<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended March 30, 1996.
or
TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission File Number: 1-14058
--------------------
RED ROOF INNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1393666
(State of Incorporation) (I.R.S. Employer Identification Number)
4355 DAVIDSON ROAD
HILLIARD, OHIO 43026-2491
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (614) 876-3200
--------------------
Number of shares of Common Stock outstanding at March 30, 1996:
28,400,000
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- - -----------------------------
The accompanying unaudited condensed financial statements of Red Roof
Inns, Inc. ("Red Roof" or the "Company"), a Delaware corporation, have been
prepared in accordance with the instructions to Form 10-Q, and therefore do not
include all information and notes necessary for complete financial statements
in conformity with generally accepted accounting principles. The results for
the periods indicated are unaudited, but reflect all adjustments (consisting
only of normal recurring accruals) which management considers necessary for a
fair presentation of operating results. Results of operations for interim
periods are not necessarily indicative of a full year of operations or results
for other interim periods. These condensed financial statements should be read
in conjunction with the Company's 1995 audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995.
2
<PAGE> 3
RED ROOF INNS, INC.
CONDENSED BALANCE SHEETS
DECEMBER 30, 1995 AND MARCH 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
ASSETS 1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,427 $ 10,503
Receivables 7,990 10,956
Supplies and other 14,118 13,805
-------- --------
Total current assets 26,535 35,264
PROPERTY AND EQUIPMENT:
Land 127,397 130,379
Buildings and improvements 492,711 500,886
Furniture, fixtures and equipment 53,357 56,807
Construction in progress 13,068 21,338
-------- --------
Total property and equipment 686,533 709,410
Less accumulated depreciation and amortization 44,307 50,108
-------- --------
Property and equipment - net 642,226 659,302
OTHER ASSETS:
Goodwill, net of accumulated amortization 74,712 74,146
Deferred loan fees and other - net 11,875 11,897
-------- --------
Total other assets 86,587 86,043
-------- --------
TOTAL $755,348 $780,609
======== ========
</TABLE>
See notes to financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 11,951 $ 11,633
Accounts payable 11,094 14,167
Accrued expenses 20,143 23,382
-------- --------
Total current liabilities 43,188 49,182
LONG-TERM DEBT (LESS CURRENT MATURITIES):
Notes payable 344,871 216,184
Senior notes 200,000 200,000
-------- --------
Total long-term debt 544,871 416,184
OTHER LONG-TERM LIABILITIES 14,578 15,247
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000 shares authorized,
no shares outstanding
Common stock, $.01 par value; 100,000 shares authorized,
shares issued and outstanding: 1995 - 18,400 shares; 1996 - 28,400 shares 184 284
Additional paid-in capital 117,816 266,312
Retained earnings 34,711 33,400
-------- --------
Total stockholders' equity 152,711 299,996
-------- --------
TOTAL $755,348 $780,609
======== ========
</TABLE>
See notes to financial statements
4
<PAGE> 5
RED ROOF INNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND MARCH 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------
APRIL 1, MARCH 30,
1995 1996
-------- --------
<S> <C> <C>
REVENUES $ 61,558 $ 68,073
OPERATING EXPENSES:
Direct room expenses 34,885 41,123
Depreciation and amortization 6,208 7,262
Marketing and corporate expenses 11,496 10,451
-------- --------
Total operating expenses 52,589 58,836
-------- --------
OPERATING INCOME 8,969 9,237
INTEREST EXPENSE - NET (13,298) (11,436)
-------- --------
LOSS BEFORE INCOME TAXES (4,329) (2,199)
INCOME TAX CREDIT 1,775 888
-------- --------
NET LOSS $ (2,554) $ (1,311)
-------- --------
NET LOSS PER SHARE $ (0.14) $ (0.05)
-------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING 18,400 24,989
-------- --------
- - ----------------------------------------------------------------
PRO FORMA NET LOSS $ (1,076) $ (255)
-------- --------
PRO FORMA NET LOSS PER SHARE $ (0.04) $ (0.01)
-------- --------
</TABLE>
See notes to financial statements.
5
<PAGE> 6
RED ROOF INNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND MARCH 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 1, MARCH 30,
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net Loss $ (2,554) $ (1,311)
Adjustments to reconcile net loss to net cash
provided by operations:
Depreciation and amortization 5,644 6,696
Amortization of goodwill 564 566
Deferred income taxes and other - net (1,543) 639
Working capital changes:
Receivables (473) (2,966)
Supplies and other 257 388
Accounts payable (109) 1,299
Accrued expenses 4,819 3,684
--------- ---------
Net cash provided by operations 6,605 8,995
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (11,826) (22,385)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit and long-term borrowings 35,262 31,800
Principal payments on revolving credit and long-term borrowings (22,902) (160,805)
Proceeds from issuance of common stock - net 148,596
Other (4,846) (125)
--------- ---------
Net cash provided by financing activities 7,514 19,466
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,293 6,076
CASH AND CASH EQUIVALENTS, Beginning of Period 2,038 4,427
--------- ---------
CASH AND CASH EQUIVALENTS, End of Period $ 4,331 $ 10,503
========= =========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- - -----------------------------------------
RED ROOF INNS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1995 AND MARCH 30, 1996 (UNAUDITED).
1. GENERAL
At April 1, 1995 and March 30, 1996, the Company had a total of 220
and 234 inns, respectively.
Unaudited interim results for the thirteen weeks ended April 1, 1995
and March 30, 1996 contain all adjustments, consisting of normal recurring
accruals which management considers necessary for a fair presentation of
interim financial position and results of operations for such periods. The
results are not necessarily indicative of the results for any other interim
period or the full fiscal year.
2. LONG-TERM DEBT
On April 17, 1996, the Company amended the $100 million bank credit
agreement originally closed in November 1995 to provide for an expanded
commitment of $150 million. The additional $50 million is available upon the
perfection of liens on additional collateral. All other terms of the original
agreement remain substantially the same.
3. STOCKHOLDERS' EQUITY
On January 31, 1996, the Company issued 10,000,000 shares of common
stock in a public offering (the "Offering") at a price of $16.00 per share. Net
proceeds of the Offering were approximately $149 million which were used to
repay approximately $128 million of mortgage indebtedness. Approximately $21
million was retained for possible inn acquisitions, conversions and new
developments and for general corporate purposes.
In connection with the sale of the common stock, $9.6 million in
underwriting discounts and commissions were paid to certain underwriters,
including an affiliate of Morgan Stanley Real Estate Fund which, together with
affiliates, beneficially owns a majority of the outstanding common stock of the
Company.
In January 1996, the Company granted options to certain officers and
employees under the Company's Management Stock Option Plan to purchase 322,600
shares at $16.00 per share. In connection with the termination of the
employment of certain plan participants, 12,350 unvested shares lapsed.
4. SUPPLEMENTAL CASH FLOW INFORMATION
For the thirteen weeks ended April 1, 1995 and March 30, 1996,
interest payments were $8,105,000 and $7,196,000, respectively, and interest
capitalized for the corresponding periods was $96,000 and $598,000,
respectively. Income tax payments for the thirteen week periods in 1995 and
1996 were $323,000 and $538,000, respectively.
5. PRO FORMA NET LOSS
The pro forma net loss gives effect to the Offering of 10,000,000
shares of common stock on January 31, 1996 and the application of a portion of
the net proceeds to reduce certain mortgage debt and related interest expense.
The 1996 amount excludes Statement of Financial Accounting Standards No. 121
non-recurring charge of $450,000 ($268,000 after tax) to recognize the
impairment of certain long lived assets.
7
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - --------------------------------------------------------------------------
FINANCIAL CONDITION
- - -------------------
RESULTS OF OPERATIONS
- - ---------------------
The principal factors affecting Red Roof Inns' results are:
seasonality, occupancy and room rates achieved by the brand, continued growth
in the number of inns, the Company's ability to manage expenses and the level
of competition. Demand, and thus room occupancy, is affected by normally
recurring seasonal patterns and, in most locations, is lower in the winter and
early spring months than the balance of the year. Historically, revenues have
been lower in the first quarter than in other quarters and the Company has
consistently incurred net losses in the first quarter.
Unless otherwise indicated, inn data presented in this report is based
on the 210 inns (the "Base Inns") that the Company owned and operated
immediately prior to June 1994. The Company believes that the 24 inns acquired
or developed and opened subsequent to this date have not been operated by the
Company for a sufficient period to provide meaningful period-to-period
comparisons, as the Company has closed a significant number of rooms at the
newly acquired inns for conversion and therefore the average daily room rates
and occupancy for these inns are not comparable to a stabilized Red Roof inn.
Newly acquired and developed inns historically begin with lower occupancy and
average daily room rates and improve over time as these implement the Company's
operating standards and become integrated into the Company's central
reservation system.
For the Company's 210 comparable base inns, average daily rate
increased $1.49, or 3.8%, from $39.59 per room sold during the first quarter
1995 to $41.08 per room sold in the comparable period in 1996. Occupancy
decreased slightly from 71.3% in the first quarter 1995 to 71.2% in the first
quarter 1996 primarily due to severe winter weather experienced in the East
Coast and Midwest.
The Company opened three inns during the first quarter of 1996
increasing the total number of inns operating at the end of the quarter to 234.
At April 1, 1995, 220 inns were in operation.
THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED TO THIRTEEN WEEKS ENDED
- - --------------------------------------------------------------------
APRIL 1, 1995
-------------
The Company's revenues are principally derived from room rentals.
Revenues increased $6.5 million, or 10.6%, from $61.6 million in 1995 to $68.1
million in the corresponding period of 1996. Approximately $4.2 million of the
increase in revenues was caused by an increase in the number of inns from 220
in 1995 to 234 in 1996, with $.1 million of the increase caused by the addition
of three inns in the first quarter of 1996. Base inn revenue per available room
(REVPAR) increased 3.6% from $28.23 in 1995 to $29.25 in 1996 primarily because
of an increase in room rates.
Direct room expenses include salaries, wages, utilities, repairs and
maintenance, property taxes, advertising, room supplies and security. Direct
room expenses increased $2.60 per occupied room, or 11.7%, from $22.18 in 1995
to $24.78 in 1996. As discussed below, the expenses generally increased because
of changes in operational methods to enhance customer service, contractual
increases, and general increases in utility expense rate structures. Repairs
and maintenance expenses increased due to scheduling maintenance in the low
occupancy periods so as not to conflict with the Company's peak season. Payroll
expenses increased primarily through wage and salary increases and additional
lobby staffing hours. Utility expenses increased because of anticipated rate
increases and the severe winter weather. Billboard advertising expenses
primarily increased due to contractual rental arrangements. To a much lesser
extent, the operation of new inns, which generally attain occupancies below
historical Company averages resulting in higher average expense per occupied
room, also contributed to the increase.
Depreciation and amortization increased $1.1 million from $6.2 million
in 1995 to $7.3 million in 1996. The increase primarily reflects depreciation
of inns acquired during 1995. Reflecting the implementation of Statement of
Financial Accounting Standards No. 121 (accounting for the impairment of long
lived assets), the amount also includes a provision of $.5 million in 1996 to
adjust certain long lived assets to estimated fair value. Had such a charge not
been incurred, operating income would have been $9.7 million and the net loss
would have been $1.0 million ($.04 per share).
8
<PAGE> 9
Marketing and corporate expenses include the cost of general
management training and field supervision of inn managers, development,
marketing and administrative expenses. Marketing and corporate expenses
decreased $1.0 million from $11.5 million in 1995 to $10.5 million in 1996. The
decreases primarily consist of reductions in marketing production, media and
promotional expenses ($1.8 million), which were partially offset by higher
compensation and travel expenses. As a percentage of revenue, marketing and
corporate expenses were 18.7% and 15.4% in 1995 and 1996, respectively.
Interest expense decreased $1.9 million from $13.3 million in 1995 to
$11.4 million in 1996 because of the Offering, the net proceeds of which were
primarily used to repay approximately $128 million of mortgage indebtedness.
CAPITAL RESOURCES AND LIQUIDITY
- - -------------------------------
GENERAL
Cash and cash equivalents increased approximately $6.1 million from
$4.4 million on December 30, 1995 to $10.5 million on March 30, 1996. As of
March 30, 1996, availability under the Company's bank credit facility was
$100.0 million. As of December 30, 1995, $50.8 million was outstanding under
the bank credit facility. In April 1996, the Company expanded by amendment its
$100 million revolving bank credit facility to a $150 million revolving bank
credit facility. The additional $50 million is available upon the perfection of
liens on additional collateral.
Management anticipates that its working capital needs will be financed
by internally-generated cash and the bank credit facility.
CAPITAL EXPENDITURES
For the thirteen week period ended March 30, 1996, the Company spent
$4.5 million in connection with improvements to base inns and expects to spend
a total of approximately $20 million for such improvements through the end of
the year. Additionally, the Company is completing renovation of properties and
construction sites acquired since the second half of 1994. In connection with
the renovation and improvement of these properties, the Company spent $11.2
million in 1996, and expects to spend a total of approximately $38 million
through the end of the year.
To date in 1996, the Company has purchased one inn and acquired four
construction sites for an aggregate purchase price, including improvements, of
approximately $6.2 million. Management expects to spend a total of
approximately $27 million through the end of the year for improvements to these
properties.
As of May 6, 1996, the Company had one inn and two construction sites
under contract to purchase. The Company estimates the purchase and related
renovations and improvements to total approximately $20 million in 1996.
Management expects to fund the Company's capital expenditures
associated with improvements for inns from proceeds from the Offering, cash
flow from operations and from borrowings under the bank credit facility.
Expenditures for acquisition, renovation, and new construction will also be
financed from these sources, all of which are subject to the satisfactory
completion by the Company of its due diligence.
HISTORICAL CASH FLOWS
Cash provided by operations increased $2.4 million from $6.6 million
in 1995 to $9.0 million in 1996, generally as the result of a decrease in the
net loss for 1996 compared to 1995 and an increase in non-cash charges in 1996.
Net cash used by investing activities increased $10.6 million from
$11.8 million in 1995 to $22.4 million in 1996, primarily as the result of
renovation and construction activities associated with the Company's expansion
program. As discussed above, expenditures for property and equipment to date in
1996 include the acquisition of one inn and four construction sites.
Net cash provided by financing activities increased $12.0 million
from $7.5 million in 1995 to $19.5 million in 1996, primarily as the result of
proceeds from the Offering, net of mortgage indebtedness repayments.
9
<PAGE> 10
EBITDA
Operating income plus the sum of interest income, other income,
depreciation and amortization and loss on fixed asset retirements (EBITDA)
increased $1.5 million from $15.3 million in 1995 to $16.8 million in 1996.
EBITDA, which is presented to provide additional information regarding the
Company's ability to meet its future debt service, capital expenditures and
working capital requirements, should not be construed as an alternative to
operating income or cash flows from operating activities (each determined in
accordance with generally accepted accounting principles), and should not be
construed as an indication of the Company's operating performance or as a
measurement of liquidity.
FORWARD LOOKING STATEMENTS
- - --------------------------
Any forward-looking statements contained in this Form 10-Q or any
other reports prepared by the Company or made by management of the Company
involve risks and uncertainties, and are subject to change based on various
important factors. The following factors among others, in some cases have
affected, and in the future could affect Red Roof's actual financial
performance. These risks and uncertainties include, but are not limited to:
economic conditions, both national and regional; oversupply of hotel rooms;
competition; expansion into new markets; pricing and availability of
construction materials, changes in interest rates; availability of financing
and changes in federal, state and local government regulations pertaining to
building requirements and environmental matters.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
- - --------------------------
On April 25, 1996, Red Roof Inns, Inc., announced the appointment of
Edward D. Powers to its Board of Directors effective April 24, 1996. Mr. Powers
is chairman of the board and chief executive officer of Powers Holdings, Inc.,
in Milwaukee, Wisconsin.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- - ------------------------------------------
(a) Exhibits:
Ex - 10.01 First Amendment to Loan Agreement
Ex - 10.02 Second Amendment to Loan Agreement
Ex - 10.03 Third Amendment to Loan Agreement
Ex - 10.04 Red Roof Inns, Inc. 1996 Management Incentive
Compensation Plan
Ex - 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8K required to be reported herein were filed
during the thirteen weeks ended March 30, 1996.
11
<PAGE> 12
SIGNATURE
Pursuant to the requirement 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.
RED ROOF INNS, INC.
-------------------------------
(Registrant)
Date 05/09/96 /s/ David N. Chichester
-------------- -------------------------------
David N. Chichester
Executive Vice President and
Chief Financial Officer
12
<PAGE> 1
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
This First Amendment to Loan Agreement (this "Amendment") is
entered into at Columbus, Ohio, by and among The Huntington National
Bank and Bank One, Columbus, N.A. (the "New Bank"), as lenders
(collectively, the "Banks"); The Huntington National Bank, as agent
(the "Agent"); and Red Roof Inns, Inc., as borrower (the "Company"),
as of the 21st day of November, 1995, in order to amend the Loan
Agreement entered into by and between The Huntington National Bank (in
its respective roles as lender and agent) and the Company as of the
9th day of November, 1995 (the "Loan Agreement").
Whereas, the parties to this Amendment desire for the New Bank
to become a Bank under the terms of the Loan Agreement, the Loan
Agreement is hereby amended as follows:
1. The New Bank shall become a Bank as defined in the Loan
Agreement effective as of the date of this Amendment, entitled to all
the benefits and subject to all the obligations of a Bank under the
terms of the Loan Agreement. The New Bank agrees to be bound by all
those provisions of the Loan Agreement binding upon a Bank.
2. The Commitment Limit (as defined in the Loan Agreement) of
the New Bank shall be $25,000,000.00, and the Commitment Limit of The
Huntington National Bank shall be reduced by that amount.
3. All communications directed to the New Bank under the Loan
Agreement or the promissory note executed and delivered to the New
Bank in connection herewith shall be mailed to:
Bank One, Columbus, N.A.
100 East Broad Street
Columbus, Ohio 43271-0170
Attention: Elizabeth E. Cadwallader
BANK ONE, COLUMBUS, N.A.
By: /s/ Elizabeth E. Cadwallader
-------------------------------
Its: VP
-------------------------------
THE HUNTINGTON NATIONAL BANK
By: /s/ Robert H. Friend
-------------------------------
Its: VP
-------------------------------
THE HUNTINGTON NATIONAL BANK,
as Agent
By: /s/ Robert H. Friend
-------------------------------
Its: VP
-------------------------------
RED ROOF INNS, INC.
By: /s/ Francis W. Cash
-------------------------------
Its: President
-------------------------------
<PAGE> 1
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
This Second Amendment to Loan Agreement (this "Amendment") is
entered into at Columbus, Ohio, by and among The Huntington National
Bank and Norwest Bank Minnesota, National Association (the "New Bank")
through its Norwest Loan Partners Division, as lenders (collectively,
the "Banks"); The Huntington National Bank, as agent (the "Agent");
and Red Roof Inns, Inc., as borrower (the "Company"), as of the ______
day of December, 1995, in order to amend the Loan Agreement entered
into by and between The Huntington National Bank (in its respective
roles as lender and agent) and the Company as of the 9th day of
November, 1995 (the "Loan Agreement"), as the Loan Agreement has
thereafter been amended.
Whereas, the parties to this Amendment desire for the New Bank
to become a Bank under the terms of the Loan Agreement, the Loan
Agreement is hereby amended as follows:
1. The New Bank shall become a Bank as defined in the Loan
Agreement effective as of the date of this Amendment, entitled to all
the benefits and subject to all the obligations of a Bank under the
terms of the Loan Agreement. The New Bank agrees to be bound by all
those provisions of the Loan Agreement binding upon a Bank.
2. The Commitment Limit (as defined in the Loan Agreement) of
the New Bank shall be $10,000,000.00, and the Commitment Limit of The
Huntington National Bank shall be reduced by that amount.
3. All communications directed to the New Bank under the Loan
Agreement or the promissory note executed and delivered to the New
Bank in connection herewith shall be mailed to:
Norwest Loan Partners, a division of
Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0075
Attention: Duncan Sinclair
Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, BY ITS
NORWEST LOAN PARTNERS
DIVISION
By: /s/ R. Duncan Sinclair
-----------------------------
Its: VICE PRESIDENT
-----------------------------
THE HUNTINGTON NATIONAL BANK
By: /s/ Chris Spence
-----------------------------
Its: Commercial Loan Officer
-----------------------------
<PAGE> 2
THE HUNTINGTON NATIONAL BANK,
as Agent
By: /s/ Chris Spence
-------------------------------
Its: Commercial Loan Officer
-------------------------------
RED ROOF INNS, INC.
By: /s/ Francis W. Cash
-------------------------------
Its: President and CEO
-------------------------------
- 2 -
<PAGE> 1
THIRD AMENDMENT TO LOAN AGREEMENT
---------------------------------
This Third Amendment to Loan Agreement (this "Amendment") is
entered into at Columbus, Ohio, by and among The Huntington National
Bank, Bank One, Columbus, N.A., PNC Bank, National Association, NBD
Bank, Harris Trust and Savings Bank, The Fifth Third Bank of Columbus,
Mitsui Leasing (U.S.A.) Inc., Star Bank, N.A. and Norwest Bank
Minnesota, National Association through its Norwest Loan Partners
Division, as lenders (collectively, the "Banks"); The Huntington
National Bank, as agent (the "Agent"); and Red Roof Inns, Inc., as
borrower (the "Company"), as of the 16th day of April, 1996, in order
to amend the Loan Agreement entered into by and among The Huntington
National Bank (in its respective roles as lender and agent) and the
Company as of the 9th day of November, 1995 (the "Loan Agreement"), as
the Loan Agreement has thereafter been amended.
Whereas, the parties to this Amendment desire for Star Bank,
N.A., PNC Bank, National Association, NBD Bank, Harris Trust and
Savings Bank, The Fifth Third Bank and Mitsui Leasing (U.S.A.) Inc.
(the "New Banks") to become a Bank under the terms of the Loan
Agreement and to amend certain provisions of the Loan Agreement as
provided in this Amendment; now, therefore, the Loan Agreement is
hereby amended as follows:
1. Each of the New Banks shall become a Bank as defined in the
Loan Agreement effective as of the date of this Amendment, entitled to
all the benefits and subject to all the obligations of a Bank under
the terms of the Loan Agreement. Each of the New Banks agrees to be
bound by all those provisions of the Loan Agreement binding upon a
Bank.
2. The respective Commitment Limit (as defined in the Loan
Agreement) of each of the Banks shall be the amount set forth opposite
such Bank's signature on this Amendment.
3. All communications directed to the Banks under the Loan
Agreement or the respective promissory notes executed and delivered to
the Banks in connection herewith shall be mailed to:
The Huntington National Bank
41 South High Street, 8th Floor
Columbus, Ohio 43215
Attention: Robert Friend
Vice President
Norwest Loan Partners, a division of
Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0075
Attention: Duncan Sinclair
Vice President
Bank One, Columbus, N.A.
100 East Broad Street
Columbus, Ohio 43271-0170
Attention: Elizabeth E. Cadwallader
Vice President
<PAGE> 2
PNC Bank, National Association
Real Estate Banking
One PNC Plaza
P1-POPP-19-2
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Bradley Carpenter
Vice President
NBD Bank
611 Woodward Avenue
Third Floor
Detroit, Michigan 48226
Attention: Linnet E. Walla
Second Vice President
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
Attention: Keith Burson
Vice President
The Fifth Third Bank of Columbus
21 East State Street
Columbus, Ohio 43215
Attention: Charles D. Hale
Vice President
Mitsui Leasing (U.S.A.) Inc.
200 Park Avenue, Suite 3214
New York, New York 10166-0130
Attention: Jerry Parisi
Senior Vice President
Star Bank, N.A.
501 West Schrock Road
Westerville, Ohio 43081
Attention: Bonnie C. Birath
Assistant Vice President
4. Section 1.1 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
1.1 Commitment to Lend.
The Banks agree to lend to the Company sums
totalling an aggregate amount of $100,000,000.00
(hereinafter referred to as the "Initial Loan"), as
co-lenders subject to the terms and conditions of this
Agreement; provided, however, that the maximum amount
of the Initial Loan shall be reduced by any such
amount and at any such time as shall be required for
the Company to maintain compliance with Sections 1.2
and 10.12 of this Agreement.
5. Section 1.2 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
- 2 -
<PAGE> 3
1.2 Requests for Extension.
In each year beginning in 1997, upon receipt of
the Company's annual financial statements and a written
extension request from Company delivered no later than
June 30 of such year, the Banks will consider a
one-year extension of the Termination Date. The Company
agrees to provide promptly all other information
reasonably requested by the Banks in connection with
their evaluation of such request. Upon receipt of an
extension request and supporting information, the Agent
shall advise the Banks of such request within five (5)
Business days and shall advise the Company in writing
within ninety (90) days of the Banks' approval or
disapproval of the requested one-year extension or of
any proposal by a portion of the Banks to extend the
Loan in a reduced amount. If less than 100% of the
Banks approve an extension request, and an extension is
approved for a reduced Loan facility as of the
beginning of the one-year extension period, the Company
shall, on the next Termination Date that would occur
had no extension been approved, pay down the
outstanding principal balance of the Loan to an amount
not in excess of the amount of the reduced Loan. At the
request of the Company, the Agent will use its best
efforts to identify and incorporate additional
financial institutions as Banks so that the reduced
Loan may be restored to the aggregate amount of
$150,000,000.00 provided in Sections 1.1 and 1.3 of
this Agreement. The Company agrees to execute and
deliver such substitute promissory notes and other
documentation, including without limitation
documentation effecting additions to the Collateral and
the Additional Collateral, as may be necessary in order
to effect such restored maximum Loan amount.
6. A new Section 1.3 is hereby added to the Loan Agreement,
to recite in its entirety as follows:
1.3 Additional Provisional Commitment.
In addition to the Initial Loan described in
Section 1.1 of this Agreement, the Banks agree to lend
to the Company sums totalling an aggregate amount of
$50,000,000.00 (hereinafter referred to as the
"Additional Loan"), reduced by any such amount and at
any such time as shall be required for the Company to
maintain compliance with Sections 1.2 and 10.12 of this
Agreement, and available for disbursement only upon
satisfaction of all the conditions set forth in Section
9.8 of this Agreement.
7. A new Section 1.4 is hereby added to the Loan
Agreement, to recite in its entirety as follows:
1.4 Limitation of Commitment; Form of Loan.
Any other provision of this Agreement
notwithstanding, no Bank shall be required to fund any
advance hereunder in an aggregate amount that (a)
exceeds its pro rata share of all Advances made on the
same date; or (b) when aggregated with all other
amounts outstanding to such Bank, exceeds the amount of
its Commitment Limit; or (c) if all the conditions set
forth in Section 9.8 of this Agreement have not then
been satisfied, exceeds 66-2/3% of its Commitment
Limit.
-3-
<PAGE> 4
The Loan shall take the form of a revolving
credit, and the outstanding principal balance may be
increased and decreased an unlimited number of times.
The Company's right to obtain Advances pursuant to the
Loan shall terminate and the principal balance shall be
payable on January 15, 1999, or such later date to
which the termination of this Agreement may hereafter
be extended as provided in Section 1.2 hereof (the
"Termination Date").
8. Section 2.3 of the Loan Agreement is hereby
amended to recite in its entirety as follows:
2.3 Notice of Election.
The Company may initially elect to request an
Advance of either type, continue an Advance of one type
as an Advance of the then existing type or convert an
Advance of one type to an Advance of the other type, by
giving notice thereof to the Agent as provided below
not later than 10:00 a.m. Columbus time, three LIBO
business days prior to the date any such continuation
of or conversion to a LIBO Rate Advance is to be
effective and not later than 10:00 a.m. Columbus time
on the business day such continuation or conversion is
to be effective in all other cases, provided, that an
outstanding Advance may only be converted on the last
day of the then current Interest Period (if applicable)
with respect to such Advance, and provided, further,
that upon the continuation or conversion of an Advance
such notice shall also specify the Interest Period (if
applicable) to be applicable thereto upon such
continuation or conversion. No Interest Period shall be
permitted that would end after the Termination Date.
Requests may be made by telephone and in each such case
shall be promptly followed by written confirmation by
electronic facsimile transmission in such form as the
Agent may reasonably require. If the Company shall fail
to timely deliver such a notice with respect to any
outstanding Advance, the Company shall be deemed to
have elected to convert such Advance to a Prime
Interest Rate Advance. Each LIBO Rate Advance hereunder
shall be in the minimum amount of $3,000,000.00 and in
integral multiples of $250,000.00 thereafter. No more
than ten LIBO Rate Advances and one Prime Interest Rate
Advance may be outstanding at one time.
9. Section 2.10 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
2.10 Usage Fee; Cancellation, Reduction of
Commitment.
Effective beginning on the date of the Third
Amendment to the Loan Agreement, the Company agrees to
pay to the Banks (excepting any Bank that may have
ceased to fund its pro rata share of Advances
hereunder) quarterly in arrears, beginning on June 30,
1996, and on the Termination Date (a) a quarterly usage
fee equal to three-eighths of one percent (0.375%) per
annum on the actual daily unused amount of the Initial
Loan during such quarter, and (b) a quarterly usage fee
equal to one-quarter of one percent (0.25%) per annum
on the actual daily unused amount of the Additional
Loan during such quarter. Effective on the date upon
which the Company satisfies all the conditions
contained in Section 9.8 of this Agreement, the usage
fee for the entirety of the
-4-
<PAGE> 5
Loan shall be three-eighths of one percent (0.375%)
per annum, payable quarterly in arrears. The
Company shall be entitled, upon written notice to the
Agent, to cancel or reduce the total commitment
(including without limitation the Additional Loan)
provided for herein; provided, however, that any such
cancellation or reduction shall be irrevocable, any
reduction shall be in the minimum amount of
$5,000,000.00, and all then outstanding and unpaid
principal (or amount thereof in excess of any remaining
commitment), interest accrued thereon and fees,
together with any sum due pursuant to Section 2.8
hereof, shall be paid in full to the Banks.
10. Section 6 of the Loan Agreement is hereby
amended to recite in its entirety as follows:
The Company shall pay all the reasonable costs
and expenses of The Huntington National Bank, as a Bank
and as Agent, incidental to the extension of credit
provided for in this Agreement. Such costs shall
include, but not be limited to: (a) reasonable fees and
out-of-pocket expenses of counsel to The Huntington
National Bank, as a Bank and as Agent, in the
documentation of the Loan, the syndication of the Loan
to additional Banks (but shall not include expenses
incurred by the Agent in syndicating the Loan other
than legal counsel fees and out-of-pocket expenses) and
review of the Company's satisfaction of the conditions
set forth in Section 9.8 of this Agreement, and (b) all
appraisal and appraisal review fees. The Company shall
have no obligation to pay the fees and expenses of any
counsel employed by any Bank other than The Huntington
National Bank or any other expenses incurred by any
such Bank in connection with the amendment of this
Agreement to add that Bank as a party hereto.
11. Section 7.1 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
7.1 Description of Collateral.
The security for the Loan shall be:
(a) first liens encumbering the Red Roof Inn
motels (individually, an "Inn," and collectively,
the "Inns") identified by Inn number and location on
Exhibit C to this Agreement; promptly, but in no event
later than forty-five (45) days following receipt of
appraisals by the Agent, any additional Inns required
to be added in order to provide the maximum 60% loan to
value ratio described below; and any future Inns
substituted for mortgaged Inns as provided in Section
7.3 hereof; and
(b) first liens on rents and revenues from the
Inns; and
(c) first liens on all tangible personal
property and replacements and additions used in the
operation of the Inns (except such property as is and
has been leased by the Company in the past in the
ordinary course of business); and
(d) first liens on all intangible personal
property used in the operation of the Inns, including
without limitation all licenses,
-5-
<PAGE> 6
permits and approvals, surveys, plans and
specifications, service contracts and all other
contracts and agreements affecting the Inns; and
(e) first liens encumbering all those classes
of property described in (a), (b), (c) and (d) above
with respect to the Inns that constitute the Additional
Collateral provided for in Section 9.8 hereof.
The liens and encumbrances described in (a), (b),
(c) and (d) above are hereinafter collectively
referred to as the "Collateral."
12. Section 7.2 of the Loan Agreement is hereby
amended to recite in its entirety as follows:
7.2 Appraised Values.
The Company shall include such properties
in the Collateral as shall be necessary to produce
a loan to value ratio at the time of closing
(or at such later time as may be permitted for the
delivery of appraisals pursuant to this Agreement) of
not greater than 60%, based upon the maximum permitted
amount of the Loan. The value of the Previously
Encumbered Inns identified on Exhibit C shall be
determined based upon appraisal update letters provided
by the appraisers who provided appraisals in connection
with the previous encumbrances. The value of the
Additional Encumbered Inns identified on Exhibit C
shall be determined based upon appraisals satisfactory
in form and substance to the Agent, conforming to the
usual appraisal standards of the Agent and to all
requirements of law applicable to the Banks, conducted
by appraisers selected by the Agent and delivered to
the Agent on or before December 31, 1995.
The Required Banks may at any time require
reappraisal of all or part of the Collateral and of
the Additional Collateral, if the Additional
Collateral has then been delivered by the Company, as
provided in Section 9.8 of the Loan Agreement;
provided, however, that, except as provided below in
this Section 7.2, the expense of any reappraisal shall
be paid by the Banks if there has then occurred no
Event of Default. If this Agreement shall be extended
by the Banks beyond January 15, 2001, the Company
agrees to pay for new appraisals on the Collateral and
on the Additional Collateral, if it has then been
delivered by the Company, on or after the fifth
anniversary of the date of this Agreement, which
appraisals shall be conducted if so requested by the
Required Banks and if the ratio required by Section
10.12 hereof is then less than 1.50 to 1.
Effective with the 1998 extension request,
if any is made at that time, if the ratio of the
maximum permitted amount of the Loan to Collateral
Value is at that time or in any year thereafter greater
than 55%, the Required Banks may require new appraisals
of the Inns included in the Collateral and the
Additional Collateral, if it has then been delivered by
the Company, at the Company's expense.
13. Section 7.3 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
-6-
<PAGE> 7
7.3 Substitution of Collateral.
Provided there does not then exist any Event of
Default or any event that, with notice or lapse of time,
or both, would become an Event of Default, the Company
shall have the right at any time to substitute for any
one or more properties comprising part of the Collateral
or the Additional Collateral properties of equal or
greater appraised value, as determined by appraisals in
form and substance satisfactory to the Required Banks,
conforming to the usual appraisal standards of the Agent
and to all requirements of law applicable to the Banks,
and conducted by appraisers satisfactory to the Agent.
The Company shall satisfy the property requirements set
forth in attached Exhibit F for each such substituted
Collateral or Additional Collateral property.
14. A new Section 9.8 is hereby added to the Loan
Agreement, to recite in its entirety as follows:
9.8 Initial Disbursement of Additional Loan.
The obligation of the Banks to make any one or
more advances pursuant to the Additional Loan shall be
subject to the completion of all the following
requirements to the satisfaction of the Required Banks:
(a) ADDITIONAL MORTGAGES AND OTHER COLLATERAL
DOCUMENTS. The Company shall have executed and
delivered to the Agent mortgages, deeds of trust,
deeds to secure debt, assignments of rents, security
agreements and UCC-1 financing statements encumbering
Inns in addition to (i) those identified on Exhibit C
and (ii) any additional Inns on which liens have been
required to be granted in accordance with the terms
hereof as of the date of such delivery (all such
encumbrances of Inns in addition to those described in
Section 9.8(a)(i) and (ii) being hereinafter referred
to as the "Additional Collateral"), together with the
non-exclusive right to use the "Red Roof Inn" tradename
and trademarks for the Inns comprising the Additional
Collateral. The Company shall have executed and
delivered such borrower affidavits reasonably required
by the Agent and such closing affidavits, indemnities,
certificates and such other documents as are required
by the title insurer approved by the Agent in
connection with the issuance of policies of title
insurance insuring the interests of the Banks. The
Company shall have satisfied the property requirements
set forth in Exhibit F for each such Additional
Collateral Inn, except that, consistent with property
requirements for Collateral Inns, the Agent will accept
copies of the most recent "as built" surveys in
Company's possession in lieu of current "as built"
surveys, if (i) the Title Insurer removes the standard
survey exceptions from the loan policies of title
insurance and issues the loan policies with ALTA Form 9
(or state equivalent) "comprehensive" endorsements and,
if indicated, contiguity endorsements, based upon the
older "as built" surveys and the Company's affidavits
and indemnities and (ii) the older "as built" surveys
do not disclose any survey problem and depict the same
property legally described in the loan policies.
(b) AMENDMENTS TO MORTGAGES AND OTHER COLLATERAL
DOCUMENTS. The Company shall have executed and
delivered amendments to all those mortgages, deeds
of trust, deeds to secure
-7-
<PAGE> 8
debt, assignments of rents, security agreements,
financing statements and related documents originally
executed in connection with this Agreement, in order to
provide that all such Collateral secures the entirety of
the Loan and that all such documents and writings
accurately reflect the structure of the credit. The
Company shall have caused the Title Insurer to issue
endorsements to the loan policies of title insurance
previously issued to insure liens comprising the
Collateral, which endorsements shall insure the liens as
modified by the amendment instruments by amending the
descriptions of the insured liens to include the
amendment instruments. The loan policy endorsements
shall also update the effective dates of the loan
policies and reflect no intervening title matters.
(c) WARRANTIES AND REPRESENTATIONS. On the date of
the first Advance and each subsequent Advance pursuant to
the Additional Loan, the warranties and representations
set forth in Section 8 hereof and in all affidavits and
certificates delivered by the Company pursuant to this
Agreement shall be true and correct in all material
respects on and as of such date with the same effect as
though such warranties and representations had been made
on and as of such date, except to the extent that such
warranties and representations expressly relate to an
earlier date.
(d) APPRAISALS. The Agent shall have obtained
appraisals on each Inn included in the Additional
Collateral, prepared by independent appraisers engaged
by the Agent, such appraisals to be in form and
substance satisfactory to all the Banks, conforming to
the usual appraisal standards of the Agent and to all
requirements of law applicable to the Banks and
substantiating an aggregate fair market value for
such Inns such that the loan to value ratio of the
maximum amount of the Additional Loan to the aggregate
fair market value of such Inns is not more than 60%.
(e) RESOLUTIONS AND INCUMBENCY CERTIFICATE. The
Banks shall have received a certificate signed in his
representative capacity by the chief executive officer
or secretary of the Company and dated as of the date of
this Agreement certifying the adoption of resolutions
by the Board of Directors of the Company, in form and
substance satisfactory to the Banks, authorizing the
obtaining of the Additional Loan, the delivery of the
Additional Collateral and the execution of all
documents and instruments and the performance of
all acts contemplated in connection therewith, together
with a certificate signed by the chief executive officer
or secretary of the Company certifying the names and
offices of each of the executive officers of the Company
as of the date of this Agreement, in form and substance
satisfactory to the Banks, and containing the signature
of each officer authorized to sign the documents and
instruments to be executed in connection with the
Additional Loan and the Additional Collateral.
(f) OPINION OF COUNSEL. The Agent shall have
received from counsel for the Company an opinion in the
form of Exhibit E to this Agreement as to the Third
Amendment to Loan Agreement, the promissory notes
executed and delivered in connection therewith and the
documents conveying the liens and encumbrances
comprising the Additional Collateral.
-8-
<PAGE> 9
15. Subsection (a) of Section 10.2 of the Loan Agreement is
hereby amended to recite in its entirety as follows:
(a) PROPERTY--maintain its property in good
condition and make all renewals, replacements,
additions, betterments and improvements thereto which
are deemed necessary by it, except where the failure to
do so will not materially and adversely affect the
business, prospects, profits, properties or condition
(financial or otherwise) of the Company PROVIDED that
nothing in this Section 10.2 shall prevent the Company
from discontinuing the use, operation or maintenance of
any of its properties or disposing of any of them, if
such discontinuance or disposal is, in the judgment of
the Company, desirable in the conduct of the business
of the Company; further provided, however, that this
provision shall not be construed to permit any action
or inaction with respect to any of the Inns included in
the Collateral or in the Additional Collateral, if it
has then been delivered by the Company, which action or
inaction would constitute a default under the
applicable security instrument;
16. Subsection (a) of Section 10.4 of the Loan Agreement is
hereby amended to recite in its entirety as follows:
(a) LIENS ON COLLATERAL INNS. The Company shall
not (i) cause or permit or (ii) agree or consent
to cause or permit in the future (upon the happening of
a contingency or otherwise), any of the Inns
constituting part of the Collateral or of the
Additional Collateral, if it has then been delivered by
the Company, to be subject to a lien or encumbrance,
other than the lien in favor of the Banks provided for
in this Agreement and any liens or encumbrances
permitted in the mortgage deeds or comparable security
instruments conveying to the Banks the liens described
in Section 7 hereof.
17. Section 10.12 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
10.12 Collateral Debt Coverage Ratio.
The Company shall maintain as of the end of
each fiscal quarter a ratio of its Net Operating Income
to that portion of its debt service (as defined using
the assumptions stated in this Section 10.12) relating
to the Available Loan, measured on a four prior
consecutive quarter basis, of at least 1.35 to 1. For
the purpose of determining the Company's compliance
with this Section 10.12, the Available Loan shall be
assumed to be fully funded, amortized over a 240-month
amortization period, and accruing interest at a per
annum rate equal to the five-year U.S. Treasury
constant maturities interest rate average, as announced
weekly in Federal Reserve Statistical Release H.15
(519), rounded upward to the nearest one-eighth of one
percent (1/8%), plus two and one-quarter percentage
points (2-1/4%). In the event that the Company shall at
any time fail to comply with this Section 10.12, the
Company shall have forty-five days from the date upon
which non-compliance first occurs within which either
to (a) add additional properties to the Collateral and
to the Additional Collateral, if it has then been
delivered by the Company, satisfactory to the Required
Banks and providing sufficient Net
-9-
<PAGE> 10
Operating Income to cause compliance with this
Section 10.12 or (b) reduce the maximum permitted
amount and outstanding principal balance of the Loan to
such amount and continuing for such period as will
cause compliance with this section. "Available Loan"
means, (i) prior to the satisfaction by the Company of
the conditions set forth in Section 9.8 of the
Agreement, the Initial Loan, and (ii) upon the
satisfaction of those conditions, the Loan.
18. Subsections (c) and (i) of Section 11 of the Loan
Agreement are hereby amended to recite in their entireties as follows:
(c) within 60 days after the end of each quarter,
a copy of the Company's internally prepared
"Budgetary Comparative Income Statements" for the Inns
included in the Collateral and in the Additional
Collateral, if it has then been delivered by the
Company;
(i) beginning effective April 30, 1997, if an
extension request is made at that time, and continuing
on each anniversary thereof during the term of this
Agreement, if an extension request has been made in
that year, certification by the Company to the Banks of
the Collateral Value that is attributable to the Inns
included in the Collateral and in the Additional
Collateral, if it has then been delivered by the
Company, at the time of such calculation, with
supporting schedules showing such calculation;
19. Subsection (b) of Section 12.1 of the Loan Agreement
is hereby amended to recite in its entirety as follows:
(b) the Company fails to make any payment
of any fee payable under this Agreement or any payment
of interest on any note executed in connection with
this Agreement on or before 5 days after the date such
payment is due;
20. The following definitions in Section 13.10 of the Loan
Agreement are hereby amended to recite in their entireties as follows:
"Collateral Value" means Net Operating Income less 8%
of the Room Revenue, as shown on the Company's
monthly Budgetary Comparative Income Statements with
respect to the Inns included in the Collateral and in
the Additional Collateral, if it has then been
delivered by the Company, for the two fiscal years
immediately preceding the determination date, weighted
75% for the most recent fiscal year and 25% for the
preceding year. Collateral Value shall be finally
determined by capitalizing the figure resulting from
the above calculation at a rate of 4% plus the current
ten-year U.S. Treasury constant maturities interest
rate average as published weekly in Federal Reserve
Statistical Release H.15 (519), but rounded upward to
the nearest 0.125%, and subject to a maximum
capitalization rate of 11.5% and a minimum of 10.5%.
"Loan" means the Initial Loan and the Additional Loan.
"Mortgaged Premises" means all those portions of the
Premises that at any time constitute part of the
Collateral or the Additional Collateral, if it has
then been delivered by the Company.
-10-
<PAGE> 11
"Net Operating Income" means the Operating Income
from Motel Operations shown on the Company's
monthly Budgetary Comparative Income Statement for the
Inns comprising the Collateral and the Additional
Collateral, if it has then been delivered by the
Company.
21. The following definitions are added to Section 13.10
of the Loan Agreement:
"Additional Collateral" means the additional
liens and encumbrances described in Section 9.8 of this
Agreement.
"Additional Loan" means the revolving credit in
the maximum amount of $50,000,000.00 extended to the
Company by the Banks pursuant to Section 1.3 of this
Agreement.
"Available Loan" means, (i) prior to the satisfaction
by the Company of the conditions set forth in Section
9.8 of the Agreement, the Initial Loan, and (ii) upon
the satisfaction of those conditions, the Loan.
"Initial Loan" means the revolving credit in the
maximum amount of $100,000,000.00 extended to the
Company by the Banks pursuant to Section 1.1 of this
Agreement.
22. Section 14.1 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.1 Appointment.
Each Bank hereby designates The Huntington
National Bank as Agent for such Bank under this
Agreement and under all the related loan documents
executed and delivered in connection herewith (the
"Loan Documents"). Each Bank hereby irrevocably
authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and any other
instruments and agreements referred to herein and to
exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated
to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably
incidental thereto, including amendments to this
Agreement not otherwise specifically discussed herein.
The Agent shall hold all Collateral and Additional
Collateral, payments of principal and interest and Loan
usage fees, and other charges and collections received
pursuant to the terms of this Agreement, for the
benefit of the Banks as provided herein. The Agent
shall receive from the Company and distribute to the
Banks all information required by the terms of this
Agreement to be delivered by the Company to the Banks.
The Agent may perform any of its duties hereunder by or
through its agents or employees. As to any matters not
expressly provided for by this Agreement, the Agent
shall not be required to exercise any discretion or
take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions
of not less than the Banks holding 66-2/3% in dollar
amount of the aggregate principal balances outstanding
under the Loan (herein the "Required Banks"); PROVIDED,
HOWEVER, that the Agent shall not be required to take
any action that exposes the Agent to liability or which
is contrary to any of the Loan Documents or applicable
law unless
-11-
<PAGE> 12
the Agent is furnished with an indemnification
reasonably satisfactory to the Agent with respect
thereto.
23. Section 14.3 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.3 Lack of Reliance on the Agent and Resignation.
Independently and without reliance upon the
Agent, each Bank has made and shall continue to make
(a) its own independent investigation of the financial
condition and affairs of the Company in connection with
the making and the continuance of the Loan hereunder
and the taking or refraining from taking of any action
in connection herewith, and (b) its own credit analysis
or appraisal of the creditworthiness of the Company. In
addition, each Bank has reviewed and approved the form
and substance of each of the Loan Documents. Except as
specifically set forth in this Agreement, the Agent
shall have no duty or responsibility either initially
or on a continuing basis to provide any Bank with any
credit or other information with respect thereto,
whether coming into its possession before the making of
the Loan or at any time or times thereafter. The Agent
has made no representation or warranty, express or
implied, with respect to, and shall not be responsible
to any Bank for (a) any recitals, statements,
information, representations or warranties contained in
this Agreement, the Loan Documents, or in any
agreement, document, certificate or a statement
delivered in connection herewith; (b) the execution,
effectiveness, genuineness, validity, collectibility or
sufficiency of this Agreement; or of the financial
condition or creditworthiness of the Company; (c) the
collectibility of the Loan, or (d) except as
specifically set forth in this Agreement, any other
matter having any relation to this Agreement, the Loan
or the Loan Documents. The Agent shall not be required
to make any inquiry concerning either the performance
or observance of any of the terms, provisions or
conditions of this Agreement or the Loan Documents, or
the financial condition or creditworthiness of Company,
or the existence of any Event of Default or any
condition, event or act that, with notice or lapse of
time or both, would constitute such an Event of
Default.
The Agent shall have the right to resign on
thirty days' written notice to the Banks, and upon such
resignation, the Required Banks shall designate a
successor agent. The Required Banks shall have the
right to remove the Agent based upon the failure of the
Agent to perform the duties described in this Agreement
and to appoint a successor Agent. For thirty (30) days
following receipt of notice that the Agent has sold or
transferred 100% of its Pro Rata Share of the Loan,
each Bank individually shall have the right to remove
the Agent. Any successor agent shall succeed to the
rights, powers and duties of the Agent and the term
"Agent" shall mean such respective successor agent
effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of
such former Agent. After any Agent's resignation or
removal hereunder, the provisions of this section shall
continue to inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent
under this Agreement.
-12-
<PAGE> 13
24. Section 14.4 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.4 Certain Rights of the Agent.
Subject to the provisions of this Agreement,
if the Agent shall request instructions from the Banks
with respect to any act or action (including failure
to act) in connection with this Agreement, the Agent
shall be entitled to refrain from such act or taking
such action unless and until the Agent shall have
received instructions from the Required Banks; and the
Agent shall incur no liability to any Bank or any
other party by reason of so refraining. Without
limiting the foregoing, none of the Banks shall have
any right of action whatsoever against the Agent as a
result of its acting or refraining from acting
hereunder in accordance with the instructions of the
Required Banks. If the Agent corresponds with the
Banks in writing pursuant to the terms of this
Agreement, each Bank agrees that it will respond in
writing to the Agent's request within seven business
days of the receipt of such correspondence. In the
event that the Agent at any time request approval for
any proposed course of action relating to the Loan or
this Agreement and any one or more of the Banks fails
to respond in writing within thirty calendar days of
the date of such request, each Bank so failing to
respond shall be conclusively deemed to have given its
approval to such proposed action.
25. Section 14.9 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.9 Amendment and Modifications.
The Agent may, subject to the provisions of
this Section 14.9, and to the other provisions of
this Agreement requiring the approval of certain
matters by the Banks or the Required Banks, from
time to time enter into written amendments or
supplemental agreements to this Agreement or to the
Loan Documents executed by the Company, for the
purpose of adding or deleting any provisions of this
Agreement or the Loan Documents, or otherwise
changing, varying or waiving in any manner the rights
of the Banks, the Agent or the Company thereunder or
the conditions, provisions or terms thereof, or
waiving any Event of Default thereunder, but only to
the extent specified in such written agreements and
only to the extent any such action by the Agent does
not materially and adversely affect the rights of the
Banks under this Agreement; provided, however, that no
such amendment or supplemental agreement shall without
the consent of all the Banks: (a) extend the maturity
of the Loan, or waive or extend the time for the
payment of principal, interest or fees, (b) increase
the principal amount of the Loan, (c) decrease the
rate or rates of interest thereon or any fee payable
by the Company to the Banks pursuant to this
Agreement, (d) alter, amend or modify the notes held
by the Banks or the mortgage deeds and other documents
granting liens securing the Loan, (e) release any of
the Collateral or Additional Collateral except as
permitted in this Agreement in connection with the
substitution of Collateral and Additional Collateral,
(f) alter, amend or modify the automatic nature of an
Event of Default pursuant to Sections 12.1(f) or (g),
(g) alter, amend or modify this Section 14.9 or any
section
-13-
<PAGE> 14
providing a right of approval to the Banks or the
Required Banks, (h) alter the meaning of the term
Required Banks, or (i) change the rights and duties of
the Agent; provided further, that no such amendment or
supplemental agreement shall without the consent of the
Required Banks alter, amend or modify Sections 10.11
through 10.14 or Section 12. Any such amendment or
supplemental agreement shall be binding upon the
Company, the Banks, the Agent and any of them, and a
copy thereof shall be delivered by the Agent to each of
the Banks promptly upon execution. No waiver of a
specific Event of Default shall extend to any
subsequent Event of Default (whether or not the
subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right
consequent thereon.
26. Section 14.10 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.10 Pro Rata Treatment and Payments.
Each borrowing or extension of credit under the
Loan, each payment (including each prepayment) by the
Company of principal, interest and annual Loan usage
fees provided for in the Agreement and all proceeds
from any liquidation of collateral shall be made or
applied pro rata pursuant to the respective Commitment
Limits of the Banks; provided, however, that no Loan
usage fee shall be payable to any Bank that may have
ceased to fund its pro rata share of Advances
hereunder; and, provided further, that any payment of
principal made by the Company by reason of a required
reduction in the amount of the Loan as provided in
Section 1.2 of this Agreement shall be paid solely to
the Bank or Banks that have declined to approve an
extension of the Loan.
27. Section 14.12 of the Loan Agreement is hereby amended to
recite in its entirety as follows:
14.12 Delinquency.
Upon the occurrence and continuance of an
Event of Default pursuant to this Agreement, the
Agent shall consult with each Bank regarding the course
of action to be taken with respect to such default. If
the Agent does not receive an agreed course of action
to be taken from the Required Banks, the Agent
thereafter shall take such action as the Agent shall in
good faith deem necessary to protect the interests of
the Banks, including, but not limited to, acceleration
of the Loan or foreclosure upon any of the Collateral
or Additional Collateral. The failure of the Banks to
agree or of the Agent or of any Bank to discuss any
proposed course of conduct with any other Bank or the
Agent shall not be asserted by the Company to be a
breach of this Agreement by the Agent or such Bank, nor
will it in any way impair the enforceability of any
action taken to declare the Loan in default and/or
accelerate the maturity thereof.
28. The Company represents and warrants that no Event
of Default has occurred and is continuing, nor will any occur
immediately after the execution and delivery of this Amendment
by the performance or observance of any provision hereof or
thereof.
-14-
<PAGE> 15
29. Each reference to the Loan Agreement, whether by
use of the phrase "Loan Agreement," "Agreement," the prefix
"herein" or any other term, and whether contained in the Loan
Agreement itself, in this Amendment, in any document executed
concurrently herewith or in any loan documents executed
hereafter, shall be construed as a reference to the Loan
Agreement as amended by previous amendments and by this
Amendment.
30. Except as modified as expressly provided or contemplated
herein, the Loan Documents shall remain as written originally and in
full force and effect in all respects, and nothing herein shall
affect, modify, limit or impair any of the rights and powers which the
Banks may have thereunder.
31. The Company agrees to perform and observe all the
covenants, agreements, stipulations, and conditions to be performed on
its part under the Loan Documents, as amended by this Amendment.
32. The Company hereby represents and warrants to the Banks
that (a) the Company has legal power and authority to execute and
deliver the within Amendment and the related notes; (b) the respective
officers executing the within Amendment and the related notes on
behalf of the Company have been duly authorized to execute and deliver
the same and bind the Company with respect to the provisions provided
for herein and therein; (c) the execution and delivery hereof and of
the related notes by the Company and the performance and observance by
the Company of the provisions hereof and of the related notes do not
violate or conflict with the articles of incorporation, regulations or
by-laws of the Company or any law applicable to the Company or result
in the breach of any provision of or constitute a default under any
agreement, instrument or document binding upon or enforceable against
the Company; and (d) this Amendment and the related notes constitute
valid and legally binding obligations upon the Company, subject to
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights generally, to general equitable
principles and to applicable doctrines of commercial reasonableness.
33. This Amendment shall become effective only upon (a) its
execution by all parties hereto, which execution may be in any
number of counterparts, but all of which when taken together shall
constitute one and the same document; and (b) execution and delivery
by the Company to each of the Banks of promissory notes in the form of
Exhibit B to the Loan Agreement in the amount of each such Bank's
respective Commitment Limit.
34. The capitalized terms used herein shall have the same
meanings as the capitalized terms used in the Loan Agreement.
IN WITNESS WHEREOF, the Company, the Banks and the
Agent have hereunto set their hands as of the 16th day of April,
1996.
<TABLE>
<CAPTION>
COMMITMENT LIMITS:
<S> <C>
$35,000,000.00 THE HUNTINGTON NATIONAL BANK
By: /s/ Robert H. Friend
----------------------------
Its: VP
----------------------------
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C>
$25,000,000.00 BANK ONE, COLUMBUS, N.A.
By: /s/ Elizabeth E. Cadwallader
_____________________________
Its: Vice President
_____________________________
$20,000,000.00 PNC BANK, National Association
By: /s/ Bradley Carpenter
_____________________________
Its: Vice President
_____________________________
$15,000,000.00 NBD BANK
By: /s/ Linnet E. Walla
_____________________________
Linnet E. Walla
Second Vice President
Its: _____________________________
$15,000,000.00 HARRIS TRUST AND SAVINGS BANK
By: /s/ Keith Burson
_____________________________
Its: Vice President
_____________________________
$10,000,000.00 THE FIFTH THIRD BANK OF COLUMBUS
By: /s/ Charles D. Hale
_____________________________
Its: Vice President
_____________________________
$10,000,000.00 MITSUI LEASING (U.S.A.) INC.
By: /s/ Jerry Parisi
_____________________________
Its: Jerry Parisi, SVP
_____________________________
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C>
$10,000,000.00 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, BY ITS
NORWEST LOAN PARTNERS
DIVISION
By: /s/ R. Duncan Sinclair
_____________________________
Its: Vice President
_____________________________
$10,000,000.00 STAR BANK, N.A.
By: /s/ Bonnie Birath
_____________________________
Its: Asst. VP
_____________________________
THE HUNTINGTON NATIONAL BANK,
as Agent
By: /s/ Robert H. Friend
___________________________
Its: Vice President
_____________________________
RED ROOF INNS, INC.
By: /s/ Scott Moore
_____________________________
Its: Vice President
_____________________________
</TABLE>
-17-
<PAGE> 1
RED ROOF INNS, INC.
INCENTIVE COMPENSATION PLAN
1996
<PAGE> 2
1. Purpose
The Purpose of the Red Roof Inns Incentive Compensation Plan is to
provide incentive compensation to Officers and key employees who
contribute to the achievement by the Company of its growth and profit
objectives.
2. Committee
The Plan shall be administered by the Compensation Committee of the
Board of Directors, whose members are not eligible to participate in
the Plan. The Committee shall be governed in accordance with the
Bylaws of the Company.
Subject to the express provision of the Plan the Committee shall
have full authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it and to make all
determinations necessary or advisable for the administration of the
Plan. The determination of the Committee with respect to any questions
arising as to the individuals selected or awards, the amount, terms,
form and time of payment of awards and interpretation of the Plan
shall be final.
3. Eligibility
(a) Incentive compensation awards under the Plan may be granted to any
Officer, and to key employees of the Company. See attached Exhibit
for a list of 1996 participants and percent payouts. The Committee
reserves the right to amend the attached Exhibit to include
officers and key employees who may be hired during the year.
(b) In making the selection and in determining the amount and form of
any award, the Compensation Committee of the Board of Directors
shall give consideration to the contribution of the Employee to
the success of the Company, including such factors as (i) the
Employee's position and level of responsibility, (ii)
accomplishments and (iii) the recommendation of the supervisor of
the Employee.
(c) The receipt of an award shall not give any Employee any right to
continued employment by the Company, and the right and power to
dismiss any employee is specifically reserved to the Company.
(d) The receipt of an award with respect to any year shall not give
any Employee the right to receive an award with respect to any
subsequent year.
(e) An Employee who is included in the Plan must be employed by the
Company through December 31 of the Plan year.
(f) The Committee may make an award to the surviving spouse or the
estate of a deceased Employee who died after the beginning of the
fiscal year for which the award is made.
<PAGE> 3
4. Awards
(a) The Committee shall determine: (i) the total amount available for
awards, (ii) the amount, terms, form and time of payment of each
award and (iii) the Employees to receive awards.
(b) Under the Plan, the Compensation Committee has the right to
increase the incentive compensation fund when the Company's
overall performance substantially exceeds expectations.
5. Award Methodology
Awards for the 1996 fiscal year will be a function of Company
performance specifically, Net Income (see attached Exhibit). Attainment
of the Performance Goal will be calculated from the audited
consolidated financial statements of the Company but shall exclude (a)
the effects of unusual, non-recurring, and extraordinary items as
defined by generally accepted accounting principles ("GAAP") and (b)
the cumulative effect of changes in accounting principles in accordance
with GAAP.
<PAGE> 4
RED ROOF INNS, INC.
INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1996
<TABLE>
<CAPTION>
*BRAHSARES
NET CAMPBELL *KLEIN
INCOME CASH TALLIS CHICHESTER FURNAS TIER A TIER B
- - ------ ----------- ----------- ----------- ----------- ----------- -----------
(000'S) SALARY % SALARY % SALARY % SALARY % SALARY % SALARY %
<C> <C> <C> <C> <C> <C> <C>
28,288 35 30 30 25 11 9
28,600 42 36 34 29 14 12
28,900 49 42 38 33 17 15
29,200 56 48 42 37 20 18
29,500 63 54 46 40 23 20
29,800 70 60 50 43 26 22
30,100 77 66 54 46 29 24
30,400 84 72 57 49 32 26
30,700 90 77 60 52 35 28
31,000 95 82 63 55 37 30
31,350 100 87 66 58 39 32
<FN>
*Maximum cash bonus guaranteed in 1996.
</TABLE>
<PAGE> 5
RED ROOF INNS, INC.
INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1996
<TABLE>
<CAPTION>
TIER A PARTICIPANTS TIER B PARTICIPANTS
- - ------------------- -------------------
<S> <C>
LONGERBONE HOWELL
WINSLOW NEARING
WERTENBERGER GOLDBERG
WIBLE BEDWAY
GAJOCH FOX
DANIEL STORTO
*BLUEMEL WALLACE
HARSHBARGER MCGEEHAN
DRUSEIKIS COLE
BADERTSCHER D'AMARA
ORMSBY COLLINS
SNOPEK *HOLMES
*BOECKSTIEGEL
MOORE
MATHEKE
MERZ
BROWNLEE
MONTESANTI
STEURNAGEL
MERRITT
FULTON
AGEE
<FN>
*Prorated share in 1996 based on start date in position.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 10,503
<SECURITIES> 0
<RECEIVABLES> 11,372
<ALLOWANCES> 416
<INVENTORY> 13,805
<CURRENT-ASSETS> 35,264
<PP&E> 709,410
<DEPRECIATION> 50,108
<TOTAL-ASSETS> 780,609
<CURRENT-LIABILITIES> 49,182
<BONDS> 0
<COMMON> 284
0
0
<OTHER-SE> 299,712
<TOTAL-LIABILITY-AND-EQUITY> 780,609
<SALES> 0
<TOTAL-REVENUES> 68,073
<CGS> 0
<TOTAL-COSTS> 41,123
<OTHER-EXPENSES> 17,656
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 11,436
<INCOME-PRETAX> (2,199)
<INCOME-TAX> (888)
<INCOME-CONTINUING> (1,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,311)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
