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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from__________ to ___________
Commission File No. 1-7790
La Quinta Inns, Inc.
(Exact name of registrant as specified in its charter)
Texas 74-1724417
(State of Incorporation) (I.R.S. Employer Identification Number)
Weston Centre 78299-2636
112 East Pecan Street (Zip Code)
P.O. Box 2636
San Antonio, Texas
(Address of principal executive office)
Registrant's telephone number, including area code: (210) 302-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock New York Stock Exchange, Inc.
($.10 par value)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1998 was approximately $1,477,453,000. As of
January 31, 1998, there were 77,137,118 shares of registrant's Common Stock
issued and outstanding.
Documents Incorporated by Reference:
None
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FORM 10-K INDEX
PART I
Page
----
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 14
Item 6. Selected Financial Data.......................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 17
Item 8. Financial Statements and Supplementary Data...................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant............... 51
Item 11. Executive Compensation........................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and Management... 58
Item 13. Certain Relationships and Related Transactions................... 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 62
Signatures ................................................................. 66
This Annual Report on Form 10-K for the year ended December 31, 1997, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any registration statement
or prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
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PART I
ITEM 1. BUSINESS
La Quinta Inns, Inc. ("La Quinta" or the "Company") is the largest
owner/operator of hotels in the mid-priced segment of the lodging industry in
the United States. La Quinta achieved an occupancy percentage of 69.4% and an
average daily room rate ("ADR") of $56.83 for the year ended December 31, 1997.
The Company has inns located in 28 states, concentrated in the Western and
Southern United States. At February 13, 1998, La Quinta owned and operated 234
inns and 36 Inn & Suites hotels with a combined total of approximately 35,000
rooms. 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 East Pecan Street, P.O. Box 2636, San
Antonio, Texas 78299-2636, telephone (210) 302-6000.
On January 3, 1998, La Quinta, Meditrust Corporation ("Meditrust REIT") and
Meditrust Operating Company ("Meditrust Operating Company" and together with
Meditrust REIT, the "Meditrust Companies") entered into an agreement and plan of
merger (the "Merger Agreement"), pursuant to which the Company will merge with
and into Meditrust REIT with Meditrust REIT being the surviving corporation (the
"Merger"). As a result of the Merger, Meditrust REIT will acquire all of the
assets and liabilities of the Company and Meditrust REIT will assume the
Company's existing indebtedness. The transaction is expected to close in the
second quarter of 1998. For further discussion of the Merger, see note 16 of
Notes to Combined Financial Statements.
Product
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.
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, such as its
complimentary First Light(TM) breakfast program which includes cereal and fresh
fruit, free unlimited local telephone calls, a swimming pool, same-day laundry
and dry cleaning, fax services, 24-hour front desk message service and free
parking. Amenities added in connection with the Company's Gold Medal(R) rooms
program include new 25 inch remote control televisions with greatly expanded
free television channel choices, movies-on-demand, interactive video games from
Nintendo(R), in room coffee makers and dataport telephones for computer
connections. Additional amenities available at La Quinta Inn & Suites include
two room suites with microwaves and refrigerators, fitness centers and
courtyards with gazebos and spas. La Quinta guests typically have convenient
access to food service at adjacent free-standing restaurants, including national
chains such as Cracker Barrel, International House of Pancakes, Denny's and
Perkins. La Quinta has an ownership interest in 120 of these adjacent buildings,
which are generally leased to restaurant operators.
La Quinta's strategy is to continue its growth as a high-quality provider
in the mid-priced segment of the hotel industry, focusing on enhancing revenues,
cash flow and profitability. Specifically, the Company's strategy centers upon:
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Continued Focus on Mid-priced Segment - Hotels in this price category
provide cost-conscious business travelers with high-quality rooms and
convenient locations at a moderate price. Because the Company competes
primarily in the mid-priced segment, management's attention is totally
focused on meeting the needs of La Quinta's target customers.
La Quinta Ownership and Management of Inns - In contrast to many of
its competitors, La Quinta manages and has ownership interests in all
of its inns. At February 13, 1998, the Company owned 100% of 268 inns
and 50% or more of an additional two inns. As a result, the Company
believes it is able to achieve a higher level of consistency in both
product quality and service than its competition. In addition, La
Quinta's position as one of the few owner-operated chains enables La
Quinta to offer new services, direct expansion, establish pricing
strategy and to 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. The Company's management of the inns also enables it
to control costs and allocate resources effectively to provide
excellent value to the consumer.
Unit Growth Program - The Company's unit growth program is based
primarily on the construction on new Inn & Suites hotels. At February
13, 1998, the Company had opened 36 new Inn & Suites hotels and
anticipates having a total of 65-70 Inn & Suites hotels open by the
end of 1998 and 100 at the end of 1999. The new Inn & Suites hotels
offer rooms designed to accommodate the needs of the guest
irrespective of the purpose of the trip. The standard two-bedded room
accommodates most short business trips or family travel. The King
Plus(R) Extra rooms feature a king size bed, refrigerator and
microwave which may be desirable for longer stays. The Inn & Suites
hotels also offer a select number of deluxe two-room suites with
separate sitting and sleeping areas, double vanities, a sleeper sofa,
and two closets, all of which are in addition to the amenities
provided in the King Plus Extra rooms. In addition, the Inn & Suites
hotels offer fitness centers and courtyards with gazebos and spas.
Gold Medal Rooms Program - During 1995, the Company launched its Gold
Medal rooms program designed to strengthen the Company's ability to
gain additional market share and pricing advantage relative to its
competitors. The program improved the quality, functionality and value
of guest rooms by enhancing the decor package, including fresh, new
colors, rich wood furniture, contemporary bathrooms, built-in closets,
oversized desks, 25 inch televisions and new draperies and bedspreads.
Service enhancements included movies-on-demand, interactive video
games from Nintendo(R), in room coffee makers, dataport telephones for
computer connections and greatly expanded free television channel
choices. The Company completed the program during 1997.
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,
Fairfield Inns and Drury Inns are direct competitors of La Quinta. Other
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, service level 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 and weather patterns, local
and regional economic conditions and the degree of competition with other
lodging establishments in the area.
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Structure and Ownership
The Company is a combined entity comprised of La Quinta Inns, Inc., which
owned and operated 268 inns through wholly-owned subsidiaries and partnerships
and two inns through combined unincorporated partnerships and joint ventures at
February 13, 1998.
The Board of Directors authorized a three-for-two stock split effected in
the form of a stock dividend effective in July 1996. Earnings per share and the
weighted average number of shares outstanding have been adjusted to give effect
to this distribution.
In 1995, the Company acquired all of AEW Partners, L.P. ("AEW") limited
partner's interest in La Quinta Development Partners, L.P. ("LQDP"), which owned
47 inns. The acquisition was effected through the issuance of common stock and
cash as described below.
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 7,949,732 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 (collectively, the "AEW
Transaction"). The AEW Transaction was consummated on July 3, 1995. Upon
conversion of the partnership interest into La Quinta Common Stock, the Company
issued 7,949,732 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. The conversion was accounted for by increasing shareholders' equity by
the $46.4 million value of the option and recording a $46.4 million non-cash
adjustment entitled Conversion of Partner's Interest into Common Stock below net
earnings in the Statement of Operations. There was no net effect to
shareholders' equity as a result of this accounting treatment. The sale to La
Quinta of AEW's remaining one-third interest in LQDP was accounted for as an
acquisition of a minority interest and purchase accounting was applied.
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 14 inns. Regional Managers are responsible for the service,
cleanliness and profitability of the inns in their regions.
Inn 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.
At December 31, 1997, La Quinta employed approximately 7,400 persons, of
whom approximately 90% were compensated on an hourly basis. Approximately 350
individuals were employed at the corporate headquarters and 7,050 were employed
directly in inn operations. The Company's employees are not currently
represented by labor unions. Management believes its ongoing labor relations are
good.
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 60% 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
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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. An external
industry survey shows La Quinta's heavy users are among the most loyal of the
mid-priced segment. The Company focuses a number of its marketing programs on
maintaining a high number of repeat customers. For example, La Quinta promotes a
"Returns(R) Club" offering members preferred status and rates at La Quinta inns,
along with rewards for frequent stays. The Returns Club had approximately
300,000 members as of December 31, 1997.
The Company focuses on reaching its target markets through advertising,
direct sales, repeat traveler incentive programs and other marketing programs
targeted at specific customer segments. The Company advertises through
television, radio and print advertisements which focus on quality and value. The
Company uses the same campaign concept throughout the country with minor
modifications made to address regional differences. The Company also uses
billboard advertisements posted along major highways to advertise the existence
and location of La Quinta inns or Inn & Suites hotels in the proximity.
The Company markets directly to companies and other organizations through
its direct sales force of over 60 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(R)," which
currently accounts for advance reservations for approximately 32% of room
nights. The teLQuik system allows customers to make reservations by dialing
1-800-NUROOMS (1-800-687-6667) or 1-800-531-5900 toll free, or from reservations
phones placed in all La Quinta inns. These phones enable guests to make their
next night's reservation from their previous night's La Quinta inn. In addition,
approximately 44% 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 76% of room nights. In May 1996,
La Quinta opened a second reservation center to support the growth of the chain
and to provide uninterrupted service in times of peak demand. Both reservation
centers provide state-of-the-art technology in processing reservations as one
virtual center. La Quinta, through its national sales managers, markets its
reservation services to travel agents and corporate travel planners who may
access teLQuik through five major airline reservation systems.
Information regarding inn locations, services and amenities, as well as
reservation capabilities and a virtual reality tour of the new Gold Medal rooms,
is available on the Company's Travel Web site at http://www.laquinta.com.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Certain statements in this
Annual Report that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The word "believes," "anticipates," "expects" and similar expressions,
when used in this Annual Report, are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors listed below and the
matters set forth in this Annual Report generally. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
Competition
The profitability of inns operated by the Company is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for hotel rooms and other factors. The
Company generally operates inns in markets that contain numerous competitors,
and the continued success of its inns will be dependent, in large part, upon the
ability of these facilities to compete in such areas as reasonableness of room
rates, quality of accommodations, service level and convenience of locations.
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
provide greater competition for guests than currently exists, and that new
hotels will not enter such markets.
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 revenue, profit margins and net earnings of the Company.
Supply and Demand
In some years, construction of lodging facilities in the United States
resulted in an excess supply of available rooms, and the oversupply had an
adverse effect on occupancy levels and room rates in the industry. Although the
relationship between supply and demand has been favorable in recent years, the
lodging industry may be adversely affected in the future by (i) an oversupply of
available rooms, (ii) national and regional economic conditions, (iii) changes
in travel patterns, (iv) taxes and government regulations which influence or
determine wages, prices, interest rates, construction procedures and costs, and
(v) the availability of credit.
Employment and Other Governmental Regulation
The Company's business is subject to extensive federal, state and local
regulatory requirements, including building and zoning requirements, all of
which can prevent, delay, make uneconomic or significantly increase the cost of
constructing additional lodging facilities. In addition, the Company is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime pay, working conditions, work permit requirements and
discrimination claims. An increase in the minimum wage rate, employee benefit
costs or other costs associated with employees could adversely affect the
Company. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. While the Company believes that its inns
are substantially in compliance with these requirements, a determination that
the Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other initiatives
could adversely affect the Company as well as the lodging industry in general.
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Environmental Regulation
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. 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 property 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 businesses may be operated, and these restrictions
may require substantial expenditures. In connection with the ownership or
operation of its inns, the Company may be potentially liable for any such costs.
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 effect
on the results of operations of the Company.
Employees
The Company's future success will depend, in part, on its continuing
ability to attract, retain and motivate highly qualified personnel, who are in
great demand.
Legal Proceedings
The Company is, and is likely in the future to be, subject to certain types
of litigation, including negligence and other tort claims. The costs and effects
of such legal and administrative cases and proceedings (whether civil or
criminal), settlements and investigations are indeterminate. There can be no
assurance that such costs and effects would not be material to the Company's
operations. For further discussion of these issues see Item 3, "Legal
Proceedings".
Lodging Industry Operating Risks
The Company is subject to all operating risks common to the lodging
industry. These risks include, among other things, (i) competition for guests
from other hotels, a number of which may have greater marketing and financial
resources than the Company, (ii) increases in operating costs due to inflation
and other factors, which increases may not have been offset in recent years, and
may not be offset in the future, by increased room rates, (iii) dependence on
business and commercial travelers and tourism, which business may fluctuate and
be seasonal, (iv) increases in energy costs and other expenses of travel, which
may deter travelers, and (v) adverse effects of general and local economic
conditions.
Construction
The Company may from time to time experience shortages of materials or
qualified tradespeople or volatile increases in the cost of certain construction
materials, resulting in longer than normal construction and remodeling periods,
loss of revenue and increased costs. The Company relies heavily on local
contractors, who may be inadequately capitalized or understaffed. The inability
or failure of one or more local contractors to perform may result in
construction delays, increased cost and loss of revenue.
Capital Requirements and Availability of Financing
The Company's business is capital intensive, and it will have significant
capital requirements in the future. The Company's leverage could affect its
ability to obtain financing in the future or to undertake refinancings on terms
and subject to conditions deemed acceptable by the Company. In the event that
the Company's cash flow and working capital are not sufficient to fund the
Company's expenditures or to service its indebtedness, it would be required to
raise additional funds through the sale of additional equity securities, the
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refinancing of all or part of its indebtedness, the incurrence of additional
permitted indebtedness or the sale of assets. There can be no assurance that any
of these sources of funds would be available in amounts sufficient for the
Company to meet its obligations. Moreover, even if the Company were able to meet
its obligations, its leveraged capital structure could significantly limit its
ability to finance its construction program and other capital expenditures, to
compete effectively or to operate successfully under adverse economic
conditions. Additionally, financial and operating restrictions contained in the
Company's existing indebtedness may limit the Company's ability to secure
additional financing, and may prevent the Company from engaging in transactions
that might otherwise be beneficial to the Company and to holders of the
Company's common stock. The Company's ability to satisfy its obligations will
also be dependent upon its future performance, which is subject to prevailing
economic conditions and financial, business and other factors beyond the
Company's control.
General Real Estate Investment Risks
The Company's ownership of real property, including inns, is substantial.
The Company's investments are subject to varying degrees of risk generally
incident to the ownership of real property. Real estate values and income from
the Company's inns may be adversely affected by changes in national economic
conditions, changes in local market conditions due to changes in general or
local economic conditions and neighborhood characteristics, changes in interest
rates and in the availability, cost and terms of mortgage funds, the impact of
present or future environmental legislation and compliance with environmental
laws, the ongoing need for capital improvements, changes in real estate tax
rates and other operating expenses, adverse changes in governmental rules and
fiscal policies, civil unrest, acts of God, including earthquakes and other
natural disasters (which may result in uninsured losses), acts of war, adverse
changes in zoning laws and other factors which are beyond the control of the
Company.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions is
limited. If the Company must sell an investment, there can be no assurance that
the Company will be able to dispose of it in the time period it desires or that
the sales price of any investment will recoup or exceed the amount of the
Company's investment.
Property Taxes
Each of the Company's inns is subject to real property taxes. The real
property taxes on the Company's inns may increase or decrease as property tax
rates change and as the properties are assessed or reassessed by taxing
authorities. If property taxes increase, the Company's operations could be
adversely affected.
Risks of Expansion Strategy
The Company intends to pursue a strategy of growth through the construction
of new lodging facilities. There can be no assurance that the Company will find
suitable sites for construction or that these sites will not be acquired by
competitors of the Company. There can be no assurance that any of the properties
the Company may construct will be profitable following such construction. The
construction of a property that is not profitable could adversely affect the
Company's profitability. The Company may in the future require additional
financing in order to continue to construct new lodging facilities. There is no
assurance that such additional financing, if any, will be available to the
Company on acceptable terms.
Investment in Single Industry
The Company is subject to risks inherent in investments in a single
industry. The effects on the Company's revenues resulting from a downturn in the
lodging industry would be more pronounced than if the Company had diversified
its investments outside of the hotel industry.
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Possible Volatility of Common Stock Price
The trading price of the Company's common stock may be influenced by the
performance of, and investor expectations for, the Company, the trading volume
of the Company's common stock and general economic and market conditions.
Accordingly, there can be no assurance as to the price at which the Company's
common stock will trade in the future.
Additional information on factors which could affect the Company's
financial results may be included in subsequent reports filed with the
Securities and Exchange Commission.
Risk of Non-consummation of the Merger
The closing of the Merger is subject to certain significant conditions
contained in the Merger Agreement. Many of these conditions will be beyond the
control of the Company. Although the Company currently expects that such
conditions will be satisfied or waived, there can be no assurance that the
closing of the Merger will occur. Such conditions include, among others, the
receipt of various consents and approvals, including approval by the
shareholders of the Company and the Meditrust Companies, the receipt of certain
opinions regarding the federal income tax treatment of the Merger, the receipt
of an opinion from the Company's independent public accountants with respect to
the Company's earnings and profit and the absence of any material adverse change
in the business, assets, prospects, financial condition or results of operations
of the Company or Meditrust.
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ITEM 2. PROPERTIES
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.
At February 13, 1998, La Quinta had opened a total of 36 new Inn & Suites
hotels and anticipates having a total of 65-70 Inn & Suites hotels open by the
end of 1998 and 100 at the end of 1999. The new Inn & Suites hotels offer rooms
designed to accommodate the needs of the guest irrespective of the purpose of
the trip. The standard two-bedded room accommodates most short business trips or
family travel. The King Plus Extra rooms feature a king-size bed, refrigerator
and microwave which may be desirable for longer stays. The Inn & Suites hotels
also offer a select number of deluxe two-room suites with separate sitting and
sleeping areas, double vanities, a sleeper sofa, and two closets, all of which
are in addition to the amenities provided in the King Plus Extra rooms. In
addition, the Inn & Suites hotels offer fitness centers and courtyards with
gazebos and spas.
To maintain the overall quality of La Quinta's inns, each inn undergoes
refurbishments and capital improvements as needed. Historically, refurbishing
has been provided at intervals of between five and seven years, based on an
annual review of the condition of each inn. In each of the years ended December
31, 1997, 1996 and 1995, the Company spent approximately $110,900,000,
$116,800,000 and $40,000,000, respectively, on capital improvements to existing
inns. These amounts include expenditures related to the Company's Gold Medal
rooms 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
properties unmatched by any other national mid-priced hotel chain.
During 1995, the Company launched its Gold Medal rooms program designed to
strengthen the Company's ability to gain additional market share and pricing
advantage relative to its competitors. The program, improved the quality,
functionality and value of guest rooms by enhancing the decor package, including
fresh, new colors, rich wood furniture, contemporary bathrooms, built-in
closets, oversized desks, 25 inch televisions and new draperies and bedspreads.
Service enhancements included movies-on-demand, interactive video games from
Nintendo(R), in room coffee makers, dataport telephones for computer connections
and greatly expanded free television channel choices. The program was completed
during 1997.
Typically, food service for La Quinta guests is provided by adjacent, free
standing restaurants. At December 31, 1997, the Company owned 120 restaurant
buildings adjacent to its inns. These restaurants 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.
11
<PAGE>
At February 13, 1998, the Company owned and operated 270 inns, including 36
La Quinta Inn & Suites hotels, located in 28 states, concentrated in the Western
and Southern United States. The Company had an additional 28 La Quinta Inn &
Suites hotels under construction, which are scheduled to open between February
1998 and December 1998. The states and cities in which the inns are located are
set forth in the following table:
<TABLE>
<S> <C> <C> <C> <C>
Alabama Macon* Ohio Midland INN & SUITES
Birmingham (3)* Savannah (2) Columbus Nacogdoches UNDER
Huntsville (2) Odessa CONSTRUCTION
Mobile Illinois Oklahoma Round Rock
Montgomery Champaign Norman* San Angelo Arizona
Tuscaloosa Chicago Metro (5) Oklahoma City (3) San Antonio (11) Phoenix (2)
Moline Tulsa (3) San Marcos
Arizona Sherman* California
Phoenix (6)* Indiana Pennsylvania Temple Fremont
Flagstaff* Indianapolis (2) Pittsburgh Texarkana Ontario
Tucson (3)* Merrillville Tyler
South Carolina Victoria Colorado
Arkansas Kansas Anderson Waco Colorado Springs
Little Rock (5) Lenexa Charleston Wichita Falls Denver (2)
Wichita Columbia Pueblo
California Greenville Utah
Bakersfield Kentucky Myrtle Beach* Layton Florida
Costa Mesa Lexington Provo* Ft. Lauderdale
Fresno Tennessee Salt Lake City (2)* Lake Mary
Irvine Louisiana Chattanooga Miami
La Palma Alexandria* Kingsport Virginia Ocala
Redding Baton Rouge Knoxville (2) Bristol Orlando (2)
Sacramento (2) Bossier City Memphis (3) Hampton Plantation
San Bernardino Kenner Nashville (3) Richmond
San Diego (3) Lafayette Virginia Beach Georgia
San Francisco Monroe Texas Atlanta (3)
Stockton New Orleans (5) Abilene Washington
Ventura Shreveport* Amarillo (2) Seattle (2) Louisiana
Slidell Arlington (2)* Tacoma New Orleans
Colorado Sulphur Austin (6)*
Colorado Springs Beaumont Wyoming Nevada
Denver (9)* Mississippi Bedford Cheyenne Las Vegas
Grand Junction* Jackson (2) Brownsville
Clute OTHER North Carolina
Florida Missouri College Station OWNED INNS Charlotte
Coral Springs St. Louis (2)* Corpus Christi (2) (operated under Raleigh
Cypress Creek Dallas Metro (16)* other brands)
Daytona Beach Nebraska Del Rio Oklahoma
Deerfield Beach Omaha Denton Georgia Oklahoma City
Ft. Myers Eagle Pass Columbus
Gainesville Nevada El Paso (3) South Carolina
Jacksonville (4)* Las Vegas (2) Fort Stockton Texas Greenville
Lakeland* Reno Fort Worth (3)* El Paso
Miami Galveston La Marque Tennessee
Orlando (3) New Mexico Georgetown San Antonio Memphis
Panama City* Albuquerque (4)* Harlingen
Pensacola Farmington Houston Metro (18)* Texas
Tallahassee (2) Las Cruces Huntsville Austin
Tampa (7)* Santa Fe Killeen Houston (2)
Laredo
Georgia North Carolina Longview
Atlanta (8)* Charlotte (2) Lubbock (2)
Augusta Raleigh (2)* Lufkin
Columbus
</TABLE>
* Indicates at least one La Quinta Inn & Suites location.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In January 1998, two lawsuits were filed in the District Court of Bexar
County, Texas on behalf of stockholders of the Company against the Company,
certain directors and officers of the Company, and Meditrust Corporation
(collectively, the "Defendants"). The lawsuits are captioned Robbins v. Razzouk,
et al, Cause No. 98CI-00192, and Brody v. Razzouk, et al, Cause No. 98CI-00456
(the "Actions"). The complaints in the Actions allege, among other things, that
Defendants (other than Meditrust) have breached their fiduciary duties to
stockholders by agreeing in the Merger Agreement to Merger Consideration which
is "grossly inadequate", by failing to solicit competing bids or to provide a
"market check", by failing to conduct a full and thorough investigation, and by
failing to make adequate public disclosure regarding the transaction. The
independence of the directors of the Company is also questioned. The complaints
allege that Meditrust aided and abetted the alleged breaches of duty by the
other Defendants. The complaints in the Actions seek, among other things, (i) a
declaration that Defendants have breached their fiduciary duties to members of
the alleged class, (ii) a declaration that the proposed transaction is a legal
nullity, (iii) an order preliminarily and permanently enjoining consummation of
the proposed transaction, (iv) if the proposed transaction is consummated, an
order to rescind it, (v) the award of compensatory damages, and (vi) the award
of costs, disbursements and attorneys fees.
La Quinta believes that each of these lawsuits is without merit and intends
to defend them vigorously.
Actions for negligence or other tort claims occur routinely as an ordinary
incident to the Company's business. 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,
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 its operations.
The Company has established a paid loss insurance program (the "Paid Loss
Program") for inns owned and managed by the Company for commercial general
liability, automobile liability and workers' compensation and employer's
liability. 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 similar 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 occurrence of $500,000 for general liability and workers' compensation and
$250,000 for automobile coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year covered by this Annual Report on Form
10-K, no matter was submitted to a vote of Registrant's security holders through
the solicitation of proxies or otherwise.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on The New York Stock Exchange. The
range of the high and low sale prices of the Company's Common Stock and per
share dividend amounts paid for each of the quarters during the years ended
December 31, 1997 and 1996, as adjusted for the three-for-two stock split
effected in the form of a stock dividend in July 1996, is set forth below:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- -------------------------------------------
Per Share Per Share
High Low Dividend High Low Dividend
----------- ----------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter....................... $23 $16 5/8 $ .0175 $19 3/4 $15 5/8 $ .0167
Second Quarter...................... 24 3/8 20 1/8 .0175 24 17 5/8 .0167
Third Quarter....................... 23 9/16 19 7/8 .0175 23 5/8 16 3/8 .0175
Fourth Quarter...................... 23 15/16 17 1/8 .0175 21 7/8 17 3/4 .0175
</TABLE>
During the first two quarters of 1996, the Company paid quarterly cash
dividends in the amount of $.0167 per share under its quarterly dividend policy
as authorized by the Board of Directors. As a result of the stock split in July
1996, the Board of Directors changed the annual dividend rate to $.07 per share
and paid quarterly cash dividends in the amount of $.0175 per share for the
third and fourth quarters of 1996 and for each quarter during 1997. For
restrictions on the Company's present or future ability to pay cash dividends,
see note 3 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 January 31, 1998, the approximate number of holders of record of the
Company's Common Stock was 976.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts, ratios and inn statistics)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues ............................................. $ 502,569 $ 443,059 $ 413,919 $ 362,242 $ 271,850
Direct and corporate operating costs and
expenses .................................................. 263,025 237,188 227,675 213,405 168,021
Depreciation, amortization and asset retirements ........... 60,817 48,105 40,951 38,080 24,055
Provision for premature retirement of assets ............... -- 18,076 12,630 -- --
Performance stock option ................................... -- -- -- -- 4,407
Operating income ........................................... 178,727 139,690 132,663 110,757 75,367
Net interest expense ....................................... 49,186 41,812 39,442 37,439 26,219
Earnings before extraordinary items and
cumulative effect of accounting change .................... 87,304 60,719 51,374 37,815 19,420
Net earnings ............................................... 87,266 60,195 50,657 37,815 20,301
Conversion of partner's interest into common
stock (1) ................................................. -- -- 46,364 -- --
Basic earnings per share after conversion of
partner's interest into common stock and before
extraordinary items and cumulative effect of
accounting change (2) ..................................... 1.13 .78 .07 .55 .29
Basic net earnings available to shareholders per
share (2) ................................................. 1.13 .77 .06 .55 .30
Diluted earnings per share after conversion of
partner's interest into common stock and before
extraordinary items and cumulative effect of
accounting change (2) ..................................... 1.09 .75 .07 .52 .27
Diluted net earnings available to shareholders per
share (2) ................................................. 1.09 .74 .06 .52 .29
OTHER DATA
Construction, purchase and conversion of inns .............. 251,516 148,977 77,502 34,690 38,858
Other capital expenditures (3) ............................. 110,891 116,799 39,976 75,248 32,623
Purchase of partners' equity interests (4) ................. 81 9,232 48,200 53,255 78,169
Net cash provided by operating activities .................. 161,768 148,262 128,798 94,233 78,043
Net cash used by investing activities ...................... 339,109 275,179 158,828 156,492 145,027
Net cash provided by financing activities .................. 177,943 125,835 30,031 41,000 77,971
Cash dividends declared per common share (5) ............... .07 .07 .07 .05 .01
Cash dividends paid ........................................ 5,414 5,330 4,957 3,465 1,015
EBITDA (6) ................................................. 239,544 205,871 186,244 148,837 103,829
BALANCE SHEET DATA
Total assets ............................................... 1,502,024 1,199,800 964,115 845,781 749,495
Shareholders' equity ....................................... 432,526 365,576 331,713 189,231 149,057
Partners' capital .......................................... 2,667 3,293 6,309 92,099 85,976
Current installments of long-term debt ..................... 29,400 33,299 13,322 39,976 22,491
Long-term debt, excluding current installments ............. 872,285 659,369 518,416 448,258 414,004
Ratio of earnings to fixed charges (7) ..................... 3.1x 2.9x 3.1x 2.8x 2.4x
Combined effective debt-to-equity ratio (8) ................ 2.00 1.79 1.53 1.59 1.76
OPERATING DATA
Number of inns (9) ......................................... 267 248 237 226 220
Occupancy percentage ....................................... 69.4% 68.9% 70.8% 70.1% 65.1%
Average daily room rate .................................... $ 56.83 $ 53.83 $ 51.07 $ 47.65 $ 46.36
</TABLE>
- ----------
15
<PAGE>
(1) Conversion of partner's interest into common stock is a non-recurring,
non-cash charge related to the AEW Transaction. (See note 15 of Notes to
Combined Financial Statements.)
(2) Basic earnings per share reflects the earnings available to each share of
common stock outstanding during the reporting period. Diluted earnings per
share reflects the earnings available to each share of common stock
outstanding during the reporting period and to each share that would have
been outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period. All
earnings per share disclosures have been adjusted to give effect to the
Company's stock splits effected in the form of stock dividends.
(3) Capital expenditures for the years ended December 31, 1997, 1996 and 1995
include costs related to the Company's Gold Medal rooms program, while the
December 31, 1994 and 1993 capital expenditures include costs related to
the Company's image enhancement program.
(4) Purchase of partners' equity interests in 1995 is related to the
acquisition of LQDP, while purchase of partners' equity interests in 1994
and 1993 includes approximately $9,672,000 and $42,091,000, respectively,
related to the acquisition of LQP.
(5) Cash dividends declared per common share have been adjusted to give effect
to the Company's stock splits effected in the form of stock dividends.
(6) EBITDA is defined as earnings before net interest expense, income taxes,
depreciation, amortization and asset retirements, provision for premature
retirement of assets, extraordinary items, partners' equity in earnings,
gain or loss on property transactions and performance stock option. This
definition differs from the traditional EBITDA definition which does not
include adjustments for extraordinary items, partners' equity in earnings,
gain or loss on property transactions, provision for premature retirement
of assets and performance stock option as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Extraordinary items ........................ $ 38 $ 524 $ 717 $ -- $ 619
Partners' equity in earnings ............... 860 1,499 10,227 11,406 12,965
(Gain) loss on property transactions ....... (8,808) -- -- (79) 4,347
Provision for premature retirement of assets -- 18,076 12,630 -- --
Performance stock option ................... -- -- -- -- 4,407
</TABLE>
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principles
("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.
(7) For purposes of calculating this ratio, earnings include net earnings
before income taxes, extraordinary items, and the cumulative effect of
accounting change, partners' equity in earnings of combined unincorporated
partnerships and joint ventures that have fixed charges, fixed charges net
of interest capitalized and amortization of capitalized interest. Fixed
charges include interest expense on long-term debt (before capitalized
interest) and the portion of rental expense allocated to interest.
(8) Ratio of long-term debt, excluding current installments, to partners'
capital plus shareholders' equity at year end.
(9) As of December 31, 1997, the Company owned and operated 267 inns through
wholly-owned subsidiaries and partnerships, one inn through an
unincorporated partnership and one inn through an unincorporated joint
venture.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 50% interest, and in one case a 40% interest
through July 3, 1995, and over which it exercises substantial legal, financial
and operational control.
On January 3, 1998, La Quinta, Meditrust Corporation ("Meditrust REIT") and
Meditrust Operating Company ("Meditrust Operating Company" and together with
Meditrust REIT, the "Meditrust Companies") entered into an agreement and plan of
merger (the "Merger Agreement"), pursuant to which the Company will merge with
and into Meditrust REIT with Meditrust REIT being the surviving corporation (the
"Merger"). In the Merger, La Quinta shares will be converted into Paired Shares
of The Meditrust Companies, or converted into cash. As a result of the Merger,
Meditrust REIT will acquire all of the assets and liabilities of the Company and
Meditrust REIT will assume approximately $900 million of the Company's existing
indebtedness.
Under the terms of the Merger Agreement, shareholders of the Company will
have the option to elect to receive either (i) common stock of the Meditrust
Companies (the "Paired Shares"), or (ii) cash. The stock consideration will be
payable in Paired Shares under an exchange ratio based on the average closing
price of the Paired Shares for 20 randomly determined trading days in a 30-day
period ending the eighth day prior to the Company's shareholder meeting called
to consider the Merger (the "Meeting Date Price"). The Paired Shares issued in
the Merger will be entitled to receive a cash earnings and profit distribution
from Meditrust REIT.
The Merger Agreement provides that Company shareholders receiving stock
consideration will receive Paired Shares in an amount, based on the Meeting Date
Price, equal to the difference between $26.00 and the earnings and profit
distribution to be received per Company share, so long as the Meeting Date Price
is between $34.20 and $41.80. Company shareholders electing to receive stock
consideration will also receive the earnings and profit distribution so long as
they hold the Paired Shares on the applicable record date. The earnings and
profit distribution is expected to be declared immediately prior to the Merger,
payable to all shareholders of record of the Meditrust Companies on a date to be
determined by Meditrust between the fifteenth and the forty-fifth day following
the Merger and payable within fifteen days of such record date.
If the Meeting Date Price is greater than or equal to $41.80 but less than
or equal to $45.60, the exchange ratio for each share of Company common stock
exchanged into Paired Shares will be 0.6220, reduced by the consideration to be
received in the earnings and profit distribution per Company share (resulting in
total consideration based on the Meeting Date Price ranging from $26.00 to
$28.36 per share of Company common stock, including the earnings and profit
distribution, as the Meeting Date Price increases from $41.80 to $45.60). If the
Meeting Date Price is greater than $45.60, then each Company share will be
entitled to receive $28.36 in total consideration based on the Meeting Date
Price, comprised of Paired Shares and the earnings and profit distribution
referred to above.
If the Meeting Date Price is less than $34.20 but greater than or equal to
$30.40, the exchange ratio for each share of Company common stock exchanged into
Paired Shares will be 0.7602, reduced by the amount to be received in the
earnings and profit distribution per Company share (resulting in total
consideration based on the Meeting Date Price ranging from $26.00 to $23.11 per
share of Company common stock, including the earnings and profit distribution,
as the Meeting Date Price decreases from $34.20 to $30.40). If the Meeting Date
Price is below $30.40, the Company will have the right to terminate the Merger
Agreement under certain circumstances, subject to a "top-up" right exercisable
by Meditrust REIT which is designed to return total consideration per Company
share based on the Meeting Date Price to at least $23.11, inclusive of the
earnings and profit distribution. If the Meeting Date Price is below $28.50, the
Company will have the unilateral right to terminate the Merger Agreement.
All Company shareholders will have the right to elect cash consideration in
the Merger for each of their shares of Company common stock. The Merger
Agreement provides that Company shareholders electing to
17
<PAGE>
receive cash in the Merger will receive, subject to the maximum cash
limitations, $26.00 per exchanged share of Company common stock. In the event
that the amount to be paid both pursuant to cash elections in the Merger and in
the earnings and profit distribution paid with respect to Paired Shares received
by Company shareholders in the Merger exceeds approximately $521 million, the
cash merger consideration will be distributed pro rata among those shares
electing cash and all other Company shares will receive Paired Shares in the
Merger. The maximum cash limitation of approximately $521 million (which
includes the cash merger consideration and the earnings and profit distribution
payable on Paired Shares issued in the Merger is not subject to adjustment based
on the Meeting Date Price.
The Merger is subject to various conditions including, without limitation,
approval of the Merger by two-thirds of the outstanding shares of the Company
common stock, by a majority of the outstanding shares of each of the Meditrust
Companies, and regulatory agencies. Subject to the terms of a shareholders
agreement, Gary L. Mead, Thomas M. Taylor & Co. and entities and individuals
associated with certain members of the Bass family have agreed with the
Meditrust Companies to vote approximately 29% of the outstanding shares of the
Company common stock in favor of the Merger. These shareholders have also agreed
to select cash consideration for all of their shares of Company common stock. It
is currently anticipated that the Merger will be consummated in the second
quarter of 1998.
The Board of Directors authorized a three-for-two stock split effected in
the form of a stock dividend effective in July 1996. Earnings per share and the
weighted average number of shares outstanding have been adjusted to give effect
to this distribution.
At February 13, 1998, La Quinta had opened a total of 36 new Inn & Suites
hotels and anticipates having a total of 65-70 Inn & Suites hotels open by the
end of 1998 and 100 at the end of 1999. The new Inn & Suites hotels offer rooms
designed to accommodate the needs of the guest irrespective of the purpose of
the trip. The standard two-bedded room accommodates most short business trips or
family travel. The King Plus(R) Extra rooms feature a king-size bed,
refrigerator and microwave which may be desirable for longer stays. The Inn &
Suites hotels also offer a select number of deluxe two-room suites with separate
sitting and sleeping areas, double vanities, a sleeper sofa, and two closets,
all of which are in addition to the amenities provided in the King Plus Extra
rooms. In addition, the Inn & Suites hotels offer fitness centers and courtyards
with gazebos and spas.
During 1997 and 1996, the Company acquired the limited partners' interest
in one and four, respectively of its combined unincorporated partnerships and
joint ventures, which each owned one inn. The Company now has remaining one
unincorporated partnership and one unincorporated joint venture, each owning one
inn.
The Company acquired eleven inns during the year ended December 31, 1995
for conversion to the La Quinta(R) brand.
During 1995, the Company launched its Gold Medal(R) rooms program designed
to strengthen the Company's ability to gain additional market share and pricing
advantage relative to its competitors. The program improved the quality,
functionality and value of guest rooms by enhancing the decor package, including
fresh, new colors, rich wood furniture, contemporary bathrooms, built-in
closets, oversized desks, 25 inch televisions and new draperies and bedspreads.
Service enhancements include movies-on-demand, interactive video games from
Nintendo(R), in room coffee makers, dataport telephones for computer connections
and greatly expanded free television channel choices. The program required 20-30
rooms at a time to be taken out of available supply at an inn during the typical
10-12 week construction period. The Company did not adjust its available rooms
or occupancy percentage for rooms unavailable due to construction as a result of
this program. The Company completed the program during 1997.
On June 15, 1995, AEW Partners, L.P. ("AEW") notified the Company that it
would exercise, subject to certain conditions, its option to convert two-thirds
of its ownership interest in La Quinta Development Partners, L.P. ("LQDP") into
7,949,732 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
18
<PAGE>
(collectively, the "AEW Transaction"). The AEW Transaction was consummated on
July 3, 1995. Upon conversion of the partnership interest into La Quinta Common
Stock, the Company issued 7,949,732 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. The conversion was accounted for by increasing
shareholders' equity by the $46.4 million value of the option and recording a
$46.4 million non-recurring, non-cash adjustment entitled Conversion of
Partner's Interest into Common Stock below net earnings in the Statement of
Operations. There was no net effect to shareholders' equity as a result of this
accounting treatment. The sale to La Quinta of AEW's remaining one-third
interest in LQDP was accounted for as an acquisition of a minority interest and
purchase accounting was applied.
The following chart shows certain historical operating statistics and
revenue data. References to occupancy percentage, average daily rate ("ADR") and
revenue per available room ("REVPAR") 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). All financial data is related to Company
Inns unless otherwise specified.
<TABLE>
<CAPTION>
Comparative Operating Statistics and Revenue Data
-------------------------------------------------------------------------
Years Ended December 31
-------------------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
(in thousands, except rates and percentages)
<S> <C> <C> <C>
Room revenue $473,717 $416,969 $390,449
Other inn revenue 20,777 17,895 15,245
------------- ------------- -------------
Total inn revenue 494,494 434,864 405,694
Restaurant rental and other 7,965 8,105 8,071
Management services 110 90 154
------------- ------------- -------------
Total revenue $502,569 $443,059 $413,919
============= ============= =============
Occupancy percentage 69.4% 68.9% 70.8%
ADR $ 56.83 $ 53.83 $ 51.07
REVPAR $ 39.45 $ 37.06 $ 36.17
Available rooms 12,008 11,251 10,793
</TABLE>
Year Ended December 31, 1997
Compared to Year Ended December 31, 1996
Total revenues increased to $502,569,000 in 1997 from $443,059,000 in 1996,
an increase of $59,510,000, or 13.4%. Of the total revenues reported in 1997,
98.4% were revenues from inns and 1.6% were revenues from restaurant rentals and
other revenue.
Inn revenues are derived from room rentals and other sources such as
charges to guests for long-distance telephone service, fax machine use, phone,
movie and vending commissions, meeting room and banquet revenues and laundry
services. Inn revenues increased to $494,494,000 in 1997 from $434,864,000 in
1996, an increase of $59,630,000, or 13.7%. The increase in inn revenues was due
primarily to an increase in ADR and occupancy along with the revenues associated
with the opening of new Inn & Suites hotels. ADR increased to $56.83 in 1997
from $53.83 in 1996, an increase of $3.00, or 5.6%. Occupancy percentage
increased .5 percentage points to 69.4% in 1997 from 68.9% in 1996. REVPAR,
which is the product of occupancy percentage and ADR, increased 6.4% over 1996.
Improvements in ADR and REVPAR are due, in part, to the completion of the Gold
Medal rooms program during 1997.
Restaurant rental and other revenues primarily include rental payments from
restaurants owned by the Company and leased to and operated by third parties.
Restaurant rental and other decreased to $8,075,000 in 1997 from $8,195,000 in
1996, a decrease of $120,000, or 1.5%.
Direct expenses include costs directly associated with the operation of
inns. In 1997, approximately 38.2% of direct expenses were represented by
salaries, wages, and related costs. Other major categories of direct
19
<PAGE>
expenses include utilities, property taxes, repairs and maintenance, credit card
discounts and room supplies. Direct expenses increased to $244,501,000 ($29.33
per occupied room) in 1997 compared to $218,738,000 ($28.24 per occupied room)
in 1996, an increase of $25,763,000, or 11.8%. The increase in direct expenses
period over period is primarily attributable to the growth in number of inns. As
a percent of total revenues, direct expenses decreased to 48.7% in 1997 from
49.4% in 1996.
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. Corporate expenses increased to
$18,524,000 ($1.54 per available room) in 1997 from $18,450,000 ($1.64 per
available room) in 1996. As a percent of total revenues, corporate expenses
decreased to 3.7% in 1997 from 4.2% in 1996.
Depreciation, amortization and asset retirements increased to $60,817,000
in 1997 from $48,105,000 in 1996, an increase of $12,712,000, or 26.4%. This is
due primarily to the increase in number of inns and increased depreciation for
inns due to the completion of the Gold Medal rooms program.
A provision for premature retirement of assets totaling $18,076,000 was
recorded during 1996. This non-cash charge is directly attributable to the
Company's Gold Medal rooms program. During the program, the Company replaced
certain furniture and fixtures before the end of their normal useful lives and
therefore made adjustments to reflect shorter remaining lives.
As a result of the above, operating income increased to $178,727,000 in
1997 from $139,690,000 in 1996, an increase of $39,037,000, or 27.9%. Operating
income before the provision for premature retirement of assets increased to
$178,727,000 in 1997 from $157,766,000 in 1996, an increase of $20,961,000, or
13.3%.
Interest, net increased to $49,186,000 in 1997 from $41,812,000 in 1996, an
increase of $7,374,000, or 17.6%. The increase in interest, net is primarily
attributable to an increase in long-term borrowings and is partially offset by
an increase in capitalized interest of $4,216,000. Interest, net includes
capitalized interest of $9,645,000 and $5,429,000 in 1997 and 1996,
respectively. The increase in capitalized interest is primarily due to the
construction of new Inn & Suites hotels.
Partners' equity in earnings reflects the interests of partners in the
earnings of the combined unincorporated partnerships and joint ventures which
are owned at least 50% and controlled by the Company. Partners' equity in
earnings decreased to $860,000 in 1997 from $1,499,000 in 1996, a decrease of
$639,000. This decrease reflects the Company's acquisition of the limited
partner's interest in two of its combined unincorporated partnerships and joint
ventures since September 1996.
The gain on property transactions of $8,808,000 in 1997 is related to the
disposition of certain properties. After a short transition period, these
properties will not be operated by the Company or branded as La Quinta(R)Inns.
Income taxes for 1997 were calculated using an effective income tax rate of
36.5% compared to an effective income tax rate of 37% for 1996. The reduction in
the tax rate from 1996 to 1997 resulted from the successful resolution in the
fourth quarter of 1997 of certain income tax issues for which tax expense had
previously been provided.
For the reasons discussed above, the Company reported earnings before
extraordinary items of $87,304,000 in 1997 compared with $60,719,000 in 1996, an
increase of $26,585,000, or 43.8%. Earnings before extraordinary items and the
provision for premature retirement of assets, net of tax, increased $15,197,000,
or 21.1% to $87,304,000 in 1997 from $72,107,000 in 1996.
Extraordinary items, net of tax decreased to $38,000 in 1997 from $524,000
in 1996, and resulted primarily from prepayment fees related to the early
extinguishment of approximately $1,740,000 and $16,707,000 of industrial
development revenue bonds and long-term mortgage debt in 1997 and 1996,
respectively.
20
<PAGE>
For the reasons discussed above, the Company reported net earnings of
$87,266,000 in 1997 compared with $60,195,000 in 1996, an increase of
$27,071,000, or 45.0%.
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
Total revenues increased to $443,059,000 in 1996 from $413,919,000 in 1995,
an increase of $29,140,000, or 7.0%. Of the total revenues reported in 1996,
98.2% were revenues from inns and 1.8% were revenues from restaurant rentals and
other revenue.
Inn revenues increased to $434,864,000 in 1996 from $405,694,000 in 1995,
an increase of $29,170,000, or 7.2%. The increase in inn revenues was due
primarily to an increase in ADR along with the revenues associated with the
opening of inns in 1996. ADR increased to $53.83 in 1996 from $51.07 in 1995.
The increase in inn revenues is partially offset by a decrease in occupancy
percentage from 70.8% in 1995 to 68.9% in 1996. The decrease in occupancy
percentage primarily resulted from a significant number of rooms that were
unavailable to rent because of construction related to the Gold Medal rooms
program. REVPAR increased 2.5% over 1995. Improvements in ADR and REVPAR are
due, in part, to the completion of the Gold Medal rooms program in most of the
Company's major markets.
Restaurant rental and other revenues decreased to $8,195,000 in 1996 from
$8,225,000 in 1995, a decrease of $30,000.
In 1996, approximately 39.7% of direct expenses were represented by
salaries, wages, and related costs. Direct expenses increased to $218,738,000
($28.24 per occupied room) in 1996 compared to $209,153,000 ($27.36 per occupied
room) in 1995, an increase of $9,585,000, or 4.6%. The increase in direct
expenses period over period is primarily attributable to the growth in number of
inns. As a percent of total revenues, direct expenses decreased to 49.4% in 1996
from 50.5% in 1995.
Corporate expenses decreased to $18,450,000 ($1.64 per available room) in
1996 from $18,522,000 ($1.72 per available room) in 1995. As a percent of total
revenues, corporate expenses decreased to 4.2% in 1996 from 4.5% in 1995.
Depreciation, amortization and asset retirements increased to $48,105,000
in 1996 from $40,951,000 in 1995, an increase of $7,154,000, or 17.5%. This is
due primarily to the increase in fixed assets resulting from the increase in
number of inns, acquisition of unincorporated partnerships and joint ventures
and additions from the Gold Medal Rooms program.
A provision for premature retirement of assets totaling $18,076,000 was
recorded during 1996. This non-cash charge is directly attributable to the
Company's Gold Medal rooms program. During the program, the Company replaced
certain furniture and fixtures before the end of their normal useful life and
therefore made adjustments to reflect shorter remaining lives. As a result the
Company recorded non-cash provisions for premature retirement of assets of
$18,076,000 and $12,630,000 in 1996 and 1995, respectively.
As a result of the above, operating income increased to $139,690,000 in
1996 from $132,663,000 in 1995, an increase of $7,027,000, or 5.3%. Operating
income before the provision for premature retirement of assets increased to
$157,766,000 in 1996 from $145,293,000 in 1995, an increase of $12,473,000, or
8.6%.
Interest, net increased to $41,812,000 in 1996 from $39,442,000 in 1995, an
increase of $2,370,000, or 6.0%. The increase in interest, net is primarily
attributable to the increase in borrowings used for capital expenditures related
to the Gold Medal Rooms program, new inn construction and the purchase of
treasury stock and is partially offset by an increase in capitalized interest of
$4,116,000. Interest, net includes capitalized interest of $5,429,000 and
$1,313,000 in 1996 and 1995, respectively. The increase in capitalized interest
is primarily due to the construction of inns.
21
<PAGE>
Partners' equity in earnings decreased to $1,499,000 in 1996 from
$10,227,000 in 1995, a decrease of $8,728,000. This decrease is primarily
attributable to the elimination of LQDP's equity in earnings since July 1995.
Income taxes for 1996 were calculated using an effective income tax rate of
37% compared to an effective income tax rate of 38.1% for 1995. The reduction in
the annual effective income tax rate resulted from the full year impact of the
AEW Transaction.
For the reasons discussed above, the Company reported earnings before
extraordinary items of $60,719,000 in 1996 compared with $51,374,000 in 1995, an
increase of $9,345,000, or 18.2%. Earnings before extraordinary items and the
provision for premature retirement of assets, net of tax, increased $12,915,000,
or 21.8% to $72,107,000 in 1996 from $59,192,000 in 1995.
Extraordinary items, net of tax, of $524,000 were recorded during 1996 and
resulted primarily from prepayment fees related to the early extinguishment of
approximately $16,707,000 of long-term mortgage debt and industrial development
revenue bonds.
For the reasons discussed above, the Company reported net earnings of
$60,195,000 in 1996 compared with $50,657,000 in 1995, an increase of
$9,538,000, or 18.8%.
During 1995, the Company recorded a non-cash, non-recurring charge of
$46,364,000 as conversion of partner's interest into common stock which was
directly attributable to the AEW Transaction. This charge reduced net earnings
available to shareholders to $4,293,000, or $.06 per share.
22
<PAGE>
Capital Resources and Liquidity
During the year ended December 31, 1997, the Company's capital needs were
met primarily through operating cash flows and through the issuance of $50
million of 7.27% Medium-Term Notes due 2007, the issuance of $50 million of
7.33% Medium-Term Notes due 2008 and borrowings under its $325 million Unsecured
Line of Credit and its $75 million Bank Unsecured Line of Credit, as defined
below. During the year ended December 31, 1996, the Company funded its capital
needs primarily through operating cash flows, the issuance of $100 million of
7.25% Senior Unsecured Notes due 2004, the issuance of $50 million of 7.11%
Medium-Term Notes due 2001 and borrowings under its $250 million Bank Unsecured
Credit Facilities.
At December 31, 1997, the Company had a $325 million Unsecured Line of
Credit with a consortium of banks and a $75 million Bank Unsecured Line of
Credit (together, the "Unsecured Credit Facilities"). The $325 million Unsecured
Line of Credit matures February 2002 and the $75 million Bank Unsecured Line of
Credit matures March 1998. At December 31, 1997, the Company had $64,694,000
available on its Unsecured Credit Facilities, net of $1,306,000 of letters of
credit collateralizing certain mortgages. The Unsecured Credit Facilities bear
interest at the prime rate or LIBOR, adjusted for an applicable margin, as
defined in the related credit agreements. The applicable margin is determined
quarterly based upon predetermined levels of cash flow to indebtedness or credit
ratings received by specified credit rating agencies, as defined in the related
credit agreements. At December 31, 1997, borrowings under the Unsecured Credit
Facilities bear interest at LIBOR plus 33.75 basis points on $315,000,000 of
outstanding borrowings and LIBOR plus 38.75 basis points on $19,000,000 of
outstanding borrowings. The $325 million Unsecured Line of Credit requires a
facility fee of 18.75 basis points on the average amount of the commitment.
On February 12, 1998, the Company amended its $75 million Bank Unsecured
Line of Credit. The amendment increased the Bank Unsecured Line of Credit to
$125 million, extended its term to July 1998 and increased the applicable margin
over LIBOR to 50 basis points.
On August 15, 1997, La Quinta filed a shelf registration statement with the
Securities and Exchange Commission which would allow the Company to issue up to
$300,000,000 principal amount of Debt Securities. The registration statement
became effective on August 25, 1997. The Company has not issued any Debt
Securities under this registration statement.
On January 19, 1996, La Quinta filed a shelf registration statement with
the Securities and Exchange Commission which would allow the Company to issue up
to $250 million principal amount of Debt Securities. The registration statement
became effective on January 25, 1996. In February 1997, the Company issued $50
million of 7.27% Medium-Term Notes due 2007 and in July 1997, the Company issued
$50 million of 7.33% Medium-Term Notes due 2008. During 1996, the Company issued
$100 million of 7.25% Senior Unsecured Notes due 2004 and $50 million of 7.11%
Medium-Term Notes due 2001 under this registration statement.
At December 31, 1997, the Company had $2,110,000 of cash and cash
equivalents, compared to $1,508,000 at December 31, 1996.
Net cash provided by operating activities increased to $161,768,000 in 1997
from $148,262,000 in 1996, an increase of $13,506,000 or 9.1%. In 1996, net cash
provided by operating activities increased by $19,464,000 or 15.1% from
$128,798,000 in 1995. The increase in net cash provided by operating activities
in both 1997 and 1996 was the result of improved REVPAR, which increased by 6.4%
in 1997 and 2.5% in 1996 and increases in deferred income taxes.
Net cash used by investing activities of $339,109,000 in 1997 and
$275,179,000 in 1996 reflects expenditures related to the new Inn & Suites hotel
construction projects and the Gold Medal rooms program. Net cash used in
investing activities of $158,828,000 in 1995 reflects the impact of the AEW
Transaction, the acquisition and conversion of eleven inns, cost related to the
new Inn & Suites hotel construction projects and the Gold Medal rooms program.
23
<PAGE>
Net cash provided by financing activities was $177,943,000 in 1997 compared
with $125,835,000 in 1996. The increase is primarily the result of increased
borrowings to fund capital expenditures related to the Gold Medal rooms program,
new Inn & Suites hotel construction and the purchase of treasury stock.
The Board of Directors has authorized a series of plans for the repurchase
of up to a total of $80,000,000 of the Company's common stock. During January
1996, the Board of Directors, through a resolution independent of the
$80,000,000 series of repurchase plans, approved a private transaction for the
repurchase of $11,500,000 of the Company's common stock from a related party
(see note 13 of Notes to Combined Financial Statements). Total repurchases under
these plans, including the private transaction, were approximately $84,358,000,
of which approximately $22,905,000 were made during 1997.
Commitments
The Company has made commitments of approximately $177,506,000 for the
completion of Inn & Suites hotels for which construction had commenced as of
December 31, 1997. Funds on hand, anticipated future cash flows and amounts
available on the Company's Unsecured Credit Facilities as may be increased from
time to time and its $300,000,000 shelf registration statement are expected to
be sufficient to complete these projects. The Company will evaluate from time to
time the appropriateness 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 revenue, profit margins and net earnings of the Company.
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 of the
Company in the three most recent years.
Year 2000
In 1997, the Company began the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue. This issue affects computer systems that have time-sensitive programs
that may not properly recognize the year 2000. This could result in system
failures or miscalculations. The Company is currently addressing its internal
year 2000 issue with modifications to existing programs and conversions to new
programs. The Company is also communicating with financial institutions,
software vendors and others with which it conducts business to help them
identify and resolve the year 2000 issue. The total cost of converting all
internal systems has not been completely quantified, but it is not expected to
be a material cost to the Company. However, no estimates can be made as to the
potential adverse impact that may result from the failure of the Company's
financial institutions, software vendors and others with which it conducts
business to become year 2000 compliant. Costs related to the year 2000 issue are
being expensed as incurred.
Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Comprehensive
Income", which is effective for fiscal years beginning after December 15, 1997.
Statement 130 establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general purpose financial statements. The Company will implement the statement
in the required period. Adoption of the statement is not expected to have a
material adverse effect on the Company's financial position or the results of
its operations.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LA QUINTA INNS, INC.
COMBINED BALANCE SHEETS
(in thousands)
================================================================================
<TABLE>
<CAPTION>
December 31
--------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 2,110 $ 1,508
Receivables:
Trade and other (net of allowance of $191 and $108) ................ 14,805 12,302
Income taxes ....................................................... -- 3,835
Supplies and prepayments ............................................ 14,673 10,811
Deferred income taxes ............................................... 9,813 9,277
----------- -----------
Total current assets .......................................... 41,401 37,733
----------- -----------
Notes receivable, excluding current installments (net of allowance
of $1,793 in 1996) .............................................. 1,104 3,700
Property and equipment, net ........................................... 1,449,215 1,148,190
Deferred charges and other assets, at cost less applicable amortization 10,304 10,177
----------- -----------
Total assets .................................................. $ 1,502,024 $ 1,199,800
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ............................. $ 29,400 $ 33,299
Accounts payable ................................................... 73,605 55,088
Accrued expenses ................................................... 49,521 53,584
----------- -----------
Total current liabilities ..................................... 152,526 141,971
----------- -----------
Long-term debt, excluding current installments ........................ 872,285 659,369
Deferred income taxes, pension and other .............................. 42,020 29,591
Partners' capital ..................................................... 2,667 3,293
Shareholders' equity:
Common stock ($.10 par value per share; 200,000 and 100,000 shares
authorized; 85,007 and 84,274 shares issued) .................... 8,501 8,427
Additional paid-in capital ......................................... 249,612 240,453
Unearned officer's compensation .................................... (1,016) --
Retained earnings .................................................. 270,462 188,610
Treasury stock, at cost (7,870 and 6,704 shares) ................... (95,033) (71,914)
----------- -----------
Total shareholders' equity ...................................... 432,526 365,576
----------- -----------
Total liabilities and shareholders' equity ...................... $ 1,502,024 $ 1,199,800
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
================================================================================
25
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Inn ............................................................................. $ 494,494 $ 434,864 $ 405,694
Restaurant rental and other ..................................................... 8,075 8,195 8,225
--------- --------- ---------
Total revenues ............................................................... 502,569 443,059 413,919
--------- --------- ---------
Operating costs and expenses:
Direct .......................................................................... 244,501 218,738 209,153
Corporate ....................................................................... 18,524 18,450 18,522
Depreciation, amortization and asset retirements ................................ 60,817 48,105 40,951
Provision for premature retirement of assets .................................... -- 18,076 12,630
--------- --------- ---------
Total operating costs and expenses ......................................... 323,842 303,369 281,256
--------- --------- ---------
Operating income ........................................................... 178,727 139,690 132,663
--------- --------- ---------
Other (income) expense:
Interest, net ................................................................... 49,186 41,812 39,442
Partners' equity in earnings .................................................... 860 1,499 10,227
Net gain on property transactions ............................................... (8,808) -- --
--------- --------- ---------
Earnings before income taxes and extraordinary items ....................... 137,489 96,379 82,994
Income taxes ...................................................................... 50,185 35,660 31,620
--------- --------- ---------
Earnings before extraordinary items ........................................ 87,304 60,719 51,374
Extraordinary items, net of income taxes .......................................... (38) (524) (717)
--------- --------- ---------
Net earnings ............................................................... 87,266 60,195 50,657
Conversion of partner's interest into common stock ................................ -- -- (46,364)
--------- --------- ---------
Net earnings available to shareholders ..................................... $ 87,266 $ 60,195 $ 4,293
========= ========= =========
Basic earnings per share:
Earnings after conversion of partner's interest into common stock and before
extraordinary items ....................................................... $ 1.13 $ .78 $ .07
Extraordinary items, net of income taxes ................................... -- (.01) (.01)
--------- --------- ---------
Net earnings available to shareholders ..................................... $ 1.13 $ .77 $ .06
========= ========= =========
Basic weighted average number of shares outstanding ............................... 77,426 77,736 74,360
========= ========= =========
Diluted earnings per share:
Earnings after conversion of partner's interest into common
stock and before extraordinary items ....................................... $ 1.09 $ .75 $ .07
Extraordinary items, net of income taxes ..................................... -- (.01) (.01)
--------- --------- ---------
Net earnings available to shareholders ....................................... $ 1.09 $ .74 $ .06
========= ========= =========
Diluted weighted average number of shares outstanding ............................. 80,160 80,961 77,991
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
================================================================================
26
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
================================================================================
<TABLE>
<CAPTION>
Additional Unearned Minimum
Common Stock Treasury Stock Paid-In Officer's Retained Pension
Shares Amount Shares Amount Capital Compensation Earnings Liability Total
------ ------ ------ ------ ------- ------------ -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 .. 48,759 $4,876 (2,361) $(17,339) $68,759 $ -- $134,409 $(1,474) $189,231
Exercise of stock options .... 824 82 (6) (158) 11,228 -- -- -- 11,152
Purchase of treasury stock ... -- -- (482) (12,244) -- -- -- -- (12,244)
Conversion of partner's
interest into common stock 5,300 530 -- -- 142,234 -- (46,364) -- 96,400
Dividends paid ............... -- -- -- -- -- -- (4,957) -- (4,957)
Net earnings ................. -- -- -- -- -- -- 50,657 -- 50,657
Minimum pension liability .... -- -- -- -- -- -- -- 1,474 1,474
------ ------- ------- --------- ------- -------- --------- -------- --------
Balances at December 31, 1995 .. 54,883 5,488 (2,849) (29,741) 222,221 -- 133,745 -- 331,713
Effect of stock split at
July 15, 1996 ............. 27,678 2,768 (1,735) -- (2,768) -- -- -- --
Exercise of stock options .... 1,713 171 (3) (79) 21,000 -- -- -- 21,092
Purchase of treasury stock ... -- -- (2,117) (42,094) -- -- -- -- (42,094)
Dividends paid ............... -- -- -- -- -- -- (5,330) -- (5,330)
Net earnings ................. -- -- -- -- -- -- 60,195 -- 60,195
------ ------- ------- --------- ------- -------- --------- -------- --------
Balances at December 31, 1996 .. 84,274 8,427 (6,704) (71,914) 240,453 -- 188,610 -- 365,576
Exercise of stock options .... 708 71 (10) (214) 8,075 -- -- -- 7,932
Issuance of restricted stock
and stock options .......... 25 3 -- -- 1,084 (1,084) -- -- 3
Purchase of treasury stock ... -- -- (1,156) (22,905) -- -- -- -- (22,905)
Dividends paid ............... -- -- -- -- -- -- (5,414) -- (5,414)
Amortization of unearned
officer's compensation .... -- -- -- -- -- 68 -- -- 68
Net earnings ................. -- -- -- -- -- -- 87,266 -- 87,266
------ ------- ------- --------- ------- -------- --------- -------- --------
Balances at December 31, 1997 85,007 $8,501 (7,870) $(95,033) 249,612 $(1,016) $270,462 $ -- $432,526
====== ======= ======= ========= ======= ======== ========= ======== ========
</TABLE>
See accompanying notes to combined financial statements.
================================================================================
27
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ............................................................ $ 87,266 $ 60,195 $ 50,657
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of property and equipment
and asset retirements .............................................. 60,817 48,105 40,951
Amortization of unearned officer's compensation ..................... 68 -- --
Provision for premature retirement of assets ........................ -- 18,076 12,630
Provision for deferred taxes ........................................ 12,259 8,490 1,181
Gain on property transactions ....................................... (8,808) -- --
Partners' equity in earnings ........................................ 860 1,499 10,227
Changes in operating assets and liabilities:
Receivables ....................................................... (856) 349 (537)
Income taxes ...................................................... 13,068 3,535 5,346
Supplies and prepayments .......................................... (4,321) (2,431) (1,818)
Accounts payable and accrued expenses ............................. 2,415 8,517 9,704
Deferred charges and other assets ................................. (634) 1,804 656
Deferred credits .................................................. (366) 123 (199)
----------- ----------- -----------
Net cash provided by operating activities ........................ 161,768 148,262 128,798
----------- ----------- -----------
Cash flows from investing activities:
Construction, purchase and conversion of inns ........................... (251,516) (148,977) (77,502)
Other capital expenditures .............................................. (110,891) (116,799) (39,976)
Proceeds from property transactions ..................................... 21,026 201 14
Purchase of partners' equity interests .................................. (81) (9,232) (48,200)
Decrease (increase) in notes receivable and investments ................. 2,353 (372) 6,836
----------- ----------- -----------
Net cash used by investing activities ............................ (339,109) (275,179) (158,828)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit and long-term borrowings ................... 1,047,122 651,149 645,723
Principal payments on line of credit and long-term borrowings ........... (837,172) (494,105) (601,121)
Capital distributions to partners ....................................... (722) (1,129) (2,495)
Dividends to shareholders ............................................... (5,414) (5,330) (4,957)
Purchase of treasury stock .............................................. (29,487) (24,012) (12,346)
Purchase of treasury stock from related party ........................... -- (11,500) --
Net proceeds from stock transactions .................................... 3,616 10,762 5,227
----------- ----------- -----------
Net cash provided by financing activities ........................ 177,943 125,835 30,031
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents .......................... 602 (1,082) 1
Cash and cash equivalents at beginning of year ............................ 1,508 2,590 2,589
----------- ----------- -----------
Cash and cash equivalents at end of year .................................. $ 2,110 $ 1,508 $ 2,590
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
================================================================================
28
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and financing activities:
Tax benefit from stock options exercised ........................................... $ 4,319 $10,330 $ 6,027
Debt incurred in connection with acquisitions of unincorporated
partnerships and joint ventures ............................................... 2,500 3,700 --
Accrual for purchase of treasury stock ............................................. -- 6,582 --
Effect of stock split .............................................................. -- 2,768 --
Adjustment to carrying value of property and equipment ............................. -- -- 51,081
Conversion of partner's interest into common stock ................................. -- -- 46,364
Minimum pension liability .......................................................... -- -- 2,889
</TABLE>
See accompanying notes to combined financial statements.
================================================================================
29
<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 hotels. At December 31, 1997, the
Company owned and operated 267 hotels in 28 states, concentrated in the Western
and Southern United States.
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 through July
3, 1995, 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.
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 long-term
debt, 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.
Self-Insurance Programs
The Company uses a paid loss retrospective insurance plan for general and
auto liability and workers' compensation whereby the Company is effectively
self-insured. 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.
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. Accrued self-insurance
liabilities totaled approximately $16,413,000 and $20,762,000 at December 31,
1997 and 1996, respectively.
Advertising
Substantially all costs of advertising, promotion and marketing programs
are charged to operations in the year incurred. These costs were approximately
$24,773,000, $19,370,000 and $17,523,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Use of Estimates
The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
================================================================================
30
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Comprehensive
Income", which is effective for fiscal years beginning after December 15, 1997.
Statement 130 establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general purpose financial statements. The Company will implement the statement
in the required period. Adoption of the statement is not expected to have a
material adverse effect on the Company's financial position or the results of
its operations.
(2) PROPERTY AND EQUIPMENT
At December 31, 1997 and 1996, property and equipment, net consisted of the
following:
December 31
------------------------
1997 1996
---------- ----------
(in thousands)
Buildings .......................................... $1,172,119 $ 988,711
Furniture, fixtures and equipment .................. 197,453 148,691
Land and leasehold improvements .................... 206,039 183,207
Construction in progress ........................... 209,346 120,286
---------- ----------
Total property and equipment .................... 1,784,957 1,440,895
Less accumulated depreciation and amortization ..... 335,742 292,705
---------- ----------
Property and equipment, net ..................... $1,449,215 $1,148,190
========== ==========
At December 31, 1997, approximately $209,392,000 of the net property and
equipment shown above is pledged as collateral under certain mortgages and
industrial development revenue bonds ("IRBs").
Property and equipment is recorded at cost. Depreciation and amortization
of property and equipment is computed using the straight-line method over the
estimated useful lives of the assets as follows: 40 years for buildings; 4 to 10
years for furniture, fixtures and equipment; 10 to 20 years for improvements to
land and leaseholds. Maintenance and repairs are charged to operations as
incurred. Expenditures for improvements are capitalized.
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Losses on impairment are determined by comparing the sum of the
expected future undiscounted cash flows to the carrying amount of the asset.
Impairment losses are recognized in operating income as they are determined.
At December 31, 1997 and 1996, land and leasehold improvements includes
$1,315,000 for properties held for sale stated at the lower of cost or estimated
net realizable value. Charges to reduce the carrying amounts of properties held
for sale to net realizable value are recognized in income.
The Company launched its Gold Medal rooms program during the third quarter
of 1995. During this program, the Company replaced certain furniture and
fixtures before the end of their normal useful life and therefore made
adjustments to reflect shorter remaining lives. As a result, the Company
recorded non-cash provisions for premature retirement of assets of $18,076,000
and $12,630,000 during 1996 and 1995, respectively. The Company completed the
program during 1997.
================================================================================
31
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(3) LONG-TERM DEBT
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Mortgage loans maturing 1998-2001 (8.85% weighted average effective
interest rate) .................................................... $ 54,291 $ 58,337
Industrial development revenue bonds, maturing 1998-2012
(5.41% weighted average effective interest rate) .................. 39,917 49,394
Unsecured line of credit, maturing February 28, 2002
(6.83% effective interest rate at December 31, 1997) .............. 315,000 --
Bank unsecured line of credit, maturing March 15, 1998 (6.36%
effective interest rate at December 31, 1997) ..................... 19,000 --
Bank unsecured line of credit ........................................ -- 210,100
7.40% Senior unsecured notes, due 2005 (7.55% effective interest rate) 99,927 99,917
7.25% Senior unsecured notes, due 2004 (7.13% effective interest rate) 101,050 101,220
7.11% Medium-Term notes, due 2001 (7.25% effective interest rate) .... 50,000 50,000
7.27% Medium-Term notes, due 2007 (7.36% effective interest rate) .... 50,000 --
7.33% Medium-Term notes, due 2008 (7.36% effective interest rate) .... 50,000 --
9.25% Senior unsecured subordinated notes, due 2003 (9.58% effective
interest rate) .................................................... 120,000 120,000
Other ................................................................ 2,500 3,700
-------- --------
Total long-term debt ............................................ 901,685 692,668
Less current installments ............................................ 29,400 33,299
-------- --------
Long-term debt, excluding current installments .................. $872,285 $659,369
======== ========
</TABLE>
At December 31, 1997, the Company had a $325 million Unsecured Line of
Credit with a consortium of banks and a $75 million Bank Unsecured Line of
Credit (together, the "Unsecured Credit Facilities"). The $325 million Unsecured
Line of Credit matures February 2002 and the $75 million Bank Unsecured Line of
Credit matures March 1998. At December 31, 1997, the Company had $64,694,000
available on its Unsecured Credit Facilities, net of $1,306,000 of letters of
credit collateralizing certain mortgages. The Unsecured Credit Facilities bear
interest at the prime rate or LIBOR, adjusted for an applicable margin, as
defined in the related credit agreements. The applicable margin is determined
quarterly based upon predetermined levels of cash flow to indebtedness or credit
ratings received by specified credit rating agencies, as defined in the related
credit agreements. At December 31, 1997, borrowings under the Unsecured Credit
Facilities bear interest at LIBOR plus 33.75 basis points on $315,000,000 of
outstanding borrowings and LIBOR plus 38.75 basis points on $19,000,000 of
outstanding borrowings. The $325 million Unsecured Line of Credit requires a
facility fee of 18.75 basis points on the average amount of the commitment.
Annual maturities for the five years subsequent to December 31, 1997 and
thereafter are as follows:
(in thousands)
1998 .............................................. $ 29,400
1999 .............................................. 10,736
2000 .............................................. 50,284
2001 .............................................. 64,598
2002 .............................................. 317,141
Thereafter ........................................ 429,526
--------
$901,685
========
================================================================================
32
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
Maturities for the years ended December 31, 1998 and 2002 include the
$19,000,000 and $315,000,000 balances on the $75 million Bank Unsecured Line of
Credit and the $325 million Unsecured Line of Credit, respectively.
Interest paid during the years ended December 31, 1997, 1996 and 1995
amounted to $56,358,000, $44,501,000 and $39,912,000, respectively.
On August 15, 1997, La Quinta filed a shelf registration statement with the
Securities and Exchange Commission which would allow the Company to issue up to
$300,000,000 principal amount of Debt Securities. The registration statement
became effective on August 25, 1997. The Company has not issued any Debt
Securities under this registration statement.
The Company recognizes losses on early extinguishments of long-term debt as
extraordinary items in the period in which the debt is extinguished. The Company
reported extraordinary items, net of income taxes, of $38,000, $524,000 and
$717,000 in 1997, 1996 and 1995, respectively, related to the early
extinguishment of long-term debt.
The Company is obligated by agreements relating to sixteen issues of IRBs
in an aggregate amount of $37,600,000 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, 1997
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, 1998 and the remarketing agents are
unable to resell such bonds, the maturities of long-term debt shown above would
increase by $20,610,000 for the year ending December 31, 2000.
The Unsecured Credit Facilities and certain agreements associated with IRBs
are governed by a uniform covenant agreement. The most restrictive covenants
provide for the following: minimum net worth, 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 Company's 7.4% Senior Unsecured Notes due 2005, 7.25% Senior Unsecured
Notes due 2004, 7.11% Medium-Term Notes due 2001, 7.27% Medium-Term Notes due
2007 and 7.33% Medium-Term Notes due 2008 are all governed by a Trust Indenture
dated September 15, 1995. The Trust Indenture contains covenants which place
limitations on certain liens on assets, sale and leaseback transactions, mergers
and the sale of substantially all of the assets of the Company.
The Company's 9 1/4% Senior Unsecured Subordinated Notes due 2003 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, 1997, the Company was in compliance with all restrictions
and covenants.
================================================================================
33
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1997 and 1996, accounts payable and accrued expenses
consisted of the following:
December 31
----------------------
1997 1996
------- -------
(in thousands)
Accounts payable:
Construction ................................ $40,059 $30,920
Trade ....................................... 16,224 16,125
Cash overdrafts ............................. 11,405 7,043
Income taxes ................................ 4,914 --
Other ....................................... 1,003 1,000
------- -------
$73,605 $55,088
======= =======
Accrued expenses:
Payroll and employee benefits ............... $22,282 $25,570
Property taxes .............................. 12,485 10,607
Interest .................................... 11,676 8,241
Other ....................................... 3,078 2,584
Treasury stock purchase ..................... -- 6,582
------- -------
$49,521 $53,584
======= =======
================================================================================
34
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(5) UNINCORPORATED PARTNERSHIPS AND JOINT VENTURES
At December 31, 1997, the Company had a 50% ownership interest in one
unincorporated partnership and a 60% ownership interest in one unincorporated
joint venture. Summary financial information with respect to unincorporated
partnerships and joint ventures 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
unincorporated 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.
The following financial information includes the activity of the acquired
unincorporated partnerships and joint ventures through the date of acquisition
(see note 15).
December 31
---------------
1997 1996
------ ------
(in thousands)
ASSETS
Total current assets .......................................... $ 442 $ 827
Property and equipment, net ................................... 5,868 7,335
Deferred charges and other assets ............................. 5 9
------ ------
$6,315 $8,171
====== ======
LIABILITIES AND OWNERS' EQUITY
Total current liabilities ..................................... $ 549 $ 766
Long-term debt, excluding current installments of $412 and $488 351 763
Owners' equity:
Company's ................................................ 2,748 3,349
Partners' ................................................ 2,667 3,293
------ ------
$6,315 $8,171
====== ======
Years Ended December 31
---------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Revenues ................................... $ 5,066 $ 9,625 $ 58,265
Operating costs and expenses ............... 3,019 6,124 38,434
-------- -------- --------
Operating income ........................... 2,047 3,501 19,831
Other deductions, principally interest ..... (51) (70) (1,019)
-------- -------- --------
Pretax earnings ....................... $ 1,996 $ 3,431 $ 18,812
======== ======== ========
Equity in pretax earnings:
Company's ............................. $ 1,136 $ 1,932 $ 8,585
Partners' ............................. 860 1,499 10,227
-------- -------- --------
$ 1,996 $ 3,431 $ 18,812
======== ======== ========
================================================================================
35
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(6) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
Years Ended December 31
-----------------------------------------
1997 1996 1995
------- ------- -------
Federal ..................... (in thousands)
Current ................... $33,554 $24,540 $26,992
Deferred .................. 10,850 7,393 1,015
------- ------- -------
44,404 31,933 28,007
------- ------- -------
State
Current ................... 4,372 2,630 3,447
Deferred .................. 1,409 1,097 166
------- ------- -------
5,781 3,727 3,613
------- ------- -------
Total ....................... $50,185 $35,660 $31,620
======= ======= =======
The effective tax rate varies from the statutory rate for the following reasons:
Years Ended December 31
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Tax expense at statutory rate ............... $ 48,121 $ 33,732 $ 29,048
State income taxes, net of Federal benefit .. 3,757 2,512 2,482
Other, net .................................. (1,693) (584) 90
-------- -------- --------
Provision for income taxes ............... $ 50,185 $ 35,660 $ 31,620
======== ======== ========
The following are cash transactions relating to the Company's income taxes:
Years Ended December 31
---------------------------------------
1997 1996 1995
------- ------- -------
(in thousands)
Income taxes paid .............. $27,417 $23,326 $24,777
======= ======= =======
Income tax refund .............. $ 2,577 $ 5 $ 111
======= ======= =======
================================================================================
36
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
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, 1997
and 1996 are presented below:
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Notes receivable and land, principally due to allowance and write-downs for
financial reporting purposes ........................................... $ 1,311 $ 1,983
Property and equipment, principally due to acquisitions of
partnership interests .................................................. 11,788 13,627
Expense provisions and deferred gains ..................................... 12,128 12,592
-------- --------
Total gross deferred tax assets ........................................... 25,227 28,202
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and capitalized interest .................................. (50,219) (40,156)
Other ..................................................................... (2,268) (3,047)
-------- --------
Total gross deferred tax liabilities ...................................... (52,487) (43,203)
-------- --------
Net deferred tax liability ................................................ $(27,260) $(15,001)
======== ========
</TABLE>
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.
(7) SHAREHOLDERS' EQUITY
The Company adopted Statement of Financial Accounting Standards No. 128,
("FAS 128") during 1997. FAS 128 specifies computation, presentation and
disclosure requirements for earnings per share for entities with publicly held
common stock or potential common stock. All prior period earnings per share
amounts have been restated in accordance with FAS 128.
In accordance with FAS 128, the Company has presented basic earnings per
share, computed on the basis of the weighted average number of shares
outstanding during the period, and diluted earnings per share, computed on the
basis of the weighted average number of shares and all dilutive potential shares
outstanding during the period. A reconciliation between basic and diluted
weighted average number of shares outstanding and the related earnings per share
calculation is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Earnings after conversion of partner's interest into
common stock and before extraordinary items ................................. $87,304 $60,719 $ 5,010
======= ======= =======
Basic weighted average number of shares outstanding ............................ 77,426 77,736 74,360
Dilutive effect of stock options ............................................... 2,734 3,225 3,631
------- ------- -------
Diluted weighted average number of shares outstanding .......................... 80,160 80,961 77,991
======= ======= =======
Basic earnings per share after conversion of partner's interest into common
stock and before extraordinary
items ....................................................................... $ 1.13 $ .78 $ .07
Diluted earnings per share after conversion of partner's
interest into common stock and before extraordinary
items ....................................................................... $ 1.09 $ .75 $ .07
</TABLE>
================================================================================
37
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
Stock options with exercise prices greater than the average market price of
the Company's common stock for the applicable periods are excluded from the
computation of diluted weighted average number of shares outstanding. Such
options totaled approximately 664,000, 415,000 and 236,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The AEW conversion option, as
described below, was also excluded from the computation of 1995 diluted number
of shares outstanding as it was antidilutive for the periods prior to its
exercise.
The Board of Directors authorized a three-for-two stock split effected in
the form of a stock dividend effective in July 1996. Earnings per share, the
weighted average number of shares outstanding and the following information have
been adjusted to give effect to this distribution.
The Board of Directors has authorized a series of plans for the repurchase
of up to a total of $80,000,000 of the Company's common stock. During January
1996, the Board of Directors, through a resolution independent of the
$80,000,000 series of repurchase plans, approved a private transaction for the
repurchase of $11,500,000 of the Company's common stock from a related party
(see note 13). Total repurchases under these plans, including the private
transaction, were approximately $84,358,000, of which approximately $22,905,000
were made during 1997.
The Company's stock option plans cover the granting of options to purchase
an aggregate of 11,966,297 common shares. Options granted under the plans are
issuable to certain officers, employees and directors 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. Generally, the stock option
plan documents provide for immediate vesting of all unvested options outstanding
upon a "change in control", as defined therein. The Company accounts for these
plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). 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.
In accordance with APB 25, the Company recognized compensation cost
totaling approximately $650,000 as a charge to shareholders' equity in 1997 for
stock options granted at prices below market on the date of grant. This charge
is amortized as compensation expense ratably over the vesting period of the
stock option grants. Such compensation expense totaled approximately $41,000
during 1997.
================================================================================
38
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
A summary of the status of the Company's stock option plans at December 31,
1997, 1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ---------------------- --------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year .................................. 7,564,874 $ 8.11 8,602,598 $ 6.21 9,489,704 $ 5.05
Granted ..................................... 1,692,175 19.05 1,140,781 19.00 673,313 17.99
Canceled or expired ......................... (215,836) 18.41 (209,965) 14.40 (323,607) 4.28
Exercised ................................... (708,403) 5.35 (1,968,540) 5.47 (1,236,812) 4.22
--------- ---------- ----------
Outstanding at end of year .................. 8,332,810 10.30 7,564,874 8.11 8,602,598 6.21
========= ========== ==========
Exercisable at end of year .................. 5,892,361 4.84 5,969,894 5.52 6,905,570 5.04
========= ========== ==========
Weighted average fair value of
options granted .......................... $ 6.99 $ 6.18 $ 6.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.13, 5.70 and 6.12 percent; expected dividend yields of .35,
.45 and .50 percent; expected lives of 3.72, 3.44 and 3.97 years; and expected
volatilities of 37, 37 and 36 percent.
Had the compensation cost for these plans been determined consistent with
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"), the Company's net earnings and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ---------
<S> <C> <C> <C> <C>
Net Earnings: As Reported $ 87,266 $ 60,195 $ 50,657
Pro Forma $ 84,805 $ 58,952 $ 50,278
Basic Earnings Per Share: As Reported $ 1.13 $ .77 $ .68
Pro Forma $ 1.10 $ .76 $ .68
Diluted Earnings Per Share: As Reported $ 1.09 $ .74 $ .65
Pro Forma $ 1.06 $ .73 $ .64
</TABLE>
The net earnings and earnings per share information for 1995 shown above
does not reflect the $46,364,000 non-recurring, non-cash item related to the AEW
Transaction as further discussed in note 15.
The Company is not required to apply the Statement 123 method of accounting
to stock options granted prior to January 1, 1995. As the above pro forma
disclosures do not reflect compensation cost attributable to options granted
prior to January 1, 1995, the pro forma amounts reflected above may not be a
representation of future results.
================================================================================
39
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- -----------------------------------------
Range Number Wtd Avg Number
of Outstanding at Remaining Wtd Avg Exercisable Wtd Avg
Exercise Prices 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ------------------- ---------------- ------------------ ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.33 to 6.02 3,987,571 4.23 Years $ 3.12 3,987,571 $ 3.12
11.70 to 15.47 1,640,996 6.92 12.73 1,212,509 12.06
16.67 to 22.63 2,704,243 8.66 19.40 692,281 19.22
-------------- ----------------
2.33 to 22.63 8,332,810 6.20 10.30 5,892,361 4.84
============== ================
</TABLE>
During 1996, 150,000 options to purchase the Company's common stock were
granted to an officer of the Company, subject to shareholder approval. The
Company obtained shareholder approval at its Annual Meeting of Shareholders in
May 1997. These options were included in the above disclosures for 1997 stock
options granted, weighted average fair value of stock options granted, pro forma
earnings and pro forma earnings per share.
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 1997, 1996 and 1995,
approximately $4,319,000, $10,330,000 and $6,027,000, respectively, was credited
to additional paid-in capital for the tax benefits of options exercised.
During 1997, 25,000 shares of restricted common stock were issued to an
officer of the Company. These shares vest in four equal installments on
successive anniversary dates of the date of grant. In accordance with APB 25,
the Company recognized compensation cost totaling approximately $434,000 as a
charge to shareholders' equity in 1997 for the restricted stock grant. This
charge is amortized as compensation expense ratably over the vesting period of
the restricted stock grant. Such compensation expense totaled approximately
$27,000 during 1997.
Under the terms of the La Quinta Development Partners, L.P. ("LQDP" or the
"Development Partnership") partnership agreement, AEW Partners, L.P. ("AEW
Partners") had the ability to convert 66 2/3% of its 60% ownership in the
Development Partnership into a specified number of shares of the Company's
Common Stock (adjusted for stock splits, cash dividends and distributions from
LQDP to AEW). As further discussed in note 15, AEW exercised its conversion
option during 1995 and 7,949,732 shares of the Company's common stock were
issued to AEW. These shares were registered with the Securities and Exchange
Commission and were sold, together with 30,375 shares of the Company's Common
Stock owned by AEW prior to the conversion, in an underwritten secondary public
offering.
(8) PENSION PLAN AND OTHER
The La Quinta Retirement Plan (the "Plan") is a defined benefit pension
plan covering all employees. 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 (the "SERP") covers 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 Plan.
================================================================================
40
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
The following table sets forth the funded status and amounts recognized in
the Company's combined financial statements for the Plan at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $11,807 and $9,006 ........................ $(13,556) $(10,171)
======== ========
Projected benefit obligation for services rendered to date $(17,926) $(13,246)
Plan assets at fair value, primarily marketable securities 14,312 10,338
-------- --------
Projected benefit obligation in excess of plan assets .... (3,614) (2,908)
Unrecognized net loss from past experiences different from
those assumed ......................................... 3,096 1,702
Prior service costs ...................................... 1,006 1,180
-------- --------
Accrued pension costs .................................... $ 488 $ (26)
======== ========
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's combined financial statements for the SERP at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
December 31
------------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $1,466 and $1,065 $(2,306) $(1,743)
======= =======
Projected benefit obligation for services rendered to date ................... $(4,857) $(4,590)
Unrecognized net gain from past experiences different from those assumed ..... (599) (152)
Prior service costs .......................................................... (413) (236)
------- -------
Accrued pension costs ..................................................... $(5,869) $(4,978)
======= =======
</TABLE>
The Company maintains a trust account intended for use in settling benefits
due under the SERP. The Company had no funds accumulated in the trust account at
December 31, 1997 and 1996. As a result of the execution of the Merger Agreement
(as further described in note 16), a "Potential Change in Control", as defined
in the SERP document, has occurred. This event requires the Company to make a
contribution to the trust sufficient to meet funding obligations as described in
the SERP document within 90 days of signing the Merger Agreement.
The assumptions used in the calculations shown above were:
1997 1996
------------- -------------
Discount rate................................ 7.00% 7.50%
Expected long-term rate of return on assets.. 8.00% 8.00%
Rate of increase in compensation levels...... 5.00% - 6.00% 5.00% - 6.00%
================================================================================
41
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
The combined net periodic pension cost for the Plan and the SERP includes
the following components:
Years Ended December 31
-----------------------------
1997 1996 1995
------- ------- -------
(in thousands)
Service cost (benefits earned during the period) $ 2,083 $ 2,144 $ 1,571
Interest cost on projected benefit obligation .. 1,283 1,298 1,072
Actual return on plan assets ................... (2,640) (963) (1,639)
Net amortization and deferral .................. 395 577 410
Net deferred asset gain ........................ 1,785 195 1,041
------- ------- -------
Net periodic pension cost ................. $ 2,906 $ 3,251 $ 2,455
======= ======= =======
In addition to providing pension benefits, the Company sponsors a 401(k)
Savings Plan and Trust (the "Savings Plan"). 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 approximately $200,000, $170,000 and $157,000 in 1997, 1996 and 1995,
respectively.
================================================================================
42
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(9) 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 and
reservation facilities in San Antonio.
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, 1997 follow:
(in thousands)
1998..................................... $ 3,247
1999..................................... 3,036
2000..................................... 2,749
2001..................................... 2,120
2002..................................... 1,983
Thereafter............................... 3,720
---------
Total minimum payments required.......... $ 16,855
=========
Total rental expense for operating leases was approximately $3,735,000,
$3,258,000 and $3,188,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Lessor
The Company leases restaurants it owns to third parties. The leases are
accounted for as operating leases expiring during a period from 1998 to 2017 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, 1997:
(in thousands)
Buildings...................................... $32,229
Less: accumulated depreciation................ 12,378
----------
19,851
Land........................................... 18,140
----------
Total leased property...................... $ 37,991
==========
Minimum future rentals to be received under the noncancelable restaurant
leases in effect at December 31, 1997 follow:
(in thousands)
1998............................................. $ 6,172
1999............................................. 5,908
2000............................................. 5,472
2001............................................. 4,809
2002............................................. 4,125
Thereafter....................................... 15,786
----------
$42,272
==========
================================================================================
43
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
Contingent rental income amounted to approximately $1,149,000, $1,270,000
and $1,198,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(10 COMMITMENTS
The Company has made commitments of approximately $177,506,000 for the
completion of Inn & Suites hotels for which construction had commenced as of
December 31, 1997. Funds on hand, anticipated future cash flows and amounts
available on the Company's Unsecured Credit Facilities as may be increased from
time to time and its $300,000,000 shelf registration statement are expected to
be sufficient to complete these projects.
(11) CONTINGENCIES
In January 1998, two lawsuits were filed in the District Court of Bexar
County, Texas on behalf of stockholders of the Company against the Company,
certain directors and officers of the Company, and Meditrust Corporation
(collectively, the "Defendants"). The lawsuits are captioned Robbins v. Razzouk,
et al, Cause No. 98CI-00192, and Brody v. Razzouk, et al, Cause No. 98CI-00456
(the "Actions"). The complaints in the Actions allege, among other things, that
Defendants (other than Meditrust) have breached their fiduciary duties to
stockholders by agreeing in the Merger Agreement to Merger Consideration which
is "grossly inadequate", by failing to solicit competing bids or to provide a
"market check", by failing to conduct a full and thorough investigation, and by
failing to make adequate public disclosure regarding the transaction. The
independence of the directors of the Company is also questioned. The complaints
allege that Meditrust aided and abetted the alleged breaches of duty by the
other Defendants. The complaints in the Actions seek, among other things, (i) a
declaration that Defendants have breached their fiduciary duties to members of
the alleged class, (ii) a declaration that the proposed transaction is a legal
nullity, (iii) an order preliminarily and permanently enjoining consummation of
the proposed transaction, (iv) if the proposed transaction is consummated, an
order to rescind it, (v) the award of compensatory damages, and (vi) the award
of costs, disbursements and attorneys fees.
La Quinta believes that each of these lawsuits is without merit and intends
to defend them vigorously.
The Company is party to various other lawsuits and claims generally
incidental to its business. The Company does not anticipate any amounts which it
may be required to pay as a result of an adverse determination of such legal
proceedings, individually or in the aggregate, or any other relief granted by
reason, thereof, will have a material adverse effect on the Company's financial
position or results of operations.
================================================================================
44
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(12) 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, 1997:
Revenues ............................................ $ 113,353 $ 135,666 $ 137,898 $ 115,652
Operating income .................................... 38,032 53,502 50,002 37,191
Earnings before extraordinary items ................. 16,648 25,636 28,917 16,103
Net earnings ........................................ 16,648 25,636 28,879 16,103
Basic earnings per share before extraordinary
items ............................................. .21 .33 .37 .21
Basic earnings per share ............................ .21 .33 .37 .21
Diluted earnings per share before extraordinary
items ............................................. .21 .32 .36 .20
Diluted earnings per share .......................... $ .21 $ .32 $ .36 $ .20
Year ended December 31, 1996:
Revenues ............................................ $ 102,758 $ 116,022 $ 121,902 $ 102,377
Operating income .................................... 27,857 42,676 43,796 25,361
Earnings before extraordinary items ................. 10,867 20,157 20,649 9,046
Net earnings ........................................ 10,867 19,913 20,484 8,931
Basic earnings per share before extraordinary
items ............................................. .14 .26 .26 .11
Basic earnings per share ............................ .14 .26 .26 .11
Diluted earnings per share before extraordinary
items ............................................. .13 .25 .25 .11
Diluted earnings per share .......................... $ .13 $ .25 $ .25 $ .11
Year ended December 31, 1995:
Revenues ............................................ $ 96,735 $ 110,043 $ 113,906 $ 93,235
Operating income .................................... 32,692 40,936 34,538 24,497
Earnings before extraordinary items ................. 11,070 16,691 14,932 8,681
Conversion of partner's interest into
common stock ...................................... -- -- (46,364) --
Net earnings (loss) available to
shareholders ...................................... 11,070 16,691 (32,149) 8,681
Basic earnings (loss) per share after conversion of
partner's interest into common stock and before
extraordinary items .............................. .16 .24 (.40) .11
Basic earnings (loss) per share
available to shareholders ......................... .16 .24 (.41) .11
Diluted earnings (loss) per share after conversion of
partner's interest into common stock and before
extraordinary items ............................... .15 .23 (.40) .11
Diluted earnings (loss) per share available to
shareholders ...................................... $ .15 $ .23 $ (.41) $ .11
</TABLE>
================================================================================
45
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
The decrease in net earnings (loss) available to shareholders in the third
quarter of 1995 resulted from the provision for premature retirement of assets
of $8,577,000, $5,309,000 net of tax (see note 2) and the conversion of
partner's interest into common stock of $46,364,000 (see note 15).
(13) RELATED PARTY TRANSACTIONS
Stock Repurchase
On January 22, 1996, the Company agreed to purchase 750,000 shares of its
common stock for $11,500,000 from The Airlie Group L.P. ("Airlie"). Airlie is an
investment limited partnership of which a corporation owned by a director of the
Company is an indirect co-general partner. These shares were purchased at a
discount to the closing stock price as of January 19, 1996. This transaction was
approved by the Board of Directors through a resolution independent of the
$80,000,000 series of stock repurchase plans described in note 7.
Other Recurring Transactions
La Quinta pays all direct operating expenses on behalf of the
unincorporated partnerships and joint ventures and is reimbursed for all such
payments.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, accounts payable and accrued
expenses approximates fair value due to the short-term nature of these items.
The carrying value for notes receivable approximates the fair value based on the
estimated underlying value of the collateral. The fair value of the Company's
long-term debt as 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 was approximately $921,173,000 and $699,183,000 at December 31,
1997 and 1996, respectively.
During 1997, the Company entered into two forward interest rate agreements
in anticipation of future debt issuance. These agreements fix the interest rate
at 6.44% for $120,000,000 of debt expected to be issued in May 1998. The rate
agreements will settle in cash in May 1998, based on the differential between
the agreed upon rates. Assuming market rates in effect at December 31, 1997, the
Company would pay $5,835,000 upon maturity of these agreements. Due to
fluctuation in interest rates, this amount may not be representative of the
amount the Company will actually receive or pay upon maturity of these
agreements. In accounting for such agreements, the Company recognizes the
payment received or paid on the settlement date as an adjustment to interest
expense over the term of the underlying debt. The Company is subject to credit
risk depending on the counterparties involved as cash settlements are not
required until maturity.
================================================================================
46
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(15) ACQUISITION OF PARTNERS' INTERESTS
During 1997 and 1996, the Company acquired the limited partners' interest
in one and four, respectively, of its combined unincorporated partnerships and
joint ventures, which each owned one inn. The Company now has remaining one
unincorporated partnership and one unincorporated joint venture, each owning one
inn.
In 1995, the Company acquired all of AEW Partners, L.P. ("AEW") limited
partner's interest in La Quinta Development Partners, L.P. ("LQDP"), which owned
47 inns. The acquisition was effected through the issuance of common stock and
cash as described below.
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 7,949,732 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 (collectively, the "AEW
Transaction"). The AEW Transaction was consummated on July 3, 1995. Upon
conversion of the partnership interest into La Quinta Common Stock, the Company
issued 7,949,732 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. Pursuant to the provisions of the LQDP Partnership Agreement, the shares
issued upon conversion were sold in a registered underwritten secondary public
offering.
The conversion was accounted for by increasing shareholders' equity by the
$46.4 million value of the option and recording a $46.4 million non-cash
adjustment entitled Conversion of Partner's Interest into Common Stock below net
earnings in the Statement of Operations. There was no net effect on
shareholders' equity as a result of this accounting treatment. The sale to La
Quinta of AEW's remaining one-third interest in LQDP was accounted for as an
acquisition of a minority interest and purchase accounting was applied.
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, after giving effect to certain adjustments. The pro forma information
does not reflect the $46.4 million non-recurring, non-cash item described above.
The pro forma basic and diluted per share effect of this item is ($.59) and
($.57), respectively, for the year ended December 31, 1995. The pro forma
results are not necessarily indicative of operating results that would have
occurred had the AEW Transaction been consummated as of the beginning of 1995,
nor are they necessarily indicative of future operating results.
(Unaudited)
Pro Forma
Year Ended December 31, 1995
------------------------------------
(in thousands, except per share data)
Total revenues ........................... $ 413,919
===========
Earnings before extraordinary items ...... $ 54,698
===========
Basic earnings before extraordinary
items per share ....................... $ .70
===========
Diluted earnings before extraordinary
items per share ....................... $ .67
===========
================================================================================
47
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
(16) MERGER AGREEMENT
On January 3, 1998, La Quinta, Meditrust Corporation ("Meditrust REIT") and
Meditrust Operating Company ("Meditrust Operating Company" and together with
Meditrust REIT, the "Meditrust Companies") entered into an agreement and plan of
merger (the "Merger Agreement"), pursuant to which the Company will merge with
and into Meditrust REIT with Meditrust REIT being the surviving corporation (the
"Merger"). In the Merger, La Quinta shares will be converted into Paired Shares
of The Meditrust Companies, or converted into cash. As a result of the Merger,
Meditrust REIT will acquire all of the assets and liabilities of the Company and
Meditrust REIT will assume approximately $900 million of the Company's existing
indebtedness.
Under the terms of the Merger Agreement, shareholders of the Company will
have the option to elect to receive either (i) common stock of the Meditrust
Companies (the "Paired Shares"), or (ii) cash. The stock consideration will be
payable in Paired Shares under an exchange ratio based on the average closing
price of the Paired Shares for 20 randomly determined trading days in a 30-day
period ending the eighth day prior to the Company's shareholder meeting called
to consider the Merger (the "Meeting Date Price"). The Paired Shares issued in
the Merger will be entitled to receive a cash earnings and profit distribution
from Meditrust REIT.
The Merger Agreement provides that Company shareholders receiving stock
consideration will receive Paired Shares in an amount, based on the Meeting Date
Price, equal to the difference between $26.00 and the earnings and profit
distribution to be received per Company share, so long as the Meeting Date Price
is between $34.20 and $41.80. Company shareholders electing to receive stock
consideration will also receive the earnings and profit distribution so long as
they hold the Paired Shares on the applicable record date. The earnings and
profit distribution is expected to be declared immediately prior to the Merger,
payable to all shareholders of record of the Meditrust Companies on a date to be
determined by Meditrust between the fifteenth and the forty-fifth day following
the Merger and payable within fifteen days of such record date.
If the Meeting Date Price is greater than or equal to $41.80 but less than
or equal to $45.60, the exchange ratio for each share of Company common stock
exchanged into Paired Shares will be 0.6220, reduced by the consideration to be
received in the earnings and profit distribution per Company share (resulting in
total consideration based on the Meeting Date Price ranging from $26.00 to
$28.36 per share of Company common stock, including the earnings and profit
distribution, as the Meeting Date Price increases from $41.80 to $45.60). If the
Meeting Date Price is greater than $45.60, then each Company share will be
entitled to receive $28.36 in total consideration based on the Meeting Date
Price, comprised of Paired Shares and the earnings and profit distribution
referred to above.
If the Meeting Date Price is less than $34.20 but greater than or equal to
$30.40, the exchange ratio for each share of Company common stock exchanged into
Paired Shares will be 0.7602, reduced by the amount to be received in the
earnings and profit distribution per Company share (resulting in total
consideration based on the Meeting Date Price ranging from $26.00 to $23.11 per
share of Company common stock, including the earnings and profit distribution,
as the Meeting Date Price decreases from $34.20 to $30.40). If the Meeting Date
Price is below $30.40, the Company will have the right to terminate the Merger
Agreement under certain circumstances, subject to a "top-up" right exercisable
by Meditrust REIT which is designed to return total consideration per Company
share based on the Meeting Date Price to at least $23.11, inclusive of the
earnings and profit distribution. If the Meeting Date Price is below $28.50, the
Company will have the unilateral right to terminate the Merger Agreement.
All Company shareholders will have the right to elect cash consideration in
the Merger for each of their shares of Company common stock. The Merger
Agreement provides that Company shareholders electing to receive cash in the
Merger will receive, subject to the maximum cash limitations, $26.00 per
exchanged share of Company common stock. In the event that the amount to be paid
both pursuant to cash elections in the Merger
================================================================================
48
<PAGE>
LA QUINTA INNS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
and in the earnings and profit distribution paid with respect to Paired Shares
received by Company shareholders in the Merger exceeds approximately $521
million, the cash merger consideration will be distributed pro rata among those
shares electing cash and all other Company shares will receive Paired Shares in
the Merger. The maximum cash limitation of approximately $521 million (which
includes the cash merger consideration and the earnings and profit distribution
payable on Paired Shares issued in the Merger) is not subject to adjustment
based on the Meeting Date Price.
The Merger is subject to various conditions including, without limitation,
approval of the Merger by two-thirds of the outstanding shares of the Company
common stock, by a majority of the outstanding shares of each of the Meditrust
Companies, and regulatory agencies. Subject to the terms of a shareholders
agreement, Gary L. Mead, Thomas M. Taylor & Co. and entities and individuals
associated with certain members of the Bass family have agreed with the
Meditrust Companies to vote approximately 29% of the outstanding shares of the
Company common stock in favor of the Merger. These shareholders have also agreed
to select cash consideration for all of their shares of Company common stock. It
is currently anticipated that the Merger will be consummated in the second
quarter of 1998.
(17) AMENDMENT TO $75 MILLION BANK UNSECURED LINE OF CREDIT
On February 13, 1998, the Company amended its $75 million Bank Unsecured
Line of Credit. The amendment increased the Bank Unsecured Line of Credit to
$125 million, extended its term to July 1998 and increased the applicable margin
over LIBOR to 50 basis points.
================================================================================
49
<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, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 23, 1998, except
for note 17, which is
as of February 12, 1998
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of Registrant
Certain information concerning current directors is set forth below:
Served as
Director
Director Since Age Principal Occupation
- -------- ----- --- --------------------
Dr. William H.
Cunningham 1985 54 Chancellor of The University
of Texas System since
September 1992; prior thereto,
President of The University of
Texas at Austin from September
1985 to September 1992; Dean
of the College of Business
Administration and Graduate
School of Business of The
University of Texas at Austin
from 1983 to August 1985;
Director of Jefferson-Pilot
Corporation, LBJ Foundation
Board, John Hancock Advisors,
Inc. and advisory director of
Texas Commerce Bank-Austin.
Gary L. Mead(1) 1992 50 Director and President and
Chief Executive Officer of the
Company since March 3, 1992;
Executive Vice President-
Finance of Motel 6 G.P., Inc.,
the sole general partner of
Motel 6, L.P., from October
1987 to January 1991.
William J. Razzouk 1996 50 President, Chief Operating
Officer and Director of
Storage USA since August 1997;
prior thereto, Director and
Chief Executive Officer of
Advanta Information Services,
Inc. since September 1996;
President & Chief Operating
Officer for America Online,
Inc. February 1996 to June
1996; Executive Vice
President, World Wide Customer
Operations for Federal Express
from 1993 to February 1996;
Senior Vice President-Sales &
Customer Service, World Wide
for Federal Express from
1990-1993; Director of Fritz
Companies Inc. since February
1998.
51
<PAGE>
Served as
Director
Director Since Age Principal Occupation
- -------- ----- --- --------------------
Peter Sterling 1991 56 Vice President and Chief
Financial Officer of Sid R.
Bass, Inc. and Lee M. Bass,
Inc. (diversified investment
firms) since September 1,
1983.
Kenneth T. Stevens 1995 46 Chairman and Chief Executive
Officer of Banc One Retail
Group since May 1, 1996;
President of Taco Bell
Corporation from June 1994 to
April 1996; prior thereto,
Executive Vice President-
Marketing & New Concepts from
May 1993 to June 1994; Senior
Vice President-Treasurer of
PepsiCo, Inc. from August 1992
to May 1993; Senior Vice
President-Strategic Planning
from April 1991 to August
1992.
Thomas M. Taylor 1991 55 Chairman of the Board of the
Company since 1994; President
of Thomas M. Taylor & Co. (an
investment consulting firm)
since 1985; President of
TMT-FW (a diversified
investment firm) since
September 1989; director of
Kirby Corporation, MacMillan
Bloedel Limited, Moore
Corporation and John Wiley &
Sons, Inc., Chairman of the
Board of Encal Energy, Ltd.
(1) Pursuant to the terms of a five-year Employment Agreement entered into
between the Company and Mr. Mead on March 3, 1992, the Board of Directors
of the Company nominated him for election as a director of the Company as
part of management's slate of nominees at each annual meeting of
shareholders and appointed Mr. Mead to the Board's Executive Committee
during the term of such Employment Agreement. This Employment Agreement
expired by its terms on March 3, 1997.
Except as indicated above, none of the directors is a director of any other
Company which has a class of securities registered under, or is required to file
reports under, the Securities Exchange Act of 1934 or of any Company registered
under the Investment Company Act of 1940.
(b) Executive Officers of the Registrant
Certain information is set forth below concerning the executive officers of
the Company, each of whom has been elected to serve until the regular annual
meeting of the Board of Directors following the next Annual Meeting of
Shareholders and until his/her successor is duly elected and qualified.
Name Age Position
- ---- --- --------
Gary L. Mead 50 President and Chief Executive Officer
and Director
Ezzat S. Coutry 53 Executive Vice President and Chief
Operating Officer
Steven T. Schultz 51 Executive Vice President and Chief
Development Officer
Stephen B. Hickey 53 Sr. Vice President - Marketing
William S. McCalmont 42 Sr. Vice President and Chief
Financial Officer
John F. Schmutz 50 Vice President - General Counsel
and Secretary
52
<PAGE>
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.
Ezzat S. Coutry has been Executive Vice President and Chief Operating
Officer of the Company since November 1996. He served as Regional Vice President
of the Midwest Region for Marriott Hotels, Resorts & Suites from July 1990 to
October 1996. He served as Senior Vice President of Sales for Marriott Hotels,
Resorts & Suites from July 1989 to June 1990 and Senior Vice President of Rooms
Operations for Marriott Hotels, Resorts & Suites from January 1989 to June 1989.
Steven T. Schultz has been Executive Vice President and Chief Development
Officer of the Company since December 1997. He served as Senior Vice President -
Development of La Quinta Inns, Inc. from June 1992 to December 1997. He served
as Senior Vice President - Development of Embassy Suites from October 1986 to
June 1992.
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.
William S. McCalmont has been Senior Vice President and Chief Financial
Officer of the Company since October 1997. He served as Senior Vice President
and Chief Financial Officer of FelCor Suite Hotels from July 1996 to October
1997. He served as Vice President - Treasurer of Harrah's Entertainment from
June 1995 to July 1996. He served as Vice President - Treasurer of The Promus
Companies from November 1991 to June 1995.
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.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table contains information with respect to compensation for
services rendered in all capacities to the Company during the years ended
December 31, 1997, 1996 and 1995 for each of the five most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------- ------
Securities
Underlying All Other
Name/Position Year Salary Bonus(a) Options/SARs Compensation(b)
- ------------- ---- ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gary L. Mead 1997 $350,000 $100,000 250,000(c) $5,336
President and CEO 1996 350,000 95,000 281,250(c) 3,968
1995 350,000 255,000 -- 3,968
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------- ------
Securities
Underlying All Other
Name/Position Year Salary Bonus(a) Options/SARs Compensation(b)
- ------------- ---- ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Ezzat S. Coutry 1997 $300,000 $100,000 50,000(e) $3,456
Executive Vice President 1996 28,846(d) 100,000 500,000(e) 576
Chief Operating Officer 1995 -- -- -- --
Stephen B. Hickey 1997 $215,000 $51,000 50,000(f) $3,456
Senior Vice President 1996 210,000 41,900 -- 3,456
Marketing 1995 110,385 56,400 300,000(f) 2,016
John F. Schmutz 1997 $164,000 $ 34,000 45,000(g) $2,678
Vice President 1996 159,000 29,000 15,000(g) 1,618
General Counsel 1995 155,000 63,000 -- 1,566
Steven T. Schultz 1997 $215,200 $100,000 200,000(h) $3,456
Executive Vice President 1996 210,000 44,800 52,500(h) 2,088
Chief Development Officer 1995 205,000 98,400 -- 1,827
</TABLE>
- --------------------
(a) These amounts are the cash awards under the Company's Incentive
Compensation Plan.
(b) All Other Compensation for named individuals consists of the value of life
insurance premiums. Other Annual Compensation for Messrs. Mead, Coutry,
Hickey, Schmutz and Schultz consists of personal benefits including
automobile allowance, relocation and closing costs on the purchase of
homes, and in certain cases, income tax preparation. For the years 1995 and
1996, the amounts of Other Annual Compensation for each individual named
above aggregated less than (a) 10% of the total annual salary and bonus for
each individual or (b) $50,000, whichever was lower. Accordingly, no such
amounts are included in the Table.
(c) On February 22, 1996, Mr. Mead received options for the purchase of 281,250
shares at an option price of $18.417. Of these options, 140,626 shares have
vested, with the remaining one-half vesting in February 1999 and February
2000. On February 26, 1997, Mr. Mead received options for the purchase of
250,000 shares at an option price of $19.875. Of these options, 62,500
shares have vested, with the remaining three-fourths vesting in February
1999, February 2000 and February 2001.
(d) Mr. Coutry began employment on November 9, 1996.
(e) On October 1, 1996, Mr. Coutry received a grant to purchase 500,000 shares
of Common Stock at an option price of $19.375. Of these options, 125,000
shares have vested, with the remaining three-fourths vesting in October
1998, October 1999 and October 2000. On December 1, 1997, Mr. Coutry
received options for the purchase of 50,000 shares at an option price of
$19.063. These options shall vest in four cumulative installments of 12,500
shares in December 1998, December 1999, December 2000 and December 2001.
(f) Mr. Hickey received a grant to purchase 300,000 shares of Common Stock at
$18.917 per share on June 5, 1995. Of these options, 150,000 shares have
vested, with the remaining one-half vesting in June 1998 and June 1999. On
December 1, 1997, Mr. Hickey received options for the purchase of 50,000
shares at an option price of $19.063. These options shall vest in four
cumulative installments of 12,500 shares in December 1998, December 1999,
December 2000 and December 2001.
(g) On February 22, 1996, Mr. Schmutz received a grant to purchase 15,000
shares at an option price of $18.417. Of these options, 7,500 have vested,
with the remaining one-half vesting in February 1999 and February 2000.
54
<PAGE>
On February 26, 1997, Mr. Schmutz received a grant to purchase 20,000
shares at an option price of $19.875. Of these options, 5,000 have vested,
with the remaining three-fourths vesting in February 1999, February 2000
and February 2001. On December 1, 1997, Mr. Schmutz received options for
the purchase of 25,000 shares at an option price of $19.063. These options
shall vest in four cumulative installments of 6,250 shares in December
1998, December 1999, December 2000 and December 2001.
(h) On February 22, 1996, Mr. Schultz received a grant to purchase 52,500
shares at an option price of $18.417. Of these options, 26,250 shares have
vested, with the remaining one-half vesting in February 1999 and February
2000. On February 26, 1997, Mr. Schultz received a grant to purchase
150,000 shares at an option price of $19.875. Of these options, 37,500 have
vested, with the remaining three-fourths vesting in February 1999, February
2000 and February 2001. On December 1, 1997, Mr. Schultz received options
for the purchase of 50,000 shares at an option price of $19.063. These
options shall vest in four cumulative installments of 12,500 shares in
December 1998, December 1999, December 2000 and December 2001.
55
<PAGE>
Stock Options
The following table summarizes as to each of the five most highly
compensated executive officers of the Company, the number and terms of stock
options granted during the year ended December 31, 1997:
<TABLE>
<CAPTION>
Stock Option Grants In Last Fiscal Year
---------------------------------------
Individual Grants
--------------------------
Percent of Potential Realizable Value
Total of Assumed Annual
Options Rates of Stock Price
Number of Granted to Appreciation
Securities Employees for Option Term
Underlying in Exercise -----------------------
Options Fiscal Price $/ Expiration
Name Granted Year Share Date 5% 10%
- ---- ------- ---- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Gary L. Mead 250,000 16.2% $19.875 02/25/2007 $3,124,820 $7,918,908
Ezzat S. Coutry 50,000 3.2% $19.063 11/30/2007 $559,431 $1,519,076
Stephen B. Hickey 50,000 3.2% $19.063 11/30/2007 $559,431 $1,519,076
John F. Schmutz 20,000 1.3% $19.875 02/25/2007 $249,986 $633,513
25,000 1.6% $19.063 11/30/2007 $299,715 $759,538
Steven T. Schultz 150,000 9.7% $19.875 02/25/2007 $1,874,892 $4,751,345
50,000 3.2% $19.063 11/30/2007 $599,431 $1,519,076
All Stockholders N/A N/A N/A N/A $922,390,417 $2,337,518,418
All Optionees 1,542,175 100.00% $19.014(1) N/A $18,441,024 $46,733,175
All Optionees as % of
All Stockholders' Gain N/A N/A N/A N/A 2.0% 2.0%
</TABLE>
- ---------------
(1) Represents the weighted average exercise price of options granted to all
optionees.
56
<PAGE>
Aggregated Stock Option Exercises in Last Fiscal Year
and Fiscal Year End Stock Option Values
The following table provides information concerning the exercise of stock
options during 1997, and the year-end value of unexercised options for each of
the five most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
Number of
Shares Securities Underlying
Acquired Unexercised Value of Unexercised
on Value Stock Options In-the-Money Stock Options
Name Exercise Realized Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)
---- -------- -------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Gary L. Mead --- --- 4,253,126/328,124 $60,686,692/$165,514
Ezzat S. Coutry --- --- 125,000/425,000 $ 27,375/$108,675
Stephen B. Hickey --- --- 150,000/200,000 $ 101,550/$128,100
John F. Schmutz 50,000 $1,015,938 173,499/47,500 $ 2,404,825/$ 22,103
Steven T. Schultz --- --- 286,749/188,750 $ 3,018,616/$ 57,446
</TABLE>
(1) Exercisable options include those exercisable within 60 days after January
31, 1998.
(2) These amounts were calculated by subtracting the exercise price from the
market value of underlying securities at year-end based on a price per
share of $19.594, which represents an average of the high and low of the
Company's Common Stock on December 31, 1997, the last trading day of the
year.
COMPENSATION OF DIRECTORS
The Company's 1997 Equity Participation Plan permits non-employee directors
of the Company to receive stock options for 30,375 shares of the Company's
common stock annually in lieu of annual retainers and all meeting fees
previously paid by the Company to non-employee directors. These options are
granted annually following the election of directors at each Annual Meeting of
Shareholders and vest immediately upon grant. Options granted to directors are
for ten-year terms at per share exercise prices of not less than the fair market
value of the Company's stock on the date of each annual grant and are
exercisable (except under the general acceleration provisions of the 1997 Equity
Participation Plan upon an offer that results in the acquisition of 40% or more
of the Company's outstanding stock) on the anniversary date of each grant. Such
grants are in lieu of all annual retainers or directors' fees, and assist in
ensuring that directors will be closely aligned with the equity interests of
shareholders, thereby promoting the Board's continued focus on further
enhancement of shareholder value.
In the event a non-employee director ceases to be a director of the Company
for any reason, any such option granted to such a director expires one (1) year
from the date that the person ceased to be a director of the Company. The Board
of Directors may grant an option for 30,375 shares (or a pro rata portion
thereof) to any new non-employee director elected to fill a vacancy on the Board
or newly created Board seat between Annual Meetings of Shareholders in lieu of a
retainer and meeting fees.
The provisions relating to the grant of stock options to non-employee
directors may not be amended more than once every six months, except to conform
the 1997 Equity Participation Plan to any changes that may have occurred in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
57
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company knows of no person who, as of January 31, 1998, owned
beneficially more than five percent (5%) of the Company's outstanding voting
securities, except as indicated in the table below.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Address Beneficially Owned Percent
of Beneficial Owner as of January 31, 1998 of Class
- ------------------- ---------------------- --------
<S> <C> <C>
Thomas M. Taylor & Co. 3,461,280 4.5%
Portfolio C Investors, L.P. 3,223,700 4.2%
Thomas M. Taylor 151,875(1) *
Sid R. Bass, Inc. 4,147,957 5.4%
Lee M. Bass, Inc. 4,147,957 5.4%
The Bass Management Trust 1,190,622(2) 1.5%
The Airlie Group, L.P. 487,500 *
Annie R. Bass Grandson's Trust
for Lee M. Bass 806,305 1.0%
Annie R. Bass Grandson's Trust
for Sid R. Bass 806,305 1.0%
Panther City Investment Co. 3,101,466(3) 4.0%
Thomas W. Briggs 25,312 *
Michael N. Christodolou 15,187 *
W. Forrest Tempel 5,062 *
William P. Hallman, Jr 253,125(4) *
Peter Sterling Trusts 12,655 *
Peter Sterling 491,060(5) *
Cotham Family Partners, L.P. 7,500 *
(as a Group) ----------
c/o W. Robert Cotham 22,334,868(6) 29.0%
2600 First City Bank Tower
Fort Worth, Texas 76102
Gary L. Mead 4,556,876(7) 5.6%
112 East Pecan
San Antonio, Texas 78205
</TABLE>
- --------------
*Less than one percent (1%)
58
<PAGE>
(1) Mr. Taylor beneficially owns 151,875 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., Portfolio C Investors, L.P. and The Airlie
Group, L.P. The aggregate of all of such shares which Mr. Taylor may be
deemed to beneficially own is 7,324,355.
(2) Perry R. Bass, solely in his capacities as sole trustee and as one of two
trustees, has sole voting and dispositive power with respect to the
1,190,622 shares owned by The Bass Management Trust.
(3) Panther City Investment, solely in its capacity as Trustee has sole voting
and dispositive power with respect to 1,550,733 shares owned by The Hyatt
Anne Bass Successor Trust and has sole voting and dispositive power with
respect to the 1,550,733 shares owned by The Samantha Sims Bass Successor
Trust.
(4) A January 3, 1998 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 listed in the table above: (i) Annie R. Bass Grandson's
Trust for Sid R. Bass with respect to 806,305 shares, (ii) Annie R. Bass
Grandson's Trust for Lee M. Bass with respect to 806,305 shares, (iii)
Peter Sterling Trusts with respect to 12,655 shares and (iv) Matthew
Kingston Cotham 1996 Trust, which is the sole general partner of Cotham
Family Partners, L.P., with respect to 7,500 shares.
(5) Mr. Sterling beneficially owns 151,875 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan.
(6) 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 January 3, 1998, 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 an admission by
them that a "group" exists within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934.
(7) Mr. Mead has "sole voting power" and "sole dispositive power" with respect
to (i) 303,750 shares which he beneficially owns, (ii) 3,290,625 shares
which he presently has the right to acquire pursuant to a non-qualified
stock option agreement dated March 3, 1992 (the "Mead Stock Option
Agreement") and (iii) 962,501 shares which he presently has the right to
acquire under the Company's 1984 Stock Option Plan. Shares acquirable
pursuant to stock options include options exercisable within 60 days after
January 31, 1998. Excluded from this table are the unvested portion of
stock options granted in 1996 and 1997.
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.
59
<PAGE>
Based upon information received upon requests from the persons concerned,
each current director, each executive officer named in the Summary Compensation
Table and all directors and executive officers of the Company as a group owned
beneficially as of January 31, 1998, the number and percentage of outstanding
shares of Common Stock of the Company indicated in the following table:
<TABLE>
<CAPTION>
Names of Individual Shares Beneficially Owned
or Identity of Group as of January 31, 1998 Percent of Class
- -------------------- ---------------------- ----------------
<S> <C> <C>
Current Directors:
William H. Cunningham 121,500(1) *
Gary L. Mead 4,556,876(2) 5.6%
William Razzouk 22,781(3) *
Peter Sterling 491,060(4) *
Kenneth T. Stevens 45,567(5) *
Thomas M. Taylor 7,324,355(6) 9.5%
Other Named
Executive Officers:
Ezzat Coutry 125,000(7) *
Stephen B. Hickey 150,000(8) *
John F. Schmutz 173,499(9) *
Steven T. Schultz 286,749(10) *
All directors and executive
officers as a group (10 persons) 13,297,387(11) 16.1%
</TABLE>
- ----------
*Less than one percent (1%)
(1) The shares shown as beneficially owned by Dr. Cunningham represent 121,500
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan. It does not include 30,375 shares he will have the right
to acquire on May 23, 1998 under the Company's 1997 Equity Participation
Plan.
(2) The shares shown as beneficially owned by Mr. Mead include (i) 3,290,625
shares which he presently has the right to acquire pursuant to the Mead
Stock Option Agreement and (ii) 962,501 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan. Excluded from
this table are the unvested portion of stock options granted in 1996 and
1997.
(3) The shares shown as beneficially owned by Mr. Razzouk represent 22,781
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan. It does not include 30,375 shares which he will have the
right to acquire on May 23, 1998 under the Company's 1997 Equity
Participation Plan.
(4) The shares shown as beneficially owned by Mr. Sterling include 151,875
shares which he presently has the right to acquire under the Company's 1984
Stock Option Plan. It does not include 30,375 shares which he will have the
right to acquire on May 23, 1998 under the Company's 1997 Equity
Participation Plan.
(5) The shares shown as beneficially owned by Mr. Stevens include 45,562 shares
which he presently has the right to acquire under the Company's 1984 Stock
Option Plan. It does not include 30,375 shares which he will have the right
to acquire on May 23, 1998 under the Company's 1997 Equity Participation
Plan.
(6) The shares shown as beneficially owned by Mr. Taylor (i) include 3,461,280
shares that Mr. Taylor may be deemed to own beneficially because of his
position as the President, sole director and sole shareholder
60
<PAGE>
of Thomas M. Taylor & Co., (ii) 3,223,700 shares that Mr. Taylor may be
deeded to own beneficially because of his position as President and sole
stockholder of Trinity Capital Management, Inc., which is the sole general
partner of TF Investors, L.P., which is the sole general partner of Trinity
I Fund, L.P., which is the sole stockholder of Portfolio Associates, Inc.,
which is the sole general partner of Portfolio C. Investors, L.P., (iii)
487,500 shares that Mr. Taylor may be deemed to own beneficially because of
his position as President and sole shareholder of TMT-FW, Inc., which is
one of two general partners of EBD L.P., which is the sole general partner
of The Airlie Group L.P., (iv) 151,875 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan. It does not
include 30,375 shares he will have the right to acquire on May 23, 1998
under the Company's 1997 Equity Participation Plan.
(7) The shares shown beneficially owned by Mr. Coutry, Executive Vice
President-Chief Operating Officer of the Company reflect 125,000 shares
which he presently has the right to acquire under the Company's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of stock
options granted in 1996 and 1997.
(8) The shares shown beneficially owned by Mr. Hickey, Senior Vice
President-Marketing of the Company reflect 150,000 shares which he
presently has the right to acquire under the Company's 1984 Stock Option
Plan. Excluded from this table are the unvested portion of stock options
granted in 1995 and 1997.
(9) The shares shown beneficially owned by Mr. Schmutz, Vice President-General
Counsel of the Company reflect 173,499 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan. Excluded from
this table are the unvested portion of stock options granted in 1996 and
1997.
(10) The shares shown beneficially owned by Mr. Schultz, Senior Vice
President-Development of the Company reflect 286,749 shares which he
presently has the right to acquire under the Company's 1984 Stock Option
Plan. Excluded from this table are the unvested portion of stock options
granted in 1996 and 1997.
(11) The holdings shown for all directors and executive officers as a group
include 5,481,967 shares which the directors and executive officers have
the right to acquire under the Company's 1984 Stock Option Plan, 1997
Equity Participation Plan and the Mead Stock Option Agreement. Shares
acquirable pursuant to stock options, which are exercisable within sixty
(60) days after January 31, 1998 are shown as being beneficially owned by
members of each 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.
All directors and executive officers as a group beneficially own a total of
7,815,420 shares (10.1%) of the Company's outstanding Common Stock excluding the
5,481,967 shares referred to in note (11) 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
61
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The Combined Financial Statements of the Company appearing in Item 8
are as follows:
Combined Balance Sheets at December 31, 1997 and 1996
Combined Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Combined Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Combined Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Combined Financial Statements
Independent Auditors' Report on financial statements
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable regulation
to the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and have been omitted.
(3) The following exhibits are filed as a part of this Report:
(2) Agreement and Plan of Merger, dated as of January 2, 1998 by and among
La Quinta Inns, Inc., Meditrust Corporation and Meditrust Operating
Company. (13)
(3)(a) Restated Articles of Incorporation of La Quinta Inns, Inc., dated as
of May 23, 1997. (11)
(3)(b) Amended and Restated By-Laws of La Quinta Inns, Inc. (1)
(10)(a)* La Quinta Inns, Inc. 1984 Stock Option Plan. (2)
(10)(b)* Amendment No. 1 to La Quinta Inns, Inc. 1984 Stock Option Plan. (3)
(10)(c)* Amendment No. 2 to La Quinta Inns, Inc. 1984 Stock Option Plan. (4)
(10)(d)* Amended and Restated La Quinta Inns, Inc. 1984 Stock Option Plan, as
of November 21, 1991. (1)
(10)(e)* First Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(f)* Second Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(g)* Third Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(h)* The 1997 Equity Participation Plan of La Quinta Inns, Inc. (12)
(10)(i)* First Amendment to The 1997 Equity Participation Plan of La Quinta
Inns, Inc. (12)
62
<PAGE>
(10)(j)* Second Amendment to The 1997 Equity Participation Plan of La Quinta
Inns, Inc. (12)
(10)(k)* Supplemental Executive Retirement Plan and Trust Agreement of
Registrant, dated April 20, 1990, by and between Registrant and Frost
National Bank. (5)
(10)(l) Form of Indemnification Agreement, made and entered into as of
November 15, 1990 and thereafter (with respect to persons who became
directors of Registrant after such dates), by and between Registrant
and each of its directors. (5)
(10)(m) Form of Indemnification Agreement, made and entered into as of
November 15, 1990 and thereafter (with respect to persons who became
directors of Registrant after such dates), by and between Registrant
and each of its officers. (5)
(10)(n)* Employment Agreement, dated as of March 3, 1992, by and between
Registrant and Gary L. Mead. (1)
(10)(o)* Non-Qualified Stock Option Agreement, dated as of March 3, 1992,
between Registrant and Gary L. Mead. (1)
(10)(p)* Registration Rights Agreement, dated as of March 3, 1992, between
Registrant and Gary L. Mead. (1)
(10)(q) Second Amended and Restated Master Covenant Agreement dated June 15,
1993. (6)
(10)(r) Indenture dated May 15, 1993 Re: $120,000,000 9 1/4% Senior
Subordinated Notes due 2003. (6)
(10)(s) $126,795,786.64 Credit Agreement Among La Quinta Inns, Inc. Certain
lenders and NationsBank of Texas, N.A., as Administrative Lender dated
June 15, 1993. (6)
(10)(t) $241,844,955.21 Amended and Restated Credit Agreement Among La Quinta
Inns, Inc. Certain lenders and NationsBank of Texas, N.A., as
Administrative Lender dated January 25, 1994. (7)
(10)(u) Third Amended and Restated Master Covenant Agreement dated as of
January 25, 1994. (7)
(10)(v) Fifth Amended and Restated Master Covenant Agreement dated as of
September 12, 1995. (8)
(10)(w) Amended and Restated Credit Agreement (Facility A), dated as of
September 12, 1995. (8)
(10)(x) Amended and Restated Credit Agreement (Facility B), dated as of
September 12, 1995. (8)
(10)(y) Indenture dated September 15, 1995 Re: Debt Securities. (8)
(10)(z) Officers' certificate defining terms of $100,000,000 7.4% Senior Notes
due 2005. (9)
(10)(aa) $325,000,000 First Amended and Restated Credit Agreement among La
Quinta Inns, Inc., certain lenders and NationsBank of Texas, N.A., as
Administrative Lender, dated as of February 7, 1997. (10)
(10)(ab) $75,000,000 Credit Agreement among La Quinta Inns, Inc., certain
lenders and NationsBank of Texas, N.A., as Administrative Lender,
dated as of November 17, 1997 filed herewith.
(10)(ac) Shareholders Agreement, dated as of January 3, 1998 by and among La
Quinta Inns, Inc., Meditrust Corporation, Meditrust Operating Company
and the shareholders of La Quinta Inns, Inc. named on the signature
pages thereto. (13)
63
<PAGE>
(10)(ad) Registration Rights Agreement, dated as of January 3, 1998 by and
among La Quinta Inns, Inc., Meditrust Corporation, Meditrust Operating
Company and the shareholders of La Quinta Inns, Inc. named on the
signature pages thereto. (13)
(10)(ae)* Restricted Stock Agreement filed herewith.
(10)(af) First Amendment to Credit Agreement among La Quinta Inns, Inc.,
certain lenders and NationsBank of Texas, N.A., as Administrative
Lender, dated as of February 12, 1998 filed herewith.
(11) Statement regarding computation of per share earnings filed herewith.
(12) Computation of Ratio of Earnings to Fixed Charges filed herewith.
(21) Subsidiaries of La Quinta Inns, Inc. as of January 31, 1998 filed
herewith.
(23) Consent by KPMG Peat Marwick LLP dated February 12, 1998 to
incorporation by reference of their report dated January 23, 1998,
except for note 17, which is as of February 12, 1998, in various
Registration Statements filed herewith.
(24) Powers of Attorney filed herewith.
(27) Financial Data Schedule filed herewith.
- -------------------
* Indicates management compensation agreement.
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended May 31, 1984 and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 2-97266) and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-26470) and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(6) Previously filed as an exhibit to Registrant's Registration Statement
on Form 10-Q for the period ended June 30, 1993 and incorporated
herein by reference.
(7) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
(8) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-3 (No. 2-61755) and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
64
<PAGE>
(10) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
(11) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 333-32637) and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-Q for the period ended June 30, 1997 and
incorporated herein by reference.
(13) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 8-K dated as of January 3, 1998 and incorporated
herein by reference.
(b) Reports on Form 8-K.
Not applicable.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LA QUINTA INNS, INC.
(Registrant)
By: /s/ Gary L. Mead
---------------------------
Gary L. Mead
President and Chief
Executive Officer
/s/ William S. McCalmont
---------------------------
William S. McCalmont
Senior Vice President and
Chief Financial Officer
/s/ Irene C. Primera
---------------------------
Irene C. Primera
Vice President - Controller
Date: February 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, and in the capacities and on the date indicated.
Signature Title
/s/ GARY L. MEAD
- -----------------------------------------
Gary L. Mead President and Chief Executive
Officer, Director (Principal
Executive Officer)
/s/ WILLIAM S. MCCALMONT
- -----------------------------------------
William S. McCalmont Senior Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ IRENE C. PRIMERA
- -----------------------------------------
Irene C. Primera Vice President - Controller
(Principal Accounting Officer)
/s/ THOMAS M. TAYLOR*
- -----------------------------------------
Thomas M. Taylor Chairman of the Board
/s/ WILLIAM H. CUNNINGHAM*
- -----------------------------------------
William H. Cunningham Director
/s/ WILLIAM RAZZOUK*
- -----------------------------------------
William Razzouk Director
/s/ PETER STERLING*
- -----------------------------------------
Peter Sterling Director
/s/ KENNETH T. STEVENS*
- -----------------------------------------
Kenneth T. Stevens Director
*By: /s/ WILLIAM S. MCCALMONT
-------------------------------------
William S. McCalmont
Attorney-in-Fact
Date: February 13, 1998
66
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
(2) Agreement and Plan of Merger, dated as of January 2, 1998 by and among
La Quinta Inns, Inc., Meditrust Corporation and Meditrust Operating
Company. (13)
(3)(a) Restated Articles of Incorporation of La Quinta Inns, Inc., dated as
of May 23, 1997. (11)
(3)(b) Amended and Restated By-Laws of La Quinta Inns, Inc. (1)
(10)(a)* La Quinta Inns, Inc. 1984 Stock Option Plan. (2)
(10)(b)* Amendment No. 1 to La Quinta Inns, Inc. 1984 Stock Option Plan. (3)
(10)(c)* Amendment No. 2 to La Quinta Inns, Inc. 1984 Stock Option Plan. (4)
(10)(d)* Amended and Restated La Quinta Inns, Inc. 1984 Stock Option Plan, as
of November 21, 1991. (1)
(10)(e)* First Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(f)* Second Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(g)* Third Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan. (12)
(10)(h)* The 1997 Equity Participation Plan of La Quinta Inns, Inc. (12)
(10)(i)* First Amendment to The 1997 Equity Participation Plan of La Quinta
Inns, Inc. (12)
(10)(j)* Second Amendment to The 1997 Equity Participation Plan of La Quinta
Inns, Inc. (12)
(10)(k)* Supplemental Executive Retirement Plan and Trust Agreement of
Registrant, dated April 20, 1990, by and between Registrant and Frost
National Bank. (5)
(10)(l) Form of Indemnification Agreement, made and entered into as of
November 15, 1990 and thereafter (with respect to persons who became
directors of Registrant after such dates), by and between Registrant
and each of its directors. (5)
(10)(m) Form of Indemnification Agreement, made and entered into as of
November 15, 1990 and thereafter (with respect to persons who became
directors of Registrant after such dates), by and between Registrant
and each of its officers. (5)
(10)(n)* Employment Agreement, dated as of March 3, 1992, by and between
Registrant and Gary L. Mead. (1)
(10)(o)* Non-Qualified Stock Option Agreement, dated as of March 3, 1992,
between Registrant and Gary L. Mead. (1)
(10)(p)* Registration Rights Agreement, dated as of March 3, 1992, between
Registrant and Gary L. Mead. (1)
(10)(q) Second Amended and Restated Master Covenant Agreement dated June 15,
1993. (6)
(10)(r) Indenture dated May 15, 1993 Re: $120,000,000 9 1/4% Senior
Subordinated Notes due 2003. (6)
<PAGE>
(10)(s) $126,795,786.64 Credit Agreement Among La Quinta Inns, Inc. Certain
lenders and NationsBank of Texas, N.A., as Administrative Lender dated
June 15, 1993. (6)
(10)(t) $241,844,955.21 Amended and Restated Credit Agreement Among La Quinta
Inns, Inc. Certain lenders and NationsBank of Texas, N.A., as
Administrative Lender dated January 25, 1994. (7)
(10)(u) Third Amended and Restated Master Covenant Agreement dated as of
January 25, 1994. (7)
(10)(v) Fifth Amended and Restated Master Covenant Agreement dated as of
September 12, 1995. (8)
(10)(w) Amended and Restated Credit Agreement (Facility A), dated as of
September 12, 1995. (8)
(10)(x) Amended and Restated Credit Agreement (Facility B), dated as of
September 12, 1995. (8)
(10)(y) Indenture dated September 15, 1995 Re: Debt Securities. (8)
(10)(z) Officers' certificate defining terms of $100,000,000 7.4% Senior Notes
due 2005. (9)
(10)(aa) $325,000,000 First Amended and Restated Credit Agreement among La
Quinta Inns, Inc., certain lenders and NationsBank of Texas, N.A., as
Administrative Lender, dated as of February 7, 1997. (10)
(10)(ab) $75,000,000 Credit Agreement among La Quinta Inns, Inc., certain
lenders and NationsBank of Texas, N.A., as Administrative Lender,
dated as of November 17, 1997 filed herewith.
(10)(ac) Shareholders Agreement, dated as of January 3, 1998 by and among La
Quinta Inns, Inc., Meditrust Corporation, Meditrust Operating Company
and the shareholders of La Quinta Inns, Inc. named on the signature
pages thereto. (13)
(10)(ad) Registration Rights Agreement, dated as of January 3, 1998 by and
among La Quinta Inns, Inc., Meditrust Corporation, Meditrust Operating
Company and the shareholders of La Quinta Inns, Inc. named on the
signature pages thereto. (13)
(10)(ae)* Restricted Stock Agreement filed herewith.
(10)(af) First Amendment to Credit Agreement among La Quinta Inns, Inc.,
certain lenders and NationsBank of Texas, N.A., as Administrative
Lender, dated as of February 12, 1998 filed herewith.
(11) Statement regarding computation of per share earnings filed herewith.
(12) Computation of Ratio of Earnings to Fixed Charges filed herewith.
(21) Subsidiaries of La Quinta Inns, Inc. as of January 31, 1998 filed
herewith.
(23) Consent by KPMG Peat Marwick LLP dated February 12, 1998 to
incorporation by reference of their report dated January 23, 1998,
except for note 17, which is as of February 12, 1998, in various
Registration Statements filed herewith.
(24) Powers of Attorney filed herewith.
(27) Financial Data Schedule filed herewith.
- ---------------------
* Indicates management compensation agreement.
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference.
<PAGE>
(2) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended May 31, 1984 and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 2-97266) and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-26470) and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(6) Previously filed as an exhibit to Registrant's Registration Statement
on Form 10-Q for the period ended June 30, 1993 and incorporated
herein by reference.
(7) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
(8) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-3 (No. 2-61755) and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
(10) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
(11) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 333-32637) and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-Q for the period ended June 30, 1997 and
incorporated herein by reference.
(13) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 8-K dated as of January 3, 1998 and incorporated
herein by reference.
(b) Reports on Form 8-K.
Not applicable.
================================================================================
$75,000,000
CREDIT AGREEMENT
AMONG
LA QUINTA INNS, INC.
CERTAIN LENDERS
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
November 17, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions
Section 1.1 Defined Terms .............................................. 1
Section 1.2 Amendments and Renewals .................................... 9
Section 1.3 Construction ............................................... 9
ARTICLE 2
Advances
Section 2.1 Revolving Credit Advances .................................. 9
Section 2.2 Manner of Borrowing and Disbursement ....................... 9
Section 2.3 Interest ................................................... 11
(a) On Base Rate Advances ...................................... 11
(b) On LIBOR Advances .......................................... 12
(c) Interest if No Notice of Selection of Interest Rate Basis .. 12
(d) Interest After an Event of Default ......................... 12
Section 2.4 Fees ....................................................... 12
Section 2.5 Prepayment ................................................. 13
(a) Voluntary Prepayments ...................................... 13
(b) Mandatory Prepayment ....................................... 13
(c) Prepayments, Generally ..................................... 13
Section 2.6 Reduction of Commitment .................................... 13
(a) Voluntary Reduction ........................................ 13
(b) Mandatory Reduction ........................................ 13
(c) General Requirements ....................................... 13
Section 2.7 Non-Receipt of Funds by the Administrative Lender .......... 14
Section 2.8 Payment of Principal of Advances ........................... 14
(a) End of Interest Period ..................................... 14
(b) Commitment Reduction ....................................... 14
(c) Maturity Date .............................................. 14
Section 2.9 Reimbursement .............................................. 14
Section 2.10 Manner of Payment .......................................... 15
Section 2.11 LIBOR Lending Offices ...................................... 15
Section 2.12 Sharing of Payments ........................................ 16
Section 2.13 Calculation of Rates ....................................... 16
Section 2.14 Booking Loans .............................................. 16
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<PAGE>
Section 2.15 Taxes ....................................................... 17
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advances ................ 20
Section 3.2 Conditions Precedent to All Advances ........................ 21
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties .............................. 22
(a) Existing Credit Agreement Representations and Warranties .... 22
(b) Authorization ............................................... 22
(c) Compliance with Other Loan Papers and
Contemplated Transactions ................................ 22
(d) Compliance with Regulations G, T, U and X ................... 23
(e) Disclosure .................................................. 23
Section 4.2 Survival of Representations and Warranties, etc ............. 23
ARTICLE 5
Covenants
Section 5.1 Existing Credit Agreement ................................... 24
Section 5.2 Use of Proceeds ............................................. 24
Section 5.3 Indemnity ................................................... 25
ARTICLE 6
Default
Section 6.1 Events of Default ........................................... 26
Section 6.2 Remedies .................................................... 27
ARTICLE 7
Changes in Circumstances
Section 7.1 LIBOR Basis Determination Inadequate ........................ 28
Section 7.2 Illegality .................................................. 28
Section 7.3 Increased Costs ............................................. 28
Section 7.4 Effect On Base Rate Advances ................................ 30
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<PAGE>
Section 7.5 Capital Adequacy ............................................. 30
ARTICLE 8
AGREEMENT AMONG LENDERS
Section 8.1 Agreement Among Lenders ...................................... 31
(a) Administrative Lender ........................................ 31
(b) Replacement of Administrative Lender ......................... 31
(c) Expenses ..................................................... 31
(d) Delegation of Duties ......................................... 32
(e) Reliance by Administrative Lender ............................ 32
(f) Limitation of Administrative Lender's Liability .............. 32
(g) Liability Among Lenders ...................................... 33
(h) Rights as Lender ............................................. 33
Section 8.2 Lender Credit Decision ....................................... 33
Section 8.3 Benefits of Article .......................................... 33
ARTICLE 9
Miscellaneous
Section 9.1 Notices ...................................................... 34
Section 9.2 Expenses ..................................................... 34
Section 9.3 Waivers ...................................................... 35
Section 9.4 Determination by the Lenders Conclusive and Binding .......... 36
Section 9.5 Set-Off ...................................................... 36
Section 9.6 Assignment ................................................... 36
Section 9.7 Counterparts ................................................. 38
Section 9.8 Severability ................................................. 38
Section 9.9 Interest and Charges ......................................... 38
Section 9.10 Confidentiality .............................................. 39
Section 9.11 Headings ..................................................... 39
Section 9.12 Amendment and Waiver ......................................... 39
Section 9.13 Exception to Covenants ....................................... 40
SECTION 9.14 GOVERNING LAW ................................................ 40
SECTION 9.15 WAIVER OF JURY TRIAL ......................................... 40
SECTION 9.16 ENTIRE AGREEMENT ............................................. 41
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<PAGE>
Schedules
Schedule 1 LIBOR Lending Offices
Exhibits
Exhibit A: Revolving Credit Note
Exhibit B: Subsidiary Guaranty
Exhibit C: Assignment Agreement
Exhibit D: Confidentiality Agreement
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of November 17, 1997, among LA QUINTA
INNS, INC., a Texas corporation ("Borrower"), the Lenders from time to time
party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking association, as
administrative agent for the Lenders.
BACKGROUND
The Borrower has requested that the Lenders make a credit facility
available to the Borrower in the maximum principal amount of $75,000,000
pursuant to this Agreement. The Lenders have agreed to provide such credit
facility, subject to the terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration hereby acknowledged, the parties
hereto agree that the Existing Credit Agreements are amended and restated in
their entirety as follows:
ARTICLE 1
Definitions
Section 1.1 Defined Terms. For purposes of this Agreement:
"Additional Costs" has the meaning set forth in Section 8.5 hereof.
"Adjusted LIBOR Rate" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100th of 1%) determined by the Administrative Lender to be equal to the
quotient obtained by dividing (a) the LIBOR Rate for such LIBOR Advance for such
Interest Period by (b) 1 minus the Reserve Requirement for such LIBOR Advance
for such Interest Period.
"Administrative Lender" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 9.1(b) hereof.
"Advance" means a Revolving Credit Advance and "Advances" means Revolving
Credit Advances.
"Agreement" means this Credit Agreement, as amended, modified, supplemented
and restated from time to time.
<PAGE>
"Agreement Date" means the date of this Agreement.
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
ss.ss. 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to Advances, this Agreement, the Notes
or any other Loan Papers.
"Art. 1.04" has the meaning specified in the definition of "Applicable
Law."
"Assignees" means any assignee of a Lender pursuant to an Assignment
Agreement and has the meaning specified in Section 10.6 hereof.
"Assignment Agreement" has the meaning specified in Section 9.6 hereof.
"Authorized Officer" means any of the following officers of the Borrower:
President, Senior Vice President-Chief Financial Officer, or Vice President &
General Counsel.
"Authorized Signatory" means such senior personnel of the Borrower as may
be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances hereunder.
"Base Rate Advance" means a Revolving Credit Advance which the Borrower
requests to be made as a Base Rate Advance or which is reborrowed as a Base Rate
Advance, in accordance with the provisions of Section 2.2 hereof.
"Base Rate Basis" means, for any day, a per annum interest rate equal to
the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such
day or (b) the Prime Rate on such day. The Base Rate Basis shall be adjusted
automatically as of the opening of business on the effective date of each change
in the Prime Rate or Federal Funds Rate, as the case may be, to account for such
change.
"Borrower" has the meaning specified in the initial paragraph of this
Agreement.
"Business Day" means a day on which commercial banks are open (a) for the
transaction of
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<PAGE>
business in Dallas, Texas and New York, New York, and, (b) with respect to any
LIBOR Advance, for the transaction of international business (including dealings
in Dollar deposits) in London, England.
"Capital Stock" means, with respect to any Person, any capital stock,
partnership or joint venture interests of such Person and shares, interests,
participations or other ownership interests (however designated) of any Person
and any rights (other than debt securities convertible into corporate stock),
warrants or options to purchase any of the foregoing.
"Code" means the Internal Revenue Code of 1986, as amended, together with
all regulations thereunder.
"Commitment" means $75,000,000, as reduced pursuant to Section 2.6 hereof.
"Confidentiality Agreement" has the meaning specified in Section 9.10
hereof.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.
"Default" means an Event of Default and/or any of the events specified in
Section 7.1, regardless of whether there shall have occurred any passage of time
or giving of notice that would be necessary in order to constitute such event an
Event of Default.
"Default Rate" means a simple per annum interest rate equal to the lesser
of (a) the Highest Lawful Rate, or (b) the sum of the Prime Rate plus three
percent.
"Determining Lenders" means, on any date of determination, any combination
of the Lenders having at least 51% of the aggregate amount of the Revolving
Credit Advances then outstanding; provided, however, that if there are no
Revolving Credit Advances outstanding hereunder, "Determining Lenders" shall
mean any combination of Lenders whose Specified Percentages hereunder aggregate
at least 51%.
"Dollar" or "$" means lawful currency of the United States of America.
"Event of Default" means any of the events specified in Section 6.1,
provided that any requirement for notice or lapse of time has been satisfied.
"Existing Credit Agreement" means that certain First Amended and Restated
Credit Agreement, dated as of February 7, 1997, among the Borrower, the lenders
party thereto and NationsBank of Texas, N.A., as amended, modified, supplemented
or restated from time to time.
"Existing Credit Agreement Representations and Warranties" has the meaning
specified in Section 4.1(a) hereof.
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<PAGE>
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Lender on such day on such transactions as determined by
Administrative Lender.
"GAAP" means generally accepted accounting principles, set forth in the
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants, or their successors which are applicable in the
circumstances as of the date in question (except as stated in the last sentence
of this definition). The requisite that such principles be applied on a
consistent basis shall mean that the accounting principles observed in a current
period are comparable in all material respects to those applied in a preceding
period, except as otherwise required by the adoption of Statements by the
Financial Accounting Standards Board. Notwithstanding the foregoing, each
determination and computation with respect to financial covenants and ratios in
this Agreement shall be made in accordance with GAAP as in effect on the
Agreement Date.
"Guaranty Agreements" means the Subsidiary Guaranty and any other Guaranty
executed by a Guarantor.
"Guarantor" means each Significant Subsidiary.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.
"Increased Advance Costs" has the meaning specified in Section 7.3 hereof.
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<PAGE>
"Increased Advance Costs Retroactive Effective Date" has the meaning
specified in Section 7.3 hereof.
"Increased Advance Costs Set Date" has the meaning specified in Section 7.3
hereof.
"Indemnified Matters" has the meaning specified in Section 5.3 hereof.
"Indemnitees" has the meaning specified in Section 5.3 hereof.
"Interest Period" means, for any LIBOR Advance, the period beginning on the
day such Advance is made and ending one, two or three months thereafter (as the
Borrower shall select).
"Lender" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitment or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes
party hereto pursuant to Section 9.6 hereof.
"LIBOR Advance" means a Revolving Credit Advance which the Borrower
requests to be made as a LIBOR Advance or which is reborrowed as a LIBOR
Advance, in accordance with the provisions of Section 2.2 hereof.
"LIBOR Basis" means, with respect to each LIBOR Advance for each Interest
Period, a rate per annum equal to the lesser of (a) the Highest Lawful Rate or
(b) the sum of the Adjusted LIBOR Rate plus 0.3875.
"LIBOR Lending Office" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
other office of the Lender or any of its affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "LIBOR Rate" shall mean, for any LIBOR Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100th of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates (rounded upwards, if necessary, to the
nearest 1/100th of 1%).
"Loan Papers" means this Agreement, the Notes, the Guaranty Agreements, and
any other document or agreement executed or delivered from time to time by the
Borrower, any Subsidiary
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<PAGE>
or any other Person in connection herewith or as security for all or any part of
the Obligations.
"Loan Party" means the Borrower and each Guarantor.
"Material Adverse Change or Effect" means any act or circumstance or event
which (a) is material and adverse to the combined or consolidated financial
condition of the Borrower, its Subsidiaries and Unincorporated Ventures as
represented in the Combined Financial Statements (as defined in the Existing
Credit Agreement) most recently delivered to the Lenders at the time of any
determination thereof or is material and adverse to the combined or consolidated
business operations or properties of the Borrower, its Subsidiaries and
Unincorporated Ventures or (b) impairs the ability of the Borrower, any
Subsidiary or any other Person to perform in any material respect their
respective obligations under the Loan Papers.
"Maturity Date" means March 15, 1998, or the earlier date of termination in
whole of the Commitment pursuant to Section 2.6 or 6.2 hereof.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.
"Necessary Authorization" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with, any
governmental or other regulatory authority necessary or appropriate to enable
the Borrower or any Subsidiary or Unincorporated Venture to maintain and operate
its business and properties.
"Note" means any Revolving Credit Note and "Notes" means the Revolving
Credit Notes.
"Obligations" means (a) all obligations of any nature (whether matured or
unmatured, fixed or contingent) of the Borrower, any Subsidiary or any other
Person to any of the Lenders under the Loan Papers as they may be amended from
time to time, and (b) all obligations of the Borrower, any Subsidiary or any
other Person for losses, damages, expenses or any other liabilities of any kind
that any Lender may suffer by reason of a breach by the Borrower, any Subsidiary
or any other Person of any obligation, covenant or undertaking with respect to
any Loan Paper.
"Obligor" means Borrower or each other Person liable for performance of any
of the Obligations or the property of which secures any of the Obligations.
"Other Taxes" has the meaning specified in Section 2.15 hereof.
"Participant" has the meaning specified in Section 9.6(c) hereof.
"Participation" has the meaning specified in Section 9.6(c) hereof.
"Payment Date" means the last day of the Interest Period for any LIBOR
Advance.
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<PAGE>
"Person" means and includes an individual, corporation, partnership, trust
or unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prime Rate" means, at any time, the prime interest rate announced or
published by the Administrative Lender from time to time as its reference rate
for the determination of interest rates for loans of varying maturities in
Dollars to United States residents of varying degrees of creditworthiness and
being quoted at such time by the Administrative Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Administrative Lender.
"Quarterly Date" means the last Business Day of each February, May, August
and November, beginning November 28, 1997.
"Refinancing Advance" means any Revolving Credit Advance which is used to
pay the principal amount (or any portion thereof) of a Revolving Credit Advance
at the end of its Interest Period and which, after giving effect to such
application, does not result in an increase in the aggregate amount of
outstanding Revolving Credit Advances.
"Regulatory Modification Retroactive Effective Date" has the meaning
specified in Section 7.5 hereof.
"Regulatory Modification Set Date" has the meaning specified in Section 7.5
hereof.
"Release Date" means the date on which the Notes have been paid, all other
Obligations due and owing have been paid and performed in full, and the
Commitment has been terminated.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks with respect to (i) any category
of liabilities which includes deposits by reference to which the Adjusted LIBOR
Rate is to be determined, or (ii) any category of extensions of credit or other
assets which include LIBOR Advances or LIBOR Bid Rate Advances. The Adjusted
LIBOR Rate shall be adjusted automatically on and as of the effective date of
any change in the Reserve Requirement.
"Revolving Credit Advance" means an Advance made pursuant to Section 2.1
hereof.
"Revolving Credit Note" means any Promissory Note of the Borrower
evidencing Revolving Credit Advances hereunder, substantially in the form of
Exhibit A hereto, together with any extension, renewal or amendment thereof or
substitution therefor.
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"Rights" means rights, remedies, powers and privileges.
"Significant Subsidiary" means any Subsidiary of the Borrower (a) the
revenues attributable to which for the then most recently completed four fiscal
quarters constituted (or, with respect to Subsidiaries acquired during such four
fiscal quarters, would have constituted had the revenues of such Subsidiary been
included for such period) 2.5% or more of the consolidated revenues of the
Borrower and its Subsidiaries for such period, or (b) the assets of which as of
the end of such period constituted 2.5% or more of the consolidated assets of
the Borrower and its Subsidiaries as of the end of such period.
"Solvent" means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability discounted to present value
at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
"Subsidiary" with respect to any Persons, means (a) a corporation at least
a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person or (b) a partnership, joint venture or
similar entity in which 100% of the ownership, capital, interest or profits is
at the time, directly or indirectly, owned by such Person, by such Person and
one or more Subsidiaries of such Person or by one or more Subsidiaries of such
Person.
"Subsidiary Guaranty" means the Guaranty executed by each Significant
Subsidiary guaranteeing payment and performance of the Obligations,
substantially in the form of Exhibit B hereto, as such agreement may be amended,
modified, supplemented or restated from time to time.
"Taxes" has the meaning specified in Section 2.15 hereof.
"Tribunal" means any state, commonwealth, federal, foreign territorial, or
other court or governmental department, commission, board, bureau, agency or
instrumentality.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
time.
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"Unincorporated Ventures" has the meaning given to such term in the
Existing Credit Agreement.
Section 1.2 Amendments and Renewals. Each definition of an agreement in
this Article 1 shall include such agreement as amended to date, and as amended
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders or all Lenders as required
pursuant to Section 10.12 hereof.
Section 1.3 Construction. The terms defined in this Article 1 (except as
otherwise expressly provided in this Agreement) for all purposes shall have the
meanings set forth in Section 1.1 hereof, and the singular shall include the
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
ARTICLE 2
Advances
Section 2.1 Revolving Credit Advances. Each Lender severally agrees, upon
the terms and subject to the conditions of this Agreement, to make Revolving
Credit Advances to the Borrower from time to time up to and including the
Maturity Date in an aggregate amount not to exceed an amount equal to its
Specified Percentage of the Commitment. Notwithstanding the immediately
preceding sentence, at no time shall the aggregate principal amount of Revolving
Credit Advances outstanding exceed the Commitment. Subject to Section 2.9
hereof, Revolving Credit Advances may be repaid and then reborrowed. Any
Revolving Credit Advance shall, at the option of the Borrower as provided in
Section 2.2 hereof (and, in the case of LIBOR Advances, subject to availability
and to the provisions of Article 7 hereof), be made as a Base Rate Advance or a
LIBOR Advance; provided that there shall not be outstanding to any Lender, at
any one time, more than eight LIBOR Advances. On the Maturity Date unless sooner
paid as provided herein, the outstanding Revolving Credit Advances shall be
repaid in full.
Section 2.2 Manner of Borrowing and Disbursement.
(a) In the case of Base Rate Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender prior to 10:30 a.m., Dallas,
Texas time, on the date of any proposed Base Rate Advance irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
or reborrow a Base Rate Advance hereunder. Such notice of borrowing shall
specify the requested funding date, which shall be a Business Day, and the
amount of the proposed aggregate Base Rate Advances to be made by Lenders.
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(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least three Business Days'
irrevocable written notice for LIBOR Advances, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given), of its intention to borrow or reborrow a LIBOR Advance
hereunder. Notice shall be given to the Administrative Lender prior to 11:00
a.m., Dallas, Texas time, in order for such Business Day to count toward the
minimum number of Business Days required. LIBOR Advances shall in all cases be
subject to availability and to Article 8 hereof. For LIBOR Advances, the notice
of borrowing shall specify the requested funding date, which shall be a Business
Day, the amount of the proposed aggregate LIBOR Advances to be made by Lenders
and the Interest Period selected by the Borrower, provided that no such Interest
Period shall extend past the Maturity Date.
(c) Subject to Sections 2.1 and 2.9 hereof, at least three Business Days
prior to each Payment Date for a LIBOR Advance, the Borrower, through an
Authorized Signatory, shall give the Administrative Lender irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), specifying whether all or
a portion of such LIBOR Advance outstanding on the Payment Date (i) is to be
repaid and then reborrowed in whole or in part as a Base Rate Advance or a LIBOR
Advance, or (ii) is to be repaid and not reborrowed; provided, however,
notwithstanding anything in this Agreement to the contrary, if on any Payment
Date a Default shall exist, such LIBOR Advance may only be reborrowed as a Base
Rate Advance. Upon such Payment Date, such LIBOR Advance shall, subject to the
provisions hereof, be so repaid and, as applicable, reborrowed.
(d) Subject to Sections 2.1 and 2.9 hereof, upon irrevocable written notice
to the Administrative Lender prior to 11:00 a.m., Dallas, Texas, time on the
date of payment of a Base Rate Advance (or three Business Days if the Borrower
wishes to reborrow a LIBOR Advance, through an Authorized Signatory, or
irrevocable telephonic notice followed immediately by written notice (provided,
however, that the Borrower's failure to confirm any telephonic notice in writing
shall not invalidate any notice so given), the Borrower may repay a Base Rate
Advance on such date, and (i) reborrow all or a portion of the principal amount
thereof as a Base Rate Advance, (ii) provided no Default or Event of Default has
occurred and is continuing, reborrow all or a portion of the principal amount
thereof as one or more LIBOR Advances, or (iii) not reborrow all or any portion
of such Base Rate Advance. Upon such date of repayment, such Base Rate Advance
shall, subject to the provisions hereof, be so repaid and, as applicable,
reborrowed.
(e) The aggregate amount of Base Rate Advances to be made by the Lenders on
any day shall be in a principal amount which is at least $1,000,000 and which is
an integral multiple of $100,000; provided, however, that such amount may equal
the unused amount of the Commitment. The aggregate amount of LIBOR Advances
having the same Interest Period and to be made by the Lenders on any day shall
be in a principal amount which is at least $3,000,000 and which is an integral
multiple of $500,000.
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(f) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Borrower pursuant to this Section and the LIBOR Rate
for any proposed LIBOR Advance. Failure of the Borrower to give any notice in
accordance with Section 2.2(d) hereof shall result in a repayment of any such
existing LIBOR Advance on the applicable Payment Date by a Refinancing Advance
which is a Base Rate Advance. Each Lender shall, not later than 1:00 p.m.,
Dallas, Texas time, on the date of any Revolving Credit Advance that is not a
Refinancing Advance, deliver to the Administrative Lender, at its address set
forth herein, such Lender's Specified Percentage of such Revolving Credit
Advance in immediately available funds in accordance with the Administrative
Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of
any Revolving Credit Advance hereunder that is not a Refinancing Advance, the
Administrative Lender shall, subject to satisfaction of the conditions set forth
in Article 3, disburse the amounts made available to the Administrative Lender
by the Lenders by (i) transferring such amounts by wire transfer pursuant to the
Borrower's instructions, or (ii) in the absence of such instructions, crediting
such amounts to the account of the Borrower maintained with the Administrative
Lender. All Revolving Credit Advances shall be made by each Lender according to
its Specified Percentage. No Lender shall be relieved of its obligation to fund
its Specified Percentage of any Revolving Credit Advance notwithstanding the
fact that at any time the aggregate outstanding principal amount of all Bid Rate
Advances made by such Lender exceed its Specified Percentage of the Commitment.
Section 2.3 Interest.
(a) On Base Rate Advances.
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of each Base Rate Advance, from the date such Advance is
made until it is due (whether at maturity, by reason of acceleration, by
scheduled reduction, or otherwise) or repaid, which shall be payable as set
forth in Section 2.3(a)(ii) hereof, at a simple interest rate per annum
equal to the Base Rate Basis for such Base Rate Advance as in effect from
time to time, provided that interest on such Base Rate Advance shall not
exceed the Maximum Amount. If at any time the Base Rate Basis would exceed
the Highest Lawful Rate, interest payable on such Base Rate Advance shall
be limited to the Highest Lawful Rate, but the Base Rate Basis shall not
thereafter be reduced below the Highest Lawful Rate until the total amount
of interest accrued on such Advance equals the amount of interest that
would have accrued if the Base Rate Basis had been in effect at all times.
(ii) Interest on each Base Rate Advance shall be computed on the basis
of a year of 365 or 366 days, as applicable, for the number of days
actually elapsed, and shall be payable in arrears on each Quarterly Date
and on the Maturity Date.
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(b) On LIBOR Advances.
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
Advance. The Administrative Lender, whose determination shall be
conclusive, shall determine the LIBOR Basis on the second Business Day
prior to the applicable funding date and shall notify the Borrower and the
Lenders of such LIBOR Basis.
(ii) Subject to Section 10.9 hereof, interest on each LIBOR Advance
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Maturity Date; provided, however, that if the Interest
Period for such Advance exceeds three months, interest shall also be due
and payable in arrears on each Quarterly Date during such Interest Period.
(c) Interest if No Notice of Selection of Interest Rate Basis. If the
Borrower fails to give the Administrative Lender timely notice of its selection
of a LIBOR Basis or an Interest Period for a LIBOR Advance, or if for any reason
a determination of a LIBOR Basis for any Advance is not timely concluded due to
the fault of the Borrower, the appropriate Base Rate Basis shall apply to such
Advance.
(d) Interest After an Event of Default. (i) After an Event of Default
(other than an Event of Default specified in Section 7.1(f) of the Existing
Credit Agreement) and during any continuance thereof, at the option of
Determining Lenders, and (ii) after an Event of Default specified in Section
7.1(f) of the Existing Credit Agreement and during any continuance thereof,
automatically and without any action by the Administrative Lender or any Lender,
the Obligations shall bear interest at a rate per annum equal to the Default
Rate. Such interest shall be payable on the earlier of demand or the Maturity
Date, and shall accrue until the earlier of (i) waiver or cure (to the
satisfaction of the Determining Lenders) of the applicable Event of Default,
(ii) agreement by the Lenders to rescind the charging of interest at the Default
Rate, or (iii) payment in full of the Obligations. The Lenders shall not be
required to accelerate the maturity of the Advances, to exercise any other
rights or remedies under the Loan Papers, or to give notice to the Borrower of
the decision to charge interest at the Default Rate. The Lenders will undertake
to notify the Borrower, after the effective date, of the decision to charge
interest at the Default Rate.
Section 2.4 Fees. Subject to Section 9.9 hereof, the Borrower agrees to pay
to the Administrative Lender, for the account of each Lender as of the Agreement
Date a closing fee as agreed to by the Borrower and each such Lender set forth
in a separate letter, dated as of the Agreement Date. Such fee shall be payable
on the date of the initial Advance, fully earned when due and, subject to
Section 10.9 hereof, nonrefundable when paid.
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Section 2.5 Prepayment.
(a) Voluntary Prepayments. The principal amount of any Base Rate Advance
may be prepaid in full or in part at any time, without penalty and without
regard to the Payment Date for such Advance, upon notice as required for a
repayment of a Base Rate Advance as provided in Section 2.2(d) hereof. LIBOR
Advances may be voluntarily prepaid upon notice as required for repayments of
LIBOR Advances as provided in Section 2.2(c) hereof, but only so long as the
Borrower concurrently reimburses the Lenders in accordance with Section 2.9
hereof. Any notice of prepayment shall be irrevocable.
(b) Mandatory Prepayment. On or before the date of any reduction of the
Commitment, the Borrower shall prepay outstanding Advances in an amount
necessary to reduce the same to an amount less than or equal to the Commitment
as so reduced. The Borrower shall first prepay all Base Rate Advances, and shall
thereafter prepay LIBOR Advances. To the extent that any prepayment requires
that a LIBOR Advance be repaid on a date other than the last day of its Interest
Period, the Borrower shall reimburse each Lender in accordance with Section 2.9
hereof. To the extent that outstanding Advances exceed the Commitment after any
reduction thereof, the Borrower shall repay any such excess amount and all
accrued interest thereon on the date of such reduction.
(c) Prepayments, Generally. Any prepayment of an Advance shall be
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial prepayment of a Base Rate Advance shall be in a principal
amount of $100,000 or an integral multiple thereof. All voluntary prepayments
shall be applied in the order directed in writing by the Borrower to the
Administrative Lender.
Section 2.6 Reduction of Commitment.
(a) Voluntary Reduction. The Borrower shall have the right, upon not less
than 10 Business Days' notice (provided no notice shall be required for a
termination in whole of the Commitment) by an Authorized Signatory to the
Administrative Lender (if telephonic, to be confirmed by telex or in writing on
or before the date of reduction or termination), which shall promptly notify the
Lenders, to terminate or reduce the Commitment, in whole or in part. Each
partial termination shall be in an aggregate amount which is at least $1,000,000
and which is an integral multiple of $100,000, and no voluntary reduction in the
Commitment shall cause any LIBOR Advance to be repaid prior to the last day of
its Interest Period.
(b) Mandatory Reduction. On the Maturity Date, the Commitment shall
automatically reduce to zero.
(c) General Requirements. Upon any reduction of the Commitment pursuant to
this Section, the Borrower shall immediately make a repayment of applicable
Advances in accordance with Section 2.5(b) hereof. The Borrower shall reimburse
each Lender for any loss or out-of-pocket expense incurred by each Lender in
connection with any such payment, as set forth in
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Section 2.9 hereof to the extent applicable. The Borrower shall not have any
right to rescind any termination or reduction. Once reduced, the Commitment may
not be increased or reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender. Unless the
Administrative Lender shall have been notified by a Lender prior to the date of
any proposed Revolving Credit Advance (which notice shall be effective upon
receipt) that such Lender does not intend to make the proceeds of such Revolving
Credit Advance available to the Administrative Lender, the Administrative Lender
may assume that such Lender has made such proceeds available to the
Administrative Lender on such date, and the Administrative Lender may in
reliance upon such assumption (but shall not be required to) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Lender by such Lender, the Administrative
Lender shall, without prejudice to the Borrower's rights against such Lender, be
entitled to recover such amount on demand from such Lender (or, if such Lender
fails to pay such amount forthwith upon such demand, from the Borrower) together
with interest thereon in respect of each day during the period commencing on the
date such amount was available to the Borrower and ending on (but excluding) the
date the Administrative Lender receives such amount from the Lender, at a per
annum rate equal to the lesser of (i) the Highest Lawful Rate or (ii)(A) in the
case of such Lender, the Federal Funds Rate or (B) in the case of the Borrower,
the interest rate applicable to such Revolving Credit Advance. No Lender shall
be liable for any other Lender's failure to fund a Revolving Credit Advance
hereunder.
Section 2.8 Payment of Principal of Advances. The Borrower agrees to pay
the principal amount of the Advances to the Administrative Lender for the
account of the Lenders as follows:
(a) End of Interest Period. The principal amount of each Advance hereunder
shall be due and payable on its Payment Date, which principal payment may be
made by means of a Refinancing Advance.
(b) Commitment Reduction. On the date of reduction of the Commitment
pursuant to Section 2.6 hereof, including the Maturity Date, the aggregate
amount of the Advances outstanding on such date of reduction in excess of the
Commitment as reduced shall be due and payable, which principal payment may not
be made by means of Refinancing Advances.
(c) Maturity Date. To the extent not otherwise required to be paid earlier
as provided herein, the principal amount of the Advances, all accrued interest
and fees thereon, and all other Obligations related thereto, shall be due and
payable in full on the Maturity Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur any
losses or reasonable out-of-pocket expenses in connection with (a) failure by
the Borrower to borrow or repay any LIBOR Advance after having given notice of
its intention to borrow or repay in accordance with Section 2.2 hereof (whether
by reason of the Borrower's election not to proceed or the non-fulfillment of
any of the conditions set forth in Article 3 hereof), or (b) any prepayment for
any reason of any LIBOR Advance in whole or in part, the Borrower agrees to pay
to any such
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Lender, upon its demand, an amount sufficient to compensate such Lender for all
such losses and out-of-pocket expenses, subject to Section 9.9 hereof. Such
Lender's good faith determination of the amount of such losses or out-of-pocket
expenses, calculated in its usual fashion, absent manifest error, shall be
binding and conclusive. Such losses shall include, without limiting the
generality of the foregoing, lost profits and reasonable expenses incurred by
such Lender in connection with the re-employment of funds prepaid, repaid,
converted or not borrowed, converted or paid, as the case may be. Upon request
of the Borrower, such Lender shall provide a certificate setting forth the
amount to be paid to it by the Borrower hereunder and calculations therefor.
Section 2.10 Manner of Payment.
(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Paper shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Paper shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless such Business Day falls
in another calendar month, in which case payment shall be made on the preceding
Business Day. Any extension of time shall in such case be included in computing
interest and fees, if any, in connection with such payment.
(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Papers without deduction for set-off or counterclaim
or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrower are received by
the Administrative Lender, the Administrative Lender shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the Lenders then due and payable, if
any; (ii) to the payment of all other fees and amounts then due and payable
under the Loan Papers; (iii) to the payment of interest then due and payable on
the Advances; (iv) to the payment of principal then due and payable on the
Advances; and (v) to the payment of any outstanding Reimbursement Obligations.
(e) Each payment by the Borrower in respect of obligations relating to the
Revolving Credit Advances (whether for principal, interest, fees or otherwise)
shall be made to the Administrative Lender for the account of the Lenders pro
rata in accordance with their respective Specified Percentages.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending
Office is set forth opposite its name in Schedule 1 attached hereto. Each Lender
shall have the right at any time and from time to time to designate a different
office of itself or of any Affiliate as such Lender's LIBOR Lending Office, and
to transfer any outstanding LIBOR Advance to such LIBOR Lending Office. No such
designation or transfer shall result in any liability on the part of the
Borrower for
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increased costs or expenses resulting solely from such designation or transfer
(except any such transfer which is made by a Lender pursuant to Section 7.2 or
7.3 hereof, or otherwise for the purpose of complying with Applicable Law).
Increased costs for expenses resulting from a change in law occurring subsequent
to any such designation or transfer shall be deemed not to result solely from
such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment (whether
voluntary or involuntary, due to the exercise of any right of set-off, or
otherwise) on account of its Revolving Credit Advances (other than pursuant to
Sections 2.15, 7.3 or 7.5), in excess of its Specified Percentage of all
payments made by the Borrower with respect to Revolving Credit Advances shall
purchase from each other Lender such participation in the Revolving Credit
Advances made by such other Lender as shall be necessary to cause such
purchasing Lender to share the excess payment pro rata according to Specified
Percentages with each other Lender; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section, to the fullest extent permitted by law, may exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation.
Section 2.13 Calculation of Rates. The provisions of this Agreement
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
Section 2.14 Booking Loans. Any Lender may make, carry or transfer Advances
at, to or for the account of any of its branch offices or the office of any
Affiliate.
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Section 2.15 Taxes.
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Lender, taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, (i) by the jurisdiction
under the laws of which such Lender or the Administrative Lender (as the case
may be) is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any political
subdivision thereof, other than those imposed by reason of (A) an asserted
relation of such jurisdiction to the transactions contemplated by this
Agreement, (B) the activities of the Borrower in such jurisdiction, or (C) the
activities in connection with the transactions contemplated by this Agreement of
a Lender or the Administrative Lender; (iii) by reason of failure by the Lender
or the Administrative Lender to comply with the requirements of paragraph (e) of
this Section 2.15; and (iv) in the case of any Lender, any Taxes in the nature
of transfer, stamp, recording or documentary taxes resulting from a transfer
(other than as a result of foreclosure) by such Lender of all or any portion of
its interest in this Agreement, the Notes or any other Loan Papers (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Lender, (x) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.15) such Lender or the Administrative Lender (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(y) the Borrower shall make such deductions and (z) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than (i) Taxes described in clause (iv) of the first
sentence of Section 2.15(a) and (ii) mortgage taxes payable in Oklahoma) that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Paper (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative Lender
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.15) paid by such Lender or the Administrative Lender (as the case may
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence on the part of such Lender or the Administrative Lender, provided,
however, that the Borrower shall have no obligation to indemnify such Lender or
the Administrative Lender unless and until such Lender or the Administrative
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Lender shall have delivered to the Borrower a certificate setting forth in
reasonable detail the basis of the Borrower's obligation to indemnify such
Lender or the Administrative Lender pursuant to this Section 2.15. This
indemnification shall be made within 30 days from the date such Lender or the
Administrative Lender (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Lender the original or a certified copy of a
receipt evidencing payment thereof. If no Taxes are payable in respect of any
payment hereunder, the Borrower will furnish to the Administrative Lender a
certificate from each appropriate taxing authority, or an opinion of counsel
acceptable to the Administrative Lender, in either case stating that such
payment is exempt from or not subject to Taxes, provided, however, that such
certificate or opinion need only be given if: (i) the Borrower makes any payment
from any account located outside the United States, or (ii) the payment is made
by a payor that is not a United States Person. For purposes of this Section 2.15
the terms "United States" and "United States Person" shall have the meanings set
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 10.6 after the
Agreement Date, the date upon which such Lender becomes a party hereto)
deliver to the Borrower through the Administrative Lender, with a copy to
the Administrative Lender:
(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("Form 4224"),
(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of
Internal Revenue Service Form 1001 or any successor thereto
("Form 1001").
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such lending office or lending offices under this Agreement free
from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or
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(B) otherwise, two (2) accurate and complete signed originals of Form
1001,
in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such changed or additional lending office under this Agreement
free from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and
(v) it shall notify the Borrower within 30 days after any event
(including an amendment to, or a change in any applicable law or regulation
or in the written interpretation thereof by any regulatory authority or any
judicial authority, or by ruling applicable to such Lender of any
governmental authority charged with the interpretation or administration of
any law) shall occur that results in such Lender no longer being capable of
receiving payments without any deduction or withholding of United States
federal income tax.
(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.15 shall survive the payment in full of principal and interest
hereunder.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.15 shall use its reasonable best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
lending office, if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Lender, be materially
disadvantageous to such Lender.
(h) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver, by virtue of the location of any
Lender's lending office) and (ii) otherwise cooperate with the Borrower to
minimize amounts
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payable by the Borrower under this Section 2.15; provided, however, the Lenders
and the Administrative Lender shall not be obligated by reason of this Section
2.15(h) to contest the payment of any Taxes or Other Taxes or to disclose any
information regarding its tax affairs or tax computations or reorder its tax or
other affairs or tax or other planning. Subject to the foregoing, to the extent
the Borrower pays sums pursuant to this Section 2.15 and the Lender or the
Administrative Lender receives a refund of any or all of such sums, such refund
shall be applied to reduce any amounts then due and owing under this Agreement
or, to the extent that no amounts are due and owing under this Agreement at the
time such refunds are received, the party receiving such refund shall promptly
pay over all such refunded sums to the Borrower, provided that no Default or
Event of Default is in existence at such time.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to the Initial Advances. The obligation of
each Lender to sign this Agreement and to make any Advance is subject to receipt
by the Administrative Lender of the following, in form and substance
satisfactory to each Lender, with a copy (except for the Notes) for each Lender,
or satisfaction of the following:
(a) a loan certificate of the Borrower certifying as to the accuracy of its
representations and warranties in the Loan Papers, certifying that no Default
has occurred, and including a certificate of incumbency with respect to each
Authorized Signatory, and including a copy of the resolutions of the Borrower
authorizing it to execute, deliver and perform this Agreement, the Notes and the
other Loan Papers to which it is a party;
(b) a certificate of an officer acceptable to the Lenders of each
Significant Subsidiary, certifying as to the incumbency of the officers signing
the Loan Papers to which it is a party, and including a copy of the resolutions
authorizing it to execute, deliver and perform the Loan Papers to which it is a
party;
(c) duly executed Revolving Credit Notes, payable to the order of the
respective Lenders and in an amount for each Lender equal to its Specified
Percentage of the Commitment;
(d) opinions of counsel to the Borrower and the Subsidiaries addressed to
the Lenders and in form and substance satisfactory to the Lenders, dated the
Agreement Date, and covering such matters incident to the transactions
contemplated hereby as the Administrative Lender or Special Counsel may
reasonably request;
(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable fees and expenses rendered through the Agreement Date;
(f) evidence that all corporate or other proceedings of the Borrower and
Subsidiaries
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taken in connection with the transactions contemplated by this Agreement and the
other Loan Papers shall be reasonably satisfactory in form and substance to the
Lenders and Special Counsel; and the Lenders shall have received copies of all
documents or other evidence which the Administrative Lender, Special Counsel or
any Lender may reasonably request in connection with such transactions;
(g) the closing fee as required pursuant to Section 2.4;
(h) the duly executed and completed Guaranty Agreements, dated as of the
Agreement Date; and
(i) in form and substance satisfactory to the Lenders and Special Counsel,
such other documents, instruments and certificates as the Administrative Lender
or any Lender may reasonably require in connection with the transactions
contemplated hereby, including without limitation the status, organization or
authority of the Borrower or any Subsidiary or any other Person executing a Loan
Paper, and the enforceability of the Obligation.
Section 3.2 Conditions Precedent to All Advances. The obligation of each
Lender to make each Advance hereunder is subject to fulfillment of the following
conditions immediately prior to or contemporaneously with each such Advance;
(a) With respect to Advances other than Refinancing Advances, all of the
representations and warranties of the Borrower under this Agreement, which,
pursuant to Section 4.2 hereof, are made at and as of the time of such Advance
or issuance, shall be true and correct at such time in all material respects,
both before and after giving effect to the application of the proceeds of the
Advance;
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance, is received by the Administrative Lender from
the Borrower prior to the making of such Advance;
(c) There shall not exist a Default hereunder, with respect to Advances
other than Refinancing Advances, or an Event of Default, with respect to any
Refinancing Advance, and, with respect to each Advance other than a Refinancing
Advance, the Administrative Lender shall have received written or telephonic
certification thereof by an Authorized Signatory (which certification, if
telephonic, shall be followed promptly by written certification);
(d) The aggregate Advances, after giving effect to such proposed Advance
shall not exceed the maximum principal amount then permitted to be outstanding
hereunder;
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(e) The Administrative Lender shall have received all such other
certificates, reports, statements, opinions of counsel or other documents as the
Administrative Lender or any Lender may reasonably request; and
(f) The making of such Advance by any Lender does not violate or contravene
any Applicable Law and is not enjoined, temporarily, preliminarily or
permanently.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby represents
and warrants to each Lender as follows:
(a) Existing Credit Agreement Representations and Warranties. All of the
representations and warranties of the Borrower set forth in Article 4 of the
Existing Credit Agreement (the "Existing Credit Agreement Representations and
Warranties") are hereby reaffirmed by the Borrower and are incorporated herein
as written, mutatis mutandis. The Borrower hereby represents and warrants that
the Existing Credit Agreement Representations and Warranties are true and
correct in all material respects as though made on and as of the Agreement Date.
(b) Authorization. The Borrower has corporate power and has taken all
necessary corporate action to authorize it to borrow hereunder. Each of the Loan
Parties has corporate or other power and has taken all necessary corporate or
other action to execute, deliver and perform the Loan Papers to which it is
party in accordance with the terms thereof, and to consummate the transactions
contemplated thereby. Each Loan Paper has been duly executed and delivered by
the Loan Party executing it. Each of the Loan Papers to which the Loan Parties
are party is a legal, valid and binding respective obligation of the Loan Party
executing it, enforceable in accordance with its terms, subject to the following
qualifications: (i) equitable principles generally, and (ii) Debtor Relief Laws
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of any Loan Party).
(c) Compliance with Other Loan Papers and Contemplated Transactions. The
execution, delivery and performance by the Loan Parties of the Loan Papers to
which they are respectively a party, and the consummation of the transactions
contemplated thereby, do not and will not (i) require any consent or approval
not already obtained, (ii) violate any Applicable Law, (iii) conflict with,
result in a breach of, or constitute a default under the articles of
incorporation, by-laws, articles of partnership, partnership agreements or
similar governing documents of any Loan Party, or under any Necessary
Authorization, indenture, agreement or other instrument, to which any Loan Party
is a party or by which they or their respective properties may be bound, or (iv)
result in or require the creation or imposition of any Lien upon or with respect
to any property now owned or hereafter acquired by any Loan Party.
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(d) Compliance with Regulations G, T, U and X. No part of the proceeds of
the Advances will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock.
None of the Borrower and its Subsidiaries nor any agent acting on their behalf,
have taken or will knowingly take any action which might cause this Agreement or
any other Loan Papers to violate any regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.
(e) Disclosure. Neither this Agreement nor any other document, certificate
or statement which has been furnished to any Lender by or on behalf of the
Borrower or any Subsidiary or Unincorporated Venture in connection herewith
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statement contained herein and therein not
misleading at the time it was furnished. There is no fact known to the Borrower
and not known to the public generally that could reasonably be expected to
materially adversely affect the assets or business of the Borrower and its
Subsidiaries and Unincorporated Ventures, or in the future could reasonably be
expected (so far as the Borrower can now foresee) to have a Material Adverse
Effect, which has not been set forth in this Agreement or in the documents,
certificates and statements furnished to the Lenders by or on behalf of the
Borrower prior to the date hereof in connection with the transaction
contemplated hereby.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and the other Loan
Papers shall be deemed to be made at and as of the Agreement Date and at and as
of the date of each Advance, and each shall be true and correct when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) applicable to a specific date or modified to give effect to the
transactions expressly permitted hereby, or (c) previously waived in writing by
the Determining Lenders with respect to any particular factual circumstance. All
such representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance under this Agreement.
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ARTICLE 5
Covenants
Section 5.1 Existing Credit Agreement. Until the termination of the
Commitment and payment of all outstanding Obligations in full, the Borrower will
comply with all of the covenants and agreements set forth in Articles 5 and 6 of
the Existing Credit Agreement as in effect on the Agreement Date. For purposes
of this Agreement, all of the covenants and agreements of the Borrower set forth
in Articles 5 and 6 of the Existing Credit Agreement and all definitions
relating thereto are hereby reaffirmed and adopted by the Borrower and are
incorporated herein as written and agreed upon as of the Agreement Date, mutatis
mutandis. In the event of termination of the Existing Credit Agreement prior to
the payment in full of all Obligations under this Agreement and termination of
the Commitment, the Borrower covenants and agrees that the covenants and
agreements of the Borrower contained in Articles 5 and 6 of the Existing Credit
Agreement shall nevertheless remain in full force and effect and be binding upon
the Borrower, and the Borrower shall continue to perform, observe and comply
with all of the covenants and agreements of the Borrower set forth in Articles 5
and 6 of the Existing Credit Agreement. No amendment, modification or waiver
with respect to Articles 5 or 6 of the Existing Credit Agreement shall be
effective with respect to such Articles as they are incorporated herein without
the written consent of the Determining Lenders.
Section 5.2 Use of Proceeds. The Borrower shall use the proceeds of the
Commitment for working capital and general corporate purposes, including inn
development.
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Section 5.3 Indemnity.
(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT
LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED
SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING
(COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS,
COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES
IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING,
WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED
ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT
OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR
OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS
OF THE BORROWER OR ANY OTHER OBLIGOR OR THEIR RESPECTIVE PREDECESSORS IN
INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF PROPERTY OF
THE BORROWER OR ANY OTHER OBLIGOR), IN ANY MANNER RELATING TO OR ARISING OUT OF
THIS AGREEMENT, ANY OTHER LOAN PAPERS, OR ANY ACT, EVENT OR TRANSACTION OR
ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO, THE MAKING OF
ANY PARTICIPATIONS IN THE ADVANCES AND THE MANAGEMENT OF THE ADVANCES, INCLUDING
IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF
ADMINISTRATIVE LENDER OR ANY LENDER (OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY
BY A PARTICIPANT AGAINST THE ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE
BORROWER), OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER,
OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY,
BUT EXCLUDING (i) ANY CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION, AND (ii) MATTERS RAISED BY ONE
LENDER AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A
LENDER OR ITS MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT
THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES
SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE
DISCRETION DETERMINES THAT CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH
REPRESENTATION.
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(b) IN ADDITION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST, REIMBURSE
EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL EXPENSES (INCLUDING
THE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY
INDEMNIFIED MATTER. IF FOR ANY REASON THE FOREGOING INDEMNIFICATION IS
UNAVAILABLE TO ANY INDEMNITEE OR INSUFFICIENT TO HOLD ANY INDEMNITEE HARMLESS
WITH RESPECT TO INDEMNIFIED MATTERS, THEN THE BORROWER SHALL CONTRIBUTE TO THE
AMOUNT PAID OR PAYABLE BY SUCH INDEMNITEE AS A RESULT OF SUCH LOSS, CLAIM,
DAMAGE OR LIABILITY IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT NOT ONLY THE
RELATIVE BENEFITS RECEIVED BY THE BORROWER AND THE BORROWER'S STOCKHOLDERS ON
THE ONE HAND AND SUCH INDEMNITEE ON THE OTHER HAND BUT ALSO THE RELATIVE FAULT
OF THE BORROWER AND SUCH INDEMNITEE, AS WELL AS ANY OTHER RELEVANT EQUITABLE
CONSIDERATIONS. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER
THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWER MAY
OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH
INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE BORROWER, THE
ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION SHALL
SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
ARTICLE 6
Default
Section 6.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
non-governmental body:
(a) The Borrower fails to make any payment of principal on any Note on the
date such payment is due;
(b) The Borrower fails to make any payment of interest on any Note or any
other costs, fees, expenses or other amounts payable hereunder or under the
other Loan Papers within one Business Day after the date such payment is due;
(c) The Borrower or any Subsidiary or Unincorporated Venture fails to
perform or observe (i) any covenant contained in Section 5.1 (after giving
effect to any notice or grace period provided in the Existing Credit Agreement
with respect to any of the covenants incorporated herein)
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or 5.2 of this Agreement or (ii) any other covenant in this Agreement or any
other Loan Paper to be performed or observed by it and such failure with respect
to such other covenants continues for a period of 30 days after any Lender has
given written notice specifying such failure to the Borrower;
(d) Any material warranty or representation by or on behalf of the Borrower
or any Subsidiary or Unincorporated Venture contained in this Agreement
(including the Existing Credit Agreement Representations and Warranties) or any
other Loan Paper is false or misleading in any material respect;
(e) Any material provision of any Loan Paper after delivery thereof
hereunder shall for any reason cease to be valid and binding on the Person
(other than any Lender) executing such Loan Paper, or the Borrower or such
Person shall so state in writing; or
(f) An "Event of Default" as defined in the Existing Credit Agreement shall
occur (or if the Existing Credit Agreement is no longer in effect, an "Event of
Default" as defined therein would have occurred had the Existing Credit
Agreement been in effect).
Section 6.2 Remedies. If an Event of Default shall have occurred and shall
be continuing:
(a) With the exception of an Event of Default specified in Section 7.1(f)
of the Existing Credit Agreement, the Administrative Lender shall, upon the
direction of the Determining Lenders, terminate the Commitment and/or declare
the principal of and interest on the Advances and all Obligations and other
amounts owed under the Loan Papers to be forthwith due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything in the Loan Papers to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Section 7.1(f)
of the Existing Credit Agreement, such principal, interest and other amounts
shall thereupon and concurrently therewith become due and payable and the
Commitment shall automatically forthwith terminate, all without any action by
the Administrative Lender, any Lender or any holders of the Notes and without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in the Loan Papers to the contrary notwithstanding.
(c) The Administrative Lender, and the Lenders may exercise all of the
post-default rights granted to them under the Loan Papers or under Applicable
Law.
(d) The rights and remedies of the Administrative Lender and the Lenders
hereunder shall be cumulative, and not exclusive.
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ARTICLE 7
Changes in Circumstances
Section 7.1 LIBOR Basis Determination Inadequate. If with respect to any
proposed LIBOR Advance for any Interest Period, any Lender determines that (i)
deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the LIBOR Basis
for such proposed LIBOR Advance does not adequately cover the cost to such
Lender of making and maintaining such proposed LIBOR Advance for such Interest
Period, such Lender shall forthwith give notice thereof to the Borrower,
whereupon until such Lender notifies the Borrower that the circumstances giving
rise to such situation no longer exist, the obligation of such Lender to make
LIBOR Advances shall be suspended.
Section 7.2 Illegality. If any applicable law, rule or regulation, or any
change therein or adoption thereof, or interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
its LIBOR Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency,
shall make it unlawful or impossible for such Lender (or its LIBOR Lending
Office) to make, maintain or fund its LIBOR Advances, such Lender shall so
notify the Borrower and the Administrative Lender. Before giving any notice to
the Borrower pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice, notwithstanding anything contained in Article 2 hereof, the Borrower
shall repay in full the then outstanding principal amount of each LIBOR Advance
owing to the notifying Lender, together with accrued interest thereon, on either
(a) the last day of the Interest Period applicable to such Advance, if the
Lender may lawfully continue to maintain and fund such Advance to such day, or
(b) immediately, if the Lender may not lawfully continue to fund and maintain
such Advance to such day. Concurrently with repaying each affected LIBOR Advance
owing to such Lender, notwithstanding anything contained in Article 2 hereof,
the Borrower shall borrow a Base Rate Advance from such Lender, and such Lender
shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
repayment.
Section 7.3 Increased Costs.
(a) If any applicable law, rule or regulation, or any change in or adoption
of any law, rule or regulation, or any interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any
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tax benefit engendered thereby) with respect to its LIBOR Advances or its
obligation to make such Advances, or shall change the basis of taxation of
payments to a Lender (or to its LIBOR Lending Office) of the principal of
or interest on its LIBOR Advances or in respect of any other amounts due
under this Agreement, as the case may be, or its obligation to make such
Advances (except for changes in the rate of tax on the overall net income,
net worth or capital of the Lender and franchise taxes, doing business
taxes or minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the United States market for certificates of deposit or the
London interbank market any other condition affecting its LIBOR Advances or
its obligation to make such Advances (but excluding any reserves or
deposits that are included in the calculation of LIBOR Basis);
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material ("Increased Advance Costs"), then, within 15 days after demand by a
Lender, the Borrower agrees to pay to such Lender such additional amount as will
compensate such Lender for such increased costs or reduced amounts, subject to
Section 9.9 hereof. The affected Lender will as soon as practicable notify the
Borrower of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
and will designate a different LIBOR Lending Office or other lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole judgment of the affected Lender made in
good faith, be materially disadvantageous to such Lender. Notwithstanding the
foregoing, any Lender's demand for Increased Advance Costs shall not include any
Increased Advance Costs with respect to any period more than 180 days prior to
the date that such Lender gives notice to the Borrower of such Increased Advance
Costs unless the effective date of the condition which results in the right to
receive Increased Advance Costs is retroactive (the "Increased Advance Costs
Retroactive Effective Date"). If any Increased Advance Costs has an Increased
Advance Costs Retroactive Effective Date and any Lender demands compensation
within 180 days after the date setting the Increased Advance Costs Retroactive
Effective Date (the "Increased Advance Costs Set Date"), such Lender shall have
the right to receive such Increased Advance Costs from the Increased Advance
Costs Retroactive Effective Date. If a Lender does not demand such Increased
Advance Costs within 180 days after the Increased Advance Costs Set Date, such
Lender may not receive payment of Increased Advance Costs with respect to any
period more than 180 days prior to such demand.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder and
calculations therefor shall be conclusive in the absence of manifest error. In
determining such amount, a Lender may use any reasonable
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averaging and attribution methods. If a Lender demands compensation under this
Section, the Borrower may at any time, upon at least five Business Days' prior
notice to the Lender, after reimbursement to the Lender by the Borrower in
accordance with this Section of all costs incurred, prepay in full the then
outstanding LIBOR Advances of the Lender, together with accrued interest thereon
to the date of prepayment, along with any reimbursement required under Section
2.9 hereof. Concurrently with prepaying such LIBOR Advances, the Borrower shall
borrow a Base Rate Advance from the Lender, and the Lender shall make such Base
Rate Advance, in an amount such that the outstanding principal amount of the
Advances owing to such Lender shall equal the outstanding principal amount of
the Advances owing immediately prior to such prepayment.
Section 7.4 Effect On Base Rate Advances. If notice has been given pursuant
to Section 7.1, 7.2 or 7.3 hereof suspending the obligation of a Lender to make
LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or prepaid,
then, unless and until the Lender notifies the Borrower that the circumstances
giving rise to such repayment no longer apply, all Advances which would
otherwise be made by such Lender as LIBOR Advances shall be made instead as Base
Rate Advances.
Section 7.5 Capital Adequacy. If either (a) the introduction of or any
change in or in the interpretation of any law, rule or regulation or (b)
compliance by a Lender with any law, rule or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's Commitment or Advances hereunder
and other commitments or advances of such Lender of this type, then, upon demand
by such Lender, subject to Section 9.9, the Borrower shall immediately pay to
such Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender with respect to such circumstances
(collectively, "Additional Costs"), to the extent that such Lender reasonably
determines in good faith such increase in capital to be allocable to the
existence of such Lender's Commitment hereunder. Notwithstanding the foregoing,
any Lender's demand for Additional Costs shall not include any Additional Costs
with respect to any period more than 180 days prior to the date that such Lender
gives notice to the Borrower of such Additional Costs unless the effective date
of the Regulatory Modification which results in the right to receive Additional
Costs is retroactive (the "Regulatory Modification Retroactive Effective Date").
If any Regulatory Modification has a Regulatory Modification Retroactive
Effective Date and any Lender demands compensation within 180 days after the
date setting the Regulatory Modification Retroactive Effective Date (the
"Regulatory Modification Set Date"), such Lender shall have the right to receive
such Additional Costs from the Regulatory Modification Retroactive Effective
Date. If a Lender does not demand such Additional Costs within 180 days after
the Regulatory Modification Set Date, such Lender may not receive payment of
Additional Costs with respect to any period more than 180 days prior to such
demand. A certificate as to such amounts submitted to the Borrower by a Lender
hereunder, shall, in the absence of manifest error, be conclusive and binding
for all purposes.
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ARTICLE 8
AGREEMENT AMONG LENDERS
Section 8.1 Agreement Among Lenders. The Lenders agree among themselves
that:
(a) Administrative Lender. Each Lender hereby appoints the Administrative
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Papers; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, unless and until the Administrative Lender shall have received
such requests, the Administrative Lender may take such administrative action, or
refrain from taking such administrative action, as it may deem advisable and in
the best interests of the Lenders; to arrange the means whereby the proceeds of
the Advances of the Lenders are to be made available to the Borrower; to
distribute promptly to each Lender information, requests and documents received
from the Borrower, and each payment (in like funds received) with respect to any
of such Lender's Advances, fee or other amount; and to deliver to the Borrower
requests, notices, demands, approvals and consents received from the Lenders.
The Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower. The Administrative Lender shall have no duties or
responsibilities except those expressly set forth in this Agreement. The duties
of the Administrative Lender are mechanical and administrative in nature and the
Administrative Lender shall have no fiduciary relationship in respect of any
Lender by reason of this Agreement or any other Loan Paper.
(b) Replacement of Administrative Lender. Should the Administrative Lender
or any successor Administrative Lender ever cease to be a Lender hereunder, or
should the Administrative Lender or any successor Administrative Lender ever
resign as Administrative Lender, or should the Administrative Lender or any
successor Administrative Lender ever be removed with cause by the Determining
Lenders, then the Lender appointed by the Determining Lenders shall forthwith
become the Administrative Lender, and the Borrower and the Lenders shall execute
such documents as any Lender may reasonably request to reflect such change. If
the Administrative Lender also then serves in the capacity of the Swing Line
Bank or the Issuing Bank, such resignation or removal shall constitute
resignation or removal of the Swing Line Bank and the Issuing Bank. Any
resignation or removal of the Administrative Lender or any successor
Administrative Lender shall become effective upon the appointment by the
Determining Lenders of a successor Administrative Lender; provided, however,
that if the Lenders fail for any reason to appoint a successor within 60 days
after such removal or resignation, the Administrative Lender or any successor
Administrative Lender (as the case may be) shall thereafter have no obligation
to act as Administrative Lender hereunder.
(c) Expenses. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Papers if Administrative Lender
does not receive reimbursement therefor
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from other sources within 60 days after the date incurred, unless payment of
such fees is being diligently disputed by such Lender or the Borrower in good
faith. Any amount so paid by the Lenders to the Administrative Lender shall be
returned by the Administrative Lender pro rata to each paying Lender to the
extent later paid by the Borrower or any other Person on the Borrower's behalf
to the Administrative Lender.
(d) Delegation of Duties. The Administrative Lender may execute any of its
duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender and its
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Papers or be responsible
for the consequences of any error of judgment, except for its or their own gross
negligence or wilful misconduct. Except as aforesaid, the Administrative Lender
shall be under no duty to enforce any rights with respect to any of the
Advances, or any security therefor. After the occurrence of a Default or an
Event of Default, the Administrative Lender shall not be compelled to do any act
hereunder or to take any action towards the execution or enforcement of the
powers hereby created or to prosecute or defend any suit in respect hereof,
unless indemnified to its satisfaction against loss, cost, liability and
expense. The Administrative Lender shall not be responsible in any manner to any
Lender for the effectiveness, enforceability, genuineness, validity or due
execution of any of the Loan Papers, or for any representation, warranty,
document, certificate, report or statement made herein or furnished in
connection with any Loan Papers, or be under any obligation to any Lender to
ascertain or to inquire as to the performance or observation of any of the
terms, covenants or conditions of any Loan Papers on the part of the Borrower.
To the extent not reimbursed by the Borrower, each Lender hereby severally
indemnifies and holds harmless the Administrative Lender, pro rata according to
its Specified Percentage, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and/or
disbursements of any kind or nature whatsoever which may be imposed on, asserted
against, or incurred by the Administrative Lender in any way with respect to any
Loan Papers or any action taken or omitted by the Administrative Lender under
the Loan Papers (including any negligent action of the Administrative Lender),
except to the extent the same result from gross negligence or wilful misconduct
by the Administrative Lender.
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(g) Liability Among Lenders. No Lender shall incur any liability (other
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Papers) to any other Lender, except for acts or omissions in
bad faith or which are the result of gross negligence or wilful misconduct.
(h) Rights as Lender. With respect to its commitment hereunder, the
Advances made by it and Note issued to it, the Administrative Lender shall have
the same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
Section 8.2 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Lender or any other
Lender and based upon the financial statements delivered to such Lender by the
Borrower, and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
the Administrative Lender or any other Lender and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Papers.
Section 8.3 Benefits of Article. None of the provisions of this Article
shall inure to the benefit of any Person other than Lenders; consequently, no
Person shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of the Administrative Lender or any Lender to comply
with such provisions.
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ARTICLE 9
Miscellaneous
Section 9.1 Notices.
(a) All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been given on the date personally delivered
or sent by telecopy (answerback received), or three days after deposit in the
mail, designated as certified mail, return receipt requested, postage-prepaid,
or one day after being entrusted to a reputable commercial overnight delivery
service, or one day after being delivered to the telegraph office or sent out by
telex addressed to the party to which such notice is directed at its address
determined as provided in this Section. All notices and other communications
under this Agreement shall be given to the parties hereto at the following
addresses:
(i) If to the Borrower, at:
La Quinta Inns, Inc.
112 E. Pecan Street, Suite 1200
San Antonio, Texas 78205
Attn: William S. McCalmont
Senior Vice President-Chief Financial Officer
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Suzanne Smith
Vice President
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
Section 9.2 Expenses. The Borrower shall promptly pay:
(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Papers, the transactions contemplated hereunder and
thereunder, and the making of Advances hereunder, including without limitation
the reasonable fees and disbursements of Special Counsel;
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(b) all reasonable out-of-pocket expenses and attorneys' fees of the
Administrative Lender in connection with the administration of the transactions
contemplated in this Agreement and the other Loan Papers and the preparation,
negotiation, execution and delivery of any waiver, amendment or consent by the
Lenders relating to this Agreement or the other Loan Papers; and
(c) all costs, out-of-pocket expenses and attorneys' fees of the
Administrative Lender and each Lender incurred for enforcement, collection,
restructuring, refinancing and "work-out", or otherwise incurred in obtaining
performance under the Loan Papers, and all costs and out-of-pocket expenses of
collection if default is made in the payment of the Notes, which in each case
shall include without limitation fees and expenses of consultants, counsel for
the Administrative Lender and any Lender, and administrative fees for the
Administrative Lender.
Section 9.3 Waivers. The rights and remedies of the Lenders under this
Agreement and the other Loan Papers shall be cumulative and not exclusive of any
rights or remedies which they would otherwise have. No failure or delay by the
Administrative Lender or any Lender in exercising any right shall operate as a
waiver of such right. The Lenders expressly reserve the right to require strict
compliance with the terms of this Agreement in connection with any funding of a
request for an Advance. In the event that any Lender decides to fund an Advance
at a time when the Borrower is not in strict compliance with the terms of this
Agreement, such decision by such Lender shall not be deemed to constitute an
undertaking by the Lender to fund any further requests for Advances or preclude
the Lenders from exercising any rights available under the Loan Papers or at law
or equity. Any waiver or indulgence granted by the Lenders shall not constitute
a modification of this Agreement, except to the extent expressly provided in
such waiver or indulgence, or constitute a course of dealing by the Lenders at
variance with the terms of the Agreement such as to require further notice by
the Lenders of the Lenders' intent to require strict adherence to the terms of
the Agreement in the future. Any such actions shall not in any way affect the
ability of the Administrative Lender or the Lenders, in their discretion, to
exercise any rights available to them under this Agreement or under any other
agreement, whether or not the Administrative Lender or any of the Lenders are a
party thereto, relating to the Borrower.
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Section 9.4 Determination by the Lenders Conclusive and Binding. Any
material determination required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in good
faith, and shall when made, absent manifest error, be conclusive and binding on
all parties.
Section 9.5 Set-Off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender and any subsequent holder of any
Note, and any assignee or participant in any Note is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or any
other Person, any such notice being hereby expressly waived, to set-off,
appropriate and apply any deposits (general or special (except trust and escrow
accounts), time or demand, including without limitation Debt evidenced by
certificates of deposit, in each case whether matured or unmatured) and any
other Debt at any time held or owing by such Lender or holder to or for the
credit or the account of the Borrower, against and on account of the Obligations
and other liabilities of the Borrower to such Lender or holder, irrespective of
whether or not (a) the Lender or holder shall have made any demand hereunder, or
(b) the Administrative Lender or holder shall have declared the principal of and
interest on the Advances and other amounts due hereunder to be due and payable
as permitted by Section 6.2 and although such obligations and liabilities, or
any of them, shall be contingent or unmatured. Any sums obtained by any Lender
or by any assignee, participant or subsequent holder of any Note shall be
subject to pro rata treatment of all Obligations and other liabilities
hereunder.
Section 9.6 Assignment.
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Papers without the prior written
consent of the Lenders.
(b) No Lender shall be entitled to assign its interest in this Agreement,
its Notes or its Advances, except as hereinafter set forth.
(c) With the prior written consent of the Borrower (which consent may be
withheld for any reason or for no reason), a Lender may at any time sell
participations in all or any part of its Advances, its portion of the
Commitment, and all other interests of such Lender under this Agreement and the
other Loan Papers, (collectively, "Participations") to any banks or other
financial institutions ("Participants") provided that such Participation shall
not confer on any Person (other than the parties hereto) any right to vote on,
approve or sign amendments or waivers, or any other independent benefit or any
legal or equitable right, remedy or other claim under this Agreement or any
other Loan Papers, other than the right to vote on, approve, or sign amendments
or waivers or consents with respect to items that would result in (i) any
increase in the commitment of any Participant; or (ii)(A) the extension of the
date of maturity of, or (B) the extension of the due date for any payment of
principal, interest or fees respecting, or (C) the reduction of the amount of
any installment of principal or interest on or the change or reduction of any
mandatory reduction required hereunder, or (D) a reduction of the rate of
interest on, the Advances, or change
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in Applicable Margin; or (iii) the release of security for the Obligations
having a value in excess of a Material Amount, including without limitation any
guarantee; or (iv) the reduction of any fees payable hereunder. Notwithstanding
the foregoing, the Borrower agrees that the Participants shall be entitled to
the benefits of Article 7 and Section 9.5 hereof as though they were Lenders and
the Lenders may provide copies of all financial information received from the
Borrower to such Participants. To the fullest extent it may effectively do so
under Applicable Law, the Borrower agrees that any Participant may exercise any
and all rights of banker's lien, set-off and counterclaim with respect to this
Participation as fully as if such Participant were the holder of the Advances in
the amount of its Participation. Notwithstanding anything in this Section 9.6(c)
to the contrary, a Lender may sell Participations to its affiliates without the
prior written consent of the Borrower.
(d) Each Lender may assign to one or more financial institutions or funds
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "Assignee") its rights
and obligations under this Agreement and the other Loan Papers; provided,
however, that (i) except as otherwise provided herein, each such assignment
shall be subject to the prior written consent of the Administrative Lender and
the Borrower (which consent shall not be unreasonably withheld), (ii) each such
assignment shall be of a constant, and not a varying, percentage of the Lender's
rights and obligations under this Agreement, (iii) the amount of the Commitment
and Advances being assigned pursuant to each such assignment (determined as of
the date of the assignment with respect to such assignment) shall in no event be
less than $10,000,000, (iv) the applicable Lender, Administrative Lender and
applicable Assignee shall execute and deliver to the Administrative Lender an
Assignment and Acceptance Agreement (an "Assignment Agreement") in substantially
the form of Exhibit C hereto, together with the Notes subject to such
assignment, and (v) the Assignee or the Lender executing the Assignment
Agreement as the case may be, shall deliver to the Administrative Lender a
processing fee of $3,500. Upon such execution, delivery and acceptance from and
after the effective date specified in each Assignment Agreement, which effective
date shall be at least three Business Days after the execution thereof, (A) the
Assignee thereunder shall be party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment
Agreement, have the rights and obligations of a Lender hereunder and (B) the
assigning Lender shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment Agreement, relinquish such
rights and be released from such obligations under this Agreement.
Notwithstanding anything in this clause (d) to the contrary, any Lender may
assign its rights and obligations under this Agreement to an affiliate of such
Lender without the prior written consent of the Administrative Lender and the
Borrower, but otherwise subject to the restrictions set forth herein.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
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(f) Upon its receipt of an Assignment Agreement executed by a Lender and an
Assignee, and any Note subject to such assignment, the Borrower shall, within
three Business Days after its receipt of such Assignment Agreement, at its own
expense, execute and deliver to the Administrative Lender in exchange for the
surrendered Note a new Note to the order of such Assignee in an amount equal to
the portion of the Advances and Commitment assigned to it pursuant to such
Assignment Agreement and a new Note to the order of the assigning Lender in an
amount equal to the portion of the Advances and Commitment retained by it
hereunder. Such new Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note, shall be dated the
effective date of such Assignment Agreement and shall otherwise be in
substantially the form of Exhibit A hereto.
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.6, disclose to
the assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower.
(h) Except as specifically set forth in this Section 9.6, nothing in this
Agreement or any other Loan Papers, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Papers.
(i) Notwithstanding anything in this Section 9.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment under
Section 2.15 or Section 7.3 than such assigning or participating Lender would
have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
Section 9.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 9.8 Severability. Any provision of this Agreement which is for any
reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 9.9 Interest and Charges. It is not the intention of any parties to
this Agreement to make an agreement in violation of the laws of any applicable
jurisdiction relating to usury. Regardless of any provision in any Loan Papers,
no Lender shall ever be entitled to receive, collect or apply, as interest on
the Obligations, any amount in excess of the Maximum Amount. If any Lender or
participant ever receives, collects or applies, as interest, any such excess,
such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated
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hereunder as such; and if principal is paid in full, any remaining excess shall
be paid to the Borrower. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the Maximum Amount, the
Borrower and the Lenders shall, to the maximum extent permitted under Applicable
Law, (a) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effect
thereof, and (c) amortize, prorate, allocate and spread in equal parts, the
total amount of interest throughout the entire contemplated term of the
Obligations so that the interest rate is uniform throughout the entire term of
the Obligations; provided, however, that if the Obligations are paid and
performed in full prior to the end of the full contemplated term thereof, and if
the interest received for the actual period of existence thereof exceeds the
Maximum Amount, the Lenders shall refund to the Borrower the amount of such
excess or credit the amount of such excess against the total principal amount of
the Obligations owing, and, in such event, the Lenders shall not be subject to
any penalties provided by any laws for contracting for, charging or receiving
interest in excess of the Maximum Amount. This Section shall control every other
provision of all agreements pertaining to the transactions contemplated by or
contained in the Loan Papers.
Section 9.10 Confidentiality. Each Lender and the Administrative Lender
agrees (on behalf of itself and each of its affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify the Borrower of any request for disclosure of any such non-public
information (i) by any governmental agency or representative thereof (other than
any such request in connection with an examination of such Lender's financial
condition by such governmental agency) or (ii) pursuant to legal process, or (f)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Lender an agreement (a "Confidentiality
Agreement") in substantially the form of Exhibit D hereto; and provided finally
that in no event shall any Lender or the Administrative Lender be obligated or
required to return any materials furnished by the Borrower.
Section 9.11 Headings. Headings used in this Agreement are for convenience
only and shall not be used in connection with the interpretation of any
provision hereof.
Section 9.12 Amendment and Waiver. The provisions of this Agreement may not
be amended, modified or waived except by the written agreement of the Borrower
and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or
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commitment of any Lender, or (ii) extend the date of maturity of, extend the due
date for any payment of principal or interest on, reduce the amount of any
installment of principal or interest on, or reduce the rate of interest on, any
Advance, the Reimbursement Obligations or other amount owing under any Loan
Papers, or (iii) release any security for or guaranty of the Obligations (except
pursuant to this Agreement), or (iv) reduce the fees payable hereunder, or (v)
revise this Section 9.12, or (vi) waive the date for payment of any of the
Obligations, or (vii) amend the definition of Determining Lenders; or (b)
without the consent of the Administrative Lender, if it would alter the rights,
duties or obligations of the Administrative Lender. Neither this Agreement nor
any term hereof may be amended orally, nor may any provision hereof be waived
orally but only by an instrument in writing signed by the Administrative Lender
and, in the case of an amendment, by the Borrower.
Section 9.13 Exception to Covenants. Neither the Borrower nor any
Subsidiary shall be deemed to be permitted to take any action or fail to take
any action which is permitted as an exception to any of the covenants contained
herein or which is within the permissible limits of any of the covenants
contained herein if such action or omission would result in the breach of any
other covenant contained herein.
SECTION 9.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN PAPERS SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS;
PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED
CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF
CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL
NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN PAPERS. WITHOUT
EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL
COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER
PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN PAPERS.
SECTION 9.15 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE
LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND
INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER
ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCES HEREUNDER.
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<PAGE>
SECTION 9.16 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.
BORROWER: LA QUINTA INNS, INC.
By:
------------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Office
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:
-------------------------------
Suzanne Smith
Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender
Specified Percentage:
100%
By:
-------------------------------
Suzanne Smith
Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Suzanne Smith
Vice President
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<PAGE>
SCHEDULE 1
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
Dallas, Texas $_____________ November 17, 1997
LA QUINTA INNS, INC., a Texas corporation (the "Borrower"), for value
received, promises to pay to the order of _______________ ("Lender"), at the
principal office of _____________________, in lawful money of the United States
of America, the principal sum of ________________ DOLLARS ($______), or such
lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.
The Borrower promises to pay principal of and interest on the unpaid
principal balance of Revolving Credit Advances under this Revolving Credit Note
from time to time outstanding as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A., as Administrative Lender for
the Lenders, at 901 Main Street, Dallas, Texas 75202, in immediately available
funds.
This Revolving Credit Note is issued pursuant to and evidences Revolving
Credit Advances under the Credit Agreement, dated as of November 17, 1997, among
the Borrower, NationsBank of Texas, N.A., as Administrative Lender, and the
lenders parties thereto (as amended, restated, supplemented, renewed, extended
or otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Revolving Credit Note when due.
The Borrower and all endorsers, sureties and guarantors of this Revolving
Credit Note hereby severally waive demand, presentment for payment, protest,
notice of protest, notice of acceleration, notice of intention to accelerate the
maturity of this Revolving Credit Note, and all other notices of any kind,
diligence in collecting, the bringing of any suit against any party and any
notice of or defense on account of any extensions, renewals, partial payments or
changes in any manner of or in this Revolving Credit Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
<PAGE>
THIS REVOLVING CREDIT NOTE, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LA QUINTA INNS, INC.
By:
-------------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Officer
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<PAGE>
EXHIBIT B
GUARANTY
This Guaranty, dated as of November 17, 1997 (this "Guaranty"), is made by
the entities listed on the signature pages hereof (all such entities being
collectively called the "Guarantors").
BACKGROUND.
1. La Quinta Inns, Inc., a Texas corporation ("Company"), NationsBank of
Texas, N.A., as Administrative Lender ("Administrative Lender") on behalf of
NationsBank of Texas, N.A. and each other lender, and each other lender (singly,
a "Lender" and collectively, the "Lenders") have entered into the Credit
Agreement, dated as of November 17, 1997 (as hereafter amended or otherwise
modified from time to time, the "Credit Agreement"). The capitalized terms not
otherwise defined herein have the meanings specified in the Credit Agreement.
2. Pursuant to the Credit Agreement, Company may, subject to the terms of
the Credit Agreement and the other Loan Papers, request that Lenders make
Advances.
3. It is a condition precedent to the obligation of Lenders to make such
Advances that Guarantors guarantee repayment thereof upon the terms and
conditions set forth herein.
4. In the case of each Guarantor which is a corporation, the Board of
Directors of each such Guarantor, and in the case of each Guarantor which is a
partnership or joint venture, the Board of Directors of each corporation which
is a partner or a joint venturer of such Guarantor, have determined that the
execution, delivery, and performance of this Guaranty is necessary and
convenient to the conduct, promotion, and attainment of such Guarantor's
business and that such Guaranty may reasonably be expected to benefit, directly
or indirectly, such Guarantor.
5. Guarantors desire to induce Lender to make such Advances.
AGREEMENT.
Now, therefore, in consideration of the premises and in order to induce
Lenders to make Advances and issue, or participate in the issuance of, Letters
of Credit under the Credit Agreement, Guarantors agree as follows:
<PAGE>
1. Guaranty.
(a) Each Guarantor, jointly and severally, hereby unconditionally and
irrevocably guarantees the punctual payment of, and promises to pay, when
due, whether at stated maturity, by mandatory prepayment, by acceleration
or otherwise, all obligations, indebtedness and liabilities, and all
rearrangements, renewals and extensions of all or any part thereof, of
Company or any other Obligor now or hereafter arising from, by virtue of or
pursuant to the Credit Agreement, the Notes, any other Loan Paper, and any
and all renewals and extensions thereof, or any part thereof, or future
amendments thereto, whether for principal, interest (including, without
limitation, interest, fees and other charges that would accrue or become
owing both prior to and subsequent to and but for the commencement of any
proceeding against or with respect to Company or any other Obligor under
any chapter of the Bankruptcy Code of 1978, 11 U.S.C. ss.101 et seq.
whether or not a claim is allowed for the same in any such proceeding),
premium, fees, commissions, expenses or otherwise (such obligations being
the "Obligation"), and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred in enforcement or
collection of all or any part thereof, whether such obligations,
indebtedness and liabilities are direct, indirect, fixed, contingent,
joint, several or joint and several, and any rights under this Guaranty.
(b) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that
would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the
United States Code or any applicable provisions of comparable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving
effect to all other liabilities of Guarantor, contingent or otherwise, that
are relevant under the Fraudulent Transfer Laws (specifically excluding,
however, any liabilities of such Guarantor in respect of intercompany
indebtedness to Company, other Affiliates of Company or other Obligors to
the extent that such indebtedness would be discharged in an amount equal to
the amount paid by such Guarantor hereunder) and after giving effect as
assets, subject to Paragraph 4(a) hereof, to the value (as determined under
the applicable provisions of Fraudulent Transfer Laws) of any rights to
subrogation or contribution of such Guarantor pursuant to (i) Applicable
Law or (ii) any agreement providing for an equitable allocation among such
Guarantor and other Obligors of obligations arising under guaranties by
such parties.
2. Guaranty Absolute. Each Guarantor guarantees that the Obligation will be
paid strictly in accordance with the terms of the Credit Agreement, the Notes,
and the other Loan Papers, regardless of any Applicable Law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of Administrative Lender or any Lender with respect thereto;
provided, however, nothing contained in this Guaranty shall require any
Guarantor to make any payment under this Guaranty in violation of any Applicable
Law, regulation or order now or hereafter in effect. The obligations and
liabilities of each Guarantor hereunder are
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<PAGE>
independent of the obligations of Company under the Credit Agreement and of the
obligations of each other Obligor under each other Loan Paper and any Applicable
Law. The liability of each Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(a) the taking or accepting of any other security or guaranty for any
or all of the Obligation;
(b) any increase, reduction or payment in full at any time or from
time to time of any part of the Obligation, including any increase,
reduction or termination of the Commitment;
(c) any lack of validity or enforceability of the Credit Agreement,
the Notes, or any other Loan Paper or other agreement or instrument
relating thereto, including but not limited by the unenforceability of all
or any part of the Obligation by reason of the fact that (i) the
Obligation, and/or the interest paid or payable with respect thereto,
exceeds the amount permitted by Applicable Law, (ii) the act of creating
the Obligation, or any part thereof, is ultra vires, (iii) the officers
creating same acted in excess of their authority, or (iv) for any other
reason;
(d) any lack of corporate, partnership or other power of Company, any
Obligor or any other Person;
(e) any Debtor Relief Law involving Company, any Guarantor, any
Obligor or any other Person;
(f) any renewal, compromise, extension, acceleration or other change
in the time, manner or place of payment of, or in any other term of, all or
any of the Obligation; any adjustment, indulgence, forbearance, or
compromise that may be granted or given by any Lender or Administrative
Lender to Company, any Guarantor or any other Obligor; or any other
modification, amendment, or waiver of or any consent to departure from the
Credit Agreement, the Notes, or any other Loan Paper or other agreement or
instrument relating thereto without notification of any Guarantor (the
right to such notification being herein specifically waived by each
Guarantor);
(g) any exchange, release, sale, subordination, or non-perfection of
any collateral or Lien thereon or any lack of validity or enforceability or
change in priority, destruction, reduction, or loss or impairment of value
of any collateral or Lien thereon;
(h) any release or amendment or waiver of or consent to departure from
any other guaranty for all or any of the Obligation;
(i) the failure by any Lender or Administrative Lender to make any
demand upon or to bring any legal, equitable, or other action against
Company or any other Person (including without limitation any Guarantor or
any other Obligor), or the failure or delay by
-3-
<PAGE>
any Lender or Administrative Lender to, or the manner in which any Lender
or Administrative Lender shall, proceed to exhaust rights against any
direct or indirect security for the Obligation;
(j) the existence of any claim, defense, set-off, or other rights
which Company or Guarantor may have at any time against Company, any
Lender, Administrative Lender, any Guarantor or any other Obligor, or any
other Person, whether in connection with this Guaranty, the Loan Papers,
the transactions contemplated thereby, or any other transaction;
(k) any failure of any Lender or Administrative Lender to notify any
Guarantor of any renewal, extension, or assignment of the Obligation or any
part thereof, or the release of any security, or of any other action taken
or refrained from being taken by any Lender or Administrative Lender, it
being understood that Lenders and Administrative Lender shall not be
required to give any Guarantor any notice of any kind under any
circumstances whatsoever with respect to or in connection with the
Obligation;
(l) any payment by Company to any Lender or Administrative Lender is
held to constitute a preference under any Debtor Relief Law or if for any
other reason any Lender or Administrative Lender is required to refund such
payment or pay the amount thereof to another Person; or
(m) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Company, any Guarantor or any other
Obligor, including without limitation any defense by reason of any
disability or other defense of Company, or the cessation from any cause
whatsoever of the liability of Company, or any claim that Guarantor's
obligations hereunder exceed or are more burdensome than those of Company
or any other Obligor.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligation is rescinded or must
otherwise be returned by any Lender or any other Person upon the insolvency,
bankruptcy or reorganization of Company, any Guarantor, any other Obligor or
otherwise, all as though such payment had not been made.
3. Waiver. To the extent not prohibited by Applicable Law, each Guarantor
hereby waives: (a) promptness, protest, diligence, presentments, acceptance,
performance, demands for performance, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and notices
of the existence, creation or incurrence of new or additional indebtedness, and
any of the events described in Section 2 and of any other occurrence or matter
with respect to any of the Obligation, this Guaranty or any of the other Loan
Papers; (b) any requirement that Administrative Lender or any Lender protect,
secure, perfect, or insure any Lien or security interest or any property subject
thereto or exhaust any right or take any action against Company, any Guarantor,
any other Obligor or any other Person or any collateral or pursue any other
remedy in Administrative Lender's or any Lender's power whatsoever; (c) any
right to assert against Administrative Lender or any Lender as a counterclaim,
set-off or cross-claim, any
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<PAGE>
counterclaim, set-off or claim which it may now or hereafter have against
Administrative Lender, any Lender, Company, any Guarantor or any other Obligor;
(d) any right to seek or enforce any remedy or right that Administrative Lender
or any Lender now has or may hereafter have against Company, any Guarantor, any
other Obligor or any other Person (to the extent permitted by Applicable Law);
(e) any right to participate in any collateral or any right benefiting
Administrative Lender or Lenders in respect of the Obligation; and (f) any right
by which it might be entitled to require suit on an accrued right of action in
respect of any of the Obligation or require suit against Company, any Guarantor,
any other Obligor or any other Person, whether arising pursuant to Section 34.02
of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas
Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of
Civil Procedure, as amended, or otherwise.
4. Subrogation and Subordination.
(a) Notwithstanding any reference to subrogation contained herein to the
contrary, each Guarantor hereby irrevocably waives any claim or other rights
which it may have or hereafter acquire against Company or any other Obligor that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution, indemnification,
any right to participate in any claim or remedy of any Lender or Administrative
Lender against Company, any Guarantor or any other Obligor or any collateral
which any Lender or Administrative Lender now has or hereafter acquires, whether
or not such claim, remedy or right arises in equity, or under contract, statutes
or common law, including without limitation, the right to take or receive from
Company, any Guarantor or any other Obligor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim or other rights. If any amount shall be paid to any
Guarantor in violation of the preceding sentence and the Obligation shall not
have been paid in full, such amount shall be deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, Lenders, and
shall forthwith be paid to Administrative Lender to be credited and applied upon
the Obligation, whether matured or unmatured, in accordance with the terms of
the Credit Agreement. Each Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by the Credit
Agreement and that the waiver set forth in this Paragraph 4(a) is knowingly made
in contemplation of such benefits.
(b) If any Guarantor becomes the holder of any indebtedness payable by
Company, any Guarantor or any other Obligor, such Guarantor hereby subordinates
all indebtedness owing to it from Company, any Guarantor and each other Obligor
to all indebtedness of Company, any Guarantor and each other Obligor to Lenders
and Administrative Lender, and agrees that upon the occurrence and continuance
of a Default or an Event of Default, it shall not accept any payment on the same
until final payment in full of the obligations of Company under the Credit
Agreement, the Notes and all other Loan Papers, and shall in no circumstance
whatsoever attempt to set-off or reduce any obligations hereunder because of
such indebtedness. If any amount shall nevertheless be paid to such Guarantor by
Company, any Guarantor or any other Obligor prior to payment in full of the
Obligation, such amount shall be held in trust for the benefit of Lenders and
Administrative
-5-
<PAGE>
Lender and shall forthwith be paid to Administrative Lender to be credited and
applied to the Obligation, whether matured or unmatured.
5. Representations and Warranties. Each Guarantor hereby represents and
warrants that all representations and warranties as they apply to such Guarantor
only set forth in Article 4 of the Credit Agreement (each of which is hereby
incorporated by reference) are true and correct. Furthermore, each Guarantor
represents that it is Solvent.
6. Covenants. Each Guarantor hereby expressly assumes, confirms, and agrees
to perform, observe, and be bound by all conditions and covenants set forth in
the Credit Agreement, to the extent applicable to it, as if it were a signatory
thereto. Each Guarantor further covenants and agrees (a) punctually and properly
to perform all of such Guarantor's covenants and duties under all other Loan
Papers; (b) from time to time promptly to furnish Administrative Lender with any
information or writings which Administrative Lender may request concerning this
Guaranty; and (c) promptly to notify Administrative Lender of any claim, action,
or proceeding affecting this Guaranty.
7. Amendments, Etc. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by any Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by such
Guarantor, Administrative Lender, and, either all Lenders or Determining
Lenders, as appropriate, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
8. Addresses for Notices. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telecopy to the respective
addresses specified herein, or, as to any party, to such other addresses as may
be designated by it in written notice to all other parties. All notices,
requests, consents and demands hereunder shall be deemed to have been given on
the date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or if mailed, effective on the earlier of actual receipt or three days
after being mailed by certified mail, return receipt requested, postage prepaid,
addressed as aforesaid.
9. No Waiver; Remedies. No failure on the part of Administrative Lender or
any Lender to exercise, and no delay in exercising, any right hereunder or under
any of the Loan Papers shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder or under any of the Loan Papers
preclude any other or further exercise thereof or the exercise of any other
right. Neither Administrative Lender nor any Lender shall be required to (a)
prosecute collection or seek to enforce or resort to any remedies against
Company, any Guarantor, any other Obligor or any other Person, (b) join Company,
any Guarantor, any other Obligor or any other Person in any action in which
Administrative Lender or any Lender prosecutes collection or seeks to enforce or
resort to any remedies against Company, any Guarantor, any other Obligor or any
other Person liable on any of the Obligation, or (c) seek to enforce or resort
to any remedies with respect to any Liens granted to (or benefiting, directly or
indirectly) Administrative Lender or any Lender by Company, any Guarantor, any
other Obligor or any other Person.
-6-
<PAGE>
Neither Administrative Lender nor any Lender shall have any obligation to
protect, secure or insure any of the Liens or the properties or interests in
properties subject thereto. The remedies herein provided are cumulative and not
exclusive of any remedies provided by Applicable Law.
10. Right of Set-off. Upon the occurrence and during the continuance of any
Event of Default, each Lender and Administrative Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by Law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or Administrative Lender to or for the credit or the account of
any Guarantor against any and all of the obligations of such Guarantor now or
hereafter existing under this Guaranty, irrespective of whether or not such
Lender or Administrative Lender shall have made any demand under this Guaranty.
Each Lender and Administrative Lender agrees promptly to notify such Guarantor
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application or provide
a defense to such Guarantor's obligations under this Guaranty. The rights of
each Lender and Administrative Lender under this Section 10 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Lender and Administrative Lender may have.
11. Liens. To the extent not prohibited by Applicable Law, each Guarantor
agrees that Administrative Lender or any Lender, in its discretion, without
notice or demand and without affecting either the liability of such Guarantor,
Company, any other Guarantor or any other Obligor, or any security interest or
other Lien, may foreclose any deed of trust or mortgage or similar Lien covering
interests in real or personal property, and the interests in real or personal
property secured thereby, by nonjudicial sale. Each Guarantor waives any defense
to the recovery by Administrative Lender or any Lender hereunder against
Company, such Guarantor or any collateral of any deficiency after a nonjudicial
sale and each Guarantor expressly waives any defense or benefits that may be
derived from Chapter 34 of the Texas Business and Commerce Code, Section 51.003
of the Texas Property Code, or any similar statute in effect in any other
jurisdiction. Without limiting the foregoing, each Guarantor waives, to the
extent not prohibited by Applicable Law, any defense arising out of any such
nonjudicial sale even though such sale operates to impair or extinguish any
right of reimbursement or subrogation or any other right or remedy of such
Guarantor against Company, any other Guarantor or any other Person or any
Collateral or any other collateral. Each Guarantor agrees that such Guarantor is
liable, subject to the limitations of Section 1 hereof, for any part of the
Obligation remaining unpaid after any foreclosure.
12. Continuing Guaranty; Transfer of Notes. This Guaranty is an irrevocable
continuing guaranty of payment and shall (a) remain in full force and effect
until final payment in full (after the Maturity Date) of the Obligation and all
other amounts payable under this Guaranty, (b) be binding upon each Guarantor,
its successors and assigns, and (c) inure to the benefit of and be enforceable
by Lender and Administrative Lender and their successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), to the
extent permitted by the Credit Agreement, each Lender may assign or otherwise
transfer its rights under the Credit Agreement, the Notes or any of the Loan
Papers or any interest therein to any other Person, and such other
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<PAGE>
Person shall thereupon become vested with all the rights or any interest
therein, as appropriate, in respect thereof granted to such Lender herein or
otherwise.
13. Information. Each Guarantor acknowledges and agrees that it shall have
the sole responsibility for obtaining from Company and each other Obligor such
information concerning Company's and each Obligor's financial condition or
business operations as such Guarantor may require, and that neither
Administrative Lender nor any Lender has any duty at any time to disclose to
Guarantor any information relating to the business operations or financial
conditions of Company or any Obligor.
14. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, EACH GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN DALLAS, TEXAS, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS.
15. WAIVER OF JURY TRIAL. EACH GUARANTOR, ADMINISTRATIVE LENDER, AND
LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE
LOAN PAPERS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER ENTERING INTO THE CREDIT AGREEMENT.
16. Ratable Benefit. This Guaranty is for the ratable benefit of Lenders
and Administrative Lender, each of which shall share any proceeds of this
Guaranty pursuant to the terms of the Credit Agreement.
17. Guarantor Insolvency. Should any Guarantor become insolvent, fail to
pay its debts generally as they become due, voluntarily seek, consent to, or
acquiesce in the benefits of any Debtor Relief Law or become a party to or be
made the subject of any proceeding provided for by any Debtor Relief Law (other
than as a creditor or claimant) that could suspend or otherwise adversely affect
the rights of any Lender or Administrative Lender granted hereunder, then, the
obligations of such Guarantor under this Guaranty shall be, as between such
Guarantor and such Lender and Administrative Lender, a fully-matured, due, and
payable obligation of such Guarantor to such Lender and Administrative Lender
(without regard to whether Company or any other Obligor is then in default under
the Credit Agreement or any other Loan Paper or whether any part of the
Obligation is then due and owing by Company or any other Obligor to such Lender
or Administrative Lender), payable in full by such Guarantor to such Lender or
Administrative Lender upon demand, which shall be the estimated amount owing in
respect of the contingent claim created hereunder.
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<PAGE>
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
19. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN PAPERS,
REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
LA QUINTA REALTY CORP.
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA PLAZA, INC.
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
Address for all Guarantors:
112 East Pecan Street, Suite 1200
San Antonio, Texas 78205
LA QUINTA FINANCIAL CORPORATION
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA INVESTMENTS, INC.
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
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<PAGE>
LQI ACQUISITION CORPORATION
By:
----------------------------------
John F. Schmutz
Authorized Representative
LA QUINTA MOTOR INNS LIMITED PARTNERSHIP
By: La Quinta Realty Corp., its General
Partner
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
LQ-BATON ROUGE JOINT VENTURE
By: La Quinta Inns, Inc., its Managing
General Partner
By:
----------------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Officer
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<PAGE>
LQM OPERATING PARTNERS, L.P.
By: La Quinta Realty Corp., its General
Partner
By:
----------------------------------
John F. Schmutz
Vice President-Secretary
LQ-BIG APPLE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By:
----------------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Officer
By: La Quinta Investments, Inc.,
its Partner
By:
------------------------------
John F. Schmutz
Vice President-Secretary
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<PAGE>
LQ-EAST IRVINE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
By: La Quinta Investments, Inc., its Partner
By:
--------------------------------------
John F. Schmutz
Vice President-Secretary
LQ-INVESTMENTS I
By: La Quinta Inns, Inc., its Managing General
Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
By: La Quinta Investments, Inc., a General
Partner
By:
--------------------------------------
John F. Schmutz
Vice President-Secretary
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<PAGE>
LQ-INVESTMENTS II
By: La Quinta Inns, Inc., its Managing General
Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
By: La Quinta Investments, Inc., a General
Partner
By:
--------------------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA INNS OF LUBBOCK, INC.
By:
--------------------------------------
John F. Schmutz
Secretary
LA QUINTA INNS OF PUERTO RICO, INC.
By:
--------------------------------------
John F. Schmutz
Secretary
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<PAGE>
LA QUINTA DEVELOPMENT PARTNERS, L.P.
By: La Quinta Inns, Inc., its Sole General
Partner
By:
---------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
LQ MOTOR INN VENTURE-AUSTIN NO. 530
By: La Quinta Inns, Inc., a General Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
By: La Quinta Investments, Inc., a General
Partner
By:
--------------------------------------
John F. Schmutz
Vice President-Secretary
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<PAGE>
LA QUINTA SAN ANTONIO SOUTH JOINT VENTURE
By: La Quinta Inns, Inc., a General Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
By: La Quinta Investments, Inc., a General
Partner
By:
--------------------------------------
John F. Schmutz
Vice President-Secretary
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<PAGE>
LA QUINTA DENVER - PEORIA STREET, LTD.
By: La Quinta Inns, Inc., its General Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
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<PAGE>
LQ-LNL LIMITED PARTNERSHIP
By: La Quinta Inns, Inc., its Managing General
Partner
By:
--------------------------------------
William S. McCalmont
Senior Vice President-Chief Financial
Officer
-18-
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated _______________, 199__
Reference is made to the Credit Agreement, dated as of November 17, 1997
(the "Credit Agreement") among La Quinta Inns, Inc., a Texas corporation
("Borrower"), NationsBank of Texas, N.A. as Administrative Lender
("Administrative Lender"), and the lenders parties thereto. Terms defined in the
Credit Agreement are used herein with the same meaning.
__________("Assignor") and ______________ ("Assignee") agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a ___% interest in and to all of Assignor's
rights and obligations under the Credit Agreement as of the Effective Date (as
defined below), with respect to such percentage interest in Assignor's
Commitment as in effect on the Effective Date, the principal amount of Revolving
Credit Advances owing to Assignor on the Effective Date, and the Revolving
Credit Note held by Assignor, subject to the terms and conditions of this
Assignment and Acceptance.
2. Assignor (a) represents and warrants that (i) as of the date hereof its
Commitment (without giving effect to assignments thereof which have not yet
become effective) is $ ______ and, as of the date hereof, the outstanding
principal amount of the Revolving Credit Advances owing to it (without giving
effect to assignments thereof which have not yet become effective) is $_____,
(ii) it is the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse claim; (b)
makes no representation or warranty and assumes no responsibility with respect
to (i) any statements, warranties, or representations made in or in connection
with the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency, or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto or (ii) the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; and (c) attaches the Revolving Credit Note
referred to in Paragraph 1 above to exchange such Revolving Credit Note for new
Revolving Credit Notes as follows: a Revolving Credit Note dated ______, 199__,
in the principal amount of $ ____ payable to the order of Assignee, and a
Revolving Credit Note dated _____, 199__, in the principal amount of $ ____
payable to the order of Assignor.
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Papers, together with copies of the financial
statements referred to in Sections 6.1(a) and 6.1(b) of the Existing Credit
Agreement and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (b) agrees that it will, independently and without reliance upon the
Administrative Lender, Assignor, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement and the other Loan Papers; (c) appoints and authorizes the
<PAGE>
Administrative Lender to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement, the other Loan Papers, and this
Assignment and Acceptance as are delegated to the Administrative Lender by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto and hereto; (d) agrees that it will perform in accordance with its terms
all of the obligations which by the terms of the Credit Agreement, the other
Loan Papers, and this Assignment and Acceptance are required to be performed by
it as a Lender; [and] (e) specifies the addresses set forth in Schedule I
attached hereto as its address for the receipt of notices and as its initial
LIBOR Lender Office, respectively[; and (f) attaches the forms prescribed by the
IRS certifying as to Assignee's status for purposes of determining exception
from United States withholding taxes with respect to all payments to be made to
Assignee under the Credit Agreement, the other Loan Papers, and this Assignment
and Acceptance or such other documents as are necessary to indicate that all
such payments are subject to such taxes at a rate reduced by an applicable tax
treaty].
4. The effective date for this Assignment and Acceptance shall be
_________, 199__ (the "Effective Date").
5. Upon such acceptance as of the Effective Date and upon the remittance of
a $3,500 processing fee to the Administrative Lender, (a) Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (b)
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
6. Upon such acceptance from and after the Effective Date, whenever the
Administrative Lender shall receive a payment, or whenever the Administrative
Lender shall make an application of funds, in respect of any aggregate
outstanding principal amount of the Revolving Credit Advances or in respect of
any aggregate amount of interest accrued on the Revolving Credit Advances, or in
respect of the commitment fee (other than a payment or an application of funds
in respect of any amount due and owing to any Lender or the Administrative
Lender under Sections 2.9, 5.3, 7.3, 7.5, or 9.2 of the Credit Agreement), the
Administrative Lender shall pay over to each of the Lenders an amount equal to
(i) such Lender's Pro Rata Share (as defined below) of such aggregate amount of
principal, (ii) such Lender's Pro Rata Share of such aggregate amount of
interest, and (iii) such Lender's Pro Rata Share of such aggregate amount of the
commitment fee.
The "Pro Rata Share" of any aggregate amount means, with respect to such
Lender, the amount equal to the product obtained by multiplying (i) such
aggregate amount and (ii) a fraction, the numerator of which is such Lender's
Commitment, or after the Revolving Credit Advances have been made, the principal
amount of the Revolving Credit Advances owing to such Lender and the denominator
of which is the sum of the Commitments of all of the Lenders, or after the
Revolving Credit Advances have been made, the aggregate principal amount of the
Revolving Credit Advances owing to all of the Lenders.
7. In the event that, after the Administrative Lender has paid to any
Lender its Pro
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<PAGE>
Rata Share of any such payment received by the Administrative Lender or any such
application made by the Administrative Lender, such payment or application is
rescinded or must otherwise be returned or must be paid over by the
Administrative Lender for any reason, such Lender shall, upon notice by the
Administrative Lender, forthwith pay back to the Administrative Lender such
Lender's Pro Rata Share of the amount so rescinded or so returned or paid over.
8. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of America.
Without excluding any other jurisdiction, Assignee agrees that the courts of
Texas will have jurisdiction over proceedings in connection herewith.
9. Assignee's Specified Percentage shall be ____%.
10. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
[NAME OF ASSIGNOR]
By:
------------------------------
Name:
------------------------
Title:
------------------------
[NAME OF ASSIGNOR]
By:
------------------------------
Name:
------------------------
Title:
------------------------
Accepted this ___ day of ________, 199___
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
-3-
<PAGE>
By:
------------------------------
Name:
------------------------
Title:
------------------------
LA QUINTA INNS, INC.
By:
------------------------------
Name:
------------------------
Title:
------------------------
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<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
1. Address for the Advances and Receipt of Notices
2. Initial LIBOR Lending Office
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<PAGE>
EXHIBIT D
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and Address
of Prospective Participant
or Assignee]
Re: Credit Agreement, dated as of November 17, 1997, among La Quinta Inns,
Inc. (the "Borrower"), the Lenders a party thereto, and NationsBank of
Texas, N.A., as Administrative Lender.
Dear ______________:
As a Lender party to the above-referenced Credit Agreement (the "Credit
Agreement"; capitalized terms used herein shall have the same meaning given to
them in the Credit Agreement), we have agreed with the Borrower pursuant to
Section 10.10 of the Credit Agreement to use reasonable precautions to keep
confidential, except as otherwise provided therein, all non-public information
identified by the Borrower as being confidential at the time the same is
delivered to us pursuant to the Credit Agreement.
As provided in said Section 9.10, we are permitted to provide you, as a
prospective [Participant] [Assignee], with certain of such non-public
information subject to the execution and delivery by you, prior to receiving
such non-public information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your execution and return to
us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [Participation] [Assignment] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Lenders or the Administrative Lender, (iii)
to bank examiners, auditors or accountants of any of the Lenders, (iv) to the
Administrative Lender, or any other Lender, (v) in connection with any
litigation to which you or any one or more of the Lenders are a party; provided,
further, that, unless specifically prohibited by Applicable Law or court order,
you agree, prior to disclosure thereof, to notify the Borrower of any request
for disclosure of any such non-public information (x) by any governmental agency
or representative thereof (other than
<PAGE>
______________, 199__
Page 2
any such request in connection with an examination of your financial condition
by such governmental agency) or (y) pursuant to legal process; and provided,
finally, that in no event shall you be obligated to return any materials
furnished to you pursuant to this Confidentiality Agreement.
Would you please indicate your agreement to the foregoing by signing at the
place provided below the enclosed copy of this Confidentiality Agreement.
Very truly yours,
__________________________________
By:_______________________________
Title:____________________________
THE FOREGOING IS AGREED TO AS
OF THE DATE OF THIS LETTER.
By: ________________________
Name:___________________
Title:__________________
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") made effective as of the
8th day of October 1997 (the "Effective Date"), between La Quinta Inns Inc., a
Texas corporation hereinafter referred to as the "Company," and William S.
McCalmont, a consultant of the Company or a Subsidiary of the Company (Mr.
McCalmont is hereinafter referred to as the "Restricted Stockholder," and the
employer of Mr. McCalmont is hereinafter referred to as the "Company"):
WHEREAS, the Company has established the Plan (as defined below); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to award the Restricted Stock provided for herein to the Restricted
Stockholder as an inducement to enter into or remain in the service of the
Company or its Subsidiaries and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the undersigned
officers to issue such Restricted Stock.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter, and the singular
the plural, where the context so indicates. Capitalized terms which are not
defined below shall have the meaning specified in the Plan.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
<PAGE>
Section 1.2 - Change in Control
A "Change in Control" shall be deemed to occur if:
(a) any Person (as defined below) is or becomes the Beneficial Owner (as
defined below), directly or indirectly, of securities of the Company
representing forty percent (40%) or more of the combined voting power of the
Company's then outstanding securities. For purposes of this Agreement, (A) the
term "Person" is used as such term is used in Sections 13(d) and 14(d) of the
Exchange Act; provided, however, that the term shall not include the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, and (B) the term "Beneficial Owner" shall have the meaning given
to such term in Rule 13d-3 under the Exchange Act;
(b) during any period of two (2) consecutive years (not including any
period prior to the adoption of the Plan), individuals who at the beginning of
such period constitute the Board, and any new director whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (?) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved (hereinafter referred to as "Continuing
Directors"), cease for any reason to constitute at least a majority thereof;
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires more than forty percent (40%)
of the combined voting power of the Company's then outstanding securities shall
not constitute a Change in Control; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
Section 1.3 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
2
<PAGE>
Section 1.4 - Committee
"Committee" shall mean the Compensation and Stock Option Committee of the
Board, or another Committee of the Board, appointed as provided in Section 9.1
of the Plan.
Section 1.5 - Company
"Company" La Quinta Inns, Inc. a Texas corporation.
Section 1.6 - Director
"Director" shall mean a member of the Board.
Section 1.7 - Disability
"Disability" shall mean a permanent and total disability, as such term is
defined in Section 22(e) of the Code.
Section 1.8 - Employee
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.9 - Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.10 - Plan
"Plan" shall mean The 1997 Equity Participation Plan of La Quinta Inns,
Inc.
Section 1.11 - Restricted Stock
"Restricted Stock" shall mean Common Stock of the Company issued under this
Agreement and subject to the Restrictions imposed hereunder.
Section 1.12 - Restrictions
"Restrictions" shall mean the restrictions on sale or other transfer set
forth in Section 4.2 and the exposure to forfeiture or repurchase set forth in
Section 3.1.
3
<PAGE>
Section 1.13 - Retirement
"Retirement" shall mean, with respect to an Employee, the time when the
employer-employee relationship between the Restricted Stockholder and the
Company or any Subsidiary is terminated by reason of the Restricted Stockholder
having attained the age of sixty-five (65), or, with the advance consent of the
Committee, such earlier age as the Committee, in its discretion, may provide.
Section 1.14 - Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such rule may be amended from time to time.
Section 1.15 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.16 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.17 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.18 - Termination of Consultancy
"Termination of Consultancy" shall mean the time when the engagement of the
Restricted Stockholder as a consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Termination of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever,
4
<PAGE>
with or without cause, except to the extent expressly provided otherwise in
writing.
Section 1.19 - Termination of Employment
"Termination of Employment" shall mean the final day of active employment
before or after the time when the employee-employer relationship between the
Employee and the Company or any Subsidiary is terminated for any reason, with or
without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, Disability or Retirement; but excluding (i)
terminations where there is a simultaneous reemployment or continuing employment
of the Employee by the Company or any Subsidiary, (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former employee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Agreement or of the Plan, the
Company or any Subsidiary has an absolute and unrestricted right to terminate
the Employee's employment at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
ARTICLE II
ISSUANCE OF RESTRICTED STOCK
Section 2.1 - Issuance of Restricted Stock
As of the Effective Date, the Company irrevocably issues to the Restricted
Stockholder 25,000 shares of its $.10 par value Common Stock upon the terms and
conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the Restricted Stock shall be $.10 per share without
commission or other charge, payable in cash or by check.
5
<PAGE>
Section 2.3 - Adjustments in Restricted Stock
The Committee shall make adjustments with respect to the Restricted Stock
in accordance with the provisions of Section 10.3 of the Plan. Any such
adjustment made by the Committee shall be final and binding upon the Restricted
Stockholder, the Company and all other interested persons.
ARTICLE III
RESTRICTIONS
Section 3.1 - Repurchase of Restricted Stock
Immediately upon a Termination of Consultancy or Termination of Employment,
as applicable, for any reason, the Company shall have the right to repurchase
from the Restricted Stockholder all shares of Restricted Stock then subject to
Restrictions at a cash price per share equal to the price paid by the Restricted
Stockholder for such Restricted Stock; provided, however, that provision may be
made by the Committee in its sole and absolute discretion that no such right of
repurchase shall exist in the event of a Termination of Consultancy or
Termination of Employment, as applicable, without cause or following a Change in
Control or because of the Restricted Stockholder's retirement, death,
disability, or otherwise; and provided, further, that no such right of
repurchase shall exist if the Restrictions lapse upon a Termination of
Consultancy or Termination of Employment, as applicable, pursuant to Section
3.3(b). If no consideration was paid by the Restricted Stockholder pursuant to
Section 2.2 upon issuance of the Restricted Stock, immediately upon a
Termination of Consultancy or Termination of Employment, as applicable, the
Restricted Stockholder's rights in Restricted Stock then subject to Restrictions
shall lapse; provided, however, that provision may be made by the Committee in
its sole and absolute discretion that such rights shall not lapse in the event
of a Termination of Consultancy or Termination of Employment, as applicable,
without cause or following a Change in Control or because of the Restricted
Stockholder's retirement, death or disability, or otherwise; and provided,
further, that such rights shall not lapse if the Restrictions lapse upon a
Termination of Consultancy or Termination of Employment, as applicable, pursuant
to Section 3.3(b).
Section 3.2 - Legend
Certificates representing shares of Restricted Stock issued pursuant to
this Agreement shall, until all Restrictions lapse and new certificates are
issued pursuant to Section 3.3, bear the following legend:
"The shares represented by this certificate are subject to
reacquisition by La Quinta Inns, Inc., and such shares may not be sold
or otherwise transferred
6
<PAGE>
except pursuant to the provisions of the Restricted Stock Agreement by
and between La Quinta Inns, Inc. and the registered owner of such
shares."
Section 3.3 - Lapse of Restrictions
(a) Subject to Sections 3.1, 3.3(b), 3.4 and 4.4, the Restrictions shall
lapse in the following cumulative installments:
(i) such Restrictions shall lapse with respect to one-fourth of the
shares of Restricted Stock on the first anniversary of the date the
Restricted Stock is granted;
(ii) such Restrictions shall lapse with respect to one-fourth of the
shares of Restricted Stock on the second anniversary of the date the
Restricted Stock is granted;
(iii) such Restrictions shall lapse with respect to one-fourth of the
shares of Restricted Stock on the third anniversary of the date the
Restricted Stock is granted; and
(iv) such Restrictions shall lapse with respect to one-fourth of the
shares of Restricted Stock on the fourth anniversary of the date the
Restricted Stock is granted.
(b) The Restrictions on the Restricted Stock shall lapse: (i) upon a
Termination of Consultancy or Termination of Employment, as applicable, without
cause; (ii) upon a Change in Control; or (iii) upon the Restricted Stockholder's
Retirement, death or Disability.
(c) Upon the lapse of the Restrictions, the Company shall cause new
certificates with respect to such shares to be issued and delivered to the
Restricted Stockholder or his legal representative, free from the legend
provided for in Section 3.2 and any of the other Restrictions. Notwithstanding
the foregoing, no such new certificate shall be delivered to the Restricted
Stockholder or his legal representative unless and until the Restricted
Stockholder or his legal representative shall have paid to the Company in cash
the full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of the Restricted Stockholder resulting from
the grant of Restricted Stock or the lapse of the Restrictions.
7
<PAGE>
Section 3.4 - Acceleration of Lapse of Restrictions
(a) In the event of a Change in Control, the restrictions on such
Restricted Stock shall lapse immediately prior to the effective date of such
event, notwithstanding that the Restrictions on such Restricted Stock may not
yet have fully lapsed under Section 3.3; provided, however, that this
acceleration of the lapse of the Restrictions shall not take place if the
Restricted Stock has been repurchased or forfeited pursuant to Section 3.1 prior
to said effective date.
(b) The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of the lapse of the Restrictions, including, but not by
way of limitation, provisions to ensure that any such acceleration shall be
conditioned upon the consummation of the contemplated corporate transaction.
Section 3.5 - Restrictions On New Shares
In the event that the outstanding shares of the Company's Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation pursuant to Change of
Control, such new or additional or different shares or securities which are
attributable to the Restricted Stockholder in his capacity as the owner of the
Restricted Stock then subject to Restrictions, shall be considered to be
Restricted Stock and shall be subject to all of the Restrictions unless such
Restrictions lapse pursuant to Section 3.3 or Section 3.4.
Section 3.6 - Section 83(b)
In the event the Restricted Stockholder makes an election under Section
83(b) of the Code or any other analogous state or local law, regulation or other
provision with respect to the receipt of any share of Restricted Stock, the
Restricted Stockholder covenants that he promptly will provide the Company with
a copy of such election.
ARTICLE IV
MISCELLANEOUS
Section 4.1 - Administration
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret, amend or revoke any
such rules. All actions taken and
8
<PAGE>
all interpretations and determinations made by the Committee in good faith shall
be final and binding upon the Restricted Stockholder, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination, or interpretation made in good faith with respect to
the Plan or the Restricted Stock. In its sole and absolute discretion, the Board
may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan and this Agreement except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee.
Section 4.2 - Restricted Stock Not Transferable
Restricted Stock (including any shares received by holders thereof with
respect to shares of Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall be subject to the following
Restrictions until such Restrictions lapse or expire pursuant to this Agreement:
neither the Restricted Stock nor any interest or right therein or part thereof
shall be liable for the debts, contracts, or engagements of the Restricted
Stockholder or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that, subject to the
Ownership Limit (as defined in the organizational documents of the Company),
this Section 4.2 shall not prevent transfers by will or by the applicable laws
of descent and distribution.
Section 4.3 - Conditions to Issuance of Stock Certificates
Shares of Restricted Stock may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock pursuant
to this Agreement prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable; and
9
<PAGE>
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time as the Committee may
from time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
Section 4.4 - Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing the Restricted
Stock, including shares of Restricted Stock issued pursuant to Section 3.5,
until all of the Restrictions expire or shall have been removed; provided,
however, that in no event shall the Restricted Stockholder retain physical
custody of any certificates representing Restricted Stock issued to him.
Section 4.5 - Notices
Any notice to be given by the Restricted Stockholder under the terms of
this Agreement shall be addressed to the Secretary of the Company or his office.
Any notice to be given to the Restricted Stockholder shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant to
this Section, either party may hereafter designate a different address for
notices to be given to him. Any notice which is required to be given to the
Restricted Stockholder shall, if the Restricted Stockholder is then deceased, be
given to the Restricted Stockholder's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 4.6 - Rights as Stockholder
Except as otherwise provided herein, upon the delivery of Restricted Stock
to the escrow holder pursuant to Section 4.4; the Restricted Stockholder shall
have all the rights of a stockholder with respect to the Restricted Stock,
subject to the Restrictions and this Agreement, including the right to vote the
Restricted Stock and the right to receive all dividends or other distributions
paid or made with respect to the Restricted Stock; provided, however, that any
shares received by the Restricted Stockholder with respect to shares of
Restricted Stock that is then subject to the Restrictions as a result of stock
dividends, stock
10
<PAGE>
splits or any other form of recapitalization shall also be subject to the
Restrictions until the Restrictions on the underlying shares of Restricted Stock
lapse pursuant to Section 3.3 or 3.4.
Section 4.7 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 4.8 - Stockholder Approval
The Plan was approved by the Company's stockholders within twelve (12)
months after the date the Plan was initially adopted by the Board. The Company
shall take such actions as may be necessary to satisfy the requirements of Rule
16b-3(b).
Section 4.9 - Construction
This Agreement shall be administered, interpreted and enforced under the
internal laws of the state of Texas without regard to conflicts of law thereof.
Section 4.10 - Conformity to Securities Laws
The Restricted Stockholder acknowledges that the Plan and this Agreement
are intended to conform to the extent necessary with all provisions of all
applicable federal and state laws, rules and regulations (including, but not
limited to the Securities Act and the Exchange Act and any and all regulations
and rules promulgated by the Securities and Exchange Commission thereunder,
including without limitation the applicable exemptive conditions of Rule 16b-3)
and to such approvals by any listing, regulatory or other governmental authority
as may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Notwithstanding anything herein to the contrary, the Plan
shall be administered, and the Restricted Stock is granted, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan, this Agreement and the Restricted Stock
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
Section 4.11 - Amendments
This Agreement and the Plan may be amended without the consent of the
Restricted Stockholder provided that such amendment would not impair any rights
of the Restricted Stockholder under this Agreement. No amendment of this
Agreement shall, without the consent of the Restricted Stockholder, impair any
rights of the Restricted Stockholder under this Agreement.
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
LA QUINTA INNS, INC.
By ___________________________
_____________________________
William S. McCalmont
_____________________________
_____________________________
Address
12
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated as
of February 12, 1998, is entered into among LA QUINTA INNS, INC., a Texas
corporation (the "Borrower"), the lender listed on the signature pages hereof
(the "Lender"), NATIONSBANK OF TEXAS, N.A., as Administrative Lender (in said
capacity, the "Administrative Lender").
BACKGROUND
A. The Borrower, the Lender, and the Administrative Lender are parties to
that certain Credit Agreement, dated as of November 17, 1997 (the "Credit
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
herein shall be used herein as defined in the Credit Agreement).
B. The Borrower, the Lender, and the Administrative Lender desire to amend
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lender, and the Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The reference to "$75,000,000" in the Background provision of the
Credit Agreement and in the definition of Commitment set forth in Section 1.1 of
the Credit Agreement is hereby amended to be "$125,000,000".
(b) The reference to "0.3875" in the definition of LIBOR Basis set forth in
Section 1.1 of the Credit Agreement is hereby amended to be "0.50".
(c) The reference to "March 15, 1998" in the definition of Maturity Date
set forth in Section 1.1 of the Credit Agreement is hereby amended to be "July
31, 1998".
(d) The reference to "eight" in the penultimate sentence of Section 2.1 of
the Credit Agreement is hereby amended to be "ten".
(e) The reference to "three" on the second line of Section 2.2(b) of the
Credit Agreement and on the third line of Section 2.2(d) of the Credit Agreement
is hereby amended to be "two".
<PAGE>
(f) Section 2.4 of the Credit Agreement is hereby amended by adding the
following at the end thereof:
"Subject to Section 9.9 hereof, the Borrower agrees to pay to the
Administrative Lender, for the ratable account of each Lender, a facility
fee equal to the product of (a) the daily average amount of the Commitment
multiplied by (b) 0.20. Such fee shall accrue from February 12, 1998 and
shall be (i) payable in arrears on each Quarterly Date and on the Maturity
Date, (ii) fully earned when due and, subject to Section 9.9 hereof,
non-refundable when paid and (iii) computed on the basis of a year of 365
or 366 days as applicable, for the actual number of days elapsed."
(g) The Revolving Credit Note is hereby amended to be in the form of the
Revolving Credit Note attached hereto as Exhibit "A" hereto.
2. REPRESENTATIONS AND WARRANTIES TRUE: NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendment contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as if made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
First Amendment and the Revolving Credit Note, and this First Amendment, the
Revolving Credit Note and the Credit Agreement, as amended hereby, constitute
the legal, valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable debtor relief laws and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law) and except
as rights to indemnity may be limited by federal or state securities law;
(d) neither the execution, delivery and performance of this First
Amendment, the Revolving Credit Note or the Credit Agreement, as amended hereby,
nor the consummation of any transactions contemplated herein or therein, will
conflict with any law, rule or regulation to which the Borrower or any of its
Subsidiaries is subject, or any indenture, agreement or other instrument to
which the Borrower or any of its Subsidiaries or any of their respective
property is subject; and
(e) no authorization, approval, consent, or other action by, notice to, or
filing with, any governmental authority or other Person (other than the Board of
Directors of the Borrower), is required for the execution, delivery or
performance by the Borrower of this First Amendment
-2-
<PAGE>
or the Revolving Credit Note or the acknowledgement of this First Amendment by
each Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective as
of February 12, 1998 (and shall apply to all LIBOR Advances outstanding on such
date) subject to the following:
(a) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Lender;
(b) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) the representations and warranties set forth in Section 2 of this First
Amendment shall be true and correct;
(d) the Administrative Lender shall have received the Revolving Credit
Note, duly executed by the Borrower;
(e) the Administrative Lender shall have received a certified resolution of
the Board of Directors of the Borrower authorizing the execution, delivery and
performance of this First Amendment and the Revolving Credit Note; and
(f) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender and its counsel, such other documents,
certificates and instruments as the Administrative Lender shall require.
4. GUARANTORS ACKNOWLEDGEMENT. By signing below, each of the Guarantors (i)
acknowledges and consents to the execution, delivery and performance by the
Borrower of this First Amendment, (ii) agrees that its obligations in respect of
its Subsidiary Guaranty (a) are not released, modified, impaired or affected in
any manner by this First Amendment or any of the provisions contemplated herein
and (b) cover the Commitment as increased hereby, and (iii) acknowledges that it
has no claims or offsets against, or defenses or counterclaims to, its
Subsidiary Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended by this
First Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all other
Loan Papers shall remain in full force and effect and are hereby ratified and
confirmed.
-3-
<PAGE>
6. COSTS. EXPENSES AND TAXES. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
amended by this First Amendment).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, the Lender, and the Administrative Lender and their
respective successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included herein
for convenience of reference only and shall not constitute a part of this First
Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
LA QUINTA INNS, INC.
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Officer
NATIONSBANK OF TEXAS, N.A., as
Administrative Lender
By:
-----------------------------
Suzanne Smith
Vice President
NATIONSBANK OF TEXAS, N.A., as a
Lender
By:
-----------------------------
Suzanne Smith
Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Suzanne Smith
Vice President
-5-
<PAGE>
ACKNOWLEDGED AND AGREED:
LA QUINTA REALTY CORP.
By:
---------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA PLAZA, INC.
By:
---------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA FINANCIAL CORPORATION
By:
---------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA INVESTMENTS, INC.
By:
---------------------------
John F. Schmutz
Vice President-Secretary
-6-
<PAGE>
LQI ACQUISITION CORPORATION
By:
-----------------------------
John F. Schmutz
Authorized Representative
LA QUINTA MOTOR INNS LIMITED PARTNERSHIP
By: La Quinta Realty Corp., its General Partner
By:
----------------------------
John F. Schmutz
Vice President-Secretary
LQ-BATON ROUGE JOINT VENTURE
By: La Quinta Inns, Inc., its Managing General Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
LQM OPERATING PARTNERS, L.P.
By: La Quinta Realty Corp., its General Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
-7-
<PAGE>
LQ-BIG APPLE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., its Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
LQ-EAST IRVINE JOINT VENTURE
By: La Quinta Inns, Inc., its Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., its Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
-8-
<PAGE>
LQ-INVESTMENTS I
By: La Quinta Inns, Inc., its Managing General Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., a General Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
LQ-INVESTMENTS II
By: La Quinta Inns, Inc., its Managing General Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., a General Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
-9-
<PAGE>
LA QUINTA INNS OF LUBBOCK, INC.
By:
-------------------------------
John F. Schmutz
Secretary
LA QUINTA INNS OF PUERTO RICO, INC.
By:
-------------------------------
John F. Schmutz
Secretary
LA QUINTA DEVELOPMENT PARTNERS, L.P.
By: La Quinta Inns, Inc., its Sole General Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
-10-
<PAGE>
LQ MOTOR INN VENTURE-AUSTIN NO. 530
By: La Quinta Inns, Inc., a General Partner
By:
------------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., a General Partner
By:
-----------------------------
John F. Schmutz
Vice President-Secretary
LA QUINTA SAN ANTONIO SOUTH JOINT VENTURE
By: La Quinta Inns, Inc., a General Partner
By:
------------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
By: La Quinta Investments, Inc., a General Partner
By:
-------------------------------
John F. Schmutz
Vice President-Secretary
-11-
<PAGE>
LA QUINTA DENVER - PEORIA STREET, LTD.
By: La Quinta Inns, Inc., its General Partner
By:
-------------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
LQ-LNL LIMITED PARTNERSHIP
By: La Quinta Inns, Inc., its Managing General Partner
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief Financial Officer
-12-
<PAGE>
EXHIBIT "A"
REVOLVING CREDIT NOTE
Dallas, Texas $125,000,000.00 February 12, 1998
LA QUINTA INNS, INC., a Texas corporation (the "Borrower"), for value
received, promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("Lender"),
at the principal office of NationsBank of Texas, N.A., in lawful money of the
United States of America, the principal sum of ONE HUNDRED TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($125,000,000.00), or such lesser sum as shall be due and
payable from time to time hereunder, as hereinafter provided. All terms used but
not defined herein shall have the meanings set forth in the Credit Agreement
described below.
The Borrower promises to pay principal of and interest on the unpaid
principal balance of Revolving Credit Advances under this Revolving Credit Note
from time to time outstanding as set forth in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A., as Administrative Lender for
the Lenders, at 901 Main Street, Dallas, Texas 75202, in immediately available
funds.
This Revolving Credit Note is issued pursuant to and evidences Revolving
Credit Advances under the Credit Agreement, dated as of November 17, 1997, among
the Borrower, NationsBank of Texas, N.A., as Administrative Lender, and the
lenders parties thereto (as amended, restated, supplemented, renewed, extended
or otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Revolving Credit Note when due. This
Revolving Credit Note is an amendment, restatement, increase, modification and
extension (but not a novation of the debt evidenced thereby) of that certain
Revolving Credit Note of the Borrower, dated as of November 17, 1997, payable to
the order of the Lender in the original principal amount of $75,000,000.
The Borrower and all endorsers, sureties and guarantors of this Revolving
Credit Note hereby severally waive demand, presentment for payment, protest,
notice of protest, notice of acceleration, notice of intention to accelerate the
maturity of this Revolving Credit Note, and all other notices of any kind,
diligence in collecting, the bringing of any suit against any party and any
notice of or defense on account of any extensions, renewals, partial payments or
changes in any manner of or in this Revolving Credit Note or in any of its
terms, provisions and
<PAGE>
covenants, or any releases or substitutions of any security, or any delay,
indulgence or other act of any trustee or any holder hereof, whether before or
after maturity.
THIS REVOLVING CREDIT NOTE, TOGETHER WITH THE OTHER LOAN PAPERS, REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LA QUINTA INNS, INC.
By:
-----------------------------
William S. McCalmont
Senior Vice President-Chief
Financial Officer
-2-
Exhibit 11
EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Earnings before income taxes and extraordinary
items .......................................................... $ 137,489,000 $ 96,379,000 $ 82,994,000
Income taxes ..................................................... 50,185,000 35,660,000 31,620,000
------------- ------------- -------------
Earnings before extraordinary items .............................. 87,304,000 60,719,000 51,374,000
Extraordinary items, net of income taxes ......................... (38,000) (524,000) (717,000)
------------- ------------- -------------
Net earnings ..................................................... 87,266,000 60,195,000 50,657,000
Conversion of partner's interest into common
stock .......................................................... -- -- (46,364,000)
------------- ------------- -------------
Net earnings available to shareholders ........................... $ 87,266,000 $ 60,195,000 $ 4,293,000
============= ============= =============
Basic weighted average number of shares
outstanding ................................................... 77,426,000 77,736,000 74,360,000
============= ============= =============
Basic earnings per share:
Earnings after conversion of partner's interest
into common stock and before extraordinary
items ....................................................... $ 1.13 $ .78 $ .07
Extraordinary items, net of income taxes ...................... -- (.01) (.01)
------------- ------------- -------------
Net earnings available to shareholders ........................ $ 1.13 $ .77 $ .06
============= ============= =============
Diluted weighted average number of shares
outstanding ................................................... 80,160,000 80,961,000 77,991,000
============= ============= =============
Diluted earnings per share:
Earnings after conversion of partner's
interest into common stock and before
extraordinary items ........................................ $ 1.09 $ .75 $ .07
Extraordinary items, net of income taxes ...................... -- (.01) (.01)
------------- ------------- -------------
Net earnings available to shareholders ........................ $ 1.09 $ .74 $ .06
============= ============= =============
</TABLE>
Exhibit 12
LA QUINTA INNS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary
items and cumulative effect of accounting
change (1) ....................................... $ 137,489 $ 96,379 $ 82,994 $ 61,991 $ 31,836
Partners' equity in earnings ....................... 860 1,499 10,227 11,406 12,965
Partners' equity in earnings of combined
unincorporated ventures that do not have
fixed charges .................................... -- (770) (1,854) (1,577) (1,652)
Fixed charges ...................................... 61,038 48,983 42,797 40,814 32,477
Interest capitalized ............................... (9,645) (5,429) (1,313) (889) --
Amortization of capitalized
interest ......................................... 1,035 893 803 772 799
--------- --------- --------- --------- ---------
Earnings as adjusted .......................... $ 190,777 $ 141,555 $ 133,654 $ 112,517 $ 76,425
========= ========= ========= ========= =========
Fixed charges:
Interest on long-term debt .................... $ 59,793 $ 47,897 $ 41,734 $ 39,749 $ 31,366
Portion of rental expense allocated to
interest ..................................... 1,245 1,086 1,063 1,065 1,111
--------- --------- --------- --------- ---------
Total fixed charges ........................ $ 61,038 $ 48,983 $ 42,797 $ 40,814 $ 32,477
========= ========= ========= ========= =========
Ratio of earnings to fixed charges ................ 3.1x 2.9x 3.1x 2.8x 2.4x
========= ========= ========= ========= =========
</TABLE>
(1) The Years Ended December 31, 1996 and 1995 include a non-cash provision for
premature retirement of assets totaling $18,076 and $12,630, respectively.
Exhibit 21
SUBSIDIARIES OF LA QUINTA INNS, INC.
("THE COMPANY")
AS OF JANUARY 31, 1998
The Company has eight (8) active wholly-owned corporate subsidiaries which are:
1. La Quinta Financial Corporation, a Texas corporation;
2. La Quinta Realty Corp., a Texas corporation;
3. La Quinta Investments, Inc., a Delaware corporation;
4. LQI Acquisition Corporation, a Delaware corporation;
5. La Quinta Plaza, a Texas corporation;
6. La Quinta Inns de Mexico S.A. de C.V., a Mexico corporation;
7. La Quinta Inns of Lubbock, Inc., a Texas Corporation; and
8. La Quinta Inns, Inc. of Puerto Rico, Inc., a Delaware corporation.
The following are wholly-owned partnerships of the Company as of January 31,
1998.
La Quinta Development Partners, L.P.
LQ-LNL Limited Partnership
LQM Operating Partners, L.P.
La Quinta Denver-Peoria Street, Ltd.
LQ-Big Apple Joint Venture
LQ-East Irvine Joint Venture
La Quinta Motor Inns, Limited Partnership
LQ Investments I
LQ Investments II
La Quinta - San Antonio South Joint Venture
LQ Motor Inn Venture - Austin No. 530
LQ Baton Rouge Joint Venture
The following are unincorporated partnerships and joint ventures (general and
limited partnerships) of the Company as of January 31, 1998.
Percentage of
Ownership of
Entity the Company
------ -----------
La Quinta-Wichita, Kansas No. 532, Ltd. 50%
LQ-West Bank Joint Venture 1982 60%
The Company is the sole general partner or managing partner of all of the
partnerships listed above.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
La Quinta Inns, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-26470, No. 2-97266, No. 2-67606, No. 33-55102, No. 33-58866, No. 333-32637
and No. 333-33789) of La Quinta Inns, Inc. of our report dated January 23, 1998,
except for note 17, which is as of February 12, 1998, relating to the combined
balance sheets of La Quinta Inns, Inc. as of December 31, 1997 and 1996, 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, 1997.
KPMG PEAT MARWICK LLP
San Antonio, Texas
February 12, 1998
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA AND WILLIAM S. MCCALMONT, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ THOMAS M. TAYLOR
------------------------------
Thomas M. Taylor
Dated: February 11, 1998
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA AND WILLIAM S. MCCALMONT, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ WILLIAM C. CUNNINGHAM
--------------------------------
William C. Cunningham
Dated: February 11, 1998
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA AND WILLIAM S. MCCALMONT, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ WILLIAM RAZZOUK
--------------------------
William Razzouk
Dated: February 11, 1998
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA AND WILLIAM S. MCCALMONT, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ PETER STERLING
----------------------------
Peter Sterling
Dated: February 11, 1998
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA AND WILLIAM S. MCCALMONT, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ KENNETH T. STEVENS
----------------------------
Kenneth T. Stevens
Dated: February 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
combined financial statements for the year ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,110
<SECURITIES> 0
<RECEIVABLES> 16,100
<ALLOWANCES> 191
<INVENTORY> 0
<CURRENT-ASSETS> 41,401
<PP&E> 1,784,957
<DEPRECIATION> 335,742
<TOTAL-ASSETS> 1,502,024
<CURRENT-LIABILITIES> 152,526
<BONDS> 872,285
0
0
<COMMON> 8,501
<OTHER-SE> 424,025
<TOTAL-LIABILITY-AND-EQUITY> 1,502,024
<SALES> 0
<TOTAL-REVENUES> 502,569
<CGS> 0
<TOTAL-COSTS> 244,501
<OTHER-EXPENSES> 60,817
<LOSS-PROVISION> 464
<INTEREST-EXPENSE> 50,148
<INCOME-PRETAX> 137,489
<INCOME-TAX> 50,185
<INCOME-CONTINUING> 87,304
<DISCONTINUED> 0
<EXTRAORDINARY> (38)
<CHANGES> 0
<NET-INCOME> 87,266
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.09
</TABLE>
