<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1994.
OR
/ / TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
COMMISSION FILE NUMBER: 1-7790
-------------
LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)
TEXAS #74-1724417
(State of Incorporation) (I.R.S. Employer Identification No.)
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (210) 302-6000
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, and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
-------------
Number of shares of Common Stock,
$.10 par value outstanding at June 30, 1994:
30,500,770
-------------
==============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LA QUINTA INNS, INC.
COMBINED CONDENSED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . $ 1,474 $ 23,848
Receivables:
Trade . . . . . . . . . . . . . . 11,182 6,744
Other . . . . . . . . . . . . . . 4,002 3,191
Supplies. . . . . . . . . . . . . . 6,918 5,921
Prepaid expenses. . . . . . . . . . 952 581
-------- --------
Total current assets . . . . . 24,528 40,285
-------- --------
Notes receivable, excluding current
installments (net of allowance of
$3,385 and $3,167). . . . . . . . . . 7,155 7,683
-------- --------
Investments, including joint ventures
accounted for on the equity method
(note 4). . . . . . . . . . . . . . . 3,567 6,583
-------- --------
Properties held for sale, at estimated
net realizable value. . . . . . . . . 4,485 3,401
-------- --------
Land held for future development, at
cost. . . . . . . . . . . . . . . . . 1,275 1,452
-------- --------
Property and equipment, at cost,
substantially all pledged:
Buildings . . . . . . . . . . . . . 715,560 660,278
Furniture, fixtures and equipment . 119,298 114,113
Land and leasehold improvements . . 137,298 129,862
-------- --------
Total property and equipment . 972,156 904,253
Less accumulated depreciation and
amortization . . . . . . . . . . . 238,876 230,917
-------- --------
Net property and equipment . . 733,280 673,336
-------- --------
Deferred charges and other assets, at
cost less applicable amortization . . 11,747 11,501
-------- --------
Total assets $786,037 $744,241
-------- --------
-------- --------
</TABLE>
See accompanying notes to combined condensed financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt (note 3). . . . . . . . . . . . $ 32,620 $ 22,491
Accounts payable:
Trade . . . . . . . . . . . . . . . 16,645 14,282
Other . . . . . . . . . . . . . . . 4,533 9,584
Income taxes. . . . . . . . . . . . 6,047 1,830
Accrued expenses:
Payroll and employee benefits . . . 18,611 17,620
Interest. . . . . . . . . . . . . . 3,268 3,379
Property taxes. . . . . . . . . . . 7,836 7,994
Other . . . . . . . . . . . . . . . 1,461 1,870
-------- --------
Total current liabilities . . . 91,021 79,050
-------- --------
Long-term debt, excluding current
installments (note 3). . . . . . . . . 427,366 414,004
-------- --------
Deferred income taxes, pension and
other. . . . . . . . . . . . . . . . . 15,932 16,154
-------- --------
Partners' capital . . . . . . . . . . . 86,861 85,976
-------- --------
Shareholders' equity:
Common stock ($.10 par value;
100,000,000 shares authorized,
32,111,364 shares issued). . . . . 3,211 3,211
Additional paid-in capital . . . . . 61,999 60,573
Retained earnings. . . . . . . . . . 115,348 100,059
Minimum pension liability
adjustment. . . . . . . . . . . . . (1,458) (1,458)
-------- --------
179,100 162,385
Less treasury stock, at cost (1,610,594
and 1,732,867 shares, respectively). . 14,243 13,328
-------- --------
Total shareholders' equity . . . 164,857 149,057
-------- --------
Total liabilities and
shareholders' equity. . . . . . $786,037 $744,241
-------- --------
-------- --------
</TABLE>
See accompanying notes to combined condensed financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Inn . . . . . . . . . . . . . . . $89,965 $67,194 $166,003 $124,491
Restaurant rental and other . . . 1,956 1,534 3,796 3,195
Management services . . . . . . . 621 1,905 1,007 3,554
------- ------- -------- -------
Total revenues . . . . . . . 92,542 70,633 170,806 131,240
------- ------- ------- -------
Operating costs and expenses:
Direct. . . . . . . . . . . . . . 48,607 36,834 93,405 70,263
Corporate . . . . . . . . . . . . 4,475 4,473 9,303 9,682
Performance stock options . . . . -- 4,407 -- 4,407
Depreciation, amortization and
fixed asset retirements. . . . . 9,108 5,473 17,469 10,951
------- ------- ------- -------
Total operating costs and
expenses . . . . . . . . . 62,190 51,187 120,177 95,303
------- ------- ------- -------
Operating income . . . . . . 30,352 19,446 50,629 35,937
------- ------- ------- -------
Other (income) deductions:
Interest income . . . . . . . . . (632) (1,386) (1,069) (2,598)
Interest on long-term debt. . . . 9,447 7,412 18,599 14,934
Partners' equity in earnings
and losses . . . . . . . . . . . 3,045 4,408 5,516 8,202
------- ------- ------- -------
Earnings before property
and investment
transactions. . . . . . . . 18,492 9,012 27,583 15,399
Net loss on property transactions. . -- (4,670) (6) (4,373)
------- ------- ------- -------
Earnings before income
taxes, extraordinary items
and cumulative effect of
accounting change . . . . . 18,492 4,342 27,577 11,026
Income taxes . . . . . . . . . . . . 7,212 1,650 10,755 4,190
------- ------- ------- -------
Earnings before
extraordinary items and
cumulative effect of
accounting change. . . . . 11,280 2,692 16,822 6,836
Extraordinary items, net of income
taxes . . . . . . . . . . . . . . . -- 942 -- 942
------- ------- ------- -------
Earnings before cumulative
effect of accounting
change . . . . . . . . . . 11,280 3,634 16,822 7,778
Cumulative effect of accounting
change. . . . . . . . . . . . . . . -- -- -- 1,500
------- ------- ------- -------
Net earnings. . . . . . . . $11,280 $ 3,634 $16,822 $ 9,278
------- ------- ------- -------
------- ------- ------- -------
Earnings per common and common
equivalent share:
Earnings before
extraordinary items and
cumulative effect of
accounting change. . . . . $ .35 $ .09 $ .52 $ .22
Extraordinary items, net
of income taxes. . . . . . -- .03 -- .03
Cumulative effect of
accounting change. . . . . -- -- -- .05
------- ------- ------- -------
Net earnings. . . . . . . . $ .35 $ .12 $ .52 $ .30
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common
and common equivalent shares
outstanding . . . . . . . . . . . . 32,402 31,443 32,277 31,265
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to combined condensed financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
-------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . $ 16,822 $ 9,278
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization of
property and equipment and fixed
asset retirement . . . . . . . . . . 17,469 10,951
Partners' equity in earnings and
losses . . . . . . . . . . . . . . . 5,516 8,202
Loss on property transactions . . . . 6 4,373
Undistributed earnings of
affiliates . . . . . . . . . . . . . -- 191
Non-recurring, non-cash items . . . . -- (584)
Cumulative effect of change in
accounting for income taxes . . . . -- (1,500)
Changes in operating assets and
liabilities:
Receivables . . . . . . . . . . . (4,957) (2,121)
Income taxes. . . . . . . . . . . 4,217 4,406
Supplies and prepaid expenses . . (1,368) (455)
Accounts payable and accrued
expenses . . . . . . . . . . . . 1,425 2,091
Deferred charges and other
assets . . . . . . . . . . . . . 727 947
Deferred credits and other. . . . (225) (968)
-------- --------
Net cash provided by operating
activities. . . . . . . . . . 39,632 34,811
-------- --------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . (61,632) (10,029)
Proceeds from property transactions . 391 705
Purchase and conversion of inns . . . (15,183) (12,293)
Purchase of partners' equity
interests. . . . . . . . . . . . . . (9,622) (23,040)
(Increase) decrease in notes
receivable and other investments . . 3,274 (5,647)
-------- --------
Net cash used by investing
activities. . . . . . . . . . (82,772) (50,304)
-------- --------
Cash flows from financing activities:
Proceeds from secured line of
credit and long-term borrowings. . . 266,352 149,755
Principal payments on secured
line of credit and long-term
borrowings . . . . . . . . . . . . . (245,025) (107,228)
Distributions to partners . . . . . . (429) (1,281)
Dividends to shareholders . . . . . . (1,533) --
Purchases of treasury stock . . . . . (1,736) --
Net proceeds from stock
transactions . . . . . . . . . . . . 3,137 1,115
-------- --------
Net cash provided by financing
activities. . . . . . . . . . 20,766 42,361
-------- --------
(Decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . (22,374) 26,868
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 23,848 12,861
-------- --------
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . $ 1,474 $ 39,729
-------- --------
-------- --------
Interest paid. . . . . . . . . . . . . . . $ 16,805 $ 13,263
-------- --------
-------- --------
Income tax paid. . . . . . . . . . . . . . $ 1,120 $ 1,238
-------- --------
-------- --------
Income tax refunds . . . . . . . . . . . . $ (12) $ (58)
-------- --------
-------- --------
</TABLE>
See accompanying notes to combined condensed financial statements.
5
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying unaudited combined condensed financial statements
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, which are necessary for a fair
presentation of financial position and results of operations have been
made. It is suggested that the combined condensed financial statements be
read in conjunction with the combined financial statements and notes
thereto included in the December 31, 1993 Annual Report on Form 10-K.
(2) Earnings per Common and Common Equivalent Share
The Board of Directors authorized three-for-two stock splits effective
in October 1993 and March 1994. Earnings per share, the weighted average
number of shares outstanding, shareholders' equity and the following
information have been adjusted to give effect to each of these
distributions. The weighted average number of common and common equivalent
shares used in the computation of earnings per share are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common
shares issued . . . . . . . 32,111,364 32,111,364 32,111,364 32,111,364
Effect of treasury stock . . (1,585,083) (1,843,466) (1,452,107) (1,860,816)
Dilutive effect of stock
options . . . . . . . . . . 1,875,831 1,175,199 1,617,405 1,014,432
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares. . . . 32,402,112 31,443,097 32,276,662 31,264,980
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
During June 1994, the Company repurchased 101,000 shares of its common stock
for approximately $2,600,000 under a plan approved by the Board of Directors to
repurchase up to $10,000,000 of its common stock. Additional purchases will be
made from time to time in the open market as deemed appropriate by the Company.
(3) Long-term Debt
On July 1, 1994, the Company completed negotiations to amend its
existing $40,000,000 Secured Line of Credit to $45,000,000 and its
$145,000,000 Secured Term Credit Facility to $184,000,000. At June 30,
1994, the Company had a total of $58,225,000 available on its amended
Secured Term and Line of Credit facilities. Borrowings under the
$45,000,000 Secured Line of Credit, which will mature on May 30, 1997, will
bear interest at the prime rate, LIBOR plus 1 1/2%, or certificate of
deposit rate, plus 1 5/8%. Borrowings under the $184,000,000 Secured Term
Credit Facility, which may be made through October 31, 1994, have a final
maturity of May 31, 2000 and bear interest at the prime rate, LIBOR rate
plus 1 3/4%, or certificate of deposit rate plus 1 7/8%. Amounts borrowed
under the Secured Term Credit Facility require semi-annual principal
payments commencing November 30, 1994 through May 31, 2000. The Company
pays a commitment fee of .5% per annum on the daily average unused portion
of the Secured Line of Credit and Term Credit Facility.
On June 1, 1994, a credit agreement for a $35,000,000 Unsecured Line
of Credit among La Quinta Development Partners, L.P. (the "Development
Partnership") and participating banks was completed. Borrowings under the
$35,000,000 Unsecured Line of Credit, which matures January 31, 1997, bear
interest at the prime rate, LIBOR rate plus 1%, or certificate of deposit
rate plus 1 1/8%. At June 30, 1994, $33,950,000 was available on the
Unsecured Line of Credit. The commitment fee is .25% per annum on the
daily average unused portion of the Unsecured Line of Credit. The Company
is the general partner and owns a 40% ownership interest in the Development
Partnership.
(4) Acquisition of Partners' Interests
As of December 1, 1993, the Company owned 82% of the Units of La
Quinta Motor Inns Limited Partnership ("LQP") acquired through a tender
offer (which expired November 30, 1993) and other Units acquired by the
Company prior to the tender offer. The acquisition has been accounted for
as a purchase and the results of LQP's operations have been included in the
Company's combined results of operations since December 1, 1993. The
remaining 18% of the Units were acquired on January 24, 1994 for
approximately $9.3 million. The Company obtained funds to acquire the
Units by borrowing $45.9 million under its existing credit facilities.
6
<PAGE>
On July 1, 1994, the Company purchased nine La Quinta inns previously
held by La Quinta - Cigna I and La Quinta - Cigna II, unincorporated joint
ventures in which the Company held a 1% interest and also managed. This
transaction was financed through the Company's amended Secured Line of
Credit and Secured Term Credit Facility. (See note 3.)
(5) Franchise Agreements
During the quarter ended June 30, 1994, the Company opened its first
franchised inn in Mexico. Initial franchise fees related to development are
recorded as revenue when the related property opens as a franchised inn.
Monthly franchise fees are based on gross room sales and are accrued as
earned.
(6) Contingencies
In September 1993, a former officer of the Company filed suit against
the Company and certain of its directors and their affiliate companies.
The suit alleges breach of an employment agreement, misrepresentation,
wrongful termination, self-dealing, breach of fiduciary duty, usurpation of
corporate opportunity and tortious interference with contractual relations.
The suits seeks compensatory damages of $2,500,000 and exemplary damages of
$5,000,000. The Company intends to vigorously defend itself against this
suit.
The Company is also party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these and the
above discussed matter are not expected to have a significant adverse
effect on the Company's financial position or results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On January 24, 1994, La Quinta Inns, Inc. ("La Quinta" or the
"Company") concluded the acquisition of LQP which owned 31 inns in 15
states managed by La Quinta. In 1994, the operations of LQP were
included in the combined financial statements of the Company. The Company
accounted for its investment in LQP under the equity method until December 1,
1993.
In addition, during 1993, the Company purchased, in separately
negotiated transactions, the limited partners' interests in 14 of the
Company's combined unincorporated partnerships and joint ventures which
owned 44 inns. During the second quarter of 1994, the Company purchased
the limited partners' interests in one of the Company's combined
unincorporated joint ventures which owned one inn. On July 1, 1994, the
Company purchased nine inns managed by the Company which were previously
held in joint ventures. The Company continues to operate these properties
as La Quinta inns. Also during 1993, the Company completed the acquisition
of 11 inns and began renovating and converting them to the La Quinta brand.
Conversion of these properties was completed during the second quarter of
1994. Also during the second quarter of 1994, the Company acquired two
inns and opened its first Mexico property which is owned and operated under
a La Quinta franchise agreement in which the property is managed by the
Company.
The following table describes the composition of inns in the La Quinta
chain at:
<TABLE>
<CAPTION>
June 30, 1994 (2) December 31, 1993 (3)
------------------------ ------------------------
La La
Quinta Quinta
Equivalent Equivalent
Inns Rooms Rooms(1) Inns Rooms Rooms(1)
---- ----- -------- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Owned 100% . . . . . . . 176 22,320 22,320 166 21,001 21,001
Owned 40 - 80% . . . . . 46 6,363 2,681 45 6,077 2,588
--- ------ ------ --- ------ ------
Total Company owned
and operated. . . . . . 222 28,683 25,001 211 27,078 23,589
Managed Inns . . . . . . 1 148 -- 9 1,176 12
Licensed Inns. . . . . . 1 120 -- 1 120 --
--- ------ ------ --- ------ ------
224 28,951 25,001 221 28,374 23,601
--- ------ ------ --- ------ ------
--- ------ ------ --- ------ ------
<FN>
(1) Represents the Company's proportionate ownership in system rooms.
(2) Includes 100% of rooms owned by Cigna I and II as though the
acquisition were completed on June 30, 1994.
(3) Includes 100% of the rooms owned by LQP as though the acquisition were
completed on December 31, 1993.
</TABLE>
7
<PAGE>
In 1993, the Company began a system wide inn image enhancement program
designed to increase revenue through the generation of new guest trial.
The program was completed during the second quarter. The program gave the
reimaged inns a new, fresh, crisp appearance while preserving their unique
character. It features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional
landscaping, enhanced guest entry and full lobby renovation with
contemporary residential furnishings and seating area for continental
breakfast.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994
The improvement in inn revenues was related to an increase in the
percentage of occupancy and average room rate along with the revenues
associated with the acquisition of inns, including the LQP, as more fully
described above. The occupancy percentage increased to 74.5% in the second
quarter of 1994 from 69.8% in the 1993 comparable period. The average daily
rate increased to $46.99 in the second quarter of 1994 from $46.92 in the
second quarter of 1993. Additionally, completion of the reimaging process has
resulted in improvements in both rate and occupancy.
Other revenue decreased as a result of a reduction in management
services revenue due to the acquisition of LQP and the elimination of
related management fees charged by the Company. This decrease was
partially offset by an increase in restaurant rental and other income
caused by an increase in the number of restaurants owned and leased by the
Company due to the acquisition of LQP.
Direct expenses increased to $48,607,000, an increase of $11,773,000.
The $.39 decrease in direct expenses per occupied room from $26.77 during
the second quarter of 1993 to $26.38 during the second quarter of 1994 is
primarily attributable to decreases in salaries and related expenses and
insurance and is partially offset by increases in repairs and maintenance
and advertising.
During the second quarter of 1993, the Company recognized $4,407,000
in performance stock option expense related to the vesting of certain
contingent stock options that became exercisable in May 1993.
Depreciation, amortization and fixed asset retirements increased
primarily due to the acquisition of LQP. Depreciation, amortization and
fixed asset retirements also includes asset retirements associated with the
Company's refurbishment program and other capital improvements.
Operating income improved to $30,352,000 in the second quarter, an
increase of $10,906,000, or 56% over the 1993 second quarter, as more fully
described above.
The decrease in interest income is primarily attributable to a
decrease in interest earned on the note receivable from AEW Partners, L.P.
to La Quinta Development Partners, L.P. (the "Development Partnership"),
due to the collection of the entire outstanding principal balance of that
note in December 1993 and the corresponding reduction of interest thereon.
Interest expense on the Senior Subordinated notes issued in May 1993
along with debt assumed with the acquisition of the LQP, and new debt
related to the purchase of certain of the limited partners' interests
resulted in the 27.5% increase in interest expense.
The acquisition of the limited partners' interests resulted in a
decrease in partners' equity in earnings and losses for the second quarter
of 1994 compared to the second quarter of 1993.
The net loss on property and investment transactions of ($4,670,000)
in the second quarter of 1993 was primarily related to a $4,900,000 loss
related to the Company's conveyance of title on the property in which the
Company's corporate headquarters was located to the mortgagor.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994
The improvement in inn revenues was related to an increase in the
percentage of occupancy and average room rate along with the revenues
associated with the acquisition of inns, including the LQP, as more fully
described above. The average room rate increased to $46.62 in the 1994 six
month period from $46.41 in the 1993 six months. The occupancy percentage
increased to 70.0% in the 1994 six months from 65.7% in the 1993 six
months. Additionally, completion of the reimaging process has resulted
in improvements in both rate and occupancy.
8
<PAGE>
Other revenue decreased as a result of a reduction in management
services revenue due to the acquisition of LQP and the elimination of
related management fees charged by the Company. This decrease was
partially offset by an increase in restaurant rental and other income
caused by an increase in the number of restaurants owned and leased by the
Company due to the acquisition of LQP.
Direct expenses increased to $93,405,000, an increase of $23,142,000.
Direct expenses per occupied room decreased to $27.25 in the 1994 six months
from $27.28 in the 1993 six months, a decrease of $.03.
The 1993 performance stock option expense related to the vesting of certain
contingent stock options that became exercisable in May 1993.
Depreciation, amortization and fixed asset retirements increased
primarily due to the acquisition of LQP. Depreciation, amortization and
fixed asset retirements also includes asset retirements associated with the
Company's refurbishment program and other capital improvements.
Operating income improved to $50,629,000 in the 1994 six months, an
increase of $14,692,000, or 40.9% over the 1993 six months, as more fully
described above.
The decrease in interest income is primarily attributable to a
decrease in interest earned on the note receivable from AEW Partners, L.P.
to the Development Partnership, due to the collection of the entire
outstanding principal balance of that note in December 1993 and the
corresponding reduction of interest thereon.
Interest expense on the Senior Subordinated notes issued in May 1993
along with debt assumed with the acquisition of the LQP, and new debt
related to the purchase of certain of the limited partners' interests
resulted in the 24.5% increase in interest expense.
The acquisition of the limited partners' interests resulted in a
decrease in partners' equity in earnings and losses for the first six
months of 1994 compared to the six months of 1993.
Net loss on property and investment transactions was ($6,000) in the
six months of 1994 compared to a loss of ($4,373,000) in the six months of
1993. The loss in 1993 was primarily related to a $4,900,000 loss related
to the Company's conveyance of title on the property in which the Company's
corporate headquarters is located to the mortgagor.
The cumulative effect of accounting change in the 1993 six months was
the result of implementation of Statement of Financial Standards No. 109
"Accounting for Income Taxes".
FINANCIAL CONDITION
The decrease in the Company's cash and cash equivalents in the first
six months of 1994 resulted from capital expenditures from the reimaging
program, purchase and conversion of inns and the acquisition of the
remaining Units of LQP during January of 1994.
The increase in net cash provided by operating activities was the
result of increased revenue and operating margins.
The increase in investing activities in the 1994 six months over the
prior year's comparable period is primarily a result of capital
expenditures related to the reimaging program, purchase and conversion of
inns and the purchase of the remaining Units of LQP.
Principal payments on the Company's Secured Term Credit Facility,
dividends paid to shareholders and purchases of treasury stock contributed
to a substantial portion of the decrease in cash provided by financing
activities for the 1994 six months, as compared to cash provided by
financing activities for the 1993 six months.
In June 1994, the Development Partnership entered into a $35,000,000
Unsecured Line of Credit of which $33,950,000 is available at June 30,
1994. The Company anticipates that the majority of its development
activity in 1994 will occur through said Partnership.
9
<PAGE>
During June 1994, the Company repurchased a total of 101,000 shares of
its common stock for approximately $2,600,000 under a plan approved by the
Board of Directors to repurchase up to $10,000,000 of its common stock.
Funds on hand, anticipated from future cash flows and available on the
Company's credit facilities are expected to be sufficient to fund the
Company's operating expenses, debt service, other capital requirements and
its development program through at least the end of 1994. The Company will
evaluate from time to time the necessity of other financing alternatives.
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
La Quinta Inns, Inc.:
We have reviewed the combined condensed balance sheet of La Quinta Inns,
Inc. as of June 30, 1994, and the related combined condensed statements of
operations for the three-month and six-month periods ended June 30, 1994
and 1993 and cash flows for the six-month periods ended June 30, 1994 and
1993. These combined condensed financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the combined condensed financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of La Quinta Inns, Inc. as of
December 31, 1993 and the related combined statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 31, 1994, except as to the first
paragraph of note 5, which is as of February 9, 1994, we expressed an
unqualified opinion on those combined financial statements. Our report
refers to a change in the method of accounting for income taxes. In our
opinion, the information set forth in the accompanying combined condensed
balance sheets as of December 31, 1993, is fairly presented, in all
material respects, in relation to the combined balance sheet from which it
has been derived.
KPMG Peat Marwick
San Antonio, Texas
July 18, 1994
11
<PAGE>
Part II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Actions for negligence or other tort claims occur routinely as an
ordinary incident to the Company's business. Several lawsuits are pending
against the Company which have arisen in the ordinary course of the
business, but none of these proceedings involves a claim for damages (in
excess of applicable excess umbrella insurance coverages) involving more
than 10% of current assets of the Company (also see note 5 to combined
condensed financial statements). The Company does not anticipate any
amounts which it may be required to pay as a result of an adverse
determination of such legal proceedings, individually or in the aggregate,
or any other relief granted by reason thereof, will have a material adverse
effect on the Company's financial position or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
A list of all exhibits filed or included as part of this Quarterly
Report on Form 10-Q is as follows:
Exhibits By Reference Descriptions
10(a) Filed Herewith First Amendment to Third
Amended and Restated Master
Covenant Agreement dated
June 30, 1994
10(b) Filed Herewith First Amendment to Amended and
Restated Credit Agreement dated
June 30, 1994
15 Filed Herewith Letter from KPMG Peat
Marwick dated August 10, 1994
(b) Reports on Form 8-K:
No Current Reports on Form 8-K have been filed during the period for
which this Quarterly Report on Form 10-Q is filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
LA QUINTA INNS, INC.
(Registrant)
August 11, 1994 By: /S/ William C. Hammett, Jr.
------------------------------
William C. Hammett, Jr.
Senior Vice President -
Accounting and Administration
August 11, 1994 By: /S/ Irene C. Primera
------------------------------
Irene C. Primera
Vice President - Controller
13
<PAGE>
La Quinta Inns, Inc.
San Antonio, Texas
Gentlemen:
Re: Registration Statements Nos. 33-26470, 2-97266, 2-67606, 2-65645,
33-42087, and 33-55102 and 33-58866
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 18, 1994, related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified by
an accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick
San Antonio, Texas
August 10, 1994
14
<PAGE>
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED
MASTER COVENANT AGREEMENT
This First Amendment to Third Amended and Restated Master Covenant
Agreement (this "FIRST AMENDMENT"), dated as of June 30, 1994 (but effective as
provided in SECTION 3), is made by and among La Quinta Inns, Inc., a Texas
corporation ("LA QUINTA"), NationsBank of Texas, N.A., as Administrative Lender
("ADMINISTRATIVE LENDER"), Citicorp USA, Inc., The Frost National Bank, Texas
Commerce Bank National Association (successor to Texas Commerce Bank-San
Antonio, N.A. through merger with and into Texas Commerce Bank National
Association), Bank of Scotland, Continental Bank, Bank One, Texas, N.A., First
Interstate Bank of Texas, N.A. and U.S. Bank of Washington, National
Association (singly, a "LENDER", and collectively, the "LENDERS").
BACKGROUND.
A. La Quinta, Administrative Lender and Lenders entered into the Amended
and Restated Credit Agreement, dated as of January 25, 1994 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
capitalized terms used herein and not otherwise defined herein shall have the
same meaning given to them in the Credit Agreement) and the Third Amended and
Restated Master Covenant Agreement, dated as of January 25, 1994 (as amended,
supplemented or otherwise modified from time to time, the "COVENANT AGREEMENT").
B. La Quinta has requested that pursuant to the First Amendment to
Amended and Restated Credit Agreement dated as of June 30, 1994 ("FIRST CREDIT
AGREEMENT AMENDMENT"), Lenders increase the Revolving Credit Commitment and Term
Loan Commitment to provide funds to be advanced to La Quinta Investments, Inc.,
a Delaware corporation ("INVESTMENTS"), for the acquisition by Investments of
all of the general partnership interests of each of LQ CIGNA I and LQ CIGNA II,
each a Texas general partnership, not owned by La Quinta.
C. In contemplation of the purchase of such limited partnership
interests, and subject to the terms of this First Amendment, Administrative
Lender, Lenders and La Quinta desire to amend the Covenant Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Administrative
Lender, Lenders and La Quinta agree as follows:
<PAGE>
1. Amendments. The Covenant Agreement is amended as follows:
1.1 Section 3.3 is amended by adding the following definitions thereto in
proper alphabetical order:
"INVESTMENTS" shall mean La Quinta Investments, Inc., a Delaware
corporation and wholly-owned Subsidiary of La Quinta.
"LQ CIGNA I" shall mean LQ CIGNA I, a Texas general partnership,
between La Quinta and Investments.
"LQ CIGNA II" shall mean LQ CIGNA II, a Texas general partnership,
between La Quinta and Investments.
1.2 The definition of "Subsidiary" set forth in Section 3.3 is hereby
amended to read as follows:
"Subsidiary" with respect to any Persons, means (a) a corporation at
least a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by such Person and one or more Subsidiaries of such
Person or by one or more Subsidiaries of such Person or (b) a partnership,
joint venture or similar entity in which 100% of the ownership, capital or
interest profits is at the time, directly or indirectly, owned by such
Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person.
1.3 Section 4.5 is amended by (i) deleting "both a Parent Company basis
and" therefrom and (ii) adding the following second sentence thereto:
La Quinta covenants and agrees that the Senior Debt to
Capitalization Ratio, on a Parent Company basis, shall not be greater
than (i) 0.575 to 1 at the end of any fiscal quarter during the period
through and including December 31, 1994, and (ii) 0.55 to 1 at the end
of any fiscal quarter during the period from and including March 31,
1995 through and including September 30, 1995, and (iii) 0.50 to 1 at
the end of any fiscal quarter thereafter.
1.4 Section 4.10 is amended by deleting the first two sentences and
substituting, IN LIEU thereof, the following:
La Quinta covenants and agrees that it will not allow, on a
Parent Company basis, the ratio of (i) Total Debt to (ii) Adjusted
EBITDA minus Maintenance Capital Expenditures, in each case for the
four consecutive fiscal quarters immediately preceding the date of
determination, to be greater than (a) 5.50 to 1 at the end of any
fiscal quarter through and including December 31,
-2-
<PAGE>
1994, (b) 5.25 to 1 at the end of any fiscal quarter during the period
from and including March 31, 1995 through and including December 31,
1995, (c) 5.00 to 1 at the end of any fiscal quarter during the period
from and including March 31, 1996 through and including September 30,
1996 and (d) 4.50 to 1 at the end of any fiscal quarter thereafter.
La Quinta covenants and agrees that it will not allow, on a Combined
basis, the ratio of (i) Total Debt to (ii) EBITDA minus Maintenance
Capital Expenditures, in each case for the four consecutive fiscal
quarters immediately preceding the date of determination, to be greater
than (a) 5.00 to 1 at the end of any fiscal quarter through and including
September 30, 1995 and (b) 4.50 to 1 at the end of any fiscal quarter
thereafter.
1.5 Section 4.11 is deleted in its entirety and the following is
substituted IN LIEU thereof:
La Quinta covenants and agrees that it will not allow, on a
Combined basis, the ratio of (i) (a) EBITDA, plus (b) lease expense
pursuant to Operating Leases, minus (c) Maintenance Capital
Expenditures to (ii) (a) Net Interest, plus (b) lease expense pursuant
to Operating Leases, plus (c) Current Maturities, in each case other
than Current Maturities (which, with respect to Current Maturities,
shall be for the four consecutive fiscal quarters immediately
succeeding the date of determination) for the four consecutive fiscal
quarters immediately preceding the date of determination, to be less
than (y) 1.35 to 1 at the end of any fiscal quarter prior to and
including September 30, 1995 and (z) 1.50 to 1 at the end of any
fiscal quarter thereafter. La Quinta covenants and agrees that it
will not allow, on a Parent Company basis, the ratio of (i) (a)
Adjusted EBITDA , plus (b) lease expense pursuant to Operating Leases,
minus (c) Maintenance Capital Expenditures to (ii) (a) Net Interest,
plus (b) lease expense pursuant to Operating Leases, plus (c) Current
Maturities, other than Current Maturities (which, with respect to
Current Maturities, shall be for the four consecutive fiscal quarters
immediately succeeding the date of determination) for the four
consecutive fiscal quarters immediately preceding the date of
determination, to be less than (x) 1.25 to 1 at the end of any fiscal
quarter prior to and including December 31, 1994, (y) 1.35 at the end
of any fiscal quarter during the period from and including March 31,
1995 through and including September 30, 1995 and (z) 1.50 to 1 at the
end of any fiscal quarter thereafter.
1.6 A new Section 4.26 and 4.27 are added which provide as follows:
4.26 DEBT OF INVESTMENTS, LQ CIGNA I AND LQ CIGNA II.
La Quinta covenants and agrees that it will not permit
Investments, LQ CIGNA I or LQ CIGNA II to create, incur, assume,
become or be liable in any manner in respect of, or suffer to exist,
any Debt, except (i) trade payables incurred and paid in the ordinary
course of business, and (ii) contingent liabilities
-3-
<PAGE>
resulting from the endorsement of negotiable instruments for collection
in the ordinary course of business.
4.27 LIENS OF INVESTMENTS, LQ CIGNA I AND LQ CIGNA II.
La Quinta covenants and agrees that it will not permit
Investments, LQ CIGNA I or LQ CIGNA II, to create or suffer to exist
any Lien upon any of its assets, except (i) Tax, mechanics',
materialmen's, warehousemen's, laborer's and landlord and other
similar Liens relating to amounts that are not yet due and payable, or
that are being contested in good faith by appropriate proceedings, for
which adequate reserves have been established, and (ii) Liens incurred
in the ordinary course of business in connection with worker's
compensation, unemployment insurance or similar legislation. La
Quinta covenants and agrees that it shall not, and shall not permit
Investments, LQ CIGNA I or LQ CIGNA II to, hereafter agree with any
Person (other than Administrative Lender) not to grant a Lien on any
of its assets or not to permit the pledge any of its equity interest.
2. Representations and Warranties. La Quinta represents and warrants to
Administrative Lender and Lenders that, as of the date hereof and after giving
effect to the amendments provided in SECTION 1 and the amendments and waiver in
the First Credit Agreement Amendment:
a. La Quinta is in compliance with all of the terms, provisions and
covenants of the Credit Agreement and Covenant Agreement;
b. no event has occurred and is continuing which constitutes a
Default or an Event of Default;
c. La Quinta has full power and authority to execute and deliver
this First Amendment, and this First Amendment and the Covenant Agreement,
as amended hereby, constitute the legal, valid and binding obligation of
La Quinta, enforceable in accordance with their terms, except as
enforceability may be limited by debtor relief laws and except as rights
to indemnity may be limited by federal or state securities laws; and
d. no authorization, approval, consent or other action by, notice
to, or filing with, any Person, is required for the execution, delivery or
performance by La Quinta of this First Amendment.
3. Conditions of Effectiveness. This First Amendment shall be effective on
the Amendment Effective Date (as defined in the First Credit Agreement
Amendment).
-4-
<PAGE>
4. Reference to the Covenant Agreement.
a. Upon the effectiveness of this First Amendment, each reference
in the Covenant Agreement to "this Agreement", "hereunder", "herein", or
words of like import shall mean and be a reference to the Covenant
Agreement, as affected and amended hereby.
b. The Covenant Agreement, as amended by the amendments referred to
above, shall remain in full force and effect and are hereby ratified and
confirmed.
5. Costs, Expenses and Taxes. La Quinta shall pay within five days after
demand all costs and expenses of Administrative Lender and Lenders in connection
with the preparation, reproduction, execution and delivery of this First
Amendment and the other instruments and documents to be delivered hereunder
(including the reasonable fees and out-of-pocket expenses of counsel for
Administrative Lender and Lenders with respect thereto and with respect to
advising Administrative Lender and Lenders as to their rights and
responsibilities under the Covenant Agreement, as hereby amended).
6. Execution in Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
7. Governing Law; Binding Effect. This First Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and be binding
upon La Quinta, Administrative Lender and Lenders and their respective
successors and assigns.
8. Headings. Section headings in this First Amendment are included herein
for convenience of reference only and shall not constitute part of this First
Amendment for any other purpose.
9. FINAL AGREEMENT. THE COVENANT AGREEMENT, AS EFFECTED BY THE AMENDMENTS
CONTAINED IN THIS FIRST AMENDMENT, TOGETHER WITH EACH OTHER LOAN PAPER,
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
==============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
==============================================================================
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
LA QUINTA INNS, INC.
By: Dewey W. Chambers
______________________________________
Dewey W. Chambers, Vice President
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: Douglas E. Hutt
______________________________________
Douglas E. Hutt, Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By: Douglas E. Hutt
______________________________________
Douglas E. Hutt, Senior Vice President
CITICORP USA, INC.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
LA QUINTA INNS, INC.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: ______________________________________
Douglas E. Hutt, Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By: ______________________________________
Douglas E. Hutt, Senior Vice President
CITICORP USA, INC.
By: Barbara A. Cohen
______________________________________
Barbara A. Cohen, Vice President
-6-
<PAGE>
THE FROST NATIONAL BANK
By: Suzanne Heuser
______________________________________
Suzanne Heuser, Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-7-
<PAGE>
THE FROST NATIONAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: Dan M. Danelo
______________________________________
Dan M. Danelo, Sr. Vice President
BANK OF SCOTLAND
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-7-
<PAGE>
THE FROST NATIONAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: Catherine M. Omiffrey
______________________________________
Catherine M. Omiffrey, Vice President
CONTINENTAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-7-
<PAGE>
THE FROST NATIONAL BANK
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: W. Thomas Barnett
______________________________________
W. Thomas Barnett, Vice President
-7-
<PAGE>
BANK ONE, TEXAS, N.A.
By: Alan L. Miller
______________________________________
Alan L. Miller, Vice President
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-8-
<PAGE>
BANK ONE, TEXAS, N.A.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: John R. Peloubet
______________________________________
John R. Peloubet, Vice President
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
-8-
<PAGE>
BANK ONE, TEXAS, N.A.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: ______________________________________
__________________, __________________
(Print Name) (Print Title)
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: Blake R. Howells
______________________________________
Blake R. Howells, Vice President
-8-
<PAGE>
ACKNOWLEDGED AND AGREED:
LA QUINTA REALTY CORP.
By: John F. Schmutz
______________________________________
John F. Schmutz, Vice President
LA QUINTA PLAZA, INC.
By: John F. Schmutz
______________________________________
John F. Schmutz, Vice President
LA QUINTA FINANCIAL CORPORATION
By: John F. Schmutz
______________________________________
John F. Schmutz, Vice President
LA QUINTA INVESTMENTS, INC.
By: John F. Schmutz
______________________________________
John F. Schmutz, Vice President
LQI ACQUISITION CORPORATION
By: Kenneth J. Bednar
______________________________________
Kenneth J. Bednar, Vice President
-9-
<PAGE>
LA QUINTA MOTOR INNS LIMITED
PARTNERSHIP
By: La Quinta Realty Corp., its General
Partner
By: John F. Schmutz
__________________________________
John F. Schmutz, Vice President
LQM OPERATING PARTNERS, L.P.
By: La Quinta Realty Corp., its General
Partner
By: John F. Schmutz
__________________________________
John F. Schmutz, Vice President
LQ-BIG APPLE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By: Dewey W. Chambers
__________________________________
Dewey W. Chambers, Vice President
By: La Quinta Investments, Inc., its Partner
By: John F. Schmutz
__________________________________
John F. Schmutz, Vice President
-10-
<PAGE>
LQ-LNL LIMITED PARTNERSHIP
By: La Quinta Inns, Inc., its Managing
General Partner
By: Dewey W. Chambers
__________________________________
Dewey W. Chambers, Vice President
LQ-EAST IRVINE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By: Dewey W. Chambers
__________________________________
Dewey W. Chambers, Vice President
By: La Quinta Investments, Inc., its Partner
By: John F. Schmutz
__________________________________
John F. Schmutz, Vice President
6483.03
100.076
-11-
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to Amended and Restated Credit Agreement (this "FIRST
AMENDMENT"), dated as of June 30, 1994 (but effective as provided in SECTION 3
hereof), is made by and among La Quinta Inns, Inc., a Texas corporation ("LA
QUINTA"), NationsBank of Texas, N.A., as Administrative Lender ("ADMINISTRATIVE
LENDER"), Citicorp USA, Inc., The Frost National Bank, Texas Commerce Bank
National Association (successor to Texas Commerce Bank-San Antonio, N.A.
through merger with and into Texas Commerce Bank National Association), Bank of
Scotland, Continental Bank, Bank One, Texas, N.A., First Interstate Bank of
Texas, N.A. and U.S. Bank of Washington, National Association (singly, a
"LENDER", and collectively, the "LENDERS").
BACKGROUND.
A. La Quinta, Administrative Lender and Lenders entered into the Amended
and Restated Credit Agreement, dated as of January 25, 1994 (the "AGREEMENT";
capitalized terms used herein and not otherwise defined herein shall have the
same meaning given to them in the Agreement).
B. La Quinta has requested that Lenders (i) increase the Revolving
Credit Commitment and Term Loan Commitment to provide funds to La Quinta
Investments, Inc., a Delaware corporation ("INVESTMENTS"), for the acquisition
by Investments of all of the general partnership interests of each of LQ
CIGNA I and LQ CIGNA II, each a Texas general partnership (each, a
"PARTNERSHIP"), not owned by La Quinta, and (ii) waive an Event of Default.
C. In contemplation of the purchase of such general partnership
interests, and subject to the terms of this First Amendment, Administrative
Lender, Lenders and La Quinta desire to amend the Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, La Quinta,
Administrative Lender and Lenders agree as follows:
1. AMENDMENTS.
The Agreement is amended as follows:
1.1 The definition of "APPLICABLE REVOLVING MARGIN" is amended by
deleting the table and substituting, IN LIEU thereof, the following:
<PAGE>
PRIME RATE LIBOR CD
APPLICABILITY BASIS BASIS BASIS
------------- ---------- ----- -----
(a) INITIAL PRICING PERIOD. 0.00 1.75 1.875
(b) SUBSEQUENT PRICING PERIOD.
(i) If the Leverage Ratio 0.00 1.50 1.625
is not less than 4.50 to 1
(ii) If the Leverage Ratio 0.00 1.25 1.375
is less than 4.50 to 1 but
not less than 3.50 to 1
(iii) If the Leverage Ratio 0.00 1.00 1.125
is less than 3.50 to 1
1.2 The definition of "APPLICABLE TERM MARGIN" is amended by deleting the
table and substituting, IN LIEU thereof, the following:
(a) INITIAL PRICING PERIOD. 0.25 2.00 2.125
(b) SUBSEQUENT PRICING PERIOD.
(i) If the Leverage Ratio 0.00 1.75 1.875
is not less than 4.50 to 1
(ii) If the Leverage Ratio 0.00 1.50 1.625
is less than 4.50 to 1 but
is not less than 3.50 to 1
(iii) If the Leverage Ratio 0.00 1.25 1.375
is less than 3.50 to 1
1.3 The definition of "REVOLVING CREDIT COMMITMENT" is amended by
deleting "$40,000,000" and substituting, IN LIEU thereof, "$45,000,000".
1.4 The definition of "TERM LOAN COMMITMENT" is amended by deleting
"$145,000,000" and substituting, IN LIEU thereof, "$184,000,000".
-2-
<PAGE>
1.5 The definition of "SUBSIDIARY" is deleted and the following
definition is inserted IN LIEU thereof:
"Subsidiary" with respect to any Persons, shall mean (a) a
corporation at least a majority of whose Capital Stock with voting power,
under ordinary circumstances, to elect directors is at the time, directly
or indirectly, owned by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person
or (b) a partnership, joint venture or similar entity in which 100% of the
ownership, capital or interest profits is at the time, directly or
indirectly, owned by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person.
1.6 The definition of "TOTAL LOAN COMMITMENT" is amended by deleting
"$241,844,955.21" and substituting, IN LIEU thereof, "$285,844,955.21".
1.7 SECTION 2.4(A) is amended by deleting the first sentence and
substituting, IN LIEU thereof, the following:
(a) Subject to Section 9.90 hereof, the Borrower agrees to pay to the
Administrative Lender, for the ratable account of the Lenders, a
commitment fee on the daily average unused portion (commencing on the
Effective Date) of the Revolving Credit Commitment and the Term Loan
Commitment at a per annum rate equal to (i) during the Initial Pricing
Period, 0.50%, and (ii) during the Subsequent Pricing Period, 0.375%.
1.8 SECTION 2.4(A) is amended by deleting the last three sentences.
1.9 SECTION 2.6(C) is amended by deleting the table and substituting, IN
LIEU thereof, the following:
DATE AMOUNT
---- ------
November, 1994 $12,500,000
May, 1995 $12,500,000
November, 1995 $12,500,000
May, 1996 $12,500,000
November, 1996 $12,500,000
May, 1997 $12,500,000
November, 1997 $12,500,000
May, 1998 $16,000,000
November, 1998 $16,000,000
May, 1999 $16,000,000
November, 1999 $16,000,000
May 31, 2000 $32,500,000
-3-
<PAGE>
1.10 SECTION 2.16(F)(I) is amended by deleting the table and substituting,
IN LIEU thereof, the following:
APPLICABILITY PERCENTAGE
------------- ----------
(A) INITIAL PRICING PERIOD. 2.00
(B) SUBSEQUENT PRICING PERIOD.
(1) If the Leverage Ratio is not less 1.75
than 4.50 to 1
(2) If the Leverage Ratio is less than 1.50
4.50 to 1 but is not less than 3.50 to 1
(3) If the Leverage Ratio is less than 1.25
3.50 to 1
1.11 SECTION 2.16(F)(II) is amended by deleting the table and
substituting, IN LIEU thereof, the following:
APPLICABILITY PERCENTAGE
------------- ----------
(A) INITIAL PRICING PERIOD. 1.00
(B) SUBSEQUENT PRICING PERIOD.
(1) If the Leverage Ratio is not less 0.875
than 4.50 to 1
(2) If the Leverage Ratio is less than 0.750
4.50 to 1 but is not less than 3.50 to 1
(3) If the Leverage Ratio is less than 0.625
3.50 to 1
1.12 SECTION 4.1(K) is amended by deleting "$4,000,000" and substituting,
IN LIEU thereof, "$7,600,000."
2. WAIVER. Lenders waive the Event of Default under SECTION 6.1(D) of the
Credit Agreement resulting from the representation and warranty of SECTION
4.1(K) being incorrect in that the present value of benefit liabilities exceeds
the present value of the described Plans by more than $4,000,000.
-4-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. La Quinta represents and warrants to
Lenders that, as of the date hereof and after giving effect to the amendments
provided in SECTION 1 and the waiver provided in SECTION 2:
a. La Quinta is in compliance with all of the terms, provisions and
covenants of the Agreement;
b. the representations and warranties contained in the Agreement
(after giving effect to this First Amendment) are true and correct on and
as of the date hereof and the Effective Date as though made on and as of
such dates;
c. no event has occurred and is continuing which constitutes a
Default or an Event of Default;
d. La Quinta has full power and authority to execute and deliver
this First Amendment, the Revolving Credit Notes and the Term Loan Notes
referred to in Section 4(c) of this First Amendment, and all other
documents and agreements executed in connection with this First Amendment
(collectively, the "Amendment Loan Papers") and this First Amendment and
the Agreement, as amended hereby, constitute the legal, valid and binding
obligation of La Quinta, enforceable in accordance with their terms,
except as enforceability may be limited by debtor relief laws and
except as rights to indemnity may be limited by federal or state
securities laws; and
e. no authorization, approval, consent or other action by, notice
to, or filing with, any Person, is required for the execution, delivery or
performance by La Quinta of this First Amendment or the other Amendment
Loan Papers.
4. CONDITIONS OF EFFECTIVENESS. The amendments provided for in SECTION 1
of this First Amendment shall be effective as of July 1, 1994 ("AMENDMENT
EFFECTIVE DATE") and the waiver provided for in SECTION 2 of this First
Amendment shall be effective as of June 30, 1994, upon the receipt by
Administrative Lender or Lender or the occurrence or existence of each of
the following, as appropriate:
(a) a certificate of an officer acceptable to Lenders of
Investments, certifying as to the incumbency of the officers signing
the Loan Papers to which it is a party, and including (i) any amendments
to its articles of incorporation since January 25, 1994, (ii) any
amendments to its bylaws since January 25, 1994, (iii) a copy of the
resolutions authorizing it to execute, deliver and perform the Loan
Papers to which it is a party, and (iv) a copy of a certificate of good
standing and a certificate of existence for its state of incorporation,
(v) copies of each partnership agreement of each Partnership and (vi) to
the extent available, a copy of certificate of good standing and
certificate of existence from each Partnership's state of organization;
-5-
<PAGE>
(b) a certificate of an officer acceptable to Lenders of La Quinta,
and including (i) any amendments to its articles of incorporation since
January 25, 1994, (ii) any amendments to its bylaws since January 25,
1994, (iii) a copy of the resolutions authorizing it to execute, deliver
and perform the Loan Papers to which it is a party, (iv) a copy of a
certificate of good standing and a certificate of existence for its state
of incorporation and (v) copies of each partnership agreement of each
Partnership and all amendments thereto;
(c) a duly executed Revolving Credit Note and Term Loan Note,
payable to the order of each Lender and in an amount equal to its
Specified Percentage of the Revolving Credit Commitment and the Term Loan
Commitment, respectively, as hereby amended;
(d) receipt by Administrative Lender (and subject to Section 9.9 of
the Agreement), for the ratable account of Lenders, a renewal fee of
$55,000;
(e) opinions of counsel to La Quinta addressed to Administrative
Lender and Lenders and in form and substance satisfactory to
Administrative Lender and Lenders, dated the Effective Date, and
covering such matters incident to the transactions contemplated hereby as
the Administrative Lender or Special Counsel may reasonably request and
opinions of local counsel in states other than Texas in which Facilities
are located in form and substance satisfactory to Administrative Lender
regarding the amendments to the Deeds of Trust;
(f) reimbursement for the Administrative Lender for Special
Counsel's reasonable fees and expenses rendered through the Effective
Date;
(g) evidence that all corporate or other proceedings of La Quinta
and Subsidiaries taken in connection with the transactions contemplated
by this First Amendment and the other Loan Papers shall be reasonably
satisfactory in form and substance to Administrative Lender, Lenders
and Special Counsel; and the Lenders shall have received copies of all
documents or other evidence which Administrative Lender, Special Counsel
or any Lender may reasonably request in connection with such transactions;
(h) the duly executed and completed Guaranty of each Partnership in
the form of EXHIBIT A, dated as of the Effective Date;
(i) receipt by the Administrative Lender of evidence, in form and
substance satisfactory to the Administrative Lender, that the acquisition
of all general partnership interest of each Partnership by Investments and
La Quinta has been completed;
-6-
<PAGE>
(j) the duly executed amendments to the Deeds of Trust with respect
to the properties located on EXHIBIT B, in form and substance satisfactory
to Administrative Lender;
(k) the duly executed First Amendment to Third Amended and Restated
Master Covenant Agreement;
(l) the duly executed Pledge Agreements of La Quinta and Investments
in the form of EXHIBITS C and D, respectively;
(m) a certificate of an officer acceptable to Administrative Lender
and Lenders, in form and substance satisfactory to the Administrative
Lender and Lenders, certifying that the execution, delivery and
performance by the Obligors of this First Amendment and related documents
will not violate or result in a default in respect of any of the terms of
the Senior Subordinated Notes;
(n) the representations and warranties set forth in Section 3 of
this First Amendment shall be true and correct;
(o) receipt by Administrative Lender of all amounts due under the
letter dated June 30, 1994 between Administrative Lender and La Quinta;
and
(p) Administrative Lender and Lenders shall have received, in form
and substance satisfactory to Administrative Lender and Lenders, such
other documents, certificates, and instruments as Lenders shall require.
5. REFERENCE TO THE AGREEMENT.
a. Upon the effectiveness of this First Amendment, each reference
in the Agreement to "this Agreement", "hereunder", "herein", or words of
like import shall mean and be a reference to the Agreement, as affected
and amended hereby.
b. The Agreement, as amended by the amendments referred to above,
shall remain in full force and effect and are hereby ratified and
confirmed.
6. GUARANTOR ACKNOWLEDGEMENT. Each of the Guarantors signing below
acknowledge and agree that its obligations and liabilities under its Guaranty
Agreement (i) are not released, diminished or impaired in any manner by this
First Amendment or any of the provisions contemplated herein and (ii) cover,
among other things, the Revolving Credit Commitment and the Term Loan
Commitment, and as increased pursuant to the terms of this First Amendment.
7. COSTS, EXPENSES AND TAXES. La Quinta shall pay within five days after
demand all costs and expenses of Administrative Lender and Lenders in
connection with the preparation, reproduction, execution and delivery of this
First Amendment and the other instruments and
-7-
<PAGE>
documents to be delivered hereunder (including the reasonable fees and
out-of-pocket expenses of counsel for Administrative Lender and Lenders with
respect thereto and with respect to advising Administrative Lender and Lenders
as to their rights and responsibilities under the Agreement, as hereby
amended).
8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and
the same instrument.
9. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and be binding
upon La Quinta, Administrative Lender and Lenders and their respective
successors and assigns.
10. HEADINGS. Section headings in this First Amendment are included herein
for convenience of reference only and shall not constitute part of this First
Amendment for any other purpose.
11. FINAL AGREEMENT. THE AGREEMENT, AS EFFECTED BY THE AMENDMENTS CONTAINED
IN THIS FIRST AMENDMENT, TOGETHER WITH EACH OTHER LOAN PAPER, REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
==============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
==============================================================================
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
LA QUINTA INNS, INC.
By: Dewey W. Chambers
____________________________________
Dewey W. Chambers, Vice President
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: Douglas E. Hutt
______________________________________
Douglas E. Hutt, Senior Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A.
By: Douglas E. Hutt
______________________________________
Douglas E. Hutt, Senior Vice President
CITICORP USA, INC.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
LA QUINTA INNS, INC.
By: ____________________________________
_________________, _________________
(Print Name) (Print Title)
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: ______________________________________
Douglas E. Hutt, Senior Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A.
By: ______________________________________
Douglas E. Hutt, Senior Vice President
CITICORP USA, INC.
By: Barbara A. Cohen
____________________________________
Barbara A. Cohen, Vice President
-9-
<PAGE>
THE FROST NATIONAL BANK
By: Suzanne Heuser
____________________________________
Suzanne Heuser, Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK ONE, TEXAS, N.A.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-10-
<PAGE>
THE FROST NATIONAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: Dan M. Danelo
------------------------------------
Dan M. Danelo, Sr. Vice President
BANK OF SCOTLAND
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK ONE, TEXAS, N.A.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-10-
<PAGE>
THE FROST NATIONAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: Catherine M. Omiffrey
____________________________________
Catherine M. Omiffrey, Vice President
CONTINENTAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK ONE, TEXAS, N.A.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-10-
<PAGE>
THE FROST NATIONAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: W. Thomas Barnett
____________________________________
W. Thomas Barnett, Vice President
BANK ONE, TEXAS, N.A.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-10-
<PAGE>
THE FROST NATIONAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK OF SCOTLAND
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
CONTINENTAL BANK
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
BANK ONE, TEXAS, N.A.
By: Alan L. Miller
____________________________________
Alan L. Miller, Vice President
-10-
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: John R. Peloubet
____________________________________
John R. Peloubet, Vice President
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
-11-
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: ____________________________________
___________________,________________
(Print Name) (Print Title)
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: Blake R. Howells
____________________________________
Blake R. Howells, Vice President
-11-
<PAGE>
ACKNOWLEDGED AND AGREED:
LA QUINTA REALTY CORP.
By: John F. Schmutz
___________________________________
John F. Schmutz, Vice President
LA QUINTA PLAZA, INC.
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
LA QUINTA FINANCIAL CORPORATION
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
LA QUINTA INVESTMENTS, INC.
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
LQI ACQUISITION CORPORATION
By: Kenneth J. Bednar
____________________________________
Kenneth J. Bednar, Vice President
-12-
<PAGE>
LA QUINTA MOTOR INNS LIMITED
PARTNERSHIP
By: La Quinta Realty Corp., its General
Partner
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
LQM OPERATING PARTNERS, L.P.
By: La Quinta Realty Corp., its General
Partner
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
LQ-BIG APPLE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By: Dewey W. Chambers
____________________________________
Dewey W. Chambers, Vice President
By: La Quinta Investments, Inc., its Partner
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
-13-
<PAGE>
LQ-LNL LIMITED PARTNERSHIP
By: La Quinta Inns, Inc., its Managing
General Partner
By: Dewey W. Chambers
____________________________________
Dewey W. Chambers, Vice President
LQ-EAST IRVINE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By: Dewey W. Chambers
____________________________________
Dewey W. Chambers, Vice President
By: La Quinta Investments, Inc., its Partner
By: John F. Schmutz
____________________________________
John F. Schmutz, Vice President
7199.01
100.076
-14-
