Employee Benefit and Stock Plans, Continued:
1998 Stock Incentive Plan, Continued
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 33% 33%
Risk free interest rates 5.55% 5.45%
Expected option lives 4 years 4 years
</TABLE>
The weighted-average life of options outstanding at December 31,
1999 was 8.37 years. The weighted-average fair value of all options
granted during 1998 and 1999 was $7.25 and $4.43 per share,
respectively. The weighted-average fair value and exercise price for
options granted at market value and for those options granted above
market value on the date of grant in 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Weighted-Average Weighted-Average
Fair Value Exercise Price
-------------------- --------------------
1998 1999 1998 1999
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Options granted at market price $ 7.65 $ 5.61 $ 15.00 $ 10.94
Options granted above market price $ 3.99 $ 2.49 $ 15.00 $ 12.98
</TABLE>
In connection with the Company's initial public offering in
1998, the Company also granted 55,000 restricted shares of common
stock to certain members of senior management. Twenty percent of
these shares were issued in 1998 and 1999 and twenty percent will be
issued in each subsequent year provided such employee is an employee
of the Company at that time. The Company recorded compensation
expense of approximately $165,000 during each of the years ended
December 31, 1998 and 1999 associated with these grants.
Employee Stock Purchase Plan
In 1998, the Company adopted the Employee Stock Purchase Plan to
assist employees of the Company in acquiring a stock ownership
interest in the Company. A maximum of 300,000 shares of common stock
is reserved for issuance under this plan. The Employee Stock
Purchase Plan permits eligible employees to purchase common stock at
a discount through payroll deductions. No employee may purchase more
than $25,000 worth of common stock under this plan in any calendar
year. During the years ended December 31, 1998 and 1999, 18,752 and
14,245 shares were purchased under this plan for approximately
$184,000 and $101,000, respectively.
Defined Contribution Plan
The Company and employees contribute to the Cavanaughs
Hospitality Corporation Amended and Restated Retirement and Savings
Plan. 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
50
<PAGE>
12. Employee Benefit and Stock Plans, Continued:
Defined Contribution Plan, Continued
eligibility requirements set forth in the plan document. Company
contributions to the plan for the year ended October 31, 1997, the
two months ended December 31, 1996 and 1997 and the years ended
December 31, 1998 and 1999 were approximately $97,000, $18,000,
$20,000, $161,000 and $204,000, respectively.
Upon the acquisition of WestCoast Hotels, Inc., the Company
acquired two additional defined contribution plans.
13. Acquisitions:
Year Ended December 31, 1999
During 1999, the Company made the following acquisitions, all of
which have been accounted for using the purchase method of
accounting. Accordingly, the results of operations of these entities
have been included in the consolidated statement of operations since
their respective dates of acquisition.
On October 26, 1999, WestCoast acquired substantially all of the
assets of The Show Terminal, LLC (d.b.a. Colorado Neighborhood Box
Office), headquartered in Colorado Springs, Colorado. Colorado
Neighborhood Box Office sells tickets to entertainment events
throughout the Colorado Springs area. On November 1, 1999, WestCoast
acquired Oregon Ticket Company, Inc. (d.b.a. Fastixx), headquartered
in Portland, Oregon. The acquisition increased the number of
TicketsWest.com(TM) outlets from 23 to 116 and expanded the
entertainment division's geographic presence into Oregon and Western
Washington.
The total purchase price of Colorado Neighborhood Box Office and
Fastixx of $3,456,000 was comprised of $2,149,000 cash, the issuance
of a $255,000 note payable, and the issuance of 138,884 shares of
the Company's common stock which was recorded at its fair value
based on quoted market price of $1,052,000. Additionally, the
Fastixx purchase price included contingent consideration to be paid
dependent upon the future operations of the company. The contingent
consideration will be accounted for as goodwill and will be
amortized accordingly when, and if, the contingency is removed and
additional consideration is paid. Goodwill related to these
acquisitions of approximately $3,282,000 is being amortized over 20
years. The results of operations of these two acquisitions for the
year ended December 31, 1998 and the 1999 period prior to the
acquisition by the Company is not material.
Effective December 31, 1999, the Company acquired all of the
outstanding stock of WestCoast Hotels, Inc. This acquisition
resulted in the Company acquiring the following property interests
and contracts:
o 100% interests in two hotels in the Seattle, Washington area
o Limited or co-general partnership interests and management
agreements for three hotels in Seattle, Washington; La Jolla,
California and Phoenix, Arizona
o Management contracts for 9 hotel properties
o Franchise agreements for 13 hotel properties
51
<PAGE>
13. Acquisitions, Continued:
Year Ended December 31, 1999, Continued
The total purchase price of approximately $45.5 million
consisted of $21.4 million cash, issuance of $7 million bonds
payable and assumption of $17.2 million outstanding debt and other
liabilities of WestCoast Hotels, Inc. The $7 million bonds payable
are convertible into common stock of the Company at $15 per share.
The purchase price has been allocated to the estimated fair values
of assets acquired and liabilities assumed. Assets acquired consist
of working capital accounts, management and franchise contracts of
$5.1 million, property and equipment of $11.8 million and
partnership interests and purchase option contracts of $10.9
million. The purchase price in excess of the fair value of the net
assets acquired has been allocated to brand name and goodwill, which
will be amortized over 40 years using the straight-line method. The
assets acquired and liabilities assumed are included on the December
31, 1999 consolidated balance sheet.
Due to the timing of the WestCoast Hotels, Inc. acquisition, the
results of operations of WestCoast Hotels, Inc. will be included in
the consolidated results of operations of the Company commencing
January 1, 2000. The following unaudited pro forma summary presents
the consolidated results of operations of the Company as if the
acquisition of WestCoast Hotels, Inc. had occurred at January 1,
1999 (in thousands, except per share data):
Revenue $ 125,311
==========
Income before extraordinary item and cumulative
effect of change in accounting principle $ 7,902
==========
Net income $ 7,759
==========
Net income per share - basic and diluted $ 0.61
==========
The above amounts are based upon certain assumptions and
estimates which the Company believes are reasonable and do not
reflect any benefit from economies which might be achieved from
combined operations. The pro forma results do not necessarily
represent results which would have occurred if the acquisition had
taken place on the bases assumed, nor are they indicative of the
results of future combined operations.
Year Ended December 31, 1998
During 1998, the Company acquired certain property and equipment
of hotels in the following locations (dollars in thousands):
<TABLE>
<CAPTION>
Month Number Purchase
Acquired Location of Hotels Price
- ---------------- ----------------------------------------- -------------- --------------
<S> <C> <C> <C>
January Spokane, Washington 1 $ 11,500
February Idaho Falls, Idaho 1 3,800
March Post Falls, Idaho 1 9,500
April Hillsboro, Oregon 1 5,500
May Kalispell, Montana 1 9,600
June Salt Lake City, Utah 1 31,600
July Boise, Idaho, Twin Falls, Idaho
Pocatello, Idaho, and Helena, Montana 4 30,300
December Olympia, Washington 1 11,700
--------------
$ 113,500
==============
</TABLE>
52
<PAGE>
13. Acquisitions, Continued:
Year Ended December 31, 1998, Continued
The Spokane, Washington acquisition was a lease with purchase
option. The purchase option was exercised in April 1998. The purchase
prices for the hotels were satisfied through a combination of the
payment of cash, the assumption of debt and the issuance of OP Units. As
part of the total purchase price above, WHLP issued 245,148 OP Units
which were valued at approximately $3.7 million.
All of these acquisitions have been accounted for using the
purchase method of accounting. Accordingly, the results of operations of
these hotels have been included in the consolidated statement of
operations since their respective dates of acquisition. Total property
and equipment acquired was approximately $78.0 million and debt of
approximately $8.7 million was assumed in these acquisitions. The excess
purchase price of the assets over their historical cost bases has been
allocated to property and equipment and is being depreciated over the
estimated remaining useful life of the related assets (approximately
15-40 years).
14. 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.
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 at December 31,
1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,267 $ 4,267 $ 4,357 $ 4,357
Accounts receivable 5,427 5,427 7,548 7,548
Financial liabilities:
Current liabilities, excluding debt 9,709 9,709 17,935 17,935
Notes payable to bank 82,480 82,480 101,263 101,263
Long-term debt 45,688 47,462 64,961 64,961
Capital lease obligations 2,382 2,382 1,726 1,726
</TABLE>
53
<PAGE>
15. Business Segments:
As described in Note 2, the Company has four operating segments: (1)
Hotels and Restaurants; (2) TicketsWest.com; (entertainment); (3) Real
Estate Division and (4) Franchise and Central Services. The Franchise
and Central Services segment represents the franchise and marketing
division of the Company, which was acquired with the WestCoast Hotels,
Inc. purchase. Due to the timing of the WestCoast Hotels, Inc.
acquisition, this segment had identifiable assets and capital
expenditures at December 31, 1999, but no operations will be reported
until 2000. Corporate services and other consists primarily of
miscellaneous revenues and expenses, cash and cash equivalents, certain
receivables and certain property and equipment, which are not
specifically associated with an operating segment.
TicketsWest.com has significant inter-segment revenues, which are
eliminated in the consolidated financial statements. Management reviews
and evaluates the operations of TicketsWest.com including the
inter-segment revenues. Therefore, the total revenues, including
inter-segment revenues are included in the segment information below.
Management reviews and evaluates the operating segments exclusive of
interest expense. Therefore, interest expense is not allocated to the
segments.
54
<PAGE>
15. Business Segments, Continued:
Selected information with respect to the segments is as follows (in
thousands):
<TABLE>
<CAPTION>
Two Months Ended Years Ended
Year Ended December 31, December 31,
October 31, ------------------------- ------------------------
1997 1996 1997 1998 1999
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Less: inter-segment revenues (428) (45) (49) (590) (778)
Real Estate Division 8,570 1,467 1,659 9,183 9,649
Corporate Services and other 49 3 20 288 417
---------- ---------- ----------- ---------- -----------
$ 52,043 $ 7,357 $ 8,838 $ 86,333 $ 110,055
=========== ========== =========== ========== ===========
Operating income (loss):
Hotels and Restaurants $ 8,664 $ 542 $ 784 $ 16,848 $ 18,707
TicketsWest.com 399 (6) 24 479 388
Real Estate Division 2,834 515 722 4,191 3,852
Corporate Services and other (1,262) (127) (187) (1,208) (1,912)
---------- ---------- ------------ ---------- -----------
$ 10,635 $ 924 $ 1,343 $ 20,310 $ 21,035
========== ========== =========== ========== ===========
Capital expenditures:
Hotels and Restaurants $ 4,960 $ 1,407 $ 1,322 $ 118,899 $ 49,580
Franchise and Central Services -- -- -- -- 7,428
TicketsWest.com 75 25 11 155 4,766
Real Estate Division 980 150 1,060 1,056 442
Corporate Services and other 177 7 7 1,039 1,064
---------- ----------- ------------ ---------- -----------
$ 6,192 $ 1,589 $ 2,400 $ 121,149 $ 63,280
========== ========== =========== ========== ===========
Depreciation and amortization:
Hotels and Restaurants $ 3,170 $ 487 $ 532 $ 4,481 $ 5,951
TicketsWest.com 62 8 9 46 110
Real Estate Division 1,473 258 237 1,305 1,328
Corporate Services and other 70 6 20 283 543
---------- ----------- ------------ ----------- -----------
$ 4,775 $ 759 $ 798 $ 6,115 $ 7,932
========== ========== =========== ========== ===========
Identifiable assets:
Hotels and Restaurants $ 91,431 $ 89,591 $ 92,415 $ 209,539 $ 261,943
Franchise and Central Services -- -- -- -- 7,428
TicketsWest.com 2,666 1,637 1,925 1,628 10,095
Real Estate Division 24,035 24,645 25,965 26,327 26,121
Corporate Services and other 5,972 4,068 4,812 7,409 3,545
---------- ---------- ----------- ---------- ----------
$ 124,104 $ 119,941 $ 125,117 $ 244,903 $ 309,132
========== ========== =========== ========== ===========
</TABLE>
55
<PAGE>
16. Earnings Per Share:
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). Also shown is the number of
dilutive securities (stock options) that would have been included in the
diluted EPS computation if they were not anti-dilutive.
<TABLE>
<CAPTION>
Year Ended Years ended December 31,
October 31, 1997 Two Months Ended -----------------------------
(Pro Forma) December 31, 1997 1998 1999
------------------ ---------------------- -------------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income before extra-
ordinary item and
cumulative effect of change
in accounting principle 1,709 $ 6 $ 8,054 $ 8,172
Extraordinary item
Cumulative effect of change (546) (10)
in accounting principle -- -- -- (133)
---------- ---------- ---------- ----------
Net income-basic 1,709 6 7,508 8,029
Income effect of dilutive
OP Units -- -- 223 208
---------- ---------- ---------- ----------
Net income -diluted 1,709 $ 6 $ 7,731 $ 8,237
========== ========== ========== ==========
Denominator:
Weighted-average shares
outstanding - basic 7,072 7,072 11,347 12,755
Effect of dilutive OP Units -- -- 319 341
Effect of dilutive common
stock options -- -- (A) (A)
v
Weighted-average shares
outstanding - diluted 7,072 7,072 11,666 13,096
========== ========== ========== ==========
Earnings per share - basic and
diluted:
Income per share before
extraordinary item
and cumulative effect of
change in accounting
principle 0.24 $ -- $ 0.71 $ 0.64
Extraordinary item -- -- (0.05) --
Cumulative effect of change
in accounting principle -- -- -- (0.01)
Net income per share -
---------- ---------- ---------- ----------
basic and diluted 0.24 $ -- $ 0.66 $ 0.63
========== ========== ========== ==========
</TABLE>
(A) At December 31, 1998 and 1999, 835,869 and 977,749 stock options
are outstanding, respectively. The effects of the shares which
would be issued upon the exercise of these options have been
excluded from the calculation of diluted earnings per share for the
years ended December 31, 1998 and 1999 because they are
anti-dilutive.
56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders under the caption "Directors and Officers of the Registrant."
COMPENSATION OF DIRECTORS
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders under the caption "Compensation of Directors."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders under the caption "Security Ownership of Certain Beneficial Owners
and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained, and incorporated by
reference from, the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions."
57
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
A. List of documents filed as part of this report.
1. Index to financial statements:
a. WestCoast Hospitality Corporation - Consolidated
Balance Sheets
b. WestCoast Hospitality Corporation - Consolidated
Statements of Operations
c. WestCoast Hospitality Corporation - Consolidated
Statements of Changes in Stockholders' and Partners'
Equity
d. WestCoast Hospitality Corporation - Consolidated
Statements of Cash Flows
e. WestCoast Hospitality Corporation - Notes to
Consolidated Financial Statements
2. Index to financial statement schedules:
All schedules for which provisions are 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.
58
<PAGE>
3. Index to exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen Common Stock Certificate
10.1(3) Employment Agreement between the Company and Donald K. Barberi
10.2(3) Employment Agreement between the Company and Arthur M. Coffey
10.3(3) Employment Agreement between the Company and Richard L. Barberi
10.4(3) Employment Agreement between the Company and David M. Bell
10.5(3) Employment Agreement between the Company and Thomas M. Barberi
10.6(1) Form of Revolving Credit Facility Agreement
10.7(1) Amended and Restated Agreement of Limited Partnership of Cavanaughs
Hospitality Limited Partnership
10.8(1) Employee Stock Purchase Plan of Cavanaughs Hospitality Corporation
10.9(1) 1998 Stock Incentive Plan of Cavanaughs Hospitality Corporation
10.11(1) Form of Stock Option Award Agreement
10.12(1) Form of Restricted Stock Award Agreement
10.13(1) Gateway Property Lease Agreement
10.13a(1) Gateway Property Option Agreement
10.14(1) Ridpath Property Lease Agreement
10.15(4) Form of Indemnification Agreement
10.19(2) Purchase and Sale Agreement re: WC Holdings, Inc.
10.20(2) Membership Interest Purchase Agreement re: October Hotel
Investors, LLC
10.21(2) First Amendment to Membership Interest Purchase Agreement re: October
Hotel Investors, LLC
10.22 Amended and Restated Revolving Credit Facility
21.1 List of Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
24.1(1) Power of Attorney (see signature pages)
27.1 Financial Data Schedule
</TABLE>
Incorporated by reference to the same exhibit numbers as original document.
- --------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1 or the Company's periodic reports required pursuant to
the Securities Exchange Act of 1934, as amended.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form 8-K dated January 4, 2000.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1/A, dated March 10, 1998.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1/A, dated March 27, 1998.
59
<PAGE>
Reports on Form 8-K:
During the first quarter 2000, the Company filed with the
Securities and Exchange Commission a Form 8-K, dated January 19, 2000,
with respect to an acquisition of WestCoast Hotels, Inc. and Bellevue
Inn LLC by the Company and a Form 8-K/A, dated March 17, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTCOAST HOSPITALITY CORPORATION
-----------------------------------------------
Registrant
By: /s/ DONALD K. BARBIERI
----------------------------------------------
Donald K. Barbieri
Chairman, President and Chief Executive Officer
March 30, 2000
-----------------------------------------------
Date
By: /s/ ARTHUR M. COFFEY
-----------------------------------------------
Arthur M. Coffey
Executive Vice President, Chief Financial Officer and Director
March 30, 2000
-----------------------------------------------
Date
By: /s/ THOMAS M. BARBIERI
-----------------------------------------------
Thomas M. Barbieri
Executive Vice President Hotel Operations and Director
March 30, 2000
-----------------------------------------------
Date
60
<PAGE>
By: /s/ RICHARD L. BARBIERI
-----------------------------------------------
Richard L. Barbieri
Senior Vice President, General Counsel and Director
March 30, 2000
-----------------------------------------------
Date
By: /s/ DAVID M. BELL
-----------------------------------------------
David M. Bell
Executive Vice President Development
March 30, 2000
-----------------------------------------------
Date
By: /s/ PETER F. STANTON
-----------------------------------------------
Peter F. Stanton
Director
March 30, 2000
-----------------------------------------------
Date
By: /s/ RONALD R. TAYLOR
-----------------------------------------------
Ronald R. Taylor
Director
March 30, 2000
-----------------------------------------------
Date
By: /s/ ROBERT G. TEMPLIN
-----------------------------------------------
Robert G. Templin
Director
March 30, 2000
-----------------------------------------------
Date
By: /s/ STEPHEN R. BLANK
-----------------------------------------------
Stephen R. Blank
Director
March 30, 2000
-----------------------------------------------
Date
61
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 29, 1999
among
CAVANAUGHS HOSPITALITY LIMITED PARTNERSHIP,
U.S. BANK NATIONAL ASSOCIATION
as Administrative Agent,
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS....................................................................1
1.1 Certain Defined Terms..........................................................1
1.2 Other Interpretive Provisions..................................................21
1.3 Accounting Principles..........................................................23
1.5 Amendment and Restatement of Initial Credit Agreement..........................23
ARTICLE II. THE LOANS......................................................................24
2.1 Revolving Line of Credit.......................................................24
2.2 Manner of Borrowing............................................................24
2.3 Agent's Right to Fund..........................................................25
2.4 Loan Accounts..................................................................25
2.5 Interest Rate Elections........................................................26
2.6 Mandatory Prepayments of Loans.................................................27
(a) Asset Dispositions....................................................27
(b) Event of Loss.........................................................27
(c) Debt Issuance.........................................................28
(d) General...............................................................28
(e) Reduction in Commitment...............................................28
2.7 Repayment......................................................................29
2.8 Interest.......................................................................29
2.9 Agency and Underwriting Fees...................................................30
2.10 Commitment Fees................................................................30
2.11 Late Charge....................................................................30
2.12 Computation of Interest and Fees...............................................30
2.13 Payments by the Borrower.......................................................31
2.14 Sharing of Payments, Etc.......................................................31
2.15 Security.......................................................................32
2.16 Borrowing Base.................................................................32
2.17 No Prepayment Charges..........................................................33
ARTICLE III. LETTERS OF CREDIT..............................................................33
3.1 Letters of Credit..............................................................33
3.2 Manner of Requesting Letters of Credit.........................................33
3.3 Indemnification; Increased Costs...............................................34
3.4 Payment by the Borrower........................................................35
CREDIT AGREEMENT PAGE i
<PAGE>
ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY.........................................35
4.1 Taxes..........................................................................35
4.2 Illegality.....................................................................37
4.3 Increased Costs and Reduction of Return........................................37
4.4 Funding Losses.................................................................38
4.5 Inability to Determine Rates...................................................39
4.6 Certificates of Lenders........................................................39
4.7 Survival.......................................................................39
ARTICLE V. CONDITIONS PRECEDENT...........................................................39
5.1 Conditions of Initial Loans....................................................39
(a) Credit Agreement and Note.............................................40
(b) Resolutions; Incumbency...............................................40
(c) Organization Documents; Good Standing.................................40
(d) Legal Opinions........................................................40
(e) Payment of Fees.......................................................41
(f) Collateral Documents..................................................41
(g) Insurance Policies....................................................42
(h) Certificate...........................................................42
(i) Compliance Certificate................................................42
(j) WestCoast Acquisition.................................................43
(k) Notice of Borrowing; Reimbursement Agreement..........................43
(l) Guaranty..............................................................43
(m) Other Documents.......................................................43
(n) Payment of Indebtedness...............................................43
(o) Eligible Real Property................................................43
(p) Pro Forma Statements..................................................44
(q) Interest Rate Protection..............................................44
5.2 Conditions to Subsequent Loans.................................................44
(a) Interest Rate Notice..................................................44
(b) Notice of Borrowing; Reimbursement Agreement..........................44
(c) Continuation of Representations and Warranties........................44
(d) No Existing Default...................................................45
(e) Satisfaction of Previous Conditions...................................45
(f) Further Assurances....................................................45
5.3 Conditions to Become Eligible Real Property....................................45
5.4 Existing Collateral Documents..................................................47
CREDIT AGREEMENT PAGE ii
<PAGE>
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.................................................48
6.1 Existence and Power............................................................48
6.2 Authorization; No Contravention................................................48
6.3 Governmental Authorization.....................................................49
6.4 Binding Effect.................................................................49
6.5 Litigation.....................................................................49
6.6 No Default.....................................................................49
6.7 ERISA Compliance...............................................................50
6.8 Use of Proceeds; Margin Regulations............................................50
6.9 Title to Properties............................................................51
6.10 Taxes..........................................................................51
6.11 Financial Condition............................................................51
6.12 Environmental Matters..........................................................52
6.13 Collateral Documents...........................................................53
6.14 Regulated Entities.............................................................53
6.15 No Burdensome Restrictions.....................................................53
6.16 Copyrights, Patents, Trademarks and Licenses, Etc..............................54
6.17 Subsidiaries...................................................................54
6.18 Insurance......................................................................54
6.19 Solvency.......................................................................54
6.20 Full Disclosure................................................................54
ARTICLE VII. AFFIRMATIVE COVENANTS..........................................................55
7.1 Financial Statements...........................................................55
7.2 Certificates; Other Information................................................56
7.3 Notices........................................................................56
7.4 Preservation of Existence, Etc.................................................58
7.5 Maintenance of Property........................................................58
7.6 Insurance......................................................................59
7.7 Payment of Obligations.........................................................59
7.8 Compliance With Laws...........................................................60
7.9 Compliance With ERISA..........................................................60
7.10 Inspection of Property and Books and Records...................................60
7.11 Environmental Laws.............................................................60
7.12 Use of Proceeds................................................................61
7.13 Appraisals.....................................................................61
7.14 Further Assurances.............................................................61
7.15 Minimum Number of Parcels......................................................63
7.16 Interest Rate Protection.......................................................64
CREDIT AGREEMENT PAGE iii
<PAGE>
ARTICLE VIII. NEGATIVE COVENANTS.............................................................64
8.1 Limitation on Liens............................................................64
8.2 Disposition of Assets..........................................................66
8.3 Consolidations and Mergers.....................................................68
8.4 Loans and Investments..........................................................68
8.5 Limitation on Indebtedness.....................................................69
8.6 Transactions With Affiliates...................................................69
8.7 Use of Proceeds................................................................70
8.8 Contingent Obligations.........................................................70
8.9 Lease Obligations..............................................................71
8.10 Restricted Payments............................................................71
8.11 ERISA..........................................................................71
8.12 Change in Business.............................................................72
8.13 Accounting Changes.............................................................72
8.14 Financial Covenants............................................................72
(a) Funded Debt Ratio.....................................................72
(b) Recourse Funded Debt Ratio............................................72
(c) Interest Coverage Ratio...............................................72
(d) Fixed Charge Coverage Ratio...........................................73
(e) Capitalization Ratio..................................................73
(f) Total Assets..........................................................73
8.15 Subordinated Debt..............................................................73
ARTICLE IX. EVENTS OF DEFAULT..............................................................73
9.1 Event of Default...............................................................73
(a) Nonpayment............................................................73
(b) Representation or Warranty............................................73
(c) Specific Defaults.....................................................74
(d) Other Defaults........................................................74
(e) Cross-Default.........................................................74
(f) Insolvency; Voluntary Proceedings.....................................75
(g) Involuntary Proceedings...............................................75
(h) ERISA.................................................................75
(i) Monetary Judgments....................................................75
(j) Nonmonetary Judgments.................................................76
(k) Adverse Change........................................................76
(l) Invalidity of Subordination Provisions................................76
(m) Collateral............................................................76
9.2 Remedies.......................................................................77
9.3 Rights Not Exclusive...........................................................77
CREDIT AGREEMENT PAGE iv
<PAGE>
9.4 Certain Financial Covenant Defaults............................................78
ARTICLE X. THE AGENT......................................................................78
10.1 Appointment and Authorization..................................................78
10.2 Delegation of Duties...........................................................78
10.3 Liability of Agent.............................................................78
10.4 Reliance by Agent..............................................................79
10.5 Notice of Default..............................................................80
10.6 Credit Decision................................................................80
10.7 Indemnification of Agent.......................................................81
10.8 Agent in Individual Capacity...................................................81
10.9 Successor Agent................................................................81
10.10 Withholding Tax................................................................82
10.11 Collateral Matters.............................................................83
ARTICLE XI. LETTER OF CREDIT RISK PARTICIPATIONS...........................................84
11.1 Sale of Risk Participations....................................................84
11.2 Procedure for Purchases........................................................84
11.3 Payment Obligations............................................................84
(c) Reimbursements to Lenders.............................................85
ARTICLE XII. MISCELLANEOUS..................................................................85
12.1 Amendments and Waivers.........................................................85
12.2 Notices........................................................................87
12.3 No Waiver; Cumulative Remedies.................................................87
12.4 Costs and Expenses.............................................................88
12.5 Borrower Indemnification.......................................................88
12.6 Marshalling; Payments Set Aside................................................89
12.7 Successors and Assigns.........................................................89
12.8 Assignments, Participations, Etc...............................................90
12.9 Set-off........................................................................91
12.10 Automatic Debits of Fees.......................................................92
12.11 Notification of Addresses, Lending Offices, Etc................................92
12.12 Counterparts...................................................................92
12.13 Severability...................................................................92
12.14 No Third Parties Benefited.....................................................92
12.15 Conditions Not Fulfilled.......................................................93
12.16 Governing Law and Jurisdiction.................................................93
12.17 Waiver of Jury Trial...........................................................94
12.18 Entire Agreement...............................................................94
</TABLE>
CREDIT AGREEMENT PAGE v
<PAGE>
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
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 Amendment to Deed of Trust
Exhibit J Form of Assignment and Acceptance
CREDIT AGREEMENT PAGE vi
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
December 29, 1999, 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.
RECITALS
A. The Borrower and certain of the Lenders entered into that certain
Credit Agreement dated as of May 5, 1998 (together with all amendments to such
Credit Agreement heretofore entered into, the "Initial Credit Agreement"),
pursuant to which such lenders agreed to make available to the Borrower a
secured revolving loan facility upon the terms and conditions set forth in the
Initial Credit Agreement.
B. The Borrower has requested to increase the amount of the commitment
of the secured revolving loan facility provided for in the Initial Credit
Agreement and to make certain other modifications to the provisions of the
Initial Credit Agreement. The purpose of this Agreement is to set forth the
terms and conditions upon which the Lenders have agreed to the Borrower's
requests and to restate the provisions of the Initial Credit Agreement in its
entirety.
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, (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, or (d) the acquisition of any parcel of real property,
tenant's interest in any real
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 1
<PAGE>
property lease or ground lease, or the acquisition of any hotel, motel or
hospitality property.
"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.
"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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 2
<PAGE>
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 National Association 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.
"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.ss. 101, et seq.).
"Base Rate" means, for any day, the higher of (a) the Reference Rate or
(b) the Federal Funds Rate plus .50%, and in either case, rounded upward (if
necessary) to the next 1/16th of 1%.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"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 Base Rate Loans, having the same Interest Period.
"Borrowing Base" means, on each day that any Loans are outstanding or
any day that there is any Letter of Credit Usage, an amount equal to the lesser
of (a) 60% of the Collateral Pool Value, or (b) the Implied Debt Service
Coverage Cap.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 3
<PAGE>
"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 (a) 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, (b) 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 (c) commercial paper rated at
least A-1 by S&P or P-1 by 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 4
<PAGE>
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, (a) 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 Agent for the benefit of the Lenders now, heretofore 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 (b) any amendments, supplements, modifications, renewals,
restatements, 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 $120,000,000 less the aggregate 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 .50% shall apply:
<TABLE>
<CAPTION>
- ----------------------- ------------- ------------------- ------------------- ----------------
Level Level I Level II Level III Level IV
- ----------------------- ------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Funded Debt Ratio < 3.0 => 3.0 < 3.5 => 3.5 < 4.0 => 4.0
- ----------------------- ------------- ------------------- ------------------- ----------------
Commitment Fee .25% .25% .25% .50%
Percentage
- ----------------------- ------------- ------------------- ------------------- ----------------
</TABLE>
> means greater than or equal to
< means less than
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 5
<PAGE>
"Commitment Letter" means that certain letter dated as of November 23,
1999, 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 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 6
<PAGE>
"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, whether any such deed of trust, mortgage or amendment thereto was
executed pursuant to the Initial Credit Agreement or pursuant to this Agreement.
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.
"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 (a) Interest Expense, (b) federal, state, local and foreign income
taxes and (c) 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 7
<PAGE>
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
(provided that in connection with the parcel or real property located in
Hillsboro, Washington County, Oregon , the Borrower's interest in the property
may be a leasehold interest provided that the Agent receives a landlord's
consent in a form acceptable to the Agent), (c) that is fully developed and
improved and with respect to which there has been issued a certificate of
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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 8
<PAGE>
"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 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 9
<PAGE>
"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.
"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
arising out of or related to hotel or restaurant operations (including, without
limitation, gross revenues from the lease or licensing of space in any of the
hotels or restaurants 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 10
<PAGE>
(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 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 11
<PAGE>
"Implied Debt Service" means the aggregate amount of annual principal
and interest payments that would be required to fully amortize the aggregate
amount of the outstanding principal balance of the Loans on the measurement
date, assuming (a) an interest rate equal to the LIBOR Rate for an Interest
Period of one month plus the applicable Interest Margin as of the last day of
the calendar quarter preceding the measurement date, and (b) a 20-year
amortization, with equal quarterly payments.
"Implied Debt Service Coverage Cap" means the maximum outstanding
aggregate principal balance of the Loans such that aggregate EBITDA from
Eligible Real Property (measured on a trailing four-quarter basis) equals or
exceeds Implied Debt Service by a ratio of 1.50:1.00.
"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 Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (g) above.
"Indemnification Agreements" means the indemnification agreements
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.
"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).
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 12
<PAGE>
"Initial Credit Agreement" has the meaning specified in Recital 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 obligations 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:
<TABLE>
<CAPTION>
- ----------------------- ----------- ---------------- --------------- ----------------- --------------- ------------
Level Level I Level II Level III Level IV Level V Level VI
- ----------------------- ----------- ---------------- --------------- ----------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Funded Debt Ratio < 3.0 => 3.0 < 3.5 => 3.5 < 4.0 => 4.0 < 4.5 => 4.5 < 5.0 => 5.0
- ----------------------- ----------- ---------------- --------------- ----------------- --------------- ------------
Reference Margin 0 0 25 50 75 100
- ----------------------- ----------- ---------------- --------------- ----------------- --------------- ------------
LIBOR Margin 180 200 225 250 290 325
- ----------------------- ----------- ---------------- --------------- ----------------- --------------- ------------
</TABLE>
=> means greater than or equal to
< means less than
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 13
<PAGE>
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.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as to
any Base 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
(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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 14
<PAGE>
"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 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 Telerate Screen LIBO Page as of 11:00 a.m., London
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 15
<PAGE>
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 Base Rate Loan or a LIBOR Rate Loan (each, a "Type" of
Loan).
"Loan Documents" means this Agreement, the Note, the Collateral
Documents, the Guaranty, the Reimbursement Agreements, the Indemnification
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 T, U or X of the FRB.
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<PAGE>
"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) May 5, 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) the amount 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 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).
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<PAGE>
"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 (as evidenced by
documentation provided to and approved by the Agent), 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 and payable to
the Agent for the benefit of the Lenders 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, obligations,
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).
"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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 18
<PAGE>
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.
"Pro Rata Share" means, as to any Lender at any time, the percentage
interest (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Lender in the combined Commitments of all Lenders.
"Recourse Funded Debt Ratio" means the ratio of (a) the Indebtedness of
CHC and its Subsidiaries as of the last day of the applicable period, excluding
(i) all Subordinated Debt, and (ii) all Nonrecourse Indebtedness, to (b) EBITDA
for the applicable period, excluding all components of EBITDA arising from any
property that is encumbered to secure the Indebtedness described in clauses (i)
and (ii) above.
"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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 19
<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) the security agreements executed by the
Borrower and CHC and in favor the Agent as agent for the benefit of the Lenders
in connection with the Initial Credit Agreement, (b) the amended and restated
security agreements executed by the Borrower and in favor of the Agent as agent
for the benefit of the Lenders concurrently with the execution of this Agreement
in the form of Exhibit G-1, and (c) the security agreements executed by CHC,
WestCoast Hotels, Inc., PNW Holdings, Inc. and TicketsWest.com, Inc. and in
favor of the Agent as agent for the benefit of the Lenders concurrently with the
execution of this Agreement in the form of Exhibit G-2, together with all
amendments thereto and restatements of the foregoing.
"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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 20
<PAGE>
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.
"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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 21
<PAGE>
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.
"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.
"WestCoast Acquisition" means the acquisition by CHC for the benefit of
the Borrower of (a) all of the issued and outstanding stock of PNW Holdings,
Inc. and (b) all of the issued and outstanding stock of WestCoast Hotels, Inc.
that is not owned by PNW Holdings, Inc. in accordance with the terms and
conditions of that certain Stock Purchase Agreement dated as of December 17,
1999, entered into by and among CHC, Lisa Swanbeck-Johnson, Rodney D. Olson and
D. Michael Bashaw.
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."
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 22
<PAGE>
(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.
(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).
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 23
<PAGE>
(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 Covenants contained in Section 8.14 will be calculated in
accordance with GAAP as in effect immediately before such change.
1.5 Amendment and Restatement of Initial Credit Agreement
Upon execution of this Agreement and the exhibits to this Agreement to
be executed concurrently with the execution of this Agreement, and the
satisfaction of the conditions precedent to the initial Funding under this
Agreement, the Initial Credit Agreement shall be deemed amended and superseded
in its entirety by this Agreement. All promissory notes signed by Borrower in
connection with the Initial Credit Agreement shall be marked "renewed" and
retained by the Agent until all of the Loans are repaid in full and the Lenders'
commitments to advance additional Loans have terminated.
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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 24
<PAGE>
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) 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.
(c) The Loans advanced under this Agreement shall constitute a renewal
of the loans outstanding under the Initial Credit Agreement.
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 Base Rate Loan to be made if said Notice of Borrowing is received by
Agent 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 Note or any other Loan
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 25
<PAGE>
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 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 Loans made by each Lender shall be evidenced by the 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. The Note is a renewal of the promissory note
executed by the Borrower in connection with the Initial Credit Agreement, as
well as all renewals thereof.
2.5 Interest Rate Elections
(a) The Borrower may, upon irrevocable written notice to the Agent in
accordance with Section 2.5(b):
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 26
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(i) elect, as of any Business Day, in the case of new LIBOR
Rate Loans or any Base 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 Base 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 a.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 Interest Rate Election Date, if the Loans are to be
converted into Base 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 Base 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 Base 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 Base Rate Loans effective as of the expiration date of such Interest
Period.
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(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.
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 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 28
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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 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 Base Rate Loans then outstanding and then to LIBOR Rate Loans with the
shortest Interest Periods remaining; provided, however, that if the amount of
Base 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 and
permanently 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 29
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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
Base 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.
(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 underwriting fees to the Agent as required by
the Commitment Letter. In addition, the Borrower shall pay to the Agent for the
benefit of the Agent an agency fee in the amount of $15,000 on May 5 of each
year, commencing on May 5, 2000.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 30
<PAGE>
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 in 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 average 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.
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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 31
<PAGE>
at the Agent's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 10:00 a.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 a.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.
(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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 32
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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) 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 Note 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 33
<PAGE>
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.
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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 34
<PAGE>
(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 Interest Margin applicable to LIBOR Rate Loans as of the
date of the issuance of the Letter of Credit and (ii) to the Agent for its 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 35
<PAGE>
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, 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 Base 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 Base 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 36
<PAGE>
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 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 37
<PAGE>
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 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 Base
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 Base 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 38
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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, (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;
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 39
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(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 Base 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 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 Base 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 40
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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
The 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:
(a) Credit Agreement and Note
This Agreement and the Note 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; provided that the resolutions
of PNW Holdings, Inc., WestCoast Hotels, Inc. and TicketsWest.com, Inc.
shall be delivered to the Agent within five Business Days of the
closing of the WestCoast Acquisition; 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,
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 41
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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, as well as an opinion
of Riddell Williams addressed to the Agent and in a form acceptable the Agent;
(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 (provided that
the Collateral Documents to be executed by PNW Holdings, Inc., WestCoast Hotels,
Inc. and TicketsWest.com, Inc. shall be delivered to the Agent within five
Business Days of the closing of the WestCoast Acquisition), 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 42
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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;
(vi) amendments to all Deeds of Trust heretofore executed and
delivered to the Agent, which amendments shall be substantially in the
form of Exhibit I;
(vii) the issuance of such endorsements to each Title
Insurance Policy heretofore issued in connection with the Deeds of
Trust 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 the amendment to each Deed of Trust, and
in a form acceptable to the Agent; and
(viii) within five Business Days of the closing of the
WestCoast Acquisition, the original stock certificates representing all
of the issued and outstanding stock of WestCoast Hotels, Inc., PNW
Holdings, Inc. and TicketsWest.com, Inc., together with an assignment
separate from certificate in a form designated by the Agent for each
such certificate.
(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;
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(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 September 30, 1999, 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) WestCoast Acquisition
Evidence acceptable to the Agent that concurrently with the initial
advance to the Borrower under the Loans, CHC will have completed WestCoast
Acquisition for the benefit of the Borrower on such terms and conditions and
pursuant to such agreements and other documents as are acceptable to the Agent
and the Lenders;
(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, which Guaranty shall be in addition
to the guaranty executed and delivered by CHC in connection with the Initial
Credit Agreement;
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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) Payment in full of all Indebtedness of WestCoast Hotels, Inc.
and all Persons who will be Affiliates of WestCoast Hotels, Inc.
immediately following the completion the WestCoast Acquisition to U.S.
Bank and cancellation of any outstanding commitments to advance
additional Indebtedness to any such Persons; and
(ii) Evidence that all other Indebtedness not permitted by Section
8.5 has been paid in full;
(o) Eligible Real Property
All Collateral Documents for not fewer than four parcels of Eligible
Real Property;
(p) Pro Forma Statements
Pro forma financial statements of the Borrower and CHC and pro forma
calculations of the Financial Covenants reflecting completion of the WestCoast
Acquisition in form and substance acceptable to the Agent and the Lenders, as
well as an opinion rendered by the Independent Auditor with respect to such pro
forma financial statements in form and substance acceptable to the Agent and the
Lenders.
(q) Interest Rate Protection
Interest rate protection products as described in Section 7.16.
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:
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 45
<PAGE>
(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;
(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 to
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 46
<PAGE>
fulfill 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 "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), attorneys' fees (if any) and any filing
or recording tax or fee in connection with the Deed of Trust and all
UCC-1 financing statements;
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(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;
(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) if requested by the Agent, 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) if requested by the
Agent, an American with Disabilities Act questionnaire, (D) an
Indemnification Agreement duly executed by the Borrower and Subsidiary
(if the parcel of real property is owned by a Subsidiary), and (E) 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
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<PAGE>
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 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.
5.4 Existing Collateral Documents
The Borrower acknowledges and agrees that all of the "Collateral
Documents" (as such term is defined in the Initial Credit Agreement) executed
and delivered in connection with the Initial Credit Agreement shall remain in
effect and shall secure payment and performance of the obligations of the
Borrower under this Agreement, the Loans and the Loan Documents. The Borrower
hereby ratifies and reaffirms all of its obligations under such "Collateral
Documents." In addition, without limiting the foregoing, the 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 instruments, agreements and documents referred to in Section 5.1.
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;
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 49
<PAGE>
(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.
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,
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 51
<PAGE>
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 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.l(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
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<PAGE>
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.
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. All
assets held in the name of CHC are held for the benefit of and the beneficial
interest in all such assets is owned by the Borrower.
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<PAGE>
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 December 31, 1998, and the consolidated statements of income
or operations, shareholders' equity and cash flows for the fiscal quarter ended
on September 30, 1999:
(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 dates thereof and results of operations for
the periods covered thereby; and
(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
dates thereof, including liabilities for taxes, material commitments
and Contingent Obligations.
(b) Since September 30, 1999, there has been no Material Adverse
Effect.
(c) To the best of the Borrower's knowledge after due investigation,
the pro forma financial statements provided to the Agent pursuant to Section
5.1(p) fairly present the financial condition of the CHC and its Subsidiaries as
of the dates thereof and results of operations for the periods covered thereby,
based upon the assumption that the WestCoast Acquisition was completed.
<PAGE>
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 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
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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.
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
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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, 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.
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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;
(c) 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 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);
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(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 and a worksheet showing the calculation of the Financial
Covenants;
(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:
(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
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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;
(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;
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(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.
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
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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
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
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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.
(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
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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,
the WestCoast Acquisition, other Acquisitions permitted hereunder, funding
operations, and other general business purposes not in contravention of any
Requirement of Law or of any Loan Document; provided that all proceeds shall be
used for the benefit of the Borrower.
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 Number of Parcels
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.
7.16 Interest Rate Protection
Within 30 days of the date of this Agreement, the Borrower shall enter
into and shall maintain during the term of this Agreement one or more agreements
to provide the Borrower with protection against fluctuations in interest rates
with one or more financial institutions to cover, during each fiscal quarter of
the Borrower, an amount equal to not less than 50% of the aggregate amount of
the Indebtedness of CHC and its Subsidiaries as of the last day of the preceding
fiscal quarter. All such agreements shall contain terms and conditions and shall
be in such forms that are approved by the Lenders.
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 that is described 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
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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
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 Subsidiaries 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
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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 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;
(m) Liens on real property used primarily in the hospitality business
and acquired by the Borrower, CHC or any Subsidiary after the Closing Date that
is not encumbered by any Deed of Trust; provided that (i) 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, (ii) such
Lien attaches solely to such real property and personal property located on such
real property, as well as proceeds thereof, and (iii) such Acquisition is
approved in writing by the Required Lenders; and
(n) Liens on real property that (i) was acquired by the Borrower, CHC
or any Subsidiary before the Closing Date, (ii) was not encumbered by any
mortgage, deed of trust or similar instrument as of the Closing Date or the date
such Lien attaches, or with respect to which any such encumbrance that existed
on the Closing Date is removed or satisfied through the use of proceeds of the
Loans or the initial public offering of the common stock of CHC, and (iii) is
not encumbered by any Deed of Trust; provided that (iv) any such Lien is
approved by the Required Lenders, (v) such Lien attaches solely to such real
property and personal property located on such real property, as well as
proceeds thereof, and (vi) the Net Issuance Proceeds from the Indebtedness
incurred in connection with any such Liens are applied to the Loans in
accordance with Section 2.6.
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
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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 during any 12-month period;
(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 during any
12-month period, 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,
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 transaction 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
during any 12-month 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)
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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 transaction 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 (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 or CHC, provided that
the Borrower or CHC (as the case may be) 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
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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 that (i) any such Acquisition
is not prohibited under Section 8.7, and (ii) any such Acquisition is approved
in writing by the Required Lenders; 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; and provided
further that Acquisitions described in Section 8.7(f) shall not require the
written approval by the Required Lenders.
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 that is described 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;
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(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 the Borrower or others incurred to
purchase or carry Margin Stock, (d) to extend credit for the purpose 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, or (f) 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; provided
that Loan proceeds may be used to finance the acquisition by the Borrower of
nonoperating real property for an acquisition price not to exceed (i) $500,000
for any individual parcel of real property, or (ii) $1,500,000 in the aggregate
after January 1, 2000.
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;
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(c) Contingent Obligations of the Borrower, CHC and their Subsidiaries
existing as of the Closing Date that are described in Schedule 8.8; and
(d) Contingent Obligations of the Borrower, CHC and their Subsidiaries
with respect to which the contingent liability of the Borrower, CHC and/or their
Subsidiaries (as the case may be) is supported by a letter of credit or
indemnity issued to or for the benefit of the Borrower, CHC and/or their
Subsidiaries (as the case may be), which letter of credit or indemnity has been
approved in writing by the Required Lenders.
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.
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
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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.
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) 5.25:1.00 for each fiscal
quarter ending on or after December 31, 1999, through December 30, 2000, (ii)
4.75:1.00 for each fiscal quarter ending on or after December 31, 2000 through
December 30, 2001, (iii) 4.25:1.00 for each fiscal quarter ending on or after
December 31, 2001 through December 30, 2002, and (iii) 4.00:1.00 for each fiscal
quarter ending thereafter.
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(b) Recourse Funded Debt Ratio
As of the end of each fiscal quarter for the four fiscal quarters then
ended, the Recourse Funded Debt Ratio shall not exceed (i) 5.10:1.00 for each
fiscal quarter ending on or after December 31, 1999, through December 30, 2000,
(ii) 4.50:1.00 for each fiscal quarter ending on or after December 31, 2000
through December 30, 2001, (iii) 4.00:1.00 for each fiscal quarter ending on or
after December 31, 2001 through December 30, 2002, and (iii) 3.60:1.00 for each
fiscal quarter ending thereafter.
(c) 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 2.25:1.00.
(d) 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 1.50:1.00.
(e) Capitalization Ratio
As of the end of each fiscal quarter, the Capitalization Ratio shall
not exceed (i) 0.65:1.00 for each fiscal quarter ending on or after December 31,
1999, through December 30, 2001, and (ii) 0.60:1.00 for each fiscal quarter
ending thereafter.
(f) 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.
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 that have been
approved by the Required Lenders or in contravention or violation of the
subordination provisions thereof.
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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, 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
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$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 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
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(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) Adverse Change
There occurs a Material Adverse Effect; or
(l) 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
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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
(m) Collateral
(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, or as otherwise provided for in
Section 10.5:
(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 presentment, 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
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
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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.
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
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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 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
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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 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
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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 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
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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 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:
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(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.
(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
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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 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).
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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 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
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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, 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;
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(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 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.
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(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, 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; 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
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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 and the
endorsements thereto, 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
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.
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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.
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 J ("Assignment and Acceptance"); and (iii) the assignor Lender or
Assignee has paid to the Agent a processing fee in the amount of
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$3,500. Notwithstanding the foregoing, no consent of the Borrower shall be
required for any such assignment during the existence of an Event of Default.
(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) 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 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
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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 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. ss. 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 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 94
<PAGE>
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 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.
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 95
<PAGE>
12.16 Governing Law and Jurisdiction
(a) THIS AGREEMENT AND THE NOTE 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 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
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 96
<PAGE>
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.
[The remainder of this page intentionally left blank.]
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 97
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered 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
-------------------------------------
BANK OF SCOTLAND
By
----------------------------------------
Title
-------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 98
<PAGE>
BANK LEUMI USA
By
----------------------------------------
Title
-------------------------------------
IMPERIAL BANK
By
----------------------------------------
Title
-------------------------------------
FIRST SECURITY BANK, N.A.
By
----------------------------------------
Title
-------------------------------------
COLUMBIA STATE BANK
By
----------------------------------------
Title
-------------------------------------
STERLING SAVINGS BANK
By
----------------------------------------
Title
-------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT PAGE 99
SUBSIDIARIES OF
WESTCOAST HOSPITALITY CORPORATION
1. WestCoast Hospitality Corporation, a Washington corporation
2. WestCoast Hospitality Limited Partnership, a Delaware listed partnership
3. North River Drive Company, a Washington corporation
4. Cowley Street Limited Partnership, a Washington limited partnership
5. TicketsWest.com, a Washington corporation
6. WestCoast Hotels, Inc., a Washington corporation
7. PNWWC Holdings, Inc., a Washington corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (File No. 333-30378) and Form S-8 (File No. 333-60791) of
WestCoast Hospitality Corporation and subsidiaries of our report dated March 17,
2000 relating to the financial statements, which appears in this Annual Report
on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
Spokane, Washington
March 24, 2000
- --------
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
<RECEIVABLES> 7,548
<ALLOWANCES> 0
<INVENTORY> 1,110
<CURRENT-ASSETS> 13,898
<PP&E> 290,849
<DEPRECIATION> (47,612)
<TOTAL-ASSETS> 309,132
<CURRENT-LIABILITIES> 26,003
<BONDS> 159,882
0
0
<COMMON> 129
<OTHER-SE> 104,703
<TOTAL-LIABILITY-AND-EQUITY> 309,132
<SALES> 110,055
<TOTAL-REVENUES> 110,055
<CGS> 87,415
<TOTAL-COSTS> 89,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,384
<INCOME-PRETAX> 11,909
<INCOME-TAX> 3,737
<INCOME-CONTINUING> 8,172
<DISCONTINUED> 0
<EXTRAORDINARY> 10
<CHANGES> 133
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</TABLE>
