<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1995.
REGISTRATION NO. 33-60295
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1724417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(210) 302-6000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
JOHN F. SCHMUTZ
VICE PRESIDENT
GENERAL COUNSEL
LA QUINTA INNS, INC.
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(210) 302-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
John M. Newell Charles S. Whitman, III
Latham & Watkins Davis Polk & Wardwell
633 West Fifth Street, Suite 4000 450 Lexington Avenue
Los Angeles, California 90071-2007 New York, New York 10017
(213) 485-1234 (212) 450-4000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
investment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus: (i) one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and (ii) one to be used in connection with a concurrent
international offering outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all material respects except for the front and back cover pages.
The form of U.S. Prospectus is included herein and is followed by those pages to
be used in the International Prospectus which differ from those in the U.S.
Prospectus. The alternate pages for the International Prospectus included herein
are labeled "Alternate Page for International Prospectus."
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 26, 1995
P R O S P E C T U S
4,850,000 Shares
[LOGO]
La Quinta Inns, Inc.
Common Stock
---------
All of the shares of Common Stock, par value $0.10 per share, of La Quinta
Inns, Inc. ("La Quinta" or the "Company") offered hereby are being sold by the
Selling Shareholder (as defined herein). Of the 4,850,000 shares of Common Stock
offered hereby, 3,880,000 shares are being offered for sale in the United States
and Canada by the U.S. Underwriters (as defined herein) and 970,000 shares are
being offered in a concurrent international offering outside the United States
and Canada by the Managers (as defined herein) (collectively, the "Offering").
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LQI." On July 25, 1995, the closing sale price of the Common Stock
as reported by the New York Stock Exchange was $27 1/4.
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS (1) SHAREHOLDER (2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (3).......................................... $ $ $
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting estimated expenses of $1,100,000 payable by the Selling
Shareholder.
(3) The Selling Shareholder has granted the several U.S. Underwriters a 30-day
option to purchase up to 470,071 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Selling Shareholder will be $ ,
$ , and $ , respectively.
The Shares of Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that the certificates for
the shares of Common Stock offered hereby will be available for delivery on or
about , 1995 at the offices of Smith Barney Inc., 388 Greenwich Street,
New York, New York 10013.
----------------
Smith Barney Inc.
Alex. Brown & Sons
Incorporated
Montgomery Securities
, 1995
<PAGE>
BECAUSE LA QUINTA OWNS AND OPERATES VIRTUALLY ALL OF ITS INNS, IT IS ABLE TO
ASSURE ITS CUSTOMERS A CONSISTENTLY HIGH-QUALITY GUEST EXPERIENCE. EACH INN
HAS LA QUINTA'S DISTINCTIVE EXTERIOR, AN ATTRACTIVE LOBBY AND BREAKFAST AREA
AND COMFORTABLE, WELL-APPOINTED GUEST ROOMS. THIS CONSISTENT QUALITY HAS MADE
LA QUINTA A WELL-REGARDED BRAND IN THE MID-PRICED SEGMENT OF THE LODGING
INDUSTRY.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING NOTES THERETO)
APPEARING ELSEWHERE, OR INCORPORATED BY REFERENCE, IN THIS PROSPECTUS. UNLESS
THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" OR "LA QUINTA" REFERS TO LA QUINTA
INNS, INC., TOGETHER WITH ITS COMBINED SUBSIDIARIES, AND UNINCORPORATED JOINT
VENTURES AND PARTNERSHIPS. LA QUINTA-REGISTERED TRADEMARK- IS A REGISTERED
TRADEMARK OF LA QUINTA INNS, INC.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL GUEST SURVEYS. INDUSTRY PUBLICATIONS GENERALLY STATE
THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION IS
NOT GUARANTEED. SIMILARLY, INTERNAL GUEST SURVEYS, WHILE BELIEVED TO BE
RELIABLE, HAVE NOT BEEN INDEPENDENTLY VERIFIED. NONE OF THE COMPANY, THE SELLING
SHAREHOLDER AND THE UNDERWRITERS HAS INDEPENDENTLY VERIFIED THIS MARKET DATA AND
NONE OF THEM MAKES ANY REPRESENTATION AS TO ITS ACCURACY.
THE COMPANY
La Quinta is the second largest owner/operator of hotels in the United
States, with 236 inns and more than 30,000 rooms. La Quinta, which operates
primarily in the mid-priced segment of the lodging industry, achieved an average
occupancy percentage of 70.1% and an average daily room rate ("ADR") of $47.65
for the year ended December 31, 1994. Founded in 1968, the Company has inns
located in 29 states, with strategic concentrations in Texas, Florida and
California. La Quinta currently owns a 100% interest in 228 of its inns and a
50% or greater interest in an additional seven inns. La Quinta operates all of
its inns other than one licensed inn. La Quinta's business strategy is to
continue to expand its successful core business as an owner/operator in the
mid-priced segment of the lodging industry.
OWNERSHIP AND MANAGEMENT CONTROL
Unlike most major chains in the lodging industry, La Quinta owns and manages
all but one of the inns that carry its brand. The Company believes that much of
its success is attributable to this operating control, which allows the Company
to achieve a higher level of consistency in both product quality and service
than its competitors. In addition, its operating control gives La Quinta the
ability to offer new services, determine expansion strategies, set pricing and
make other marketing decisions on a system-wide or local basis as conditions
dictate, without consulting third-party owners, management companies or
franchisees as required of most other lodging chains.
BRAND IMAGE
La Quinta has taken major steps to assure uniform high quality at its inns.
In 1993 and 1994, the Company invested approximately $65 million in a
comprehensive chainwide image enhancement program designed to give all of its
inns a new, fresh appearance while preserving their unique character. The
program, which was substantially completed in mid-1994, featured new signage
displaying a distinctive new logo, along with exterior and lobby upgrades
including brighter colors, more extensive lighting, additional landscaping,
enhanced guest entry and a full lobby renovation with contemporary furnishings
and seating areas for continental breakfast.
As a result of its ability to provide consistently high-quality, convenient
accommodations and excellent value, the Company believes that it has established
La Quinta as a strong, well-regarded mid-priced brand. The Company believes that
its brand recognition and reputation have enhanced the performance of its
existing inns and should provide an advantage for inns added in the future.
FOCUSED GROWTH STRATEGY
La Quinta attributes its strong operating performance in large part to the
successful implementation of the strategic plan formulated by the Company's
senior management team after their arrival at the Company in 1992. Under this
plan, management has (i) substantially restructured the Company, purchasing its
partners' interests in 19 unincorporated joint ventures and partnerships since
1993 (including the AEW Transaction described below), refinancing a majority of
its outstanding debt, and instituting corporate and
3
<PAGE>
operating-level cost controls, (ii) reimaged all La Quinta inns through the
system-wide image enhancement program, and (iii) demonstrated its ability to
grow the number of inns -- acquiring 11 inns in 1993, 15 inns in 1994 and nine
inns in the first six months of 1995 -- while increasing profitability.
The Company intends to focus both on INTERNAL GROWTH -- enhancing revenues,
cash flow and profitability at its current portfolio of inns, and EXTERNAL
GROWTH -- adding new inns through opportunistic acquisitions and conversions of
existing properties and selective new construction. The Company's external
growth strategy is to reinforce its presence in existing markets and expand
selectively into new markets. For the twelve months ended June 30, 1995, the
Company generated $79.6 million of cash flow after required interest payments,
maintenance capital expenditures (assumed to be 5% of room revenues), dividends,
taxes and partner distributions, providing an internal source of funding to
support its growth plan.
FACILITIES AND SERVICES
The typical La Quinta inn contains approximately 130 spacious, quiet and
comfortably furnished guest rooms averaging 300 square feet in size. Guests at a
La Quinta inn are offered a wide range of amenities and services, including
complimentary continental breakfast, free unlimited local telephone calls,
remote-control televisions with a premium movie channel, a swimming pool,
same-day laundry and dry cleaning, fax services, 24-hour front desk and message
service, smoking/non-smoking rooms and free parking. La Quinta guests typically
have convenient access to food service at adjacent free-standing restaurants,
including national chains such as Cracker Barrel, IHOP, Denny's and Perkins. La
Quinta has an ownership interest in 126 of these adjacent restaurant buildings,
which it leases to restaurant operators.
La Quinta inns appeal to guests who desire high-quality rooms, convenient
locations and attractive prices, but who do not require banquet and convention
facilities, in-house restaurants, cocktail lounges or room service. By
eliminating the costs of these management-intensive facilities and services, La
Quinta believes it offers its customers exceptional value by providing rooms
that are comparable in quality to full-service hotels at lower prices.
CUSTOMER BASE AND MARKETING
La Quinta's combination of consistent, high-quality accommodations and good
value is attractive to business customers, who account for more than 50% of
rooms rented. These core customers typically visit a given area several times a
year, and include salespersons covering a specific territory, government and
military personnel and technicians. The Company also targets both vacation
travelers and senior citizens. For the convenience of these targeted customer
groups, inns are generally located near suburban office parks, major traffic
arteries or destination areas such as airports and convention centers.
La Quinta has developed a strong following among its customers; internal
customer surveys show that the average customer spends 16 nights per year in a
La Quinta inn. The Company focuses a number of its marketing programs on
maintaining a high number of repeat customers. For example, La Quinta promotes a
"Returns-Registered Trademark- Club" offering members preferred status and rates
at La Quinta inns, along with rewards for frequent stays. The Returns Club had
approximately 235,000 members as of June 30, 1995.
The Company markets directly to companies and other organizations through
its direct sales force of 40 sales representatives and managers. This sales
force calls on companies which have a significant number of individuals
traveling in the regions in which La Quinta operates and which are capable of
producing a high volume of room nights. The Company also provides a central
reservation system, "teLQuik-Registered Trademark-," which currently accounts
for advance reservations for approximately 27% of room nights. The teLQuik
system allows customers to make reservations by dialing 1-800-531-5900 toll
free, or from special reservations phones placed in all La Quinta inns. In
addition, approximately 47% of room nights reflect advance reservations made
directly with individual inns and forwarded to the central reservation system.
In total, advance reservations account for approximately 74% of room nights.
LODGING INDUSTRY
La Quinta benefits from the current strength of both the lodging industry as
a whole and the mid-priced segment in which the Company primarily competes. The
industry has now experienced three consecutive years in which the growth of
demand for rooms substantially exceeded the growth in room supply. This
4
<PAGE>
supply/demand relationship has led to industry-wide increases in occupancy
percentages and ADR, with occupancy rising to 65.2% in 1994 from 63.7% in 1993,
and ADR increasing 3.8% in 1994 over 1993 levels, based on information provided
by Smith Travel Research, an independent lodging industry research firm. The
mid-priced segment of the lodging industry also performed well in 1994, with
revenue per available room ("REVPAR," which is the product of occupancy
percentage and ADR) increasing 5.5% over 1993, the largest REVPAR increase of
any lodging segment except for the luxury segment. The mid-priced segment
continued to have strong REVPAR growth in the first quarter of 1995, with REVPAR
increasing 5.9% over the comparable 1994 period.
FINANCIAL PERFORMANCE
La Quinta's financial results reflect both the improvements in the lodging
industry and the successful implementation of its business strategy. During the
five-year period from 1990 through 1994, the Company's REVPAR increased from
$27.01 per night to $33.39 per night, a compound annual growth rate of 5.4%;
revenue increased from $226.8 million to $362.2 million, a compound annual
growth rate of 12.4%; EBITDA (as defined in footnote 5 under "Summary Combined
Financial Data") increased from $79.3 million to $148.7 million, a compound
annual growth rate of 17.0%; and net income increased from $2.2 million to $37.8
million. During this same period, the Company reduced its annual corporate
overhead expense from $21.6 million in 1990 to $18.6 million in 1994, a decrease
of 13.9%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
La Quinta's operating results in the first six months of 1995 versus the
first six months of 1994 continued this positive trend: REVPAR increased 12.8%,
revenues increased 21.1%, EBITDA increased 37.8% and net income increased 65.0%.
These results illustrate the operating leverage inherent in the lodging
industry. As occupancy and ADR increase, a high percentage of the additional
revenue translates into net income due to the low marginal costs of increasing
occupancy and ADR. The operating leverage is also reflected in the Company's
EBITDA margin, which rose from 40.0% in the first six months of 1994 to 45.6% in
the first six months of 1995.
THE SELLING SHAREHOLDER
In March 1990, the Company formed a limited partnership, La Quinta
Development Partners, L.P. ("LQDP"), with AEW Partners, L.P. ("AEW" or the
"Selling Shareholder") pursuant to the LQDP Partnership Agreement (as defined
under "Principal and Selling Shareholders"). LQDP was established for the
purpose of acquiring competitors' inns and converting them to the La
Quinta-Registered Trademark- brand. La Quinta manages the inns owned by LQDP.
Prior to the transaction described below, La Quinta, the general partner of
LQDP, owned a 40% interest and AEW, the limited partner, owned a 60% interest in
LQDP. La Quinta contributed property with a fair value of approximately $44
million and $4 million in cash to LQDP, and AEW contributed cash of $3 million
and an additional $69 million in the form of a promissory note which was
subsequently funded. At June 30, 1995, LQDP owned 47 inns and 16 adjacent
restaurant buildings.
Under the terms of the LQDP Partnership Agreement, AEW had a right to
require that any inns proposed to be acquired by the Company instead be acquired
by LQDP. This right expired by its terms in March 1995. In addition, in
connection with the formation of LQDP in 1990, AEW paid $3 million for an
option, subject to certain vesting and other conditions, to convert two-thirds
of its ownership interest in LQDP into a specified number of shares of the
Company's Common Stock (adjusted for stock splits, cash dividends, and
distributions from LQDP to AEW).
On June 15, 1995, AEW notified the Company that it would exercise, subject
to certain conditions, its option to convert two-thirds of its ownership
interest in LQDP into 5,299,821 shares of the Company's Common Stock. These
shares are being registered pursuant to a registration rights agreement, and
together with 20,250 shares of Common Stock currently owned by the Selling
Shareholder, are being sold in this Offering, assuming exercise in full of the
U.S. Underwriters' over-allotment option. AEW also agreed to sell the remaining
one-third of its ownership interest in LQDP to the Company for a negotiated
price of $48.2 million in cash (collectively, with the conversion, the "AEW
Transaction"). The AEW Transaction was consummated on July 3, 1995. The Company
financed the cash portion of the AEW Transaction through borrowings under its
and LQDP's bank credit facilities. AEW will bear all of the costs related to the
registration and sale of the Common Stock in the Offering. See "Principal and
Selling Shareholders."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered (1)
United States and Canadian Offering....... 3,880,000 shares
International Offering.................... 970,000 shares
Total................................... 4,850,000 shares
Common Stock to be outstanding after the
Offering................................... 52,293,112 shares (2)
Use of Proceeds............................. The Company will not receive any proceeds from
the Offering. The Selling Shareholder will pay
all expenses of the Offering.
NYSE Symbol................................. "LQI"
<FN>
- ------------------------
(1) Assumes that the over-allotment option granted to the U.S. Underwriters is
not exercised.
(2) Excludes 5,929,707 shares reserved for issuance or delivery from treasury
upon exercise of options granted to the Company's management, as of June
30, 1995. Includes 5,299,821 shares issued in the AEW Transaction.
</TABLE>
The Board of Directors of the Company authorized three-for-two stock splits
effective in October 1994, March 1994 and October 1993. References to the
Company's Common Stock prior to the October 1993 split are described herein as
"pre-split" and references to the Company's Common Stock after the October 1994
split are described herein as "post-split." Per share data presented herein has
been restated to reflect the effect of the stock splits.
6
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following table sets forth certain combined financial information of the
Company, its wholly-owned subsidiaries and its combined unincorporated
partnerships and joint ventures and is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements, the
notes thereto, and other financial, pro forma and statistical information
included or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues.................. $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122 $ 240,888 $ 226,830
Direct and corporate operating
costs and expenses (1)......... 112,520 102,405 213,508 168,021 156,529 154,846 147,560
Depreciation, amortization and
fixed asset retirements........ 20,630 17,772 37,977 24,055 24,793 35,201 34,660
Performance stock option (2).... -- -- -- 4,407 -- -- --
Non-recurring cash and non-cash
charges (1).................... -- -- -- -- 38,225 7,952 503
Operating income................ 73,628 50,629 110,757 75,367 34,575 42,889 44,107
Net interest expense............ 19,804 17,530 37,439 26,219 27,046 30,271 32,304
Partners' equity (1)............ 8,976 5,522 11,406 12,965 15,081 9,421 8,408
Net (gain) loss on property
transactions................... -- -- (79) 4,347 (282) 1,012 (3)
Income tax expense.............. 17,087 10,755 24,176 12,416 526 787 1,223
Net earnings (loss) (1) (3)..... 27,761 16,822 37,815 20,301 (8,754) 129 2,175
Net earnings (loss) per share
(3) (4)........................ 0.56 0.35 0.78 0.43 (0.19) -- 0.05
Weighted average number of
common and common equivalent
shares outstanding............. 49,256 48,415 48,624 47,306 45,302 44,557 44,398
OTHER DATA
EBITDA (5)...................... $ 94,258 $ 68,401 $ 148,734 $ 103,829 $ 97,593 $ 86,042 $ 79,270
EBITDA margin (6)............... 45.6% 40.0% 41.1% 38.2% 38.4% 35.7% 34.9 %
Capital expenditures (7)........ $ 16,417 $ 55,435 $ 75,248 $ 32,623 $ 15,529 $ 13,803 $ 17,696
Purchase and conversion of inns
(8)............................ 40,292 20,989 34,690 38,858 4,060 15,487 18,574
Purchase of partners' equity
(9)............................ -- 9,622 53,255 78,169 -- 3,546 --
Cash dividends declared per
common share................... 0.05 0.05 0.10 0.05 -- -- --
OPERATING DATA
Number of inns (10)............. 236 224 228 221 212 212 210
Occupancy percentage (11)....... 72.3% 70.0% 70.1% 65.1% 65.6% 64.8% 66.0 %
ADR (12)........................ $50.87 $46.62 $47.65 $46.36 $44.33 $43.11 $40.93
REVPAR (13)..................... 36.79 32.61 33.39 30.20 29.06 27.92 27.01
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1995
-------------------
<S> <C>
BALANCE SHEET DATA
Total assets............................................................................... $ 885,082
Current installments of long term debt..................................................... 15,242
Long term debt, excluding current installments............................................. 465,997
Partners' capital.......................................................................... 100,105
Shareholders' equity....................................................................... 222,583
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
<FN>
- --------------------------
(1) Non-recurring cash and non-cash charges include charges related to the
write-down of certain joint venture interests carried on the equity method,
land and computer equipment, severance and other employee-related costs and
charges associated with a series of studies to improve operating results.
For the year ended December 31, 1992, these charges also include a
$2,696,000 increase in the allowance for certain notes receivable related
to inns sold by the Company prior to 1985, and $210,000 related to other
corporate expense items. Results for the year ended December 31, 1992 were
impacted by an additional charge of $1,214,000 to partners' equity in
earnings and losses related to the reallocation of losses of a combined
unincorporated joint venture to the Company.
(2) Performance stock option relates to the costs of stock options which became
exercisable when the average price of the Company's Common Stock reached
$30 per share (pre-split) for twenty consecutive days. In 1993, performance
stock option expense and certain other options were accelerated as a result
of this condition being met. Currently, the Company has no options
outstanding that require recognition of additional compensation expense.
(3) Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the use of the asset and liability method
of accounting for deferred income taxes. The Company recorded the impact of
SFAS 109's implementation, an increase in net income of $1,500,000, as the
cumulative effect of an accounting change in the combined statement of
operations for the year ended December 31, 1993. Prior years' financial
statements were not restated to apply the provisions of SFAS 109.
(4) Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent shares outstanding in each period
after giving effect to the three-for-two stock splits.
(5) EBITDA, as defined by the covenants in the Company's 9 1/4% Senior
Subordinated Notes due 2003, is earnings before net interest expense,
income taxes, depreciation, amortization and fixed asset retirements,
extraordinary items, partners' equity in earnings and losses, gain or loss
on property and investment transactions and other non-recurring cash and
non-cash charges. This definition differs from the traditional EBITDA
definition which does not include adjustments for extraordinary items,
partners' equity in earnings and losses, gain or loss on property and
investment transactions and other non-recurring cash and non-cash charges
as follows:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary items.................. $ -- $ -- $ -- $ 619 $ 958 $1,269 $ --
Partners' equity in earnings and
losses............................. 8,976 5,522 11,406 12,965 15,081 9,421 8,408
(Gain) loss on property
transactions....................... -- -- (79) 4,347 (282) 1,012 (3)
Non-recurring cash and non-cash
charges and performance stock
option............................. -- -- -- 4,407 38,225 7,952 503
<FN>
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principals
("GAAP"). EBITDA, as defined above, is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
(6) EBITDA margin represents EBITDA divided by total revenues.
(7) Represents capital expenditures other than those for purchase and
conversion of inns. Capital expenditures for the six months ended June 30,
1995 and 1994 and the years ended December 31, 1994 and 1993, include costs
related to the Company's image enhancement program.
(8) Included in the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 were conversion costs of
$5,624,000, $5,806,000, $8,891,000, $7,231,000, $4,060,000, $3,977,000 and
$4,788,000, respectively.
(9) Purchase of partners' equity in the six months ended June 30, 1994 and the
years ended December 31, 1994 and 1993 includes approximately $9,322,000,
$9,322,000 and $42,091,000, respectively, related to the acquisition of the
La Quinta Motor Inns Limited Partnership ("LQP").
(10) Number of inns includes 40 managed inns and inns licensed to others in the
years ended December 31, 1992, 1991 and 1990 and includes nine managed inns
and inns licensed to others in the six months ended June 30, 1994 and the
year ended December 31, 1993, the results of which are not included in the
combined financial statements.
(11) The occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of La Quinta
rooms available for rent multiplied by the number of days in the reported
period.
(12) ADR represents total room revenues divided by the total number of rooms
occupied.
(13) REVPAR represents the product of occupancy percentage and ADR.
</TABLE>
8
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The unaudited summary pro forma combined condensed statement of operations
and balance sheet data presented below reflect the statement of operations and
balance sheet data as reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and Quarterly Report on Form 10-Q for the six
months ended June 30, 1995, adjusted to reflect the AEW Transaction as if the
transaction had occurred at the beginning of the periods presented or at the
balance sheet date, respectively. The following table is qualified in its
entirety by, and should be read in conjunction with, "Pro Forma Financial Data"
and the combined financial statements, the notes thereto, and other financial,
pro forma and statistical information included or incorporated by reference in
this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA FOR THE PRO FORMA FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995(1) 1994(1)
------------------- ------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS
Total revenues.................................................... $ 206,778 $ 362,242
-------- --------
Operating costs and expenses:
Direct and corporate............................................ 112,520 213,508
Depreciation, amortization, and fixed asset retirements......... 21,178 39,073
-------- --------
Total operating costs......................................... 133,698 252,581
-------- --------
Operating income.............................................. 73,080 109,661
-------- --------
Other (income) expenses:
Net interest expense............................................ 21,462 40,755
Partners' equity................................................ 1,400 2,128
Net gain on property transactions............................... -- (79)
-------- --------
Earnings before income taxes.................................... 50,218 66,857
Income tax expense.............................................. 19,133 25,807
-------- --------
Net earnings.................................................. $ 31,085 $ 41,050
-------- --------
-------- --------
Earnings per common and common equivalent share:
Net earnings.................................................. $ 0.57 $ 0.76
-------- --------
-------- --------
Weighted average number of common and common equivalent shares
outstanding...................................................... 54,556 53,914
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AT
JUNE 30, 1995
------------------------
<S> <C>
BALANCE SHEET DATA
Total assets............................................................................ $ 936,163
Short term borrowings and current installments of long term debt........................ 45,242
Long term debt, excluding current installments.......................................... 484,197
Partners' capital....................................................................... 6,586
Shareholders' equity.................................................................... 318,983
<FN>
- ------------------------
(1) Pro forma condensed statement of operations does not reflect a
non-recurring, non-cash item directly attributable to the AEW Transaction.
See "Pro Forma Financial Data."
</TABLE>
9
<PAGE>
RISK FACTORS
RISKS OF THE LODGING INDUSTRY
The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions (particularly in geographic areas where
the Company has a high concentration of inns), changes in local market
conditions, oversupply of hotel space, a reduction in local demand for hotel
rooms, changes in travel patterns, changes in governmental regulations that
influence or determine wages, prices or construction costs, changes in interest
rates, the availability of credit and changes in real estate taxes and other
operating expenses. The Company's ownership of real property, including inns, is
substantial. Real estate values are sensitive to changes in local market and
economic conditions and to fluctuations in the economy as a whole. Due in part
to the strong correlation between the lodging industry's performance and
economic conditions, the lodging industry is subject to cyclical changes in
revenues and profits.
COMPETITION
The lodging industry is highly competitive. During the 1980's, construction
of lodging facilities in the United States at historically high levels resulted
in an excess supply of available rooms. This oversupply had an adverse effect on
occupancy levels and room rates in the industry. The oversupply has now largely
been absorbed, with growth in demand exceeding growth in supply in each of the
last three years. However, there can be no assurance that an oversupply will not
exist again in the future. Competitive factors in the industry include
reasonableness of room rates, quality of accommodations, brand recognition,
service levels and convenience of locations. The Company's inns generally
operate in areas that contain numerous other competitors, certain of which have
substantially greater financial resources than the Company. There can be no
assurance that demographic, geographic or other changes in markets will not
adversely affect the convenience or desirability of the locations of the
Company's inns. Furthermore, there can be no assurance that, in the markets in
which the Company's inns operate, competing hotels will not pose greater
competition for guests than presently exists, or that new hotels will not enter
such markets. See "Business -- Competition."
ACQUISITION AND DEVELOPMENT RISKS
The Company's growth strategy of acquiring inns for conversion and selective
development of new inns will subject the Company to pre-opening and conversion
costs. As the Company opens additional Company-owned inns, such costs may
adversely affect the Company's operating results. Newly opened inns historically
begin with lower occupancy and room rates that improve over time. While the
Company has in the past successfully opened or converted new inns, there can be
no assurance that the Company will be able to achieve its growth strategy.
Construction, acquisition and conversion of inns involves certain risks,
including the possibility of construction cost overruns and delays, site
acquisition cost and availability, uncertainties as to market potential, market
deterioration after acquisition or conversion, possible unavailability of
financing on favorable terms and the emergence of market competition from
unanticipated sources. Although the Company seeks to manage its construction,
acquisition and conversion activities so as to minimize such risks, there can be
no assurance that new inns will perform in accordance with the Company's
expectations.
SEASONALITY
The lodging industry is seasonal in nature. Generally, the Company's inn
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues, profit margins and net earnings of the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the Offering. The Offering is
being made by the Selling Shareholder pursuant to registration rights granted in
1990. The Selling Shareholder will pay all the expenses of the Offering.
10
<PAGE>
CAPITALIZATION
The following table sets forth cash and cash equivalents, short term
borrowings and current installments of long term debt and the capitalization of
the Company as of June 30, 1995, and as adjusted to give effect to the AEW
Transaction. For additional information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined
financial statements, the notes thereto, and other financial, pro forma and
statistical information included or incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 6,694 $ 6,694
---------- -------------
---------- -------------
Short term borrowings and current installments of long term debt....................... $ 15,242 $ 45,242(1)
---------- -------------
---------- -------------
Long term debt, excluding current installments:
Mortgage loans, maturing 1995-2016................................................... $ 88,355 $ 88,355
Industrial development revenue bonds, maturing 1995-2012............................. 57,142 57,142
Bank secured term credit facility, maturing May 30, 2002............................. 141,500 141,500
Bank secured line of credit, maturing May 31, 1999................................... 34,000 42,200(1)
Bank unsecured line of credit, maturing January 31, 1997............................. 25,000 35,000(1)
9 1/4% Senior Subordinated Notes due 2003............................................ 120,000 120,000
---------- -------------
Total long term debt, excluding current installments............................... 465,997 484,197
---------- -------------
Partners' capital...................................................................... 100,105 6,586(1)(2)
Shareholders' equity................................................................... 222,583 318,983(2)
---------- -------------
Total capitalization............................................................... $ 788,685 $ 809,766
---------- -------------
---------- -------------
<FN>
- ------------------------
(1) Adjusted to reflect borrowings of $48.2 million for the Company's
acquisition of one-third of AEW's interest in LQDP. Approximately $30
million of the $48.2 million purchase price was drawn on LQDP's 364-day
unsecured line of credit (which the Company intends to renew annually,
subject to the consent of the lenders) and is therefore reflected as short
term borrowings. The remainder of the purchase price was borrowed under the
Company's and LQDP's bank credit facilities.
(2) Adjusted to reflect the conversion of two-thirds of AEW's interest in LQDP
and the credit to shareholders' equity for the fair market value of the
assets acquired ($96.4 million).
</TABLE>
11
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LQI." On July 25, 1995, the closing sale price of the Company's
Common Stock as reported by the New York Stock Exchange was $27 1/4. The range
of the high and low sale prices, as adjusted for the three-for-two stock splits
in October 1994, March 1994, and October 1993 of the Company's Common Stock, is
set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ----------------------------- ------------------------------
PER PER PER
SHARE SHARE SHARE
HIGH LOW DIVIDEND HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------- ----- -------- -------- ----- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter...................... $29 $19 5/8 $0.025 $ 20 7/8 $ 12 7/8 $0.025 $ 9 1/8 $ 6 $--
Second Quarter..................... 30 1/4 25 1/4 0.025 21 5/8 16 7/8 0.025 9 5/8 8 --
Third Quarter (through July 25,
1995)............................. 29 1/2 26 1/4 24 3/8 17 0.025 12 7/8 8 3/8 0.025
Fourth Quarter..................... 25 3/4 19 1/8 0.025 15 7/8 12 3/8 0.025
</TABLE>
The Company has paid quarterly cash dividends since the third quarter of
1993 in the amount of $0.025 per share under its quarterly dividend policy as
authorized by the Board of Directors. For restrictions on the Company's present
or future ability to pay cash dividends, see note 2 of Notes to Combined
Financial Statements. The declaration and payment of dividends in the future
will be determined by the Board of Directors based upon the Company's earnings,
financial condition, capital requirements and such other factors as the Board of
Directors may deem relevant.
As of June 30, 1995, the approximate number of holders of record of the
Company's Common Stock was 949.
12
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain combined financial information of the
Company, its wholly-owned subsidiaries and its combined unincorporated
partnerships and joint ventures and is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements, the
notes thereto, and other financial, pro forma and statistical information
included or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues..................... $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122 $ 240,888 $ 226,830
Direct and corporate operating
costs and expenses (1)............ 112,520 102,405 213,508 168,021 156,529 154,846 147,560
Depreciation, amortization and
fixed asset retirements........... 20,630 17,772 37,977 24,055 24,793 35,201 34,660
Performance stock option (2)....... -- -- -- 4,407 -- -- --
Non-recurring cash and non-cash
charges (1)....................... -- -- -- -- 38,225 7,952 503
Operating income................... 73,628 50,629 110,757 75,367 34,575 42,889 44,107
Net interest expense............... 19,804 17,530 37,439 26,219 27,046 30,271 32,304
Partners' equity (1)............... 8,976 5,522 11,406 12,965 15,081 9,421 8,408
Net (gain) loss on property
transactions...................... -- -- (79) 4,347 (282) 1,012 (3)
Income tax expense................. 17,087 10,755 24,176 12,416 526 787 1,223
Earnings (loss) before
extraordinary items and cumulative
effect of accounting change....... 27,761 16,822 37,815 19,420 (7,796) 1,398 2,175
Net earnings (loss) (1) (3)........ 27,761 16,822 37,815 20,301 (8,754) 129 2,175
Earnings (loss) per share before
extraordinary items and cumulative
effect of accounting change....... 0.56 0.35 0.78 0.41 (0.17) 0.03 0.05
Net earnings (loss) per share (3)
(4)............................... 0.56 0.35 0.78 0.43 (0.19) -- 0.05
Weighted average number of common
and common equivalent shares
outstanding....................... 49,256 48,415 48,624 47,306 45,302 44,557 44,398
OTHER DATA
EBITDA (5)......................... $ 94,258 $ 68,401 $ 148,734 $ 103,829 $ 97,593 $ 86,042 $ 79,270
EBITDA Margin (6).................. 45.6% 40.0% 41.1% 38.2% 38.4% 35.7% 34.9%
Capital expenditures (7)........... $ 16,417 $ 55,435 $ 75,248 $ 32,623 $ 15,529 $ 13,803 $ 17,696
Purchase and conversion of inns
(8)............................... 40,292 20,989 34,690 38,858 4,060 15,487 18,574
Purchase of partners' equity (9)... -- 9,622 53,255 78,169 -- 3,546 --
Cash dividends declared per common
share............................. 0.05 0.05 0.10 0.05 -- -- --
OPERATING DATA
Inns owned 100%.................... 181 167 176 166 89 89 83
Inns owned 40-82%.................. 54 46 50 45 80 79 81
Inns managed (10).................. -- 10 -- 9 40 40 40
Inns licensed (10)................. 1 1 2 1 3 4 6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Number of inns..................... 236 224 228 221 212 212 210
Occupancy percentage (11).......... 72.3% 70.0% 70.1% 65.1% 65.6% 64.8% 66.0%
ADR (12)........................... $ 50.87 $ 46.62 $ 47.65 $ 46.36 $ 44.33 $ 43.11 $ 40.93
REVPAR (13)........................ 36.79 32.61 33.39 30.20 29.06 27.92 27.01
BALANCE SHEET DATA
Total assets....................... 885,082 786,037 845,781 749,495 539,183 574,687 586,969
Current installments of long term
debt.............................. 15,242 32,620 39,976 22,491 21,711 22,116 24,002
Long term debt, excluding current
installments...................... 465,997 427,366 448,258 414,004 274,824 316,014 341,902
Partners' capital.................. 100,105 86,861 92,099 85,976 62,060 50,471 37,270
Shareholders' equity............... 222,583 164,857 189,231 149,057 124,321 130,175 129,167
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
<FN>
- ------------------------------
(1) Non-recurring cash and non-cash charges include charges related to the
write-down of certain joint venture interests carried on the equity method,
land and computer equipment, severance and other employee-related costs and
charges associated with a series of studies to improve operating results.
For the year ended December 31, 1992, these charges also include a
$2,696,000 increase in the allowance for certain notes receivable related
to inns sold by the Company prior to 1985, and $210,000 related to other
corporate expense items. Results for the year ended December 31, 1992 were
impacted by an additional charge of $1,214,000 to partners' equity in
earnings and losses related to the reallocation of losses of a combined
unincorporated joint venture to the Company.
(2) Performance stock option relates to the costs of stock options which became
exercisable when the average price of the Company's Common Stock reached
$30 per share (pre-split) for twenty consecutive days. In 1993, performance
stock option expense and certain other options were accelerated as a result
of this condition being met. Currently, the Company has no options
outstanding that require recognition of additional compensation expense.
(3) Effective January 1, 1993, the Company adopted the provisions of SFAS 109.
SFAS 109 requires the use of the asset and liability method of accounting
for deferred income taxes. The Company recorded the impact of SFAS 109's
implementation, an increase in net income of $1,500,000, as the cumulative
effect of an accounting change in the combined statement of operations for
the year ended December 31, 1993. Prior years' financial statements were
not restated to apply the provisions of SFAS 109.
(4) Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent shares outstanding in each period
after giving effect to the three-for-two stock splits.
(5) EBITDA, as defined by the covenants in the Company's 9 1/4% Senior
Subordinated Notes due 2003, is earnings before net interest expense,
income taxes, depreciation, amortization and fixed asset retirements,
extraordinary items, partners' equity in earnings and losses, gain or loss
on property and investment transactions and other non-recurring cash and
non-cash charges. This definition differs from the traditional EBITDA
definition which does not include adjustments for extraordinary items,
partners' equity in earnings and losses, gain or loss on property and
investment transactions and other non-recurring cash and non-cash charges
as follows:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary items............................ $ -- $ -- $ -- $ 619 $ 958 $ 1,269 $ --
Partners' equity in earnings and losses........ 8,976 5,522 11,406 12,965 15,081 9,421 8,408
(Gain) loss on property transactions........... -- -- (79) 4,347 (282) 1,012 (3)
Non-recurring cash and non-cash charges and
performance stock option...................... -- -- -- 4,407 38,225 7,952 503
<FN>
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with GAAP. EBITDA, as defined above, is included
herein because management believes that certain investors find it to be a
useful tool for measuring the ability to service debt.
(6) EBITDA margin represents EBITDA divided by total revenues.
(7) Represents capital expenditures other than those for purchase and
conversion of inns. Capital expenditures for the six months ended June 30,
1995 and the years ended December 31, 1994 and 1993, include costs related
to the Company's image enhancement program.
(8) Included in the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 were conversion costs of
$5,624,000, $5,806,000, $8,891,000, $7,231,000, $4,060,000, $3,977,000 and
$4,788,000, respectively.
(9) Purchase of partners' equity in the six months ended June 30, 1994 and the
years ended December 31, 1994 and 1993 includes approximately $9,322,000,
$9,322,000 and $42,091,000, respectively, related to the acquisition of
LQP.
(10) The operating results of managed inns and licensed inns are not included in
the combined financial statements.
(11) The occupancy percentage represents total rooms occupied divided by total
available rooms. Total available rooms represents the number of La Quinta
rooms available for rent multiplied by the number of days in the reported
period.
(12) ADR represents total room revenues divided by the total number of rooms
occupied.
(13) REVPAR represents the product of occupancy percentage and ADR.
</TABLE>
14
<PAGE>
PRO FORMA FINANCIAL DATA
The following tables are qualified in their entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements, the
notes thereto, and other financial, pro forma and statistical information
included or incorporated by reference in this Prospectus.
The unaudited pro forma combined condensed statement of operations presented
below includes the statement of operations as reported in the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 1995, and as
adjusted to reflect the AEW Transaction as if the transaction had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
PRO FORMA
SIX
SIX MONTHS PRO FORMA MONTHS
ENDED ADJUSTMENTS ENDED
JUNE 30, --------------- JUNE 30,
1995 DEBIT CREDIT 1995(F)
----------- ----- ------ ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Total revenues.............................................. $206,778 $206,778
----------- ---------
Operating costs and expenses:
Direct and corporate...................................... 112,520 112,520
Depreciation, amortization, and fixed asset retirements... 20,630 $548(A) 21,178
----------- ---------
Total operating costs................................... 133,150 133,698
----------- ---------
Operating income........................................ 73,628 73,080
----------- ---------
Other (income) expenses:
Net interest expense...................................... 19,804 1,658(B) 21,462
Partners' equity.......................................... 8,976 $7,576(C) 1,400
----------- ---------
Earnings before income taxes.............................. 44,848 50,218
Income tax expense........................................ 17,087 2,046(D) 19,133
----------- ----- ------ ---------
Net earnings............................................ $27,761 $4,252 $7,576 $31,085
----------- ----- ------ ---------
----------- ----- ------ ---------
Earnings per common and common equivalent share:
Net earnings............................................ $ 0.56 $ 0.57
----------- ---------
----------- ---------
Weighted average number of common and common equivalent
shares outstanding......................................... 49,256 5,300(E) 54,556
----------- ----- ---------
----------- ----- ---------
</TABLE>
The accompanying notes form a part of the unaudited pro forma combined
condensed statement of operations.
- --------------------------
(A) Records additional depreciation expense on the addition of $37.3 million of
depreciable assets. The depreciation expense was calculated using the
straight line method based on a 34 year remaining life.
(B) Represents the interest expense on additional debt of $48.2 million relating
to the acquisition of one-third of AEW's interest in LQDP at the effective
weighted average interest rate under the Company's and LQDP's credit
facilities of 6.88% per annum.
(C) Represents the elimination of AEW's equity in earnings.
(D) Reflects income tax effect of pro forma adjustments assuming an effective
income tax rate of 38.1%.
(E) Reflects the increase in weighted average shares outstanding.
(F) In the third quarter of 1995, the Company will record $46.4 million
associated with the exercise of AEW's conversion option as a deduction
presented below net earnings in the Statement of Operations (Conversion of
Partner's Interest into Common Stock) in arriving at net earnings available
to common shareholders. This non-recurring, non-cash item is directly
attributable to the AEW Transaction and is not reflected in the pro forma
condensed statement of operations above.
15
<PAGE>
The unaudited pro forma combined condensed balance sheet of the Company
presented below includes the balance sheet as reported in the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 1995, and as
adjusted to reflect the AEW Transaction as if the transaction had occurred on
June 30, 1995.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AT ADJUSTMENTS AT
JUNE 30, ---------------- JUNE 30,
1995 DEBIT CREDIT 1995
----------- ------- ------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets.......................... $ 38,569 $ 38,569
Other non-current assets................ 24,983 24,983
Net property and equipment.............. 821,530 $17,027(A) 872,611
34,054(B)
----------- ------- ----------
$ 885,082 $51,081 $ 936,163
----------- ------- ----------
----------- ------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities..................... $ 75,058 $30,000(A) $ 105,058
Long term debt, excluding current
installments........................... 465,997 18,200(A) 484,197
Deferred income taxes and other......... 21,339 21,339
Partners' capital....................... 100,105 $31,173(A) 6,586
62,346(B)
Shareholders' equity (net of treasury
stock)................................. 222,583 96,400(B) 318,983
----------- ------- ------- ----------
$ 885,082 $93,519 $144,600 $ 936,163
----------- ------- ------- ----------
----------- ------- ------- ----------
</TABLE>
The accompanying notes form a part of the unaudited pro forma combined
condensed balance sheet.
- --------------------------
(A) Records the purchase of one-third of AEW's interest in LQDP using proceeds
from the Company's and LQDP's credit facilities and the related elimination
of one-third of AEW's partner's capital. Approximately $30 million of the
$48.2 million purchase price was drawn on LQDP's 364-day unsecured line of
credit (which the Company intends to renew annually, subject to the consent
of the lenders) and therefore is included in current liabilities.
(B) Reflects the purchase of the assets and the related elimination of
two-thirds of AEW's partner's capital. Also, reflects the net of the $142.8
million of Common Stock issued in the AEW Transaction and the $46.4 million
which represents the non-recurring, non-cash item which will be recorded as
a deduction presented below net earnings in the Statement of Operations
(Conversion of Partner's Interest into Common Stock) in arriving at net
earnings available to common shareholders in the third quarter of 1995.
16
<PAGE>
The unaudited pro forma combined condensed statement of operations presented
below includes the statement of operations as reported in the Company's Form
10-K for the year ended December 31, 1994, and as adjusted to reflect the AEW
Transaction as if the transaction had occurred on January 1, 1994.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA ADJUSTMENTS YEAR ENDED
DECEMBER 31, ---------------------------- DECEMBER 31,
1994 DEBIT CREDIT 1994 (F)
------------ ------------- ------------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Total revenues......................................... $ 362,242 $ 362,242
------------ ------------
Operating costs and expenses:
Direct and corporate................................. 213,508 213,508
Depreciation, amortization, and fixed asset
retirements......................................... 37,977 $ 1,096(A) 39,073
------------ ------------
Total operating costs.............................. 251,485 252,581
------------ ------------
Operating income................................... 110,757 109,661
------------ ------------
Other (income) expenses:
Net interest expense................................. 37,439 3,316(B) 40,755
Partners' equity..................................... 11,406 $ 9,278(C) 2,128
Net gain on property transactions.................... (79) (79)
------------ ------------
Earnings before income taxes......................... 61,991 66,857
Income tax expense................................... 24,176 1,631(D) 25,807
------------ ------ ------ ------------
Net earnings....................................... $ 37,815 $ 6,043 $ 9,278 $ 41,050
------------ ------ ------ ------------
------------ ------ ------ ------------
Earnings per common and common equivalent share:
Net earnings....................................... $ 0.78 $ 0.76
------------ ------------
------------ ------------
Weighted average number of common and common equivalent
shares outstanding.................................... 48,624 5,290(E) 53,914
------------ ------ ------------
------------ ------ ------------
</TABLE>
The accompanying notes form a part of the unaudited pro forma combined
condensed statement of operations.
- --------------------------
(A) Records additional depreciation expense on the addition of $37.3 million of
depreciable assets. The depreciation expense was calculated using the
straight line method based on a 34 year remaining life.
(B) Represents the interest expense on additional debt of $48.2 million relating
to the acquisition of one-third of AEW's interest in LQDP at the effective
weighted average interest rate under the Company's and LQDP's credit
facilities of 6.88% per annum.
(C) Represents the elimination of AEW's equity in earnings.
(D) Reflects income tax effect of pro forma adjustments including an adjustment
to the effective income tax rate from 39% to 38.6% due to a difference
between aggregate recorded cost and tax basis of the acquired assets.
(E) Reflects the increase in weighted average shares outstanding.
(F) In the third quarter of 1995, the Company will record $46.4 million
associated with the exercise of AEW's conversion option as a deduction
presented below net earnings in the Statement of Operations (Conversion of
Partner's Interest into Common Stock) in arriving at net earnings available
to common shareholders. This non-recurring, non-cash item is directly
attributable to the AEW Transaction and is not reflected in the pro forma
condensed statement of operations above.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis addresses the results of operations
for the six month periods ended June 30, 1995 (the "1995 Six Months") and June
30, 1994 (the "1994 Six Months") and the years ended December 31, 1994, 1993 and
1992.
The Company's financial statements include the accounts of the Company's
wholly-owned subsidiaries and unincorporated partnerships and joint ventures in
which the Company has at least a 40% ownership interest and over which it
exercises substantial legal, financial and operational control. References to
"Managed Inns" are to those inns in which the Company owns less than a 40%
interest and which are managed by the Company under long-term management
contracts.
On June 15, 1995, AEW notified the Company that it would exercise, subject
to certain conditions, its option to convert two-thirds of its ownership
interest in LQDP into 5,299,821 shares of the Company's Common Stock. AEW also
agreed to sell the remaining one-third of its ownership interest in LQDP to the
Company for a negotiated price of $48.2 million in cash. The AEW Transaction was
consummated on July 3, 1995. Upon conversion of the partnership interest into La
Quinta Common Stock, the Company issued 5,299,821 shares of the Company's Common
Stock having a fair market value of $142.8 million based on the July 3, 1995 New
York Stock Exchange closing price. During the third quarter of 1995, the Company
will record net assets acquired at their fair market value of $96.4 million and
a non-cash, non-recurring item of $46.4 million associated with the exercise of
AEW's conversion option as a deduction presented below net earnings in the
Statement of Operations (Conversion of Partner's Interest into Common Stock) in
arriving at net earnings available to common shareholders. This non-recurring,
non-cash item is directly attributable to the AEW Transaction.
During the second quarter of 1994, the Company purchased the limited
partner's interest in one of its combined unincorporated joint ventures which
owned one inn. On July 1, 1994, the Company purchased nine inns which it managed
and which were previously held in two unincorporated joint ventures with CIGNA
Investments, Inc. (the "CIGNA partnerships"). The Company has continued to
operate these properties as La Quinta inns. Also during 1995 and 1994, La Quinta
acquired nine and six additional inns, respectively, for conversion to the La
Quinta-Registered Trademark- brand.
During 1994, the Company entered into agreements with four Mexican investor
groups (the "Development Accord") for the purpose of developing 22 La Quinta
inns in 15 cities in Mexico. Each of the inns will be developed and 100% owned
by a Mexican investor group and managed by the Company under long-term
management agreements (pursuant to which the Company will receive management and
licensing fees). On December 20, 1994, the Mexican government allowed the peso
to trade freely against the U.S. dollar. As a result, the peso suffered a
significant, immediate devaluation against the U.S. dollar. This resulted in
economic conditions that have delayed commencement of construction of La Quinta
inns under the Development Accord. The construction of the first La Quinta inn
under the Development Accord is anticipated to begin when economic conditions in
Mexico stabilize.
The following chart shows certain historical operating statistics and
revenue data. References to occupancy percentages and ADR refer to Company Inns
(inns owned by the Company or by unincorporated partnerships and joint ventures
in which the Company owns at least a 40% interest). Managed Inns and the La
Quinta licensed inns are excluded from occupancy and ADR statistics for all
periods for purposes of comparability. All financial data is related to Company
Inns unless otherwise specified.
<TABLE>
<CAPTION>
COMPARATIVE OPERATING STATISTICS AND REVENUE DATA
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT ADR)
<S> <C> <C> <C> <C> <C>
Inn revenue.......................................... $ 202,661 $ 166,003 $ 353,348 $ 258,529 $ 239,826
Restaurant rental and other.......................... 4,017 3,796 7,675 6,464 7,208
Management services.................................. 100 1,007 1,219 6,857 7,088
---------- ---------- ---------- ---------- ----------
Total revenue........................................ $ 206,778 $ 170,806 $ 362,242 $ 271,850 $ 254,122
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Occupancy percentage................................. 72.3% 70.0% 70.1% 65.1% 65.6%
ADR.................................................. $ 50.87 $ 46.62 $ 47.65 $ 46.36 $ 44.33
Available rooms (1).................................. 5,305 4,900 10,188 8,226 7,916
<FN>
- ------------------------------
(1) Available rooms represent the number of rooms available for sale multiplied
by the number of days in the period reported.
</TABLE>
18
<PAGE>
THE 1995 SIX MONTHS COMPARED TO THE 1994 SIX MONTHS
TOTAL REVENUES increased to $206,778,000 in the 1995 Six Months from
$170,806,000 in the 1994 Six Months, an increase of $35,972,000, or 21.1%. Of
the total revenues reported in the 1995 Six Months, 98.0% were revenues from
inns and 2.0% were revenues from restaurant rentals and other revenues.
INN REVENUES are derived from room rentals and other sources such as charges
to guests for long-distance telephone service, fax machine use, vending
commissions, banquet revenues and laundry services. Inn revenues improved to
$202,661,000 in the 1995 Six Months from $166,003,000 in the 1994 Six Months, an
increase of $36,658,000, or 22.1%. The improvement in inn revenues was related
to an increase in occupancy percentage and ADR along with the revenues
associated with the acquisition of nine inns in the 1995 Six Months, the CIGNA
partnerships in July 1994 and six inns in the last half of 1994. Occupancy
percentage increased to 72.3% in the 1995 Six Months from 70.0% in the 1994 Six
Months. ADR increased to $50.87 in the 1995 Six Months from $46.62 in the 1994
Six Months. Improvements in both ADR and occupancy percentage are due, in part,
to the substantial completion of the Company's image enhancement program in
mid-1994, as well as general improvements in the hotel industry. In the 1994 Six
Months, the image enhancement program had only been partially completed.
RESTAURANT RENTAL AND OTHER REVENUES include rental payments from restaurant
buildings owned by La Quinta and leased to and operated by third parties.
Restaurant rental and other revenues increased to $4,017,000 in the 1995 Six
Months from $3,796,000 in the 1994 Six Months, an increase of $221,000, or 5.8%.
The increase is primarily the result of the additional restaurant buildings
owned by the Company through the acquisition of the CIGNA partnerships.
MANAGEMENT SERVICES REVENUE is primarily related to fees earned by the
Company for services rendered in conjunction with Managed Inns. Management
services revenue decreased to $100,000 in the 1995 Six Months from $1,007,000 in
the 1994 Six Months. The decrease is due to the acquisition of the CIGNA
partnerships in July 1994, eliminating the related management fees earned by the
Company.
DIRECT EXPENSES include costs directly associated with the operation of
Company Inns. In the 1995 Six Months approximately 42.2% of direct expenses were
represented by salaries, wages and related costs. Other major categories of
direct expenses include utilities, property taxes, repairs and maintenance and
room supplies. Direct expenses increased to $103,128,000 ($26.88 per occupied
room) in the 1995 Six Months from $93,149,000 ($27.18 per occupied room) in the
1994 Six Months. The increase in direct expenses period over period is primarily
attributable to the growth in number of inns and increase in occupancy. The
improvement in direct expenses per occupied room was primarily due to
efficiencies the Company achieved in labor costs, repairs and maintenance and
utilities expense and was partially offset by rising labor costs in regions with
low unemployment, increased credit card discounts resulting from a higher
percentage of guests paying with credit cards and increased property taxes.
CORPORATE EXPENSES include the costs of general management, office rent,
training and field supervision of inn managers and other marketing and
administrative expenses. The major components of corporate expenses are
salaries, wages and related expenses and information systems. Corporate expenses
increased to $9,392,000 ($1.77 per available room) in the 1995 Six Months from
$9,256,000 ($1.81 per available room, including Managed Inns) in the 1994 Six
Months, an increase of $136,000, or 1.5%. The decrease in corporate expenses on
a per available room basis is the result of the Company's efforts to control
fixed costs, while executing its growth plan in order to increase operating
profit.
DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS increased to
$20,630,000 in the 1995 Six Months from $17,772,000 in the 1994 Six Months, an
increase of $2,858,000, or 16.1%. This is due primarily to the increase in fixed
assets resulting from the acquisition of inns, including the CIGNA partnerships,
and additions from the image enhancement program. Depreciation, amortization and
fixed asset retirements also include retirements associated with the image
enhancement program and other capital improvements.
As a result of the above, OPERATING INCOME increased to $73,628,000 in the
1995 Six Months from $50,629,000 in the 1994 Six Months, an increase of
$22,999,000, or 45.4%. Additionally, operating margins were up 6.0 percentage
points, to 35.6% from 29.6%.
19
<PAGE>
INTEREST INCOME is primarily related to earnings on notes receivable and on
short-term investments of Company funds in money market instruments prior to
their use in operations or the acquisition of inns. Interest income decreased to
$579,000 in the 1995 Six Months from $1,069,000 in the 1994 Six Months, a
decrease of $490,000.
INTEREST ON LONG TERM DEBT increased to $20,383,000 in the 1995 Six Months
from $18,599,000 in the 1994 Six Months, an increase of $1,784,000, or 9.6%. The
increase is primarily attributable to the increase in the outstanding balance on
the Company's credit facilities as a result of the acquisition of the CIGNA
partnerships and 15 inns since June 1994.
PARTNERS' EQUITY IN EARNINGS AND LOSSES reflects the interest of partners in
the earnings and losses of the combined joint ventures and partnerships which
are owned at least 40% and controlled by the Company. Partners' equity in
earnings and losses increased to $8,976,000 in the 1995 Six Months from
$5,522,000 in the 1994 Six Months. The increase is attributable to improvements
in operating performance of the inns and the increase in the number of inns in
LQDP. Occupancy for the LQDP inns increased 4.8 percentage points and ADR
increased by $3.78 in the 1995 Six Months compared to the 1994 Six Months. As of
June 30, 1995, LQDP owned and operated 47 inns, compared to 37 inns at June 30,
1994.
INCOME TAXES for the 1995 Six Months were calculated using an effective
income tax rate of 38.1%, compared to an effective income tax rate of 39.0% for
the 1994 Six Months. The effective income tax rate decrease reflects the
estimated impact of the difference between aggregate recorded cost and tax basis
of acquired assets from the AEW Transaction and a reduction of estimated state
income tax expense.
For the reasons discussed above, the Company reported NET EARNINGS of
$27,761,000, or $0.56 per share, in the 1995 Six Months compared to $16,822,000,
or $0.35 per share, in the 1994 Six Months, an increase in net earnings of
$10,939,000, or 65.0%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUES increased to $362,242,000 in 1994 from $271,850,000 in 1993,
an increase of $90,392,000, or 33.3%. Of the total revenues reported in 1994,
97.6% were revenues from inns, 2.1% were revenues from restaurant rentals and
other revenues and 0.3% were revenues from management services.
INN REVENUES increased to $353,348,000 in 1994 from $258,529,000 in 1993, an
increase of $94,819,000, or 36.7%. The increase in inn revenues was due
primarily to the acquisitions of La Quinta Motor Inns Limited Partnership
("LQP") and the CIGNA partnerships, an increase in ADR and occupancy percentage
and an increase in the number of available rooms. ADR increased to $47.65 in
1994 from $46.36 in 1993, an increase of $1.29, or 2.8%, while occupancy
increased 5.0 percentage points. The substantial completion of the Company's
image enhancement program contributed to the increases in ADR and occupancy.
Available rooms for 1994 were 10,188,000 as compared to 8,226,000 for 1993, an
increase of 1,962,000 available rooms, or 23.9%. The increase in the number of
available rooms was due to the acquisitions of five inns, the CIGNA partnerships
during 1994 and LQP in December of 1993.
RESTAURANT RENTAL AND OTHER REVENUES also include the Company's interest in
the earnings (accounted for using the equity method) of LQP through December 1,
1993, and miscellaneous other revenues, such as third party rental revenue from
an office building which also housed the Company's corporate offices through May
1993. Restaurant rental and other increased to $7,675,000 in 1994 from
$6,464,000 in 1993, an increase of $1,211,000, or 18.7%. This increase is
primarily the result of an increase in the number of wholly-owned restaurant
buildings leased to and operated by third parties due to the acquisition of LQP.
MANAGEMENT SERVICES REVENUE decreased to $1,219,000 in 1994 from $6,857,000
in 1993. Management fees decreased due to the consolidation of LQP in December
1993 and the acquisition of the CIGNA partnerships in July 1994, eliminating the
related management fees earned by the Company.
In 1994, approximately 41.9% of DIRECT EXPENSES were represented by
salaries, wages, and related costs. Other major categories of direct expenses
include utilities, property taxes, repairs and maintenance and room supplies.
Direct expenses increased to $194,894,000 ($27.30 per occupied room) in 1994
compared to $148,571,000 ($27.72 per occupied room) in 1993, an increase of
$46,323,000, or 31.2%. Direct expenses
20
<PAGE>
decreased to 53.8% in 1994 from 54.7% in 1993 as a percentage of total revenue,
primarily from a decrease in salaries and related benefit costs and property
taxes. The acquisitions of LQP and the CIGNA partnerships caused the increase of
direct expenses in total year over year.
CORPORATE EXPENSES decreased to $18,614,000 ($1.79 per available room,
including Managed Inns) in 1994 from $19,450,000 ($1.96 per available room,
including Managed Inns) in 1993, a decrease of $836,000, or 4.3%. As a percent
of total revenues, corporate expenses decreased to 5.1% in 1994 from 7.2% in
1993.
PERFORMANCE STOCK OPTION relates to the costs of stock options which became
exercisable when the average price of the Company's stock reached $30 per share
(pre-split) for twenty consecutive days. In 1993, performance stock option
expense and certain other options were accelerated as a result of this condition
being met (See note 5 of Notes to Combined Financial Statements). Currently, the
Company has no options outstanding that require recognition of additional
compensation expense.
DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS increased to
$37,977,000 in 1994 from $24,055,000 in 1993, an increase of $13,922,000, or
57.9%. The increase in depreciation, amortization and fixed asset retirements is
primarily due to the increase in depreciable assets resulting from the
acquisitions of LQP, the CIGNA partnerships, five inns in 1994 and 11 inns in
the latter part of 1993, and the Company's image enhancement program.
As a result of the above, OPERATING INCOME increased to $110,757,000 in 1994
from $75,367,000 in 1993, an increase of $35,390,000, or 47.0%.
INTEREST INCOME decreased to $1,421,000 in 1994 from $5,147,000 in 1993, a
decrease of $3,726,000, or 72.4%. The decrease in interest income is primarily
attributable to a decrease in interest earned on a note receivable from AEW (the
"AEW Note") due to the collection of the entire principal balance in December
1993.
INTEREST ON LONG TERM DEBT increased to $38,860,000 in 1994 from $31,366,000
in 1993, an increase of $7,494,000, or 23.9%. The increase in interest expense
is attributable to the debt incurred to acquire LQP, the CIGNA partnerships and
certain of the limited partners' interests and debt assumed in connection with
the acquisition of LQP.
PARTNERS' EQUITY IN EARNINGS AND LOSSES decreased to $11,406,000 in 1994
from $12,965,000 in 1993, a decrease of $1,559,000, or 12.0%. The decrease in
partners' equity in earnings and losses is attributable to the acquisition of
various limited partners' interests in unincorporated partnerships and joint
ventures, partially offset by increases in the earnings of LQDP. As of December
31, 1994, LQDP owned and operated 42 inns compared to 37 inns as of December 31,
1993.
NET (GAIN) LOSS ON PROPERTY TRANSACTIONS increased to a gain of ($79,000) in
1994 from a loss of $4,347,000 in 1993. The loss in 1993 includes a $4,900,000
loss related to the Company's conveyance to the mortgagee of title to the
property on which the Company's headquarters were located.
INCOME TAXES for 1994 were calculated using an estimated effective income
tax rate of 39%.
For the reasons discussed above, the Company reported EARNINGS BEFORE
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE of $37,815,000 in
1994 compared with $19,420,000 in 1993, an increase of $18,395,000, or 94.7%.
The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($619,000)
in 1993. The 1993 extraordinary loss consisted of ($6,007,000), ($3,664,000) net
of income taxes, related to the early extinguishment and refinancing of certain
debt partially offset by an extraordinary gain of $4,991,000, $3,045,000 net of
income taxes, resulting from the Company's transfer of ownership to the
mortgagee of property on which the Company's headquarters were located.
The CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES of
$1,500,000, or $0.03 per share in 1993, was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
21
<PAGE>
For the reasons discussed above, the Company reported NET EARNINGS of
$37,815,000 in 1994 compared with $20,301,000 in 1993, an increase of
$17,514,000, or 86.3%.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
TOTAL REVENUES increased to $271,850,000 in 1993 from $254,122,000 in 1992,
an increase of $17,728,000, or 7.0%. Of the total revenues reported in 1993,
95.1% were revenues from inns, 2.4% were revenues from restaurant rentals and
other revenues and 2.5% were revenues from management services.
INN REVENUES increased to $258,529,000 in 1993 from $239,826,000 in 1992, an
increase of $18,703,000, or 7.8%. The increase in inn revenues was due primarily
to an increase in ADR, an increase in the number of available rooms and the
acquisition of LQP. ADR increased to $46.36 in 1993 from $44.33 in 1992, an
increase of $2.03, or 4.6%, while occupancy declined 0.5 percentage points. As
anticipated, the Company's image enhancement program caused temporary
construction-related disruption in normal business operations and occupancies at
inns undergoing the process. Also, management's decision to discontinue a coupon
promotion used in 1992 had a positive impact on ADR, but had the effect of
reducing occupancy in 1993. Available rooms for 1993 were 8,226,000 as compared
to 7,916,000 for 1992, an increase of 310,000 available rooms, or 3.9%. The
increase in the number of available rooms was due to the acquisition of 11 inns
during the year ended December 31, 1993 and the acquisition of LQP in December
of 1993.
RESTAURANT RENTAL AND OTHER REVENUES decreased to $6,464,000 in 1993 from
$7,208,000 in 1992, a decrease of $744,000, or 10.3%, primarily due to a
reduction in earnings related to investments accounted for on the equity method.
MANAGEMENT SERVICES revenue decreased to $6,857,000 in 1993 from $7,088,000
in 1992, a decrease of $231,000, or 3.2%. Management fees decreased due to there
being two less licensees and the consolidation of LQP in December 1993,
eliminating the related management fees charged by the Company to LQP for that
month.
DIRECT EXPENSES increased to $148,571,000 ($27.72 per occupied room) in 1993
compared to $135,474,000 ($26.11 per occupied room) in 1992, an increase of
$13,097,000, or 9.7%. In 1993, approximately 42.4% of direct expenses consisted
of salaries, wages, and related costs. As a percentage of total revenues, direct
expenses increased to 54.7% in 1993 from 53.3% in 1992. The increase in direct
expense resulted primarily from the Company's implementation of a complimentary
continental breakfast at all La Quinta inns during the first quarter of 1993
(which amounted to $1.08 per occupied room). The Company acquired 11 inns during
1993 and did not acquire or convert any inns during 1992.
CORPORATE EXPENSES decreased to $19,450,000 ($1.96 per available room,
including Managed Inns) in 1993 from $23,961,000 ($2.46 per available room,
including Managed Inns) in 1992, a decrease of $4,511,000, or 18.8%. As a
percent of total revenues, corporate expenses decreased to 7.2% in 1993 from
9.4% in 1992. The 1992 corporate expenses included non-recurring charges of
$2,696,000 to increase the allowance for certain notes receivable based upon
estimates of the value of the real estate held as collateral for such notes and
evaluations of the financial condition of certain borrowers and $210,000 related
to other corporate expense items. The 1992 corporate expenses also include a
provision related to the settlement of certain litigation of $775,000. The 1992
corporate expenses, before non-recurring charges, were $21,055,000 ($2.16 per
available room, including Managed Inns). As a percent of total revenues,
corporate expenses in 1992, before non-recurring charges, were 8.3%.
The PROVISION FOR WRITE-DOWN OF PARTNERSHIP INVESTMENTS, LAND AND OTHER in
1992 includes charges related to the write-down of certain joint venture
interests, land previously held for future development, computer equipment and
other assets (see Note 8 of Notes to Combined Financial Statements).
SEVERANCE AND OTHER EMPLOYEE RELATED COSTS in 1992 consisted of costs
related to the severance of certain executive officers and other employees,
executive search fees and relocation costs for new officers.
22
<PAGE>
PERFORMANCE STOCK OPTION relates to the costs of stock options which became
exercisable when the average price of the Company's stock reached $30 per share
(pre-split) for twenty consecutive days. Performance stock option expense and
certain other options were accelerated as a result of this condition being met
(see Note 5 of Notes to Combined Financial Statements).
DEPRECIATION, AMORTIZATION AND FIXED ASSET RETIREMENTS decreased to
$24,055,000 in 1993 from $24,793,000 in 1992, a decrease of $738,000, or 3.0%.
The decrease in depreciation, amortization and fixed asset retirements was due
to assets which became fully depreciated during 1993 and the write-off of
computer equipment and signage in the prior year. Replacement and installation
of new computer equipment and signs was substantially completed in the latter
part of 1993.
As a result of the above, OPERATING INCOME increased to $75,367,000 in 1993
from $34,575,000 in 1992, an increase of $40,792,000, or 118.0%. Operating
income before a non-recurring, non-cash charge of approximately $4,407,000 to
recognize compensation expense related to the vesting of performance stock
options, increased to $79,774,000 in 1993 from $73,112,000 in 1992 before
write-downs, severance and employee related costs and other non-recurring
charges, an increase of $6,662,000, or 9.1%.
INTEREST INCOME decreased to $5,147,000 in 1993 from $6,041,000 in 1992, a
decrease of $894,000, or 14.8%. The decrease in interest income is primarily
attributable to principal reductions on the AEW Note of $16,700,000 and
$19,300,000 in September and December 1993, respectively, and the corresponding
reduction in interest earned thereon. As of December 31, 1993, the AEW Note had
been fully collected.
INTEREST ON LONG TERM DEBT decreased to $31,366,000 in 1993 from $33,087,000
in 1992, a decrease of $1,721,000, or 5.2%. The decrease in interest expense is
attributable to the early extinguishment of approximately $117,000,000 of
certain high interest rate debt with proceeds from the Company's 9 1/4% Senior
Subordinated Notes due 2003 and bank financing which more than offset interest
on borrowings to purchase limited partners' interests. In addition, certain
Industrial Revenue Bond issues were refinanced to obtain more favorable interest
rates.
PARTNERS' EQUITY IN EARNINGS AND LOSSES decreased to $12,965,000 in 1993
from $15,081,000 in 1992, a decrease of $2,116,000, or 14.0%. The decrease in
partners' equity in earnings and losses is attributable to the acquisition of
limited partners' interests in 14 combined unincorporated partnerships and joint
ventures partially offset by increases in the earnings of LQDP. As of December
31, 1993, LQDP operated 37 inns compared to 28 inns as of December 31, 1992.
NET (GAIN) LOSS ON PROPERTY TRANSACTIONS decreased to a loss of $4,347,000
in 1993 from a gain of ($282,000) in 1992. The loss in 1993 includes a
$4,900,000 loss related to the Company's conveyance to the mortgagee of title to
the property on which the Company's headquarters were located.
INCOME TAXES for 1993 were calculated using an estimated effective income
tax rate of 39%.
For the reasons discussed above, the Company reported EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE of $19,420,000 in
1993 compared with a loss of ($7,796,000) in 1992, an increase of $27,216,000.
The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($619,000)
in 1993 compared with ($958,000) in 1992. The 1993 extraordinary loss consisted
of ($6,007,000), ($3,664,000) net of income taxes, related to the early
extinguishment and refinancing of certain debt partially offset by an
extraordinary gain of $4,991,000, $3,045,000 net of income taxes, resulting from
the Company's transfer of ownership to the mortgagee of property on which the
Company's headquarters were located. The 1992 extraordinary loss was primarily a
result of the refinancing of three industrial revenue bond issues totaling
$12,910,000 in principal amount. In addition, the Company retired its 10%
Convertible Subordinated Debentures due 2002.
The CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES of
$1,500,000, or $0.03 per share, in 1993 was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
23
<PAGE>
For the reasons discussed above, the Company reported NET EARNINGS of
$20,301,000 in 1993 compared with a net loss of ($8,754,000) in 1992, an
increase of $29,055,000.
CAPITAL RESOURCES AND LIQUIDITY
In general, the Company has historically financed its development program
through partnerships with financial institutions, a public debt offering and
borrowings under the Company's credit facilities. During the six months ended
June 30, 1995 and June 30, 1994 and the years ended December 31, 1994 and 1993,
the Company funded a majority of its development program through LQDP. Most of
the Company's inns and adjacent restaurant land and buildings are pledged to
secure long term debt of the Company. Distributions of cash, if any, from the
Company's joint ventures and partnerships are made from cash available after
payment of operating expenses, debt service, capital expenditures and
acquisition and development of new inns.
At June 30, 1995, the Company had $6,694,000 of cash and cash equivalents,
an increase of $4,105,000 from December 31, 1994. At June 30, 1995, the Company
had $74,650,000 available on its credit facilities.
On April 21, 1995, the Company completed negotiations to amend its existing
credit facilities. The amended credit facilities provide the Company with a
$75,000,000 secured line of credit and a $141,500,000 secured term credit
facility. Borrowings under the secured line of credit will mature May 31, 1999.
Borrowings under the secured term credit facility require semi-annual principal
payments commencing May 30, 1997 through May 30, 2002. Borrowings under each of
these credit facilities bear interest at either LIBOR, the prime rate or
certificate of deposit rate, plus an applicable margin, as defined in the
related credit agreements. Currently, borrowings bear interest at either LIBOR
plus 3/4%, the prime rate, or the certificate of deposit rate plus 7/8%. The
applicable margin is determined quarterly based upon predetermined levels of
indebtedness to cash flows as defined in the related credit agreements. The
Company pays a commitment fee of 0.25% per annum on the daily average unused
portion of the credit facilities.
On April 21, 1995, the $35,000,000 unsecured line of credit among LQDP and
participating banks was amended. LQDP also completed negotiations for a
$30,000,000, 364-day unsecured line of credit with participating banks. The
unsecured line of credit and 364-day unsecured line of credit bear interest at
either LIBOR, the prime rate or certificate of deposit rate, plus LQDP's
applicable margin, as defined in the related credit agreements. As of April 21,
1995, borrowings under both unsecured lines of credit bear interest at either
LIBOR plus 5/8%, the prime rate, or the certificate of deposit rate plus 3/4%.
LQDP's applicable margin is determined quarterly based upon predetermined levels
of LQDP's indebtedness to cash flows, as defined in the related credit
agreements. The unsecured line of credit and 364-day unsecured line of credit
mature May 31, 1997 and April 19, 1996, respectively. LQDP pays a commitment fee
of 0.20% and 0.15% per annum on the daily unused portion of the unsecured line
of credit and the 364-day unsecured line of credit, respectively.
The Company financed the $48.2 million acquisition of the remaining
one-third of AEW's interest in LQDP by borrowing $30 million under LQDP's
364-day unsecured line of credit, and the balance under the Company's and LQDP's
credit facilities. The Company intends to renew the 364-day unsecured line of
credit annually, subject to the consent of the lenders. As of June 30, 1995, the
Company would have had $26,450,000 available on its existing credit facilities,
including the amount available on LQDP's credit facilities, after giving effect
to the AEW Transaction.
On January 23, 1992, with the approval of the Company's Board of Directors,
the Company entered into two interest rate swap agreements (the "Agreements")
which exchanged the Company's variable rate interest payments for the fixed rate
interest payments of a major financial institution (the "Counterparty"). The
debt ("Notional Amount") underlying the Agreements is $16,890,000 and
$44,420,000. Under the Agreements, the Company effectively pays a fixed rate of
interest at 6.50% and 5.26% and the Counterparty pays a percentage of prime
interest rate and the variable rate demand note interest rate ("VRDN"). In the
event the VRDN rate exceeds the fixed interest rate of 5.26% or the percentage
of prime interest rate exceeds 6.5%, the Counterparty pays to the Company that
difference times the Notional Amount, on a monthly basis. Should the fixed
interest rate of 5.26% exceed the VRDN interest rate or the fixed interest
24
<PAGE>
rate of 6.5% exceed the percentage of prime interest rate, the Company pays the
difference times the Notional Amount to the Counterparty, on a monthly basis.
These Agreements resulted in net payments to the Counterparty of $213,000,
$630,000, $1,040,000, $1,427,000 and $1,184,000 in the six months ended June 30,
1995 and 1994 and the years ended December 31, 1994, 1993 and 1992,
respectively. The Agreements expire on February 1, 1997, and the Notional
Amounts are reduced over the life of the Agreements by scheduled amortization
payments. At June 30, 1995, the Notional Amounts of debt remaining under the
Agreements are $10,657,000 and $35,400,000, which bear interest at a weighted
average variable interest rate of 6.63% and 3.93%, respectively. The VRDN rate
decreased from 4.32% at December 31, 1994 to 3.87% at June 30, 1995.
The Company is exposed to market risk associated with fluctuations in
interest rates. By entering into the interest rate swap agreements described
above, the Company reduced its exposure to rising interest rates on the
aforementioned variable interest rate debt and has effectively fixed the rate on
such debt at a level acceptable to the Company given the length of the
Agreements and the risk of interest rate changes. The Company is exposed to
credit risk to the extent that the Counterparty fails to perform under the
Agreements. The Company has mitigated its credit risk by entering into the
Agreements with a major financial institution, which has received an "A" rating
from Standard and Poor's Corporation and an "A2" rating from Moody's Investors
Service on senior unsecured debt. The Company regularly monitors the credit
ratings of the Counterparty and considers the risk of default remote.
Net cash provided by operating activities improved to $66,566,000 in the
1995 Six Months from $41,400,000 in the 1994 Six Months, an increase of
$25,166,000, or 60.8%. The increase was the result of the improvement in inn
revenue and operating margins. Net cash provided by operating activities
increased to $94,233,000 in 1994 from $78,043,000 in 1993, an increase of
$16,190,000, or 20.7%. The increase was primarily due to increased inn revenues
and an increase in accrued expenses due to the timing of payment. Net cash
provided by operating activities increased to $78,043,000 in 1993 from
$60,853,000 in 1992, an increase of $17,190,000, or 28.2%. The majority of the
increase was due to an increase in inn revenues as a result of increased
occupancy percentage and ADR.
Net cash used by investing activities decreased to ($55,233,000) in the 1995
Six Months from ($82,772,000) in the 1994 Six Months, a decrease of $27,539,000,
or 33.3%. The 1995 and 1994 capital expenditures include the purchase of nine
inns and six inns, respectively. The 1994 capital expenditures also include
expenditures of approximately $40,103,000 related to the Company's image
enhancement program and the purchase of the remaining units of La Quinta Motor
Inns Limited Partnership. Net cash used by investing activities increased to
$156,492,000 in 1994 from $145,027,000 in 1993, an increase of $11,465,000, or
7.9%. The increase was related to capital expenditures related to the image
enhancement program, purchase and conversion of inns, the purchase of units of
LQP and the acquisition of the CIGNA partnerships. Net cash used by investing
activities increased to $145,027,000 in 1993 from $15,166,000 in 1992, an
increase of $129,861,000. The increase was related to the acquisition of 82% of
LQP, the acquisition of the partners' interest in 14 unincorporated joint
ventures and partnerships, the acquisition of 11 inns and capital expenditures
related to the Company's image enhancement program.
Net cash used by financing activities was ($7,228,000) in the 1995 Six
Months compared to net cash provided by financing activities of $18,998,000 in
the 1994 Six Months. Payments on the Company's credit facilities, an increase in
dividends to shareholders and a reduction in the proceeds received on the
Company's credit facilities and long term borrowings contributed to the increase
in cash used by financing activities. Net cash provided by financing activities
was $41,000,000 in 1994 compared to $77,971,000 in 1993. The decrease in cash
provided by financing activities was the result of the payments on the secured
line of credit and long term borrowings, dividends to shareholders and purchase
of treasury stock. Net cash provided by financing activities in 1993 was
$77,971,000 compared to net cash used by financing activities of ($40,781,000)
in 1992. The increase was a result of the issuance of the 9 1/4% Senior
Subordinated Notes due 2003, the collection of the AEW Note and the decrease in
distributions to partners partially offset by payments on long term debt.
25
<PAGE>
During 1994, the Company repurchased a total of 373,000 shares (post-split)
of its Common Stock for approximately $7,115,000 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.
COMMITMENTS
In accordance with the unincorporated partnership or joint venture
agreements executed by the Company, La Quinta is committed to advance funds
necessary to cover operating expenses of joint ventures. Three unincorporated
partnerships and joint ventures executed promissory notes in which the Company
guaranteed to fund amounts not to exceed $650,000 in the aggregate. As of June
30, 1995, the Company had no advances outstanding to the unincorporated
partnerships and joint ventures.
The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $9,716,000 at June 30, 1995. The
Company broke ground for the new construction of one inn in June 1995 and one
inn in July 1995. The Company is committed to approximately $12,773,000 for the
completion of these inns. Funds on hand, committed and anticipated from cash
flow are sufficient to complete these projects.
In accordance with the requirements of an escrow agreement related to a pool
of mortgage notes executed by the Company and a third party lender, the Company
is required to make annual deposits into an escrow account for the purpose of
establishing a reserve for the replacement of furnishings, fixtures and
equipment used on or incorporated into the mortgaged properties. The Company
shall be relieved of its obligation to make such annual deposits for any year in
which the escrow account has an aggregate balance of $2,431,000. At June 30,
1995 and June 30, 1994, the Company had reserved the full amount.
In 1993, the Company entered into a ten year operating lease for its
corporate headquarters in San Antonio. In addition, the Company entered into a
ten year lease in December 1993 to house the Company's reservation facilities.
Funds on hand, anticipated from future cash flows and available on the
Company's and LQDP's credit facilities are sufficient to fund operating
expenses, debt service and other capital requirements through at least the
second quarter of 1996. The Company will evaluate from time to time the
necessity of other financing alternatives.
SEASONALITY
The lodging industry is seasonal in nature. Generally, the Company's inn
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues, profit margins and net earnings of the Company.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
Statement requires the use of the asset and liability method of accounting for
deferred income taxes and was implemented in 1993. The impact of the Statement's
implementation has been disclosed in Note 4 of Notes to Combined Financial
Statements.
ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement,
which is effective for fiscal years beginning after December 15, 1995, requires
that an entity evaluate long-lived assets and certain other identifiable
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
Impairment loss meeting the recognition criteria is to be measured as the amount
by which the carrying amount for financial reporting purposes exceeds the fair
value of the asset. The Company plans to adopt this statement in 1996 and does
not expect adoption of the statement to have a material effect, if any, on the
Company's financial position or results of operations.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenues or net earnings (loss) of
the Company in the three most recent years.
26
<PAGE>
BUSINESS
La Quinta is the second largest owner/operator of hotels in the United
States, with 236 inns and more than 30,000 rooms. La Quinta operates primarily
in the mid-priced segment of the lodging industry, as defined by Smith Travel
Research, an independent lodging industry research firm. La Quinta achieved an
average occupancy percentage of 70.1% and an ADR of $47.65 for the year ended
December 31, 1994. Founded in 1968, the Company has inns located in 29 states,
with strategic concentrations in Texas, Florida and California. La Quinta
currently owns a 100% interest in 228 of its inns and a 50% or greater interest
in an additional seven inns. La Quinta operates all of its inns other than one
licensed inn. La Quinta's business strategy is to continue to expand its
successful core business as an owner/operator in the mid-priced segment of the
lodging industry.
The Company was founded in San Antonio, Texas in 1968. La Quinta was
originally incorporated and became a publicly traded entity in 1972 and is
incorporated under the laws of the State of Texas. The principal executive
offices are located at Weston Centre, 112 E. Pecan Street, San Antonio, Texas
78299-2636, telephone (210) 302-6000.
OWNERSHIP AND MANAGEMENT CONTROL
Unlike most major chains in the lodging industry, La Quinta owns and manages
all but one of the inns that carry its brand. The Company believes that much of
its success is attributable to this operating control, which allows the Company
to achieve a higher level of consistency in both product quality and service
than its competitors. In addition, its operating control gives La Quinta the
ability to offer new services, determine expansion strategies, set pricing and
make other marketing decisions on a system-wide or local basis as conditions
dictate, without consulting third-party owners, management companies or
franchisees as required of most other lodging chains.
BRAND IMAGE
La Quinta has taken major steps to assure uniform high quality at its inns.
In 1993 and 1994, the Company invested approximately $65 million in a
comprehensive chainwide image enhancement program designed to give all of its
inns a new, fresh appearance while preserving their unique character. The
program, which was substantially completed in mid-1994, featured new signage
displaying a distinctive new logo, along with exterior and lobby upgrades
including brighter colors, more extensive lighting, additional landscaping,
enhanced guest entry and a full lobby renovation with contemporary furnishings
and seating areas for continental breakfast.
As a result of its ability to provide consistently high-quality, convenient
accommodations and excellent value, the Company believes that it has established
La Quinta as a strong, well-regarded mid-priced brand. The Company believes that
its brand recognition and reputation have enhanced the performance of its
existing inns and should provide an advantage for inns added in the future.
FOCUSED GROWTH STRATEGY; OWNERSHIP OF INNS
La Quinta attributes its strong operating performance in large part to the
successful implementation of a three-part strategic plan formulated by the
Company's senior management team after their arrival at the Company in 1992.
First, management substantially restructured the Company, which historically had
financed a large part of its development through partnerships and joint ventures
with financial institutions, by purchasing its partners' interests in 19
unincorporated joint ventures and partnerships since 1993 (including the AEW
Transaction). The Company also refinanced a majority of its outstanding debt,
and instituted corporate and operating-level cost controls. Second, management
reimaged all La Quinta inns through the system-wide image enhancement program.
Third, the Company demonstrated its ability to grow the number of inns --
acquiring 11 inns in 1993, 15 inns in 1994 and nine inns in the first six months
of 1995 -- while increasing profitability.
The Company intends to focus both on INTERNAL GROWTH -- enhancing revenues,
cash flow and profitability at its current portfolio of inns, and EXTERNAL
GROWTH -- adding new inns through opportunistic acquisitions and conversions of
existing properties and selective new construction. The Company's external
growth strategy is to reinforce its presence in existing markets and expand
selectively into new markets. At current
27
<PAGE>
prices, acquisition and conversion of existing properties is generally more cost
effective than new construction. The Company estimates that its current average
cost of aquiring and converting an inn to the La Quinta brand is approximately
$40,000 to $45,000 per room. The Company plans to construct new inns in those
strategic markets where acquisition and conversion of existing inns at a
discount to replacement cost is not available. The Company estimates that the
average cost to construct a new inn will be approximately $50,000 to $55,000 per
room. For the twelve months ended June 30, 1995, the Company generated $79.6
million of cash flow after required interest payments, maintenance capital
expenditures (assumed to be 5% of room revenues), dividends, taxes and partner
distributions, providing an internal source of funding to support its growth
plan.
The following table describes the composition of inns in the La Quinta chain
at June 30, 1995 and as adjusted for the AEW Transaction, and at December 31,
1992:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1992
----------------------------------------------------- -------------------------
AS ADJUSTED ACTUAL ACTUAL
------------------------- ------------------------- -------------------------
LA QUINTA LA QUINTA LA QUINTA
TOTAL EQUIVALENT TOTAL EQUIVALENT TOTAL EQUIVALENT
INNS ROOMS ROOMS (1) INNS ROOMS ROOMS (1) INNS ROOMS ROOMS (1)
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned 100%.............................. 228 29,352 29,352 181 22,927 22,927 89 11,456 11,456
Owned 40-80%............................ 7 836 467 54 7,261 3,037 80 10,218 4,919
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
Total Company owned and operated........ 235 30,188 29,819 235 30,188 25,964 169 21,674 16,375
Managed inns............................ -- -- -- -- -- -- 40(2) 4,978 75
Licensed inns........................... 1 120 -- 1 120 -- 3 366 --
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
236 30,308 29,819 236 30,308 25,964 212 27,018 16,450
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<FN>
- ------------------------------
(1) Represents the Company's proportionate ownership interest in total rooms.
(2) Managed inns represent inns in LQP and the CIGNA partnerships, which were
subsequently acquired by the Company.
</TABLE>
FACILITIES AND SERVICES
The typical La Quinta inn contains approximately 130 spacious, quiet and
comfortably furnished guest rooms averaging 300 square feet in size. Guests at a
La Quinta inn are offered a wide range of amenities and services, including
complimentary continental breakfast, free unlimited local telephone calls,
remote-control televisions with a premium movie channel, a swimming pool,
same-day laundry and dry cleaning, fax services, 24-hour front desk and message
service, smoking/non-smoking rooms and free parking. La Quinta guests typically
have convenient access to food service at adjacent free-standing restaurants,
including national chains such as Cracker Barrel, IHOP, Denny's and Perkins. La
Quinta has an ownership interest in 126 of these adjacent restaurant buildings,
which it leases to restaurant operators.
La Quinta inns appeal to guests who desire high-quality rooms, convenient
locations and attractive prices, but who do not require banquet and convention
facilities, in-house restaurants, cocktail lounges or room service. By
eliminating the costs of these management-intensive facilities and services, La
Quinta believes it offers its customers exceptional value by providing rooms
that are comparable in quality to full-service hotels at lower prices.
To maintain the overall quality of La Quinta's inns, each inn undergoes
refurbishments and capital improvements as needed. Typically, refurbishing has
been provided at intervals of between five and seven years, based on an annual
review of the condition of each inn. In the six months ended June 30, 1995 and
1994 and each of the years ended December 31, 1994, 1993 and 1992, the Company
spent approximately $16.4 million, $55.4 million, $75.2 million, $32.6 million
and $15.5 million, respectively, on capital improvements to existing inns. The
amounts for the six months ended June 30, 1995 and 1994 and the years ended
December 31, 1994 and 1993 include expenditures related to the Company's image
enhancement program. As a result of these expenditures, the Company believes it
has been able to maintain a chainwide quality of rooms and common areas at its
inns that is more consistent than other national mid-priced hotel chains.
28
<PAGE>
CUSTOMER BASE AND MARKETING
La Quinta's combination of consistent, high-quality accommodations and good
value is attractive to business customers, who account for more than 50% of
rooms rented. These core customers typically visit a given area several times a
year, and include salespersons covering a specific territory, government and
military personnel and technicians. The profile of a typical La Quinta customer
is a college educated business traveler, age 25 to 54, who has a middle
management, white collar occupation or upper level blue
collar occupation. The Company also targets both vacation travelers and senior
citizens. For the convenience of these targeted customer groups, inns are
generally located near suburban office parks, major traffic arteries or
destination areas such as airports and convention centers.
La Quinta has developed a strong following among its customers; internal
customer surveys show that the average customer spends 16 nights per year in a
La Quinta inn. The Company focuses a number of its marketing programs on
maintaining a high number of repeat customers. For example, La Quinta promotes a
"Returns-Registered Trademark- Club" offering members preferred status and rates
at La Quinta inns, along with rewards for frequent stays. The Returns Club had
approximately 235,000 members as of June 30, 1995.
The Company focuses on reaching its target markets by utilizing advertising,
direct sales, repeat traveler incentive programs and other marketing programs
targeted at specific customer segments. The Company advertises primarily through
network and local radio, television networks and print advertisements which
focus on quality and value. The Company utilizes the same campaign concept
throughout the country with minor modifications made to address regional
differences. The Company also utilizes billboard advertisements along major
highways which announce a La Quinta inn's presence in upcoming towns.
The Company markets directly to companies and other organizations through
its direct sales force of 40 sales representatives and managers. This sales
force calls on companies which have a significant number of individuals
traveling in the regions in which La Quinta operates and which are capable of
producing a high volume of room nights.
The Company provides a central reservation system,
"teLQuik-Registered Trademark-," which currently accounts for advance
reservations for approximately 27% of room nights. The teLQuik system allows
customers to make reservations by dialing 1-800-531-5900 toll free, or from
special reservations phones placed in all La Quinta inns. The teLQuik system
enables guests to make their next night's reservations from their previous
night's La Quinta inn. In addition, approximately 47% of room nights reflect
advance reservations made directly with individual inns and forwarded to the
central reservation system. In total, advance reservations account for
approximately 74% of room nights. In 1994, the Company completed a new
reservation center, which is a part of its program to improve operating results
by providing state-of-the-art technology in processing reservations more
efficiently. La Quinta, through its national sales managers, markets its
reservation services to travel agents and corporate travel planners who may
access teLQuik through the five major airline reservation systems.
29
<PAGE>
THE LODGING INDUSTRY
Conditions in the lodging industry have improved significantly since the
beginning of 1992, with occupancy percentages, ADR and profitability increasing
through the end of the first quarter of 1995, the last quarter for which such
industry information is available. The lodging industry as a whole earned
pre-tax profits of approximately $5.5 billion in 1994, more than double the
level of pre-tax profitability achieved in 1993.
The key elements underlying the industry's strong operating performance are
(i) increased economic activity, which has resulted in growth in demand for
hotel rooms, coupled with (ii) growth in new room supply that has been
significantly lower than the growth in demand. Room demand growth exceeded the
rate of new room supply by 2.0%, 2.6% and 3.3% in 1992, 1993 and 1994,
respectively. However, historical industry performance may not be indicative of
future results. See "Risk Factors -- Risks of the Lodging Industry."
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL U.S. LODGING INDUSTRY DEMAND GROWTH MARGIN
<S> <C>
(% Growth in Room Demand Less % Growth in Room Supply)
1991 -2.5%
1992 2.0%
1993 2.6%
1994 3.3%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL U.S. OCCUPANCY AND ADR
<S> <C> <C>
(% Increase/Decrease)
Occupancy ADR
1991 -2.4% 0.6%
1992 2.0% 1.4%
1993 2.6% 2.8%
1994 2.4% 3.8%
</TABLE>
Source: Smith Travel Research
30
<PAGE>
In this favorable supply/demand environment, with an excess of demand growth
over supply growth, lodging companies like La Quinta have demonstrated a
significant degree of "pricing power," which describes a hotel's ability to
increase ADR without adversely affecting occupancy percentages. For example,
industry-wide ADR grew 3.8% in 1994 versus 1993, while industry average
occupancy percentages increased 2.4% over the same period. ADR growth exceeded
the rate of inflation in 1994 by 1.2%, the first year of real rate growth after
seven years of decline. Industry-wide ADR in the first three months of 1995
increased 4.9% over the first three months of 1994, with occupancy percentages
up 1.5% over the comparable 1994 first-quarter results.
The mid-priced lodging industry segment in which La Quinta primarily
operates has also experienced favorable operating results. In both 1994 and the
first quarter of 1995, demand growth exceeded supply growth in this segment by a
wider margin than in any other lodging industry segment except luxury hotels. In
addition, REVPAR grew by 5.5% in the mid-priced segment in 1994 versus 1993.
Only the luxury segment experienced higher REVPAR growth in 1994. The mid-priced
segment continued to have strong REVPAR growth in the first quarter of 1995,
with REVPAR increasing 5.9% over the comparable period in 1994. The foregoing
industry data is based on information provided by Smith Travel Research.
OPERATIONS
Management of the La Quinta chain is coordinated from the Company's
headquarters in San Antonio, Texas. Centralized corporate services and functions
include marketing, financing, accounting and reporting, purchasing, quality
control, development, legal, reservations and training.
Inn operations are currently organized into Eastern, Western and Central
divisions with each division headed by a Divisional Vice President. Regional
Managers report to the Divisional Vice Presidents and are each responsible for
approximately 12 inns. Regional Managers are responsible for the service,
cleanliness and profitability of the inns in their regions.
Individual inns are typically managed by resident managers who live on the
premises. Managers receive inn management training which includes an emphasis on
service, cleanliness, cost controls, sales and basic repair skills. Because La
Quinta's professionally trained managers are substantially relieved of
responsibility for food service, they are able to devote their attention to
assuring friendly guest service and quality facilities, consistent with
chain-wide standards. On a typical day shift, each inn manager will supervise
one housekeeping supervisor, eight room attendants, two laundry workers, two
general maintenance persons and three front desk service representatives.
At June 30, 1995, La Quinta employed approximately 7,400 persons, of whom
approximately 90% were compensated on an hourly basis. Approximately 280
individuals were employed at corporate and 7,120 were employed as inn managers
and employees. The Company's employees are not currently represented by labor
unions. Management believes its ongoing labor relations are good.
31
<PAGE>
PROPERTIES
At June 30, 1995, there were 236 inns located in 29 states with
concentrations in Texas, Florida and California. The states and cities in which
the inns are located are set forth in the following table:
ALABAMA
Birmingham
Huntsville (2)
Mobile
Montgomery
Tuscaloosa
ARIZONA
Phoenix (3)
Tucson (2)
ARKANSAS
Little Rock (5)
CALIFORNIA
Bakersfield
Costa Mesa
Fresno
Irvine
La Palma
Redding
Sacramento (2)
San Bernardino
San Diego (3)
San Francisco
Stockton
Ventura
COLORADO
Colorado Springs
Denver (7)
FLORIDA
Coral Springs
Daytona Beach
Deerfield Beach
Ft. Myers
Gainesville
Jacksonville (3)
Miami
Orlando (3)
Pensacola
Tallahassee (2)
Tampa (5)
GEORGIA
Atlanta (7)
Augusta
Columbus
Savannah (2)
ILLINOIS
Champaign
Chicago Metro Area (5)
Moline
INDIANA
Indianapolis (2)
Merrillville
KANSAS
Lenexa
Wichita
KENTUCKY
Lexington
LOUISIANA
Baton Rouge
Bossier City
Kenner
Lafayette
Monroe
New Orleans (5)
Slidell
Sulphur
MICHIGAN
Kalamazoo
MISSISSIPPI
Jackson (2)
MISSOURI
St. Louis
NEBRASKA
Omaha
NEVADA
Las Vegas (2)
Reno
NEW MEXICO
Albuquerque (3)
Farmington
Las Cruces
Santa Fe
NORTH CAROLINA
Charlotte (2)
OHIO
Columbus
OKLAHOMA
Oklahoma City (3)
Tulsa (3)
PENNSYLVANIA
Pittsburgh
SOUTH CAROLINA
Anderson
Charleston
Columbia
Greenville
TENNESSEE
Chattanooga
Kingsport
Knoxville (2)
Memphis (3)
Nashville (3)
TEXAS
Abilene
Amarillo (2)
Arlington
Austin (5)
Beaumont
Bedford
Brownsville
Clute
College Station
Corpus Christi (2)
Dallas Metro Area (12)
Del Rio
Denton
Eagle Pass
El Paso (3)
Fort Stockton
Fort Worth (2)
Galveston
Georgetown
Harlingen
Houston Metro Area (17)
Killeen
Laredo
Longview
Lubbock (2)
Lufkin
TEXAS (CONTINUED)
Midland
Nacogdoches
Odessa
Round Rock
San Angelo
San Antonio (11)
San Marcos
Temple
Texarkana
Tyler
Victoria
Waco
Wichita Falls
UTAH
Layton
Salt Lake City
VIRGINIA
Bristol
Hampton
Richmond
Virginia Beach
WASHINGTON
Seattle (2)
Tacoma
WYOMING
Casper
Cheyenne
Rock Springs
LICENSED
LA QUINTA INNS
TEXAS
McAllen
OTHER
OWNED INNS
(operated under other brands)
GEORGIA
Columbus
TEXAS
El Paso
La Marque
San Antonio
32
<PAGE>
Typically, food service for La Quinta guests is provided by adjacent, free
standing restaurants. At June 30, 1995, the Company had an ownership interest in
126 restaurant buildings adjacent to its inns. These 126 restaurant buildings
are owned by the Company or its partnerships and joint ventures, which own the
related inn. These restaurant buildings generally are leased pursuant to
build-to-suit leases that require the operator to pay, in addition to minimum
and percentage rentals, all expenses, including building maintenance, taxes and
insurance. The Company's ownership interests in such restaurant buildings are as
follows, after giving effect to the AEW Transaction:
<TABLE>
<CAPTION>
RESTAURANT BUILDINGS
-----------------------
<S> <C>
Owned 100%..................................................... 121
Owned 50-67%................................................... 5
---
126
---
---
</TABLE>
Most of the Company's inns and restaurants are pledged to secure long term
debt maturing in various years from 1995 to 2015. (See note 2 of Notes to
Combined Financial Statements.)
COMPETITION
Each La Quinta inn competes in its market area with numerous full service
lodging brands, especially in the mid-priced segment, and with numerous other
hotels, motels and other lodging establishments. Chains such as Hampton Inns,
Courtyard by Marriott, Fairfield Inns and Drury Inns are direct competitors of
La Quinta. Other well-known competitors include Holiday Inns, Ramada Inns, Red
Roof Inns and Comfort Inns. There is no single competitor or group of
competitors of La Quinta that is dominant in the lodging industry. Competitive
factors in the industry include reasonableness of room rates, quality of
accommodations, degree of service and convenience of locations.
The lodging industry in general, including La Quinta, may be adversely
affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular inn may be adversely
affected by many factors including changes in travel patterns, local and
regional economic conditions and the degree of competition with other lodging
establishments in the area. See "Risk Factors -- Risks of the Lodging Industry"
and "-- Competition."
LICENSING
The Company selectively licensed the name "La Quinta-Registered Trademark-"
to others for operations in the United States until February 1977, at which time
La Quinta discontinued its domestic licensing program to unrelated third
parties. One inn remains in operation under a licensing agreement.
During 1994, the Company entered into agreements with four Mexican investor
groups (the "Development Accord") for the purpose of developing 22 La Quinta
inns in 15 cities in Mexico. Each of the inns will be developed and 100% owned
by a Mexican investor group and managed by the Company under long-term
management agreements (pursuant to which the Company will receive management and
licensing fees). On December 20, 1994, the Mexican government allowed the peso
to trade freely against the U.S. dollar. As a result, the peso suffered a
significant, immediate devaluation against the U.S. dollar. This resulted in
economic conditions that have delayed commencement of construction of La Quinta
inns under the Development Accord. The construction of the first La Quinta inn
under the Development Accord is anticipated to begin when economic conditions in
Mexico stabilize.
"La Quinta-Registered Trademark-," "teLQuik-Registered Trademark-" and
"Returns-Registered Trademark- Club" have been registered as service marks by La
Quinta with the U.S. Patent and Trademark Office and variously in Mexico,
Canada, the United Kingdom and the Netherland Antilles.
EMPLOYMENT AND OTHER GOVERNMENT REGULATION
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverage (such as health and liquor license laws) and 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. Both at the federal and state level from time to
time, there are proposals under consideration to increase the minimum wage.
Under the Americans with Disabilities
33
<PAGE>
Act of 1990 (the "ADA"), all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. Although the
Company has taken actions to comply with the ADA, no assurance can be given that
a material ADA claim will not be asserted against the Company. These and other
initiatives could adversely affect the Company as well as the lodging industry
in general.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air, and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. Environmental laws also may impose
restrictions on the manner in which property may be used or business may be
operated, and these restrictions may require expenditures. In connection with
the ownership or operation of hotels and adjacent restaurant land and buildings,
the Company may be potentially liable for any such costs or liabilities.
Although the Company is currently not aware of any material environmental claims
pending or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company. The cost of
defending against claims of liability or of remediating a contaminated property
could have a material adverse affect on the results of operations of the
Company.
LEGAL PROCEEDINGS
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies (the "La
Quinta Defendants"). The suit, entitled WALTER J. BIEGLER V. LA QUINTA MOTOR
INNS, INC., ET AL., is pending in the U.S. District Court for the Western
District of Texas, San Antonio Division. 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. Compensatory damages of $2,500,000 and
exemplary damages of $5,000,000 are sought in the action. The court has pending
before it the La Quinta Defendants' motion for summary judgment. The parties
subsequently filed a required, joint Pre-Trial Order, in which the plaintiff has
conceded a number of his claims. As yet, no trial date has been set for this
action. The Company is vigorously defending against this suit.
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. 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 and the
matter discussed above, 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.
The Company has established a paid loss program (the "Paid Loss Program")
for inns owned and managed by the Company for commercial general liability
insurance, automobile liability insurance and workers' compensation and
employer's liability insurance. In addition to the Paid Loss Program, the
Company has purchased excess umbrella liability policies and extended coverage
property insurance and such other insurance as is customarily obtained for
similar properties and which may be required by the terms of loan or similiar
documents with respect to the inns. In connection with the general liability,
workers' compensation and automobile coverages, all inns participate in the Paid
Loss Program, under which claims and expenses are shared pro rata, with excess
umbrella insurance being maintained to cover losses, claims and costs in excess
of the deductible limits per matter of $500,000 for general liability, $500,000
for workers' compensation and $250,000 for automobile coverage. All pro rata
expenses and premiums under the Paid Loss Program and such other insurance as is
customarily obtained with respect to inns owned by persons other than the
Company constitute direct operating expenses of said inns under the terms of the
respective management agreements. General liability is allocated pro rata based
on the number of rooms at each respective inn. Worker's compensation is
allocated based on the amount of payroll and auto liability is allocated based
on the number of vehicles at each respective inn.
34
<PAGE>
MANAGEMENT
The following chart lists the Company's current directors and executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- --------------------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Gary L. Mead....................................... 47 President, Chief Executive Officer and Director
Michael A. Depatie................................. 38 Senior Vice President -- Finance
William C. Hammett, Jr............................. 48 Senior Vice President -- Accounting and Administration
Thomas W. Higgins.................................. 48 Senior Vice President -- Operations
Stephen B. Hickey.................................. 50 Senior Vice President -- Marketing
Steven T. Schultz.................................. 48 Senior Vice President -- Development
John F. Schmutz.................................... 48 Vice President -- General Counsel and Secretary
Dr. William H. Cunningham.......................... 51 Director
Donald J. McNamara................................. 42 Director
Peter Sterling..................................... 53 Director
Thomas M. Taylor................................... 52 Director
</TABLE>
GARY L. MEAD has been Director, President and Chief Executive Officer of the
Company since March 1992. He served as Executive Vice President -- Finance of
Motel 6 G.P., Inc., the managing general partner of Motel 6, L.P., from October
1987 to January 1991.
MICHAEL A. DEPATIE has been Senior Vice President -- Finance of the Company
since July 1992. He served as Senior Vice President, Summerfield Hotel from May
1989 to July 1992. He served as Managing General Partner of PacWest Capital
Partners from April 1988 to April 1989. He served as Vice President -- Finance
of Residence Inn Company from July 1984 to July 1986 and Senior Vice President
- -- Finance from July 1986 to March 1988.
WILLIAM C. HAMMETT, JR. has been Senior Vice President -- Accounting and
Administration of the Company since June 1992. He served as Executive Vice
President -- Finance of Motel 6 G.P., Inc., from February 1991 to June 1992. He
served as Vice President -- Controller of Motel 6 G.P., Inc. from September 1988
to February 1991. He served as Controller of Spartan Food System from August
1973 to September 1988.
THOMAS W. HIGGINS has been Senior Vice President -- Operations of the
Company since September 1992. He served as Vice President -- Human Resources of
the Company from June 1992 to September 1992. He served as Vice President --
Human Resources of Motel 6 G.P., Inc. from May 1988 to June 1992. He served as
Director of Training Employment of General Mills from October 1986 to May 1988.
STEPHEN B. HICKEY has been Senior Vice President -- Marketing of the Company
since June 1995. He served as Senior Vice President -- Marketing of T.G.I.
Friday's, Inc. from September 1989 to June 1995. He served as Vice President --
Corporate Marketing of Wendy's International from October 1988 to August 1989.
STEVEN T. SCHULTZ has been Senior Vice President -- Development of the
Company since June 1992. He served as Senior Vice President -- Development of
Embassy Suites from October 1986 to June 1992.
JOHN F. SCHMUTZ has been Vice President -- General Counsel and Secretary of
the Company since June 1992. He served as Vice President -- General Counsel of
Sbarro, Inc. from May 1991 to June 1992. He served as Vice President -- Legal of
Hardee's Food Systems, Inc. from April 1983 to May 1991.
DR. WILLIAM H. CUNNINGHAM has been a Director since 1985. He has been
Chancellor of The University of Texas System since September 1992, and prior
thereto, the President of The University of Texas at Austin since September
1985. He served as the Dean of the College of Business Administration and
Graduate School of Business of The University of Texas at Austin from 1983 to
August 1985 and a Professor of
35
<PAGE>
Marketing, the University of Texas at Austin, since 1979. He is a director of
Freeport McMoRan Inc., Jefferson-Pilot Corporation, LBJ Foundation Board and
John Hancock Advisors (formerly Trans American Fund Management Group).
DONALD J. MCNAMARA has been a Director since 1991. He has served as the
Chairman of The Hampstead Group (a real estate investment firm) since September
1987. He is a director of Forum Retirement Partners, L.P.; a director of FelCor
Suite Hotels, Inc.; and Chairman of the Board of Harvey Hotel Holdings, Inc.
PETER STERLING has been a Director since 1991. He has served as the Vice
President and Chief Financial Officer of Sid R. Bass, Inc. and Lee M. Bass, Inc.
(diversified investment firms) since September 1, 1983.
THOMAS M. TAYLOR has been a Director since 1991. He has served as Chairman
of the Board of the Company since March 1994 and President of Thomas M. Taylor &
Co. (an investment consulting firm) since May 1985. He is also President of
TMT-FW (a diversified investment firm). He is a director of TPI Enterprises,
Inc. and John Wiley & Sons, Inc.
None of the directors or executive officers of the Company has a family
relationship with any of the other directors or executive officers.
36
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
On June 15, 1995, the Selling Shareholder notified the Company that it would
exercise, subject to certain conditions, its option to convert two-thirds of its
ownership interest in LQDP into 5,299,821 shares of Common Stock pursuant to the
La Quinta Development Partners, L.P. Amended and Restated Agreement of Limited
Partnership dated March 21, 1990, as amended (the "LQDP Partnership Agreement").
The AEW Transaction was consummated on July 3, 1995. In addition to the shares
issued upon conversion, the Selling Shareholder will sell in the Offering 20,250
shares of Common Stock that it currently owns, assuming that the U.S.
Underwriters' over-allotment option is exercised in full. See "Prospectus
Summary -- The Selling Shareholder." After the completion of the Offering,
assuming the exercise of the over-allotment option in full, the Selling
Shareholder will not own any shares of Common Stock.
Under the LQDP Partnership Agreement, the Selling Shareholder was granted
the right to appoint a director of the Company, which right will terminate after
the completion of the Offering. An officer of the general partner of the Selling
Shareholder, who had been appointed a director of the Company pursuant to this
right, resigned as a director of the Company on June 13, 1995.
The table below sets forth certain information regarding beneficial
ownership of the Company's Common Stock by (i) the Selling Shareholder, as of
July 3, 1995 and (ii) each person known to the Company to be a beneficial owner
of more than 5% of the Common Stock (other than the Selling Shareholder), as of
May 31, 1995. All percentages set forth below have been adjusted for the
issuance of the Common Stock to the Selling Shareholder in the AEW Transaction.
<TABLE>
<CAPTION>
AT MAY 31, 1995(1)
--------------------------------------------------------------------------
SHARES TO BE
SHARES BENEFICIALLY OWNED SOLD IN THE SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING OFFERING AFTER THE OFFERING
---------------------------- -------------- ----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------------ --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
AEW Partners, L.P......................... 5,320,071(2) 10.18% 5,320,071 (2) -- (2) -- %
225 Franklin Street
Boston, Massachusetts 02110
Thomas M. Taylor & Co..................... 2,322,979 4.44 -- 2,322,979 4.44
Trust for the benefit of Mr. Taylor's 3,375 * -- 3,375 *
son......................................
Thomas M. Taylor.......................... 60,750 (3) * -- 60,750 (3) *
Sid R. Bass, Inc.......................... 2,765,305 5.29 -- 2,765,305 5.29
Lee M. Bass, Inc.......................... 2,765,305 5.29 -- 2,765,305 5.29
The Bass Management Trust................. 2,861,392 (4) 5.48 -- 2,861,392 (4) 5.48
The Airlie Group, L.P..................... 2,025,000 3.87 -- 2,025,000 3.87
Annie R. Bass Grandson's Trust for Lee M.
Bass..................................... 536,287 1.03 -- 536,287 1.03
Annie R. Bass Grandson's Trust for Sid R.
Bass..................................... 536,287 1.03 -- 536,287 1.03
Douglas K. and Anne Marie Bratton......... 5,375 * -- 5,375 *
Douglas K. Bratton IRA.................... 1,687 * -- 1,687 *
Miles Ellis Bratton 1991 Trust............ 1,687 * -- 1,687 *
Bratton Family Foundation................. 10,000 * -- 10,000 *
Thomas W. Briggs.......................... 16,875(5) * -- 16,875(5) *
Geoffrey P. Raynor........................ 12,740(5) * -- 12,740(5) *
Michael N. Christodolou................... 10,125(5) * -- 10,125(5) *
W. Forrest Tempel......................... 3,375(5) * -- 3,375(5) *
Donald J. McNamara, III Trust............. 1,012(5) * -- 1,012(5) *
Donald J. McNamara........................ 414,112(5) * -- 414,112(5) *
William P. Hallman, Jr.................... 168,750(6) * -- 168,750(6) *
Peter Sterling Trusts..................... 8,437 * -- 8,437 *
Peter Sterling............................ 286,874 * -- 286,874 *
--------------- ----------- --------------- -----------
(as a Group) 14,817,729(7) 28.25 -- 14,817,729 (7) 28.25
c/o W. Robert Cotham
2600 First City Bank Tower
Fort Worth, Texas 76102
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, 1995(1)
--------------------------------------------------------------------------
SHARES TO BE
SHARES BENEFICIALLY OWNED SOLD IN THE SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING OFFERING AFTER THE OFFERING
---------------------------- -------------- ----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------------ --------------- ----------- -------------- --------------- -----------
GeoCapital Corporation.................... 3,603,329(8) 6.89 -- 3,603,329 (8) 6.89
<S> <C> <C> <C> <C> <C>
767 Fifth Avenue -- 45th Floor
New York, New York 10153
Gary L. Mead.............................. 2,902,500 (9) 5.28 -- 2,902,500 (9) 5.28
112 East Pecan Street
San Antonio, Texas 78205
FMR Corp.................................. 3,626,415 10) 6.94 -- 3,626,415 10) 6.94
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc................... 2,923,632 11) 5.59 -- 2,923,632 11) 5.59
One Post Office Square
Boston, Massachusetts 02109
First Interstate Bancorp.................. 2,755,554 12) 5.27 -- 2,755,554 12) 5.27
633 West Fifth Street
Los Angeles, California 90071
<FN>
- ------------------------
* Less than one percent (1%)
(1) AEW's beneficial ownership is reported as of July 3, 1995.
(2) 5,299,821 of the shares shown as beneficially owned by AEW were issued in
the AEW Transaction upon the conversion of two-thirds of its interest in
LQDP. Number of shares sold in the Offering and number of shares
beneficially owned after the Offering assume the exercise in full of the
U.S. Underwriters' over-allotment option. In the event that the U.S.
Underwriters' over-allotment option is not exercised, after the Offering
AEW will own 470,071 shares of Common Stock, or less than 1%.
(3) Mr. Taylor beneficially owns 60,750 shares which he presently has the right
to acquire under the Company's 1984 Stock Option Plan. In addition, Mr.
Taylor may be deemed to beneficially own the shares beneficially owned by
Thomas M. Taylor & Co., The Airlie Group, L.P. and an irrevocable trust for
the benefit of Mr. Taylor's son. See footnote (5) under "Security Ownership
of Management."
(4) Perry R. Bass, solely in his capacities as sole trustee and as one of two
trustors, has sole voting and dispositive power with respect to the
2,861,392 shares owned by The Bass Management Trust.
(5) The information reflected for such groups or beneficial owners is based on
statements and reports filed with the Securities and Exchange Commission
and furnished to the Company by such persons, and information supplied
pursuant to the Registration Rights Agreement dated, March 9, 1993, between
the Company and certain of the above persons. No independent investigation
concerning the accuracy thereof has been made by the Company.
(6) A March 26, 1993 Schedule 13D amendment provided to the Company reflects
that William P. Hallman, Jr., because of his position as the trustee, also
has "sole voting power" and "sole dispositive power" with respect to the
following trusts: (i) Annie R. Bass Grandson's Trust for Sid R. Bass with
respect to 536,287 shares, (ii) Annie R. Bass Grandson's Trust for Lee M.
Bass with respect to 536,287 shares, (iii) Donald J. McNamara, III Trust
with respect to 1,012 shares and (iv) Peter Sterling Trusts with respect to
8,437 shares.
(7) Thomas M. Taylor, Sid R. Bass, Lee M. Bass and other investors, including
the persons named above, have filed a Schedule 13D Statement, amended
through March 26, 1993, with the Securities and Exchange Commission. The
persons making the Schedule 13D filing have stated that neither the fact of
such filing nor anything contained therein shall be deemed admission by
them that a "group" exists within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934.
(8) A February 9, 1995 Schedule 13G, combined with a March 1995 Form 4 provided
to the Company by GeoCapital Corporation ("GeoCapital") reflects that
GeoCapital is an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, which has no voting power with respect to
the shares, but which has "sole dispositive power" with respect to
3,603,329 shares.
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
(9) A December 1994 Form 5 provided to the Company reflects that Mr. Mead has
"sole voting power" and "sole dispositive power" with respect to (i)
202,500 shares which he beneficially owns, (ii) 2,193,750 shares which he
presently has the right to acquire pursuant to a non-qualified stock option
agreement dated March 3, 1992 and (iii) 506,250 shares which he presently
has the right to acquire pursuant to a non-qualified stock option agreement
dated March 11, 1994.
(10) A February 13, 1995 Schedule 13G provided to the Company reflects that FMR
Corp. ("FMR"), a company controlled by Edward C. Johnson 3d, Chairman of
FMR Corp., and various Johnson family members, beneficially owns 3,626,415
shares of common stock. Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, is the
beneficial owner of 2,624,906 shares as a result of acting as investment
adviser to several investment companies registered under Section 8 of the
Investment Company Act of 1940, and as a result of acting as sub-advisor to
Fidelity American Special Situations Trust ("FASST"). FMR through its
control of Fidelity has no voting power with respect to the shares, but has
"sole dispositive power" with respect to 2,596,856 shares. FMR through its
control of Fidelity and FASST has sole power to vote and to dispose of
28,050 shares held by FASST. Fidelity International Limited ("FIL") is the
beneficial owner of 33,350 shares, which includes 28,050 shares of Common
Stock held by FASST. FIL has sole power to vote and dispose of 5,300 of
these shares. Fidelity Management Trust Company, a wholly-owned subsidiary
of FMR and a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, is the beneficial owner of 996,209 shares and has "sole voting
power" with respect to 914,972 and no power to vote or to direct the voting
of 81,237 shares.
(11) A January 30, 1995 Schedule 13G provided to the Company reflects that
Putnam Investments, Inc., a wholly-owned subsidiary of Marsh & McLennan
Companies, Inc., and an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940, is the beneficial owner of and has
shared dispositive power with respect to 2,923,632 shares as a result of
wholly owning two registered investment advisers: Putnam Investment Manage-
ment, Inc. ("Putnam Management") and The Putnam Advisory Company, Inc.,
("Putnam Advisory") and as a result has "shared voting power" with respect
to 197,275 shares. Putnam Management is the beneficial owner of 2,590,975
shares and has shared dispositive power but no voting power with respect to
the shares. Putnam Advisory is the beneficial owner of 332,657 shares, has
shared dispositive power with respect to 332,657 shares and has "shared
voting power" with respect to 197,275 shares.
(12) A February 10, 1995 Schedule 13G provided to the Company reflects that
First Interstate Bancorp is a Parent Holding Company in accordance with
Rule 13d-1(b)(ii)(G) of the Securities Exchange Act of 1934, with
beneficial ownership of 2,755,554 shares and has (i) "sole voting power"
with respect to 1,530,068 shares, (ii) "sole dispositive power" with
respect to 2,416,200 shares and (iii) "shared dispositive power" with
respect to 339,354 shares.
</TABLE>
The information reflected for such groups or beneficial owners is based on
statements and reports filed with the Securities and Exchange Commission and
furnished to the Company by such groups. No independent investigation concerning
the accuracy thereof has been made by the Company.
39
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Based upon information received upon requests from the persons concerned,
each current director, the Company's five most highly compensated executive
officers, and all directors and executive officers of the Company as a group
owned beneficially as of May 31, 1995, the number and percentage of outstanding
shares of Common Stock of the Company indicated in the following table. All
percentages set forth below have been adjusted for the issuance of Common Stock
to the Selling Shareholder in the AEW Transaction.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAMES OF INDIVIDUAL OWNED
OR IDENTITY OF GROUP AS OF MAY 31, 1995 PERCENT OF CLASS
- ------------------------------------------------------------- ------------------------ -----------------
<S> <C> <C>
DIRECTORS:
William H. Cunningham...................................... 40,500(1) * %
Donald J. McNamara......................................... 414,112(2) *
Gary L. Mead............................................... 2,902,500(3) 5.28
Peter Sterling............................................. 286,874(4) *
Thomas M. Taylor........................................... 4,412,104(5) 8.43
OTHER NAMED EXECUTIVE OFFICERS:
Michael A. Depatie......................................... 249,847(6) *
William C. Hammett, Jr..................................... 240,887(7) *
Steven T. Schultz.......................................... 235,472(8) *
Thomas W. Higgins.......................................... 179,504(9) *
All directors and executive officers as a group............ 8,961,800(10) 15.98
<FN>
- ------------------------
* Less than one percent (1%)
(1) The shares shown as beneficially owned by Dr. Cunningham represent 40,500
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan.
(2) The shares shown as beneficially owned by Mr. McNamara include 60,750
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan.
(3) The shares shown as beneficially owned by Mr. Mead include (i) 2,193,750
shares which he presently has the right to acquire pursuant to a
non-qualified stock option agreement dated March 3, 1992 and (ii) 506,250
shares which he presently has the right to acquire pursuant to a
non-qualified stock option agreement dated March 11, 1994.
(4) The shares shown as beneficially owned by Mr. Sterling include 60,750
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan.
(5) The shares shown as beneficially owned by Mr. Taylor (i) include 2,322,979
shares that Mr. Taylor may be deemed to own beneficially because of his
position as the President, sole director and principal shareholder of
Thomas M. Taylor & Co., (ii) 2,025,000 shares that Mr. Taylor may be deemed
to own beneficially because of his position as President and principal
shareholder of Thomas M. Taylor & Co., which is one of two general partners
of EBD L.P., which is the sole general partner of the Airlie Group L.P.,
(iii) 3,375 shares owned by an irrevocable trust for the benefit of his son
and (iv) 60,750 shares which he presently has the right to acquire under
the Company's 1984 Stock Option Plan. Mr. Taylor's mother, Annette B.
Taylor, serves as trustee of the aforesaid trust for Mr. Taylor's son. Mr.
Taylor disclaims beneficial ownership of the shares owned by such trust.
(6) The shares shown as beneficially owned by Mr. Depatie, Senior Vice
President -- Finance of the Company, include (i) 13,500 shares held by a
trust for which he is sole trustee and beneficiary, (ii) 875 shares that
Mr. Depatie may be deemed to own beneficially because of his position as
general partner in two partnerships and (iii) 235,472 shares which he has
the right to acquire under the Company's 1984 Stock Option Plan.
(7) The shares shown beneficially owned by Mr. Hammett, Senior Vice President
-- Accounting & Administration of the Company, include (i) 2,445 shares
owned beneficially by Mr. Hammett, (ii) 2,970
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
shares held by his wife and (iii) 235,472 shares which he has the right to
acquire under the Company's 1984 Stock Option Plan. Mr. Hammett disclaims
beneficial ownership of the 2,970 shares held by his wife.
(8) The shares shown beneficially owned by Mr. Schultz, Senior Vice President
-- Development of the Company reflect 235,472 shares which he has the right
to acquire under the Company's 1984 Stock Option Plan.
(9) The shares shown beneficially owned by Mr. Higgins, Senior Vice President
-- Operations reflect 179,504 shares which he has the right to acquire
under the Company's 1984 Stock Option Plan.
(10) The holdings shown for all directors and executive officers as a group
include 3,808,670 shares which the directors and executive officers have
the right to acquire under the Company's 1984 Stock Option Plan and Mr.
Mead's Non-Qualified Stock Option Agreement. Shares acquirable pursuant to
stock options, which are exercisable within sixty days after May 31, 1995,
are shown as being beneficially owned by members of such group in the above
table and have been considered to be outstanding for purposes of
calculating the percentage ownership of all directors and executive
officers as a group.
</TABLE>
All directors and executive officers as a group beneficially own a total of
5,153,130 shares (9.86%) of the Company's outstanding Common Stock excluding the
3,808,670 shares referred to in note (10) above which certain directors and
executive officers have the right to acquire under the Company's stock option
plans.
Except as reflected in the notes to the preceding table, each person owns
directly the number of shares indicated in the table and has the sole power to
vote and dispose of such shares.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. SHAREHOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of a share of Common Stock by a
non-U.S. holder. For purposes of this discussion, a non-U.S. holder is a person
or entity that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a non-resident
fiduciary of a foreign estate or trust. This discussion does not consider any
specific facts or circumstances that may apply to a particular non-U.S. holder
and does not address state, local or non-U.S. tax considerations. Furthermore,
the following discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder
and public administrative and judicial interpretations of the Code and
regulations as of the date hereof, all of which are subject to change, which
changes could be applied retroactively.
Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. federal, state and local tax consequences of owning and
disposing of a share of Common Stock, as well as any tax consequences arising
under the laws of any other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
DIVIDENDS. A dividend that is not effectively connected with the conduct of
a trade or business in the United States by a non-U.S. holder of shares of
Common Stock (or, if a tax treaty applies, not attributable to a United States
permanent establishment maintained by such non-U.S. holder) will be subject to
U.S. withholding tax at a 30% or lower treaty rate. A dividend that is
effectively connected with the conduct of a trade or business in the United
States by the non-U.S. holder of shares of Common Stock and, if a tax treaty
applies, is attributable to a U.S. permanent establishment maintained by such
non-U.S. holder, will be exempt from the withholding tax described above (if
certain certification and disclosure requirements are met) and will be subject
instead (i) to the U.S. federal income tax on net income that applies to U.S.
persons and (ii) with respect to corporate holders under certain circumstances,
to the branch profits tax equal to 30% (or lower treaty rate) of its
"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such country
for purposes of the withholding discussed above (unless
41
<PAGE>
the payor has knowledge to the contrary), and, under the current interpretation
of U.S. Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. However, under proposed U.S. Treasury regulations, which have
not yet been put into effect, to claim the benefits of a tax treaty, a non-U.S.
holder of Common Stock would be required to file certain forms accompanied by a
statement from a competent authority of the treaty country.
GAIN ON DISPOSITION OF COMMON STOCK. A non-U.S. holder generally will not
be subject to U.S. federal income tax on any gain recognized on a disposition of
shares of Common Stock unless (i) subject to the exception discussed below, the
Company is or has been a "United States real property holding corporation" (a
"USRPHC") within the meaning of Section 897 (c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holding period (the "Required Holding Period"), (ii) the gain is effectively
connected with the conduct of a trade or business within the United States of
the non-U.S. holder and, if a tax treaty applies, attributable to a permanent
establishment maintained by the non-U.S. holder, (iii) the non-U.S. holder is an
individual who holds the share as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition and either
(a) such individual has a "tax home" (as defined for U.S. federal income tax
purposes) in the United States or (b) the gain is attributable to an office or
other fixed place of business maintained in the United States by such individual
or (iv) the non-U.S. holder is subject to a tax pursuant to the Code provisions
applicable to certain U.S. expatriates.
If an individual non-U.S. holder falls under clauses (ii) or (iv) above, he
or she will be taxed on his or her net gain derived from the sale under regular
U.S. federal income tax rates. If the individual non-U.S. holder falls under
clause (iii) above, he or she will be subject to a flat 30% tax on the gain
derived from the sale which may be offset by U.S. capital losses
(notwithstanding the fact that he or she is not considered a resident of the
United States). If a non-U.S. holder that is a foreign corporation falls under
clause (ii) above, it will be taxed on its gain under regular graduated U.S.
federal income tax rates and, in addition, will under certain circumstances be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits" within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equal or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. The Company believes that it is
currently a USRPHC; however, a non-U.S. holder would generally not be subject to
tax, or withholding in respect of such tax, on gain from a sale or other
disposition of Common Stock by reason of the Company's USRPHC status if the
Common Stock is regularly traded on an established securities market ("regularly
traded") during the calendar year in which such sale or disposition occurs
provided that such holder does not own, actually or constructively, Common Stock
with a fair market value in excess of 5% of the fair market value of all Common
Stock outstanding at any time during the Required Holding Period. While not free
from doubt, the Company believes that the Common Stock will be treated as
regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a non-U.S. holder owns in excess of 5% of the fair market value of Common
Stock (as described in the preceding paragraph), such non-U.S. holder of Common
Stock will be subject to U.S. federal income tax at regular graduated rates
under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In addition, if the Company is or has been a
USRPHC within the Required Holding Period and if the Common Stock were not
treated as regularly traded, a non-U.S. holder (without regard to its ownership
percentage) is subject to withholding in respect of FIRPTA tax at a rate of 10%
of the amount realized on sale or other disposition of Common Stock in USRPHCs
and will be further subject to FIRPTA tax in excess of the amounts withheld. Any
amount withheld pursuant to such withholding tax will be creditable against such
non-U.S. holder's U.S. federal income tax liability. Non-U.S. holders are urged
to consult their tax advisors concerning the potential applicability of these
provisions.
42
<PAGE>
FEDERAL ESTATE TAX. Shares of Common Stock owned or treated as owned by an
individual non-U.S. holder at the time of his or her death will be includible in
his or her estate for U.S. estate tax purposes unless an applicable estate tax
treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. The Company must report annually to the Internal Revenue Service
and to each non-U.S. holder the amount of dividends paid to and the tax
withheld, if any, with respect to such holder. These information reporting
requirements apply regardless of whether withholding was reduced by an
applicable tax treaty. Copies of these information returns may also be available
under the provisions of a specific treaty or agreement with the tax authorities
in the country in which the non-U.S. holder resides. Dividends that are subject
to U.S. withholding tax at the 30% statutory rate or at a reduced tax treaty
rate and dividends that are effectively connected with the conduct of a trade or
business in the United States (if certain certification and disclosure
requirements are met) are exempt from backup withholding of U.S. federal income
tax. Backup withholding will therefore generally not apply to dividends paid on
shares of Common Stock to a non-U.S. holder at an address outside the United
States.
DISPOSITION OF COMMON STOCK. Information reporting and backup withholding
imposed at a rate of 31% will apply to the proceeds of a disposition of Common
Stock paid to or though a U.S. office of a broker unless the disposing holder
certifies its non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through a
non-U.S. office of a non-U.S. broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a payment of disposition
proceeds outside the United States if (A) the payment is made through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes and (B)
the broker fails to maintain documentary evidence that the holder is a non-U.S.
holder and that certain conditions are met, or that the holder otherwise is
entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to U.S. Internal
Revenue Service.
43
<PAGE>
UNDERWRITING
Under the terms and subject to conditions contained in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the United States
and Canadian offering of Common Stock named below (the "U.S. Underwriters"), for
whom Smith Barney Inc., Alex. Brown & Sons Incorporated and Montgomery
Securities are acting as representatives (the "Representatives"), has severally
agreed to purchase, and the Selling Shareholder has agreed to sell to each U.S.
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.................................................................
Alex. Brown & Sons Incorporated..................................................
Montgomery Securities............................................................
----------
Total........................................................................ 3,880,000
----------
----------
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent international offering of Common Stock named below (the "Managers"
and, together with the U.S. Underwriters, the "Underwriters"), for whom Smith
Barney Inc., Alex. Brown & Sons Incorporated and Montgomery Securities are
acting as lead managers (the "Lead Managers"), has severally agreed to purchase,
and the Selling Shareholder has agreed to sell to each Manager, shares of Common
Stock which equal the number of shares set forth opposite the name of such
Manager below:
<TABLE>
<CAPTION>
NUMBER
MANAGERS OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Smith Barney Inc...................................................................
Alex. Brown & Sons Incorporated....................................................
Montgomery Securities..............................................................
-----------
Total.......................................................................... 970,000
-----------
-----------
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
provide that the obligations of the several U.S. Underwriters and the several
Managers, respectively, to pay for and accept delivery of the shares subject to
approval of certain legal matters by counsel and to certain other conditions.
The U.S. Underwriters and the Managers are obligated to take and pay for all
shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of $ per share below the public offering price. The U.S.
Underwriters and the Managers may allow, and such dealers may reallow, a
concession not in excess of $ per share to the other U.S. Underwriters or
Managers, respectively, or to certain other dealers. After the initial public
offering, the public offering price and such concessions may be changed by the
U.S. Underwriters and the Managers.
44
<PAGE>
The Selling Shareholder has granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 470,071 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus less underwriting discounts
and commissions. The U.S. Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sale of the shares offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number of shares set forth opposite such U.S.
Underwriter's name in the "U.S. Underwriters" table above bears to the total
number of shares in such table.
The Company, the Selling Shareholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Selling Shareholder, the Company and certain of its officers and
directors have agreed, subject to certain exceptions, that, for a period of 90
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock.
The U.S. Underwriters and the Managers have entered into an Agreement
between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 3,880,000 shares offered in
the United States and Canadian offering (i) it is not purchasing any such shares
for the account of anyone other than a U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any, of such shares or distribute any prospectus relating to the
United States and Canadian offering outside the United States or Canada or to
anyone other than a U.S. or Canadian Person. In addition, each Manager has
agreed that as part of the distribution of the 970,000 shares offered in the
international offering: (i) it is not purchasing any such shares for the account
of any U.S. or Canadian Person and (ii) it has not offered or sold, and will not
offer, sell, resell or deliver, directly or indirectly, any of such shares or
distribute any prospectus relating to the international offering in the United
States or Canada or to any U.S. or Canadian Person. Each Manager has also agreed
that it will offer to sell shares only in compliance with all relevant
requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S. Underwriters
and Managers, including: (i) certain purchases and sales between the U.S.
Underwriters and the Managers, (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion, (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as Manager or by a Manager who is also acting as a U.S.
Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian Person"
means any resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada in
which such offer is made.
Each Manager has represented and agreed that: (i) it has not offered or sold
and during the period of six months from the date hereof will not offer or sell
any shares to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "Regulations"); (ii) it has complied
and will comply with all applicable provisions of the Financial Services Act
1986 and the Regulations with respect to anything done by it in relation to the
shares in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it
45
<PAGE>
in connection with the offer of the shares if that person is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
No registration, filing or other action has been or will be made or taken in
any jurisdiction by the Company, the Selling Shareholder or the Managers that
would permit an offering to the general public of the shares offered hereby in
any jurisdiction other than the United States.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of shares
as may be mutually agreed. The price of any shares so sold shall be the public
offering price as then in effect for shares being sold by the U.S. Underwriters
and the Managers, less all or any part of the selling concession, unless
otherwise determined by mutual agreement. To the extent that there are sales
between the U.S. Underwriters and the Managers pursuant to the Agreement between
U.S. Underwriters and Managers, the number of shares initially available for
sale by the U.S. Underwriters and by the Managers may be more or less than the
number of shares appearing on the front cover of this Prospectus.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by John F. Schmutz, Vice President --
General Counsel of the Company and Latham & Watkins, Los Angeles, California and
for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The combined balance sheets of La Quinta Inns, Inc., as of December 31, 1994
and 1993, and the related combined statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1994 included or incorporated by reference herein and elsewhere in
the Registration Statement (as defined under "Available Information"), have been
included or incorporated by reference herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere and incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the adoption of Statement of Financial
Accounting Standards No. 109 in 1993.
With respect to the unaudited interim financial information for the
three-month periods ended March 31, 1995 and 1994 and the three-month and
six-month periods ended June 30, 1995 and 1994, included or incorporated by
reference herein, KPMG Peat Marwick LLP has reported that they applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports included in the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995,
and included or incorporated by reference herein, states that they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their reports on the unaudited interim financial
information because those reports are not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act of 1933.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments, the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended ("Securities Act") with respect to the Common Stock offered hereby.
46
<PAGE>
This Prospectus, filed as a part of that Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. In addition, certain documents filed by the Company with the
Commission have been incorporated herein by reference. See "Incorporation of
Certain Information by Reference." For further information regarding La Quinta
and the Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto and the documents
incorporated herein by reference. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and
at the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock of the Company is listed on the New York Stock Exchange. Reports, proxy
statements and other information concerning the Company can also be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K (Commission file No. 1-7790) for
the fiscal year ended December 31, 1994 (filed with the Commission on March 15,
1995), the Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1995 (filed with the Commission on May 15, 1995), the Company's
Current Report on Form 8-K (filed with the Commission on June 16, 1995) and the
Company's Quarterly Report on Form 10-Q for the six month period ended June 30,
1995 (filed with the Commission on July 26, 1995), are hereby incorporated by
reference.
In addition to the foregoing, the description of the Common Stock offered
hereby, appearing on page 20 of the Prospectus, dated February 13, 1979, under
the caption "Common Stock" included in the Registration Statement on Form S-7
under the Securities Act, which was incorporated in the Registration Statement
of the Company on Form 8-A under the Exchange Act, dated March 13, 1979, is
hereby incorporated by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus, shall
be deemed to be incorporated by reference in this Prospectus and be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified,
to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to: La
Quinta Inns, Inc., 112 East Pecan Street, San Antonio, Texas 78205, Attention:
Investor Relations, telephone (210) 302-6000.
47
<PAGE>
LA QUINTA INNS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................................................... F-2
Combined Balance Sheets as of December 31, 1994 and 1993................................................... F-3
Combined Statements of Operations for the years ended December 31, 1994, 1993 and 1992..................... F-4
Combined Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992........... F-5
Combined Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992..................... F-6
Notes to Combined Financial Statements..................................................................... F-8
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Independent Accountants' Review Report..................................................................... F-26
Combined Condensed Balance Sheets as of June 30, 1995 and December 31, 1994................................ F-27
Combined Condensed Statements of Operations for the six months ended June 30, 1995 and 1994................ F-28
Combined Condensed Statements of Cash Flows for the six months ended June 30, 1995 and 1994................ F-29
Notes to Combined Condensed Financial Statements........................................................... F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
La Quinta Inns, Inc.:
We have audited the combined balance sheets of La Quinta Inns, Inc. as of
December 31, 1994 and 1993 and the related combined statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1994. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of La Quinta Inns, Inc.
as of December 31, 1994 and 1993 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the combined financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109 in
1993.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 23, 1995
F-2
<PAGE>
LA QUINTA INNS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 2,589 $ 23,848
Receivables (net of allowance of $441 and $421):
Trade................................................................................... 10,185 6,744
Other................................................................................... 2,363 3,191
Supplies.................................................................................. 7,474 5,921
Prepaid expenses.......................................................................... 1,202 581
Deferred income taxes (note 4)............................................................ 7,223 5,254
--------- ---------
Total current assets.................................................................... 31,036 45,539
--------- ---------
Notes receivable, excluding current installments (net of allowance of $3,351 and $3,167).... 7,320 7,683
--------- ---------
Investments (notes 6, 9, 12 and 14)......................................................... 2,647 6,583
--------- ---------
Properties held for sale, at estimated net realizable value................................. 2,664 3,401
--------- ---------
Land held for future development, at cost................................................... 1,324 1,452
--------- ---------
Property and equipment, at cost, substantially all pledged (notes 2, 7 and 14):
Buildings............................................................................... 767,665 660,278
Furniture, fixtures and equipment....................................................... 124,336 114,113
Land and leasehold improvements......................................................... 150,311 129,862
--------- ---------
Total property and equipment.......................................................... 1,042,312 904,253
Less accumulated depreciation and amortization.......................................... 252,372 230,917
--------- ---------
Net property and equipment............................................................ 789,940 673,336
--------- ---------
Deferred charges and other assets, at cost less applicable amortization..................... 10,850 11,501
--------- ---------
Total assets.......................................................................... $ 845,781 $ 749,495
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 2 and 14)................................... $ 39,976 $ 22,491
Accounts payable:
Trade................................................................................... 10,292 14,282
Other................................................................................... 6,386 9,584
Income taxes............................................................................ 3,641 1,830
Accrued expenses:
Payroll and employee benefits........................................................... 21,238 17,620
Interest................................................................................ 3,023 3,379
Property taxes.......................................................................... 8,387 7,994
Other................................................................................... 1,125 1,870
--------- ---------
Total current liabilities............................................................. 94,068 79,050
--------- ---------
Long term debt, excluding current installments (notes 2 and 14)............................. 448,258 414,004
--------- ---------
Deferred income taxes, pension and other (notes 4 and 6).................................... 22,125 21,408
--------- ---------
Partners' capital (notes 3 and 14).......................................................... 92,099 85,976
--------- ---------
Shareholders' equity (notes 2, 5 and 6):
Common stock ($.10 par value; 100,000,000 and 40,000,000 shares authorized; 48,758,528 and
32,111,364 shares issued)................................................................ 4,876 3,211
Additional paid-in capital................................................................ 68,759 60,573
Retained earnings......................................................................... 134,409 100,059
Minimum pension liability................................................................. (1,474) (1,458)
--------- ---------
206,570 162,385
Less treasury stock, at cost (2,361,366 and 1,732,867 shares)............................. 17,339 13,328
--------- ---------
Total shareholders' equity.............................................................. 189,231 149,057
--------- ---------
Commitments and contingencies (notes 7, 9 and 10)
Total liabilities and shareholders' equity.............................................. $ 845,781 $ 749,495
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Inn........................................................................ $ 353,348 $ 258,529 $ 239,826
Restaurant rental and other................................................ 7,675 6,464 7,208
Management services (notes 12 and 14)...................................... 1,219 6,857 7,088
---------- ---------- ----------
Total revenues........................................................... 362,242 271,850 254,122
---------- ---------- ----------
Operating costs and expenses:
Direct..................................................................... 194,894 148,571 135,474
Corporate.................................................................. 18,614 19,450 23,961
Provision for write-down of partnership investments, land and other (note
8)........................................................................ -- -- 28,383
Severance and other employee related costs (note 8)........................ -- -- 6,936
Performance stock option (note 5).......................................... -- 4,407 --
Depreciation, amortization and fixed asset retirements (note 1)............ 37,977 24,055 24,793
---------- ---------- ----------
Total operating costs and expenses....................................... 251,485 196,483 219,547
---------- ---------- ----------
Operating income......................................................... 110,757 75,367 34,575
---------- ---------- ----------
Other (income) expense:
Interest income............................................................ (1,421) (5,147) (6,041)
Interest on long-term debt................................................. 38,860 31,366 33,087
Partners' equity in earnings and losses (note 3)........................... 11,406 12,965 15,081
Net (gain) loss on property transactions (note 2).......................... (79) 4,347 (282)
---------- ---------- ----------
Earnings (loss) before income taxes, extraordinary items and cumulative
effect of accounting change............................................. 61,991 31,836 (7,270)
Income taxes (note 4)........................................................ 24,176 12,416 526
---------- ---------- ----------
Earnings (loss) before extraordinary items and cumulative effect of
accounting change....................................................... 37,815 19,420 (7,796)
Extraordinary items, net of income taxes (note 2)............................ -- (619) (958)
---------- ---------- ----------
Earnings (loss) before cumulative effect of accounting change............ 37,815 18,801 (8,754)
Cumulative effect of accounting change (note 4).............................. -- 1,500 --
---------- ---------- ----------
Net earnings (loss)...................................................... $ 37,815 $ 20,301 $ (8,754)
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per common and common equivalent share:
Earnings (loss) before extraordinary items and cumulative effect of
accounting change......................................................... $ .78 $ .41 $ (.17)
Extraordinary items, net of income taxes................................... -- (.01) (.02)
Cumulative effect of accounting change..................................... -- .03 --
---------- ---------- ----------
Net earnings (loss)........................................................ $ .78 $ .43 $ (.19)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common and common equivalent shares outstanding,
as restated (note 5)........................................................ 48,624 47,306 45,302
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL MINIMUM
---------------------- ---------------------- PAID-IN RETAINED PENSION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS LIABILITY TOTAL
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1991......................... 14,668 $ 1,467 (1,458) $ (16,773) $ 55,954 $ 89,527 $ -- $ 130,175
Stock options............... -- -- 206 2,439 795 -- -- 3,234
Purchase of treasury
stock...................... -- -- (21) (334) -- -- -- (334)
Net loss.................... -- -- -- -- -- (8,754) -- (8,754)
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Balances at December 31,
1992......................... 14,668 1,467 (1,273) (14,668) 56,749 80,773 -- 124,321
Effect of stock split at
October 1, 1993............ 6,740 674 -- -- (674) -- -- --
Effect of stock split at
March 15, 1994............. 10,703 1,070 (578) -- (1,070) -- -- --
Stock options............... -- -- 118 1,340 5,568 -- -- 6,908
Dividends paid ($.05 per
share)..................... -- -- -- -- -- (1,015) -- (1,015)
Net earnings................ -- -- -- -- -- 20,301 -- 20,301
Minimum pension liability... -- -- -- -- -- -- (1,458) (1,458)
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Balances at December 31,
1993......................... 32,111 3,211 (1,733) (13,328) 60,573 100,059 (1,458) 149,057
Effect of stock split at
October 25, 1994........... 16,163 1,616 (717) -- (1,616) -- -- --
Stock options............... 485 49 412 3,104 9,802 -- -- 12,955
Purchase of treasury
stock...................... -- -- (323) (7,115) -- -- -- (7,115)
Dividends paid ($.10 per
share)..................... -- -- -- -- -- (3,465) -- (3,465)
Net earnings................ -- -- -- -- -- 37,815 -- 37,815
Minimum pension liability... -- -- -- -- -- -- (16) (16)
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Balances at December 31,
1994......................... 48,759 $ 4,876 (2,361) $ (17,339) $ 68,759 $ 134,409 $ (1,474) $ 189,231
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
--------- ----------- ----------- --------- ----------- ----------- ----------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................................... $ 37,815 $ 20,301 $ (8,754)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization of property and equipment................ 35,929 21,905 21,957
Amortization of deferred charges....................................... 1,326 1,994 1,762
Loss on retirement of fixed assets..................................... 722 156 1,074
Non-recurring, non-cash charges........................................ -- -- 32,913
Performance stock options.............................................. -- 4,407 --
Gain on sale of assets................................................. (79) (616) (282)
Undistributed earnings of affiliates................................... -- 50 72
Partners' equity in earnings and losses................................ 11,406 12,965 15,081
Cumulative effect of change in accounting for income taxes............. -- (1,500) --
Changes in operating assets and liabilities:
Receivables.......................................................... (2,013) (1,832) 410
Income taxes......................................................... 9,291 3,585 (934)
Supplies and prepaid expenses........................................ (2,622) (1,334) 268
Accounts payable and accrued expenses................................ (1,291) 14,774 1,690
Deferred charges and other assets.................................... 1,573 460 (969)
Deferred credits and other........................................... 2,176 2,728 (3,435)
----------- ----------- -----------
Net cash provided by operating activities.......................... 94,233 78,043 60,853
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures other than acquisitions............................. (75,248) (32,623) (15,529)
Proceeds from property transactions...................................... 2,565 982 1,998
Purchase and conversion of inns.......................................... (34,690) (38,858) (4,060)
Purchase of partners' equity interests................................... (53,255) (78,169) --
Decrease in notes receivable and investments............................. 4,136 3,641 2,425
----------- ----------- -----------
Net cash used by investing activities.............................. (156,492) (145,027) (15,166)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from secured line of credit and long-term borrowings............ 417,102 223,198 61,275
Principal payments on secured line of credit and long-term borrowings.... (369,955) (178,528) (101,156)
Capital contributions by partners........................................ -- 35,908 15,216
Capital distributions to partners........................................ (1,144) (3,414) (18,706)
Dividends to shareholders................................................ (3,465) (1,015) --
Purchase of treasury stock............................................... (7,013) -- (334)
Net proceeds from stock transactions..................................... 5,475 1,822 2,924
----------- ----------- -----------
Net cash provided (used) by financing activities................... 41,000 77,971 (40,781)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents........................... (21,259) 10,987 4,906
Cash and cash equivalents at beginning of year............................. 23,848 12,861 7,955
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 2,589 $ 23,848 $ 12,861
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and financing activities
Tax benefit from stock options exercised (note 5)................................. $ 7,480 $ 679 $ 310
Effect of stock splits (note 5)................................................... 1,616 1,744 --
Additional minimum pension liability (note 6)..................................... 147 4,092 --
Liabilities assumed in connection with acquisition of LQP (notes 2 and 14)........ -- 65,962 --
Liabilities assumed in connection with acquisitions of unincorporated partnerships
and joint ventures (note 14)..................................................... -- 29,878 --
Conveyance of title of property to mortgagee (note 2)............................. -- 10,117 --
Reduction in debt in connection with property sale................................ -- -- 1,915
Property acquired by foreclosure on notes receivable.............................. -- -- 1,672
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The Company develops, owns and operates inns. The combined financial
statements include the accounts of subsidiaries (all wholly-owned) and
unincorporated partnerships and joint ventures in which the Company has at least
a 50% interest and in one case a 40% interest and exercises substantial legal,
financial and operational control. All significant intercompany accounts and
transactions have been eliminated in combination. Certain reclassifications of
prior period amounts have been made to conform with the current period
presentation.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is computed using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings............................................... 40 years
Furniture, fixtures and equipment....................... 4-10 years
10-20
Leasehold and land improvements......................... years
</TABLE>
Maintenance and repairs are charged to operations as incurred. Expenditures
for improvements are capitalized.
The Company recognizes impairment losses on property and equipment whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. Such losses are determined by
comparing the sum of the expected future undiscounted net cash flows to the
carrying amount of the asset. Impairment losses are recognized in operating
income as they are determined.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of acquisition are considered cash equivalents.
DEFERRED CHARGES
Deferred charges consist primarily of issuance costs related to Senior
Subordinated Notes due 2003, Industrial Development Revenue Bonds ("IRB"), loan
fees, closing fees and organizational costs. Issuance costs are amortized over
the life of the related debt using the interest method. Organizational costs are
amortized over five years. Loan fees and closing fees are amortized over the
respective terms of the loans using the straight-line method.
SELF-INSURANCE PROGRAMS
The Company uses a paid loss retrospective self-insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence
cash outlay.
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially funded
by payroll deductions. Payments for major medical and hospitalization to
individual participants less than specified amounts are self-insured by the
Company. Claims for benefits in excess of these amounts are covered by insurance
purchased by the Company.
Provisions have been made in the combined financial statements which
represent the expected future payments based on estimated ultimate cost for
incidents incurred through the balance sheet date.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
F-8
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
In 1993, the Company recorded an adjustment to income of $1,500,000 which
represents the net decrease of the deferred tax liability at January 1, 1993.
Such amount has been reflected in the combined statement of operations for the
year ended December 31, 1993 as the cumulative effect of an accounting change.
Prior years' financial statements have not been restated to apply the provisions
of SFAS 109. The deferred method under APB Opinion 11 was applied in 1992 and
prior years.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent (dilutive stock options) shares
outstanding in each year after giving retroactive effect to the stock splits
effected as stock dividends as discussed in note 5 of these Combined Financial
Statements. Shares of the Company's common stock issuable upon conversion of the
La Quinta Development Partners, L.P. (the "Development Partners") units are
antidilutive at December 31, 1994 and prior years. Primary and fully diluted
earnings (loss) per share are not significantly different.
PROPERTIES HELD FOR SALE
Properties held for sale are stated at the lower of cost or estimated net
realizable value. Charges to reduce the carrying amounts of properties held for
sale to estimated net realizable value are recognized in income. The Company
recorded in the statements of operations charges of $9,926,000 in 1992 related
to the write-down of properties held for sale.
LICENSING AGREEMENTS
Initial licensing fees related to development are recognized as revenue when
the related property opens and all obligations with respect to development have
been satisfied by the Company. Monthly licensing fees are based on gross room
sales and are accrued as earned.
ADVERTISING
The costs of advertising, promotion and marketing programs are charged to
operations in the year incurred. These costs were $8,859,000, $7,025,000 and
$5,233,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
INTEREST RATE SWAPS
The accounting treatment for the Company's off balance sheet interest rate
swaps is to record net interest received or paid as an adjustment to interest
expense.
F-9
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans maturing 1995-2015 (9.35% weighted average)...................... $ 100,275 $ 179,418
Industrial Development Revenue Bonds, maturing 1995-2012 (7.24% weighted
average)....................................................................... 65,959 72,682
Senior subordinated notes, due 2003 (9.63%)..................................... 120,000 120,000
Bank secured term credit facility, maturing May 31, 2000 (7.30%)................ 171,500 28,620
Bank secured line of credit, maturing May 30, 1997 (8.26%)...................... 17,350 35,775
Bank unsecured line of credit, maturing January 31, 1997 (7.29%)................ 13,150 --
---------- ----------
Total....................................................................... 488,234 436,495
Less current installments....................................................... 39,976 22,491
---------- ----------
Net long-term debt.......................................................... $ 448,258 $ 414,004
---------- ----------
---------- ----------
</TABLE>
At December 31, 1994, the Company had a $45,000,000 Secured Line of Credit
and a $171,500,000 Secured Term Credit Facility with participating banks. At
December 31, 1994, the Company had $21,300,000 available on its Secured Line of
Credit, net of $6,350,000 of letters of credit which collateralize the Company's
insurance programs, and was fully drawn on the Secured Term Credit Facility.
Borrowings under the $45,000,000 Secured Line of Credit, which will expire May
30, 1997 will be made at LIBOR, the prime rate, or certificate of deposit rate
plus an Applicable Margin, as defined in the related credit agreement. At
December 31, 1994, borrowings under the Secured Line of Credit bear interest at
LIBOR plus 1 1/2%, the prime rate or the certificate of deposit rate plus
1 5/8%. Borrowings under the $171,500,000 Secured Term Credit Facility require
semi-annual principal payments through May 31, 2000 and bear interest at varying
interest rates of LIBOR, the prime rate, or certificate of deposit rate plus an
Applicable Margin, as defined in the related credit agreement. At December 31,
1994, borrowings under the Secured Term Credit Facility bear interest at LIBOR
plus 1 3/4%, the prime rate or certificate of deposit rate plus 1 7/8%. The
Applicable Margin is determined based upon predetermined levels of indebtedness
to cash flows, as defined in the related credit agreements. The Company pays a
commitment fee of .375% per annum on the undrawn portion of the line of credit.
Commitment fees totaled $95,000, $164,000 and $105,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
On June 1, 1994, La Quinta Development Partners, L.P. (the "Development
Partnership") entered a $35,000,000 Bank Unsecured Line of Credit of which
$21,850,000 was available at December 31, 1994. Borrowings under the Bank
Unsecured Line of Credit, which expires January 31, 1997, may be made at varying
interest rates of the prime rate, LIBOR, or certificate of deposit rate plus the
Development Partnership's Applicable Margin, as defined in the related credit
agreement. At December 31, 1994, borrowings under the Bank Unsecured Line of
Credit bear interest at LIBOR plus 1%, the prime rate or certificate of deposit
rate plus 1 1/8%. The Development Partnership's Applicable Margin is determined
quarterly based upon predetermined levels of the Partnership's indebtedness to
cash flows, as defined in the related credit agreement. The Development
Partnership pays a commitment fee of .375% per annum on the undrawn portion of
the Bank Unsecured Line of Credit. Commitment fees totaled $56,000 for the year
ended December 31, 1994.
F-10
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) LONG-TERM DEBT (CONTINUED)
Annual maturities for the four years subsequent to December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1996................................................................. $ 40,996
1997................................................................. 72,724
1998................................................................. 49,774
1999................................................................. 47,163
</TABLE>
Interest paid during the years ended December 31, 1994, 1993 and 1992
amounted to $40,105,000, $27,913,000 and $32,523,000, respectively.
In May 1993, the Company conveyed title to the property in which its
corporate headquarters was located to the lender holding a $10.1 million
non-recourse mortgage on the property. Completion of this transaction resulted
in the elimination of the liability for the non-recourse mortgage on the
Company's balance sheet. The Company recognized a loss on property transactions
of $4,900,000 related to the write-down of the property to its estimated fair
value and an extraordinary gain of $4,991,000, $3,045,000 net of income taxes,
for the difference between the carrying amount of the debt and the estimated
fair value of the building.
The Company recognizes gains and losses on extinguishments of debt as
extraordinary items in the period in which the debt is extinguished. The Company
reported extraordinary items, net of income taxes, of $3,664,000, and $958,000
in 1993 and 1992, respectively, related to these refinancings and retirements.
The Company is obligated by agreements relating to eighteen issues of IRBs
in an aggregate amount of $54,375,000 to purchase the bonds at face value prior
to maturity under certain circumstances. The bonds have floating interest rates
which are indexed periodically. Bondholders may, when the rate is changed, put
the bonds to the designated remarketing agent. If the remarketing agent is
unable to resell the bonds, it may draw upon an irrevocable letter of credit
which secure the IRBs. In such event, the Company would be required to repay the
funds drawn on the letters of credit within 24 months.
As of December 31, 1994 no draws had been made upon any such letters of
credit. The schedule of annual maturities shown above includes these IRBs as if
they will not be subject to repayment prior to maturity. Assuming all bonds
under such IRB arrangements are presented for payment prior to December 31, 1995
and the remarketing agents are unable to resell such bonds, the maturities of
long-term debt shown above would increase by $39,340,000 for the year ending
December 31, 1996.
On January 23, 1992 with the approval of the Company's Board of Directors,
the Company entered two interest rate swap agreements (the "Agreements") which
exchanged the Company's variable rate interest payments for the fixed rate
interest payments with a major financial institution (the "Counterparty"). The
debt ("Notional Amounts") underlying the Agreements is $16,890,000 and
$44,420,000. Under the Agreements, the Company effectively pays a fixed rate of
interest at 6.50% and 5.26% and the Counterparty pays a percentage of prime
interest rate and the variable rate demand note interest rate ("VRDN"). In the
event the VRDN rate exceeds the fixed interest rate of 5.26% or the percentage
of prime interest rate exceed 6.5%, the Counterparty pays to the Company that
difference times the Notional Amount, on a monthly basis. Should the fixed
interest rate of 5.26% exceed the VRDN interest rate or the fixed interest rate
of 6.5% exceeds the percentage of prime interest rate, the Company pays the
difference times the Notional Amount to the Counterparty, on a monthly basis.
These Agreements resulted in net payments to the Counterparty of $1,040,000,
$1,427,000 and $1,184,000 in the years ended December 31, 1994, 1993 and 1992,
respectively. The Agreements expire on February 1, 1997, and the Notional
Amounts are reduced over the life of the Agreements by scheduled amortization
payments. At December 31, 1994, the Notional Amounts of debt remaining under the
Agreements are $11,107,000 and $36,150,000 which bear interest at a weighted
average variable interest rate of 6.46% and 4.48%, respectively.
F-11
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) LONG-TERM DEBT (CONTINUED)
The Company is exposed to market risk associated with fluctuations in
interest rates. By entering the interest rate swap agreements, described above,
the Company reduced its exposure to rising interest rates on the aforementioned
variable interest rate debt and has effectively fixed the rate on such debt at a
level acceptable to the Company given the length of the Agreements and the risk
of interest rate changes. The Company is exposed to credit risk to the extent
that the Counterparty fails to perform under the Agreements. The Company has
mitigated its credit risk by entering the Agreements with a major financial
institution, which has received an "A" rating from Standard and Poor's
Corporation and an "A2" rating from Moody's Investors Service on senior
unsecured debt. The Company regularly monitors the credit ratings of the
Counterparty and considers the risk of default remote.
As a result of the VRDN rate increasing from 2.55% at December 31, 1993, to
4.32% at December 31, 1994 and the increase in the prime rate during the year,
the estimated fair value of the interest rate swap agreements changed from a net
payable position of $2,276,000 at December 31, 1993, to a net receivable
position of $494,000 at December 31, 1994 (See Note 13).
The Secured Line of Credit, Secured Term Credit Facility and certain
agreements associated with IRBs are governed by a uniform covenant agreement.
The most restrictive covenants preclude the following: payment of cash dividends
in excess of defined limits, limitations on the incurrence of debt, mergers,
sales of substantial assets, loans and advances, certain investments or any
material changes in character of business. The agreement contains provisions to
limit the total dollar amounts of certain investments and capital expenditures.
The Development Partnership's $35,000,000 Bank Unsecured Line of Credit
agreement contains certain covenants including limitations on the incurrence of
debt by the Development Partnership, certain investments, mergers or disposition
of assets and distributions to partners in excess of certain limits. The
agreement also requires maintenance of certain financial ratios.
The Company's 9 1/4% Senior Subordinated Notes are governed by a Trust
Indenture dated May 15, 1993. The Trust Indenture contains certain covenants for
the benefit of holders of the notes, including, among others, covenants placing
limitations on the incurrence of debt, dividend payments, certain investments,
transactions with related persons, asset sales, mergers and the sale of
substantially all the assets of the Company.
At December 31, 1994, the Company was in compliance with all restrictions
and covenants.
(3) UNINCORPORATED VENTURES AND PARTNERSHIPS
At December 31, 1994, the Company had an ownership interest between 40% and
67% in nine unincorporated joint ventures and partnerships. Summary financial
information with respect to unincorporated ventures and partnerships included in
the combined financial statements is provided below in order to provide further
understanding of the Company's structure and to present the financial position
and results of operations of the partnerships and joint ventures included in the
combined financial statements. Cost and equity investments are not included in
other summarized data as such investments are not considered significant.
F-12
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) UNINCORPORATED VENTURES AND PARTNERSHIPS (CONTINUED)
The following financial information includes the activity of the acquired
unincorporated joint ventures and partnerships through the date of acquisition
(See Note 14).
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Total current assets............................................................ $ 6,241 $ 27,956
Notes receivable, excluding current installments of $51 and $77................. 2,542 2,668
Investments and other assets.................................................... 2,483 5,883
Property and equipment, net..................................................... 175,734 250,729
---------- ----------
$ 187,000 $ 287,236
---------- ----------
---------- ----------
LIABILITIES AND OWNERS' EQUITY
Total current liabilities....................................................... $ 15,533 $ 28,552
Long-term debt, excluding current installments of $2,707 and $3,625............. 28,576 97,465
Owners' equity:
Company's..................................................................... 50,792 75,243
Partners'..................................................................... 92,099 85,976
---------- ----------
$ 187,000 $ 287,236
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1994 1993 1992
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................................. $ 85,600 $ 104,394 $ 119,040
Operating costs and expenses......................................... 62,775 75,661 85,127
--------- ---------- ----------
Operating income..................................................... 22,825 28,733 33,913
Other deductions, principally interest............................... (2,065) (5,690) (7,794)
(Loss) gain on property transactions................................. (1) 324 73
--------- ---------- ----------
Earnings before extraordinary items.................................. 20,759 23,367 26,192
Extraordinary items.................................................. (75) (133) (280)
--------- ---------- ----------
Pretax earnings.................................................... $ 20,684 $ 23,234 $ 25,912
--------- ---------- ----------
--------- ---------- ----------
Equity in pretax earnings:
Company's.......................................................... $ 9,278 $ 10,269 $ 10,831
Partners'.......................................................... 11,406 12,965 15,081
--------- ---------- ----------
$ 20,684 $ 23,234 $ 25,912
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-13
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
As discussed in note 1, the Company adopted SFAS 109 effective January 1,
1993. Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current............................................................... $ 16,038 $ 8,752 $ 3,818
Deferred.............................................................. 4,984 1,918 (3,759)
--------- --------- ---------
21,022 10,670 59
--------- --------- ---------
State
Current............................................................... 2,871 974 937
Deferred.............................................................. 283 772 (470)
--------- --------- ---------
3,154 1,746 467
--------- --------- ---------
Total................................................................... $ 24,176 $ 12,416 $ 526
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective tax rate varies from the statutory rate for the following
reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate................................ $ 21,697 $ 11,143 $ (2,472)
Unrecognized tax benefits of write-downs of partnerships, investments
and other............................................................. -- -- 2,856
Targeted jobs tax credit............................................... (11) (39) (109)
Capital gains.......................................................... -- -- (13)
State income taxes, net of Federal benefit............................. 1,948 1,157 491
Other, net............................................................. 542 155 (227)
--------- --------- ---------
Provision for income taxes........................................... $ 24,176 $ 12,416 $ 526
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following are cash transactions relating to the Company's income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes paid...................................................... $ 9,716 $ 5,953 $ 5,459
--------- --------- ---------
--------- --------- ---------
Income tax refund...................................................... $ 99 $ 71 $ 99
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES (CONTINUED)
For the year ended December 31, 1992, deferred income tax expense resulted
from timing differences in the recognition of income and expense for income tax
and financial reporting purposes. The sources and tax effects of those timing
differences are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1992
-----------------------
(IN THOUSANDS)
<S> <C>
Depreciation and asset write-downs............................................. $ 1,101
Capitalized loan interest...................................................... 335
State income taxes............................................................. (208)
Installment sales.............................................................. (124)
Deferred gain.................................................................. 24
Partners' losses recognized by Company......................................... (398)
Expense provisions, including non-recurring charges............................ (4,017)
Preopening costs............................................................... (33)
Minimum tax.................................................................... (658)
Targeted jobs tax credit....................................................... (26)
Special partnership allocations................................................ 347
Other, net..................................................................... (572)
-------
$ (4,229)
-------
-------
</TABLE>
F-15
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Notes receivable, principally due to allowance for financial reporting
purposes..................................................................... $ 1,268 $ 1,529
Land, principally due to write-downs for financial reporting purposes......... 2,645 2,991
Property and equipment, principally due to acquisitions of partnership
interests.................................................................... 13,450 8,307
Expense provisions............................................................ 9,959 8,785
Deferred gain for financial reporting purposes................................ 316 82
Targeted jobs tax credit carryforwards........................................ -- 411
Minimum pension liability..................................................... 943 932
Alternative minimum tax credit carryforwards.................................. -- 2,781
Other......................................................................... -- 97
-------- --------
Total gross deferred tax assets............................................. 28,581 25,915
Less valuation allowance.................................................... -- (277)
-------- --------
Net deferred tax assets..................................................... 28,581 25,638
-------- --------
Deferred tax liabilities:
Investments in partnerships, principally due to differences in depreciation
and capitalized interest..................................................... (3,356) (3,439)
Property and equipment, principally due to differences in depreciation and
capitalized interest......................................................... (30,367) (25,899)
Deferred gains for tax purposes............................................... (1,270) (1,251)
Other......................................................................... (70) (5)
-------- --------
Total gross deferred tax liabilities........................................ (35,063) (30,594)
-------- --------
Net deferred tax liability.................................................... $ (6,482) $ (4,956)
-------- --------
-------- --------
</TABLE>
In 1994, the valuation allowance decreased $277,000 and in 1993, it
decreased $6,816,000 as a result of partnership acquisitions. The Company
anticipates that the reversal of existing taxable temporary differences will
more likely than not provide sufficient taxable income to realize the tax
benefits of the remaining deferred tax assets.
At December 31, 1993, the Company had targeted jobs tax credit carryforwards
for Federal income tax purposes of approximately $411,000 and alternative
minimum tax credit carryforwards of approximately $2,781,000. These credits have
been fully utilized during 1994.
(5) SHAREHOLDERS' EQUITY
The Board of Directors authorized three-for-two stock splits effective in
October 1994, March 1994 and October 1993. 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.
During 1994, the Company repurchased a total of 373,000 shares (post-split) of
its common stock for approximately $7,115,000 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.
F-16
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(5) SHAREHOLDERS' EQUITY (CONTINUED)
The Company's stock option plans cover the granting of options to purchase
an aggregate of 8,036,565 common shares. Options granted under the plans are
issuable to certain officers, employees and Board Members generally at prices
not less than fair market value at date of grant. Options are generally
exercisable in four equal installments on successive anniversary dates of the
date of grant and are exercisable thereafter in whole or in part. Outstanding
options not exercised expire ten years from the date of grant.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE RANGE TOTAL OPTION
SHARES PER SHARE PRICE
---------- -------------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
Outstanding December 31, 1992................................................... 6,571,433 $ 3.09 - $ 7.23 $ 30,547
Granted....................................................................... 246,375 8.59 - 9.04 2,189
Canceled or expired........................................................... (150,168) 3.50 - 5.78 (581)
Exercised..................................................................... (366,407) 3.19 - 7.22 (1,556)
---------- -------
Outstanding December 31, 1993................................................... 6,301,233 $ 3.09 - $ 9.04 $ 30,599
Granted....................................................................... 1,305,377 17.42 - 24.00 23,762
Canceled or expired........................................................... (82,712) 3.50 - 17.94 (955)
Exercised..................................................................... (1,197,429) 3.19 - 9.04 (5,472)
---------- -------
Outstanding December 31, 1994................................................... 6,326,469 $ 3.35 - $24.00 $ 47,934
---------- -------
---------- -------
Exercisable at:
December 31, 1993............................................................. 3,845,618 $ 3.19 - $ 5.85 $ 17,397
---------- -------
---------- -------
December 31, 1994............................................................. 3,872,597 $ 3.35 - $ 9.04 $ 18,576
---------- -------
---------- -------
Available for future grants at:
December 31, 1993............................................................. 2,932,761
----------
----------
December 31, 1994............................................................. 1,710,096
----------
----------
</TABLE>
Upon exercise, the excess of the option price received over the par value of
the shares issued, net of expenses, is credited to additional paid-in capital.
The exercise of non-qualified stock options results in state and federal
income tax benefits to the Company related to the difference between market
price at the date of exercise and the option price. During 1994, 1993 and 1992,
$7,480,000, $679,000 and $310,000, respectively was credited to additional
paid-in capital for the tax benefits of options exercised.
In 1993, the Company recognized compensation expense of $4,407,000 related
to performance stock options for the difference between the option price at the
date of grant and a predetermined level of $30 per share (pre-split) when it
became probable that the Company's stock would trade at that predetermined
level. During 1992, the Company recognized $367,000 in compensation expense for
the difference between the market price and option price on date of grant
related to a portion of these options which vested in annual increments.
Currently, the Company has no options outstanding that require recognition of
additional compensation expense.
Under the terms of the La Quinta Development Partners, L.P. ("LQDP" or the
"Development Partnership") partnership agreement, AEW Partners, L.P. ("AEW
Partners") has the ability to convert 66 2/3% of its 60% ownership in the
Development Partnership currently to 5,289,801 shares of the Company's common
stock after giving retroactive effect to the stock splits effected as stock
dividends. Such number of shares is reduced as distributions are made out of the
Development Partnership to AEW Partners. Shares of the Company's common stock
issuable upon conversion of the Development Partnership Units are antidilutive
F-17
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(5) SHAREHOLDERS' EQUITY (CONTINUED)
at December 31, 1994. AEW partner's units in LQDP may be converted over the
seven year period beginning December 31, 1991. As of December 31, 1994, AEW
Partners had not converted any of its ownership in the Development Partnership
into the Company's common stock.
(6) PENSION PLAN AND OTHER
The Retirement Plan and Trust of La Quinta Inns, Inc. (the "Plan") is a
defined benefit pension plan covering all employees. The Plan was amended in
1993 to allow highly compensated employees to rejoin the Retirement Plan as
active participants. Benefits accruing under the Plan are determined according
to a career average benefit formula which is integrated with Social Security
benefits. For each year of service as a participant in the Plan, an employee
accrues a benefit equal to one percent of his or her annual compensation plus
.65 percent of compensation in excess of the Social Security covered
compensation amount. The Company's funding policy for the Retirement Plan is to
annually contribute the minimum amount required by federal law.
The Supplemental Executive Retirement Plan and Trust ("SERP") continues to
cover a select group of management employees. Benefits under the SERP are
determined by a formula which considers service and total compensation; the
results of the formula-derived benefit are then reduced by the participant's
pension entitlement from the qualified Retirement Plan.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87 -- Employer's Accounting for Pensions, the Company has recorded
an additional minimum liability of $3,945,000 at December 31, 1994. This
liability represents the excess of the accumulated benefit obligation over the
fair value of plan assets and accrued pension liability at the measurement date.
An amount of $1,528,000 was recognized as an intangible asset to the extent of
unrecognized prior service cost and the balance of $2,417,000 ($1,474,000 net of
income tax) is recorded as a reduction of shareholders' equity.
The following table sets forth the funded status and amounts recognized in
the Company's combined financial statements for the Plan at December 31, 1994
and 1993.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $7,067 and
$7,947....................................................................... $ (10,936) $ (12,298)
---------- ----------
---------- ----------
Projected benefit obligation for services rendered to date.................... $ (12,961) $ (15,585)
Plan assets at fair value, primarily marketable stocks and CDs................ 6,846 6,727
---------- ----------
Projected benefit obligation in excess of plan assets......................... (6,115) (8,858)
Unrecognized net loss from past experiences different from that assumed....... 4,443 5,677
Prior service costs........................................................... 1,528 1,702
Additional minimum liability.................................................. (3,945) (4,092)
---------- ----------
Accrued pension costs....................................................... $ (4,089) $ (5,571)
---------- ----------
---------- ----------
</TABLE>
F-18
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) PENSION PLAN AND OTHER (CONTINUED)
The following table sets forth the funded status of the SERP and amounts
recognized in the Company's financial statements for the SERP:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $1,188 and $1,851... $ (1,273) $ (1,983)
--------- ---------
--------- ---------
Projected benefit obligation for services rendered to date....................... $ (3,428) $ (3,868)
Unrecognized net gain from past experiences different from that assumed.......... (78) (208)
Unrecognized net loss from modifications......................................... 117 294
--------- ---------
Accrued pension costs.......................................................... $ (3,389) $ (3,782)
--------- ---------
--------- ---------
</TABLE>
The Company maintains a trust account intended for use in settling benefits
due under the SERP. The SERP funds are invested primarily in equity investments.
At December 31, 1994, the Company had no funds accumulated in the trust account
and at December 31, 1993, the balance was $1,144,000.
Net pension cost includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost (benefits earned during the period)........................... $ 1,604 $ 1,564 $ 1,769
Interest cost on projected benefit obligation.............................. 1,258 1,207 1,255
Actual return on plan assets............................................... 228 (38) (72)
Net amortization and deferral.............................................. (96) 134 (160)
--------- --------- ---------
Net periodic pension cost before allocation to Managed Inns (See note
12)....................................................................... 2,994 2,867 2,792
Cost allocated to Managed Inns............................................. (30) (238) (222)
--------- --------- ---------
Net periodic pension cost.............................................. $ 2,964 $ 2,629 $ 2,570
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumptions used in the calculations shown above were:
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
<S> <C> <C> <C>
Discount rate (post-termination)................. 8.50% 7.50% 4.00%-7.50%
Discount rate (pre-termination).................. 8.50% 7.50% 8.00%
Expected long-term rate of return on
assets.......................................... 8.00% 8.00% 9.00%
Rate of increase in compensation levels.......... 5.00%-6.00% 5.00%-6.00% 5.50%-7.50%
</TABLE>
In addition, to providing pension benefits, the Company has established a
401(K) Savings Plan and Trust (the "Savings Plan") effective January 1, 1994.
The Savings Plan is designed to be a qualified plan under sections 401 and 410
through 417 of the Internal Revenue Code. Under the Savings Plan, eligible
employees are allowed to defer income on a pre-tax basis through contributions
to the Savings Plan and the Company matches a portion of such contributions. The
Company's matching contributions totaled $131,000 in 1994.
F-19
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(7) OPERATING LEASES
LESSEE
The Company leases a portion of the real estate and equipment used in
operations. Certain ground lease arrangements contain contingent rental
provisions based upon revenues and also contain renewal options at fair market
values at the conclusion of the initial lease terms. In 1993, the Company
entered into two ten year operating leases for its corporate headquarters in San
Antonio and its reservation facilities.
Future annual minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
December 31, 1994 follow:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
1995................................................................. $ 2,439
1996................................................................. 2,263
1997................................................................. 2,033
1998................................................................. 1,781
1999................................................................. 1,873
Later years.......................................................... 9,113
-------------
Total minimum payments required...................................... $ 19,502
-------------
-------------
</TABLE>
Total rental expense for operating leases was $3,196,000, $2,840,000 and
$1,976,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
LESSOR
The Company leases 114 restaurants it owns to third parties. The leases are
accounted for as operating leases expiring during a period from 1995 to 2016 and
provide for minimum rentals and contingent rentals based on a percentage of
annual sales in excess of stipulated amounts. The following is a summary of
restaurant property leased at December 31, 1994.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Buildings............................................................ $ 33,008
Less: accumulated depreciation....................................... 10,189
-------------
22,819
Land................................................................. 18,171
-------------
Total leased property.............................................. $ 40,990
-------------
-------------
</TABLE>
Minimum future rentals to be received under the noncancelable restaurant
leases in effect at December 31, 1994 follow:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
1995................................................................. $ 6,328
1996................................................................. 6,275
1997................................................................. 6,171
1998................................................................. 6,006
1999................................................................. 5,593
Later years.......................................................... 25,046
-------------
$ 55,419
-------------
-------------
</TABLE>
Contingent rental income amounted to $1,025,000, $811,000 and $854,000 for
the years ended December 31, 1994, 1993 and 1992, respectively.
F-20
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(8) NON-RECURRING, CASH AND NON-CASH CHARGES
During 1992, the Company recognized charges of $39,751,000 ($27,946,000 net
of income taxes and partners' equity) resulting from certain changes made in the
Company's operations and organization based on a review by the Company's senior
management team.
Of those charges, $28,383,000 related to the write-down of certain joint
venture interests, land, computer equipment, and other assets. During the third
quarter of 1992, the senior management team re-evaluated the Company's
investments in joint venture arrangements and shortly thereafter completed
negotiations that resulted in amendments to the agreements related to certain
joint venture arrangements and the write-down of the Company's investments in
those ventures. The write-down of the land, computer equipment and other assets
resulted primarily from the Company's decisions to sell certain land that had
previously been held for future development and to replace the Company's
existing computer systems and certain other assets.
In addition, the Company recognized $6,936,000 in the year ended December
31, 1992, in severance and other employee related charges. Those charges related
to severance benefits for certain terminated employees, costs of hiring and
relocating new management and other employee related costs resulting from
personnel changes.
The remaining $4,432,000 of the charges recognized in 1992 consisted of a
$2,696,000 increase in the allowance for certain notes receivable related to
inns sold by the Company prior to 1985, a $1,214,000 adjustment to reallocate
losses of a joint venture to the Company as a result of settlement negotiations,
a $312,000 write-off of equipment and $210,000 related to other corporate
expense items.
(9) COMMITMENTS
In accordance with the unincorporated partnership or joint venture
agreements executed by the Company, La Quinta is committed to advance funds
necessary to cover operating expenses of joint ventures. Three unincorporated
partnerships and joint ventures executed promissory notes in which the Company
guaranteed to fund amounts not to exceed $740,000 in aggregate.
The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $4,000,000 at December 31, 1994.
Funds on hand, committed and anticipated from cash flow are sufficient to
complete these projects.
Under the terms of a Partnership agreement between the Company and AEW
Partners, the Company maintains a reserve for renovating, remodeling and
conversion of the inns in the Development Partnership based on 5% of gross room
revenue of the Partnership which includes certain amounts required by loan
agreements. At December 31, 1994 and 1993 the Company had $900,000 and
$3,833,000, respectively, of restricted cash which is classified as investments.
In accordance with the requirements of an escrow agreement related to a pool
of mortgage notes executed by the Company and a third party lender, the Company
is required to make annual deposits into an escrow account for the purpose of
establishing a reserve for the replacement of furnishings, fixtures and
equipment used on or incorporated into the mortgaged properties. The Company
shall be relieved of its obligation to make such annual deposits for any year in
which the escrow account has an aggregate balance of $2,431,000. At December 31,
1994 and 1993, the Company had reserved the full amount.
(10) CONTINGENCIES
LITIGATION
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies (the "La
Quinta Defendants"). 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. Compensatory
F-21
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) CONTINGENCIES (CONTINUED)
damages of $2,500,000 and exemplary damages of $5,000,000 are sought in the
action. The Court has pending before it the La Quinta Defendants' motion for
summary judgment. The parties subsequently filed a required, joint Pre Trial
Order, in which the plaintiff has conceded a number of his claims. Currently, no
trial date has been set for this action. The Company is vigorously defending
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.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company has entered into a five year employment agreement which includes
a severance provision granting an executive the right to receive certain
benefits, including among others, his annual base salary and bonus if there
occurs a termination (as defined in the respective agreement) within the five
year term of the agreement, or resignation (as defined in the agreement). The
maximum contingent liability under the severance provision of this agreement is
approximately $1,627,000.
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited combined results of operations by quarter are summarized
below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Revenues........................................................... $ 78,264 $ 92,542 $ 104,364 $ 87,072
Operating income................................................... 20,277 30,352 35,932 24,196
Net earnings....................................................... 5,542 11,280 14,011 6,982
Earning per share.................................................. $ .12 $ .23 $ .29 $ .14
Year ended December 31, 1993:
Revenues........................................................... $ 60,607 $ 70,633 $ 76,923 $ 63,687
Operating income................................................... 16,491 19,446 26,887 12,543
Net earnings before extraordinary items and cumulative effect of
accounting change................................................. 4,144 2,692 10,012 2,573
Net earnings....................................................... 5,644 3,634 9,711 1,312
Earnings per share before extraordinary items and cumulative effect
of accounting change.............................................. .09 .06 .21 .05
Earnings per share................................................. $ .12 $ .08 $ .20 $ .03
Year Ended December 31, 1992:
Revenues........................................................... $ 57,815 $ 66,991 $ 72,286 $ 57,030
Operating income (loss)............................................ 12,150 17,709 (7,596) 12,312
Earnings (loss) before extraordinary items......................... 1,410 4,545 (16,392) 2,641
Net earnings (loss)................................................ 1,035 4,348 (16,392) 2,255
Earnings (loss) per share before extraordinary items............... .03 .10 (.36) .06
Earnings (loss) per share.......................................... $ .02 $ .10 $ (.36) $ .05
</TABLE>
In the fourth quarter of 1993, the Company recorded an adjustment of
$1,273,000 ($777,000 net of income taxes) to decrease its expense related to the
self-insurance program for major medical and hospitalization coverage due to
decreases in actual claims and estimates of incurred but not reported claims.
The decrease in net earnings in the second quarter of 1993 is primarily a
result of $4,407,000 in performance stock option expense related to the vesting
of certain contingent stock options, that became exercisable in May 1993. This
expense was partially offset by an increase in operating income.
F-22
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
The loss in the third quarter of 1992 resulted from charges of $26,908,000,
net of income taxes and partners' equity which resulted from a review of the
Company's operations and organization, as described in note 8 of these Combined
Financial Statements.
(12) RELATED PARTY TRANSACTIONS
MANAGEMENT SERVICES FEE
All inns owned by LQP (through November 30, 1993) and by the two joint
ventures ("CIGNA") between the Company and investment partnerships managed by
CIGNA Investments, Inc. (through June 30, 1994) (collectively the "Managed
Inns") operated under the La Quinta name and were managed by the Company in
accordance with long-term management agreements. The Company earned management
and licensing fees as well as fees for chain services such as bookkeeping,
national advertising and reservations.
OTHER RECURRING TRANSACTIONS
La Quinta pays all direct operating expenses on behalf of the partnerships
and joint ventures and is reimbursed for all such payments.
EMPLOYMENT AGREEMENT
In October 1991, the Company and its Chairman of the Board entered into an
Employment Agreement (the "Employment Agreement"), providing for his employment
as the Chairman of the Board of the Company for five years from the date
thereof. As a result of changes in management and reorganization of duties, the
remaining compensation of $1,760,000 related to this Employment Agreement was
included in the 1992 non-recurring cash and non-cash charges, described in note
8 to these Combined Financial Statements. In March 1994, the Chairman retired
from the Company and resigned from the Board of Directors and received certain
compensation and benefits as defined in the Employment Agreement.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the value of
each class of financial instruments for which it is practical to estimate that
value:
NOTES RECEIVABLE
The carrying value for notes receivable approximates the fair value based on
the estimated underlying value of the collateral.
INVESTMENTS
The fair value of some investments is estimated based on quoted market
prices for these or similar investments. For other securities, the carrying
amount is a reasonable estimate of fair value.
LONG TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
current market prices for the same or similar issues or on the current rates
available to the Company for debt of the same maturities.
INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swap agreements represents the estimated
amount the Company would receive (pay) to terminate the agreements, taking into
consideration current interest rates and the current creditworthiness of the
counterparties (See Note 2).
F-23
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes receivable............................................. $ 7,320 $ 7,320 $ 7,683 $ 7,683
Investments.................................................. 2,647 2,647 6,583 6,583
Long-term debt, including current installments and related
letters of credit........................................... (488,234) (480,758) (436,495) (447,580)
Interest rate swap agreements in a net (payable) receivable
position.................................................... (32) 494 (114) (2,276)
</TABLE>
(14) ACQUISITION OF PARTNERS' INTERESTS
On January 24, 1994, the Company concluded the acquisition of La Quinta
Motor Inns Limited Partnership ("the Partnership" or "LQP") as discussed below.
Additionally, in July 1994, the Company purchased nine La Quinta inns previously
held by CIGNA Investments, Inc. and during the second quarter of 1994, the
Company purchased the limited partners' interest in one of the Company's
combined unincorporated joint ventures which owned one inn. The aggregate
purchase price of these transactions was $53,255,000 of which a portion was
financed through the Company's amended Secured Line of Credit and Secured Term
Credit Facility.
On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with LQP and other parties,
pursuant to which the Company, through wholly-owned subsidiaries, would acquire
all units of the Partnership (the "Units") that it did not beneficially own at a
price of $13.00 net per Unit in cash. The Merger Agreement provided for a tender
offer (the "Offer") for all of the Partnership's outstanding Units at a price of
$13.00 net per Unit in cash, which Offer commenced on November 1, 1993 and
expired at midnight on November 30, 1993. The Offer resulted in the purchase of
2,805,190 Units (approximately 70.6% of the outstanding Units) by the Company
through its wholly-owned subsidiary, LQI Acquisition Corporation. As a result of
a contribution of additional units previously owned by the Company subsequent to
the Offer, LQI Acquisition Corporation beneficially owned 3,257,890 Units
(approximately 82% of the Units) at December 31, 1993. Pursuant to the Merger
Agreement, a Special Meeting of Unitholders was then held on January 24, 1994 to
approve the merger of a subsidiary of LQI Acquisition Corporation with and into
the Partnership, with the Partnership as the surviving entity. As a result of
this merger which was approved by the requisite vote of Unitholders on January
24, 1994, all of the Partnership's outstanding Units other than Units owned by
the Company or any direct or indirect subsidiary of the Company were converted
into the right to receive $13.00 net in cash without interest. 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.
LQI Acquisition Corporation obtained funds to acquire the Units as a result
of a capital contribution by La Quinta. In order to make such a capital
contribution to LQI Acquisition Corporation, the Company borrowed approximately
$45.9 million under its existing credit facility as more fully described in Note
2.
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 own 44 inns, for an aggregate price of
$87,897,000 which included cash at closing, the assumption of $22,824,000 of
existing debt attributable to the limited partners' interest, and $29,878,000 of
notes to the sellers. The Company was the general partner and owned the
remainder of the ownership interests in each of these partnerships and ventures.
The Company intends to continue to operate the properties as La Quinta inns.
F-24
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(14) ACQUISITION OF PARTNERS' INTERESTS (CONTINUED)
The following unaudited pro forma information reflects the combined results
of operations of the Company as if the 1993 acquisitions of the 82% interest in
LQP and the limited partners' interests in the 14 combined partnerships and
joint ventures had occurred at the beginning of 1993 and 1992. The pro forma
information gives effect to certain adjustments, including additional
depreciation expense on property and equipment based on their fair values,
increased interest expense on additional debt incurred, elimination of related
party revenues and expenses, and extraordinary losses on early extinguishment of
debt. The pro forma results are not necessarily indicative of operating results
that would have occurred had the acquisitions been consummated as of the
beginning of 1993 and 1992, nor are they necessarily indicative of future
operating results.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1993 1992
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Total revenues.................................................................. $ 308,290 $ 291,477
---------- ----------
---------- ----------
Earnings (loss) before extraordinary items and cumulative effect of accounting
change......................................................................... $ 19,448 $ (8,133)
---------- ----------
---------- ----------
Net earnings (loss)............................................................. $ 20,738 $ (10,171)
---------- ----------
---------- ----------
Earnings (loss) per share....................................................... $ 0.44 $ (0.22)
---------- ----------
---------- ----------
</TABLE>
F-25
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW 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, 1995, and the related combined condensed statements of
operations and cash flows for the six-month periods ended June 30, 1995 and
1994. 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,
1994 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 23, 1995, we expressed an unqualified opinion on those combined
financial statements. In our opinion, the information set forth in the
accompanying combined condensed balance sheet as of December 31, 1994, is fairly
stated, in all material respects, in relation to the combined balance sheet from
which it has been derived.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 20, 1995
F-26
<PAGE>
LA QUINTA INNS, INC.
COMBINED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
---------- ------------
<S> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents......................................................................... $ 6,694 $ 2,589
Receivables (net of allowance of $222 and $441):
Trade........................................................................................... 12,510 10,185
Other........................................................................................... 2,527 2,363
Supplies.......................................................................................... 6,753 7,474
Prepaid expenses.................................................................................. 2,862 1,202
Deferred income taxes............................................................................. 7,223 7,223
---------- ------------
Total current assets.......................................................................... 38,569 31,036
---------- ------------
Notes receivable, excluding current installments (net of allowance of $2,549 and $3,351)............ 6,206 7,320
---------- ------------
Investments......................................................................................... 2,637 2,647
---------- ------------
Properties held for sale, at estimated net realizable value......................................... 2,664 2,664
---------- ------------
Land held for future development, at cost........................................................... 2,716 1,324
---------- ------------
Property and equipment, at cost, substantially all pledged:
Buildings......................................................................................... 799,415 767,665
Furniture, fixtures and equipment................................................................. 130,139 124,336
Land and leasehold improvements................................................................... 162,115 150,311
---------- ------------
Total property and equipment.................................................................. 1,091,669 1,042,312
Less accumulated depreciation and amortization.................................................... 270,139 252,372
---------- ------------
Net property and equipment.................................................................... 821,530 789,940
---------- ------------
Deferred charges and other assets, at cost less applicable amortization............................. 10,760 10,850
---------- ------------
Total assets.................................................................................. $ 885,082 $ 845,781
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long term debt (note 3)................................................... $ 15,242 $ 39,976
Accounts payable:
Trade........................................................................................... 12,737 10,292
Other........................................................................................... 3,387 6,386
Income taxes.................................................................................... 9,178 3,641
Accrued expenses:
Payroll and employee benefits................................................................... 21,259 21,238
Interest........................................................................................ 3,045 3,023
Property taxes.................................................................................. 8,986 8,387
Other........................................................................................... 1,224 1,125
---------- ------------
Total current liabilities..................................................................... 75,058 94,068
---------- ------------
Long term debt, excluding current installments (note 3)............................................. 465,997 448,258
---------- ------------
Deferred income taxes, pension and other............................................................ 21,339 22,125
---------- ------------
Partners' capital................................................................................... 100,105 92,099
---------- ------------
Shareholders' equity:
Common stock ($.10 par value; 100,000,000 shares authorized, 49,358,612 and 48,758,528 shares
issued).......................................................................................... 4,936 4,876
Additional paid-in capital........................................................................ 76,744 68,759
Retained earnings................................................................................. 159,826 134,409
Minimum pension liability......................................................................... (1,474) (1,474)
---------- ------------
240,032 206,570
Less treasury stock, at cost (2,365,321 and 2,361,366 shares)..................................... 17,449 17,339
---------- ------------
Total shareholders' equity.................................................................... 222,583 189,231
---------- ------------
Total liabilities and shareholders' equity.................................................... $ 885,082 $ 845,781
---------- ------------
---------- ------------
</TABLE>
See accompanying notes to combined condensed financial statements.
F-27
<PAGE>
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Inn................................................................................... $ 202,661 $ 166,003
Restaurant rental and other........................................................... 4,017 3,796
Management services................................................................... 100 1,007
----------- -----------
Total revenues...................................................................... 206,778 170,806
----------- -----------
Operating costs and expenses:
Direct................................................................................ 103,128 93,149
Corporate............................................................................. 9,392 9,256
Depreciation, amortization and fixed asset retirements................................ 20,630 17,772
----------- -----------
Total operating costs and expenses.................................................. 133,150 120,177
----------- -----------
Operating income.................................................................... 73,628 50,629
----------- -----------
Other (income) expense:
Interest income....................................................................... (579) (1,069)
Interest on long term debt............................................................ 20,383 18,599
Partners' equity in earnings and losses............................................... 8,976 5,522
----------- -----------
Earnings before income taxes........................................................ 44,848 27,577
Income taxes............................................................................ 17,087 10,755
----------- -----------
Net earnings........................................................................ $ 27,761 $ 16,822
----------- -----------
----------- -----------
Net earnings per common and common equivalent share................................. $ .56 $ .35
----------- -----------
----------- -----------
Weighted average number of common and common equivalent shares outstanding (note 2)..... 49,256 48,415
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to combined condensed financial statements.
F-28
<PAGE>
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................................................ $ 27,761 $ 16,822
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of property and equipment and fixed asset
retirements...................................................................... 20,630 17,772
Partners' equity in earnings and losses........................................... 8,976 5,522
Changes in operating assets and liabilities:
Receivables..................................................................... (2,832) (4,957)
Income taxes.................................................................... 9,648 5,985
Supplies and prepaid expenses................................................... (1,457) (1,368)
Accounts payable and accrued expenses........................................... 2,123 1,425
Deferred charges and other assets............................................... 266 424
Deferred credits and other...................................................... 1,451 (225)
------------ ------------
Net cash provided by operating activities..................................... 66,566 41,400
------------ ------------
Cash flows from investing activities:
Capital expenditures other than acquisitions.................................... (16,417) (55,435)
Proceeds from property transactions.............................................
Purchase and conversion of inns................................................. (40,292) (20,989)
Purchase of partners' equity interests.......................................... -- (9,622)
Decrease in notes receivable and other investments.............................. 1,476 3,274
------------ ------------
Net cash used by investing activities......................................... (55,233) (82,772)
------------ ------------
Cash flows from financing activities:
Proceeds from lines of credit and long-term borrowings.......................... 187,260 266,352
Principal payments on lines of credit and long-term borrowings.................. (195,001) (245,025)
Capital distributions to partners............................................... (967) (429)
Dividends to shareholders....................................................... (2,344) (1,533)
Purchases of treasury stock..................................................... (102) (1,736)
Net proceeds from stock transactions............................................ 3,926 1,369
------------ ------------
Net cash (used) provided by financing activities.............................. (7,228) 18,998
------------ ------------
Increase (decrease) in cash and cash equivalents...................................... 4,105 (22,374)
Cash and cash equivalents at beginning of period...................................... 2,589 23,848
------------ ------------
Cash and cash equivalents at end of period............................................ $ 6,694 $ 1,474
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid......................................................................... $ 20,749 $ 19,307
------------ ------------
------------ ------------
Income tax paid....................................................................... $ 6,582 $ 1,120
------------ ------------
------------ ------------
Income tax refunds.................................................................... $ (51) $ (12)
------------ ------------
------------ ------------
Supplemental schedule of non-cash investing and financing activities:
Tax benefit from stock options exercised.............................................. $ 4,111 $ 1,768
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to combined condensed financial statements.
F-29
<PAGE>
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. The combined condensed
financial statements should be read in conjunction with the combined financial
statements and notes thereto included in the December 31, 1994 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
March 1994 and October 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. Primary and fully
diluted earnings per share are not materially different.
The weighted average number of common and common equivalent shares used in
the computation of earnings per share are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Weighted average common shares issued....................................... 49,194,094 48,167,046
Effect of treasury stock.................................................... (2,363,153) (2,178,161)
Dilutive effect of stock options............................................ 2,424,772 2,426,108
------------ ------------
Weighted average number of common and common equivalent shares............ 49,255,713 48,414,993
------------ ------------
------------ ------------
</TABLE>
(3) LONG-TERM DEBT
On April 21, 1995, the Company completed negotiations to amend its existing
credit facilities. The amended credit facilities provide the Company with a
$75,000,000 Secured Line of Credit and a $141,500,000 Secured Term Credit
Facility. Borrowings under the Secured Line of Credit will mature May 31, 1999.
Borrowings under the Secured Term Credit Facility require semi-annual principal
payments commencing May 30, 1997 through May 30, 2002. Borrowings under each of
these credit facilities bear interest at either LIBOR, the prime rate or
certificate of deposit rate, plus an applicable margin, as defined in the
related credit agreements. Currently, borrowings bear interest at either LIBOR
plus 3/4%, the prime rate or the certificate of deposit rate plus 7/8%. The
applicable margin is determined quarterly based upon predetermined levels of
indebtedness to cash flows as defined in the related credit agreements.
On April 21, 1995, the $35,000,000 Unsecured Line of Credit among La Quinta
Development Partners, L.P. ("LQDP") and participating banks was amended. LQDP
also completed negotiations for a $30,000,000, 364-day Unsecured Line of Credit
with participating banks. The Unsecured Line of Credit and 364-day Unsecured
Line of Credit bear interest at either LIBOR, the prime rate or certificate of
deposit rate, plus LQDP's applicable margin, as defined in the related credit
agreements. As of June 30, 1995, borrowings under both Unsecured Lines of Credit
bear interest at either LIBOR plus 5/8%, the prime rate or the certificate of
deposit rate plus 3/4%. LQDP's applicable margin is determined quarterly based
upon predetermined levels of LQDP's indebtedness to cash flows, as defined in
the related credit agreements. The Unsecured Line of Credit and 364-day
Unsecured Line of Credit mature May 31, 1997 and April 20, 1996, respectively.
Both the Unsecured Line of Credit and the 364-day Unsecured Line of Credit will
remain in existence following the AEW Partners, L.P. ("AEW") Transaction
discussed in note 5.
F-30
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) LONG-TERM DEBT (CONTINUED)
At June 30, 1995, the Company had $74,650,000 available on its existing
credit facilities including the Unsecured Line of Credit in LQDP. This amount
was reduced to $26,450,000 on July 3, 1995 following the drawings to finance the
AEW Transaction discussed in note 5.
(4) 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 "La
Quinta Defendants"). 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. Compensatory damages of $2,500,000 and exemplary damages of
$5,000,000 are sought in the action. The Court has pending before it the La
Quinta Defendants' motion for summary judgment. The parties subsequently filed a
required, joint Pre-Trial Order, in which the plaintiff has conceded a number of
his claims. Currently, no trial date has been set for this action. 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 material adverse effect on the
Company's financial position or results of operations.
(5) SUBSEQUENT EVENT -- ACQUISITION OF PARTNER'S INTEREST
On June 15, 1995, AEW notified the Company that it would exercise its
option, subject to certain conditions, to convert two-thirds of its ownership
interest in LQDP into 5,299,821 shares of the Company's Common Stock and also
agreed to sell its remaining ownership interest in LQDP to the Company for a
negotiated price of $48.2 million in cash (collectively, the "AEW Transaction").
Under the terms of the LQDP Partnership Agreement, AEW paid $3,000,000 in 1990
for an option, subject to certain vesting and other conditions, to convert
two-thirds of its ownership interest in LQDP into a specified number of shares
(adjusted for stock splits, cash dividends and distributions from LQDP to AEW)
of the Company's Common Stock. The AEW Transaction was consummated on July 3,
1995. The Company financed the cash portion of the AEW Transaction through
borrowings under its and LQDP's bank credit facilities.
Upon conversion of the partnership interest into La Quinta Common Stock, the
Company issued 5,299,821 shares of Common Stock having a fair market value of
$142.8 million based on the July 3, 1995 New York Stock Exchange closing price.
During the third quarter of 1995, the Company will record net assets acquired at
their fair market value of $96.4 million and a non-cash, non-recurring item of
$46.4 million as a deduction presented below net earnings in the Statement of
Operations (Conversion of Partner's Interest into Common Stock) in arriving at
net earnings available to common shareholders. This non-recurring, non-cash item
is directly attributable to the AEW Transaction.
The sale to La Quinta of AEW's remaining one-third interest in LQDP will be
accounted for as an acquisition of a minority interest and purchase accounting
will be applied.
As permitted under the Partnership Agreement, AEW has requested that the
Common Stock be registered with the Securities and Exchange Commission for sale
in an underwritten secondary public offering. Pursuant to this request, the
Company has filed a registration statement with the Securities and Exchange
Commission with respect to such sale.
The following unaudited pro forma information reflects the combined results
of operations of the Company as if the AEW Transaction had occurred on January
1, 1995 and January 1, 1994. The pro forma information gives effect to certain
adjustments, including additional depreciation expense on property and equipment
based on their fair values, increased interest expense on additional debt
incurred, elimination of AEW's Partners' equity in earnings and losses and the
related income tax effect of those adjustments. The pro forma information does
not reflect the non-cash, non-recurring item described above.
F-31
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) SUBSEQUENT EVENT -- ACQUISITION OF PARTNER'S INTEREST (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Total revenues.......................................... $ 206,778 $ 362,242
-------- --------
-------- --------
Net earnings............................................ $ 31,085 $ 41,050
-------- --------
-------- --------
Earnings per share...................................... $ .57 $ .76
-------- --------
-------- --------
</TABLE>
F-32
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Use of Proceeds................................ 10
Capitalization................................. 11
Price Range of Common Stock and Dividends...... 12
Selected Financial Data........................ 13
Pro Forma Financial Data....................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 27
Management..................................... 35
Principal and Selling Shareholders............. 37
Security Ownership of Management............... 40
Certain U.S. Tax Consequences to
Non-U.S. Shareholders......................... 41
Underwriting................................... 44
Legal Matters.................................. 46
Experts........................................ 46
Available Information.......................... 46
Incorporation of Certain Information by
Reference..................................... 47
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
4,850,000 Shares
La Quinta Inns, Inc.
Common Stock
---------
PROSPECTUS
, 1995
---------
Smith Barney Inc.
Alex. Brown & Sons
Incorporated
Montgomery Securities
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 26, 1995
P R O S P E C T U S
4,850,000 Shares
[LOGO]
La Quinta Inns, Inc.
Common Stock
---------
All of the shares of Common Stock, par value $0.10 per share, of La Quinta
Inns, Inc. ("La Quinta" or the "Company") offered hereby are being sold by the
Selling Shareholder. Of the 4,850,000 shares of Common Stock offered hereby,
970,000 shares are being offered outside the United States and Canada by the
Managers (as defined herein) and 3,880,000 shares are being offered for sale in
the United States and Canada by the U.S. Underwriters (as defined herein)
(collectively, the "Offering").
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LQI." On July 25, 1995, the closing sale price of the Common Stock
as reported by the New York Stock Exchange was $27 1/4.
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS (1) SHAREHOLDER (2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (3).......................................... $ $ $
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting estimated expenses of $1,100,000 payable by the Selling
Shareholder.
(3) The Selling Shareholder has granted the several U.S. Underwriters a 30-day
option to purchase up to 470,071 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Selling Shareholder will be $ ,
$ , and $ , respectively.
The Shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that the certificates for the shares of
Common Stock offered hereby will be available for delivery on or about ,
1995 at the offices of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013.
----------------
Smith Barney Inc.
Alex. Brown & Sons
International
Montgomery Securities
, 1995
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Use of Proceeds................................ 10
Capitalization................................. 11
Price Range of Common Stock and Dividends...... 12
Selected Financial Data........................ 13
Pro Forma Financial Data....................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 27
Management..................................... 35
Principal and Selling Shareholders............. 37
Security Ownership of Management............... 40
Certain U.S. Tax Consequences to
Non-U.S. Shareholders......................... 41
Underwriting................................... 44
Legal Matters.................................. 46
Experts........................................ 46
Available Information.......................... 46
Incorporation of Certain Information by
Reference..................................... 47
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
4,850,000 Shares
La Quinta Inns, Inc.
Common Stock
---------
PROSPECTUS
, 1995
---------
Smith Barney Inc.
Alex. Brown & Sons
International
Montgomery Securities
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses, other than
underwriting discounts and commissions, payable or reimbursable by the Selling
Shareholder in connection with the issuance and distribution of the Common
Stock:
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 49,532
NASD Filing Fee......................................................... 14,864
NYSE Listing Fee........................................................ 20,049
Printing and Engraving Expenses......................................... 175,000
Blue Sky Fees and Expenses.............................................. 20,000
Transfer Agent and Registrar Fees....................................... 2,500
Legal Fees and Expenses................................................. 377,500
Accounting Fees......................................................... 73,000
Company Expenses........................................................ 335,000
Miscellaneous Expenses.................................................. 32,555
---------
Total................................................................. $1,100,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02A(16) of the Texas Business Corporation Act, as amended (the
"TBCA"), empowers the Company to indemnify its directors, officers, employees
and agents in a variety of circumstances and to purchase and maintain liability
insurance for those persons, but only to the extent permitted by Article 2.02-1
of the TBCA.
Article 2.02-1 of the TBCA provides that a corporation may indemnify any
person who was, is or is threatened to be made a party to any suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative because the person is or was a director of the Company or is or
was serving at its request in the same or another capacity in another
corporation or business association against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred if it is determined: (i)
that the person conducted himself in good faith, (ii) that the person reasonably
believed his conduct, with respect to his official capacity, was in the best
interest of the Company, or, in all other cases, his conduct was at least not
opposed to the best interests of the Company, and (iii) in the case of any
criminal proceeding, that the person had no reasonable cause to believe his
conduct was unlawful.
Article Eleven of the Company's Restated Articles of Incorporation, as
amended (the "Articles"), and Article V of the Company's Amended and Restated
By-Laws, as amended (the "By-Laws"), provide for indemnification of directors,
officers, employees and agents of the Company in a variety of circumstances.
Article V of the By-Laws provides that the Company shall indemnify any person
who was, is, or is threatened to be made a named party or who is called as a
witness in any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, who is or
was a director or officer, to the fullest extent permitted by the TBCA, as now
existing or hereafter amended, including to the extent that any such action,
suit or proceeding may involve the negligence of a director or officer. In
addition, the Company has purchased and maintains insurance on behalf of
directors and officers of the Company against any liability asserted against
such persons and incurred by them in such capacity and arising out of their
status as directors or officers of the Company.
On November 15, 1990, the Board of Directors of the Company approved and
adopted the terms and provisions of two separate forms of indemnification
agreements (the "Agreements"), one for directors of the Company, including
subsidiaries, and the other for officers or key employees of the Company,
including its subsidiaries. The Agreements provide the Company's directors,
officers and key employees with a contractual right to indemnification for
actions taken by them in their respective roles or otherwise on behalf of the
Company. This contractual right insures that directors and officers will be
indemnified by the Company to the fullest extent permitted by Texas law even if
subsequent events result in a change in the control of the
II-1
<PAGE>
Company. There are two forms of the Agreement because the TBCA limits a
corporation's ability to indemnify its directors under any circumstance, but
allows a corporation to expand the statutory limits as to indemnification of
officers and employees.
The Agreements entered into between the Company and its directors beginning
in November 1990 and thereafter obligate the Company to indemnify a director who
was, is, or is threatened to be made a party or witness to any suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, because the person is or was a director of the Company against
judgments, penalties, fines, settlements, and reasonable attorneys' fees and
expenses actually incurred if it is determined: (i) that the director conducted
himself in good faith, (ii) that the director reasonably believed (a) with
respect to activities in his official capacity that his conduct was in the best
interests of the Company (b) with respect with all other cases that his conduct
was at least not opposed to the best interests of the Company, and (iii) in the
case of any criminal proceeding, that the director had no reasonable cause to
believe that his conduct was unlawful. The Agreements entered into between the
Company and its officers beginning in November 1990 and thereafter do not
contain the foregoing limitations.
The Agreements also mandate the indemnification of directors or officers who
serve as witnesses in any proceeding (subject to certain limitations) and who
have been wholly successful as a party on the merits or otherwise in the defense
of any proceeding.
As to directors, the Agreements also limit indemnification to reasonable
attorneys' fees and expenses actually incurred if a director is found in a
proceeding to be liable to the Company or is found liable on the basis that he
received an improper benefit, and further absolutely prohibit any
indemnification of a director who has been found liable in a proceeding for
willful or intentional misconduct in the performance of his duties to the
Company.
Pursuant to the terms of registration rights granted in 1990 by the Company
to the Selling Shareholder, the Company has agreed to indemnify the Selling
Shareholder against certain liabilities, including liabilities under the
Securities Act of 1993, as amended (the "Act") and the Selling Shareholder has
agreed to indemnify the Company, its directors, each of its officers who has
signed the Registration Statement and each person, if any, who controls the
Company, against certain liabilities, including liabilities under the Act.
Provisions authorizing indemnification or advancement of expenses contained
in the Company's Articles, By-Laws, the Agreements or the registration rights
agreement are valid only to the extent that such provisions are consistent with
provisions of Article 2.02-1 of the TBCA. Insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy expressed in the Act
and is, therefore, unenforceable.
The Articles also contain a provision which eliminates certain potential
liability of directors of the Company for monetary damages to the full extent
permitted by the laws of the State of Texas as interpreted and applied by the
courts. The provision does not, however, eliminate the duty of care or the duty
of loyalty owed to the Company by its directors; instead, it only eliminates
monetary damage awards for actions or omissions by directors that breach the
duty of care owed to the Company and its shareholders. Moreover, this provision
does not in any way limit or eliminate the liability of directors of the Company
for (i) breaches of their duty of loyalty to the Company and its shareholders,
(ii) failing to act in good faith, intentional misconduct or knowing violations
of law, (iii) obtaining an improper personal benefit for themselves, (iv) any
liability expressly imposed by statute, or (v) an unlawful stock repurchase or
payment of dividends.
Furthermore, said limitation pertains solely to claims against a director
arising out of his role as a director and does not relieve a director, if he is
also an officer of the Company, from any liability arising from his role as an
officer. Finally, the provision does not apply to the responsibilities of
directors under any other law such as federal and state securities laws or
statutes expressly providing for liability of directors of corporations.
II-2
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed as part of the Registration Statement:
<TABLE>
<C> <S>
1(a) U.S. Underwriting Agreement.
1(b) International Underwriting Agreement.
*4(a) Restated Articles of Incorporation of La Quinta Inns, Inc.
*4(b) Amended and Restated By-Laws of La Quinta Inns, Inc.
5 Opinion of John F. Schmutz, Esq. as to the legality of the securities being
registered.
8 Opinion of Latham & Watkins as to certain tax matters.
15 Awareness Letter of KPMG Peat Marwick LLP.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of John F. Schmutz, Esq. (included in Exhibit 5).
23(c) Consent of Latham & Watkins (included in Exhibit 8).
*24 Powers of Attorney.
*99 Registration Rights Agreement between AEW and La Quinta.
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(b) La Quinta hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of La Quinta's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(h) Certain arrangements indemnifying La Quinta, the Selling Shareholder,
and officers, directors and controlling persons of La Quinta and controlling
persons of the Selling Shareholder are set forth in the Prospectus and in Item
15 above. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of La Quinta pursuant to the foregoing provisions, or
otherwise, La Quinta has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by La Quinta of
expenses incurred or paid by a director, officer or controlling person of La
Quinta in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, La Quinta will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(i) La Quinta hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by La Quinta pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements on Form S-3 and has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on the 26th day of July, 1995.
LA QUINTA INNS, INC.
By: /s/ WILLIAM C. HAMMETT, JR.
-----------------------------------
Name: William C. Hammett, Jr.
Title: Senior Vice President --
Accounting and Administration
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
*
------------------------------------------- President, Chief Executive Officer and July 26, 1995
(Gary L. Mead) Director (Principal Executive Officer)
*
------------------------------------------- Senior Vice President -- Finance July 26, 1995
(Michael A. Depatie) (Principal Financial Officer)
/s/ WILLIAM C. HAMMETT, JR. Senior Vice President -- Accounting and
------------------------------------------- Administration (Principal Accounting July 26, 1995
(William C. Hammett, Jr.) Officer)
*
------------------------------------------- Director July 26, 1995
(William H. Cunningham)
*
------------------------------------------- Director July 26, 1995
(Donald J. McNamara)
*
------------------------------------------- Director July 26, 1995
(Peter Sterling)
*
------------------------------------------- Director July 26, 1995
(Thomas M. Taylor)
*By: /s/ WILLIAM C. HAMMETT, JR.
-------------------------------------------
Name: William C. Hammett, Jr.
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
In accordance with Item 232.304 of Regulation S-T, the following is a
description of images appearing on the inside front cover page of the
Prospectus included in this Registration Statement and which material is
omitted from this "EDGAR" filing in reliance on such Item.
Three panel, full page gate-fold depicting the following: the first full page
panel depicts a map of the continental United States in which certain states
are shaded to indicate states where La Quinta Inns, Inc. operates (i) 1-9 inns
(dark shading) and (ii) 10 or more inns (light shading). Also contains a legend
explaining the shading. A photograph of a La Quinta inn sign is also included
on this page. Stabilization legend included on this page.
The second and third full page panels, which are contiguous, contain 5
photographs of the following (clockwise from the top right): (i) interior of
a La Quinta inn room and a guest, (ii) front exterior view of a La Quinta
inn, (iii) interior of a lobby in a La Quinta inn and two guests, (iv) two
front desk assistants at a La Quinta inn, and (v) interior view of the eating
area of a La Quinta inn and five guests. The photographs surround the text
that is included in the prospectus on page 2 above the stabilization legend
in the Edgarized version.
<PAGE>
In accordance with Item 232.304 of Regulation S-T, the following is a
description of graphics material appearing on page 31 of the Prospectus
included in this Registration Statement and which material is omitted from
this "EDGAR" filing in reliance on such Item. The graphics material depicts
three bar charts. The first bar chart is entitled "Total U.S. Lodging
Industry Demand Growth Margin (% Growth in Room Demand Less % Growth in Room
Supply)" and reflects the following percentages shown on the vertical axis
for the following years shown on the horizontal axis: -2.5% in 1991, 2.0% in
1992, 2.6% in 1993 and 3.3% in 1994. The second bar chart is entitled "Total
U.S. Occupancy Percentage (% Increase/Decrease)" and reflects the following
percentages shown on the vertical axis for the following years shown on the
horizontal axis: -2.4% in 1991, 2.0% in 1992, 2.6% in 1993 and 2.4% in 1994.
The third bar chart is entitled "Total U.S. ADR (% Increase)" and reflects
the following percentages shown on the vertical axis for the following years
shown on the horizontal axis: 0.6% in 1991, 1.4% in 1992, 2.8% in 1993 and
3.8% in 1994. The source of the data in these three bar charts in Smith
Travel Research.
<PAGE>
In accordance with Item 232.304 of Regulation S-T, the following is a
description of images appearing on the inside back cover of the Prospectus
included in this Registration Statement and which material is omitted from
this "EDGAR" filing in reliance on such Item.
Contains 3 photographs of the following (clockwise from the top right): (i) a
fountain of a lion's head, (ii) exterior view of a swimming pool and
surrounding area, and (iii) a four-story bell tower connected to a La Quinta
inn displaying La Quinta signage.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------ -----
<C> <S> <C>
1(a) U.S. Underwriting Agreement.
1(b) International Underwriting Agreement.
*4(a) Restated Articles of Incorporation of La Quinta Inns, Inc.
*4(b) Amended and Restated By-Laws of La Quinta Inns, Inc.
5 Opinion of John F. Schmutz, Esq. as to the legality of the securities being registered.
8 Opinion of Latham & Watkins as to certain tax matters.
15 Awareness Letter of KPMG Peat Marwick LLP.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of John F. Schmutz, Esq. (included in Exhibit 5).
23(c) Consent of Latham & Watkins (included in Exhibit 8).
*24 Powers of Attorney.
*99 Registration Rights Agreement between AEW and La Quinta.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 1(a)
4,850,000 Shares
LA QUINTA INNS, INC.
Common Stock
U.S. UNDERWRITING AGREEMENT
, 1995
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Representatives of the Several U.S. Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
AEW Partners, L.P., a Delaware limited partnership (the "Selling
Shareholder"), proposes to sell an aggregate of 3,880,000 shares (the "Firm
Shares") of common stock, par value $0.10 per share (the "Common Stock"), of
La Quinta Inns, Inc., a Texas corporation (the "Company"), to the several
Underwriters named in Schedule I hereto (the "U.S. Underwriters") for whom
Smith Barney Inc., Alex. Brown & Sons Incorporated and Montgomery Securities
are acting as representatives (the "Representatives"). In addition, solely
for the purpose of covering over-allotments, the Selling Shareholder proposes
to sell to the U.S. Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional 470,071 shares (the "Additional
Shares") of Common Stock. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares".
It is understood that the Company and the Selling Shareholder are
concurrently entering into an International Underwriting Agreement, dated the
date hereof (the "International Underwriting Agreement"), providing for the
sale by the Selling Shareholder of 970,000 shares of Common Stock (the
"International Shares") through arrangements with certain underwriters
outside the United States and Canada (the "Managers"), for whom Smith Barney
Inc., Alex. Brown & Sons Incorporated and Montgomery Securities are acting as
lead Managers (the "Lead Managers").
<PAGE>
The International Shares and the Shares, collectively, are herein called the
"Underwritten Shares".
The Company and the Selling Shareholder also understand that the
Representatives and the Lead Managers have entered into an agreement (the
"Agreement Between U.S. Underwriters and Managers") contemplating the
coordination of certain transactions between the U.S. Underwriters and the
Managers and that, pursuant thereto and subject to the conditions set forth
therein, the U.S. Underwriters may purchase from the Managers a portion of
the International Shares or sell to the Managers a portion of the Shares.
The Company and the Selling Shareholder understand that any such purchases
and sales between the U.S. Underwriters and the Managers shall be governed by
the Agreement Between U.S. Underwriters and Managers and shall not be
governed by the terms of this Agreement or the International Underwriting
Agreement.
The Company and the Selling Shareholder wish to confirm as
follows their respective agreements with you and the other several U.S.
Underwriters on whose behalf you are acting, in connection with the several
purchases of the Shares by the U.S. Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 under the Act
(the "registration statement"), including two forms of prospectus subject to
completion relating to the Shares. The term "Registration Statement" as used
in this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective or, if
the registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Underwritten Shares
may commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective amendment.
The term "Registration Statement" shall also include any registration
statement relating to the Shares that is filed and declared effective
pursuant to Rule 462(b) under the Act. The term "Prospectuses" as used in
this Agreement means the prospectuses in the form included in the
Registration Statement or, if the prospectuses included in the Registration
Statement omit information in reliance on Rule 430A under the Act and such
information is included in prospectuses filed with the Commission pursuant to
Rule 424(b) under the Act, the term "Prospectuses" as used in this Agreement
means the prospectuses in the forms included in the Registration Statement
- 2 -
<PAGE>
as supplemented by the addition of the Rule 430A information contained in the
prospectuses filed with the Commission pursuant to Rule 424(b), PROVIDED that
if prospectuses that meet the requirements of Section 10(a) of the Act are
delivered pursuant to Rule 434(c) under the Act, then (i) the term
"Prospectuses" as used in this Agreement means the prospectuses subject to
completion (as defined in Rule 434(g) under the Act) as supplemented by (A)
the addition of Rule 430A or other information contained in the forms of
prospectus filed pursuant to Rule 434(c)(2) under the Act and (B) the
information contained in the abbreviated term sheets described in Rule
434(c)(3) under the Act, and (ii) the date of such Prospectuses shall be
deemed to be the date of such abbreviated term sheets. The term "Prepricing
Prospectuses" as used in this Agreement means the prospectuses subject to
completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectuses shall have been amended from time to time prior to the date
of the Prospectuses. Any reference in this Agreement to the registration
statement, the Registration Statement, any Prepricing Prospectus or the
Prospectuses shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act as of the date of the registration statement, the Registration Statement,
such Prepricing Prospectus or the Prospectuses, as the case may be, and any
reference to any amendment or supplement to the registration statement, the
Registration Statement, any Prepricing Prospectus or the Prospectuses shall
be deemed to refer to and include any documents filed after such date under
the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Exchange Act"),
that, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated
Documents" means, at any time, the documents that at such time are
incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectuses, or any amendment or
supplement thereto.
It is understood that two forms of Prepricing Prospectus and two
forms of Prospectus are to be used in connection with the offering and sale
of the Underwritten Shares: a Prepricing Prospectus and a Prospectus
relating to the Shares that are to be offered and sold in the United States
(as defined herein) or Canada (as defined herein) to U.S. or Canadian Persons
(the "U.S. Prepricing Prospectus" and the "U.S. Prospectus", respectively),
and a Prepricing Prospectus and a Prospectus relating to the International
Shares that are to be offered and sold outside the United States or Canada to
persons other than U.S. or Canadian Persons (the "International Prepricing
Prospectus" and the "International Prospectus", respectively). The U.S.
Prospectus and the International Prospectus are herein collectively called
the "Prospectuses", and the U.S. Prepricing
- 3 -
<PAGE>
Prospectus and the International Prepricing Prospectus are herein called the
"Prepricing Prospectuses". For purposes of this Agreement: "U.S. or
Canadian Person" means any resident or national of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or any estate or trust the
income of which is subject to United States or Canadian income taxation
regardless of the source of its income (other than the foreign branch of any
U.S. or Canadian Person), and includes any United States or Canadian branch
of a person other than a U.S. or Canadian Person; "United States" means the
United States of America (including the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction; and "Canada" means Canada and its territories, its possessions
and other areas subject to its jurisdiction.
2. AGREEMENTS TO SELL AND PURCHASE. The Selling Shareholder
hereby agrees, subject to all the terms and conditions set forth herein, to
sell to each U.S. Underwriter and, upon the basis of the representations,
warranties and agreements of the Company and the Selling Shareholder herein
contained and subject to all the terms and conditions set forth herein, each
U.S. Underwriter agrees, severally and not jointly, to purchase from the
Selling Shareholder, at a purchase price of $____ per Share (the "purchase
price per share"), the number of Firm Shares set forth opposite the name of
such U.S. Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 13 hereof).
The Selling Shareholder also agrees, subject to all the terms and
conditions set forth herein, to sell to the U.S. Underwriters, and, upon the
basis of the representations, warranties and agreements of the Company and
the Selling Shareholder herein contained and subject to all the terms and
conditions set forth herein, the U.S. Underwriters shall have the right to
purchase from the Selling Shareholder, at the purchase price per share,
pursuant to an option (the "over-allotment option") that may be exercised at
any time and from time to time prior to 9:00 P.M., New York City time, on the
30th day after the date of the U.S. Prospectus (or, if such 30th day shall be
a Saturday or Sunday or a holiday, on the next business day thereafter when
the New York Stock Exchange is open for trading), up to an aggregate of
470,071 Additional Shares from the Selling Shareholder. Additional Shares
may be purchased only for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. Upon any exercise of the
over-allotment option, each U.S. Underwriter, severally and not jointly,
agrees to purchase from the Selling Shareholder the number of Additional
Shares (subject to such adjustments as you may determine in order to avoid
fractional shares) that bears the same proportion to the number of Additional
Shares to be purchased by the U.S. Underwriters as the number of Firm Shares
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set forth opposite the name of such U.S. Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 13 hereof) bears
to the aggregate number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Shareholder have been advised by you that the U.S. Underwriters propose to
make a public offering of their respective portions of the Shares as soon
after the Registration Statement and this Agreement have become effective as
in your judgment is advisable and initially to offer the Shares upon the
terms set forth in the U.S. Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to
the U.S. Underwriters of and payment for the Firm Shares shall be made at the
office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at
10:00 A.M., New York City time, on , 1995 (the "Closing Date").
The place of closing for the Firm Shares and the Closing Date may be varied
by agreement among you, the Company and the Selling Shareholder.
Delivery to the U.S. Underwriters of and payment for any
Additional Shares to be purchased by the U.S. Underwriters shall be made at
the aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than two nor later
than five business days after the giving of the notice hereinafter referred
to, as shall be specified in a written notice from you on behalf of the U.S.
Underwriters to the Company and the Selling Shareholder of the U.S.
Underwriters' determination to purchase a number, specified in such notice,
of Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement among you, the
Company and the Selling Shareholder.
Certificates for the Firm Shares and for any Additional Shares to
be purchased hereunder shall be registered in such names and in such
denominations as you shall request prior to 1:00 P.M., New York City time, on
the second business day preceding the Closing Date or any Option Closing
Date, as the case may be. Such certificates shall be made available to you
in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the
Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case
may be, against payment of the purchase price therefor by certified or
official bank check or checks payable in New York Clearing House (next day)
funds to the order of the Selling Shareholder.
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5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several U.S. Underwriters and the Selling Shareholder as follows:
(a) The Company shall, if, at the time this Agreement is executed
and delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the
offering of the Shares may commence, use its best efforts to cause the
Registration Statement or such post-effective amendment to become
effective at the earliest possible time. The Company shall comply fully
and in a timely manner with the applicable provisions of Rule 424, Rule
430A and Rule 434 under the Act.
(b) The Company shall advise you and the Selling Shareholder
promptly and, if requested by any of you, confirm such advice in writing,
(i) when the Registration Statement has become effective, if and when a
Prospectus or form of prospectus is sent for filing pursuant to Rule 424
under the Act and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the receipt of any comments from the
Commission that relate to the Registration Statement or any request by the
Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by the Commission or any
state securities commission or other regulatory authority, and (iv) during
the period referred to in subsection (f) below, (A) of any change in the
Company's condition (financial or other), business, prospects, properties,
net worth or results of operations, or of the happening of any event,
including the filing of any information, document or report pursuant to
the Exchange Act, that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any additions
to or changes in the Registration Statement in order to state a material
fact required by the Act to be stated therein or to make the statements
therein not misleading or that makes any statement of a material fact made
in the U.S. Prospectus (as then amended or supplemented) untrue or that
requires the making of any additions to or changes in the U.S. Prospectus
(as then amended or supplemented) in order to state a material fact
required by the Act to be stated therein or in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and (B) of the necessity to amend or supplement
the U.S. Prospectus (as then amended or supplemented) to comply with the
Act or any
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other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of the Shares under any state
securities or Blue Sky laws or real estate syndication laws, the Company
shall use every reasonable effort to obtain the withdrawal or lifting of
such order at the earliest possible time.
(c) The Company shall furnish to each of you and the Selling
Shareholder without charge (i) two (2) conformed copies (plus one (1)
additional similarly conformed copy to your legal counsel) of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits filed therewith, (ii) such number
of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request, (iii)
such number of copies of the Incorporated Documents, without exhibits, as
you may request, and (iv) two (2) copies of each of the exhibits to the
Incorporated Documents.
(d) The Company shall not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the U.S. Prospectus, or,
prior to the end of the period of time referred to in subsection (f)
below, file any document pursuant to the Exchange Act that will, upon
filing, become an Incorporated Document, of which you and the Selling
Shareholder shall not previously have been advised and provided a copy
within two business days (or such reasonable amount of time as is
necessitated by the exigency of such amendment, supplement or document)
prior to the filing thereof and to which you or the Selling Shareholder
shall reasonably object in writing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you and the Selling Shareholder, without charge,
in such quantities as you have requested, copies of each form of the U.S.
Prepricing Prospectus. The Company consents to the use, in accordance
with the provisions of the Act and with the state securities or Blue Sky
laws or real estate syndication laws of the jurisdictions in which the
Shares are offered by the several U.S. Underwriters and by dealers, prior
to the date of the U.S. Prospectus, of each U.S. Prepricing Prospectus so
furnished by the Company.
(f) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period as in the reasonable
opinion of counsel for the U.S. Underwriters a prospectus is required by
the Act to be
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delivered in connection with sales by any U.S. Underwriter or dealer, the
Company shall expeditiously furnish to each U.S. Underwriter and each
dealer, without charge, as many copies of the U.S. Prospectus (and of any
amendment or supplement to the U.S. Prospectus) as you may reasonably
request for the purposes contemplated by the Act. The Company consents to
the use of the U.S. Prospectus and any amendment or supplement thereto by
you or any dealer in accordance with the provisions of the Act and with
the state securities or Blue Sky laws or real estate syndication laws of
the jurisdictions in which the Shares are offered by the several U.S.
Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering or sale of the Shares and for such period of
time thereafter as a prospectus is required by the Act to be delivered in
connection therewith.
(g) If during the period specified in subsection (f) above any
event shall occur as a result of which it becomes necessary, in the
judgment of the Company or in the reasonable opinion of counsel for the
U.S. Underwriters, to amend or supplement the U.S. Prospectus (as them
amended or supplemented) in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary to amend or supplement the U.S. Prospectus to comply
with the Act or any other law, the Company shall, as promptly as
practicable, prepare and, subject to the provisions of subsection (d)
above, file with the Commission an appropriate amendment or supplement to
the U.S. Prospectus so that the statements in the U.S. Prospectus, as so
amended or supplemented, will not, in the light of the circumstances under
which they were made, be misleading, and the U.S. Prospectus, as so
amended or supplemented, will comply with the Act or such other law, and
shall expeditiously furnish to you without charge such number of copies
thereof as you may reasonably request.
(h) Prior to any public offering of the Shares, the Company shall
cooperate with you and with counsel for the U.S. Underwriters in
connection with the registration or qualification of the Shares for
offering and sale by the U.S. Underwriters and by dealers under the state
securities or Blue Sky laws or real estate syndication laws of such
jurisdictions as you may request (provided, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified or to take any action that would subject it to
consent to service of process in suits, other than those arising out of
the offering or sale of the Shares, in any jurisdiction in which it is not
now so subject). The Company shall continue such qualification in effect
so long as required by law for distribution of the Shares and shall file
such consents to service of process or other documents as may be necessary
or
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<PAGE>
appropriate in order to effect such registration or qualification
(provided, that the Company shall not be obligated to take any action that
would subject it to consent to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject).
(i) The Company shall make generally available to its security
holders as soon as reasonably practicable a consolidated earnings
statement covering a period of at least 12 months beginning after the
"effective date" (as defined in Rule 158 under the Act) of the
Registration Statement (but in no event later than 90 days after such
date) that shall satisfy the provisions of Section 11(a) of the Act.
(j) (i) During the period of five years hereafter, the Company
shall mail to each of you without charge as soon as available, a copy of
each report of the Company mailed to stockholders or filed with the
Commission, and (ii) during the period specified in subsection (f) above,
from time to time such other information concerning the Company as you may
reasonably request.
(k) Except as provided in this Agreement and the International
Underwriting Agreement, the Company shall not sell, contract to sell or
otherwise dispose of any Common Stock (other than upon exercise of options
or warrants outstanding as of the date of this Agreement) or any
securities convertible into or exercisable or exchangeable for Common
Stock, or grant any options (other than the grant of options to employees
or directors in the ordinary course of business) or warrants to purchase
Common Stock, for a period of 90 days after the date of the U.S.
Prospectus, without the prior written consent of Smith Barney Inc., which
shall not be unreasonably withheld.
(l) The Company has furnished to you "lock-up" letters, in form and
substance satisfactory to you, signed by each of its current executive
officers and directors.
(m) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the
Prospectuses, the Company shall not take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Underwritten Shares.
(n) The Company shall use its best efforts to have the Shares
listed, subject to notice of issuance, on the New York Stock Exchange on
or before the Closing Date.
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6. AGREEMENTS OF THE SELLING SHAREHOLDER. The Selling
Shareholder agrees with the several U.S. Underwriters and the Company as
follows:
(a) The Selling Shareholder shall cooperate to the extent
necessary to cause the registration statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(b) The Selling Shareholder shall pay all Federal and other taxes,
if any, on the transfer or sale of the Shares to the U.S. Underwriters.
(c) The Selling Shareholder shall do or perform all things
required to be done or performed under this Agreement and the
International Underwriting Agreement by the Selling Shareholder prior to
the Closing Date or any Option Closing Date, as the case may be, to
satisfy all conditions precedent to the delivery of the Shares pursuant to
this Agreement.
(d) Except as provided in this Agreement and the International
Underwriting Agreement, the Selling Shareholder shall not sell, contract
to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock for a
period of 90 days after the date of the U.S. Prospectus, without the prior
written consent of Smith Barney Inc., which shall not be unreasonably
withheld.
(e) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the
Prospectuses, the Selling Shareholder shall not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Underwritten Shares.
(f) The Selling Shareholder shall advise you and the Company
promptly and, if requested by you, shall confirm such advice in writing,
within the period of time referred to in Section 5(f) hereof, of any
change in information furnished by or on behalf of the Selling Shareholder
expressly for use in the Registration Statement and the U.S. Prospectus
that comes to the attention of the Selling Shareholder and that suggests
that any statement of a material fact made in the Registration Statement
is or may be untrue or that requires or may require the making of any
additions to or changes in the Registration Statement in order to state a
material fact required by the Act to be stated therein or to make the
statements therein not misleading or that suggests any statement of a
material fact
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<PAGE>
made in the U.S. Prospectus (as then amended or supplemented) is or may be
untrue or that requires or may require the making of any additions to or
changes in the U.S. Prospectus (as then amended or supplemented) in order
to state a material fact required by the Act to be stated therein or in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or that it is or may be
necessary to amend or supplement the U.S. Prospectus (as then amended or
supplemented) to comply with the Act or any other law.
(g) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 13 hereof or by notice given by you
terminating this Agreement pursuant to Section 13 or Section 14 hereof) or
if this Agreement shall be terminated by the U.S. Underwriters because of
any failure or refusal on the part of the Company or the Selling
Shareholder to comply with the terms or fulfill any of the conditions of
this Agreement, the Selling Shareholder agrees to reimburse the
Representatives for all reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel for the U.S. Underwriters)
incurred by you in connection herewith.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each U.S. Underwriter and the Selling Shareholder
that:
(a) The Company and the transactions contemplated by this
Agreement and the International Underwriting Agreement meet the
requirements for using Form S-3 under the Act. The registration statement
in the form in which it became or becomes effective and also in such form
as it may be when any post-effective amendment thereto shall become
effective and the U.S. Prospectus and any supplement or amendment thereto
when filed with the Commission under Rule 424(b) under the Act, complied
or will comply in all material respects with the provisions of the Act;
the Registration Statement does not and will not at any such time contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and the U.S. Prospectus and any supplement or amendment
thereto will not at any such time contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; except
that this representation and warranty does not apply to statements in or
omissions from the registration statement or the U.S. Prospectus made in
reliance upon and in conformity with information relating to any U.S.
Underwriter furnished to the Company in writing
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<PAGE>
by or on behalf of any U.S. Underwriter through you expressly for use
therein.
(b) Each U.S. Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied
when so filed in all material respects with the provisions of the Act.
(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act, and any further Incorporated
Documents so filed will, when they are filed, conform in all material
respects with the requirements of the Exchange Act; no such document when
it was filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and no
such further document, when it is filed, will contain an untrue statement
of a material fact or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(d) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; and the capital stock of
the Company conforms to the description thereof in the Registration
Statement and the U.S. Prospectus.
(e) All of the Company's subsidiaries (collectively, the
"Subsidiaries") are listed in an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, which is incorporated by
reference into the Registration Statement. The Company and each of the
Subsidiaries that is a "significant subsidiary" (as defined in Regulation
S-X under the Act) (collectively, the "Significant Subsidiaries") has been
duly organized, is validly existing (if applicable, as a corporation in
good standing) under the laws of its jurisdiction of organization and has
full corporate (or partnership) power and authority to carry on its
business as it is currently being conducted (and, in the case of the
Company, to execute, deliver and perform this Agreement) and to own, lease
and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified could not reasonably be expected to have a material
adverse
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effect, singly or in the aggregate, on the condition (financial or other),
business, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(f) All of the issued and outstanding shares of capital stock of,
or other ownership interests in, each Significant Subsidiary have been
duly authorized and validly issued, and certain shares of capital stock of
each Significant Subsidiary are owned, directly or through Subsidiaries,
by the Company as set forth on Exhibit 21 to the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1994. All such shares
or other ownership interests in each Significant Subsidiary are fully paid
and nonassessable, and are free and clear of any security interest,
mortgage, pledge, claim, lien or encumbrance (each, a "Lien"), except for
Liens that are in the aggregate immaterial to the business of the Company
and the Subsidiaries, taken as a whole. There are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale, or Liens related to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of any
Significant Subsidiary.
(g) Neither the Company nor any of the Significant Subsidiaries is
in violation of or in default in the performance of any of their
respective charters or bylaws (or partnership agreements, as the case may
be) or any bond, debenture, note or any other evidence of indebtedness or
any indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of the Significant Subsidiaries is
a party or by which it or any of them is bound, or to which any of the
property or assets of the Company or any of the Significant Subsidiaries
is subject, except as could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(h) This Agreement has been duly and validly executed and delivered
by the Company, and constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms
(assuming the due execution and delivery thereof by you and the Selling
Shareholder), except as rights to indemnity and contribution hereunder may
be limited by Federal or state securities laws, court decisions or public
policy.
(i) The execution and delivery of this Agreement by the Company and
the performance of this Agreement and the International Underwriting
Agreement (i) does not require any consent, approval, authorization or
order of or registration or filing with any court, regulatory body,
administrative agency or other governmental body, agency or official
(except such as may be required for the
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registration of the Underwritten Shares under the Act and the Exchange Act
and compliance with the state securities or Blue Sky laws or real estate
syndication laws of various jurisdictions, all of which have been or will
be effected in accordance with this Agreement) and (ii) will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default or cause an acceleration of any obligation under, any
of the respective charters or bylaws (or partnership agreements, as the
case may be) of the Company or any of the Significant Subsidiaries or any
material bond, note, debenture or other evidence of indebtedness or any
material indenture, mortgage, deed of trust or other material contract,
lease or other instrument to which the Company or any of the Significant
Subsidiaries is a party or by which any of them is bound, or to which any
of the property or assets of the Company or any of the Significant
Subsidiaries is subject, or any order of any court or governmental agency
or authority entered in any proceeding to which the Company or any of the
Significant Subsidiaries was or is a party or by which any of them is
bound or (solely with respect to actions by the Company or the Significant
Subsidiaries) violate any applicable Federal, state or local law, rule,
administrative regulation or ordinance or administrative or court decree,
any of the foregoing of which could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(j) Except as disclosed in the Registration Statement and the U.S.
Prospectus, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, pending against the
Company or any of the Significant Subsidiaries that is required to be
disclosed in the Registration Statement or the U.S. Prospectus, or that
could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect or materially and adversely to affect the
performance of the Company's obligations pursuant to this Agreement and,
to the best of the Company's knowledge, no such proceedings are
contemplated or threatened. No action has been taken with respect to the
Company or any of the Significant Subsidiaries, and no statute, rule or
regulation or order has been enacted, adopted or issued by any
governmental agency that suspends the effectiveness of the Registration
Statement, prevents or suspends the use of any Prepricing Prospectus or
suspends the sale of the Shares in any jurisdiction referred to in Section
5(h) hereof; no injunction, restraining order or order of any nature by a
Federal or state court of competent jurisdiction has been issued with
respect to the Company or any of the Significant Subsidiaries that
suspends the effectiveness of the Registration Statement, prevents or
suspends the use of any Prepricing Prospectus or suspends the sale of the
Shares in any jurisdiction referred to in Section 5(h) hereof; other
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than the litigation matters or proceedings described in the U.S.
Prospectus under the captions "Business -- Legal Proceedings"
(collectively, the "Litigation"), no action, suit or proceeding before any
court or arbitrator or any governmental body, agency or official (domestic
or foreign), is pending against or, to the best of the Company's
knowledge, threatened against, the Company or any of the Significant
Subsidiaries that, if adversely determined, could, singly or in the
aggregate, reasonably be expected in any manner to invalidate this
Agreement or the Shares; and every request of the Commission, or any
securities authority or agency of any jurisdiction, for additional
information (to be included in the Registration Statement or the U.S.
Prospectus or otherwise) has been complied with in all material respects.
No contract or document of a character required to be described in the
Registration Statement or the U.S. Prospectus or to be filed as an exhibit
to or incorporated by reference in the Registration Statement is not so
described or filed or incorporated by reference as required.
(k) The firm of accountants that has certified or shall certify the
applicable consolidated financial statements and supporting schedules of
the Company filed or to be filed with the Commission as part of the
Registration Statement and the U.S. Prospectus are independent public
accountants with respect to the Company and the Subsidiaries, as required
by the Act and the Exchange Act. The consolidated financial statements,
together with related notes, set forth in the U.S. Prospectus and the
Registration Statement comply as to form in all material respects with the
requirements of the Act and the Exchange Act and fairly present, in all
material respects, the financial position of the Company and the
Subsidiaries at the respective dates indicated and the results of their
operations and their cash flows for the respective periods indicated, in
accordance with generally accepted accounting principles in the United
States of America consistently applied throughout such periods, except as
disclosed in the notes to such financial statements; and the other
financial and statistical information and the supporting schedules
included in the U.S. Prospectus and in the Registration Statement present
fairly, in all material respects, the information required to be stated
therein.
(l) Except as disclosed in the Registration Statement, subsequent
to the respective dates as of which information is given in the
Registration Statement and the U.S. Prospectus, (i) neither the Company
nor any of the Significant Subsidiaries has incurred any liabilities or
obligations, direct or contingent, that are material to the Company and
the Subsidiaries, taken as a whole, nor entered into any transaction not
in the ordinary course of business
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<PAGE>
that is material to the Company and the Subsidiaries, taken as a whole,
(ii) there has been no decision or judgment in the nature of litigation
adverse to the Company or any of the Significant Subsidiaries, and (iii)
there has been no material adverse change in the condition (financial or
other), business, net worth or results of operations of the Company and
the Subsidiaries, taken as a whole (any of the above, a "Material Adverse
Change").
(m) Neither the Company nor any of the Subsidiaries is involved in
any labor dispute nor, to the best of the Company's knowledge, is any
labor dispute imminent, other than routine disciplinary and grievance
matters, and the Company is not aware (without any independent
verification) of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors,
that could reasonably be expected to result in a Material Adverse Effect.
(n) The Company and each of the Significant Subsidiaries possess
such licenses, certificates, authorizations, approvals, franchises,
trademarks, service marks, trade names, permits and other rights issued by
local, state, federal or foreign regulatory agencies or bodies as are
necessary to conduct the businesses now conducted by them and the lack of
which could reasonably be expected to have a Material Adverse Effect on
the Company and the Subsidiaries, taken as a whole, and neither the
Company nor any of the Significant Subsidiaries has, to be the best of the
Company's knowledge, received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization,
approval, franchise, trademark, service mark, trade name, permit or right
that, if the subject of any unfavorable decision, ruling or finding, could
reasonably be expected to have a Material Adverse Effect.
(o) The Company has not and, to the best of the Company's
knowledge, none of the Subsidiaries nor any employee or agent of the
Company has, directly or indirectly, paid or delivered any fee, commission
or other sum of money or item or property, however characterized, to any
finder, agent, government official or other party, in the United States or
any other country, that is in any manner related to the business or
operations of the Company that the Company knows or has reason to believe
to have been illegal under any federal, state or local laws of the United
States or any other country having jurisdiction; and the Company has not
participated, directly or indirectly, in any boycotts or other similar
practices in contravention of law affecting any of its actual or potential
customers.
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(p) All material tax returns required to be filed by the Company or
any of the Subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due or claimed to be due from such entities have been paid,
other than those being contested in good faith or for which adequate
reserves have been provided or those currently payable without penalty or
interest.
(q) Except as disclosed in the U.S. Prospectus or except as could
not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (a) to the best of the Company's knowledge, neither the
Company nor the Subsidiaries is in violation of any Federal, state or
local law or regulation relating to pollution or protection of public
heath or welfare or the environment, including, without limitation, the
storage, handling, transportation, emissions, discharges, releases or
threatened releases of pollutants, contaminates, hazardous or toxic
materials, substances or wastes, or petroleum or petroleum products
("Environmental Laws"), (b) the Company and each of the Subsidiaries have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses, and
the Company and each of the Subsidiaries are in compliance with all terms
and conditions of any such permit, license or approval and (c) neither the
Company nor, to the best of the Company's knowledge, any of the
Subsidiaries, has received any notice or communication from any
governmental agency or any written notice from any other person regarding
violation of or liability under Environmental Laws and (d) there is no
pending action or proceeding, or to the best of the Company's knowledge,
pending or threatened claim or investigation against the Company or any of
the Subsidiaries regarding violation of or liability under Environmental
Laws.
(r) To the best of the Company's knowledge, there are no costs and
liabilities associated with Environmental Laws that could, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(s) To the best of the Company's knowledge, neither the Company nor
any of the Subsidiaries has (A) violated any Federal or state law relating
to discrimination in the hiring, promotion or pay of employees nor any
applicable wage or hour laws, nor any provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") or the rules and
regulations promulgated thereunder, or (B) engaged in any unfair labor
practice that, with respect to any matter specified in clause (A) or (B)
above, could reasonably be expected to result, singly or in the
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aggregate, in a Material Adverse Effect. There is (i) no significant
unfair labor practice complaint pending against the Company or any of the
Subsidiaries or, to the best of the Company's knowledge, threatened
against any of them, before the National Labor Relations Board or any
state or local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of the
Subsidiaries or, to the best of the Company's knowledge, threatened
against any of them and (ii) to the best of the Company's knowledge, no
union representation question existing with respect to the employees of
the Company or any of the Subsidiaries and, to the best of the Company's
knowledge, no union organizing activities are taking place, except (with
respect to any matter specified in clause (i) or (ii) above) such as would
not, singly or in the aggregate, have a Material Adverse Effect.
(t) To the best of the Company's knowledge, (i) each of the
Company and the Subsidiaries has good and marketable title to all property
(real and personal) described in the U.S. Prospectus as being owned by it,
in fee simple in the case of real property (other than in the case of
certain buildings the land under which is leased to the Company pursuant
to long-term leases that are valid, subsisting and enforceable against the
Company), free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement
and the U.S. Prospectus or in a document filed as an exhibit to the
Registration Statement and (ii) all the property described in the
Registration Statement and the U.S. Prospectus as being held under lease
by each of the Company and the Significant Subsidiaries is held by it
under valid, subsisting and enforceable leases, except (with respect to
any matter specified in clause (i) or (ii) above) such as would not,
singly or in the aggregate, have a Material Adverse Effect.
(u) Other than as described in the Registration Statement and the
U.S. Prospectus, no holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of
the Company because of the filing of the registration statement or
consummation of the transactions contemplated by this Agreement or the
International Underwriting Agreement.
(v) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the
Prospectuses, the Company has not taken, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common
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Stock to facilitate the sale or resale of the Underwritten Shares.
(w) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder represents and warrants to each U.S. Underwriter and the
Company that:
(a) The Selling Shareholder now has, and on the Closing Date and
any Option Closing Date will have, valid title to the Shares to be sold on
such date, free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on transfer.
(b) The Selling Shareholder now has, and on the Closing Date and
any Option Closing Date will have, full legal right, power and
authorization to sell, assign transfer and deliver such Shares in the
manner provided in this Agreement, and upon delivery of and payment for
such Shares hereunder, the several U.S. Underwriters will acquire valid
title to such Shares free and clear of any lien, claim, security interest,
or other encumbrance except for any liens, claims, security interests or
other encumbrances created by the actions or status of the U.S.
Underwriters.
(c) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder and is the valid
agreement of the Selling Shareholder.
(d) Neither the execution and delivery of this Agreement by or on
behalf of the Selling Shareholder nor the consummation by the Selling
Shareholder of the transactions herein contemplated requires any consent,
approval, authorization or order of, or registration or filing with, any
court, regulatory body, administrative agency or other governmental body,
agency or official (except such as may be required for the registration of
the Underwritten Shares under the Act and compliance with the state
securities or Blue Sky laws or the real estate syndication laws of various
jurisdictions, all of which have been or will be effected in accordance
with this Agreement) or conflicts or will conflict with or constitutes or
will constitute a breach of, or default under, or violates or will
violate, any agreement, indenture or other instrument to which the Selling
Shareholder is a party or by which the Selling Shareholder is or may be
bound or to which any of the Selling Shareholder's property or assets is
subject, or any statute, law, rule, regulation, ruling, judgment,
injunction, order or decree applicable to the Selling Shareholder or to
any property or assets of the Selling
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Shareholder, except any such breaches, defaults or violations that would
not, singly or in the aggregate, in any way impair the valid title to be
acquired by the U.S. Underwriters upon delivery of the Shares pursuant to
this Agreement and payment therefor as contemplated herein.
(e) If any date on which the Registration Statement or any
post-effective amendment thereto is declared effective (each, an
"Effective Date") is prior to the execution and delivery of this
Agreement, on such Effective Date, to the extent, but only to the extent,
any statements or omissions made in the Registration Statement were made
in reliance upon and in conformity with written information furnished to
the Company by the Selling Shareholder expressly for use therein, such
statements and omissions did not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. If any Effective
Date is subsequent to the execution and delivery of this Agreement, on
such Effective Date, to the extent, but only to the extent, any statements
or omissions made in the Registration Statement are made in reliance upon
and in conformity with written information furnished to the Company by the
Selling Shareholder expressly for use therein, such statements and
omissions will not include an untrue statement of a material fact and will
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. As of its date
and on the Closing Date, to the extent, but only to the extent, any
statements or omissions made in the U.S. Prospectus are made in reliance
upon and in conformity with written information furnished to the Company
by the Selling Shareholder expressly for use therein, such statements and
omissions did not and will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of
circumstances under which they were made, not misleading.
(f) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the
Prospectuses, the Selling Shareholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Underwritten Shares.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other U.S. Underwriter and each
person, if any, who controls any U.S. Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act from and against any and all
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losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any U.S. Prepricing Prospectus
or in the Registration Statement or the U.S. Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the any U.S. Prepricing
Prospectus or the U.S. Prospectus, in the light of the circumstances under which
they were made) not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission that has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to such U.S. Underwriter furnished in writing to the Company by or on
behalf of any U.S. Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
subsection (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any U.S. Underwriter (or to the benefit of any person controlling
such U.S. Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Shares by such U.S. Underwriter to any
person if a copy of the U.S. Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such U.S. Prepricing Prospectus was
corrected in the U.S. Prospectus, provided that the Company has delivered the
U.S. Prospectus to the several U.S. Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability that the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against any
U.S. Underwriter or any person controlling any U.S. Underwriter in respect of
which indemnity may be sought against the Company, such U.S. Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such U.S. Underwriter or any
such controlling person shall have the right to employ separate counsel in any
such action, suit or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such U.S.
Underwriter or such controlling person unless (i) the indemnifying parties have
agreed in writing to pay such fees and expenses, (ii) the indemnifying parties
have failed to assume the defense and employ counsel, or (iii) the named parties
to any such action, suit or proceeding (including any impleaded parties) include
both such U.S. Underwriter or such controlling person and
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the indemnifying parties and such U.S. Underwriter or such controlling person
shall have been advised by its counsel that representation of such indemnified
party and any indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the indemnifying party shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such U.S. Underwriter or such controlling person). It is understood,
however, that the indemnifying parties shall, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such U.S. Underwriters and controlling persons,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The
indemnifying parties shall not be liable for any settlement of any such action,
suit or proceeding effected without their written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any U.S. Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) The Selling Shareholder agrees to indemnify and hold harmless
each U.S. Underwriter and each person, if any, who controls such U.S.
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, subject to the limitations set forth in Section 12, to the same
extent as the foregoing indemnity from the Company to each U.S. Underwriter, but
only with respect to information specifically relating to the Selling
Shareholder furnished in writing by or on behalf of such Selling Shareholder
expressly for use in the Registration Statement, the U.S. Prospectus, any U.S.
Prepricing Prospectus, or any amendment or supplement thereto. If any action,
suit or proceeding shall be brought against any U.S. Underwriter or any such
controlling person in respect of which indemnity may be sought against the
Selling Shareholder pursuant to this subsection (c), the Selling Shareholder
shall have the rights and duties given to the indemnifying parties by subsection
(b) above (except that if the Company shall have assumed the defense thereof the
Selling Shareholder shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the Selling Shareholder's expense). The
foregoing indemnity agreement shall be in addition to any liability that the
Selling Shareholder may otherwise have.
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(d) Each U.S. Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Shareholder, and any person who controls
the Company or the Selling Shareholder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Selling Shareholder to each U.S. Underwriter,
but only with respect to information relating to such U.S. Underwriter furnished
in writing by or on behalf of such U.S. Underwriter through you expressly for
use in the Registration Statement, the U.S. Prospectus or any U.S. Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of its directors, any such
officer, the Selling Shareholder, or any such controlling person based on the
Registration Statement, the U.S. Prospectus or any U.S. Prepricing Prospectus,
or any amendment or supplement thereto, and in respect of which indemnity may be
sought against any U.S. Underwriter pursuant to this subsection (d), such U.S.
Underwriter shall have the rights and duties given to the indemnifying parties
by subsection (b) above (except that if the Company shall have assumed the
defense thereof such U.S. Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such U.S. Underwriter's expense),
and the Company, its directors, any such officer, the Selling Shareholder, and
any such controlling person shall have the rights and duties given to the U.S.
Underwriters by subsection (b) above. The foregoing indemnity agreement shall
be in addition to any liability that any U.S. Underwriter may otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsection (a) above or, where the
indemnified party is the Company or its officers, directors or controlling
persons, under subsection (d) above in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the U.S. Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. If the indemnification provided for in this Section 9
is unavailable to an indemnified party under subsection (c) above or, where the
indemnified party is the Selling Shareholder, under subsection (d) above in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result
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of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Selling
Shareholder on the one hand and the U.S. Underwriters on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Selling Shareholder on the one hand and the U.S.
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Selling Shareholder on the one hand and the U.S. Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Selling Shareholder bear to
the total underwriting discounts and commissions received by the U.S.
Underwriters, in each case as set forth in the table on the cover page of the
U.S. Prospectus; provided that, in the event that the U.S. Underwriters shall
have purchased any Additional Shares hereunder, any determination of the
relative benefits received by the Selling Shareholder or the U.S. Underwriters
from the offering of the Shares shall include the net proceeds (before deducting
expenses) received by the Selling Shareholder, and the underwriting discounts
and commissions received by the U.S. Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the U.S. Prospectus.
The relative fault of the Company or the Selling Shareholder, as the case may
be, on the one hand and the U.S. Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholder, as the case may be, on the one hand or by the U.S. Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(f) The Company, the Selling Shareholder and the U.S. Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the U.S.
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in subsection (e) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in subsection (e) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim or
defending any such action, suit or proceeding.
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Notwithstanding the provisions of this Section 9, no U.S. Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages that such U.S. Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The U.S. Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule I hereto (or such numbers of Firm Shares increased as set forth in
Section 13 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Shareholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any U.S. Underwriter
or any person controlling any U.S. Underwriter, the Company, its directors or
officers or the Selling Shareholder or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any U.S. Underwriter or any
person controlling any U.S. Underwriter, or to the Company, its directors or
officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 9.
10. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The several
obligations of the U.S. Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto to be declared effective
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before the offering of the Shares may commence, the registration statement
or such post-effective amendment shall have become effective not later
than 5:30 P.M., New York City time, on the date hereof, or at such later
date and time as shall be consented to in writing by you, and all filings,
if any, required by Rules 424, 430A and 434 under the Act shall have been
timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Company or
any U.S. Underwriter, threatened by the Commission, and any request of the
Commission for additional information (to be included in the registration
statement or the U.S. Prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change in or affecting the condition
(financial or other), business, properties, net worth, or results of
operations of the Company or the Subsidiaries not contemplated by the U.S.
Prospectus, that, in your reasonable opinion, as Representatives of the
several U.S. Underwriters, would materially adversely affect the market
for the Shares, or (ii) any event or development relating to or involving
the Company or any officer or director of the Company or the Selling
Shareholder that makes any statement made in the U.S. Prospectus untrue in
any material respect or that, in the opinion of the Company and its
counsel or the U.S. Underwriters and their counsel, requires the making of
any addition to or change in the U.S. Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if amending or
supplementing the U.S. Prospectus to reflect such event or development
would, in your reasonable opinion, as Representatives of the several U.S.
Underwriters, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Latham & Watkins, counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several U.S. Underwriters, to
the effect that:
(i) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under
the Act and no proceedings therefor have been initiated by the
Commission; and any required filing of the U.S. Prospectus, and any
supplements thereto, pursuant to
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Rule 424(b) or Rule 434 under the Act has been made in the manner
and within the time period required by Rule 424(b) and Rule 430A
under the Act;
(ii) To the best of such counsel's knowledge no consent,
approval, authorization or order of, or filing with, any federal or
New York court or governmental agency or body is required to be
obtained or made by the Company for the consummation of the sale of
the Shares by the Selling Shareholder pursuant to this Agreement,
except such as have been obtained under the Act and such as may be
required under the state securities laws in connection with the
purchase and distribution of the Shares by the U.S. Underwriters;
(iii) The Registration Statement and the U.S. Prospectus
comply as to form in all material respects with the requirements for
registration statements on Form S-3 under the Act and the rules and
regulations of the Commission thereunder; it being understood,
however, that such counsel need express no opinion with respect to
the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the U.S.
Prospectus. In passing upon the compliance as to form of the
Registration Statement and the U.S. Prospectus, such counsel may
assume that the statements made and incorporated by reference
therein are correct and complete;
(iv) Neither the purchase of the Shares by the U.S.
Underwriters nor the sale of the Shares by the Selling Shareholder
pursuant to the terms of this Agreement will result in the breach of
or a default under those agreements identified to such counsel by an
officer of the Company as material to the Company; and
(v) The statements set forth in the U.S. Prospectus under
the heading "Certain U.S. Tax Consequences to Non-U.S.
Shareholders" and in the first, second, third, fifth, sixth and
seventh paragraphs under the heading "Underwriting" in the U.S.
Prospectus, insofar as such statements constitute a summary of legal
matters, are accurate in all material respects.
Such opinion may be limited to the internal laws of the State of New
York and the Federal laws of the United States. Such counsel may rely as
to factual matters on certificates of officers of the Company and of state
officials, in which case their opinion shall state that they are so doing.
Such opinion also shall take further exceptions that shall be reasonably
acceptable to the U.S. Underwriters.
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In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, representatives of the U.S. Underwriters and their counsel, at
which the contents of the Registration Statement and U.S. Prospectus and
related matters were discussed and, although such counsel need not pass
upon and need not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the U.S. Prospectus and such counsel may state that they
have made no independent check or verification thereof, during the course
of such participation, (relying as to materiality to a large extent upon
the statements of officers and other representatives of the Company), no
facts came to such counsel's attention that caused such counsel to believe
that the Registration Statement (as amended or supplemented, if
applicable, and including the Incorporated Documents), at the time such
Registration Statement or any post-effective amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the U.S. Prospectus (including
the Incorporated Documents) as amended or supplemented, as of its date and
as of the Closing Date, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; it being understood that such counsel need
express no belief with respect to the financial statements, schedules and
other financial and statistical data included in the Registration
Statement or the U.S. Prospectus or incorporated therein.
(d) You shall have received on the Closing Date, an opinion of
John F. Schmutz, Esq., Vice President and General Counsel of the Company,
dated the Closing Date and addressed to you, as Representatives of the
several U.S. Underwriters, to the effect that:
(i) To the best of such counsel's knowledge, no
authorization, approval, consent or order of, or registration or
filing with, any court or governmental authority or agency is
required to be obtained or made by the Company for the valid sale of
the Shares to you, except (a) such as have been obtained under the
Act and (b) such as may be required under the state securities or
Blue Sky laws or real estate syndication laws or regulations of any
jurisdiction in the United States in connection with the purchase
and distribution of the Shares by the U.S. Underwriters;
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(ii) The Company has corporate power and authority to enter
into this Agreement and this Agreement has been duly authorized by
all necessary corporate action by the Company, and has been duly
executed and delivered by the Company;
(iii) Neither the purchase of the Shares by the U.S.
Underwriters nor the sale of the Shares by the Selling Shareholder
pursuant to the terms of this Agreement will conflict with or
constitute a breach of or a default under the certificate or
articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Significant Subsidiaries or
the terms of any material agreement or instrument to which the
Company or any of the Significant Subsidiaries is a party or by
which any of them is bound, or to which any of the properties of the
Company or any of the Significant Subsidiaries is subject, or will
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Significant Subsidiaries, or result in any violation of any statute,
rule or regulation applicable to the Company or, to the best of such
counsel's knowledge, any judgment, injunction, order or decree of
any court or governmental agency or body having jurisdiction over
the Company or any of the Significant Subsidiaries or any of their
respective properties;
(iv) Each of the Company and, to the best of such counsel's
knowledge, the Significant Subsidiaries that is a corporation has
been duly incorporated and is validly existing and is a corporation
in good standing under the laws of its jurisdiction of its
incorporation, and each of the Company and, to the best of such
counsel's knowledge, the Significant Subsidiaries has the corporate
(or partnership) power and authority and all necessary governmental
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental regulatory
officials and bodies to own and operate its properties and to
conduct its business as described in the Registration Statement and
the U.S. Prospectus and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction in which such qualification is required wherein it owns
or leases material property or conducts business, except where the
failure so to qualify could not reasonably be expected to have a
Material Adverse Effect;
(v) All of the issued and outstanding capital stock of, or
other ownership interests in, each
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Significant Subsidiary has been duly authorized and validly issued,
and is fully paid and nonassessable and, except as otherwise set
forth in the Registration Statement and the U.S. Prospectus, certain
shares of capital stock of, or other ownership interests in, each
Significant Subsidiary are owned by the Company, either directly or
through Subsidiaries, as set forth on Exhibit 21 to the Company's
annual report on Form 10-K for the fiscal year ended December 31,
1994, free and clear of any perfected security interest or, to the
best of such counsel's knowledge, any other security interests,
claims, liens, equities or encumbrances;
(vi) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
U.S. Prospectus; and the authorized capital stock of the Company
conforms in all material respects as to legal matters to the
description thereof incorporated by reference in the U.S.
Prospectus;
(vii) Except as described in the Registration Statement and
the U.S. Prospectus, there are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of
sale, or Liens related to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of the Company
or any security convertible into or exchangeable for the capital
stock of the Company;
(viii) Except as described in the Registration Statement
and the U.S. Prospectus, there is no holder of any security of the
Company or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them,
or to permit them to underwrite the sale of, the Shares or the right
to have any Common Stock or other securities of the Company included
in the registration statement or the right, as a result of the
filing of the registration statement, to require registration under
the Act of any shares of Common Stock or other securities of the
Company;
(ix) To the best of such counsel's knowledge (A) there are no
franchises, contracts, indentures, mortgages, leases, loan
agreements, notes or other agreements or instruments to which the
Company or any Significant Subsidiary is a party or by which any of
them may be bound that are required to be described in the
Registration Statement or the U.S. Prospectus or to be filed as
exhibits to or incorporated by reference in the Registration
Statement other than those described therein or filed or
incorporated by reference as
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exhibits thereto, (B) no default exists in the due performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument, except for defaults that would not,
singly or in the aggregate, have a Material Adverse Effect and (C)
the statements in the U.S. Prospectus under the caption "Business --
Legal Proceedings" insofar as they relate to statements of law or
legal conclusions, are accurate in all material respects;
(x) The Company and the Significant Subsidiaries own all
patents, trademarks, trademark registrations, service marks, service
mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the U.S. Prospectus as being
owned by them or any of them or necessary for the conduct of their
respective businesses, and such counsel is not aware of any claim
to the contrary or any challenge by any other person to the rights
of the Company and the Significant Subsidiaries with respect to the
foregoing;
(xi) To the best of such counsel's knowledge, there is no
current, pending or threatened action, suit or proceeding before any
court or governmental agency, authority or body or any arbitrator
involving the Company or any of the Significant Subsidiaries or any
of their respective properties of a character required to be
disclosed in the Registration Statement and the U.S. Prospectus that
is not adequately so disclosed;
(xii) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, nonassessable and not subject to any preemptive or other
similar rights to subscribe for such Common Stock;
(xiii) The form of the certificates for the Shares conforms
to the requirements of the corporate law of the State of Texas;
(xiv) At the time it became effective and on the Closing
Date, the Registration Statement (except for financial statements,
the notes thereto and related schedules and other financial,
numerical, statistical or accounting data included therein or
omitted therefrom, as to which no opinion need be expressed) and the
U.S. Prospectus complies as to form in all material respects with
the applicable requirements of the Act; and each of the Incorporated
Documents (except for financial statements, the notes thereto and
related schedules and other financial, numerical, statistical or
accounting data included therein or omitted
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therefrom, as to which no opinion need be expressed) complies as to
form in all material respects with the Exchange Act;
(xv) The statements in the Registration Statement and the
U.S. Prospectus, insofar as they are descriptions of contracts,
agreements or other legal documents, or refer to statements of law
or legal conclusions, are accurate and present fairly the
information required to be shown; and
(xvi) Neither the Company nor any of the Subsidiaries is an
"investment company" required to be registered under Section 8 of
the Investment Company Act of 1940, as amended (the "Investment
Company Act"), or an entity "controlled by an investment company"
required to be registered under Section 8 of the Investment Company
Act.
Such opinion may be limited to the internal laws of the State of
Texas and the Federal laws of the United States. Such opinion shall take
further exceptions that shall be reasonably acceptable to the U.S.
Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, your representatives and your counsel, at which the contents of
the Registration Statement and U.S. Prospectus (including the Incorporated
Documents) and related matters were discussed and, although such counsel
is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the U.S. Prospectus, on the basis of the
foregoing, relying as to the factual matters underlying the determination
of materiality to a large extent upon the statements of officers and other
representatives of the Company, no facts came to such counsel's attention
that caused such counsel to believe that the Registration Statement (as
amended or supplemented, if applicable, and including the Incorporated
Documents), at the time such Registration Statement or any post-effective
amendment became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than
information omitted therefrom in reliance on Rule 430A under the Act), or
the U.S. Prospectus, as amended or supplemented, as of its date and as
of the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
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misleading; it being understood that such counsel need express no
belief with respect to the financial statements, schedules and other
financial and statistical data included in the Registration Statement or
the Prospectus or incorporated therein.
(e) You shall have received on the Closing Date, an opinion of
Goodwin, Procter & Hoar, counsel for the Selling Shareholder, or of
J. Grant Monahon, Director and General Counsel of AEW, Inc., the general
partner of AEW/L.P., the general partner of the Selling Shareholder,
dated the Closing Date and addressed to you, as Representatives of the
several U.S. Underwriters, to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder;
(ii) To the best of such counsel's knowledge after reasonable
inquiry, the Selling Shareholder has the partnership power and
authorization to sell, assign, transfer and deliver the Shares;
(iii) The execution and delivery of this Agreement and the
International Underwriting Agreement by the Selling Shareholder and
the consummation of the transactions contemplated hereby and thereby
will not conflict with, violate, result in a material breach of or
constitute a material default under the terms or provisions of the
Amended and Restated Agreement of Limited Partnership of AEW
Partners, L.P. or any other material agreement, indenture,
mortgage or other instrument, known to such counsel, to which the
Selling Shareholder is a party; and
(iv) Upon delivery of the certificates representing the
Shares pursuant to this Agreement and payment therefor as
contemplated herein, title to the Shares will pass to the U.S.
Underwriters free and clear of any lien, claim, security interest,
or other encumbrance, assuming that the Shares were validly
authorized and issued by the Company and the U.S. Underwriters are
purchasers for value in good faith without notice of any adverse
claim (as defined in Section 8-302 of the Uniform Commercial Code).
(f) You shall have received on the Closing Date an opinion of
Davis Polk & Wardwell, counsel for the U.S. Underwriters, dated the
Closing Date and addressed to you, as Representatives of the several U.S.
Underwriters, with respect to the matters referred to in clauses (i), (ii)
and (iii) and in the last paragraph of subsection (c) above and such other
related matters as you may request.
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(g) You shall have received letters addressed to you, as
Representatives of the several U.S. Underwriters, and dated the date
hereof and the Closing Date from KPMG Peat Marwick LLP, independent
certified public accountants, substantially in the forms heretofore
approved by you.
(h)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall
be contemplated by the Commission at or prior to the Closing Date; (ii)
there shall not have been any change in the capital stock of the Company
nor any material increase in the short-term or long-term debt of the
Company (other than in the ordinary course of business) from that set
forth or contemplated in the Registration Statement or the U.S. Prospectus
(or any amendment or supplement thereto); (iii) there shall not have been,
since the respective dates as of which information is given in the
Registration Statement and the U.S. Prospectus (or any amendment or
supplement thereto), except as may otherwise be stated in the Registration
Statement and the U.S. Prospectus (or any amendment or supplement
thereto), any Material Adverse Change; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or
contingent (whether or not in the ordinary course of business), that are
material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement and the U.S. Prospectus (or
any amendment or supplement thereto); and (v) all the representations and
warranties of the Company contained in this Agreement and the
International Underwriting Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you), to the effect set forth in this
Section 10(h) and in Section 10(i) hereof.
(i) The Company shall not have failed at or prior to the Closing
Date to have performed or complied in all material respects with any of
its agreements herein contained and required to be performed or complied
with by it hereunder at or prior to the Closing Date.
(j) All the representations and warranties of the Selling
Shareholder contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by or on
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behalf of the Selling Shareholder, to the effect set forth in this
Section 10(j) and in Section 10(k) hereof.
(k) The Selling Shareholder shall not have failed at or prior to
the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed
or complied with by it hereunder at or prior to the Closing Date.
(l) The Company shall have furnished to you the "lock-up" letters
referred to in Section 5(l) hereof.
(m) The closing under the International Underwriting Agreement
shall have occurred concurrently with the closing hereunder on the Closing
Date.
(n) The Company and the Selling Shareholder shall have furnished or
caused to be furnished to you such further certificates and documents as
you shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
the Selling Shareholder and delivered to you, as Representatives of the U.S.
Underwriters, or to counsel for the U.S. Underwriters, shall be deemed a
representation and warranty by the Company or the Selling Shareholder, as the
case may be, to each U.S. Underwriter as to the statements made therein.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in subsections (c) through (j) above shall be
dated the Option Closing Date in question and the opinions called for by
subsections (c), (d), (e) and (f) shall be revised to reflect the sale of
Additional Shares.
11. EXPENSES. The Selling Shareholder agrees to pay the
following costs and expenses and all other costs and expenses incident to the
performance by the Company and the Selling Shareholder of their obligations
hereunder: (i) the preparation, printing or reproduction, and filing with the
Commission of the registration statement (including financial statements and
exhibits thereto), each Prepricing Prospectus, the Prospectuses, and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air
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freight charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectuses, the
Incorporated Documents, and all amendments or supplements to any of them, as may
be reasonably requested for use in connection with the offering and sale of the
Shares; (iii) the preparation, printing, authentication, issuance and delivery
of certificates for the Shares, including any stamp taxes in connection with the
original issuance and sale of the Shares; (iv) the printing (or reproduction)
and delivery of this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the listing of the
Shares on the New York Stock Exchange; (vi) the registration or qualification of
the Shares for offer and sale under the state securities or Blue Sky laws or
real estate syndication laws of the several states as provided herein (including
the reasonable fees, expenses and disbursements of counsel for the U.S.
Underwriters relating to the preparation, printing or reproduction, and delivery
of the preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of counsel for
the U.S. Underwriters in connection with any filings required to be made with
the National Association of Securities Dealers, Inc.; (viii) the transportation
and other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Shares; and (ix)
the fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company and the Selling
Shareholder.
12. LIMITATION OF LIABILITY. The total liabilities of the
Selling Shareholder under this Agreement, including without limitation any
liabilities for breach of representation or warranty or with respect to any
obligation of indemnity, shall not in any event exceed in aggregate amount the
proceeds of the Shares sold hereunder, provided that this Section 12 shall not
limit the liability of the Selling Shareholder to pay expenses as provided in
Section 6(g) or Section 11 hereof.
13. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company or the Selling Shareholder, by notifying you, or by you, as
Representatives of the several U.S. Underwriters, by notifying the Company and
the Selling Shareholder.
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If any one or more of the U.S. Underwriters shall fail or refuse to
purchase Shares that it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares that such defaulting U.S.
Underwriter or U.S. Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate number of Shares that the U.S.
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
U.S. Underwriter shall be obligated, severally, in the proportion that the
number of Firm Shares set forth opposite its name in Schedule I hereto bears to
the aggregate number of Firm Shares set forth opposite the names of all
non-defaulting U.S. Underwriters or in such other proportion as you may specify
in accordance with Section 20 of the Master Agreement Among Underwriters of
Smith Barney Inc., to purchase the Shares that such defaulting U.S. Underwriter
or U.S. Underwriters are obligated, but fail or refuse, to purchase. If any one
or more of the U.S. Underwriters shall fail or refuse to purchase Shares that it
or they are obligated to purchase on the Closing Date and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares that the U.S. Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you, the Company
and the Selling Shareholder for the purchase of such Shares by one or more
non-defaulting U.S. Underwriters or other party or parties approved by you, the
Company and the Selling Shareholder are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting U.S. Underwriter, the Company or the Selling Shareholder. In
any such case that does not result in termination of this Agreement, any of you,
the Company or the Selling Shareholder shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the U.S. Prospectus
or any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting U.S. Underwriter from liability
in respect of any such default of any such U.S. Underwriter under this
Agreement. The term "U.S. Underwriter" as used in this Agreement includes, for
all purposes of this Agreement, any party not listed in Schedule I hereto who,
with your approval and the approval of the Company and the Selling Shareholder,
purchases Shares that a defaulting U.S. Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 13 may be given by telegram, telecopy
or telephone but shall be subsequently confirmed by letter.
14. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in your absolute discretion, without liability on the part of any
U.S. Underwriter to the Company or the Selling Shareholder, by notice to the
Company and the Selling Shareholder, if prior to the Closing Date or any Option
Closing
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Date (if different from the Closing Date and then only as to the Additional
Shares), as the case may be, (i) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York or Texas shall have been declared by
either federal or state authorities, or (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in your reasonable judgment, impracticable or inadvisable to commence or
continue the offering of the Shares at the offering price to the public set
forth on the cover page of the U.S. Prospectus or to enforce contracts for the
resale of the Shares by the U.S. Underwriters. Notice of such termination may
be given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
15. INFORMATION FURNISHED BY THE SELLING SHAREHOLDER AND THE
U.S. UNDERWRITERS. The statements set forth in the last paragraph on the
cover page, the stabilization legend on the inside cover page, and the
statements in the fourth, eighth, ninth, tenth and fourteenth paragraphs under
the caption "Underwriting" in any U.S. Prepricing Prospectus and in the U.S.
Prospectus constitute the only information furnished by or on behalf of the U.S.
Underwriters through you expressly for use therein as such information is
referred to in Sections 7(a) and 9 hereof. The statements set forth under the
caption "Prospectus Summary -- The Selling Shareholder" (except the fifth
sentence of the third paragraph thereof), in the first and second paragraphs
under the caption "Principal and Selling Shareholders" and the information
regarding the Selling Shareholder set forth in the table under the caption
"Principal and Selling Shareholders" and in footnote (1) thereto, in any U.S.
Prepricing Prospectus and in the U.S. Prospectus and, solely with respect to
the U.S. Prospectus, in footnote (2) to the table under the caption
"Principal and Selling Shareholders," constitute the only information
furnished by or on behalf of the Selling Shareholder expressly for use therein
as such information is referred to in Sections 6(f), 8(e), 9 and 16 hereof.
16. FURTHER INDEMNIFICATION AND CONTRIBUTION PROVISIONS. (a)
The Company agrees to indemnify and hold harmless the Selling Shareholder and
its affiliates and its and their respective partners, officers and directors and
each person who controls the Selling Shareholder (within the meaning of the Act
or the Exchange Act), and any agent or investment advisor thereof against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any U.S.
Prepricing Prospectus, the U.S. Prospectus or the Registration Statement, or in
any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact
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required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same arise out of or are based upon an untrue
statement or omission which was based upon information with respect to the
Selling Shareholder furnished in writing to the Company by or on behalf of the
Selling Shareholder expressly for use therein; provided that in the event that
any U.S. Prepricing Prospectus shall have been amended or supplemented and
copies thereof, as so amended or supplemented, were furnished to the Selling
Shareholder and the U.S. Underwriters prior to the confirmation of any sales of
Shares, such indemnity with respect to the U.S. Prepricing Prospectus shall not
inure to the benefit of the Selling Shareholder from whom the person asserting
such loss, claim, damage or liability purchased the Shares which are the subject
thereof if such person did not, at or prior to the confirmation of the sale of
the Shares to such person, receive a copy of the U.S. Prepricing Prospectus as
so amended or supplemented and the untrue statement or omission of a material
fact contained in the U.S. Prepricing Prospectus was corrected in the U.S.
Prepricing Prospectus as so amended or supplemented.
(b) The Selling Shareholder agrees to indemnify the Company, its
directors and officers and each person who controls the Company (within the
meaning of the Act and the Exchange Act), subject to the limitations set forth
in Section 12, against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and the cost of investigation) resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in any U.S. Prepricing Prospectus, the U.S. Prospectus,
the Registration Statement or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement is contained in or such omission
relates to the information with respect to the Selling Shareholder so furnished
in writing by the Selling Shareholder or on behalf of the Selling Shareholder by
its agents or representatives specifically for inclusion in any U.S. Prepricing
Prospectus, the U.S. Prospectus or the Registration Statement. In no event
shall the liability of the Selling Shareholder hereunder be greater in amount
that the dollar amount of the proceeds received by the Selling Shareholder upon
the sale of the Shares giving rise to such indemnification obligation.
(c) Any person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the receipt by such person
of any written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such person will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party a conflict of interest may exist
between such indemnified party and the indemnifying party with respect to such
claim, permit the
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indemnifying party to assume the defense of such claim. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. If the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) (i) If the indemnification provided for in this Section 16
from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall, to the extent permitted by
applicable law, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection with
the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations (for the
purposes of this subsection (d), the relevant equitable considerations
shall not include considerations based upon the relative benefits received
by the parties in the offering and sale of the Shares). The relative
fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in
subsection (c) above, any reasonable legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this
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<PAGE>
subsection (d) were determined by pro rata allocation or by any other
method that does not take account of the equitable considerations referred
to in subsection (d)(i) above. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(iii) If indemnification is available under this Section 16, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in subsections (a) and (b) above without regard to the
relative fault of said indemnifying party or indemnified party or any
other equitable consideration provided for in this subsection (d).
17. MISCELLANEOUS. Except as otherwise provided in Sections 5,
13 and 14 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at Weston Centre, 112 E. Pecan Street, P.O. Box 2636, San Antonio, Texas
78299-2636, Attention: John F. Schmutz, Esq., Vice President and General
Counsel; or (ii) if to the Selling Shareholder, at the office of the Selling
Shareholder, care of Aldrich Eastman Waltch, 225 Franklin Street, 25th Floor,
Boston, MA 02110-2803, Attention: Joseph S. Azrack, President and Chief
Executive Officer, or (iii) if to you, as Representatives of the several U.S.
Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several U.S. Underwriters, the Company, its directors and officers, and the
other controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and the Selling
Shareholder and its affiliates and its and their respective partners, officers,
directors and controlling persons referred to in Sections 9 and 16 hereof, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any U.S. Underwriter of
any of the Shares in his status as such purchaser.
18. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts that together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless
- 41 -
<PAGE>
at least one counterpart hereof shall have been executed and delivered on behalf
of each party hereto.
- 42 -
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholder and the several U.S. Underwriters.
Very truly yours,
LA QUINTA INNS, INC.
By: __________________________
Name:
Title:
AEW PARTNERS, L.P.
BY: AEW/L.P.,
its general partner
By: AEW, INC.,
its general partner
By: __________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
U.S. Underwriters named in
Schedule I hereto.
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Representatives of the Several U.S. Underwriters
By: SMITH BARNEY INC.
By: ________________________
Name:
Title:
- 43 -
<PAGE>
SCHEDULE I
LA QUINTA INNS, INC.
<TABLE>
Number of
U.S. UNDERWRITER Firm Shares
-----------
<S> <C>
Smith Barney Inc. ..............................
Alex. Brown & Sons Incorporated ................
Montgomery Securities ..........................
----------
Total........................... ----------
</TABLE>
- 1 -
<PAGE>
EXHIBIT 1(b)
4,850,000 Shares
LA QUINTA INNS, INC.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
, 1995
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Lead Managers for the Several Managers
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
AEW Partners, L.P., a Delaware limited partnership (the "Selling
Shareholder"), proposes to sell an aggregate of 970,000 shares (the "Shares") of
common stock, par value $0.10 per share (the "Common Stock"), of La Quinta Inns,
Inc., a Texas corporation (the "Company"), to the several Managers named in
Schedule I hereto (the "Managers") for whom Smith Barney Inc., Alex. Brown &
Sons Incorporated and Montgomery Securities are acting as lead Managers (the
"Lead Managers").
It is understood that the Company and the Selling Shareholder are
concurrently entering into a U.S. Underwriting Agreement, dated the date hereof
(the "U.S. Underwriting Agreement"), providing for the sale by the Selling
Shareholder of 3,880,000 shares of Common Stock (the "Firm U.S. Shares") through
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters"), for whom Smith Barney Inc., Alex. Brown & Sons
Incorporated and Montgomery Securities are acting as representatives (the
"Representatives"), and an option granted by the Selling Shareholder to the U.S.
Underwriters to purchase up to an additional 470,071 shares of Common Stock (the
"Additional U.S. Shares") solely for the purpose of covering over-allotments.
The Firm U.S. Shares and the Additional U.S. Shares are hereinafter collectively
referred to as the "U.S.
<PAGE>
Shares". The U.S. Shares and the Shares, collectively, are herein called the
"Underwritten Shares".
The Company and the Selling Shareholder also understand that the
Lead Managers and the Representatives have entered into an agreement (the
"Agreement Between U.S. Underwriters and Managers") contemplating the
coordination of certain transactions between the Managers and the U.S.
Underwriters and that, pursuant thereto and subject to the conditions set forth
therein, the Managers may purchase from the U.S. Underwriters a portion of the
U.S. Shares or sell to the U.S. Underwriters a portion of the Shares. The
Company and the Selling Shareholder understand that any such purchases and sales
between the Managers and the U.S. Underwriters shall be governed by the
Agreement Between U.S. Underwriters and Managers and shall not be governed by
the terms of this Agreement or the U.S. Underwriting Agreement.
The Company and the Selling Shareholder wish to confirm as follows
their respective agreements with you and the other several Managers on whose
behalf you are acting, in connection with the several purchases of the Shares by
the Managers.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 under the Act
(the "registration statement"), including two forms of prospectus subject to
completion relating to the Shares. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Underwritten Shares may commence,
the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment. The term
"Registration Statement" shall also include any registration statement relating
to the Shares that is filed and declared effective pursuant to Rule 462(b) under
the Act. The term "Prospectuses" as used in this Agreement means the
prospectuses in the form included in the Registration Statement or, if the
prospectuses included in the Registration Statement omit information in reliance
on Rule 430A under the Act and such information is included in prospectuses
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectuses" as used in this Agreement means the prospectuses in the forms
included in the Registration Statement as supplemented by the addition of the
Rule 430A information
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<PAGE>
contained in the prospectuses filed with the Commission pursuant to Rule 424(b),
PROVIDED that if prospectuses that meet the requirements of Section 10(a) of
the Act are delivered pursuant to Rule 434(c) under the Act, then (i) the term
"Prospectuses" as used in this Agreement means the prospectuses subject to
completion (as defined in Rule 434(g) under the Act) as supplemented by (a) the
addition of Rule 430A or other information contained in the forms of prospectus
filed pursuant to Rule 434(c)(2) under the Act and (b) the information contained
in the abbreviated term sheets described in Rule 434(c)(3) under the Act, and
(ii) the date of such Prospectuses shall be deemed to be the date of such
abbreviated term sheets. The term "Prepricing Prospectuses" as used in this
Agreement means the prospectuses subject to completion in the form included in
the registration statement at the time of the initial filing of the registration
statement with the Commission, and as such prospectuses shall have been amended
from time to time prior to the date of the Prospectuses. Any reference in
this Agreement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectuses shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act as of the date of the registration statement, the
Registration Statement, such Prepricing Prospectus or the Prospectuses, as the
case may be, and any reference to any amendment or supplement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectuses shall be deemed to refer to and include any documents filed
after such date under the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder (collectively, the "Exchange
Act"), that, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated
Documents" means, at any time, the documents that at such time are incorporated
by reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectuses, or any amendment or supplement thereto.
It is understood that two forms of Prepricing Prospectus and two
forms of Prospectus are to be used in connection with the offering and sale of
the Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to
the U.S. Shares that are to be offered and sold in the United States (as defined
herein) or Canada (as defined herein) to U.S. or Canadian Persons (the "U.S.
Prepricing Prospectus" and the "U.S. Prospectus", respectively), and a
Prepricing Prospectus and a Prospectus relating to the Shares that are to be
offered and sold outside the United States or Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus", respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses", and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein
- 3 -
<PAGE>
called the "Prepricing Prospectuses". For purposes of this Agreement: "U.S. or
Canadian Person" means any resident or national of the United States or Canada,
any corporation, partnership or other entity created or organized in or under
the laws of the United States or Canada or any estate or trust the income of
which is subject to United States or Canadian income taxation regardless of the
source of its income (other than the foreign branch of any U.S. or Canadian
Person), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person; "United States" means the United States of
America (including the states thereof and the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction; and
"Canada" means Canada and its territories, its possessions and other areas
subject to its jurisdiction.
2. AGREEMENTS TO SELL AND PURCHASE. The Selling Shareholder
hereby agrees, subject to all the terms and conditions set forth herein, to sell
to each Manager and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholder herein contained and
subject to all the terms and conditions set forth herein, each Manager agrees,
severally and not jointly, to purchase from the Selling Shareholder, at a
purchase price of $____ per Share (the "purchase price per share"), the number
of Shares set forth opposite the name of such Manager in Schedule I hereto (or
such number of Shares increased as set forth in Section 13 hereof).
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Shareholder have been advised by you that the Managers propose to make a public
offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable and initially to offer the Shares upon the terms set forth
in the International Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to
the Managers of and payment for the Shares shall be made at the office of Smith
Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York
City time, on , 1995 (the "Closing Date"). The place of closing for the
Shares and the Closing Date may be varied by agreement among you, the Company
and the Selling Shareholder.
Certificates for the Shares shall be registered in such names and in
such denominations as you shall request prior to 1:00 P.M., New York City time,
on the second business day preceding the Closing Date. Such certificates shall
be made available to you in New York City for inspection and packaging not later
than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date. The certificates evidencing the Shares shall be delivered to you
on the Closing Date against payment of the purchase price therefor by certified
or official
- 4 -
<PAGE>
bank check or checks payable in New York Clearing House (next day) funds to the
order of the Selling Shareholder.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Managers and the Selling Shareholder as follows:
(a) The Company shall, if, at the time this Agreement is executed
and delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the
offering of the Shares may commence, use its best efforts to cause the
Registration Statement or such post-effective amendment to become
effective at the earliest possible time. The Company shall comply fully
and in a timely manner with the applicable provisions of Rule 424, Rule
430A and Rule 434 under the Act.
(b) The Company shall advise you and the Selling Shareholder
promptly and, if requested by any of you, confirm such advice in writing,
(i) when the Registration Statement has become effective, if and when a
Prospectus or form of prospectus is sent for filing pursuant to Rule 424
under the Act and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the receipt of any comments from the
Commission that relate to the Registration Statement or any request by the
Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by the Commission or any
state securities commission or other regulatory authority, and (iv) during
the period referred to in subsection (f) below, (A) of any change in the
Company's condition (financial or other), business, prospects, properties,
net worth or results of operations, or of the happening of any event,
including the filing of any information, document or report pursuant to
the Exchange Act, that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any additions
to or changes in the Registration Statement in order to state a material
fact required by the Act to be stated therein or to make the statements
therein not misleading or that makes any statement of a material fact made
in the International Prospectus (as then amended or supplemented) untrue
or that requires the making of any additions to or changes in the
International Prospectus (as then amended or supplemented) in order to
state a material fact required by the Act to be stated therein or in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading,
- 5 -
<PAGE>
and (B) of the necessity to amend or supplement the International
Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of the Shares under any state
securities or Blue Sky laws or real estate syndication laws, the Company
shall use every reasonable effort to obtain the withdrawal or lifting of
such order at the earliest possible time.
(c) The Company shall furnish to each of you and the Selling
Shareholder without charge (i) two (2) conformed copies (plus one (1)
additional similarly conformed copy to your legal counsel) of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits filed therewith, (ii) such number
of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request, (iii)
such number of copies of the Incorporated Documents, without exhibits, as
you may request, and (iv) two (2) copies of each of the exhibits to the
Incorporated Documents.
(d) The Company shall not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the International
Prospectus, or, prior to the end of the period of time referred to in
subsection (f) below, file any document pursuant to the Exchange Act that
will, upon filing, become an Incorporated Document, of which you and the
Selling Shareholder shall not previously have been advised and provided a
copy within two business days (or such reasonable amount of time as is
necessitated by the exigency of such amendment, supplement or document)
prior to the filing thereof and to which you or the Selling Shareholder
shall reasonably object in writing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you and the Selling Shareholder, without charge,
in such quantities as you have requested, copies of each form of the
International Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act, prior to the date of the
International Prospectus, of each International Prepricing Prospectus so
furnished by the Company.
(f) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period as in the reasonable
opinion of counsel for the Managers a prospectus is required by the Act to
be delivered in connection with sales by any Manager or dealer, the
Company
- 6 -
<PAGE>
shall expeditiously furnish to each Manager and each dealer, without
charge, as many copies of the International Prospectus (and of any
amendment or supplement to the International Prospectus) as you may
reasonably request for the purposes contemplated by the Act. The Company
consents to the use of the International Prospectus and any amendment or
supplement thereto by you or any dealer in accordance with the provisions
of the Act, both in connection with the offering or sale of the Shares and
for such period of time thereafter as a prospectus is required by the Act
to be delivered in connection therewith.
(g) If during the period specified in subsection (f) above any
event shall occur as a result of which it becomes necessary, in the
judgment of the Company or in the reasonable opinion of counsel for the
Managers, to amend or supplement the International Prospectus (as them
amended or supplemented) in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary to amend or supplement the International Prospectus to
comply with the Act or any other law, the Company shall, as promptly as
practicable, prepare and, subject to the provisions of subsection (d)
above, file with the Commission an appropriate amendment or supplement to
the International Prospectus so that the statements in the International
Prospectus, as so amended or supplemented, will not, in the light of the
circumstances under which they were made, be misleading, and the
International Prospectus, as so amended or supplemented, will comply with
the Act or such other law, and shall expeditiously furnish to you without
charge such number of copies thereof as you may reasonably request.
(h) Prior to any public offering of the Shares, the Company shall
cooperate with you and with counsel for the Managers in connection with
the registration or qualification of the Shares for offering and sale by
the Managers and by dealers under the state securities or Blue Sky laws or
real estate syndication laws of such jurisdictions as you may request
(provided, that the Company shall not be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or to take
any action that would subject it to consent to service of process in
suits, other than those arising out of the offering or sale of the Shares,
in any jurisdiction in which it is not now so subject). The Company shall
continue such qualification in effect so long as required by law for
distribution of the Shares and shall file such consents to service of
process or other documents as may be necessary or appropriate in order to
effect such registration or qualification (provided, that the Company
shall not be obligated to take any action that would subject it to consent
to service of process in suits, other than those
- 7 -
<PAGE>
arising out of the offering or sale of the Shares, in any jurisdiction in
which it is not now so subject).
(i) The Company shall make generally available to its security
holders as soon as reasonably practicable a consolidated earnings
statement covering a period of at least 12 months beginning after the
"effective date" (as defined in Rule 158 under the Act) of the
Registration Statement (but in no event later than 90 days after such
date) that shall satisfy the provisions of Section 11(a) of the Act.
(j) (i) During the period of five years hereafter, the Company
shall mail to each of you without charge as soon as available, a copy of
each report of the Company mailed to stockholders or filed with the
Commission, and (ii) during the period specified in subsection (f) above,
from time to time such other information concerning the Company as you may
reasonably request.
(k) Except as provided in this Agreement and the U.S. Underwriting
Agreement, the Company shall not sell, contract to sell or otherwise
dispose of any Common Stock (other than upon exercise of options or
warrants outstanding as of the date of this Agreement) or any securities
convertible into or exercisable or exchangeable for Common Stock, or grant
any options (other than the grant of options to employees or directors in
the ordinary course of business) or warrants to purchase Common Stock, for
a period of 90 days after the date of the International Prospectus,
without the prior written consent of Smith Barney Inc., which shall not be
unreasonably withheld.
(l) The Company has furnished to you "lock-up" letters, in form and
substance satisfactory to you, signed by each of its current executive
officers and directors.
(m) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, the
Company shall not take, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Underwritten Shares.
(n) The Company shall use its best efforts to have the Shares
listed, subject to notice of issuance, on the New York Stock Exchange on
or before the Closing Date.
6. AGREEMENTS OF THE SELLING SHAREHOLDER. The Selling
Shareholder agrees with the several Managers and the Company as follows:
- 8 -
<PAGE>
(a) The Selling Shareholder shall cooperate to the extent
necessary to cause the registration statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(b) The Selling Shareholder shall pay all Federal and other taxes,
if any, on the transfer or sale of the Shares to the Managers.
(c) The Selling Shareholder shall do or perform all things
required to be done or performed under this Agreement and the U.S.
Underwriting Agreement by the Selling Shareholder prior to the Closing
Date to satisfy all conditions precedent to the delivery of the Shares
pursuant to this Agreement.
(d) Except as provided in this Agreement and the U.S. Underwriting
Agreement, the Selling Shareholder shall not sell, contract to sell or
otherwise dispose of any Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock for a period of 90 days
after the date of the International Prospectus, without the prior written
consent of Smith Barney Inc., which shall not be unreasonably withheld.
(e) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, the
Selling Shareholder shall not take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Underwritten Shares.
(f) The Selling Shareholder shall advise you and the Company
promptly and, if requested by you, shall confirm such advice in writing,
within the period of time referred to in Section 5(f) hereof, of any
change in information furnished by or on behalf of the Selling Shareholder
expressly for use in the Registration Statement and the International
Prospectus that comes to the attention of the Selling Shareholder and that
suggests that any statement of a material fact made in the Registration
Statement is or may be untrue or that requires or may require the making
of any additions to or changes in the Registration Statement in order to
state a material fact required by the Act to be stated therein or to make
the statements therein not misleading or that suggests any statement of a
material fact made in the International Prospectus (as then amended or
supplemented) is or may be untrue or that requires or may require the
making of any additions to or changes in the International Prospectus (as
then amended or supplemented) in order to state a material fact required
by the Act to be
- 9 -
<PAGE>
stated therein or in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or that it
is or may be necessary to amend or supplement the International Prospectus
(as then amended or supplemented) to comply with the Act or any other law.
(g) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 13 hereof or by notice given by you
terminating this Agreement pursuant to Section 13 or Section 14 hereof) or
if this Agreement shall be terminated by the Managers because of any
failure or refusal on the part of the Company or the Selling Shareholder
to comply with the terms or fulfill any of the conditions of this
Agreement, the Selling Shareholder agrees to reimburse the Lead Managers
for all reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Managers) incurred by you in connection
herewith.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Manager and the Selling Shareholder that:
(a) The Company and the transactions contemplated by this
Agreement and the U.S. Underwriting Agreement meet the requirements for
using Form S-3 under the Act. The registration statement in the form in
which it became or becomes effective and also in such form as it may be
when any post-effective amendment thereto shall become effective and the
International Prospectus and any supplement or amendment thereto when
filed with the Commission under Rule 424(b) under the Act, complied or
will comply in all material respects with the provisions of the Act; the
Registration Statement does not and will not at any such time contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and the International Prospectus and any supplement or
amendment thereto will not at any such time contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; except
that this representation and warranty does not apply to statements in or
omissions from the registration statement or the International Prospectus
made in reliance upon and in conformity with information relating to any
Manager furnished to the Company in writing by or on behalf of any Manager
through you expressly for use therein.
- 10 -
<PAGE>
(b) Each International Prepricing Prospectus included as part of
the registration statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the Act,
complied when so filed in all material respects with the provisions of the
Act.
(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act, and any further Incorporated
Documents so filed will, when they are filed, conform in all material
respects with the requirements of the Exchange Act; no such document when
it was filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and no
such further document, when it is filed, will contain an untrue statement
of a material fact or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(d) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; and the capital stock of
the Company conforms to the description thereof in the Registration
Statement and the International Prospectus.
(e) All of the Company's subsidiaries (collectively, the
"Subsidiaries") are listed in an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, which is incorporated by
reference into the Registration Statement. The Company and each of the
Subsidiaries that is a "significant subsidiary" (as defined in Regulation
S-X under the Act) (collectively, the "Significant Subsidiaries") has been
duly organized, is validly existing (if applicable, as a corporation in
good standing) under the laws of its jurisdiction of organization and has
full corporate (or partnership) power and authority to carry on its
business as it is currently being conducted (and, in the case of the
Company, to execute, deliver and perform this Agreement) and to own, lease
and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified could not reasonably be expected to have a material
adverse effect, singly or in the aggregate, on the condition (financial or
other), business, properties, net worth or
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results of operations of the Company and the Subsidiaries, taken as a
whole (a "Material Adverse Effect").
(f) All of the issued and outstanding shares of capital stock of,
or other ownership interests in, each Significant Subsidiary have been
duly authorized and validly issued, and certain shares of capital stock of
each Significant Subsidiary are owned, directly or through Subsidiaries,
by the Company as set forth on Exhibit 21 to the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1994. All such shares
or other ownership interests in each Significant Subsidiary are fully paid
and nonassessable, and are free and clear of any security interest,
mortgage, pledge, claim, lien or encumbrance (each, a "Lien"), except for
Liens that are in the aggregate immaterial to the business of the Company
and the Subsidiaries, taken as a whole. There are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale, or Liens related to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of any
Significant Subsidiary.
(g) Neither the Company nor any of the Significant Subsidiaries is
in violation of or in default in the performance of any of their
respective charters or bylaws (or partnership agreements, as the case may
be) or any bond, debenture, note or any other evidence of indebtedness or
any indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of the Significant Subsidiaries is
a party or by which it or any of them is bound, or to which any of the
property or assets of the Company or any of the Significant Subsidiaries
is subject, except as could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(h) This Agreement has been duly and validly executed and delivered
by the Company, and constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms
(assuming the due execution and delivery thereof by you and the Selling
Shareholder), except as rights to indemnity and contribution hereunder may
be limited by Federal or state securities laws, court decisions or public
policy.
(i) The execution and delivery of this Agreement by the Company and
the performance of this Agreement and the U.S. Underwriting Agreement (i)
does not require any consent, approval, authorization or order of or
registration or filing with any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may
be required for the registration of the Underwritten Shares under the Act
and the Exchange Act and compliance with the state securities or Blue Sky
laws or
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real estate syndication laws of various jurisdictions, all of which have
been or will be effected in accordance with this Agreement) and (ii) will
not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default or cause an acceleration of any obligation
under, any of the respective charters or bylaws (or partnership
agreements, as the case may be) of the Company or any of the Significant
Subsidiaries or any material bond, note, debenture or other evidence of
indebtedness or any material indenture, mortgage, deed of trust or other
material contract, lease or other instrument to which the Company or any
of the Significant Subsidiaries is a party or by which any of them is
bound, or to which any of the property or assets of the Company or any of
the Significant Subsidiaries is subject, or any order of any court or
governmental agency or authority entered in any proceeding to which the
Company or any of the Significant Subsidiaries was or is a party or by
which any of them is bound or (solely with respect to actions by the
Company or the Significant Subsidiaries) violate any applicable Federal,
state or local law, rule, administrative regulation or ordinance or
administrative or court decree, any of the foregoing of which could,
singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(j) Except as disclosed in the Registration Statement and the
International Prospectus, there is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or foreign, pending
against the Company or any of the Significant Subsidiaries that is
required to be disclosed in the Registration Statement or the
International Prospectus, or that could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect or materially and
adversely to affect the performance of the Company's obligations pursuant
to this Agreement and, to the best of the Company's knowledge, no such
proceedings are contemplated or threatened. No action has been taken with
respect to the Company or any of the Significant Subsidiaries, and no
statute, rule or regulation or order has been enacted, adopted or issued
by any governmental agency that suspends the effectiveness of the
Registration Statement, prevents or suspends the use of any Prepricing
Prospectus or suspends the sale of the Shares in any jurisdiction referred
to in Section 5(h) hereof; no injunction, restraining order or order of
any nature by a Federal or state court of competent jurisdiction has been
issued with respect to the Company or any of the Significant Subsidiaries
that suspends the effectiveness of the Registration Statement, prevents or
suspends the use of any Prepricing Prospectus or suspends the sale of the
Shares in any jurisdiction referred to in Section 5(h) hereof; other than
the litigation matters or proceedings described in the International
Prospectus under the captions "Business --
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<PAGE>
Legal Proceedings" (collectively, the "Litigation"), no action, suit or
proceeding before any court or arbitrator or any governmental body, agency
or official (domestic or foreign), is pending against or, to the best of
the Company's knowledge, threatened against, the Company or any of the
Significant Subsidiaries that, if adversely determined, could, singly or
in the aggregate, reasonably be expected in any manner to invalidate this
Agreement or the Shares; and every request of the Commission, or any
securities authority or agency of any jurisdiction, for additional
information (to be included in the Registration Statement or the
International Prospectus or otherwise) has been complied with in all
material respects. No contract or document of a character required to be
described in the Registration Statement or the International Prospectus or
to be filed as an exhibit to or incorporated by reference in the
Registration Statement is not so described or filed or incorporated by
reference as required.
(k) The firm of accountants that has certified or shall certify the
applicable consolidated financial statements and supporting schedules of
the Company filed or to be filed with the Commission as part of the
Registration Statement and the International Prospectus are independent
public accountants with respect to the Company and the Subsidiaries, as
required by the Act and the Exchange Act. The consolidated financial
statements, together with related notes, set forth in the International
Prospectus and the Registration Statement comply as to form in all
material respects with the requirements of the Act and the Exchange Act
and fairly present, in all material respects, the financial position of
the Company and the Subsidiaries at the respective dates indicated and the
results of their operations and their cash flows for the respective
periods indicated, in accordance with generally accepted accounting
principles in the United States of America consistently applied throughout
such periods, except as disclosed in the notes to such financial
statements; and the other financial and statistical information and the
supporting schedules included in the International Prospectus and in the
Registration Statement present fairly, in all material respects, the
information required to be stated therein.
(l) Except as disclosed in the Registration Statement, subsequent
to the respective dates as of which information is given in the
Registration Statement and the International Prospectus, (i) neither the
Company nor any of the Significant Subsidiaries has incurred any
liabilities or obligations, direct or contingent, that are material to the
Company and the Subsidiaries, taken as a whole, nor entered into any
transaction not in the ordinary course of business that is material to the
Company and the Subsidiaries, taken as a whole, (ii) there has been no
decision or judgment in
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<PAGE>
the nature of litigation adverse to the Company or any of the Significant
Subsidiaries, and (iii) there has been no material adverse change in the
condition (financial or other), business, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole (any of
the above, a "Material Adverse Change").
(m) Neither the Company nor any of the Subsidiaries is involved in
any labor dispute nor, to the best of the Company's knowledge, is any
labor dispute imminent, other than routine disciplinary and grievance
matters, and the Company is not aware (without any independent
verification) of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors,
that could reasonably be expected to result in a Material Adverse Effect.
(n) The Company and each of the Significant Subsidiaries possess
such licenses, certificates, authorizations, approvals, franchises,
trademarks, service marks, trade names, permits and other rights issued by
local, state, federal or foreign regulatory agencies or bodies as are
necessary to conduct the businesses now conducted by them and the lack of
which could reasonably be expected to have a Material Adverse Effect on
the Company and the Subsidiaries, taken as a whole, and neither the
Company nor any of the Significant Subsidiaries has, to be the best of the
Company's knowledge, received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization,
approval, franchise, trademark, service mark, trade name, permit or right
that, if the subject of any unfavorable decision, ruling or finding, could
reasonably be expected to have a Material Adverse Effect.
(o) The Company has not and, to the best of the Company's
knowledge, none of the Subsidiaries nor any employee or agent of the
Company has, directly or indirectly, paid or delivered any fee, commission
or other sum of money or item or property, however characterized, to any
finder, agent, government official or other party, in the United States or
any other country, that is in any manner related to the business or
operations of the Company that the Company knows or has reason to believe
to have been illegal under any federal, state or local laws of the United
States or any other country having jurisdiction; and the Company has not
participated, directly or indirectly, in any boycotts or other similar
practices in contravention of law affecting any of its actual or potential
customers.
(p) All material tax returns required to be filed by the Company or
any of the Subsidiaries in any jurisdiction have been filed, other than
those filings being contested in
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<PAGE>
good faith, and all material taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due or claimed to be due
from such entities have been paid, other than those being contested in
good faith or for which adequate reserves have been provided or those
currently payable without penalty or interest.
(q) Except as disclosed in the International Prospectus or except
as could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (a) to the best of the Company's knowledge,
neither the Company nor the Subsidiaries is in violation of any Federal,
state or local law or regulation relating to pollution or protection of
public heath or welfare or the environment, including, without limitation,
the storage, handling, transportation, emissions, discharges, releases or
threatened releases of pollutants, contaminates, hazardous or toxic
materials, substances or wastes, or petroleum or petroleum products
("Environmental Laws"), (b) the Company and each of the Subsidiaries have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses, and
the Company and each of the Subsidiaries are in compliance with all terms
and conditions of any such permit, license or approval and (c) neither the
Company nor, to the best of the Company's knowledge, any of the
Subsidiaries, has received any notice or communication from any
governmental agency or any written notice from any other person regarding
violation of or liability under Environmental Laws and (d) there is no
pending action or proceeding, or to the best of the Company's knowledge,
pending or threatened claim or investigation against the Company or any of
the Subsidiaries regarding violation of or liability under Environmental
Laws.
(r) To the best of the Company's knowledge, there are no costs and
liabilities associated with Environmental Laws that could, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(s) To the best of the Company's knowledge, neither the Company nor
any of the Subsidiaries has (A) violated any Federal or state law relating
to discrimination in the hiring, promotion or pay of employees nor any
applicable wage or hour laws, nor any provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") or the rules and
regulations promulgated thereunder, or (B) engaged in any unfair labor
practice that, with respect to any matter specified in clause (A) or (B)
above, could reasonably be expected to result, singly or in the aggregate,
in a Material Adverse Effect. There is (i) no significant unfair labor
practice complaint pending against the Company or any of the Subsidiaries
or, to the best of
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<PAGE>
the Company's knowledge, threatened against any of them, before the
National Labor Relations Board or any state or local labor relations
board, and no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against the Company or any of the Subsidiaries or, to the best of the
Company's knowledge, threatened against any of them and (ii) to the best
of the Company's knowledge, no union representation question existing with
respect to the employees of the Company or any of the Subsidiaries and, to
the best of the Company's knowledge, no union organizing activities are
taking place, except (with respect to any matter specified in clause (i)
or (ii) above) such as would not, singly or in the aggregate, have a
Material Adverse Effect.
(t) To the best of the Company's knowledge, (i) each of the
Company and the Subsidiaries has good and marketable title to all property
(real and personal) described in the International Prospectus as being
owned by it, in fee simple in the case of real property (other than in the
case of certain buildings the land under which is leased to the Company
pursuant to long-term leases that are valid, subsisting and enforceable
against the Company), free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the
Registration Statement and the International Prospectus or in a document
filed as an exhibit to the Registration Statement and (ii) all the
property described in the Registration Statement and the International
Prospectus as being held under lease by each of the Company and the
Significant Subsidiaries is held by it under valid, subsisting and
enforceable leases, except (with respect to any matter specified in clause
(i) or (ii) above) such as would not, singly or in the aggregate, have a
Material Adverse Effect.
(u) Other than as described in the Registration Statement and the
International Prospectus, no holder of any security of the Company has any
right to require registration of shares of Common Stock or any other
security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this
Agreement or the U.S. Underwriting Agreement.
(v) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, the
Company has not taken, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Underwritten Shares.
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<PAGE>
(w) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder represents and warrants to each Manager and the Company
that:
(a) The Selling Shareholder now has, and on the Closing Date will
have, valid title to the Shares to be sold on such date, free and clear of
any lien, claim, security interest or other encumbrance, including,
without limitation, any restriction on transfer.
(b) The Selling Shareholder now has, and on the Closing Date will
have, full legal right, power and authorization to sell, assign transfer
and deliver such Shares in the manner provided in this Agreement, and upon
delivery of and payment for such Shares hereunder, the several Managers
will acquire valid title to such Shares free and clear of any lien, claim,
security interest, or other encumbrance except for any liens, claims,
security interests or other encumbrances created by the actions or status
of the Managers.
(c) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder and is the valid
agreement of the Selling Shareholder.
(d) Neither the execution and delivery of this Agreement by or on
behalf of the Selling Shareholder nor the consummation by the Selling
Shareholder of the transactions herein contemplated requires any consent,
approval, authorization or order of, or registration or filing with, any
court, regulatory body, administrative agency or other governmental body,
agency or official (except such as may be required for the registration of
the Underwritten Shares under the Act and compliance with the state
securities or Blue Sky laws or the real estate syndication laws of various
jurisdictions, all of which have been or will be effected in accordance
with this Agreement) or conflicts or will conflict with or constitutes or
will constitute a breach of, or default under, or violates or will
violate, any agreement, indenture or other instrument to which the Selling
Shareholder is a party or by which the Selling Shareholder is or may be
bound or to which any of the Selling Shareholder's property or assets is
subject, or any statute, law, rule, regulation, ruling, judgment,
injunction, order or decree applicable to the Selling Shareholder or to
any property or assets of the Selling Shareholder, except any such
breaches, defaults or violations that would not, singly or in the
aggregate, in any way impair the valid title to be acquired by the
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<PAGE>
Managers upon delivery of the Shares pursuant to this Agreement and
payment therefor as contemplated herein.
(e) If any date on which the Registration Statement or any
post-effective amendment thereto is declared effective (each, an
"Effective Date") is prior to the execution and delivery of this
Agreement, on such Effective Date, to the extent, but only to the extent,
any statements or omissions made in the Registration Statement were made
in reliance upon and in conformity with written information furnished to
the Company by the Selling Shareholder expressly for use therein, such
statements and omissions did not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. If any Effective
Date is subsequent to the execution and delivery of this Agreement, on
such Effective Date, to the extent, but only to the extent, any statements
or omissions made in the Registration Statement are made in reliance upon
and in conformity with written information furnished to the Company by the
Selling Shareholder expressly for use therein, such statements and
omissions will not include an untrue statement of a material fact and will
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. As of its date
and on the Closing Date, to the extent, but only to the extent, any
statements or omissions made in the International Prospectus are made in
reliance upon and in conformity with written information furnished to the
Company by the Selling Shareholder expressly for use therein, such
statements and omissions did not and will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of circumstances under which they were made, not misleading.
(f) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, the
Selling Shareholder has not taken, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Underwritten Shares.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Manager and each person,
if any, who controls any Manager within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any International Prepricing Prospectus or in the
Registration
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Statement or the International Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the any International Prepricing
Prospectus or the International Prospectus, in the light of the circumstances
under which they were made) not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission that has
been made therein or omitted therefrom in reliance upon and in conformity with
the information relating to such Manager furnished in writing to the Company by
or on behalf of any Manager through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
subsection (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Manager (or to the benefit of any person controlling such
Manager) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Manager to any person if a copy of
the International Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the regulations thereunder, and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such International Prepricing Prospectus was
corrected in the International Prospectus, provided that the Company has
delivered the International Prospectus to the several Managers in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability that the Company may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Manager or any person controlling any Manager in respect of which indemnity may
be sought against the Company, such Manager or such controlling person shall
promptly notify the parties against whom indemnification is being sought (the
"indemnifying parties"), and such indemnifying parties shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such Manager or any such controlling person shall have the right to
employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Manager or such controlling person unless (i)
the indemnifying parties have agreed in writing to pay such fees and expenses,
(ii) the indemnifying parties have failed to assume the defense and employ
counsel, or (iii) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both such Manager or such controlling
person and the indemnifying parties and such Manager or such controlling person
shall have been advised by its counsel that representation of such indemnified
party and any indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed)
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<PAGE>
due to actual or potential differing interests between them (in which case the
indemnifying party shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Manager or such controlling
person). It is understood, however, that the indemnifying parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such Managers
and controlling persons, which firm shall be designated in writing by Smith
Barney Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any settlement of
any such action, suit or proceeding effected without their written consent, but
if settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the indemnifying parties agree
to indemnify and hold harmless any Manager, to the extent provided in the
preceding paragraph, and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
(c) The Selling Shareholder agrees to indemnify and hold harmless
each Manager and each person, if any, who controls such Manager within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, subject to
the limitations set forth in Section 12, to the same extent as the foregoing
indemnity from the Company to each Manager, but only with respect to information
specifically relating to the Selling Shareholder furnished in writing by or on
behalf of such Selling Shareholder expressly for use in the Registration
Statement, the International Prospectus, any International Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against any Manager or any such controlling person
in respect of which indemnity may be sought against the Selling Shareholder
pursuant to this subsection (c), the Selling Shareholder shall have the rights
and duties given to the indemnifying parties by subsection (b) above (except
that if the Company shall have assumed the defense thereof the Selling
Shareholder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the Selling Shareholder's expense). The foregoing
indemnity agreement shall be in addition to any liability that the Selling
Shareholder may otherwise have.
(d) Each Manager agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, the Selling Shareholder, and any person who controls the
Company or the Selling Shareholder within the meaning of Section 15 of the Act
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<PAGE>
or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Selling Shareholder to each Manager, but only
with respect to information relating to such Manager furnished in writing by or
on behalf of such Manager through you expressly for use in the Registration
Statement, the International Prospectus or any International Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of its directors, any such
officer, the Selling Shareholder, or any such controlling person based on the
Registration Statement, the International Prospectus or any International
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Manager pursuant to this subsection
(d), such Manager shall have the rights and duties given to the indemnifying
parties by subsection (b) above (except that if the Company shall have assumed
the defense thereof such Manager shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Manager's expense), and the
Company, its directors, any such officer, the Selling Shareholder, and any such
controlling person shall have the rights and duties given to the Managers by
subsection (b) above. The foregoing indemnity agreement shall be in addition to
any liability that any Manager may otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsection (a) above or, where the
indemnified party is the Company or its officers, directors or controlling
persons, under subsection (d) above in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Managers on the other hand
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. If the indemnification provided for in this Section 9
is unavailable to an indemnified party under subsection (c) above or, where the
indemnified party is the Selling Shareholder, under subsection (d) above in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Selling Shareholder on the one hand and the Managers on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect
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not only the relative benefits referred to in clause (i) above but also the
relative fault of the Selling Shareholder on the one hand and the Managers on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Selling
Shareholder on the one hand and the Managers on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Selling Shareholder bear to the total
underwriting discounts and commissions received by the Managers, in each case as
set forth in the table on the cover page of the International Prospectus. The
relative fault of the Company or the Selling Shareholder, as the case may be, on
the one hand and the Managers on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholder, as
the case may be, on the one hand or by the Managers on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(f) The Company, the Selling Shareholder and the Managers agree
that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Managers were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
subsection (e) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred to
in subsection (e) above shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no Manager shall be required to contribute any amount in excess of
the amount by which the total price of the Shares underwritten by it and
distributed to the public exceeds the amount of any damages that such Manager
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Managers' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Shares set
forth opposite their names in Schedule I hereto (or such numbers of Shares
increased as set forth in Section 13 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement
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of any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Shareholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Manager or any
person controlling any Manager, the Company, its directors or officers or the
Selling Shareholder or any person controlling the Company, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Manager or any person controlling any Manager, or
to the Company, its directors or officers, or any person controlling the
Company, shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.
10. CONDITIONS OF MANAGERS' OBLIGATIONS. The several obligations
of the Managers to purchase the Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment
shall have become effective not later than 5:30 P.M., New York City time,
on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424, 430A
and 434 under the Act shall have been timely made; no stop order
suspending the effectiveness of the registration statement shall have been
issued and no proceeding for that purpose shall have been instituted or,
to the knowledge of the Company or any Manager, threatened by the
Commission, and any request of the Commission for additional information
(to be included in the registration statement or the International
Prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change in
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or affecting the condition (financial or other), business, properties, net
worth, or results of operations of the Company or the Subsidiaries not
contemplated by the International Prospectus, that, in your reasonable
opinion, as Lead Managers for the several Managers, would materially
adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Company or any officer or
director of the Company or the Selling Shareholder that makes any
statement made in the International Prospectus untrue in any material
respect or that, in the opinion of the Company and its counsel or the
Managers and their counsel, requires the making of any addition to or
change in the International Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, if amending or supplementing
the International Prospectus to reflect such event or development would,
in your reasonable opinion, as Lead Managers for the several Managers,
materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Latham & Watkins, counsel for the Company, dated the Closing Date and
addressed to you, as Lead Managers for the several Managers, to the effect
that:
(i) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under
the Act and no proceedings therefor have been initiated by the
Commission; and any required filing of the International Prospectus,
and any supplements thereto, pursuant to Rule 424(b) or Rule 434
under the Act has been made in the manner and within the time period
required by Rule 424(b) and Rule 430A under the Act;
(ii) To the best of such counsel's knowledge no consent,
approval, authorization or order of, or filing with, any federal or
New York court or governmental agency or body is required to be
obtained or made by the Company for the consummation of the sale of
the Shares by the Selling Shareholder pursuant to this Agreement,
except such as have been obtained under the Act and such as may be
required under the state securities laws in connection with the
purchase and distribution of the Shares by the Managers;
(iii) The Registration Statement and the International
Prospectus comply as to form in all material respects with the
requirements for
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registration statements on Form S-3 under the Act and the rules and
regulations of the Commission thereunder; it being understood,
however, that such counsel need express no opinion with respect to
the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the
International Prospectus. In passing upon the compliance as to form
of the Registration Statement and the International Prospectus, such
counsel may assume that the statements made and incorporated by
reference therein are correct and complete;
(iv) Neither the purchase of the Shares by the Managers nor
the sale of the Shares by the Selling Shareholder pursuant to the
terms of this Agreement will result in the breach of or a default
under those agreements identified to such counsel by an officer of
the Company as material to the Company; and
(v) The statements set forth in the International Prospectus
under the heading "Certain U.S. Tax Consequences to Non-U.S.
Shareholders" and in the first, second, third, fifth, sixth and
seventh paragraphs under the heading "Underwriting" in the
International Prospectus, insofar as such statements constitute a
summary of legal matters, are accurate in all material respects.
Such opinion may be limited to the internal laws of the State of New
York and the Federal laws of the United States. Such counsel may rely as
to factual matters on certificates of officers of the Company and of state
officials, in which case their opinion shall state that they are so doing.
Such opinion also shall take further exceptions that shall be reasonably
acceptable to the Managers.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, representatives of the Managers and their counsel, at which the
contents of the Registration Statement and International Prospectus and
related matters were discussed and, although such counsel need not pass
upon and need not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the International Prospectus and such counsel may state that
they have made no independent check or verification thereof, during the
course of such participation, (relying as to materiality to a large extent
upon the statements of officers and other representatives of the Company),
no facts came to such counsel's attention that caused such counsel to
believe that the Registration Statement (as amended or
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supplemented, if applicable, and including the Incorporated Documents), at
the time such Registration Statement or any post-effective amendment
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
International Prospectus (including the Incorporated Documents) as amended
or supplemented, as of its date and as of the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; it being
understood that such counsel need express no belief with respect to the
financial statements, schedules and other financial and statistical data
included in the Registration Statement or the International Prospectus
or incorporated therein.
(d) You shall have received on the Closing Date, an opinion of
John F. Schmutz, Esq., Vice President and General Counsel of the Company,
dated the Closing Date and addressed to you, as Lead Managers for the
several Managers, to the effect that:
(i) To the best of such counsel's knowledge, no
authorization, approval, consent or order of, or registration or
filing with, any court or governmental authority or agency is
required to be obtained or made by the Company for the valid sale of
the Shares to you, except (a) such as have been obtained under the
Act and (b) such as may be required under the state securities or
Blue Sky laws or real estate syndication laws or regulations of any
jurisdiction in the United States in connection with the purchase
and distribution of the Shares by the Managers;
(ii) The Company has corporate power and authority to enter
into this Agreement and this Agreement has been duly authorized by
all necessary corporate action by the Company, and has been duly
executed and delivered by the Company;
(iii) Neither the purchase of the Shares by the Managers nor
the sale of the Shares by the Selling Shareholder pursuant to the
terms of this Agreement will conflict with or constitute a breach of
or a default under the certificate or articles of incorporation or
bylaws, or other organizational documents, of the Company or any of
the Significant Subsidiaries or the terms of any material agreement
or instrument to which the Company or any of the Significant
Subsidiaries is a party or by which any of them is bound, or to
which any of the properties of the
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Company or any of the Significant Subsidiaries is subject, or will
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Significant Subsidiaries, or result in any violation of any statute,
rule or regulation applicable to the Company or, to the best of such
counsel's knowledge, any judgment, injunction, order or decree of
any court or governmental agency or body having jurisdiction over
the Company or any of the Significant Subsidiaries or any of their
respective properties;
(iv) Each of the Company and, to the best of such counsel's
knowledge, the Significant Subsidiaries that is a corporation has
been duly incorporated and is validly existing and is a corporation
in good standing under the laws of its jurisdiction of its
incorporation, and each of the Company and, to the best of such
counsel's knowledge, the Significant Subsidiaries has the corporate
(or partnership) power and authority and all necessary governmental
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental regulatory
officials and bodies to own and operate its properties and to
conduct its business as described in the Registration Statement and
the International Prospectus and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction in which such qualification is required wherein it owns
or leases material property or conducts business, except where the
failure so to qualify could not reasonably be expected to have a
Material Adverse Effect;
(v) All of the issued and outstanding capital stock of, or
other ownership interests in, each Significant Subsidiary has been
duly authorized and validly issued, and is fully paid and
nonassessable and, except as otherwise set forth in the Registration
Statement and the International Prospectus, certain shares of
capital stock of, or other ownership interests in, each Significant
Subsidiary are owned by the Company, either directly or through
Subsidiaries, as set forth on Exhibit 21 to the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1994,
free and clear of any perfected security interest or, to the best of
such counsel's knowledge, any other security interests, claims,
liens, equities or encumbrances;
(vi) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
International Prospectus; and
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the authorized capital stock of the Company conforms in all material
respects as to legal matters to the description thereof incorporated
by reference in the International Prospectus;
(vii) Except as described in the Registration Statement and
the International Prospectus, there are no outstanding
subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale, or Liens related to or entitling
any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any security convertible into or
exchangeable for the capital stock of the Company;
(viii) Except as described in the Registration Statement
and the International Prospectus, there is no holder of any security
of the Company or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them,
or to permit them to underwrite the sale of, the Shares or the right
to have any Common Stock or other securities of the Company included
in the registration statement or the right, as a result of the
filing of the registration statement, to require registration under
the Act of any shares of Common Stock or other securities of the
Company;
(ix) To the best of such counsel's knowledge (A) there are no
franchises, contracts, indentures, mortgages, leases, loan
agreements, notes or other agreements or instruments to which the
Company or any Significant Subsidiary is a party or by which any of
them may be bound that are required to be described in the
Registration Statement or the International Prospectus or to be
filed as exhibits to or incorporated by reference in the
Registration Statement other than those described therein or filed
or incorporated by reference as exhibits thereto, (B) no default
exists in the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument, except for defaults that would not, singly or in the
aggregate, have a Material Adverse Effect and (C) the statements in
the International Prospectus under the caption "Business -- Legal
Proceedings" insofar as they relate to statements of law or legal
conclusions, are accurate in all material respects;
(x) The Company and the Significant Subsidiaries own all
patents, trademarks, trademark registrations, service marks, service
mark registrations, trade names,
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copyrights, licenses, inventions, trade secrets and rights described
in the International Prospectus as being owned by them or any of
them or necessary for the conduct of their respective businesses,
and such counsel is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the
Significant Subsidiaries with respect to the foregoing;
(xi) To the best of such counsel's knowledge, there is no
current, pending or threatened action, suit or proceeding before any
court or governmental agency, authority or body or any arbitrator
involving the Company or any of the Significant Subsidiaries or any
of their respective properties of a character required to be
disclosed in the Registration Statement and the International
Prospectus that is not adequately so disclosed;
(xii) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, nonassessable and not subject to any preemptive or other
similar rights to subscribe for such Common Stock;
(xiii) The form of the certificates for the Shares conforms
to the requirements of the corporate law of the State of Texas;
(xiv) At the time it became effective and on the Closing
Date, the Registration Statement (except for financial statements,
the notes thereto and related schedules and other financial,
numerical, statistical or accounting data included therein or
omitted therefrom, as to which no opinion need be expressed) and the
International Prospectus complies as to form in all material
respects with the applicable requirements of the Act; and each of
the Incorporated Documents (except for financial statements, the
notes thereto and related schedules and other financial, numerical,
statistical or accounting data included therein or omitted
therefrom, as to which no opinion need be expressed) complies as to
form in all material respects with the Exchange Act;
(xv) The statements in the Registration Statement and the
International Prospectus, insofar as they are descriptions of
contracts, agreements or other legal documents, or refer to
statements of law or legal conclusions, are accurate and present
fairly the information required to be shown; and
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<PAGE>
(xvi) Neither the Company nor any of the Subsidiaries is an
"investment company" required to be registered under Section 8 of
the Investment Company Act of 1940, as amended (the "Investment
Company Act"), or an entity "controlled by an investment company"
required to be registered under Section 8 of the Investment Company
Act.
Such opinion may be limited to the internal laws of the State of
Texas and the Federal laws of the United States. Such opinion shall take
further exceptions that shall be reasonably acceptable to the Managers.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, your representatives and your counsel, at which the contents of
the Registration Statement and International Prospectus (including the
Incorporated Documents) and related matters were discussed and, although
such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in
the Registration Statement and the International Prospectus, on the basis
of the foregoing, relying as to the factual matters underlying the
determination of materiality to a large extent upon the statements of
officers and other representatives of the Company, no facts came to such
counsel's attention that caused such counsel to believe that the
Registration Statement (as amended or supplemented, if applicable, and
including the Incorporated Documents), at the time such Registration
Statement or any post-effective amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading (other than information omitted therefrom in reliance on
Rule 430A under the Act), or the International Prospectus, as amended or
supplemented, as of its date and as of the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; it being
understood that such counsel need express no belief with respect to the
financial statements, schedules and other financial and statistical data
included in the Registration Statement or the Prospectus or
incorporated therein.
(e) You shall have received on the Closing Date, an opinion of
Goodwin, Procter & Hoar, counsel for the Selling Shareholder, or of J.
Grant Monahon, Director and General Counsel of AEW, Inc., the general
partner of AEW/L.P., the
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general partner of the Selling Shareholder, dated the Closing Date and
addressed to you, as Lead Managers for the several Managers, to the effect
that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder;
(ii) To the best of such counsel's knowledge after reasonable
inquiry, the Selling Shareholder has the partnership power and
authorization to sell, assign, transfer and deliver the Shares;
(iii) The execution and delivery of this Agreement and the
U.S. Underwriting Agreement by the Selling Shareholder and the
consummation of the transactions contemplated hereby and thereby
will not conflict with, violate, result in a material breach of or
constitute a material default under the terms or provisions of the
Amended and Restated Agreement of Limited Partnership of AEW
Partners, L.P. or any other material agreement, indenture,
mortgage or other instrument, known to such counsel, to which the
Selling Shareholder is a party; and
(iv) Upon delivery of the certificates representing the
Shares pursuant to this Agreement and payment therefor as
contemplated herein, title to the Shares will pass to the Managers
free and clear of any lien, claim, security interest, or other
encumbrance, assuming that the Shares were validly authorized and
issued by the Company and the Managers are purchasers for value in
good faith without notice of any adverse claim (as defined in
Section 8-302 of the Uniform Commercial Code).
(f) You shall have received on the Closing Date an opinion of
Davis Polk & Wardwell, counsel for the Managers, dated the Closing Date
and addressed to you, as Lead Managers for the several Managers, with
respect to the matters referred to in clauses (i), (ii) and (iii) and in
the last paragraph of subsection (c) above and such other related matters
as you may request.
(g) You shall have received letters addressed to you, as Lead
Managers for the several Managers, and dated the date hereof and the
Closing Date from KPMG Peat Marwick LLP, independent certified public
accountants, substantially in the forms heretofore approved by you.
(h)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to
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the knowledge of the Company, shall be contemplated by the Commission at
or prior to the Closing Date; (ii) there shall not have been any change in
the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary
course of business) from that set forth or contemplated in the
Registration Statement or the International Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration
Statement and the International Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement
and the International Prospectus (or any amendment or supplement thereto),
any Material Adverse Change; (iv) the Company and the Subsidiaries shall
not have any liabilities or obligations, direct or contingent (whether or
not in the ordinary course of business), that are material to the Company
and the Subsidiaries, taken as a whole, other than those reflected in the
Registration Statement and the International Prospectus (or any amendment
or supplement thereto); and (v) all the representations and warranties of
the Company contained in this Agreement and the U.S. Underwriting
Agreement shall be true and correct in all material respects on and as of
the date hereof and on and as of the Closing Date as if made on and as of
the Closing Date, and you shall have received a certificate, dated the
Closing Date and signed by the chief executive officer and the chief
financial officer of the Company (or such other officers as are acceptable
to you), to the effect set forth in this Section 10(h) and in Section
10(i) hereof.
(i) The Company shall not have failed at or prior to the Closing
Date to have performed or complied in all material respects with any of
its agreements herein contained and required to be performed or complied
with by it hereunder at or prior to the Closing Date.
(j) All the representations and warranties of the Selling
Shareholder contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by or on behalf
of the Selling Shareholder, to the effect set forth in this Section 10(j)
and in Section 10(k) hereof.
(k) The Selling Shareholder shall not have failed at or prior to
the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed
or complied with by it hereunder at or prior to the Closing Date.
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(l) The Company shall have furnished to you the "lock-up" letters
referred to in Section 5(l) hereof.
(m) The closing under the U.S. Underwriting Agreement shall have
occurred concurrently with the closing hereunder on the Closing Date.
(n) The Company and the Selling Shareholder shall have furnished or
caused to be furnished to you such further certificates and documents as
you shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
the Selling Shareholder and delivered to you, as Lead Managers for the Managers,
or to counsel for the Managers, shall be deemed a representation and warranty by
the Company or the Selling Shareholder, as the case may be, to each Manager as
to the statements made therein.
11. EXPENSES. The Selling Shareholder agrees to pay the
following costs and expenses and all other costs and expenses incident to the
performance by the Company and the Selling Shareholder of their obligations
hereunder: (i) the preparation, printing or reproduction, and filing with the
Commission of the registration statement (including financial statements and
exhibits thereto), each Prepricing Prospectus, the Prospectuses, and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the registration statement, each Prepricing
Prospectus, the Prospectuses, the Incorporated Documents, and all amendments or
supplements to any of them, as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on the New York Stock Exchange;
(vi) the registration or qualification of the Shares for offer and sale under
the state securities or Blue Sky laws or real estate syndication laws of the
several states as provided herein (including the reasonable fees, expenses and
disbursements of counsel for the Managers relating to the preparation, printing
or reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification);
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(vii) the filing fees and the fees and expenses of counsel for the Managers in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.; (viii) the transportation and other expenses incurred
by or on behalf of Company representatives in connection with presentations to
prospective purchasers of the Shares; and (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company and the Selling Shareholder.
12. LIMITATION OF LIABILITY. The total liabilities of the
Selling Shareholder under this Agreement, including without limitation any
liabilities for breach of representation or warranty or with respect to any
obligation of indemnity, shall not in any event exceed in aggregate amount the
proceeds of the Shares sold hereunder, provided that this Section 12 shall not
limit the liability of the Selling Shareholder to pay expenses as provided in
Section 6(g) or Section 11 hereof.
13. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company or the Selling Shareholder, by notifying you, or by you, as Lead
Managers for the several Managers, by notifying the Company and the Selling
Shareholder.
If any one or more of the Managers shall fail or refuse to purchase
Shares that it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares that such defaulting Manager or Managers are
obligated but fail or refuse to purchase is not more than one-tenth of the
aggregate number of Shares that the Managers are obligated to purchase on the
Closing Date, each non-defaulting Manager shall be obligated, severally, in the
proportion that the number of Shares set forth opposite its name in Schedule I
hereto bears to the aggregate number of Shares set forth opposite the names of
all non-defaulting Managers or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares that such defaulting Manager or Managers are
obligated, but fail or refuse, to purchase. If any one or more of the Managers
shall fail or refuse to purchase Shares that it or they are obligated to
purchase on the Closing Date and the aggregate number of Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Shares that the Managers are obligated to purchase on the Closing Date and
arrangements
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satisfactory to you, the Company and the Selling Shareholder for the purchase of
such Shares by one or more non-defaulting Managers or other party or parties
approved by you, the Company and the Selling Shareholder are not made within 36
hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Manager, the Company or the Selling
Shareholder. In any such case that does not result in termination of this
Agreement, any of you, the Company or the Selling Shareholder shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Registration Statement and
the International Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Manager from liability in respect of any such default of any such
Manager under this Agreement. The term "Manager" as used in this Agreement
includes, for all purposes of this Agreement, any party not listed in Schedule I
hereto who, with your approval and the approval of the Company and the Selling
Shareholder, purchases Shares that a defaulting Manager is obligated, but fails
or refuses, to purchase.
Any notice under this Section 13 may be given by telegram, telecopy
or telephone but shall be subsequently confirmed by letter.
14. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in your absolute discretion, without liability on the part of any
Manager to the Company or the Selling Shareholder, by notice to the Company and
the Selling Shareholder, if prior to the Closing Date (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York or Texas shall
have been declared by either federal or state authorities, or (iii) there shall
have occurred any outbreak or escalation of hostilities or other international
or domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the International Prospectus or to enforce
contracts for the resale of the Shares by the Managers. Notice of such
termination may be given to the Company by telegram, telecopy or telephone and
shall be subsequently confirmed by letter.
15. INFORMATION FURNISHED BY THE SELLING SHAREHOLDER AND THE
Managers. The statements set forth in the last paragraph on the cover page,
the stabilization legend on the inside cover page, and the statements in the
fourth, eighth, ninth, tenth and eleventh and fourteenth paragraphs under
the caption
- 36 -
<PAGE>
"Underwriting" in any International Prepricing Prospectus and in the
International Prospectus constitute the only information furnished by or on
behalf of the Managers through you expressly for use therein as such information
is referred to in Sections 7(a) and 9 hereof. The statements set forth under
the caption "Prospectus Summary -- The Selling Shareholder" (except the fifth
sentence of the third paragraph thereof), in the first and second paragraphs
under the caption "Principal and Selling Shareholders" and the information
regarding the Selling Shareholder set forth in the table under the caption
"Principal and Selling Shareholders" and in footnote (1) thereto, in any
International Prepricing Prospectus and in the International Prospectus
and, solely with respect to the International Prospectus, in footnote (2) to
the table under the caption "Principal and Selling Shareholders,"
constitute the only information furnished by or on behalf of the Selling
Shareholder expressly for use therein as such information is referred to in
Sections 6(f), 8(e), 9 and 16 hereof.
16. FURTHER INDEMNIFICATION AND CONTRIBUTION PROVISIONS. (a)
The Company agrees to indemnify and hold harmless the Selling Shareholder and
its affiliates and its and their respective partners, officers and directors and
each person who controls the Selling Shareholder (within the meaning of the Act
or the Exchange Act), and any agent or investment advisor thereof against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
International Prepricing Prospectus, the International Prospectus or the
Registration Statement, or in any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same arise out of or are based upon an untrue statement or
omission which was based upon information with respect to the Selling
Shareholder furnished in writing to the Company by or on behalf of the Selling
Shareholder expressly for use therein; provided that in the event that any
International Prepricing Prospectus shall have been amended or supplemented and
copies thereof, as so amended or supplemented, were furnished to the Selling
Shareholder and the Managers prior to the confirmation of any sales of Shares,
such indemnity with respect to the International Prepricing Prospectus shall not
inure to the benefit of the Selling Shareholder from whom the person asserting
such loss, claim, damage or liability purchased the Shares which are the subject
thereof if such person did not, at or prior to the confirmation of the sale of
the Shares to such person, receive a copy of the International Prepricing
Prospectus as so amended or supplemented and the untrue statement or omission of
a material fact contained in the International Prepricing Prospectus was
corrected in the International Prepricing Prospectus as so amended or
supplemented.
- 37 -
<PAGE>
(b) The Selling Shareholder agrees to indemnify the Company, its
directors and officers and each person who controls the Company (within the
meaning of the Act and the Exchange Act), subject to the limitations set forth
in Section 12, against any losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and the cost of investigation) resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in any International Prepricing Prospectus, the
International Prospectus, the Registration Statement or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
to the extent, but only to the extent, that such untrue statement is contained
in or such omission relates to the information with respect to the Selling
Shareholder so furnished in writing by the Selling Shareholder or on behalf of
the Selling Shareholder by its agents or representatives specifically for
inclusion in any International Prepricing Prospectus, the International
Prospectus or the Registration Statement. In no event shall the liability of
the Selling Shareholder hereunder be greater in amount that the dollar amount of
the proceeds received by the Selling Shareholder upon the sale of the Shares
giving rise to such indemnification obligation.
(c) Any person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the receipt by such person
of any written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such person will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party a conflict of interest may exist
between such indemnified party and the indemnifying party with respect to such
claim, permit the indemnifying party to assume the defense of such claim.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) (i) If the indemnification provided for in this Section 16
from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses,
- 38 -
<PAGE>
claims, damages, liabilities or expenses referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall,
to the extent permitted by applicable law, contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations (for the purposes of this subsection (d), the
relevant equitable considerations shall not include considerations based
upon the relative benefits received by the parties in the offering and
sale of the Shares). The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in subsection (c) above, any reasonable legal or
other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined
by pro rata allocation or by any other method that does not take account
of the equitable considerations referred to in subsection (d)(i) above.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(iii) If indemnification is available under this Section 16, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in subsections (a) and (b) above without regard to the
relative fault of said indemnifying party or indemnified party or any
other equitable consideration provided for in this subsection (d).
17. MISCELLANEOUS. Except as otherwise provided in Sections 5,
13 and 14 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at Weston Centre, 112 E. Pecan Street, P.O. Box 2636, San Antonio, Texas
78299-2636, Attention: John F. Schmutz, Esq., Vice
- 39 -
<PAGE>
President and General Counsel; or (ii) if to the Selling Shareholder, at the
office of the Selling Shareholder, care of Aldrich Eastman Waltch, 225 Franklin
Street, 25th Floor, Boston, MA 02110-2803, Attention: Joseph S. Azrack,
President and Chief Executive Officer, or (iii) if to you, as Lead Managers of
the several Managers, care of Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Managers, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and the Selling
Shareholder and its affiliates and its and their respective partners, officers,
directors and controlling persons referred to in Sections 9 and 16 hereof, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any Manager of any of
the Shares in his status as such purchaser.
18. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts that together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
- 40 -
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholder and the several Managers.
Very truly yours,
LA QUINTA INNS, INC.
By: __________________________
Name:
Title:
AEW PARTNERS, L.P.
BY: AEW/L.P.,
its general partner
By: AEW, INC.,
its general partner
By: __________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Managers named in Schedule I hereto.
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Lead Managers for the Several Managers
By: SMITH BARNEY INC.
By: ________________________
Name:
Title:
- 41 -
<PAGE>
SCHEDULE I
LA QUINTA INNS, INC.
<TABLE>
<CAPTION>
Number of
Manager Shares
------- ------
<S> <C>
Smith Barney Inc. .......................................
Alex. Brown & Sons Incorporated..........................
Montgomery Securities ...................................
-----------
Total..................................................
-----------
</TABLE>
- 1 -
<PAGE>
LA QUINTA INNS, INC.
112 E. Pecan Street
San Antonio, Texas 78299
July 26, 1995
La Quinta Inns, Inc.
112 East Pecan Street
San Antonio, Texas 78205
Re: La Quinta Inns, Inc. Registration Statement No. 33-60295;
---------------------------------------------------------
5,320,071 Shares of Common Stock, par value $0.01 per Share
-----------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of 5,320,071 shares of common stock
of La Quinta Inns, Inc., a Texas corporation (the "Company"), par value $0.10
per share (the "Shares"), under the Securities Act of 1933, as amended (the
"Act"), by the Company, on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") on June 16, 1995 (File No. 33-60295), as
amended by Amendment No. 1 filed with the Commission on July 7, 1995 and as
further amended by Amendment No. 2 filed with the Commission on July 26,
1995 (collectively, the "Registration Statement"), you have requested my
opinion with respect to the matters set forth below.
In my capacity as Vice President--General Counsel of the Company, I am
familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Shares, and
for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, I, or
members of my staff, have made such legal and factual examinations of
originals (or copies certified or otherwise identified to my satisfactions as
being true reproductions of originals) of such documents, corporate records
and other instruments as I have deemed necessary or appropriate for the
purposes of this opinion. I have, when relevant facts were not independently
established, relied upon representations of the Company and its officers
regarding such facts. When I felt it was necessary, I have obtained from
public officials and officers of the Company, and agents thereof, and have
relied upon, such certificates and other representations and assurances as I
have deemed necessary or appropriate for the purpose of rendering this
opinion. In addition, when I felt it was necessary or appropriate, I have
consulted with outside counsel.
<PAGE>
In such examination, I have assumed the genuineness of all signatures,
the authentically of all documents submitted to me as originals, the legal
capacity of natural persons executing such documents and the conformity to
authentic original documents of all documents submitted to me as copies.
I am a member of the bar of the District of Columbia and the States of
Texas and Indiana, and I am opining herein as to the effect on the subject
transaction only of the internal laws of the State of Texas and express no
opinion with respect to the applicability thereto, or the effect thereon, of
the laws of any other jurisdiction or as to any matters of municipal law or
the laws of any other local agencies within the state.
Subject to the foregoing, it is my opinion that the Shares have been
duly authorized and validly issued, and are fully paid and nonassessable.
I consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to me contained under the heading "Legal
Matters."
Very truly yours,
/s/ John F. Schmutz
John F. Schmutz
Vice President--General Counsel
<PAGE>
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
July 26, 1995
La Quinta Inns, Inc.
112 East Pecan Street
San Antonio, Texas 78299
Re: La Quinta Inns, Inc.
Registration Statement on Form S-3
(File No. 33-60295)
-------------------------------------------
Ladies/Gentlemen:
You have requested our opinion concerning certain material federal income
tax consequences to non-U.S. shareholders of the ownership and disposition of
a share of common stock, par value $0.10 per share, of a La Quinta Inns, Inc.
in connection with the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on June 16, 1995, as
amended by Amendment No. 1 filed with the Commission on July 7, 1995, and as
further amended by Amendment No. 2 filed with the Commission on July 26, 1995
(collectively, the "Registration Statement").
The facts, as we understand them and upon which, with your permission,
we rely on in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts it is our opinion that such
federal income tax consequences are accurately set forth under the heading
"Certain U.S. Tax Consequences to Non-U.S. Shareholders" in the Registration
Statement. No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder, and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which
are subject to change either prospectively or retroactively. Also, any
variation or difference in the facts from those set forth in the Registration
Statement may affect the conclusions stated herein.
<PAGE>
This opinion is rendered solely to you for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the
heading "Legal Matters."
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 15
La Quinta Inns, Inc.
San Antonio, Texas
Ladies and Gentlemen:
Re: Registration Statement No. 33-60295
With respect to this registration statement, we acknowledge our awareness of the
use therein of our report dated July 20, 1995, related to our review of the
combined condensed financial statements.
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 LLP
San Antonio, Texas
July 25, 1995
<PAGE>
EXHIBIT 23(A)
The Board of Directors
La Quinta Inns, Inc.
We consent to the use of our audit report included herein and incorporated
herein by reference and to the reference to our firm under the heading "Experts"
in the Prospectus.
Our audit report refers to the adoption of Statement of Financial Accounting
Standards No. 109 in 1993.
KPMG PEAT MARWICK LLP
San Antonio, Texas
July 25, 1995
